Customer Cost Flashcards
Part I: Total Customer Cost – The Consumer Perspective
What are the percieved benefits of the customer?
- Self esteem
- Functional benefits
- appreance
- Image
Part I: Total Customer Cost – The Consumer Perspective
What are the percieved costs of the customer?
- Cost of Disposal,
- cost of supply,
- product price,
- cost of usage,
- cost of change
Part I: Total Customer Cost – The Consumer Perspective
What is the price?
- Exchange-based concept
- Key marketing variable
Price is relatively producer-oriented, and exchange based concept, however price sometimes fails to reflect the total cost arising from buying decisions.
Part I: Total Customer Cost – The Consumer Perspective
What is the total cost of customer?
Price +Purchaste costs (these two are Accquistion costs) +use cost+post-use cost
Part I: Total Customer Cost – The Consumer Perspective
What is purchase cost consisted of ?
- Search cost
- Information cost
- Transportation cost
Part I: Total Customer Cost – The Consumer Perspective
Why purchase cost for sustainable products are high?
Because obtaining information about sustainable products is difficult.
According to information economics, there are three elements in information regarding products: Search, Experience, and credence. The information related to the search sector can be obtained before purchasing the product, but the experience part can only be known after the purchase. and Credence relates to some claims (for example the workers are paid fairly) that customer should either rely on the producer or third parties.
–> Since most of the sustainable products have a lot to do with experience and credence, the purchase costs are pretty high for them.
Part I: Total Customer Cost – The Consumer Perspective
What are the perceived risks of buying a new product?
- - Financial after adotpting the product, sometimes the customer anticipate the deal as financially negative.
- - Performance: that the product will not perform as anticipated.
- - Physical: product could be harmful
- Time: adoption and use of product will take too much time
- - Social: negative reaction from consumer’s network
- Pschological (post purchase emotions): nervousness, frustration…
Part I: Total Customer Cost – The Consumer Perspective
What are the use costs?
- Energy
- -Water
- -Maintenance
- -Switiching cost: Switichim from one product to another
–> Often underestimated especially in long lasting products such as a house or car
Part I: Total Customer Cost – The Consumer Perspective
What are the post-use costs?
- Collection
- Storage
- Disposal
–> consumers also usually have a low awareness of post-use cost
Part II: Total Customer Cost – The Marketer Perspective
Sus marketing management should seek both to reduce the total consumer cost and to make customers aware of total customer cost.
What are the price setting approaches used?
Value based pricing and Cost based pricing
Part II: Total Customer Cost – The Marketer Perspective
What is the value based pricing?
Customers=>value=>price=>cost=>product Differentiation strategy, buyer’s perception of value. Whatever price the market will bear
Part II: Total Customer Cost – The Marketer Perspective
What is the cost-based pricing?
Products=>cost=>price=>value=>customers
Part II: Total Customer Cost – The Marketer Perspective
What should be taken into account when we want to charge the customers with a premium price for a product?
- Nature of product: Differentiating company’s marketing offer
- Sustainable profile: if the product is linked to an issue which is of public concern
- Credebility: Transfer information to customers that signals credbility
- Percieved value: the product should be percieved higher than the conventional products
- Price sensitivity: depends on target
- Reference pricing
Part II: Total Customer Cost – The Marketer Perspective
How can we reduce the purchase costs?
- by informing and advertising (raising awareness) so that the product has a high visibility.
- Also the availability of the product is very important. For example: Organic food became mainstream!
_Part II: Total Customer Cost – The Marketer Perspectiv_e
How can use cost be reduced?
- Reduce Energy costs
- Avoid switching products since this may incur costs
For example, new detergents require lower temprature to wash the clothes, which will decrease the use cost.
How can post use cost can be reduced?
- post use cost consists of transportation and disposal cost .
- These costs can be reduced directly or indirectly: The direct approach is to extend product’s life cycle by repairing, reusing and etc. the indirect approach is to extend producer responsibility (EPR), so that producer accepts the responsibility for the management of disposal of the products.
- Idea behind: if manufactureres are made to pay more directly for the waste created by their products, they will improve their design processes to reduce that waste–> there is a correlation between EPR programs and improvements in recycling rates.
How can we make the customers aware of total cost?
Since the whole marketing process is based on the price, many of the customers are not aware of the total cost. Also customers decide based on the information that are provided by companies which is called ‘bounded rationality’.
So in order to fix this there are 2 ways:
1.Producer Instruments: When producers compare their sustainable products with the conventional ones. For example philips ligh bulbs may cost more than conventional ones, but philips provides customer with a calculator that can calculate how much money customers will spend on energy
2.Third party Instruments: There are non-profilt/govermental offices that have systematic product comparison on the economic and ecological criteria. –> more transparency for example in energy labels of refrigerators.
Part III: The “Nature“ of Prices
As we saw before a key barrier in marketing sus products is focusing on price rather than on costs, another barrier is the externality of social and eco costs:
What is meant by internalization of external socio-ecological costs?
As mentioned before, the total cost consists of price+purchase cost+use costs+post-use costs.
In conventional products where prices are low ( for example radio only for 10$), a part of the product price is paid by the society & environment (e.g under payment or polluting the environment).
So these costs should be internalized and the customers should pay these costs, not the next generations or the whole society.
Part III: The “Nature“ of Prices
What is the difference between false and true price?
