Acquire (Customer) Cost
In the customer life-cycle cost of a product, used to develop product and service innovations, the cost a Final Customer incurs to become aware of the suppliers of the product, to understand the differences among the products of the alternative suppliers, to order and test the product, to put it in place, and to learn how to use it.
(See also, Dispose Cost, Life-Cycle Cost, Maintain Cost, Use Cost)
Examples of Acquire Cost
Example 1:
At Radio Shack, customers can call a toll-free number to get a general idea of whether a product is worth repairing. For $20, a prospective customer can get an itemized estimate that will be applied to the repair bill.
(SIC 5731-Year 1994)
Explanation: At Radio Shack, repair customers can call a toll free number. This service reduces the cost the final customer incurs to evaluate the differences among alternatives, including not repairing the product at all.
Example 2:
Dairy departments are placed in the rear of stores to ensure that a large number of customers will walk through most displays on their way to the milk.
(SIC 5411-Year 1997 )
Explanation: Stores make their dairy departments somewhat less convenient by putting them in the back of the store. However, the fact that the consumer has to pass a number of different displays on their way to pick up dairy products helps to remind them of other needs that they might have forgotten. This reduces the customer’s cost to acquire these non-dairy products.
Example 3:
Doctors’ offices are selling directly to patient common prescription drugs that have been presorted into standard dosages by a new breed of pharmaceutical “repackaging” houses. (SIC 5912-Year 1988)
Explanation: These pre-packaged standard dosages reduce the consumer patient’s cost to order and learn how to use the product. It reduces the patient’s Acquire Cost.
Example 4:
While car shoppers at CarMax take test drives, computers complete the credit check and prepare the paperwork for an auto loan. Meanwhile, mechanics look over customer’s current car and provide a written offer. The process takes under an hour. (SIC 5900-Year 1995)
Explanation: The procedure CarMax uses reduces the time the customer must spend to order the product. It reduces the consumer’s Acquire Cost.
Example 5:
CalTex’s Petroleum noticed families acting differently during holiday seasons. So, it offered cartoon stickers with gas purchases during peak vacation periods. It gave out only one sticker per purchase, and families made repeat visits to collect them. (SIC 5541-Year 1996)
Explanation: CalTex’s offered these stickers to reward families for remembering to stop at CalTex’s stations. This helped reduce the final customer’s Cost to Acquire the product by giving them more awareness of the company.
Examples of Innovation for Customer Cost Reduction: Acquire Steps
Final Customer Purchasing from the Producer of the Product
Example 1:
Last year, Toyota unveiled an online service that lets prospective buyers of its Scion models chat in real time with customer representatives. (Year 2004 – SIC 3711)
Explanation: This innovation enables the Final customer to learn more about the product as he or she considers acquiring it.
Example 2:
In order to branch out and improve profit margins, computer manufacturers are moving into new arenas including high-margin consumer electronics. (Year 2004 – SIC 3571)
Explanation: These personal computer manufacturers are using their brand names and extensive distribution systems to make it easy for Final customers to acquire their new consumer electronics products.
Example 3:
Executives at Hilton Hotels saw that a high number of potential online consumers abandon their purchases in mid-transaction. Hilton rebuilt its site to make it faster and added a reservations feature called “Push to talk,” with which consumers can talk to an agent via their computer or can request a return phone call. (Year 2004 – SIC 4724)
Explanation: This innovation enables Final customers of the hotel company to make reservations faster. This reduces their acquire costs.
Example 4:
Samsung opened up a showroom in Manhattan to demonstrate their products. Those who wished to make purchases were directed to nearby retailers. (Year 2004 – SIC 3600)
Explanation: This innovation enabled Final customers to reduce their acquire costs by seeing and using the product in person.
Example 5:
XM Satellite has said that Toyota will install satellite-delivered data services like traffic/weather condition on its vehicles. XM has dealer-installed options on 10 Toyota models. It has factory arrangements with Honda and GM as well. Sirius has factory installed arrangements with DaimlerChrysler and BMW. (Year 2004 – SIC 3663)
Explanation: The satellite radio companies make it easier for Final customers to acquire and install their products by making them part of an option package from automobile manufacturers.
Example 6:
Swatch transformed watches from rare purchases into more affordable items that consumers bought as fashion statements. (Year 2004 – SIC 3873)
Explanation: This innovation made it easier for Final customers to acquire the product by making the product a less expensive, nearly-disposable fashion item.
Example 7:
Customers can now get phone services from Time Warner Cable but in many cases the call runs over Sprint’s lines. Virgin Mobile USA LLC is offering prepaid cell phones but the underlying service is Sprint’s. (Year 2004 – SIC 4813)
Explanation: Sprint makes it easier for its Final customers to purchase the product by forming relationships with branded phone companies.
Example 8:
Luxury-hotel chains often restrict customer loyalty programs and limit expansion as they fear losing exclusivity. Marriott International guards its Ritz-Carlton chains and doesn’t allow rewards members to redeem their points there. (Year 2005 – SIC 7011)
Explanation: These hotel companies restrict their points programs to their specific Final customers. This allows these specific Final customers to have easier access to the rewards at the chains and reduces their Acquire costs.
Example 9:
Renting is an inexpensive way for someone to learn about ASV’s machines. They rent for about $150 a day. (Year 2005 – SIC 3524)
Explanation: This innovation reduces the Final customer’s acquire cost by allowing the Final customer to test the product at very low cost.
Example 10:
European plane maker Airbus agreed to lend the merging carriers US Airways and America West $250 million. In exchange, they became the North America launch customer for Airbus’ planned A350 aircraft. (Year 2005 – SIC 3721)
Explanation: This plane maker reduces the Final customer’s acquire costs by extending financing.
Final Customer Purchasing from an Intermediary of the Product
Example 11:
Whole Foods Market has grown exponentially in the past decade. It now has 168 stores throughout the country and expects to increase its square footage by 57% by 2008. (Year 2005 – SIC 5411)
Explanation: With each new store opening, this grocery chain reduces the Final customer’s acquire costs by moving closer to the customer.
Example 12:
For the small-town attorney or building contractor, traditional pay-per-click Web ads still don’t lead to phone calls as often as phone-book classifieds. So AOL started selling pay-per-call ads with technology from San Francisco startup Ingenio. (Year 2005 – SIC 7375)
Explanation: AOL is reducing its Final customer’s acquire costs by charging only when a contact leads to a phone call.
Example 13:
Mexican-Americans make up about 58% of the U.S. Hispanic population. Wal-Mart de Mexico’s 697 stores and restaurants in Mexico help expose immigrants to its brand before they arrive. In addition, Wal-Mart’s U.S. and Mexico buyers and executives are working together more and more to target both Mexicans and Mexican-Americans. (Year 2005 – SIC 5351)
Explanation: Wal-Mart’s presence in the Mexican market imprints the brand name on its Final customers when they come to America. This reduces the Final customer’s cost to acquire the product.
Example 14:
IAC/InterActiveCorp’s Ticketmaster sells the bulk of the seats for major band concert tours by launching email messages aimed at fans of particular acts. Ticketmaster will soon try to reach fans on their wireless devices. The company generally sends out email notifications three days before tickets go on sale, and they are considering even more last minute alerts for fans who sign up for them. They plan on sending text messages to fans’ cell phones and other wireless devices as little as 30 minutes before tickets go on sale. (Year 2005 – SIC 7929)
Explanation: This ticket distributor reduces the Final customer’s acquire costs by communicating directly with them about upcoming events.
Example 15:
A key selling point for HealthExtras is transparency. The firm opens its books to customers so they know what drugs really cost and what HealthExtras makes on sales. (Year 2004 – SIC 6321)
Explanation: This company reduces its Final customer’s acquire costs by making the customer more trusting of the company.
Example 16
For online retailers, for every dollar spent in electronic stores, $4.10 is left in abandoned shopping carts, orders not completed to checkout for one reason or another. To reduce possible wasted sales, some electronic-commerce website are rolling out new software that streamlines and speeds up the checkout process. (Year 2004 – SIC 5900)
Explanation: These retailers are reducing the Final customer’s acquire cost by speeding the process so the customer spends less time.
Example 17:
80,000 resellers control two-thirds of the market. These local firms sell products and do things like unpack boxes, load software, plug in cables and set up computer networks. (Year 2004 – SIC 5045)
Explanation: These reseller Intermediaries reduce the Final customer’s cost of acquiring the product by doing some of the customer’s installation.
Example 18:
As voice over internet protocol expands, phone and cable companies are hurrying to develop capacity. Cable operators are at an advantage as they can offer cable TV in addition to VOIP and internet access. (Year 2004 – SIC 4899)
Explanation: These cable operators are able to reduce their Final customer’s cost to acquire one of these products by bundling them in with other products the customer already purchases.
Example 19:
7-Eleven is revamping its convenience stores to cater to new market segments and consumer needs. The company is opening stores in malls, universities, airports, office buildings and hospitals. The stores are smaller and carry a wider selection of higher-margin impulse items and fresh food. (Year 2004 – SIC 5411)
Explanation: This Intermediary is reducing the Final customer’s cost to acquire the product by bringing the product to places that customers visit.
Example 20:
Autotrader, well known for its extensive advertising, won’t charge a sell fee and will allow some winning bidders to see the car in person before buying. (Year 2003 – SIC 5099)
Explanation: This Intermediary reduces the Final customer’s cost to Acquire by enabling the buying customer to see the product and by allowing the selling customer to sell without a fee.