Module 3 Early Means-End Chain Value Models

1. Module 3Early Means-End Chain Value Models

2. Module 3 Objectives • Know what a means-end chain is. • Gain a practical understanding of classic means-end chain and other value models: • Grey Benefit Chain • Zeithaml • Woodruff’s Customer Value Hierarchy • Christensen’s Exploration Space • Know the differences between these models and the strong points of each relative to each other and relative to the basic value equation (value=benefits/costs). • Be able to apply the components of these models to practical examples.

3. Means-End Chains • A theoretical model defined by a series of antecedent factors (the means) that lead to or cause consequent factor (the end). • The end factor is, therefore, a function of all “means” factors.

4. Part IThe Grey Benefit Chain

5. Emotional or Psychological Benefit Product Feature or Claim Making the Link

6. Product A good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers.

7. Why Important? • The combination of features/attributes define a product offering. • Features/attributes are the lowest, most concrete level of a product’s value hierarchy. • Points of differentiation are generally defined by certain features/attributes. • Emotional benefit important because it is viewed as the “highest level”, can be the most powerful. It is the “outcome” that customers experience.

8. Functional Benefit Emotional Payoff Practical Benefit Product Feature Grey Benefit Chain

9. Benefits Value = ___________ Costs

10. Functional Benefit Emotional Payoff Practical Benefit Product Feature Grey Benefit Chain

11. Part IIPrice, Quality, and Value: The Zeithaml Means-End Value Model

12. Extrinsic Attributes Perceived Quality Purchase Perceived Value Intrinsic Attributes Intrinsic Attributes Perceived Sacrifice Perceived Monetary Price Perceived Non-Monetary Price Objective Price Figure 1 - Zeithaml’s Means-End Model

13. Definitions • Intrinsic attributes – comprise the actual composition of the product such as flavor, color, texture, etc. • Extrinsic attributes – exist outside the product offering itself such as price, brand name, level of advertising, reputation (brand image), etc. • Objective price – actual price, an extrinsic cue.

14. Extrinsic Attributes Perceived Quality Purchase Perceived Value Intrinsic Attributes Intrinsic Attributes Perceived Sacrifice Perceived Monetary Price Perceived Non-Monetary Price Objective Price Figure 1 - Zeithaml’s Means-End Model

15. Objective Quality Measurable and verifiable superiority on some predetermined ideal standard or standards.

16. Category Specific Higher-level Quality Indicators • Performance • Features • Reliability • Conformance • Durability • Serviceability • Aesthetics • Image • Reliability • Empathy • Assurance • Responsive-ness • Tangibles • Purity • Flavor • Freshness • Appearance

17. Cross-CategoryHigher-level Quality Indicators • Brand name • Level of Advertising • Reputation • Product Warranties • Seals of Approval • Price

18. Subjective/Perceived Quality Consumer’s judgment about the superiority or excellence of a product.

19. “There are no best products. All that exists in the world of marketing are perceptions in the minds of the customer or prospect. The perception is reality. Everything else is an illusion.”

20. Quality Hypotheses that Emerge from the Zeithaml Model • Consumers use lower level attribute cues to infer quality. • Consumers depend on intrinsic attributes a) at the point of consumption, b) in pre-purchase situations when intrinsic attributes are search attributes, and c) when the intrinsic attributes have a high predictive value.

21. Quality Hypotheses that Emerge from the Zeithaml Model • Consumers depend on extrinsic attributes more than intrinsic attributes a) in initial purchase situations when intrinsic attributes are not available, b) when evaluation of intrinsic cues requires more effort and time than the consumer perceives is worthwhile, and c) when quality is difficult to evaluate.

22. Price Hypotheses that Emerge from the Zeithaml Model • Monetary price is not the only perceived sacrifice. • A general price-perceived quality relationship does not exist. • Price as an indicator of quality depends on a) availability of other cues, b) price variation within a class of products, c) level of price awareness of consumers and d) product quality variation within a class of products.

23. Value Hypotheses that Emerge from the Zeithaml Model • The benefit components of value include intrinsic attributes, extrinsic attributes, and perceived quality. • The sacrifice components of perceived value include monetary prices and non-monetary prices. • Perceived value affects the relationship between quality and purchase.

24. Extrinsic Attributes Perceived Quality Purchase Perceived Value Intrinsic Attributes Intrinsic Attributes Perceived Sacrifice Perceived Monetary Price Perceived Non-Monetary Price Objective Price Figure 1 - Zeithaml’s Means-End Model

25. Four Definitions of VALUE • Value is low price. • Value is whatever I want in a product. • Value is the quality I get for the price I pay. • Value is what I get for what I give.

26. Management Implications From the Zeithaml Model • Closes the quality perception gap • IDs key intrinsic and extrinsic attribute signals • Acknowledges the dynamic nature of quality • Understands how consumers encode monetary and nonmonetary prices • Recognizes multiple ways to “add value”

27. Extrinsic Attributes Perceived Quality Purchase Perceived Value Intrinsic Attributes Intrinsic Attributes Perceived Sacrifice Perceived Monetary Price Perceived Non-Monetary Price Objective Price Figure 1 - Zeithaml’s Means-End Model

28. Part IIIWoodruff’s Customer Value Hierarchy

29. Quality Management • Principal business strategy of the 70s and 80s. • Objectives: improve quality of products and internal operations processes. • Result: internal orientation. • Customer satisfaction management (CSM) • Purpose: to bring the “voice of the customer” into quality management efforts.

30. Shortcomings of the Customer Satisfaction Management Movement • Many organizations set customer satisfaction management (CSM) goals, but failed to measure customer satisfaction (CS). • Those that did measure CS may didn’t necessarily act on the results. • Many found that CS is not related to organization performance.

31. Woodruff’s Value Definition “Customer value is a customer’s perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use that facilitate (or block) achieving the customer’s goals and purposes in use situations.”

32. Woodruff’s Value Definition • Definition adopts a customer perspective • Incorporates both desired and received value. • Emphasizes that value stems from customers’ learned perceptions, preferences, evaluations. • Links together products with use situations and related consequences by goal oriented customers.

33. Woodruff Customer Value Hierarchy Customer Satisfaction with Received Value Desired Customer Value Customers’ goals and purposes Goal-based satisfaction Consequence-based satisfaction Desired consequences in use situations Desired product attributes and attribute performances Attribute-based satisfaction

34. Functional Benefit Emotional Payoff Practical Benefit Product Grey’s Benefit Chain

35. Extrinsic Attributes Perceived Quality Purchase Higher-level Abstractions Perceived Value Intrinsic Attributes Intrinsic Attributes Perceived Sacrifice Perceived Monetary Price Perceived Non-Monetary Price Objective Price Figure 1 - Zeithaml’s Means-End Model

36. Satisfaction A person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her pre-purchase expectations.

37. Expectancy-Disconfirmation Model • Confirmation • product matches expectations • satisfaction • Negative disconfirmation • product delivers less than expected • dissatisfaction • Positive disconfirmation • product delivers more than expected • Satisfaction/delight

38. A Simplified Expectancy-Disconfirmation Framework

39. Customer Value Hierarchy Model Customer Satisfaction with Received Value Desired Customer Value Customers’ goals and purposes Goal-based satisfaction Consequence-based satisfaction Desired consequences in use situations Desired product attributes and attribute performances Attribute-based satisfaction

40. Customer Value and Customer Satisfaction • Both describe evaluative judgments about product offerings. • Both place special importance on the use situation. • Satisfaction is the customer’s feelings in response evaluations of one or more use experiences. • But what do customers evaluate?

42. Part IVDiscovering What Has Already Been Discovered: Why Did Your Customers Hire Your Product? Clayton Christensen

43. The Classic Approach to Adding Value • Identify the target market for a specific brand. • Gather data (focus groups, surveys, interviews, observation) from a sample of this segment. • Data is gathered (state-of-the-art methods) as consumers consider the brand and the product category that it comes from. • Features and attributes that will provide “more value” are identified. • Product designers integrate this information into the next generation of products. • Result: unexciting, me-too, and flop products.

44. The Classic Approach – Why Doesn’t it Work? • Companies conduct their research in terms of product categories and technological competencies. • They set out to truly understand what the customer’s needs and wants are, but they do so from their own perspective. • They compare their own brand to other brands within the same product category while customers scan across product categories. • They seek to be truly market driven, but are doing so as driven by the product category. • In most cases of jumping to the next level of customer value, the customers themselves do not know what it is.

45. Examples of Marketing Myopia Failures • Railroad industry • Passenger buses • Margarine • Accounting software for small businesses Successes • Baking soda • Quicken • Milkshakes

46. Inventor’s Dilemma Entice customers to change their behavior in order to use the “better” product that they have come up with.

47. Other “Great” Inventions • Automatic Seatbelts • Motorola’s Iridium Satellite Phone • Chevy Avalanche • DVD Audio

48. Let the Customers Do The Work • Customers are ingenious and inventive. • Companies should simply seek to discover what has already been discovered. • How are customers accomplishing the job-to-be-done?

49. Focus on Goals vs. Solutions • Customers should not be trusted to come up with new-product solutions. • They are not expert or informed enough. • They have a limited frame-of-reference. • Customers should be asked for their desired goals/outcomes.

50. Customer Value Hierarchy Model Customer Satisfaction with Received Value Desired Customer Value Customers’ goals and purposes Goal-based satisfaction Consequence-based satisfaction Desired consequences in use situations Desired product attributes and attribute performances Attribute-based satisfaction