It’s generally believed that a consumer will
become interested in a proposal and remain engaged in the sales process if he perceives
that the benefit he will receive is worth the cost of obtaining it. This premise seems plausible, but it often
leads to an assessment that fails to consider the breadth of costs involved, or
at best a superficial monetization of benefit and cost that seems
mathematically sound but still fails to explain or predict consumer behavior.
So while it is plausible that an opportunity
in which benefit exceeds cost has the potential to be interesting and engaging
to a prospect, benefit and cost are only two factors and are often considered
superficially and out of context of the prospect’s entire portfolio of needs
and resources. A broader, deeper, and
less quantifiable assessment is necessary to improve the accuracy of prediction
and of strategy development.
Benefit
The benefit is the total motivation of the
prospect to obtain and use a product (good or service), which itself has a number
of factors:
- Functional Benefit
– The practical results of using the product.
- Psychological
Benefit – The feelings that are generated by the use of the product.
- Esteem Benefit
– The way that others will perceive the person who uses the product.
- The Benefactor
– The value of the relationship between the purchaser and the user of the
product.
Each of these dimensions of benefit is imaginary
and subjective. They are imaginary
because the benefits have not been experienced yet and may not be what the prospect
imagines (even if it is a repurchase, he imagines the benefits will be the same
as before. They are subjective because
each person places a different value on the same benefit, e.g. esteem is more
important (hence valuable) to some than others.
Costs
The benefits that the prospect predicts are
first assessed against the cost of obtaining them, but this is often considered
in a superficial and limited manner. The
seller may consider the money-price as his revenue, but the prospect considers
the full scope of costs:
- Money Price – The amount
the buyer expects to pay the seller, plus any additional money costs that
the prospect will incur (taxes, delivery fees, etc.) that require an
expenditure of cash.
- Method and Terms of
Payment – In some instances, the prospect may consider the methods and
terms of payment unacceptable or inconvenient, particularly when hey
violate expectations.
- Time Required – This
includes both the time required to make the purchase and the time required
to use the product to obtain the benefit.
- Effort Required –
Likewise, this includes the effort required to make the purchase and that
required to use the product to obtain the benefit.
Of all these costs, only the money-price is quantifiable:
the rest remain subjective and tend to be of much greater importance to the
buyer than to the seller, who is prone to be dismissive of them. Hence, the most common mistake made by those
who wish to compete on price is figuring that the money price is the only
element that will be considered by the buyer.
Risks
Most experienced customers have been disappointed in one way
or another by a purchase they have made in the past, and are likely to be leery
of future purchases. Specifically, they
are likely to consider the possibility that the deal will not work out as
expected. Factors of risk include:
- Certainty of Benefits –
The assessment of whether the functional, psychological, and esteem
benefits of the purchase will be satisfactory to both the purchaser and
the benefactor
- Certainly of Costs – The
prediction of whether the expected costs (price, terms, time, and effort)
are accurate, and the fear that there will be additional costs involved.
- Certainty of Abilities –
The consideration of whether the purchaser and benefactor have the ability
to obtain the product and derive the desired benefits from it
All risks are imaginary and subjective. The prospect imagines what might go wrong
and performs an assessment of whether they will be encountered. Where the prospect has experience with both
vendor and product, the fear of risk is mitigated, but uncertainty still
remains because past performance is not a guarantee of future results.
Opportunity Costs
External to the purchase, but implicit in the buying
situation, is the consideration of opportunity costs: the money, time, and effort that is required
to obtain and use a product is deducted from the total budget of the purchaser,
user, and beneficiary of the product.
An assessment of opportunity cost should consider these factors:
- Competing Needs – The
estimation of the value of the fulfillment of one need is seen in the
context of all needs that the prospect has. The benefit of this purchase may be
relatively unimportant.
- Competing Costs – The
money, time, and effort of obtaining a product are considered in terms of
the overall impact to the prospect’s budget. Even if the need is important, the cost
may represent too great a sacrifice.
- Proportion of Resources –
In some instances, a prospect may consider the proportion of his available
resources that must be devoted to a given need. To spend a significant portion of one’s
budget on one purchase creates a heightened level of anxiety about the
purchase.
In all instances, opportunity costs involve the assessment
of sacrifice, which is defined as the loss of a greater value for the sake of a
lesser one. Rational individuals do not
make sacrifices, but instead seek to pursue the greatest value even if it means
foregoing lesser values (which is not by definition a sacrifice). The opportunity must therefore be seen in the
context of other values.
Interest and
Engagement
Each of the factors above have largely been considered in
the process of obtaining a product – but the purchase of the product is not the
end a buyer seeks to achieve. The
buyer’s need is satisfied when the product is purchased and used, and only then
is the value delivered. Much can go
wrong along the way.
Neglecting the totality of the experience is a very common
mistake, made by buyers and sellers alike.
For the seller, neglecting engagement leads to dissatisfied customers
and loss of repeat business. For the
buyer, neglecting engagement leads to wasted money, disused products, and a
general sense of dissatisfaction.
Engagement is maintained by reinforcement of the assessment
of the factors that led to interest: whether the prospect still believes the
benefits will be received as expected, that only the costs expected will
actually be incurred, that the risk remains moderate, and that the opportunity
costs are acceptable. If this fails at
any point, the result will be abandonment: the customer will “drop out” of the
sales funnel, or he will discontinue use of the product before receiving the
benefits.
Conclusion and Caveat
The application of a broader and more detailed
assessment of cost, benefits, risks, and opportunity costs can serve to improve
marketing strategies: consider each of the factors and subfactors listed above
from the perspective of the prospect (or prospects, where buyer and user are
separate).
At the same time, this is a work in progress:
what is presented here is the result of some research and meditation on the
topic, and may not be comprehensive: additional factors will be identified and
more granular details will arise. This
is not the ultimate answer, but merely a better one for the time being.
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