Connecting Price and Satisfaction

From a marketing perspective, price consists of all that a customer gives up in order to acquire or use a product or service. Price in this context has two aspects:

• Monetary price • Non-monetary price    Monetary price

Monetary price refers to all of the aspects of acquiring products and services that require customers to bear out-of-pocket expense. Monetary price can include a wide variety of costs, charges, and fees. Entrepreneurs should carefully assess all aspects of how these factors impact customers in order to effectively address monetary price issues.

A holistic view of monetary price might include factors like these:

• Transportation costs, including fuel, parking, and storage requirements to acquire products and services

• Barriers to entry like set-up fees, deposits, membership dues, and minimum purchase requirements

• Undocumented costs like installation, supplies, accessories, additional insurance, and service contracts

• Barriers to exit like restocking fees, early termination penalties, disposal expenses, and special handling requirements at end-of-life (batteries and appliances, for example)

The more thoroughly an entrepreneur understands the total monetary costs that a customer must bear to patronize a business, the more effectively that entrepreneur can manage customer relationships.  

Non-monetary price

Non-monetary price refers to all of the aspects of acquiring products and services that require customers to exert effort, endure pain, or otherwise tolerate an inconvenience, embarrassment, or disruption.

Non-monetary price components might include factors like these:

• Unresponsive customer service  

• Unusual or unexpected waiting times

• Confusing or conflicting consumer information

• Inappropriate marketing materials

• Difficulty in adopting new acquisitions to existing methodologies

• Embarrassment in acquiring the wrong solution

• Risk that the acquisition will be unsatisfactory

• Lack of a clear path to satisfaction

• Cumbersome internal processes

In short, any aspect of the acquisition process that takes a customer to the point of saying, “Forget it!” is a non-monetary price.

The more thoroughly an entrepreneur understands the total non-monetary cost structure that impacts a customer during acquisition, the more effectively she or he can find a unique market advantage that will change customer perception of the total acquisition cost of a business’s products and services.

   

Utility theory is an abstract concept taken from the study of economics.

The concept of consumer utility represents an arbitrary relative value. Total utility is the total satisfaction or benefit that an individual gains from consuming a given amount of goods or services. Marketing experts have expanded this concept to include the element of exchange to gain insight into the impact of price on customer behavior. Marketers apply this idea using a method of analysis that removes concepts like money, products, and services from the assessment.

Instead, marketers see customers as having utilities to exchange for products and services. Successfully marketed products and services must give customers at least equal values of satisfaction. Customers have utilities like money, time, and the ability to drive to a retail location or to use the Internet for shopping.

Products and services provide utility to customers by filling needs like hunger, physical comfort, or desire for information. A rational, self-interested customer would seek the best value in the exchange of money, time, and effort to relieve hunger or to acquire information.

The price of a product or service is often assessed by customers in terms of value. Value can be defined as the ratio of perceived benefits to total acquisition cost. Consumer value assessments are often comparative. Worth and desirability are relative to substitutes that satisfy the same need. Examples include artificial sweetener versus sugar and watching television versus going out to movies.

Customer comparison of costs and benefits, including substitute items, creates a reference value. The more substitutes a product or service might have the lower the reference value. The more urgent the customer need the greater the reference value.

On a practical level, utility theory opens a marketer’s thinking to new ways of calculating and portraying price. Examples include huge pack sizes of regularly consumed household products like paper towels at the supermarket. Appliance dealers add value to an appliance sale with free installation and removal of old appliances.

In the service sector, doctors no longer make house calls because physicians can provide better care at a well-equipped clinic. On the other hand, PC technicians do make house calls because personal computers are now appliances!

What is the total utility, or satisfaction, that your clients receive from your products or services?

 

— Excerpted from Price and Distribution as Competitive Advantage by Renaissance Training