Total Customer Value and Total Customer Cost

Total Customer Value and Total Customer Cost

Customer Value

When a product or offering delivers value or satisfaction to the target group of buyer, marketing is successful. A target group or buyer will choose different offering or product based on the perceived value or satisfaction. Value is the ratio between what the customer pays and what he receives. Value can be shown as follows:

Value = Benefits/Costs
= Functional benefits + Emotional benefits/Monetary costs + Time costs + Energy costs + Psychic costs

All types of customers want to buy product or services from that company from which they get these offers the highest customer delivered value. It is derived from the differences between total customer value and total customer cost. Customers always want to get a bundle of benefits from the product they expect to buy. These benefits include product value, service value, personnel value, and image value. Similarly, they bear monetary cost, time cost, energy cost, and psychic cost to get expected benefits. In this regard, customer value is the difference between total customer value and total customer cost. Customer value is known as customer delivered value.
CDV = TCV – TCC
Where, CDV = Customer Delivered Value
TCV = Total Customer Value
TCC = Total Customer Cost

Total Customer Value

Total customer value is the bundle of benefits customer expect from a given product or service. It included product value, service value, personnel value and image value.

  • Product value: It is generated by the basic attributes of product such as product quality, packaging, design, functions, price along with advantages and benefits.
  • Service value: It is generated by support services offered along with the product. They can be before sales service, during sales service and after sales services such as counseling, installation, delivery, warranty, guarantee, money refund etc.
  • Personnel value: It is generated by efficient sales persons who use profession selling skills to serve and satisfy customers. Efficient sales persons use their salesmanship to overcome customer objections effectively which helps to increase the customer value.
  • Image value: This value is generated by ownership and use of reputed brand though brand equity where buying and using specific brand provides the customer with an enhanced personal value.

Total Customer Cost

Total customer cost is the bundle of costs customer expects to incur in evaluating, obtaining, suing, and deposing of the product or service. It includes money cost, time cost, energy cost and psychic cost to get expected benefits.

  • Money cost: It is the price of the product that customer buys and achieves desired utility. In other words, it is the price paid for the product or service for its utilities by the customer.
  • Time cost: It is the time spent for searching, evaluating, buying and other decision processes related to product. High involvement product has high time cost than low involvement product.
  • Energy cost: It is the degree of physical effort used by the customer for searching, evaluating, buying desired product and also taking them to their house.
  • Psychic cost: It is the cost related to frustration and dissatisfaction of the customer with the product and service. It can occur during various stages of the buying process.