MODULE 1 MARKETING – AN INTRODUCTION

2.1 CREATING & DELIVERING CUSTOMER VALUE

CONCEPT OF VALUE

 Man is guided by the idea of “utility” in his purchase decisions. He will

select a product that offers him the maximum utility for the money he
parts with. In marketing, the idea of utility gets enlarged; many
considerations besides utility enter the picture.

 In other words, to the theme of utility, the buyer adds several things; he
seeks a mix of benefits. To put it differently, he seeks “value”.

LINKAGE BETWEEN BENEFIT-VALUE-COST-SATISFACTION

 A firm extends the benefits sought by the customer through its market
offering. The customer assigns different weightages for the different
benefits that he seeks from the offer & makes a mental note of the total
value provided by the offer.

 The total weight he assigns to a product offer reflects the value he

perceives in it. The customer has to pay a cost for acquiring this value.
This cost includes the price of the product plus other elements of cost to
him, economic & non-economic.

 He is happy when the value exceeds the cost he incurs. And, he gets
satisfaction when on using the product, he finds that the value he
actually receives matches the value that he assumed.

 The larger the value-cost gap, the greater is his satisfaction. He

compares the value-cost gaps of competing offers & selects the one that
gives him the best trade-off.

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 MODULE 1 MARKETING – AN INTRODUCTION

2.2 MARKETING MIX & VALUE

MARKETING MIX, the TOOL KIT

 The firm incorporates the benefits that it wants to provide to the

customer into its market offer. The firm has a value creating & a value
delivering system. It includes the firm’s production facilities, processes,
organization, expertise etc.,

 Through its value creating & value delivering system, the firm makes
out the best possible assemblage of benefits as per the customer’s
expectations & puts it across in the form of its market offer.

VALUE ENHANCEMENT

 The firm can enhance value by adjusting any of the elements of the
marketing mix. For ex, it can enhance value through:

1. Increasing the functionality of the product

2. Reducing the price
3. Giving better service support
4. Giving the customer easy access to the product
5. Offering beneficial communication

 When the firm ingeniously uses all the elements of the marketing mix
for providing more value to the customer, it becomes a winner in the

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 market. And, offering such value is the essence of a winning marketing
strategy.

MODULE 1 MARKETING – AN INTRODUCTION

2.3 CUSTOMER’S MENTAL PROCESS OF JUDGING VALUE

• Customer assigns weightage for each benefit;

different benefits gain different weightage, depending on the priority
assigned to them by him.

• The total weight thus assigned to a given product

offer, indicates the total value that the customer attributes to it. It is
called the total customer value. It represents his personal estimate of
the total benefits he would gain from the product.

• Now comes the cost of securing the product. Price of

the product is just one element of the cost (though the major
element) to the customer. For the firm, the price it fixes may cover
all its costs or most of it; but, for the customer, over & above the
price, several other costs are to be reckoned. He may have to place
an order for the product & wait; the after-sales service location may
be far off; the service cost may be high; and the spares may be
difficult to get. The customer allocates a cost to each such item. The
price of the product plus all such incidence of costs make up the total
cost for the customer. It is called the total customer cost.

• Total customer value minus total customer cost is the

delivered value to the customer; it is termed as customer delivered
value. It is the customer’s net value gained from the transaction.
Lesser the cost, the more is the delivered value for him.

• For the same product offer, different customers

arrive at different estimates of value. In the matter of costs too, the

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 estimates of customers differ. This is what makes the marketer’s task
challenging.

MODULE 1 MARKETING – AN INTRODUCTION

2.4 MARKETING - VALUE CREATION/DELIVERING

 Value-creation/value-delivery is the main task of marketing.

Additionally, marketing in its entirety is a value-creating & value-
delivering process. The whole bunch of tasks involved in marketing,
serve the purpose of value-delivery.

 They actually form a sequence leading to value-delivery. For ex,

marketing planning, buyer analysis, market segmentation & targeting
are concerned with value selection.

 Product development, manufacturing, service planning, pricing,

distribution & servicing, are concerned with value creation/value
delivery.

 Personal selling, advertising, publicity & sales promotion are concerned

with value communication. And, activities like market research &
marketing control assess the effectiveness of the value delivery process,
the level of satisfaction the customer has actually received & how it
compares with the firm’s intention as well as with other competing
offers for the purpose of enhancing value.

 In any marketing situation, one can discern 4 distinct steps in the value
providing process:

• Value selection
• Value creation/value delivery

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 • Value communication (making a value
proposition/communicating it)
• Value enhancement

MODULE 1 MARKETING – AN INTRODUCTION

2.5 ABN AMRO’s VALUE PROPOSITION FOR SB A/Cs

 On a minimum monthly average balance of Rs 10,000/-, our SB

A/C offers you something other SB A/Cs don’t:

• Value for money.

• Free cheque pick-up from your home or office.

• Cash delivery to your home or office (upto Rs

10,000/-).
• Extended banking hours (9.00 to 16.30 hrs) on
weekdays.

• Sunday banking (9.00 to 12.00)

• Free home delivery of pay-orders & DDs.

• Free local pay-orders.

• Free metro cheque clearing.

• Free money transfers.

• Free standing instructions to pay regular bills
(school fees).

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 • Account opening from your home or office.

• ABN AMRO calls it the SAVING ADVANTAGE

ACCOUNT

MODULE 1 MARKETING – AN INTRODUCTION

2.6 VALUE DELIVERY: MORE EXAMPLES

 STANDARD CHARTERED BANK: It offers a global credit card to

all its card-holders, a substantial facility at no extra cost.

 GODREJ GE: Godrej GE has encouraged existing customers to give

feedback on how to add value to the company’s products. An inbuilt
curd maker in the company’s 400 liter fridge has been a value addition
resulting from customer response.

 VIRGIN ATLANTIC: How Virgin Atlantic airlines (VA) goes about

value enhancement can be understood from its advertisement message
cited below:

In the advertisement, a customer of VA says “VA picks me up from

home, gives me a boarding pass at my car window. I go through straight to
the VA lounge. On the flight, I can get my hair cut, my shoes polished, I’m
asked how I want my meal, when I want it. When I get off, I don’t have to
queue for a taxi in a strange place”.

 VA has plotted customer experience found the frustration points that

any traveler faces at airports & taken steps to eliminate these problems
of the customer. There was no addition of any technology to the existing
product offer. Only new services were identified & added, at very little
extra cost to the customer.

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 FEDERAL EXPRESS: It allows customers to track packages through
the company’s web site. Now customers can locate a package in transit,
by connecting online to the FedEx site & entering the air bill #. After the
package has been delivered, they can even identify the name of the
person who signed for it. This service is also free of charge. The new
facility has enhanced the value of FedEx’s offer for the customer. And,
it has increased loyalty in a fiercely competitive market.

MODULE 1 MARKETING – AN INTRODUCTION

2.7 CSI IN EVALUATING VALUE DELIVERY

 What ultimately matters in marketing is customer’s satisfaction on

using the product. After using the product, does the customer feel that
the product has actually delivered the value he had perceived?

 In other words, does the product satisfy him as he originally expected?

This is the ultimate test in the value delivery process. Marketers use
several tools to assess customer satisfaction level. Customer Satisfaction
Index (CSI) is one such tool.

 CSI is an indicator of customer satisfaction level. And, with CSI, the

marketer is able to understand the perceived value of his offer.

 Customer Value, Crucial Factor in Pricing Strategies: Knowledge of

customers’ value perception helps the marketer to formulate right
pricing strategies.

 Right pricing strategies cannot obviously depend solely on the costs the
company incurs on the offer. The buyer is not bothered about the
company’s cost; he goes in for the best value package. So, pricing has
got to be based on customer value.

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 Value Chain Concept: Michel Porter has stressed that every activity
performed by the firm creates some value, which reflects finally in the
firm’s product offer & that these activities are linked into a chain.

 Porter calls it the firm’s Value Chain. The significance of Porter’s

contribution lies in the fact that he views the whole business task as a
unified chain meant to deliver value to the customer.