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How Customers Make Tradeoffs and Why They're Important

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Every day we make trade-offs. We go to a convenience store and we pay a higher price for milk. You find a great deal on a product, but chances are you won't get much service or some other amenities. Go looking for a house, and it's filled with making trade-offs, including distance to work, tax rates, the nature of the neighborhood, and the scholastic rating of the schools. Indeed, trade-offs are not just between price and other benefits, but between all the benefits associated with any choice decision.

Since we make trade-offs, we tend to tend to place a higher weight on those benefits we really need, and trade-off by placing a lower weight on the other things. So, if convenience is important to you, you place a higher weight on convenience and a lesser weight on price (and this allows you to accept the higher price). These weights that we place on the various possible benefits are, what we call in marketing, preferences.

So how do we represent these trade-offs in marketing? One way might be to ask customers which benefits are most important to them, and you see this in the many surveys administered by marketing research and polling companies. Or you might ask them to rank the various benefits, putting them in order from most important to least important (or what we prefer the most to what we prefer the least). These different ways are shown below:

Benefit
How Important (1-7)
Priority
Trade-Offs
Low Price
7
2
40
Safety
6
3
10
Fuel Economy
7
1
40
Road Handling
6
4
10

But notice how in the second column the benefits are essentially free (you could place a 7 on each benefit) and there are no trade-offs. This type of scale is essentially worthless for capturing preferences, but it's used all the time in practice (be skeptical of any results based on this type of preference scale).

The third column is better, since it begins to reflect this trade-off. But the fourth column is the best. By giving customers 100 points to spread across the various benefits (putting the highest number of points on the benefits they most prefer), we are truly representing the type of trade-offs customers make in the world. This is the way we represent customer trade-offs in academic marketing research.


Analytic techniques exist that measure these tradeoffs, and you can see a tutorial on one of these techniques (Conjoint Analysis).


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Allen Weiss is the founder and publisher of MarketingProfs.com. He can be reached at amw@marketingprofs.com.

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