Customer Value

Posted in Marketing and Strategy Terms, Total Reads: 9777
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Definition: Customer Value

Customer Value is the incremental benefit which a customer derives from consuming a product after paying in return. The term value signifies the benefits that a customer gets from a product. It is the difference between the benefits (sum of tangible and intangible benefits) and the cost. Customer value is dependent on the three factors – Quality, Service and Price. Hence, these three together form the ‘Customer Value Triad’. The value of a product increases with its quality and service, as the benefits increase. On the other hand, the value decreases with increase in price because of the increase in costs increase in this case.

Customer Value Parameters

The image below shows the different parameters which can determine the actual customer value delivered to customer from the marketer or manufacturer. 


These are: 

1. Quality

2. Price

3. Service

4. Marketing/Branding

5. Social Influence

6. Past Experience with the product

The above parameters can be used by the sellers to define the customer value they want their product or service to deliver.

Customer Value Types

Customer Value can be calculated in two ways : Desired Value and Perceived Value. Desired value is what customer expects without still buying the product whereas perceived value includes cost into calculation.

Perceived Value = Tangible Benefits/Costs Paid

Actual value is what comes out after consuming the product. If actual value is more than perceived value then the customer value is very high and vice versa.

Cost plays a very important role in customer value as it is the parameter which a customer can use to evaluate similar competitors. Similar products with same perceived value can have different customer value based on the price they sell for.

The concept of value is vital for any marketer as any product or service can be sold only if the customer is getting some value out of it. Hence, marketing itself is defined as, the creation, communication and delivery of Value.

Customer Value Example

Let us imagine a cake shop selling pineapple pastry with basic ingredients and look. The pastry has cake at the bottom and some cream in the middle with a slice of pineapple at the top a 2$ per piece. The customer who buy it don't return nor review the pastries well. This shows that at 2$ per piece the customer may or may not be getting the actual value he or she perceived before buying.

Let us see the scenarios below :

1) The same seller started selling the pastry at 1$ per piece. Suddenly the sales rose and customer started coming back. This may have happened because at 1$ the customer is happy with the pastry he is getting even if it is just average pastry.

2) The same seller made the pastry different with small pieces of pineapple included in the cream as well as added 2 pieces of pineapple on the top. Again similar customer response followed as scenario 1. Again the answer can be increase in actual value at 2$ a piece.

The above 2 scenarios show how product can be changed either in attributes or price to alter the value it can deliver.

Hence, this concludes the definition of Customer Value along with its overview.

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