Value; its Classification, Hierarchy, and Transaction

The ‘VALUE’ determines a very important role in every transaction between buyers and sellers. Transactions are sustainable wherein the mutual exchange of value is higher as compared to the underlying costs/expenses.

What is Value?

As a customer, you would wish to maximize the Perceived Value while you spend your money and make a purchase. You perceive a high value in a transaction when the perceived benefits are more than the perceived cost (price). Considering this fundamental factor, manufacturers also tend to deliver a Good Customer Value Proposition through their product quality, service delivery, and marketing communications.

A customer’s behavior in a purchase transaction is closely linked with the Brand Image i.e the perception of the customer about the deal/product/brand/company. It is also influenced by the Brand Identity that the company wishes to create in customers’ minds and attempts to deliver a consistent experience to the customers.

The more positive the brand image, the more will be brand recall & trust amongst the users, and consequently, more will be loyalty towards the Brand. Also, a superior position in customers’ minds provides a higher negotiating power to the company in the market, which leads to a competitive advantage for the company and hence better sales and super-normal profits…

As a customer, the overall value that you receive is delivered to you at your Rational (Cognitive) and Emotional (Feelings) levels. This is achieved by showcasing product features, functional benefits, and emotions in a planned manner by the marketers. These factors form the basis of value classification. Marketers connect with the target audience through planned positioning using both traditional and digital marketing channels. For example, ads on TV, in newspapers, and in magazines; display ads on websites; videos on Youtube, etc. . In addition, companies intend to deliver a consistent experience to the users at each of their encounters of the users with the company to develop trust and reliability towards the brand.

Value Classification

Based on whether the marketing communications are targeted to the audiences’ Cognition Or Emotions, the perceived value classification can be done as the following:

  • First-Order
  • Second-Order
  • Third-Order

First-Order value

The First-order values target the cognitive strength of the users and relate to the features provided by the products. More features mean more value. Different users may give different weightage to these features. The weightage would depend upon the relevance of the features for the users. It is quite possible that a few users may never use certain features in a product. However, a feature-rich product does hold a value and also forms the basis for other higher-order values.

Second-Order value

The Second-order values correspond to the functional benefits that the product is expected to deliver to the users through its features. These benefits serve as the primary reason for the product purchase. Second-order benefits fetch medium-order value to the users and get precedence over first-order benefits while evaluating multiple products.

Third-Order value

The Third-order values connect with the emotional & spiritual benefits that the buyers perceive while making a purchase decision. The motivation behind the purchase is either an underlying feeling/desire or a risk mitigation opportunity, that the buyer aspires for. First-order and second-order benefits reinforce the third-order benefits. 

Hierarchy in Value Classification

First-Order values correspond to Features, also termed lower-order values, and are placed lowest in the value hierarchy. Similarly, Second-Order Values defining Functional Benefits are termed medium-order values and carry a relatively higher value than features.  And finally, the third-order values wherein, the users’ Emotional values are satisfied, carry maximum weightage, and are placed at top of the value hierarchy. Hence Third-Order values are ranked highest in the Value-Hierarchy followed by Second-order and First-Order values respectively.

Transaction

Value buying/transaction can be considered as the purchase transaction wherein you make an informed purchase decision. You are rationally and emotionally aware of your purpose for buying the product, your customer segment, Brands & product options available in your customer segment, product-feature specifications in line with your purpose, and the price being charged to you for that transaction.

The above may feel too technical. However, it is highly probable that you are already practicing the same in your day-to-day purchase transactions, subconsciously. Here, with the above insight, you may see a holistic view of two-way transactions. And a structured and standard way of buying products/services.

Customer Lifetime Value (CLV)

CLV is the total worth of a customer to a business over the whole period of their relationship. The relationship and hence the CLV will be high if the customer receives a high value during every moment of truth. This should happen at each Feature, Functional and Emotional level of transactions with the company/Brand.

If the company strategically identifies the instances or moments of truth including the product design and features, product quality & performance during its use, customer education, and customer support, etc… the overall value delivered to the customers will be high leading to customer satisfaction and customer loyalty.

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