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Assessing customer purchasing criteria

How can assessing customer purchasing criteria support strategic choice or positioning?

IntermediateStrategicIndividual3 min read

Contents

But why does that customer buy from that company? That is the question.

The central question is simple: why does a particular customer choose one company rather than another?

When to use it

Whenever a strategy, proposition or competitive assessment must begin with evidence about what customers value.

Origins

Tom Peters argued that every business success ultimately depends on a sale—the moment at which customer and company come together.

Understanding the reasons behind that choice is the first of three connected analyses used to assess a firm’s position in each important product–market segment.

What it is

Customer purchasing criteria translate the buying decision into a structured set of needs. They provide the demand-side foundation for determining what a company must do well and how it compares with rivals.

The complete sequence is:

Identify and weight customer purchasing criteria (CPCs): what buyers in each segment require from every potential supplier, including your firm and its competitors.

Derive and weight key success factors (KSFs): what a supplier must do well to meet those needs and operate successfully.

Assess competitive position: compare the firm with its competitors against the weighted success factors, using Rating competitive position.

The analysis therefore begins where strategy should begin: with the customer.

How to use it

Start by asking what buyers in the company’s main segments need from any supplier. Do they want the lowest price that delivers an acceptable product or service? Are they seeking the highest possible quality regardless of price? Or does the desired trade-off sit somewhere between those extremes?

Compare segments rather than assuming all customers value the same things. One group may attach far greater importance to a criterion that another regards as secondary.

Make each need concrete. Is the deciding factor technical specification, delivery speed, reliability, technical support or empathetic customer service?

These supplier-related needs are customer purchasing criteria. In business-to-business (B2B) markets, common CPCs include product quality—features, performance and reliability—alongside range, on-time delivery, technical support, service, relationship quality, reputation, financial stability and price.

Business-to-consumer (B2C) criteria are often similar, though product range and the supplier’s financial stability may carry less weight. The relative importance of quality, service and price changes with the category and consumer group.

CPCs can be organised into six categories describing needs related to:

the effectiveness of the product or service;

the efficiency of delivery or performance;

the breadth of the range;

the relationship with the provider;

the premises, where customers visit the supplier;

the price.

The mnemonic E2-R2-P2—faintly reminiscent of a cult science-fiction character—makes the six groups easier to recall. Each is explained below.

The E2-R2-P2 of customer purchasing criteria

Customer purchasing

criteria

E1: Effectiveness

The first requirement is that the product or service accomplishes its intended job. Buyers have expectations about features, performance and reliability; they want a solution that is neither inadequate nor unnecessarily excessive. In both B2B and B2C markets, effectiveness may include:

Quality

Design

Features

Specifications

Functionality

Reliability.

Because several terms overlap, select the two to four effectiveness criteria that best represent how customers in the industry make distinctions.

E2: Efficiency

Efficiency concerns whether the customer receives the product, or has the work completed, at the required time and with acceptable effort.

Every customer values efficiency to some degree, but its weight can differ substantially between groups buying the same service.

In many B2B industries, this means dependable delivery or efficient service when collecting from a depot. In B2C settings, it commonly means receiving the product or service according to schedule.

R1: Range

Range may be decisive in one category and irrelevant in another. Determine whether customers value the convenience or choice of a broad portfolio in this specific segment.

R2: Relationship

A supplier may deliver the right result promptly, yet the quality of the human relationship can still influence preference. Never assume that interpersonal trust and ease of working together are incidental to service.

P1: Premises

Premises matter when customers visit the supplier and the selling environment shapes their judgement, as it often does in services. Ask whether a physical storefront is required and what the target customer expects it to communicate.

P2: Price

Price always influences the decision. Excessive pricing drives customers away; unsustainably low pricing prevents the supplier from remaining viable.

The weight of price depends on context. Buyers are often more price-sensitive about non-essential purchases and less so when an essential service fails. If the heating stops in midwinter, the cheapest engineer may be less attractive than one who is reliable, arrives as promised, completes the repair without difficulty and charges a fair—even if not minimal—price.

For every important product–market segment, identify which E2-R2-P2 criteria matter and assign relative weights. Investigate how those priorities vary between segments and what explains the difference.

Add a forward view. A criterion that dominates the buying decision today may carry less weight in several years, so explore how customer needs are likely to evolve.

Finding out CPCs

The most direct way to discover what customers value is to ask them.

Patterns often become visible after only a few conversations within one customer group. Respondents may disagree about whether a need is “important” or “very important,” yet rarely move all the way to “unimportant.” The same broad needs tend to recur, while their weights vary.

For a more rigorous result, use structured interviews: select an appropriate customer sample and ask each participant a carefully prepared set of questions.

A customer survey built on structured interviews is a core input to strategy. If the organisation has not conducted one recently, refresh the evidence before drawing conclusions about purchasing priorities.

Top practical tip

Interview customers in each important segment and ask what they need from any supplier—not merely what they like about your company. Then weight the recurring criteria by segment.

Top pitfall

Treat stated preferences critically. Some customers may use the conversation to negotiate lower prices, and respondents do not always behave as they say; compare interview findings with observed purchasing behaviour.