Net Buyer Benefit

Is There a Net-Buyer Benefit (NBB)?

In the end, your customers must want your product or service MORE than they want money. As emphasized in the last topic review note, a product-market match is the foundation of the business. And customer value is the foundation of the product-market match.

The difference between the benefit that your customer sees in your product/service (call it gross buyer benefit) and the price that you wish to charge, measures the net benefit to your customer. For ease of reference, this "customer" value is termed net buyer benefit (Ghemawat, 1991):

When the net buyer benefit for your product/service is large, you have room to raise the price if you need to. Here high demand prevents raised prices from decreasing the quantity sold by very much. Economists refer to this situation as inelastic demand. When the net buyer benefit is small, you will feel "price pressure" i.e. you will either not be selling, or your customers will be demanding a discount. Here price is "elastic," since any increase in the price dramatically reduces demand.

Customer value (net buyer benefit) is created when you persuasively communicate to your customers the differences your product/service possesses when compared to others on the market. As customers clearly perceive these differences, gross buyer benefit goes up. As gross buyer benefit goes up, the amount of customer value (net buyer benefit) increases accordingly. When viewed this way, net buyer benefit can be seen in its most simple form. Net buyer benefit exists ONLY because of customer perception.

Your first job as an entrepreneur, then, is to create and manage the way that customers "see" or "perceive" your product/service. This job done well is the key to customer value, and to a profitable business.

If the net buyer benefit is large, then the value to the customer is high. If the amount of net buyer benefit is low, the answer to Question B: Is it valuable? is NO--which means DON'T GO ON with a new venture until the low net buyer benefit situation is remedied. If you have an operating business, and the amount of Net Buyer Benefit is low, the key to raising it is to "differentiate" your product or service.