Refers to the specific ways in which customers value the goods/services they purchase. Generally, there are two types of customers. They are distinguished by how they compare value to price:
P = z – dp
where P = the probability of purchase (number between 0 and 1), z = the zero price willingness (number between 0 and 1), d = the rate of disinterest (number greater than 0), and p = price (number greater than 0).
To explain: the probability that an IVC customer will purchase a good or service is equal to the probability the customer would acquire a product or service if it were free (zero price willingness) minus the rate at which the customer loses interest as the actual price of the good or service increases.
To simplify, an IVC customer is more likely to buy a good or service the lower the price is. As price increases, the willingness to buy a product decreases. We can further add how to calculate z and d in this equation. For d, we have
d = IVQ/T
where IVQ = the number of times the IVC customer asks the intrinsic value question (“Is this product or service worth the price that is being asked for or paid for it?”), and T = the time period of asking the IVQ. In other words, the rate of disinterest equals the number of times the IVC customer has to ask the question, “Is this worth the cost?” in a given time period. As the number of IVQ increases, the rate of disinterest increases.
For z, we have the following equation:
z = VM * ZPE
where VM = value match (percentage between 0-100%), and ZPE = zero price excitement (0-100%). In other words, the willingness at which an IVC customer would acquire a good or service if it were priced at zero equals the extent to which the Unique Selling Proposition of the seller matches the Unique Value Proposition of the customer multiplied by the probability of acquiring the good or service simply because it is free. (ZPE is usually high, somewhere between 80-100%).
Thus, the more that the IVC customer perceives the use of the product or service to be useful or valuable, the more willing he or she will be to acquire the good or service if it were free.
To list the equations for easy reference:
P = z – dp
z = VM * ZPE
d = IVQ/T
Substituting for z and d, we have the longer equation:
P = (VM*ZPE) – (IVQ/T)*p
Essentially what all this means is that typically, for IVC customers, they first evaluate whether a good or service is worth grabbing at all. Then they decide whether or not it’s worth the price being asked. If it is worth grabbing, then they ideally would like the price to be zero. Their interest in purchasing, then, goes down at a steady rate as the price increases. That rate increases or decreases depending on how many doubts they have about the product or service’s value.
Now for EVCs, the probability is different. The probability of purchase for EVC customers follows this equation:
P = -p² + ip + z
where p = price, i = rate of interest in purchasing product or service, and z = the zero price willingness.
What this equation tells us is that the probability of purchase for an EVC customer follows an inverse parabola form. The zero price willingness for an EVC customer tends to be lower than the highest probability of purchase, where as the price increases the probability increases, up to a certain point. Then the price becomes a factor in the EVC customer’s decision-making and the probability of purchase decreases.
To describe, it’s best to give an example. Let’s say it is Christmas time and you want to purchase a gift for someone. If you have the EVC mindset, you are most likely not going to be attracted to a gift based on how low its price is; rather you’ll want to buy a gift that reflects a fairly high price. As the price of the gift increases, the probability of purchase will also increase – up to a point. The EVC customer will have to reflect the reality of his or her funds. It’s after this point that the probability of purchase dramatically decreases.