In marketing parlance, value is defined as the perception that creates a customer and helps build brand loyalty for a company. Academics reduce the concept of value to an equation: Value = Benefit - Price. An important component of value, often overlooked by businesses, is the perceived fairness of the purchase transaction. Simply put, if customers sense that the price of an item has been manipulated, they are either less likely to buy it or will not be repeat customers.
In the technology sector, some electronics manufacturers are starting to use digital authentication in a way that can cause customers to question the value of their products. Think of digital authentication as a process similar to the one performed every time you insert a card "key" at the hotel to unlock the door to your room.
Consumer electronics manufacturers like Apple, Sony, and Microsoft can use authentication technology to "authenticate" virtually anything that is attached to their mainstay products. Ostensibly, this is done to protect customers by requiring OEM products to meet the major players' engineering specifications or to safeguard intellectual property. But it seems that the technology can also be used to "tax" complementary product manufacturers thereby creating perceived price manipulation in the minds of customers.
Getting "Zuned"
A case in point is the MP3 player and the growing use of authentication software. A couple of years ago, I contacted the Microsoft manager in charge of third-party licensing for the soon-to-be announced Zune music player. I was calling Microsoft to obtain OEM hardware specifications for the Zune player so that our company could make accessories to attach to the Zune. The Microsoft manager was excited at the prospect of taking on Apple's iPod with the new Zune.
Beyond the Zune's new music features, it was going to be different from the iPod in another important way. The Zune would not repeat Apple's mistake of not requiring third-party device manufacturers to authenticate accessories that could be attached to the iPod. The Zune, by contrast, had built-in authentication capability that would render certain accessory devices, like chargers or cables, unusable unless the OEM first obtained a license from Microsoft.
Fast forward to today and it appears that now Apple, starting with its new diminutive iPod shuffle, has adopted the same approach with regard to accessory manufacturers. Only time will tell, but Apple may soon discover that it is creating the perception of price manipulation for its iPod Shuffle player.You can read more about the growing discussion on this subject in a Cnet story
http://news.cnet.com/report-ipod-shuffle-accessories-to-get-apple-tax/.
That Soft Drink Will Cost More on a Hot Day
Another somewhat more egregious example of how technology may be used to negatively affect the customer's perception of value was an "instrumented" soft drink vending machine that I viewed at a development lab a few years back. The vending machine looked like any other you've seen with one additional capability; it was equipped with an outdoor temperature sensor. This allowed the machine to be programmed to increase the price of the can of Coke or Pepsi based on the outside temperature. In other words you'd pay a higher price for the same can of soda on a hot day.
Looking at it from a strictly business standpoint, the technology made it possible to apply the law of supply and demand to an automated vending machine. But you can't help wondering how customers would react had they known of the vending machine's variable pricing capability.
Keeping Customer Loyalty
Manufacturers need to be mindful that today they operate in a "smart market" environment. Consumers know much more about products and their associated value than ever before. Isn't it is far better for companies to innovate and differentiate market making products than to use technology like authentication and instrumentation in a way that can leave customers feeling they are being manipulated into paying more?
Ultimately, it's about gaining and keeping loyal customers and establishing a personal relationship between the customer and the brand. In the Internet age, avoiding the perception of price manipulation is more important than ever.
Copyright: F.A. Daniels, April 30, 2009, all rights reserved.
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