Creating Customer Value

Topics: Incandescent light bulb, Customer, Customer service Pages: 22 (8952 words) Published: February 26, 2015
1/29/2015

Creating Customer Value

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This reading contains links to online interactive illustrations and video, denoted by the icons above. In addition to using reader controls in the navigation bar, you can also use the arrow keys on your keyboard to navigate between pages.

Sunil Gupta, Edward W. Carter Professor of Business Administration, Harvard Business School, developed this Core Reading with the assistance of writer Kamal Gupta. Copyright © 2014 Harvard Business School Publishing Corporation. All rights reserved.

 

1 INTRODUCTION

O

ne of the fundamental tasks of a business is to understand the needs of its customers and create

products

and

services

that

will

satisfy

those

customers

or

even

delight

them.

Sometimes this process is market-driven, whereby a firm uncovers the needs of its customers

through market research (e.g., Nabisco introduced the 100-calorie snack based on customer input).

a

Sometimes, however, this process is market-driving, whereby the company creates new products based on its own vision of the future (e.g., Apple’s founder Steve Jobs was famous for creating products

without

conducting

any

formal

market

research).

In

both

cases,

managers

need

to

understand what customers value that will encourage them to pay for an organization’s products or services.

Value is generally defined as the difference between what a customer pays for a product or service and the bundle of benefits she receives. Exhibit 1 depicts four ways in which customers derive value from a product or service: economic value, functional value, experiential value, and social value.  

EXHIBIT 1 Four Types of Customer Value

Consumers get economic value when a product provides tangible monetary savings either at the time of purchase or over

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its long­term use. For example, an energy­efficient lightbulb or a fuel­efficient car reduces the consumer’s cost of owning these products.
Sometimes, when comparing many products (for example, mobile phones or laptops), consumers consider not only the price  but  also  different  features,  or  the  functional  value  of  the  products.  Many  consumers  also  buy  products  for  their experiential  value—intangible  psychological  and  emotional  value  that  can  be  derived  from  brands  or  great  service.  For example,  Apple  created  an  image  for  its  brands  that  allowed  it  to  charge  a  premium  for  its  products.  Amazon  has established itself as a leading e­commerce player, not only by offering low prices but also by providing excellent customer service.

In many settings consumers derive social value from products. The value of Facebook comes from sharing information, pictures,  and  videos  with  friends.  Many  restaurants  and  cafés  provide  customers  with  good  food  and  drink  as  well  as  a place to meet friends.

All successful products and services offer customers one or more of these values, which we will focus on in this reading. We  begin  the  Essential  Reading  by  exploring  economic  value  in  detail,  followed  by  examinations  of  functional, experiential, and social value. The Supplemental Reading focuses specifically on services and the ways organizations can best manage the customer experience.

 

2 ESSENTIAL READING

2.1 Economic Value to Customers (EVC)

When it comes to determining the true economic benefit of a product or a service, we need to look closely at the costs and savings  involved.  For  example,  a  hybrid  car  saves  customers  money  because  it  lowers  their  fuel  bills,  but  the  car  itself generally  costs  several  thousand ...
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