Delivering customer value is what keeps you in business. Customers give you money and loyalty in return for the value you deliver.
What is customer value? Simply, Customer Value is the perception of what a product or service is worth to a customer evaluated against possible alternatives. Worth means whether the Customer feels they got benefits and services over what they paid. (In an equation, Customer Value is Benefits less Cost or CV=B-C.) Keep in mind, however, that what the customer pays is more than your price, but also includes non-price costs such as time, effort, energy, and inconvenience. Similarly, benefits include the advantages or quality of the product, service, image and brand of the providing company plus intangible benefits, such as the success or pleasure one gets in using the product, reflected attributes from purchase (such as status) and so on.
How to Create Value
Karl Stark and Bill Stewart, writing in Inc., identify these five steps to creating customer value:
- Understand what drives value for your customers. What is important to your customer? What are they trying to achieve or accomplish by purchasing your product or service? Keep in mind that customers may have different value constructs so make sure you understand these differences.
- Understand your value proposition. What benefits do you deliver and what are the costs to the customer? How does this vary by customer segment?
- Define your target customer. Identify the customers and segments where you can create more value than who are they, and how do you reach them? What is it about your offering that makes it more valuable to these customers?
- Create a win-win price. Set a price that matches the value the customers are receiving, while maximizing your profitability. Your target customer may be willing to pay more for your value proposition because they are getting more than they would from your competition.
- Focus investments on your most valuable customers. Allocate your marketing investments to finding more of your target customers, and build their loyalty (and repeat purchases.) Invest in your product and service delivery processes and systems to continually increase the value delivered to your target customers.
There are many ways to deliver more value – if you understand your target customers. Here are some examples:
- Pricing changes can make the customer believe they are getting more value. You might consider reducing the price, or keeping the same price and giving something extra over the competition, such as added service, better attention, or an add-on to the product.
- Offering distribution channels and payment options that make it convenient for your customer.
- Create and enhance a brand image for the company that reinforces your customer relationship and aligns with their values.
- Increasing the ease of using and understanding your product – from the customer’s perspective.
- Making your customer feel that you value their patronage by going beyond the acceptable minimum effort.
Customer value is the lifeblood of your business, intrinsically linked to employee engagement and efficient operations, systems, and processes. You simply cannot deliver continually improved customer value without them. Whenever you start to put the service profit chain to work in your organization, you will end up improving your ability to deliver customer value.