VALUE BASED MARKETING
A business model to add value to products or services
The notion of value marketing is not new. In his seminal article published in 1960, entitled Marketing Myopia, Theodore Levitt made the following observation:
“Selling is preoccupied with the seller's need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and finally consuming it”.
Levitt didn’t use the word value but he implied it by saying that the marketer seeks to satisfy needs by more than just the product, indeed the whole cluster of things that surround it.
There are many definitions of marketing, one of which is “marketing is concerned with getting the right product to the right people at the right price”. The emphasis in this over simplistic definition is “at the right price”. The right price from a customer’s point of view might be a very low one. The right price from the marketer’s point of view might be a high one. The price of the product is in theory the level at which two parties are prepared to execute a bargain. However, the price can be manipulated higher if the seller has a strong value proposition - that is if the seller is able to convince the buyer that it is worth significantly more than might be apparent at first sight. Product focused companies aren’t good at selling value; they are good at selling products. They make a product, they work out the cost and they add what they believe is a reasonable margin. In this way they arrive at a price. The customer is presented with the product together with its price and invited to make a purchase.
The value based marketer produces a product, considers the benefits to the customer and how they will use it, and sets the price accordingly. The cost of manufacture plays no part except the price must more than cover all costs. The customer is reminded by the seller of the many good reasons why the price is justified. Value based marketing is all about understanding the needs of the customer and ensuring that the product, together with its benefits, is positioned at the right price to collect the maximum amount of value.
Value based marketing (VBM) also recognises that not everybody has the same needs and values. Some people will appreciate the features and benefits of the product more than others and be prepared to pay for them. Segmentation is important in value based marketing. The value based marketer targets only those customers who really do want and value their product.
In a book entitled Value-Based Marketing For Bottom Line Success: Five Steps To Creating Customer Value, Nicolas De Bonis, Eric Balinski and Phil Allen suggested five steps in the value marketing process:
Discover: It involves defining and mapping the market; understanding exactly who the key players are within the market and who will be targeted. It also takes in the exploration of customer value expectations – what customers want from a particular offering, how they find a company that supplies the offering and how they decide which offering they will buy. This leads to the discovery of value segments; groups of customers aligned with the product offering.
Commit: It is at this stage that the company begins to take aim at segments that value its offer. The company may want to modify its offer to ensure that it has superior features and benefits over those supplied by the competition. It is important at this stage that everyone within the company understands the targets and the standards of the products and services that will be supplied. Key performance indicators will be set to ensure that standards are met.
Create: Value marketing companies know the importance of delivering an excellent customer experience. From the top of the organisation there must be a commitment to provide value to customers, not only with the product itself but with the service that supports it. The company will have an appropriate culture but it will also have a structure that ensures that the delivery of the product and the experience is consistent.
Assess: A value based marketing company is a listening company. It takes into account feedback from customers to understand the reason for complaints. It knows why customer orders are lost and what improvements customers want. The company is rigorous in assessing its performance against customer expectations and constantly seeking to improve customer satisfaction.
Improve: Following on from the assessment and customer feedback, the value based marketing company will be aiming to spot gaps between expectations and delivery and will close those gaps wherever it can. The company will aim to be proactive in understanding customers’ needs, and wherever possible, anticipating them so that it is one step ahead in delivering them.
Many companies sell products rather than value. They set the price of their product on the cost of manufacturing and add a margin. Value based marketing starts with the perceptions of value as seen by the customer.