Customer Buying Hierarchy for Education

In The Innovator’s Dilemma, Harvard Business School professor Clayton Christensen describes a decision making model called the “Customer Buying Hierarchy.”  The Hierarchy helps buyers evaluate a product and make a purchasing decision.  In this post, I describe this decision-making process and how it can be used in education.

From Product Attributes to a Decision-Making Hierarchy

When purchasing an item, customers have a number of criteria they consider – the cost, the product’s features, quality, reliability, ease of use, safety and security, warranty, customer support, and other information.  Often, some criteria are more important than others.  For example, the cost may be the single most important factor for some product users, while quality and reliability may be the most important factors for others.

When customers rank their criteria like this, they create a hierarchy of values or attributes, and the more-important values or attributes (whether cost, quality, or reliability) outweigh the less-important attributes (perhaps customer support or warranty).

Customer Buying Hierarchy

According to Christensen, customers often have a similar set of values or attributes, and they often rank the same attributes in the same order:  functionality, reliability, convenience, price.

1. Functionality refers to what the product does, and it is the most important consideration for buyers.  Customers will consider whether the product’s function meets their needs before considering anything else.  For example, the function of a calculator is to help you complete mathematical operations (multiply, divide, find the square root), while the function of a word processor is to help you write a text document.  When you need a product to help with calculations, you’ll consider a calculator and not a word processor.  Even when evaluating two or three types of calculators, you may select a product based on more specific needs.  For example, you may need to solve and graph equations, so you would select a graphing calculator rather than a simple one.  When shopping for a product, customers first evaluate whether the product performs what they need.

2. Reliability refers to aspects of quality and effectiveness, and it is the next level of consideration.  After answering the first question about whether the product performs the desired task, the customer considers how well the product works.  For a calculator, you would examine whether it multiplies, divides, graphs, and solves equations accurately.  For website hosting, you may examine the website’s downtime (how frequently it stops working).  Also, the customer moves from considerations of function to reliability when two products perform the same task.  For example, when two website platforms offer the same hosting, domain registration, online selling, and email selling services, you would go to the next step of evaluating download speeds and up-time.

3. Convenience.  After considering both function and reliability, the customer considers aspects of convenience.  Convenience can refer both to the ease of using the product or to related services such as customer support.  For example, you may have really great software that does what you need, but it may be very troublesome to generate and download reports, or does not integrate with other technology platforms, or the revenue earned from an online store may not be available until several days later.  Or, for customer support, you may need to call a generic 800 number, not have 24/7 support, and wait a long time for a response.

4. Price.  Once all of the other product attributes are met, the customer is ready to consider the price.  This may sound counter-intuitive; you may think why would someone even consider a product if it the cost is not right.  In many cases, the customer may have room to negotiate the price, or there may be an opportunity to afford the product in a future budgeting cycle.  But consider also situations where the product does not meet customer needs but is priced very low; in these situations, you may have heard someone say that they would not be interested “even if it were free!”

Using the Hierarchy for Education

The Hierarchy can be used in educational settings in two or three ways.

As a consumer (faculty member, IT administrator, department manager, etc.), you can implement the Hierarchy when making purchasing decisions for your organization.  For example, at my institution, we were looking for course evaluation software that better fit our needs.  We started the search by identifying a dozen attributes we wanted the software to have:  ability to evaluate courses with multiple instructors, ability to create custom questions, effective graphic display of data, ability to download data, ability to integrate with our online platform, effective customer support, affordable price, etc.  Next, we ranked these attributes into categories of high-priority to low-priority.  Attributes such as evaluating courses with multiple instructors and effective graphic display of data were high priorities, while attributes such as effective customer support and price ended up being lower priorities.

We didn’t know about the Hierarchy at the time, so we ranked priorities ourselves.  Had we known about the Hierarchy, we could have quickly adopted the decision-making process and started to look at products.  Instead, we spend the first several meetings brainstorming, prioritizing, and arguing about attributes.  We could have saved a lot of time by adopting the Hierarchy as a model to use.

Educational institutions can use the Customer Buying Hierarchy as a decision-making model when making purchasing decisions.  Without this model, the purchasing manager or committee may spend too much time identifying and ranking attributes in the first several meetings.

At one point, we found a product we liked, and we tested it.  The product did many things very well, and it was priced within our range, but we weren’t sold on it yet.  The company that developed the product seemed less professional and offered fewer services than the company we had, and we were not convinced that the new product was worth switching.  When I look at the Hierarchy now, I see that the product met our needs for Functionality and Price, but it did not meet our needs for Convenience, and we had concerns about the Reliability of the company even though the software itself worked pretty effectively.  As a team, we spent a long time debating whether the Functionality and Price justified the switch.  We ultimately decided not to switch platforms, but, had we known about the Hierarchy, we could have more easily explained our concern and moved on the next product.

As a salesperson or product manager in an ed tech company, you can follow the steps of the Hierarchy or share this decision-making process with academic staff as they make purchasing decisions.  The Hierarchy can help you identify what step of the decision-making process the committee is on, and this can help you answer their questions more effectively.  For example, if the committee has questions about function or reliability, telling them that you can “beat any price!” is not going to make the sale at this point.  Instead, you’ll have to answer those higher-level concerns first.  On the other hand, if the committee is convinced that the product will meet their needs, and they are ready to talk about support and price, but you want to “show them one more thing!” you may be missing your opportunity to close the sale.

If you are an educational consultant, product manager, or salesperson in an ed tech company, you can use the Customer Buying Hierarchy to correctly identify the kind of information a client needs and to effectively answer their concerns.  Highlighting the price when the client still has questions about functionality won’t make the sale.

As a teacher, you can use the Customer Buying Hierarchy in a course as an example of a decision-making process.  This activity could promote critical thinking by giving students a method for evaluating information.  It could also promote critical thinking by demonstrating how information can be ranked into different levels of priority.  As you describe the Hierarchy, encourage students to reflect on their own decision-making process – do they really consider functionality and reliability before they consider convenience and price?  Ask students to explain why considerations of functionality and reliability are more important than convenience or price, and ask them to explain how they would find information for each of these attributes.  For example, would online customer reviews count as evidence of reliability, or would they need more scientific, data-based results from performance studies in a lab?  Or, if students have different attributes that seem more relevant, ask them to explain why those attributes are more important.

Feedback:  Have you used a decision-making process like Christensen’s Customer Buying Hierarchy?  Please describe it.  How does it compare or contrast to this Hierarchy?  How has it worked for you?  Or, look back at a previous decision you have made.  Would this decision-making model have helped you at that time?

Lirim Neziroski, Ph.D., MBA is an academic administrator and faculty member with expertise in curriculum development, assessment, academic technology, and strategic planning.  Contact Lirim for resources and for speaking, consulting, and writing opportunities.