What is Customer Value and How Can You Create It? by Gautam Mahajan * [41]

 

Value has many different meanings. To some Value means price (what is the value of this car?) to others it means benefit (the value I got from this car). It also means the worth of something. That is why you hear some people saying “value for money” (meaning they are price sensitive); and others who prefer “money for value” (meaning they are willing to pay for what they consider as benefits, as from a brand or a better product, or more convenience etc.)

The dictionary meaning includes: The regard that something is held to deserve; the importance, worth, or usefulness of something. Synonyms are: merit, worth, usefulness, use, utility, practicality, advantage, desirability, benefit, gain, profit, good, service, help, helpfulness, assistance, effectiveness, efficacy, avail, importance, significance, point, sense.

No wonder, the reader is confused about the value word that s/he uses so often. When used in the vernacular it does not matter, but when used as a technical term, like Customer Value, the meaning of Value must be precise, so that everyone understands what it means, as shown below:

Customer Value is the perception of what a product or service is worth to a Customer versus the possible alternatives. Worth means whether the Customer feels s/he or he got benefits and services over what s/he paid.

In a simplistic equation form, Customer Value is Benefits-Cost (CV=B-C).

What the Customer pays is not only price (cash, cheque, interest, payment during use such as fuel and servicing for a car) but also non-price terms such as time, effort, energy, and inconvenience).

The benefits include the advantages or quality of the product, service, image and brand of the company or the brand of the product, values, experience, success one gets in using the product and so on.

Values are distinct from Value (the plural of value as defined above is Value). Values are what someone or a firm stands for: Honesty, morals, ethics, sustainability, integrity, trust.

Consumers are distinct from Customers. 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.

How is Value Created and What Does It Do?

Value is created just as much by a focus on processes and systems as much as it is by mind-set and culture. Mind-set and culture are much more difficult to change, and also difficult to emulate. It is easier to copy products and systems than to change mind-sets and culture. Therefore, for long term success, mind-set and culture are important and lasting. These, along with systems create great experience and value.

Value changes during the use of a product or during the Customer Journey. Value is perceived during the purchase intent, the shopping, the actual purchase or buying, the installation or start-up, the use and even the re-sale. We sometimes call this the waterfall of needs. Needs change during the Customer Journey.

Creating Customer Value increases customer satisfaction and the customer experience. (The reverse is also true. A good customer experience will create value for a Customer). Creating Customer Value (better benefits versus price) increases loyalty, market share, price, reduces errors and increases efficiency. Higher market share and better efficiency leads to higher profits.

How to Create Real Value

You first have to understand the Customer Value concept, what a Customer perceives as value, and how a customer’s value needs change over time, and how to get Customer feedback. You must realise that people buy a product or service that creates the most value over competing options.

To create real value, you must recognize what a Customer perceives as value. You must understand how the Customer views your competition’s product. What is important to the Customer in his buying decision? Is price more important or are benefits? Are you good at delivering what the Customer believes is important? Are you able to deliver more than your competition on these factors?

I understand these are general terms, but they will help you to create value as you understand your Customer’s need and perceptions. Let us take some examples on how to create Customer Value:

1. Giving a price that makes the Customer believe he is getting more than he pays for the benefits he gets versus competitive offers

2. Reducing the price, or keeping the same price and giving something extra over competition (this could be service, better attention, an add on to the product)

3. Making it convenient for the Customer to buy, and how he wants to buy and pay.

4. For B2B getting a proper price justification, not just a price.

5. For dealers, the feeling the company will grow and offer new products for the dealers to sell. These are things that the dealer may not have an experience of, but needs to Create Value

6. The image of the company, including the brand and the trust in the company or when the Customer appreciates the Values of the company including sustainability. These create Value for the Customer

7. Giving the Customer a product that works as it is meant to (as perceived by the Customer) and easy for him/her to understand and use (so that no unnecessary time or energy has to be expended)

8. Making the Customer feel valued. For example:

·         Smiling at and being attentive to a Customer creates value for him. Ignoring him/her destroys value for the Customer

·         Making it easy for the Customer to contact the company, and an assurance that an answer will be given when and how promised (how many times do you have to wait to talk to someone and how often does s/he promises to call back and how often do you get a call)

·         Not making you repeat questions or answers, and keep relating the problem

·         Receiving a call from a service person confirming his/her visit (the Customer is not kept wondering whether the service visit will take place)

·         Not answering queries destroys Value

All readers have real life examples of Value creators and Value destroyers and can add many more examples. Do add yours. Answer the following:

·         What could I do to create Value for my Customer?

·         What can destroy Value for my Customer?

·         Does experience create Value?

·         List things that you do not experience that can create Value for you.

·         Do I look for and solve customer problems not only one by one but also systemically for all customers having same problem.

* Gautam Mahajan is the President of the Customer Value Foundation and the Founder Editor of the Journal of Creating Value, jcv.sagepub.com. He may be reached at: mahajan@customervaluefoundation.com .  Article reprinted with permission of the author (218,740 views in Customer Think plus 27,529 downloads in 2021 at Journal of Creating Value alone). Contact Gautam.mahajan@gmail.com for comments.

The Value of Investing in Customer Value Management by Laura Patterson * [22]

My very first business job was in the financial services industry and my title was customer relationship manager. This was long before the emergence of customer relationship management (CRM) tools. My boss at the time was four decades ahead of the mainstream thinking articulated by Phil Kotler in his 2017 article, Customer Value Management - "a company’s job is to create superior customer value in the mind of the customer.” Looking back, I’d say a more accurate title would have been customer value manager because my job was less about the customer experience and increasing customer satisfaction and more about employing data to identify customers from whom we could create and extract more value. This is the focus of customer value management.

Peter C. Verhoef and Katherine N. Lemon, define customer value management (CVM), as the optimization of the value of a company’s customer base. CVM expands on customer relationship management. CRM focuses on how a company manages the interaction with current and potential customers with an emphasis on developing long-term customer retention. Relationship management emphasizes satisfaction and uses measures such as NPS or Gallup’s customer engagement metric. CVM focuses on aspects of the relationship such as commitment and trust and seeks to use and analyze customer data explicitly to increase customer value. Gautam Mahajan, president of the Customer Value Foundation reinforces this idea when he says, “CVM focuses on creating value for customers.”

Many companies are embracing and investing in customer value management. To achieve CVM, you must know what customers value, which can vary greatly among customer segments. You must discern what customers perceive as important, why they buy, why they prefer one company or product over another, and what benefits they believe the product or service delivers. An example of trying to surmise customer values can be illustrated in the traditional car purchase. If you’ve ever been in a conversation with a car salesperson, you may have heard this common question: “Which is more important to you, how much you pay a month or the loan rate?” Different customer segments value different benefits – such as return policies, warranties, service level, and as this example shows, financing options.

Creating a Metric to Determine Customer Value

Customer value reflects the economic value of the customer relationship to your organization. To create and extract customer value you need to know what is truly important to the customer in the buying process, the relative importance of price and benefits, and the associated attributes in relation to the value you provide and the value you derive.

Customer value management relies heavily on data and analytics to build long-term relationships and expand share of wallet without increasing the cost of acquisition and cost to serve. You will need data related to value attributes, tenure, share of wallet, recency and frequency of purchase, cost to acquire, and cost to serve. Fortunately, advances in data management and analytics are making it possible for organizations of all sizes to cost-effectively acquire this data and employ it to measure customer value. To support this work, we’d recommend you classify your customer data into four different categories:

1. Customer firmographic data (name, company, title, contact info, location info, industry, initial date of acquisition, etc.)
2. Customer transaction data (recent purchases, frequency of purchases, products purchased, quantities, pricing info, etc.)
3. Customer interaction/engagement data (behavioral data such as touches, channels, service tickets, content consumption info, etc.)
4. Customer financial data (cost to acquire, lifetime value, profitability data, rate of consumption, etc.)

As you gain insight into what customers value, you can use this data to determine which customers are of the most value to your organization. Use the data to evaluate customers in terms of:

• lifetime value
• transaction value
• referral value
• influencer value
• market share contribution
• customer profitability

This type of analysis enables you to identify and decide which customers to invest in and how to allocate your budget across customer segments. You can also use this analysis to identify what services and capabilities your most profitable customers leverage. It will also help you reap the value of your investment in CVM. Armed with the data and analysis you can create a customer value metric. To create a customer value metric, check out this companion post on a measure that provide insight into customer value. If you’re just getting started, a book I often recommend on the topic is Bradley Gales’ Managing Customer Value.

CVM as a Competitive Advantage

Every business must create value for customers to survive and thrive. When you see creating customer value strategically, you can develop the infrastructure, culture, strategies, and programs that optimize every opportunity to positively impact how customers perceive the value offered.

We can turn to three points emphasized by Art Weinstein in his book, Superior Customer Value, to ensure a company builds a competitive advantage in a climate where value reigns supreme:

1. Design strategies that provide superior customer value.
2. Focus on excellence. Customers will not pay more than a product is worth.
3. Build a customer-centric culture throughout your organization and mandate providing outstanding customer value.


The ability to determine and extract customer value is a competitive advantage.



Today’s customers are smart and have access to more information and choices than ever before. In such a market, your company must create maximum value and solve relevant problems. The ability to determine and extract customer value is a competitive advantage that reflects the degree to which your customers perceive your organization as more valuable than the alternatives. CVM helps you determine whether your brand is important to customers and what about it they value most. While customer value management requires a bit more effort than customer relationship management, it provides excellent guidance as to who and what to invest in.
Customer value is not something you can create in one day. To sustain it, you need to combine service quality, product quality, and innovation into a strategy.
* Laura Patterson is a marketing practitioner, consultant, and speaker. Contact her at  laurap@visionedgemarketing.com