Two of the most important concepts in marketing are customer value and customer satisfaction. Though the two concepts are related to each other, they also function independently. Customer value refers to the relationship between the quality of a product or service and the price that is paid by the customer to acquire that product or service. Customer satisfaction, on the other hand, refers to the extent to which the expectations of the customer regarding the product/service are consistent with its actual performance.

The two terms will be described in detail in this article, and the differences between them will be elaborated.

Definitions and explanations

Customer value

Customer value is present when the benefits offered by a product are more than the costs used to acquire that product. In other words, it is the trade-off between the benefits being obtained and the price being paid to obtain those benefits. Customer value can be determined by subtracting total customer costs from total customer benefits.

The benefits to customers can comprise of product quality, warranty, after-sales services, maintenance and repair costs, free of cost delivery, relationship of staff with customers, etc. The total cost include not just the cost of production, but also the time and efforts used, risks involved, emotional stress, and so on. Customer value is essentially determined by some key factors like adherence to product standards, price, brand, product alternatives, customer experiences and relationships.

Before customers make the decision to purchase a product, they assess its perceived value in comparison with the perceived value of other competing products available in the market. They will decide to buy the product/service that has the highest perceived value. Hence, it is important for a company to perform better than its rivals in each and every aspect so as to be successful in the market. High customer value is quite important for an organization as it leads to delighted customers, improved market share, satisfied employees, competitive advantage and enhanced image of the company in the market.

Value is computed by customers before purchasing a product as it enables them to choose the best product in the market. Hence, customer value is a proactive process. It is also known as pre-purchase assessment of the product by the customer. When customers believe the value of a product or service to be low or if they believe that it offers comparatively less value in comparison to other competing products, then that product will not be bought by the customer.

Companies should assess customer value metrics as it would help them in developing a product that offers greater benefits than competitors at the price that the customers are willing to pay.

Customer satisfaction

Customer satisfaction refers to the evaluation by customers of how well the value was delivered by the product, i.e. did the product deliver the value that they expected to receive from it? Hence, it takes place after the customer has purchased the product.

Customer satisfaction is the degree to which the customer expectations of the product were consistent with the way the product actually performed. Customer expectation and the way they comprehend the actual performance of the product is more emotional in nature. A person feels satisfied and does think not satisfied. Hence, customer satisfaction is highly subjective and very difficult to measure.

The expectation of a customer may be affected by previous experience, suggestions from friends, the promise made by the seller and information about competitors. A customer can only evaluate a product after having experienced it; hence, customer satisfaction is a post-purchase phenomenon. When customer experience fulfills the perceived value, then a customer achieves satisfaction with the product, and if it does not, then the customer is dissatisfied. Hence, it can be said that customer value changes into customer satisfaction after the offering has been experienced by the customer.

Difference between customer value and customer satisfaction

Some points of difference between customer value and customer satisfaction have been listed below:

1. Meaning

Customer value is the difference between the total benefits expected from a product/service and the total costs incurred to obtain that product or service. On the other hand, customer satisfaction refers to the difference between the actual performance experienced by a customer and the expectation of the customer.

2. Type of process

Customer value is a proactive process as it takes place before the customer has actually experienced the product, i.e. it is the prepurchase assessment of a product by a customer. In contrast, customer satisfaction is a reactive process, which is basically the difference between the expectation of the customer and the experience of the customer after using that product/service. Hence, it is the post-purchase analysis of a product by the customer.

3. Concept

Customer value is evaluated from the point of view of customers. It is essentially the thought process of the customers, where they carry out a comparison between the value gained from a product in comparison to that provided by a competing product, so as to determine the products that offer higher benefits at a low cost. Customer satisfaction, however, is an emotional concept as it pertains to the feelings of customers. We determine how satisfied we are from a purchase on the basis of our experience of using that product/service.

4. How they are used

Customer value is a strategic measure that determines product compositions, pricing strategies, distribution methods, communication systems and processes. On the other hand, customer satisfaction offers a means of assessing how customers respond to these measures. It is essentially a transactional measure that is used most appropriately in a post-sales interaction between the customer and the company.

5. Computation

Customer value is determined by simply subtracting total costs from benefits and can be described in monetary terms. Customer satisfaction is measured in qualitative terms as subtracting actual performance from the expected performance is more subjective in nature. It involves emotions and is difficult to quantify.

Customer value vs customer satisfaction – tabular comparison

A comparison of customer value and customer satisfaction in tabular form is given below:

Customer value vs Customer satisfaction
Meaning
The relationship between the total benefits to customers and the total costs incurred to gain those benefits The relationship between the expectations of the customers regarding a product and the actual experience
Type of process
Proactive Reactive
Concept
Relative concept; comparison of a product with its competitors to determine the product that provides greatest benefits at the lowest cost Emotional concept
How they are used
Strategic measure Transactional measure
Computation
Total benefits minus total costs Cannot be quantified

Conclusion – customer value vs customer satisfaction

Customer value and customer satisfaction are two terms that are highly inter-related and highlight the significance of customers to an organization.

It is not correct to use the terms interchangeably because they have different effects on the buying decision. The initial purchase of a product is made on the basis of value, whereas satisfaction determines whether the product will be repurchased by the customer or not. Once the customers have purchased a product, they determine if their expectations regarding the value to be provided by the product was actually delivered to them. If the customer is satisfied, they are likely to make a repeat purchase, but if they are not satisfied, there are lower chances of them re-purchasing the product. Hence, it is important to comprehend the differences between the two terms so as to ensure that these theoretical concepts are properly applied to achieve business success.