Maximizing Customer Value Through the Marketing Mix

Posted on Apr 7, 2025 in Business Management and Marketing

Introduction to Customer Value

Definition

Customer value refers to the perceived benefits a customer receives from a product or service relative to the cost of obtaining it. Companies must ensure that value is delivered in a profitable way.

Importance

  • Enhances customer satisfaction and loyalty
  • Differentiates products from competitors
  • Builds strategic differentiation
  • Promotes customer loyalty

B2B vs. B2C

  • B2B: Business-to-business
  • B2C: Business-to-customer

The Customer Value Process

Value Proposition and Value Map

  • Jobs: Tasks the customer aims to accomplish.
  • Pains: Undesirable outcomes, risks, or obstacles customers want to avoid.
  • Gains: Positive outcomes customers seek to achieve (Required, expected, desired, unexpected).
  • Products and Services: Everything offered to the customer (Tangible, intangible, digital, financial).
  • Pain Relievers: How products address specific customer pains.
  • Gain Creators: How products create key customer gains.

5 C’s Analysis

  • Customers:
    • Understanding the difference between needs and wants (ref: Maslow’s Hierarchy of Needs).
    • Conduct qualitative and quantitative market research to understand customers.
  • Company:
    • Adopt a customer-oriented (customer-centric) approach.
    • Align operations with customer needs.
    • Define clear Mission and Vision Statements.
  • Context:
    • PESTLE Analysis: Political, Economic, Social, Technological, Legal, Environmental factors.
    • Porter’s 5 Forces: Competition, Supplier Power, Buyer Power, Threat of Substitutes, Threat of New Entry.
  • Competitors:
    • Direct: Offer similar products in the same sector.
    • Indirect: Offer different products fulfilling the same need in the same sector.
    • Substitute: Offer different products or services that meet the same customer need.
  • Collaborators:
    • External partners: Suppliers, distributors, alliances.

STP: Segmentation, Targeting, and Positioning

Segmentation

  • Identify market differences and define segment profiles.
  • Criteria for Effective Segmentation:
    • Measurable
    • Substantial
    • Accessible
    • Differentiable
    • Actionable

Targeting

  • Deciding which identified segments the company will serve.
  • Evaluate segment attractiveness (e.g., growth potential, needs alignment).
  • Analyze the company’s competitive position within potential segments.

Positioning

  • Designing the company’s offering and image to occupy a distinctive place in the target market’s mind.
  • PODS (Points of Difference): Unique attributes or benefits offered by the brand.
  • POPS (Points of Parity): Associations not necessarily unique to the brand but essential for credibility. They legitimize the product offering and are necessary but not sufficient conditions for brand choice.
  • Positioning Statement Example: ‘To [target market], Brand X is the only brand among all [competitive set] that [unique value claim] because [reasons to believe].’

Delivering Functional Value via Product

Understanding Functional Value

Functional Value represents the practical or utilitarian benefits of a product, addressing specific customer needs. Customers assess it by comparing product features, performance, and benefits against their needs and available alternatives.

Product Attributes

  • Intrinsic: Physical, chemical, and technical characteristics inherent to the product, often specific due to its composition.
  • Extrinsic: Features not part of the product’s intrinsic nature (e.g., packaging, label, size, design), often added during production.
  • Psychological: Customer perceptions influenced by marketing efforts, including perceived quality and brand reputation.

Service Attributes

  • Intrinsic: Inherent characteristics defining the core service (e.g., reliability, responsiveness, competence, credibility, communication).
  • Extrinsic: Characteristics changeable without altering the core service (e.g., service environment, delivery process, tangibles like facilities and equipment).
  • Psychological: Customer perceptions of service quality and brand reputation.

Product Strategies for Value Creation

  • No Modifications: Maintain current quality for consistent functional value.
  • Modifying Products:
    1. Actual Modification: Improving performance, features, etc. (e.g., improved performance).
    2. Psychological Modification: Changing perceptions through marketing (e.g., rebranding).
  • Launching New Products: Introduce new items or extend product lines.
  • Finding New Uses: Promote additional applications for existing products.

Measuring Functional Value

Key Metrics:

  • Customer Satisfaction Score (CSAT)
  • Product Reliability Rate
  • Return Rate
  • Net Promoter Score (NPS)

Delivering Economic Value via Price

Understanding Economic Value

Economic value refers to the tangible monetary savings a product or service offers, either at the time of purchase or over its long-term use.

  • TCO (Total Cost of Ownership): The total cost of owning a product over its entire useful life, including purchase price, setup, maintenance, and disposal costs.
  • Life Cycle Cost: Considers all costs associated with a product from acquisition to disposal.

Calculating Economic Value to Customers (EVC)

EVC is the maximum price a customer is willing to pay for a product, based on the total savings it provides compared to alternatives.

Steps to Calculate EVC:

  1. Identify all costs associated with using the current product or alternative.
  2. Determine the costs and savings associated with the new product over its life cycle.
  3. Compare the total life cycle costs to determine the EVC (potential savings).

Marketing Implications of Economic Value

  • Develop a Pricing Strategy: Use EVC as a benchmark. Firms often charge less than the full EVC to incentivize customers to switch.
  • Customer Segmentation: EVC helps identify and target segments that benefit most financially from the product.
  • Product Positioning: EVC analysis aids in positioning products against competitors by highlighting cost savings and long-term benefits.

Setting a Pricing Strategy

  1. Select Pricing Objectives: E.g., profit maximization, revenue growth, market penetration, survival.
  2. Estimate Demand: Use methods like surveys, price experiments, and elasticity models.
  3. Analyze Competitors: Compare features and prices, then set prices accordingly (higher, lower, or equal).
  4. Select Pricing Method: E.g., cost-plus, value-based, dynamic pricing, skimming.
  5. Finalize the Price.

Technology in Pricing

  • Dynamic Pricing: Adjust prices in real-time based on demand and other factors.
  • Price Optimization Software: Used for demand forecasting and competitor analysis.
  • AI/ML: Personalize prices and predict market trends.
  • Big Data Analytics: Track customer behavior and competitor strategies.
  • IoT and Cloud Computing: Enable usage-based pricing and scalable models.

Communicating Economic Value Challenges

  • Complexity: Simplify explanations using visual aids and focusing on clear benefits.
  • Skepticism: Build trust through case studies, testimonials, and guarantees.
  • Quantification Issues: Use tools like ROI calculators, especially for intangible benefits.
  • Differentiation: Clearly highlight unique features and the specific economic benefits they provide.

Customer Lifetime Value (CLV)

CLV is a key metric estimating the total revenue a customer is expected to generate over their entire relationship with a company.

Delivering Social & Environmental Value via Placement

Delivering Social Value via Distribution

Distribution contributes to social value through:

  • Accessibility: Ensuring product availability where and when needed.
  • Convenience: Simplifying the purchasing process for customers.
  • Speed & Efficiency: Offering fast and reliable delivery options.
  • Coverage: Providing extensive geographical reach.

Distribution Strategies

  • Exclusive: Using a single intermediary per territory; enhances brand control and image.
  • Selective: Using a limited number of outlets; maintains control and quality while providing broader access than exclusive.
  • Intensive: Using numerous outlets for maximum market exposure, typically for convenience goods.

Distribution Channels

  • Direct: Manufacturer sells directly to the consumer.
  • Indirect: Involves intermediaries like retailers or wholesalers.
  • Hybrid: Combines multiple direct and indirect channels for broader coverage.

Logistics: The Backbone

Effective logistics are crucial for distribution:

  • Inventory Management: Implementing efficient stock policies.
  • Transportation: Managing the movement of goods (can be outsourced or company-owned).
  • Packaging: Designing packaging that enhances product preservation and transport efficiency.

Seamless Customer Experience (Omnichannel)

  • Omnichannel Strategy: Creating a unified and consistent shopping experience across all online and physical channels.
  • Phygital Approach: Merging physical and digital elements to enhance customer engagement, loyalty, and efficiency (e.g., virtual fitting rooms, click-and-collect).

Delivering Environmental Value: The 5 R’s Model

Integrating environmental considerations into placement:

  • Reputation: Aligning distribution practices with eco-conscious branding.
  • Regulation: Meeting or exceeding environmental legal standards.
  • Return: Implementing processes for recycling, reusing, and reverse logistics.
  • Rectitude: Adhering to ethical and sustainable practices throughout distribution.
  • Re-think: Innovating and adopting more sustainable distribution methods and materials.

Sustainable Retailing

  • Minimizing environmental impact across the supply chain and retail operations.
  • Implementing initiatives like recycling programs, energy efficiency, and promoting green products.

Measuring Social & Environmental Value

  • Customer Sentiment Analysis: Evaluating customer opinions towards the brand’s social and ethical practices.
  • Market Penetration Rate in Ethical Channels: Measuring presence in socially responsible or eco-friendly retail channels.

Delivering Experiential Value via Promotion

Understanding Experiential Value

Experiential Value refers to the intangible, psychological, and emotional benefits customers derive from interacting with a company’s products, services, or brand. It goes beyond functional attributes to enhance the overall customer experience.

The Role of Branding

  • Brand Identity: The visual and verbal elements that distinguish a brand (logo, name, design).
  • Brand Image: The customer’s perception of the brand formed through all interactions.
  • Brand Equity: The added value endowed on products and services due to brand recognition, trust, and loyalty.
  • Brand Positioning: Communicating the brand’s unique value proposition relative to competitors.
  • Importance: Branding signals quality, builds trust, creates psychological value, and fosters customer loyalty.

Customer Experience (CX) and Service

  • CX: Encompasses the customer’s overall perception and emotional connection resulting from all interactions with a company.
  • Superior CX leads to increased satisfaction, loyalty, advocacy, and differentiation.
  • Customer Service: Focuses on direct interactions, support, and problem resolution within the broader CX.

Emotional Benefits in Value Creation

  • Creating strong psychological connections can lead to significant loyalty and differentiation.
  • Strategies: Effective storytelling, customer-centric marketing campaigns, personalization, and creating memorable moments.
  • Challenges: Maintaining authenticity, ensuring consistency across touchpoints, and navigating cultural sensitivities.

The 6 M’s Model for Communication

A framework for planning marketing communications to deliver value:

  • Mission: Defining the objectives for communication campaigns (e.g., awareness, persuasion, reminder).
  • Market: Understanding the target audience’s characteristics, needs, and media habits.
  • Message: Crafting the core content, appeal, and format of the communication.
  • Media: Selecting the appropriate channels (e.g., advertising, public relations, digital marketing, sales promotion).
  • Money: Determining the budget and allocating resources across activities.
  • Measurement: Evaluating the effectiveness and return on investment (ROI) of communication efforts.

Measuring Experiential Value

Evaluating the impact of experiential elements often involves qualitative feedback, brand perception studies, engagement metrics, and tracking customer loyalty indicators.