Customers determine the value of a product or service. In today’s competitive environment, value creation is a corporate advantage. However, building this value is often difficult. People have different ways to assess value. Some folks use traditional ways based on some established reference point, such as a company’s price guide.
Yet, some ways are informal. In many countries, haggling is an acceptable practice of transactional selling. Philip Kotler and Kevin Keller, authors of Marketing Management, explain how businesses must understand customer decision making processes for purchases. They note, “They [customers] tend to be value maximizers, within the bounds of search costs and limited knowledge, mobility, and income.”
Here’s a personal example. My family visited Mexico and began the great American tradition of haggling sellers to get the price of merchandise down. Radio host Dave Ramsey believes everything is negotiable. Anything that is worth the effort of negotiation must have passed the value threshold to the consumer. Paul Peter and James Donnelly, authors of Marketing Management, note that culture, social class, and reference group influences play an important role in consumer behavior.
Some risks are involved with purchasing. This reality has a bearing on value for customers. If decisions involve low risk, they are often done quickly with little thought. Yet, major purchases normally require more risks, like buying a house. Therefore, having a good relationship with the seller is important.
The buying decision stages are (1) recognition of need or problem, (2) determination and description of the traits and quality of the needed items, (3) research for qualified buyers, (4) acquisition and analysis of proposals or bids, (5) evaluation of proposals and selection of suppliers, (6) selection of an order routine, and (7) performance evaluation and feedback.
Mark Johnston and Greg Marshall, authors of Relationship Selling, maintain that many organizational purchases are motivated by the requirements of the firm’s production processes, merchandise inventory, or day-to-day operations. Therefore, customers are very value conscious on high priced items, such as cars.
Customers use varying methods to reduce their buying risks. Negotiation expert Carleen Hawn recommends five common sense approaches for effective negotiations, which are: (a) don’t bargain over positions, (b) separate the people from the problem, (c) focus on interests, (d) invent options for mutual gain, and (e) insist on using objective criteria. In most cases, haggling at a specific retailer involves a one-time transaction. Johnston and Marshall further suggest that value creation is what ultimately gets customers to come back. Therefore, businesses that allow haggling must build relationship selling components for repeat value to customers.
Discuss your professional experience with value creation in your industry or organization.
© 2014 by Daryl D. Green