Customer Cost

Customer cost refers not only to the price of a product, but it also encompasses the purchase costs, use costs and the post-use costs. Purchase costs consist of the cost of searching for a product, gathering information about the product and the cost of obtaining that information. Usually, the highest use costs arise for durable goods that have a high demand on resources, such as energy or water, or those with high maintenance costs. Post-use costs encompass the costs for collecting, storing and disposing of the product once the item has been discarded. Customer cost refers not only to the price of a product, but it also encompasses the purchase costs, use costs and the post-use costs. Purchase costs consist of the cost of searching for a product, gathering information about the product and the cost of obtaining that information. Usually, the highest use costs arise for durable goods that have a high demand on resources, such as energy or water, or those with high maintenance costs. Post-use costs encompass the costs for collecting, storing and disposing of the product once the item has been discarded. The term price usually refers to the amount of money charged for a product or service. It represents the payment made by the consumer and received by the producer when the ownership of the product or service is transferred from the seller to the buyer. The price of a product has different functions: for the producer, the most important one is to produce revenues and to cover the costs of production, distribution and sale of a product. Price also signals quality and reflects existing supply and demand. It can promote competitive advantages by helping to achieve various marketing objectives and allowing for market segmentation. For the consumer, price is only one part of total cost of a product. The consumer has the additional costs of transportation, usage and eventually, disposal of the product. Together, these costs are referred to as the total customer cost (TCC). In contrast to price, which is a producer-oriented concept, TCC focuses on the consumer and includes all of the steps of the overall consumption process. Conventional marketing and microeconomic theories assume that consumers intend to maximize their benefits and minimize their costs. Consequently, consumers choose the product with the highest difference between the expected benefits and the costs of obtaining the product. Price is of special importance in the cost assessment process, since it is expressed in monetary terms and known to the consumer before the purchase. Price is also a part of the upfront costs, and consumers have a tendency to focus more on present costs than on future loses or gains.