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Transforming Managers into Global Leaders

Marketing’s Challenge: Monetizing Value

juan-montermoso
In just over the space of a week, Tesla Motors recently booked orders for over 325,000 of its Model 3 sedan, a vehicle not expected to be delivered until late 2017.  And for these advance orders, customers were willing to pay a reservation fee of $1000 to be in line for a delivered model. What was the reason for such an iPhone-like frenzy of demand?

Some may point to Silicon Valley’s fascination with all things new, especially technologically advanced products like the all-electric cars Tesla offers. But this demand was nationwide. Others may point to significantly low price point, $35,000 for the base model, significantly below Tesla’s previous models. So sure, a low price for an electric vehicle was a factor. Yet, in reality, Tesla was only tapping into one of the key drivers of marketing success: Value for customers.

Yes, marketers need to focus, not on the sexy product, but on the needs and wants of the customer in order to find the sweet spot of value. And that sweet spot of value comes down to this simple calculation:  Value = Benefits-Price.  If the value is large and at least better than that of the competitor, then the product or service will be a winner.

Price, (or cost/year)  of course, is easily quantified, whether it be dollars, euros, or yen. But how do we quantify the benefits? This is not always so easy but creative marketers working with their design and operations teams can find ways to monetize the benefits. For instance, in the case of Tesla, marketing might point to the following benefits:

  1. Savings in fuel costs. By going with the all electric Model 3, customers will be insulated from gasoline costs for the life of the product. Since the average automobile is kept for 10 years and driver 12,000 miles per year, and assuming the current gasoline powered car gets 30 mpg, (12000×10)/30, or 4000 gallons of gas purchases worth $12,000 at today’s prices can be avoided.
  2. Re-sale of the brand. While relatively new, Tesla has built a sterling reputation for taking care of its customers and therefor putting their mind at ease. This could be reflected in the high re-sale value Tesla could command, and again one might estimate it at $4000 or $5000 above a regular auto.
  3. Cost per year can be calculated as Price/10 years or $3500/year.

One can quickly calculate the annual value as: $16,000-$3500 = $12,500

Moreover, one cannot underestimate the positive vibes many buyers get from owning and driving a Tesla. The chance to get into one at such an attractive price point, may even be, as Mastercard might say, “Priceless.”

With all these benefits and a value of $12,500, would everyone buy a Tesla? Of course not. But Tesla’s target customer will because they can see and understand the value. And so it is with other products and services. Do your target customers see and understand the value of your offering? Have you communicated enough value in your marketing efforts?

That is the challenge of marketing. But it is one you can handle with the right marketing framework—a framework that begins with finding and monetizing value for your customer.

 

 

 

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