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.

How to Stop Customers from Fixating on Price by Ajay K. Sirsi * [40]

 

In business-to-business settings, I often hear managers making unsubstantiated statements such as: 

  "We are too expensive"

·          " Our customers are so price sensitive"

              "All that our customers care about is the price”

             " We are pricing ourselves out of the market”

·          " Lower-priced competitors are taking business away from us”

These “truths” are often spoken in tones bordering on hysteria and hopelessness.  In this article, I will show you that these statements are not only false; rather, these myths take on a life of their own and become part of the organizational narrative, sapping business prosperity. 

I was at a shopping mall on the weekend and noticed something interesting.  All the high-end stores (read: expensive) had velvet ropes at the entrance, stopping customers from entering.  A hostess stood by the door, putting shoppers' names on a waiting list to enter the store.  I overheard one of them say to a shopper that the wait was 45 minutes.  At each of these high-end stores, the lines of consumers snaked around the corner, with shoppers waiting patiently to get in.

None of the middle-of-the-road brands (read: inexpensive) had such an arrangement.  Nor did they have any line of consumers waiting to get in.

The data show that consumers are spending money on high-end brands.  I asked myself what these expensive brands do to make consumers not care about price?  The truth is that these consumers are price insensitive because they receive benefits in exchange for the price they have paid.  These benefits are tangible (quality product) and intangible (prestige and status).  The high-end brands have done an excellent job of creating and communicating these benefits to their target customers.

Why can we not do the same thing in business-to-business markets?   

First, let me destroy a firmly entrenched misconception.  While it is popular to proclaim that all that customers care about is price, the research does not support this claim.  The research reveals that in B2B markets, price is never the most critical factor.  While price is not unimportant, customers prioritize other factors such as quality, delivery, reliability, after-sales service and support, and trusted partnerships.

Therefore, if a customer is fixated on price, it should tell you that you have done a poor job of creating and communicating the value of your offering.  Either your offering does not have the benefits desired by the customer, or you have done a poor job of communicating the value you are providing.  Let me add details to both points.

Creating Customer Value

In business-to-business situations, it is easier than in B2C markets to develop benefits for the customer.  In B2C purchases, some benefits consumers seek might be pretty nebulous.  These might include notions of status, prestige, and one-upmanship – factors that typically are not considered by B2B professionals (I have seen instances where these intangible factors are dominant even in B2B markets, but I will save that for a future article). 

Creating customer benefits is more straightforward in B2B markets because, in this space, customers only care about two things: reducing their costs and increasing their revenue.  Nothing else matters to them.  Every customer need and pain point falls into one or both categories.  Please review the table below to get a sense of the point I am making here.

	Impacts Customer’s Cost	Impacts Customer’s Revenue
Purchase price	X
Availability of spare parts	X	X
Shortage of labor		X
Retaining employees	X	X
Operational efficiency	X
After-sales support	X	X
Supply chain issues		X
Building a brand		X
Getting more customers		X

I think you get the point I am making here. TBO, not TCO

To create value for the B2B customer, go beyond conducting a Total Cost of Ownership (TCO) analysis.  Instead, perform a Total Benefit of Ownership (TBO) analysis.  A TCO analysis only considers the customer’s total cost by incorporating the customer’s costs of acquiring, possessing, using, and disposing of your products.  A TBO analysis, on the other hand, combines both the costs and benefits the customer accrues from your product.  Read the related articles suggested at the end of this article for excellent examples of creating customer value.    

Communicating Customer Value 

Creating customer value in itself will not make your customers price insensitive.  The final step is to communicate the value you have created.  To do this, you must focus on quantifying the value you have created and providing tools to your sales force to communicate the value.

Value Quantification

It is not enough to tell a customer: “Our product is superior.”  Instead, say to the customer: “Our product lasts X% longer than the competitor’s; it consumes Y% less energy, and it enables you to do Z% more jobs in the same amount of time.”  Of course, these assertions must be based on unbiased data.  

Finally, provide your sales force tools to communicate the quantified value propositions quickly and easily.  I am surprised how many organizations I interact with fail on this score, much to the frustration of the sales team.  I put the responsibility of creating such tools directly on the shoulders of the marketing department.

Bottom line:  Customers do not fixate on price because it is their nature.  We make them behave like this by our failure to shift their focus to the value we are creating for them. 

* Dr. Ajay Sirsi is an award-winning marketing professor and Director of the Centre for Customer Centricity at the Schulich School of Business, York University, Toronto. Visit Dr. Sirsi's website to learn more about his work on customer-centricity at: https://ajaysirsi.com

How Customer-Obsessed Marketing Strategies Win in the Inflationary, Post-Covid Economy * [39]

 

Consider the current economic environment in the United States: gasoline $5 a gallon, inflation approaching 9%, huge price escalation in all consumer purchase categories, supply chain stockouts, the stock market in bear territory, a total lack of political leadership, and a recession imminent in the U.S. (This is not to say that things are great worldwide, as well). This market reality follows two-plus years of Covid lockdowns and restrictions. SMEs as well as giant corporations are facing unprecedented challenges in finding/keeping good employees and coping with large cost increases. Companies that survived fought back Covid and financial challenges by adapting to the new and difficult market issues and by being customer-obsessed.  

According to Forrester Research, a customer-obsessed enterprise “focuses its strategy, operations, and budget to enhance its knowledge of and engagement with customers.” They add that customer obsessed organizations are customer-led, insights-driven, fast, and connected. For further insights on customer obsession and Covid-19 responses, read articles 2 & 24 from the Customer Value in the Now Economy blog. 

Customer Value in the Now Economy: Customer Focus to Customer Obsession [2] (scv-weinstein.blogspot.com)

Customer Value in the Now Economy: Rethinking Customer Experience Management in the Novel Economy by Brian Solis * [24] (scv-weinstein.blogspot.com)

Chauvet Lighting manufactures lights and special effects equipment for venues such as concert arenas, nightclubs, theatres, and megachurches. Given the Covid-19 pandemic, like many businesses, Chauvet was forced to pursue new market opportunities such as drive-thru events such as concerts, comedy shows, and haunted houses. Other new ventures have included the production of social media content and educational videos targeting out-of-work lighting designers and repurposing video walls.

The global pandemic forced companies to rethink all business and marketing strategies to survive. This is particularly evident in the services sector which accounts for about 75% of the Gross Domestic Product in industrialized countries. Airlines, hotels, restaurants, retailers, small businesses, and universities are some of the industry sectors that had to quickly pivot to compete effectively in a new world slowly emerging from lockdowns and characterized by social distancing, contactless transactions, customers wearing face coverings, and virtual meetings.

Companies that were able to make this transition seamlessly in the Covid economy succeeded because they refused to fail and are truly obsessed about their business and customer base. They are willing to do whatever it takes even if it means struggling in the near-term to prosper over the long-term. Innovative universities offered blended learning which includes reduced capacities in the classrooms (20-33%), Zoom lectures, video recordings, and increased online instruction.

Restaurants provide an excellent case in point. Many “mom-and-pop” restaurants are micro-enterprises with twenty or fewer employees. They already are challenged by high costs (food, rent, equipment, etc.), labor concerns, local and federal regulations, and direct and indirect competition. Traditionally, they have one of the highest business failure rates in normal and good economies. In the Covid era, great food, superior service, and fair prices are no longer enough in determining winners from losers. A customer-obsessed mindset calls for adaptive and innovative business practices. Successful restaurants quickly embraced reduced indoor seating, outdoor dining options, curbside pick-up, delivery service, and contact-free credit card payments. In addition, they realized the importance of retaining existing customers and treating them as a special friend or family member, emulating Japanese style customer service. Other marketing tactics include new menu offerings such as family packs and comfort foods. Promotional strategies have to be more creative and often emphasize social media, price incentives such as BOGOs (buy one meal, get one meal free), and Covid-friendly giveaways such as branded face masks or trial-size hand sanitizers. One enterprising pizzeria even gave their customers a free roll of toilet paper with every pie ordered!  

☑ Questions to think about

1.  Is your company customer naïve, customer aware, customer-committed, or customer-obsessed?

2. Explain specific ways that your marketing strategy is customer-obsessed?

3. How can your company become even more customer-obsessed to create exceptional value and compete successfully in the Now Economy?

* Art Weinstein, Ph.D., is the blogmaster and a Professor of Marketing at Nova Southeastern University. He may be contacted at art@nova.edu

Customer-Centric Metrics Make Your Demand Generation Dollars Go Further by Laura Patterson * [38]

 

As one of the primary revenue generators for an organization, Marketing provides three essential roles: finding profitable customers, keeping profitable customers, and growing the value of these profitable customers. Customer-centric metrics offer a good starting point for identifying prospects who most look like your profitable customers, knowing which customers and products are making the largest contributions to the bottom line, and for effectively investing your demand generation dollars. 

Besides measuring customer satisfaction and loyalty, the impact on profitability is also an important measurement of any customer-centric strategy. Many companies have demand generation metrics and even measure customer satisfaction. Yet, we have found all too often that while companies say they are customer-centric, they have few customer-related metrics.

Most marketers agree that creating a satisfying customer experience positively affects a company’s profitability. The customer experience includes both rational and emotional aspects, as well as how the customer feels about the brand and the company, and what the customer thinks every time he or she interacts with the company. Having a positive impact on the company’s profitability translates into either increased revenue or some reduction in cost.

Ø Establish Profitability Targets - 3 Key Metrics

If you can calculate these three important customer-centric marketing measures, you can establish a set of customer profitability targets:

1.   Customer acquisition cost: Determined by calculating the average cost to acquire a new customer. See more below about how to use this measure in your demand gen efforts.

2.   Customer retention cost: Determined by calculating the cost to retain and serve an existing customer.

3.   Average customer profit: Determined by calculating the average value of each customer segment after accounting for standard costs.

You can monitor your success by measuring how well you are staying within your customer profitability targets for each of these metrics. You don’t need sophisticated tools to measure customer profitability. 

Ø Add Profitability Targets to Your Dashboard

Customer metrics are one of the primary categories that should exist on every Marketing dashboard. Once you have calculated these three customer-centric metrics you can set targets for each and report Marketing’s performance against the goal and Marketing’s impact on overall customer profitability on the Marketing dashboard. Overtime you will be able to use this data to determine which customers offer the best opportunities and focus Marketing investments on customers who will have the greatest impact on the bottom line.

Now that you understand which customers are profitable, you can apply this knowledge to determine which customer segments are worthy of your demand gen dollars.

Ø Customer Metrics to Guide Marketing Investment

When it comes to effectively investing your demand gen dollars, we recommend focusing on two customer-centric measures: customer value and cost to acquire. These measures when combined together can help your organization decide how much of your resources can be profitably allocated against a particular customer or set of customers.

The two customer-centric metrics we’re suggesting will help you identify the customers and/or segments to pursue. While it would be wonderful to be able to invest in every customer, most companies need to be selective.

We’ve simplified an approach to jump start your thinking process. You’re going to create a  2 X 2 grid with one axis being customer acquisition cost and the other axis being customer value.

Before you do these steps, decide which customers go where on the grid. Once you generate a list of all your customers, score each customer and/or customer segments for both customer-centric metrics.

1.   Create a Customer Value Score: To create a customer value score you will need information generated from two pieces of data: purchase frequency and customer revenue.

o    On the customer list table have a column for purchase frequency (you may want to use a numeric rating scale for this measure) and one column for revenue (you may want to create ranges for revenue and use a numeric rating scale for each range). Score each customer and/or segment. Customers who have high values on both columns (for example all customers who have either a 5 and 5 or 4 and 5 or 5 and 4 in the columns) would be your high value customers.

o    Those customers with a 5/5 would receive an overall score of 5, those with a 4/5 (frequency and revenue) you may want to give an overall score of 4.5 and those with a 5/4 (frequency and revenue) an overall rating of 4.

o    Do the same for each combination, with those customers with both a 1 in both columns having the lowest score of 1.

2. Calculate Cost to Acquire. For your same list of customers, in another column, calculate your cost to acquire each of these customers. Customer acquisition cost is the cost associated with convincing a customer to buy your product or service, including research, marketing, and advertising costs. It’s an important business and marketing metric that can be used to gauge marketing’s effectiveness.

• Again, to keep things simple, create acquisition cost ranges and then assign a 1-5 rating scale for each range (we’d suggest using 1 as the lowest cost range and 5 for the highest cost range).

Ø How to Use Your Scores

For each customer or customer segment you should now have 2 rating numbers: a number derived for the customer value score and a number for customer acquisition.

Divide your 2  X 2  grid into 4 quadrants:

• High Value/High Cost
• High Value/Low Cost
• Low Value/High Cost
• Low Value/Low Cost.

Plot each customer into the appropriate quadrant.

> Score Customers for Each Metric

Those customers and prospects similar to them in the High Value/Low Cost quadrant are where you should spend the money.

Obviously very little, if any resources, should be allocated to customers and prospects in the Low Value/High Cost. You may have to have some internal conversations about the other two quadrants and applying the customer lifetime value calculation to these customers can often help guide decisions related to customers in these two groups. While it may take some time, this is a relatively easy and affordable first step.

Unless you’re among the few marketers who have all the time and money in the world to burn, we hope employing this analysis helps you decide how to eke out the most value from your limited and precious resources. You’ve probably already come to the conclusion that the best place to spend it is on those customers who are most likely to buy.  

Got the customer-centric metrics bug and want to know what else you should be measuring? Here the top eight measures often associated with companies truly committed to being customer-centric:

1.   Customer retention

2.                2. Buying frequency

3.   Contact frequency

4.   Churn rate

5.   Average revenue per user

6.   Customer lifetime value

7.   Share of customer’s wallet

8.   A customer’s EBITDA

Conduct a quick audit to see whether your company tracks any of these customer-centric measures. If it doesn’t and being customer-centric is important to your organization, then it may be time to revisit the metrics you are measuring.

 * This post was reprinted with permission from VisionEdge Marketing, Inc. 

Laura Patterson is a marketing practitioner, consultant, writer, and speaker. Contact her at  laurap@visionedgemarketing.com. Also, check out Laura's article "The Value of Investing in Customer Value Management" [22].  Post Editor: Preview (blogger.com)

 

Service Incidents and Failures Can Actually Present Opportunities for Firms by John Gironda * [37]

                                                                  Photo Credit: Clay Banks

While most firms should strive to provide their customers with the best experience possible at all times, service incidents and failures will occur from time to time. Although these issues aren’t ideal, they do present companies with opportunities as well. Obviously, companies should not make it a habit of experiencing ongoing service incidents and failures with customers. However, in the hopefully rare times in which they do occur, if companies are able to rectify the situation, many times this ends up with customers actually being happier than they would have if things went off completely without a hitch to begin with.

This might not sound quite right at first, but if we think about it for a moment, it should make more sense. If everything goes very smoothly during a service encounter, it should lead to happy and satisfied customers, which is a very good thing. Nevertheless, when there are incidents of service failures or dissatisfied customers, and there will inevitably be at some point, this gives firms the opportunity to show customers that they care by doing what it takes to get things fixed and possibly go above and beyond in order to make things right. By doing this, companies can turn dissatisfied customers to not only satisfied customers, but also delighted ones at that.

This is because consumers tend to remember any hiccups (i.e., service incidents or failures) that occur during their interactions with companies. These hiccups can go a multitude of ways. One way is that a company does not rectify the situation and people leave as unhappy dissatisfied customers, or now ex-customers in many cases. When this happens, people tend to keep this negative feeling with them, recalling it and thinking twice the next time they consider doing business with a company. In addition, consumers may tell friends, family, and other individuals online or in-person about their poor experience, leading to negative word-of-mouth for the company. A second way that a service incident can go, is that the firm does what is necessary to make things right with the customer. In this case, customers will remember that the incident happened, but will also carry positive feelings with them, recalling that the company cared about their experience and satisfaction, and made sure it did what it could to remedy the situation.

Good companies understand this, which is related to a concept in marketing called customer lifetime value. That is, the entire stream of purchases that a customer will make with a company over the course of their lifetime. By keeping customers happy and doing what it takes to correct incidents when they occur, companies stand a much better chance of keeping loyal repeat customers for longer periods of time.

In some cases, this may mean taking a short-term loss on a particular transaction with a customer to keep them happy and retain them for years to come. This is because in order to fix a service failure or incident and retain a customer, it may be necessary for companies to compensate customers for the issue that occurred. Perhaps the customer was inconvenienced by a long wait time for their order, which can happen at a variety of businesses, from restaurants to online retailers. Additionally, perhaps there was an inability to fully accommodate a customer’s request, or the customer simply did not like a particular product and would like a refund.

In terms of customer compensation for inconvenience caused by service incidents, a little bit of compensation can go a very long way in terms of being meaningful to customers. These can be things as simple as taking something off of a customer’s bill, giving the customer an additional item for free, a discount voucher for a future purchase, or additional points towards the company’s loyalty program. Clearly, the type of compensation needs to be commensurate with the type of incident that occurred. However, as the old adage goes, many times it’s the thought that counts more than anything. Additionally, another important factor in the exchange is speed. Incidents should be corrected as quickly as possible, which also means that companies should empower employees and give them some autonomy and leeway to make things right promptly without having to wait on approval for every little thing, within reason of course.

What are your thoughts on this? Do you agree that service incidents can actually present an opportunity for firms? Can you think of any positive examples of times when an incident occurred and a company went out of its way to remedy the situation for you? What impact did that have on you and your future relationship with that company? Please share your thoughts in the comments section below.

 

John Gironda, Ph.D., is an Associate Professor of Marketing at Nova Southeastern University, Fort Lauderdale, Florida. His teaching and research interests include digital and social media marketing, consumer behavior, marketing strategy, consumer privacy issues, and integrated marketing communications. He can be reached at: jgironda@nova.edu