Branding Decisions

Abstract

Customer value concept is utilized to evaluate product differentiation and determine the competitive structure of new products. The analytical approach to the new product-market structure based on customer value may be fitted well within the microeconomic framework. The measure of customer value as product efficiency may be viewed from the customer’s perspective as the ratio of outputs (e.g., perceived use value, resale value, reliability, safety, comfort) that customers obtain from a product relative to inputs (price, running costs) that customers deliver in exchange. The derived efficiency value can be understood as the return on the customer’s investment. Products offering maximum customer value relative to all other alternatives in the market are characterized as efficient. Different efficient products may create value in different ways using different strategies (output-input combinations). Each efficient product can be viewed as a benchmark for a distinct sub-market. Jointly, these products form the efficient frontier, which serves as a reference function for the inefficient products (Bauer et al. 2004). Thus, customer value of new products is defined as a relative concept. Market partitioning is achieved endogenously by clustering products in one segment that are benchmarked by the peers. This ensures that only the products with a similar output-input structure are partitioned into the same sub-market. As a result, a sub-market consists of highly substitutable products. Individual values of the customer may be estimated as base values, and changes in such values are affected by the corresponding measures of the specific value drivers. Base value relates to the most important complement: the customers’ need. Estimating value drivers for a new product can be tricky because there is no direct historical data.