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Part I

“Customer Value = Perceived Benefits – Perceived Costs”

It’s a simple equation learned by marketers early in business school. But which side of the equation can best be influenced to motivate a sale? Which has more enduring effect on the customer experience?

12082-10_blog-graphic_equation8Adding benefits over discounting is the better play. Here’s why:

1. Earns Stronger Goodwill

A customer feels better receiving more of something than feeling like they got something for less. While everyone likes a deal and money saved, adding things like a free attachment with a sweeper purchase is a “purchase trophy” of tangible value

2. Lengthens the Value Tail

Not only do we put a higher value on products or services that we pay for, but that value endures. Having a tangible reminder of that transaction lengthens the “value tail” and leaves a more enduring impression of the brand.

3. Protects Brand Integrity

The Chevy Cavalier suffered a death-by-discount demise. The intention was to make it easy for the entry level, first-time buyer to be introduced to the Chevy family – an annuity account of sorts – but heavy and consistent discounting on an entry price devalued the product so much, it had to be re-designed and renamed as the Cobalt.

A durable goods manufacturer I’ve worked with has performed research on attributes most important when buying a new product. Quality, durability and reliability are consistently above price in the hierarchy. Increasing the perceived value of the product’s performance is a much better bet than making the price more attractive.

Part 2

6 Ways to Add Value

Earlier we discussed the reasons why creating the strongest customer value results from adding benefits versus reducing price (see blog entry…). Here are 6 ideas:

12082-10_value-graphic

1. Package Price the Offering

Create the offer through a packaged price offering which provides an overall value than if the same products within the package are sold separately. For example, offer a lawn tractor and an attachment for a price less than each item ordered separately.

2. Include an Element of Surprise

Everyone loves a positive surprise. I remember once buying an SUV and 6 weeks later receiving a wonderful, high-quality emergency kit as a thank you. I kept that kit in my car long after I traded that vehicle in for another. You can also create surprise at the time of purchase with on-the-spot add-on incentives or gifts.

3. Offer Something Different

Think of an incentive that clearly adds value, but is also unique. Leverage relationships with sports sponsorships to provide official merchandise or offer emerging technology products – like a phone app – as an added-value incentive with purchase.

4. Place the Value on the Back End

In lieu of a price discount, offering a free extended warranty or a “1st time free maintenance” offering not only adds value to the purchase, but offers assurance that the customer is making a safe choice – well after the purchase date. Research on the automotive industry suggests that customers who purchase and then make their first oil change appointment with that dealer are 95% more likely to return for a second service visit. So giving a free 1st oil change can have a far greater lifetime value than the cost of that initial incentive.

5. Choose an Offer with a Long Value Tail

Add value with a tangible incentive that endures well beyond the purchase, thus reminding the customer of the value they received. For example, I recently bought a wireless printer and received a large pack of photo paper as part of the purchase. I’m continually reminded of the value every time I print a new picture.

6. Clearly Communicate the Value

You don’t necessarily have to add anything to the equation so long as you have something to communicate which is already meaningfully different and valued by the intended buyer. It could be a customer rating, award, product feature or a better, proven record of performance.

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