Adapting the Message for Product Characteristics

The first step in developing a value message is determining which customer perceptions to influence. We start with an understanding of the value drivers that are deemed most important to a customer segment. The goal is to help the customer recognize the linkages between a product's most important differentiated features and the salient value drivers. Two product characteristics determine how you should try to influence buyer perceptions of key value drivers: the target customer's relative cost of search for information about the differentiating attributes of your offering and the type of benefits sought — monetary or psychological.

Relative cost of search is the financial and nonfinancial cost, relative to the expenditure in the category, that a customer must incur to determine differences in features and benefits across alternatives. The size of the expenditure is important because investing even five minutes comparing product alternatives may be too much to make a more informed choice about a $5.00 purchase, but spending an hour researching alternatives before spending $5,000 would seem merely prudent. Several other factors determine the relative cost of search, including search characteristics of the product and the customer's expertise in the category. The relative search cost is low when the customer can easily determine product differences before purchase. Such products, called search goods, allow buyers to find information and choose among them prior to purchase. Examples include commodity chemicals, desktop computers, home equity loans, cosmetics, and digital cameras. The objective nature of search goods means that value messages can be quite definitive about the linkage between product features and the value drivers they impact. This concept of explicitly linking product features to benefits is illustrated by GE's “Energy Smart” campaign in which each package of GE flourescent bulbs contains a claim about the savings a consumer could earn through reduced power consumption when she uses the bulb ).

In contrast, experience goods have differentiating attributes that are more difficult to evaluate across brands, requiring the customer to invest substantial time and effort to evaluate the products before purchase. Examples include most services such as management consulting, auto repair, and investment advice, as well as some products such as pharmaceuticals and home entertainment systems. The nature of experience goods makes it more difficult for marketers to establish clear linkages between features and the expected benefits. Consequently, instead of making explicit linkages between features and the associated value drivers, marketers of experience goods will focus on broader assurances of value intended to reduce the perceived risk of purchase and to increase awareness of the potential benefits.

EXHIBIT 4-1 Economic Value Messages for a Search Good

Adapting the Message for Product Characteristics

The relative cost of search declines significantly for expert customers with extensive knowledge about the product category. A technophile can read the feature specifications for a personal computer and quickly infer how it will perform various tasks. A more typical buyer, however, would have to try different brands to make the same inferences. As a result, less sophisticated buyers often develop strategies to lower search costs such as purchasing a brand name or relying on the advice of an expert. The endorsement of an expert can be very powerful, even in business markets. For example, Kaiser Permanente, a western U.S. health maintenance organization, has a reputation for being a well-informed buyer of the most cost-effective medical products. The company often tests drugs and devices itself and will not buy a more expensive product without economic justification. Consequently, when other hospitals and health maintenance organizations (HMOs) learn that Kaiser Permanente has adopted a more expensive product or service, they assume that its price premium is cost-justified.

The relative cost of search diminishes as a customer's expenditure for the product increases. The relative cost of search is high for an individual buying an automobile because so much of the car's performance cannot be determined prior to purchase. However, for a fleet buyer planning to purchase 2,000 cars, the relative cost to evaluate different brands, including buying one of each and trying it for three months, is not prohibitive.

EXHIBIT 4-2 Different Product Types Require Different Communication Strategies

Adapting the Message for Product Characteristics

The content of value messages for high cost-of-search products, such as those on the right-hand side of, should differ from those for low cost-of-search products in the left-hand column. High cost-of-search products are often more complex, and the value derived tends to be more uncertain prior to purchase. Personal services are one example. How can a hair salon communicate the value of its services to new customers? Unlike grocery stores, which frequently offer free samples for search goods such as packaged foods, a salon cannot offer free trials because the cost would be prohibitive. Although advertising might help new customers to become aware of the salon and its location, it would be difficult to craft an ad to clearly demonstrate the differential value relative to competitors, because the quality of a haircut can only be assessed after it has been purchased. Instead of using direct feature-benefit linkages, sellers of experience goods design value messages to reduce the uncertainty associated with their product's benefits. This can be done in a variety of ways such as relying on expert endorsements, using a high price to signal high value, providing money-back guarantees, or leveraging a known brand image to create an assurance that the customer will get high value following his purchase. Community banks have long used feature-benefit associations by focusing their messages on their key differentiators from national banks, such as personal service and understanding the needs of the local community. Advertising messages, for example, might display a happy family at a picnic in an ad related to home mortgages, parents with a graduate in cap and gown communicating the value of college loans, or a couple enjoying a vacation associated with their retirement account.

One of the most effective ways to influence value perceptions for experience goods is to subsidize trial. Health clubs offer free trial memberships. Suppliers of baby products pay hospitals to give away samples of baby formula to new parents. New brands of food products often spend significantly to induce trial with coupons, trial sizes, and free samples in addition to advertising. Their messages strive to increase buyer confidence that the product, when tried, will deliver enough psychological value to justify the choice. The challenge for marketers is to ensure that the discounts provided to induce trial do not undermine pricing to existing customers. This is why, advertisements for new trial promotions such as those used by companies such as Verizon, Comcast, and others showcase the performance, value, and packaging of their cable TV, Internet, and telephone services are accompanied by numerous restrictions in the fine print.

Type of benefits sought also influences communication strategy. Measurable monetary benefits such as profit, cost savings, or productivity motivate many purchases and translate directly into quantified value differences among competing brands. But, for other purchases, especially consumer products, psychological benefits such as comfort, appearance, pleasure, status, health, or personal fulfillment play a critical role in customer choice. Although the value of both psychological and monetary value drivers can be quantified, the way in which that data should be used in market communications differs. For goods in which monetary value drivers are most important to the customer, value quantification should be a central part of the message because the data calls attention to any gaps between the customer's perceptions of value and the actual monetary value of the product. shows an example of a value-based selling tool used by sales people to develop customer-specific monetary value estimates with the customer in the course of a sales call. Notice that the data and assumptions, derived from the value estimation model, are well documented and quite detailed. While inexperienced salespeople sometimes fear that they will be challenged if they make value claims, more experienced salespeople relish the opportunity to engage in give-and-take conversations about precisely how much value their product creates. Only in that context can a salesperson justify a price premium that might otherwise seem unacceptable to a business buyer who is not the actual user of the product.

EXHIBIT 4-3 Spreadsheet Value Communication Tool

Adapting the Message for Product Characteristics

When the important value drivers for a purchase decision are pyschological rather than monetary, it is best to avoid incorporating quantified value estimates into market communications, because value is subjective and will vary from individual to individual. However, one should not conclude that subjective values, such as those that a customer might reveal in a conjoint research study, cannot be influenced by communication. There are two ways to do this. One is to focus the message on high-value benefits that the customer might not have been thinking about when considering the differentiating features of the product. The second is to raise perceptions of the product's performance benefits that cannot be easily judged prior to experiencing them. Batteries all look and feel the same, even after one begins to use them. Not until they are entirely consumed can one actually know the life, and even then one would have no comparison unless two brands were bought and used side-by-side. shows the storyboard for a Duracell commercial. The advertisement is effective in clearly specifying the linkage between the Duracell battery's key differentiating feature of longer life with the benefits that might bring to a variety of customers. Notice that the ad does not mention price or estimates of monetary value its goal is to establish Duracell's differentiation.

In many cases, you may need to communicate both economic and psychological benefits for the same product to the same customers. Hybrid car buyers may want to feel good about protecting the environment, a psychological benefit a manufacturer could promote by reporting the car's reduced pollution ratings while showing it driving through unspoiled scenery. However, the price premium that buyers will pay for a hybrid car also depends on how much money they expect to save from improved gas mileage, an economic benefit the company could communicate by comparing the car's fuel efficiency with that of non-hybrid models.

Another example of combining financial and psychological value messages occurred when Johnson & Johnson had to justify a substantial price premium for its new and unique drug-coated coronary stent, used to keep clogged arteries open. J&J priced its stent at $3,500 — 250 percent higher than traditional uncoated stents and well in excess of the cost of the drug used to coat the stent. Such aggressive pricing aroused critics in the medical professions and in the public press, who accused the company of price gouging and challenged J&J to reconcile the value of the new product with its price. J&J did so by explaining the economic benefits to medical professionals. Stent implantation surgery costs more than $30,000, including the cost of the stent. But in 20 percent of cases, an uncoated stent reclogs in less than a year, requiring a repeated procedure at another $30,000 cost. With J&J's new drug-eluting stent reducing the likelihood of reclogging, the surgery repeat rate fell to around 5 percent. Thus, the objective differentiation value from the smaller reclogging rate was $4,500: the 15 percent rejection rate difference multiplied by the cost of a second surgical procedure. In addition, patients received substantial psychological value in avoiding the risk and discomfort of a repeat procedure, a benefit J&J emphasized to the public. The combination of economic and psychological justification enabled J&J to not only win a larger reimbursement from payers when surgeons used its drug-eluting stent but also to defuse the initial hostility and resistance to its price.

EXHIBIT 4-4 Duracell Ad

Adapting the Message for Product Characteristics

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