rValueUnit3.Customerand Satisfaction
Unit 3. Customer Value and Satisfaction
1.DefiningCustomerValueandSatisfaction(SeeP37)Morethan40yearsago,thelatemanagementguru Peter Drunker insightfully observed that acompany's first task is "to create customers."However,creating customers can be a difficulttask.Today's customers face a vast array ofproduct and brandchoices,price,andsuppliersThecompany must answer a key question:How docustomers maketheir choices?The answer is that customers choose themarketing offer that givesthem the most valueCustomersarevalue-maximizers,within theboundsof search costsand limited knowledgemobility,and income
2 ◼ More than 40 years ago, the late management guru Peter Drunker insightfully observed that a company’s first task is “to create customers.” However, creating customers can be a difficult task. Today’s customers face a vast array of product and brand choices, price, and suppliers. The company must answer a key question: How do customers make their choices? ◼ The answer is that customers choose the marketing offer that gives them the most value. Customers are value-maximizers, within the bounds of search costs and limited knowledge, mobility, and income. 1. Defining Customer Value and Satisfaction (See P37)
Customers form expectations of value and actupon them.Then they compare the actual valuethey receive in consuming the product to thevalue expected,and this affects their satisfactionand repurchases behavior.We will now examinethe concepts of customer value and customersatisfactionmorecarefullyCustomerValueConsumers buy from the firm thatthey believeoffers the highest customer delivered value-thedifference between total customer value and totalcustomercost(seeFigurebelow)
Customers form expectations of value and act upon them. Then they compare the actual value they receive in consuming the product to the value expected, and this affects their satisfaction and repurchases behavior. We will now examine the concepts of customer value and customer satisfaction more carefully. ◼ Customer Value ◼ Consumers buy from the firm that they believe offers the highest customer delivered value—the difference between total customer value and total customer cost (see Figure below)
CustomerDeliveredValue(SeetextP37-38)ProductServicesPersonnelImagevaluevaluevaluevalueTotalcustomervalueCustomerdeliveredvalueTotalcustomercostMonetaryTimeEnergyPsychiccostcostcostcost
4 Customer Delivered Value (See text P37-38)
How Do ConsumersChooseAmong Products and Services?Value Gained From Owning a Product andCosts of Obtaining the ProductisCustomer ValueProduct's Perceived Performancein DeliveringValue Relative to Buyer's Expectations isCustomer SatisfactionTotal Quality Management InvolvesImproving theQualityof Products,Services,andMarketingProcesses
5 How Do Consumers Choose Among Products and Services? Total Quality Management Involves Improving the Quality of Products, Services, and Marketing Processes Product’s Perceived Performance in Delivering Value Relative to Buyer’s Expectations is Customer Satisfaction Value Gained From Owning a Product and Costs of Obtaining the Product is Customer Value
Forexample,supposethata large construction firmwants to buy a bulldozerto use in residentialconstruction work. It wantsa reliable, durablebulldozer that performsVSwell.It can buythebulldozerfromeitherCaterpillar or Komatsu.Thesalespeoplefor thetwocompanies carefullydescribe their respectiveoffers to the buyer
◼ For example, suppose that a large construction firm wants to buy a bulldozer to use in residential construction work. It wants a reliable, durable bulldozer that performs well. It can buy the bulldozer from either Caterpillar or Komatsu. The salespeople for the two companies carefully describe their respective offers to the buyer. VS
The constructionfirm now evaluates the twocompeting bulldozer offers to assess which oneoffers the greatest value.It adds all the valuesfromfour sourcesproduct,services,personnel,and image.First,it judges that Caterpillar'sbulldozer provides higher reliability,durability,andperformance. It also decides that Caterpillar hasbetter accompanying services-delivery,trainingand maintenance.The customer views Caterpillarpersonnel as more knowledgeable and responsiveFinally,it places higher value on Caterpillar'sreputation.Thus,the customer decidesthatCaterpillaroffers more total customer value thandoesKomatsu
◼ The construction firm now evaluates the two competing bulldozer offers to assess which one offers the greatest value. It adds all the values from four sources—product, services, personnel, and image. First, it judges that Caterpillar’s bulldozer provides higher reliability, durability, and performance. It also decides that Caterpillar has better accompanying services—delivery, training, and maintenance. The customer views Caterpillar personnel as more knowledgeable and responsive. Finally, it places higher value on Caterpillar’s reputation. Thus, the customer decides that Caterpillar offers more total customer value than does Komatsu
Doestheconstruction firm buy the Caterpillarbulldozer? Not necessarily.The firm also willexaminethetotal customercostof buyingCaterpillar's bulldozer versus Komatsu's.First,thebuyer will compare the prices it must pay for each ofthe competitors'products.If Caterpillar's bulldozercosts a lot more than Komatsu's does,the higherprice might offset the higher total customer valueMoreover,total customer cost consists of more thanjust monetary costs.Total customer cost alsoincludes the buyer's anticipated time,energy,andpsychic costs. The construction firm will evaluatethese costs along withmonetary costs to form acompleteestimateofitscosts
◼ Does the construction firm buy the Caterpillar bulldozer? Not necessarily. The firm also will examine the total customer cost of buying Caterpillar’s bulldozer versus Komatsu’s. First, the buyer will compare the prices it must pay for each of the competitors’ products. If Caterpillar’s bulldozer costs a lot more than Komatsu’s does, the higher price might offset the higher total customer value. Moreover, total customer cost consists of more than just monetary costs. Total customer cost also includes the buyer’s anticipated time, energy, and psychic costs. The construction firm will evaluate these costs along with monetary costs to form a complete estimate of its costs
The buying firmnow compares total customervalue to total customer cost and determines thetotal delivered value associated with Caterpillar'sbulldozer. In the same way,it assesses the totaldelivered value for the Komatsu bulldozer. Thefirm then will buy from the competitor that offersthehighest deliveredvalue.Howcan Caterpillar use this concept of buyerdecision making to help it succeed in selling itsbulldozer to this buyer? Caterpillar can improve itsoffer in three ways.First,Caterpillarcan increasetotal customer value by improving product,services,personnel,orimage benefits
◼ The buying firm now compares total customer value to total customer cost and determines the total delivered value associated with Caterpillar’s bulldozer. In the same way, it assesses the total delivered value for the Komatsu bulldozer. The firm then will buy from the competitor that offers the highest delivered value. ◼ How can Caterpillar use this concept of buyer decision making to help it succeed in selling its bulldozer to this buyer? Caterpillar can improve its offer in three ways. First, Caterpillar can increase total customer value by improving product, services, personnel, or image benefits
Second,Caterpillarcanreduce the buyer'sD一5non-monetary costsby lessening the buyer'stime, energy, andpsychic costs. ThirdCaterpillar can reducethe buyer's monetarycosts by lowering itsprice,providing easierterms of sale,or,in thelongerterm,loweringits bulldozer's operatingor maintenance costs
◼ Second, Caterpillar can reduce the buyer’s non-monetary costs by lessening the buyer’s time, energy, and psychic costs. Third, Caterpillar can reduce the buyer’s monetary costs by lowering its price, providing easier terms of sale, or, in the longer term, lowering its bulldozer’s operating or maintenance costs