HA405 : The Class : Product/Service : Product/Service : lesson3-1

The "marketing-concept" is the underlying principle for "consultative-selling." Consultants are like doctors. They must first find out what the patient needs or what their problem is and then prescribe the right medicine to address these needs or correct the patient’s problem. If sellers are to be successful, they must produce items (products and services) that can satisfy what the customer needs. The "marketing-concept" relies on the procedure of: (a) first, discover potential customer needs, and (b) Second, design the right products/services that satisfy needs.

Customer needs are not the product/service itself. Like the medicine the doctor prescribes, the patient doesn’t focus on the specific medicine; they focus on and desire what the medicine can do—the results that it can produce. Thus, products have many "features" which produce "benefits" to the customer. The customer focuses only on the benefits.

In a world where there was one supplier and not competition, the selling job would be easy. First, simply ask the customer what they need. Second, design a product/service to satisfy that need. Finally, communicate to the customer that you are offering a product/service that delivers the benefits that they seek. There is almost no doubt that they would buy it.

The world is not simple. There are many competitors asking the same customers what they want and need and designing products/services to provide benefits to satisfy these needs. In fact, there are many "look-alike" products/services. So, the job of the seller is to "differentiate" their offerings from their competitors.

"Differentiation" is the key to competitive advantage. The customer is looking for and will buy from the seller who delivers the highest "customer delivered value."

The following discussion addresses in order: (a) Products/Services as "features" that deliver "benefits," (b) How customers view products/services when they perceive "differentiation" between competitors and when they determine "customer delivered value."

Features. Products and services can be physically described by features. For example, a hotel has a 2000 square foot meeting room. The "feature" is the 2000 sq. ft meeting room. Or, the hotel is located at the intersection of Interstate 40 and Interstate 17. The feature is this location.

Features can be related to the product itself. For example, "our hotel owns and has on property over $1 million in Audio/Visual equipment

Features can be related to the employees of the company. For example, "we have full-time conference coordinators (Convention Service Managers) who will "baby-sit" your meeting." Or, "our salespeople are all thoroughly trained and always provide solid after-sale service."

Features can be related to the company and management. For example, "our owners are very customer-oriented as they all have extensive sales and marketing backgrounds.

The problem is that customers don’t buy features. They buy the "benefits" that the features can deliver. Successful salespeople make sure that they translate features into benefits. Customers have a problem to solve and therefore want to hear about the benefits that solve these problems.

Benefits. Since customers buy benefits, successful salespeople don’t assume that the customer accurately translates the seller’s features into benefits. Successful salespeople ALWAYS translate the features into benefits for the customer. Using the above "feature" examples:

1. (Feature) "We have a 2000 square foot meeting room (translation statement) which means to you (Benefit) that your meeting attendees will have very comfortable seating and working conditions."
2. (Feature) "We have over $1 million in Audio/visual equipment on property (Translation) which means to you (Benefit) that if you have any overhead projector bulbs that burn out or sound feed back in you microphones, we can simply go down the hall get replacements an quickly solve the problem."
3. (Feature) "We have full-time conference coordinators that baby-sit your meeting (Translation) which means to you (Benefit) that you can worry about the content of the meeting as opposed to worrying about making sure all of the hotel personnel are doing their jobs for you."
4. (Feature) "Our owners are sales and marketing oriented (Translation) which means to you that they have instilled a customer-service orientation in all of the hotel’s staff and look at everything from the customer’s viewpoint, thus they are always looking out for your interests."

Determining "Customer-Delivered Value

Products and Services as "Bundles of Benefits." Products and services are Problem-Solving tools. People buy products if they solve a problem or satisfy a need. One way to view a product or service is as a bundle or cluster of benefits or satisfactions as viewed by the potential customer (See Figure 1). Not all of the levels are equally important to all customers. For example, a very sophisticated customer may demand all levels while a less sophisticated buyer may not be aware of or "expect" more than the "core" product/service.

1. Core = Product/Service basics
2. Expected = both equal "hygiene factors"
3. Augmented (value-added)
4. Potential = both equal "motivational factors"

The model (Figure 1) indicates that a product/service has many components, which are not all equally desired by every customer. Sellers must therefore intimately know what the customer needs or desires and be sure to focus on those benefits.

Selling Motivators -- Frederick Herzberg’s (p. 202 , Tracy, Advanced).

Herzberg theorized that the various levels of products/services have differing power to motivate customers; to choose your offering over a competitor’s.

Salespeople often treat All features/benefits as equal in their ability to motivate a customer to buy. This is not true. For example, a hotel may talk about the "high quality" of service (a feature). In today’s world, if you are not a "quality service provider" you are not even considered a player. The customer expects all properties to have quality customer service. This is an example of a "Hygiene Factor."

1. "Hygiene Factors" (the core and expected product of Levitt)

1. These are "must-have" variables- they don’t motivate the sale but a lack of them "demotivates" the sale.
2. Customers’ Rising Expectations – have quickly relegated "quality", "service" and price/value to "hygiene factors" and Levitt’s "expected" product.

1. "Motivational Factors" (value-added [augmented] and potential product of Levitt)

The lesson from the above discussion is for the seller to clearly understand the customer’s needs from the customer’s perspective, the benefits that are important, and stress those benefits during the selling presentation.

Customer-Delivered Value Formula. Customer-Delivered Value (CDV) = ‘s Total Customer Value (TCV) minus Total Customer Costs (TCC). Customers buy from the firm that they believe offers the highest CDV.

TCV is derived from the four (4) levels of product/service in Figure 1. Of course the value perceived by the customer is their judgment as to the value. Judgments can be influenced by the salesperson or other marketing communication. Other influencers are word-of-mouth from friends and acquaintances as well as general reputation.

TCC come from the costs of money, time, energy, and physic factors (worry for example). Customer’s also perceive and judge costs.

CDV in effect is seen as "profit" by the customer. It is the excess of gain in value over costs to the customer. Based on judgments of value and costs, the customer makes a decision as to whether or not they will obtain a profit. If a profit is determined, they will buy.

These profit/loss calculations become "Expectations"

Customer Satisfaction Formula. Product Service Performance (PSP) minus Customer Expectations (CE) =’s Customer Satisfaction (CS) or Customer Dissatisfaction (CD). Customers are satisfied with performance that meets or exceeds expectations. Satisfaction can generate repeat business, customer referrals and long-term relationships between buyer and seller.

The key is in "expectations." The right level must be set. Too low and there will be customers attracted and satisfied but not in quantities large enough to maintain profitable revenue. Too high and buyers are likely to be disappointed and dissatisfied.

In a world of look-alike products/services, the competitive advantage war is being fought through Customer-delivered value (DDV). To "differentiate" sellers seek to offer products/services that deliver the highest value. CDV is determined by the difference between perceived and actual value (found in the 4 levels of the product) and perceived and actual costs. Thus, CDV can be increased in two ways: (a) higher value and/or (b) lower costs.

The levels of product/services are the arenas in which to raise value. Successful sellers are expanding value of their offerings into the 3^rd and 4^th circle of Figure 1 (Value-added and Potential Product/service). Thus, these companies are "differentiating" by first raising expectations and then raising performance to meet or exceed expectations yielding customer satisfaction and competitive advantage. One only needs to look at the Ritz-Carlton and their quality journey to winning the Baldrige Award or Nordstrom’s for examples of rising CDV through the product/service levels and subsequent long-term "competitive advantage" in the marketplace.

Go back to Step 3: Know Your Product/Service

Send E-mail to Richard G McNeill Ed.D., CHME
or call (520) 523-1713

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