Customer Value vs Customer Satisfaction
Though customer value and customer satisfaction sound similar there are some differences between them. Customer value and customer satisfaction emerge from the same core concept of customer delight. However, both are used to identify different parameters of customer experience, customer perception, and purchasing behavior. So, there are some obvious differences between them. But, on simple sight, they are hard to spot. Both concepts are important for all organizations, and they need to concentrate on them for business excellence. The benefits of excelling in customer value and customer satisfaction are customer loyalty, customer retention, high customer lifetime value, market leadership, and goodwill. Both concepts are subjective as they have the tendency to be different from person to person.
What is Customer Value?
Value is one of the highly misused concepts due to ambiguity and lack of clarity as per Gummerus. Different authors have explained customer value in different modes. So, proper classification of customer value is important. From a theoretical background, the value is the total perceived benefit exceeding the total perceived cost. Customers evaluate the trade-off between the benefits they are acquiring and the price they are paying for those benefits. Customer value can be shown as an equation as below:
Customer Value = Total Customer Benefits – Total Customer Costs
The benefits can be product quality, after-sales services, warranty, repairs costs, free delivery, customer friendliness, etc. Total customer costs are not only limited to the price, it can include time spent, energy spend, risks, emotional stress, etc. The major attributes that contribute in deciding the customer value are conformance of product standards, product choices, price, brand, value added services, relationships, and experiences.
The customers evaluate their perceived value of a brand with other brands available in the market, before deciding on the purchase. They will buy the product/ service that has superior perceived value comparatively. So, an organisation has to outperform their competitor in all aspects to be a success story in the market. Benefits of superior customer value for the organization are delighted customers, satisfied employees, enhanced market share, competitor edge, and improved brand image. Customers calculate value, before purchasing as it assists them to make the best choice available in the market. So, customer value is proactive.
Evaluation of customer value metrics assists an organisation to plan a product with higher benefits than competitors with the price customer willing to pay. Specific value propositions can be offered to respective customer segments.
What is Customer Satisfaction?
Customer satisfaction can drive an organisation to excellence while dissatisfaction can send it out of business. It has such uniqueness to it. Customer satisfaction can be classified as the match between customer expectations of the product and the product’s actual performance. Customer expectation and how they understand the actual product performance is more emotional. Satisfaction is felt by an individual and not thought. So, it differs from person to person and is very complex to quantify.
Customer expectation can be influenced by past consumption experiences, recommendations from friends, seller promise, and competitor information. From the customer’s view, a proper evaluation can only be done by experiencing the product or service. So, customer satisfaction is a post-purchase phenomenon. So, it’s a reactive response. Satisfaction can only be measured by comparing pre-purchase expectation and post-purchase experience. If the product experience meets the perceived value, it is satisfaction. If not, it is dissatisfaction. So, customer value transforms as customer satisfaction once the customer experiences the offering. However, customer expectation can’t always be termed as customer value. At times, customers may have higher expectations than what can be actually provided.
What is the difference between Customer Value and Customer Satisfaction?
Customer value and customer satisfaction have been classified and their similarities have been discussed. Now, we will differentiate the two concepts.
• Pre-purchase or Post-purchase:
• Customer value is a proactive component, which reflects the state of difference between customer benefits and customer costs before purchase (pre-purchase ).
• Customer satisfaction is a reactive component, which reflects the state of difference between product or service experience with that of expectation (post-purchase).
• Competitor Comparison:
• Customer value is a relative concept, where customers compare an offering with that of competitors in deciding which products offers more benefits with fewer costs. Deciding on the value is a thought process from customer viewpoint.
• Customer satisfaction is an emotional concept, where it is felt. Satisfaction cannot be competitor centric. This is because, a customer chooses the best out of the lot by pre-purchase analysis. So, if it doesn’t meet their expectations, they will not go for less valued competitor products.
• Customer value has a simple equation of deducting costs from benefits. It is rational and can be explained in monetary terms.
• Customer expectation has a complex equation of deducting actual performance from expectations. These elements are hard to quantify. Also, it is emotional. Therefore, it can only be explained from a qualitative viewpoint.
The terms customer value and customer satisfaction are interconnected and express the importance of the customer to an organisation. Understanding the differences will be useful in the correct implementation of these theoretical concepts for business excellence.
- Kotler, T and Keller K. (2012). Marketing Management. 14e Global ed., Pearson Education.
- Gummerus, J. (2013). Value creation processes and value outcomes in marketing theory: Strangers or Siblings?. Marketing Theory – Sage Publications. Vol. 13 (1), pp. 19 – 46.
- Anderson, J. C., Narus, J. A and Rossum, W, V. (2006). Customer Value Propositions in Business Markets. Harvard Business Review. March, pp. 90 – 99.