By Kim Harrison,

Consultant, Author and Principal of www.cuttingedgepr.com

Festive season retail sales bring to mind the question of customer value.

The perception of value is one of the most important elements of pricing. If customers don’t think they are getting value for money, you have no pricing power – you can’t lift prices to maintain profitability without losing many customers. However, if customers believe they are getting value for money, they will remain loyal despite price increases.

Value is not just a single element (price); it encompasses a range of attributes of your goods and services for which customers are willing to pay. Value is provided by a good’s or service’s low cost, by its highly differentiated features or by a combination of low cost and high differentiation, compared with competitors’ goods or services.

Value can be separated into seven components:

- service
- response
- variety
- knowledge
- quality 
- guarantee
- price

Since price is only one component of value, experienced marketers seek to maintain perceived value by ensuring the attributes of the other variables are emphasized to offset price rises – mainly using marketing communication, advertising and promotion.

Seasoned marketers resist giving price discounts and reductions because these inevitably cause price wars that no-one wins, except, perhaps, the customer in the short term.

In the search for competitive advantage, one of the most important steps to carry out is a customer value analysis. This determines the benefits that customers in a market segment want and how they perceive the relative value of competing offers, including yours. As a PR practitioner, once you know the key points of differentiation, you can base the main themes of your marketing communication on those points. The main steps in customer value analysis are:

• Identify the major attributes that customers value. Ask customers what main functions and performance levels they look for in choosing the respective product and, if relevant, the retail outlets where the product is sold. Different customers will nominate different features and benefits.

• Assess the quantitative importance of the different attributes. Ask customers to rate or rank the importance of the different attributes. If the ratings diverge greatly, they should be clustered into different customer segments.

• Assess the performance of your organization and competitors on the different customer values against their rated importance. Ask customers where they see the performance of your organization and each competitor on each attribute. Ideally, your organization’s performance should be rated high on the attributes that customers value most and low on the attributes they value least.

• Examine how customers in a specific segment rate your organization’s performance against a specific major competitor on an attribute-by-attribute basis.

• Monitor customer values over time. Although customer values are fairly stable in the short term, they are likely to change as technologies and features change and as economic environments change. The research on customer values and competitors’ standings needs to be conducted periodically to ensure the findings are up-to-date. 1

If you are involved in marketing communication for particular key products for your organization (or if you are a PR consultant to the client), you can ask the marketing people what customer value analysis they have conducted in relation to those products. If for one reason or another they haven’t done it, or if they don’t even know what you are talking about, insist on calling in a reputable market research firm to do it – because the findings will be your guide to the key themes you need to use in your marketing communication activity. And you will impress senior management as well!

Contrary to some initial expectations, the advent of the Internet has created even more reason to compete on factors other than price. Most consumers don’t try to compare prices on every minor item for every purchasing expedition, so it isn’t necessary to compete on price. Instead, the Internet offers the opportunity to focus on the elements of your product or service that lead to people being prepared to pay more, eg customized features and benefits, convenience, completeness of product information, and breadth of offer (reference amazon.com).

Marketing a strong house (private) brand can help to differentiate your company from other retailers. Again, communicating this through customer newsletters, letters from the chief executive, and publicity activities, can generate important benefits to the overall marketing campaign.

Research has shown that many consumers believe companies make a lot of profit out of charging unfairly for their goods and services. A US study in 2002 revealed that consumers routinely believed that companies ‘gouged’ customers and reaped large profits, estimated at 30% of revenue. In reality, retail net margins are usually 1-2%. 2

The research found these perceptions to be very ‘sticky’, ie hard to change. And managers don’t seem to realize the extent of these customer misperceptions. It’s the fault of many of these managers because they massively discount some products in sales promotions. Many customers don’t understand the use of ‘loss leaders’ – items promoted heavily and sold at a loss to attract customers to come to the store in the hope that those customers will buy other products while they are in the store.  

What a manager thinks is a perfectly fair cost or pricing strategy, a customer won’t necessarily agree. What’s more – the research challenged the belief that companies can charge a higher price to long-term customers because they are less price-sensitive. The study showed the opposite to be the case – a lesson for PR people to remember.

References

1. Kotler, Philip. Marketing Management. Analysis, planning, implementation, and control. Eighth edition. New Jersey: Prentice-Hall, Inc. 1994, p. 239.

2. Bolton, Prof. Lisa; Alba, Joseph and Warlop, Prof. Luk. “Pricing and fairness: do your customers assume you are gouging them? Article in 11 September 2002 issue of Knowledge @ Wharton online newsletter, Wharton School of Business at the University of Pennsylvania: http://knowledge.wharton.upenn.edu.

About the Author

Kim Harrison is a recognized authority in the public relations field. His website, www.cuttingedgepr.com, provides a wealth of informative articles and resources on public relations techniques and management.