Paper info

MEASURING AND DOCUMENTING CUSTOMER VALUE USING TOTAL COST OF OWNERSHIP

Gabriela Piscopo, Dan Bellenger and Wesley Johnston

The paper was published at the 32nd IMP-conference in Poznan, Poland in 2016.

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Value in business markets is generally understood as the tradeoff between costs and benefits that a supplier’s offering generates to the buyer organization. The Total Cost of Ownership (TCO) approach estimates such value in the form of lower costs relative to the next best alternative. Total Cost of Ownership has been defined as all cost associated with the acquisition, use and disposal of a good or service, including logistics and the cost of dealing with a specific supplier (L. Ellram, 1993). With the implementation of a TCO model, sellers can demonstrate to customers the concrete value of alternatives that deliver comparable benefits (Plank & Ferrin, 2002). The purpose of this paper is to close the existing gap in the marketing literature by exploring the Total Cost of Ownership concept in the context of buyer-seller relationships. To serve the intended purpose, this paper is structured as follows: first, we define Total Cost of Ownership and summarize the extant literature in the area. Second, we explain how TCO can be a useful tool in measuring customer value. Next, we discuss why the study of TCO is relevant in marketing and finally, we discuss the factors affecting the success of a TCO initiative.