Chapter 2 Flashcards
define customer value assessment
how to determine the value customers associate with the products or offering that firm might provide
define customer valuation
assessments of the value of specific customers, prospects, and customer segments to a firm
what is a product or offering in a marketer’s persespective
a set of designed attributes that satisfy the specific needs or specific customers
what are the 3 components of a product’s attributes
physical, service and perceptual
how can physical products be classified as
durables and consumables (personal + business consumption
are there pure services
yes e.g airline seat, but we mostly deal with physical products (with service component) and services (with physical components)
demand perspective vs supply perspective of market
demand: needs of customers and the benefits and solution to customer problems that the product or service provides
service the way firms manage their transaction data bases - focuses on any competitors who supply physically similar products or services - considers manufacturing processes, cost structures, technology development and utilization, marketing and distribution strategies, entry and exit costs, etc
what’s a marketer’s broad view of customers
customer who are seeking products and services to satisfy their own personal need or customer is a person buying a gift, buying items for a household or participating in a purchase decision for an organization
what are the 5 customer roles in a consumer buying center
initiator: person who suggests the idea of buying an offering
influencer: a person whose advice influences the purchase
decider: the person decides what, when, where, or how to buy
buyer: the person who makes the actual purchase
user: the person who uses the product or service
what are the categories of people in an organizational buying center
influencers: those who influence the buying decision by providing information or advice or defining the specifications for the product or service.
approvers: people who authorize the purchase, either financially or technically
deciders: often rederred to as the buying center, the people who make a group purchase decision
buyer: the person who actually places the order
gatekeepers: the people who have the power to sanction or block a supplier or prevent the flow of information among buying center members
users: the people who actually use the product or service
how can value be measured
by what a customer exchanges for various options that can satisfy a want or a need.
or through customer intentions (what a customer intends to exchange)
or what the customer should be willing to exchange
what’s the function of value based on benefits and price to a customer
value = benefits - price
benefits: functional, psychological, economic,
price: monetary, perceived risk, inconvenience
what are the 3 general behavioural possibilities when a customer perceives a need
ignore the need, postpone it, or engage in a purchase process to identify options to satisfy it
why might market measurements and analyses based on actual behavior may provide different results than those based on perception of needs
actual purchase are subject to various contraints - availabilities, the customers’ budget, + other factors that might redirect the customer from a preferred option to a secondary one
how can a customer’s needs be characterized
by its subject and importance, its temporal aspects and its information requirements
what’s the subject and importance of need
primary bases of a person’s perception of that needs - needs can vary in their importance to the individual’s survival (physiological, security, social, status, and self-actualization) - needs higher up in the hierarchy are more crucial than those further down
how is a customer’s motivation to fulfill various needs made
by a customer’s processing of internal and external stimuli that generates the motivation
what’s the importance of motivational connection to a customer?
motivational connection can influence customer perceptions of value, reveals the importance of external communication in helping position a brand or offering in their minds
what are the temporal dimensions of a need
the urgency, frequency, and duration
urgency - refers to the perceived amount of time within which the consumer believes the need must be resolved
frequency - pertains to how often the same need occurs
duration = refers to how long the state of tension associated with that need lasts
what are the information requirements associated with a need satisfaction
newness, complexity, and clarity
newness - requires more learning to make a purchase decision
complex - require more learning, involves buying processes, incite consultation with others and requires consumer consideration of more alternatives
with unclear needs - customers engage in a significant amount of info search to better define the need and how well alternative offerings to satisfy it, more susceptible to marketing information they receive
what does the subject/saliency, temporal and information characteristics of a need help determine
both the process the customer uses to satisfy the need and value of various options available to satisfy it
what are the approaches to measuring customer value
objective (functionality and economic), perceptions (psychology) and behaviours
how to measure value in a objective customer value
should-do measures
objective value measure attempt to estimate or true customer value of a product or service offering - objective worth of the product in terms of satisfying the consumer’s set of needs
what are the 3 types of objective customer value measures
internal engineering assessments, indirect survey questions and field value-in-use assessments
these methods rely on a careful study of consumers’ needs, entire purchase and usage process of available offerings
tell me more about the internal engineering assessment
some estimates of customer value rely on evaluations by the selling firm’s own managers and engineers based on laboratory tests, use of product by firm’s own employees (alpha tests) or computer simulations
success is dependent on how well a firm really understands its customers; buying behaviour and usage patterns + how well the firm translates this understanding into economic estimates of customer value
tell me more about the indirect survey questions
firms query customers about the value they place on satisfying a need or resolving a problem to overcome the limitations of little or no customer input in internal engineering assessments
salespeople can ask company personnel about the effect of 1 or more changes in existing offerings on certain aspects of their needs or problems - indirect technique that focuses on changes rather than worth of the entire product offering
tell me more about field value-in-use assessment
requires customer and supplier to conduct a joint value assessment
for a current product, value-in use = price that would make a customer indifferent between continuing to use the current product versus switching to another option
for a new product, VIU = maximum amount the customer would be willing to pay for the new product, given the extra benefits that it offers
success of VIU depends on identifying cost elements (+ assumption the firm uses to estimate costs) and in a B2B setting, its ability to understand the impact of these cost elements on customers’ ability to create value for their own end-customers
how can marketers arrive at the VIU price
marketers must develop a complete list of cost elements associated with the use of incumbent product compare with the new product - calculate the values or costs associated with each elements to arrive at a complete VIU estimate of the product offering for that application usually on a cost per unit basis
why might determining the VIU of an offering the measure that’s closest to “true” customer value
bc it represents what a consumer should be willing to pay
VIU requires the closest cooperation with the customer to determine how the product will be used
joint value assessments by the supplier and the customer reveals surprising and unanticipated cost savings.
which measure of customer value offers the opportunity to train the customer
VIU analysis as it gives the opportunity to train the customer to understand the value that may be realized from smart purchase decisions
what are some costs to consider in a VIU analysis
purchase/fabrication/finishing/inventory/maintenance/service/scrap adjustment/level-of-requirement adjustment/changeover costs
multi-year VIU must include the user’s cost of capital
what are the basic steps to follow in a VIU analysis
- specify the product application under consideration and the incumbent product (or comparative alternative)
2, identify all relevant cost/benefit components of the incumbent (including product, supplier, and switching costs - equipment rental + labour costs) - define the criterion to compare equivalent functional benefits
- obtain the data necessary to estimate the various cost/benefit elements
- calculate the value-in-use price as the point at which the customer breaks event while receiving equivalent long-run functional benefits compared wit the incumbent product
how to measure perceptual customer value
use plan to do measures - uses psychological considerations (risk perceptions + particular information a customer has about the different offerings)
assessments employee a series of customer measure that question customers about their perception of and preferences for various offerings + attributes + benefits of these offerings
uses both constrained and unconstrained measure of customer value
constrained vs unconstrained measure of customer value
unconstrained measure place few boundaries on customer value assessments
constrained measure establish parameters for customer values assessments which means respondents have to give up benefits along some dimensions to obtain gains on others
what’s the goal of a focus group
to obtain better understanding of the common or share perception of a well-defined target group of customers
what’s a caveat of a focus group
limited for assessing customer value - potential for groupthink can often lead to homogenous results
thus focus group results should be viewed as exploratory
what are examples of unconstrained measure of customer value
focus groups, direct survey questions, importance ratings,
what’s the caveat of importance ratings
respondent might not be able to discriminate effectively among the various benefits - respondents can give top scores to all the benefits listed, approach doesn’t provide an easy means to determine wiliness to pay for these importance options bc there’s no indication of trade off or relative value in the level of performance of 1 benefits to another. survey offers no direct link to behaviour
what are the types of constrained question measures
conjoint analysis, benchmarking,
what’s conjoint analysis
conjoint analysis is widely used survey to ask respondent to provide their overall ratings for each set of potential offerings - statistical analysis decompose the results ratings into the value (partworth) these partworth values can be recombined to describe new product offerings + estimate the total customer value of many possible offerings
what is benchmarking in measuring customer value
respondent indicate how much more they would be willing to pay for added product attributes/features to this benchmark offering - attempts to determine consumers’ willingness to pay for each attribute/feature
lacks rigor for systematically examining tradeoffs among attributes
how to measure behavioural customer values? and why use behavioural customer value
use have done measures
measures of behavioural customer use observation of actual past consumer behaviour as a basis for estimating value vs objective and perceived customer value measures that represent estimates based on info obtained made before a purchase
what’s are behavioural customer value measure
choice models : choice models use past behaviour to infer the value of product characteristics that might best explain/predict actual behaviour
data mining: keeping extensive records of customer purchase in a form that lends itself to statistical analysis
how to find the purchase probability using a choice model
purchase probability (A) = utility of A/ sum of utilities of all alternatives
pros + cons of choice model
pros: reveals importance weights of attributes - interpreted as regression coefficients
con: difficulty in estimating a model separately for each person
what are pros and cons of data mining
pros: organization can analyze the info to produce segments according to customer profitability, etc
con analyzing current customers provides only partial picture of market structure - ignores non-customers who may differ systematically from customers but represent a significant source of potential growth
what are pros and cons of objective/perceived/behavioral value measures
pros: objective value measure need fewer customers for analysis where behavioral need more respondents, valuable in dynamic market to put firm in direct contact with critical customers and provide current measures of value in use.
perceived value measures can be useful in dynamic marktes if the measurement approach prompt customers to respond that corresponds with their actual future behaviours
con; measures vary according to their appropriateness for lead user. measures based on VIU + constrained approaches are most appropriate for lead user while behavioural measures are not particularly useful + unconstrained measure fail to reveal the important trade-offs necessary for good value estimates
what does the lifetime value of a customer mean to a firm
the total profit a firm can expect to earn form that customer during the time the firm continues to maintain an ongoing relationship with the customer
profit = transactions between customers + firm and referrals and other indirect sources of profit that can be attributed to a specific customer
define customer lifetime value assessment (CLV)
aims to assess the net profit or loss of a specific customer over that customer’s lifetime - assess cash flows based on what the customer buys less costs of acquiring, selling to, and servicing the customer
what can a firm do after a CLV analysis
may develop guidelines for determining
1. whihc customers to fire because they are generally unprofitable over time
2. how to reward customers
3. which win-back campaigns to run to regain customers who are not irretrievably lost and whether the firm is better off targeting new prospects or attempting to win back prior customers
4. how to induce up or cross-selling by encouraging a customer to purchase more of the focal product or buy other related/complementary products
