Customer value is one of the most talked about aspects of marketing today, but many senior decision makers are hard pushed to articulate how exactly their business is creating meaningful customer value and how that tangibly contributes to their business being more valuable and competitive. Even if they can put that into words, a powerful customer value proposition itself is really just the start. Harder still is maintaining customer value over the longer term. Here’s why.
Value, according to Gautam Mahajan, is about the worth of something. But worth itself is volatile. It shifts and changes depending on the extent to which the recipient feels they received benefits, services and experiences over and above what they paid for. We also perceive value, Mahajan says, based on our perceptions of who creates (and delivers) the most value between competing options. That means of course that value, or rather the sense of value that customers have, is always relative. So in less competitive sectors, for example, it may be easier to create customer value than it is in sectors where the competition is intense and all players are value-conscious. It may also be harder to create a sense of customer value if customers themselves are not looking for it. Consumers may for example choose to buy a brand for reasons such as convenience.
What exactly constitutes value for customers?
The good news is that there is no shortage of potential ways to deliver customer value. In fact, Eric Almquist, John Senior, and Nicolas Bloch at Bain Consulting claim that there are 30 different customer value factors. (Thanks Mark Schaefer for the reference.)
And the incentives to get it right are very real. Their research shows that companies that can demonstrate four or more of these value elements scored three times the Net Promoter Score of companies that claimed just one such value. They also found that companies that had multiple value factors grew at a faster rate than those that didn’t.
Some companies articulate their value very well. Here are seven great examples of strong customer value propositions.
But while value itself was important, customer value was not a universal formula. In fact, different value factors carried different weights in different sectors – meaning the factors that scored highest in one sector didn’t necessarily carry over to others. For example, in consumer banking ‘access’ and ‘heirloom’ really matter. In food and beverage, it was ‘sensory appeal’ and ‘quality’.
Of course, the value factors that you claim for your own brand are less important than how customers and prospects assign those value factors to you. You may, for example, assign yourselves a range of customer value factors that your company perceives as clearly evident and that you see yourselves as delivering very well. If however your customers hold a different view of the value you deliver, it’s their opinion that counts.
That’s because, to Mahajan’s point, value is not something you actually get to decide. You may claim it. You may influence it. But the decision of what is valuable is not yours to make. It’s made by others, who are of course evaluating their offer against their own version of customer value factors based on what is valuable to them.
So value is something you cannot own, and yet it is something you must continually seek. And in order to make the most of it, you must be able to offer the market a version of what they value that they attribute directly (preferably only) to you. Value itself therefore is under constant surveillance. Everyone, including your competitors and your customers, is consciously or unconsciously looking for a reason, or a way, to downgrade the value you claim to offer in order to upgrade the gain for themselves.
Customer value and consumer value are different, but related
One very interesting distinction that Mahajan draws is that between consumers and customers. “Consumers are distinct from Customers.” he says. “Consumers use the product or the service, but in all cases do not buy the product/service. The value the consumer perceives influences the buying evaluation and perception of the decision maker or the Customer. The Customer is someone who buys or makes the decision to buy. A Non-Customer is someone who could buy from us, but is buying from someone else.”
In other words, the group of people who help set the perceived value is bigger than the group that actually purchases – meaning of course that value is influenced by a wider group than those who contribute to the top-line. If Mahajan is right – and it’s an intriguing proposition – then brands looking to add perceived customer value to what they offer must look to do so across a wider catchment than their target audience. They must also look to include, and gain endorsement from, the community of purchasers that influences how much the business is valued overall.
Value changes across the customer journey
I really like Derek Cromwell’s summary of customer value. He defines it as total customer benefit (personnel benefit, product benefit, service benefit and image benefit) minus total customer cost (monetary cost, psychic cost, energy cost and time cost).
That equation though is not static. Critically, customers’ perceptions of benefits and costs may shift as they get closer to engaging with you, and that in turn will affect the value they feel they are getting, or need to get. “Value, or perceived value, can change over the course of the customer’s journey. They’ll have some idea of the value you offer when they’re first introduced to your product or brand, and this will change once they begin to interact with you and your product or service, your people, and even other customers.”
Of course the key to creating customer value that lasts is to arrive at a value proposition that is attractive enough to draw people in, and then distinctive and flexible enough to keep them engaged and rewarded as they progress through the journey. That may mean for example that your value proposition is articulated to people in different ways as they commit to you, both to reinforce the customer value you provide and, at the same time, to keep it alive in the customer’s mind. If you have multiple audiences, then your underlying value proposition also needs to be flexible enough to meet the needs of your target audiences based on their varying and changing needs.
Customer value strategy
Creating customer value therefore is not a set-and-forget thing. As the competitive environment shifts, as customer expectations change, as people find new ways to buy from you (or from your competitors) and as you make changes to your own products and services to keep pace with demand or interest, the value of what you offer must also shift. That places significant pressure on senior decision makers, particularly Marketing Directors and CMOs to read these changes in customer value across the market and adjust the brand and/or offerings accordingly.
The stark reality for most businesses, in my view, is that if your presence is not seen to be value-adding, then chances are it is perceived as value-costing. You are naturally worth less and less as overall perception of your value declines. Here are three ways to address that:
- Adjust the value equation of your brand if it no longer represents what you need to stand for in the market in order to be competitive. (Here are 5 things to check to ensure that your brand is keeping pace).
- Change the value of what you offer if it is not aligned with your brand, or if customer expectations have changed to the point where you need to meet higher expectations or the number of competitive value factors you have has dropped (this could be signalled through a falling NPS for example).
- Introduce new value to what you offer if you want to change what customers value (because you’re a disruptor), enhance your standing in a static market (because you’re a low-middle sized participant) or redefine what the market delivers and therefore put pressure on those around you (if you’re a market leader).
The relationship between customer value, differentiation and innovation
As priorities change and new technology shifts the frameworks, operations and expectations of businesses and consumers across industries, the continuing question for many brands is: What’s valuable now? (Innovation)
The second question is more knotty: What’s our take on that – and who will value it? (Differentiation)
The third question is the hardest of all: What has lost value that we still need to deliver, and how will we absorb those losses as we go forward? (Commoditisation)
That’s what I mean about creating customer value being just the start of a longer and more complex journey to continually evolve your perceived worth in relation to what’s around you.
If you pride yourselves on being able to value add, you can expect to be continually challenged on the difference you generate for the extra margin you charge. But if you’re not creating customer value in some form, then replacement by another supplier at a cheaper price or another channel because it is faster or more convenient, and therefore more valuable, is probably only a question of time.
So – to summarise:
- Value is volatile, relative, competitive and subjective.
- There are many different value factors and value factors change depending on the sector.
- Companies that deliver greater customer value are much more appreciated by their customers and are more likely to grow faster.
- Customer value is decided by a wider group than just customers.
- Customers’ perceptions of the value they are receiving can change across the customer journey.
- Businesses need to be constantly evaluating and resetting their customer value proposition to keep up with the changes in the market.
Improvement and innovation are not just about unearthing something new, they are about delivering something surprisingly valuable
As customers expect companies and brands to deliver more and more for less, your ability to find and earn competitive customer value has never been more important – or more elusive. In the end, improvement and innovation are not just about unearthing something new, they are about delivering something surprisingly valuable, over which you have a head-start. The greater the gap between you and the rest of the market, the more potential customer value you will gain, providing of course you have delivered what customers really will value. But ironically, the greater the value you are seen to earn, the more intensive the quest by your competitors to match what is valuable – which will in time make it less valuable for all.
Where to from here?
Your value proposition is a vital part of creating and maintaining powerful customer value. Book an MVB (Most Valued Brand) workshop with my company The Audacity Group and let’s work together to (re)define your value to the market and what will keep you competitive tomorrow. Contact me on +64 4 8017720 or at firstname.lastname@example.org to find out more.
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