CHAPTER 4: CREATING CUSTOMER VALUE
Curt Carlson, Ph.D.
Professor of Practice, Northeastern University and Distinguished Executive in Residence, WPI
IT'S YOUR JOB?
'"I said to my dad, 'I'm just one good idea away from starting my own venture.'" "My dad said, 'No, what you need is not an idea. It's a customer."' Sarah Nowlin
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You Did What?
"Did we hear you correctly? You lost ten billion dollars?" Norman Winarsky, the President of ventures at SRI, asked Bob, a managing partner from a highly publicized Internet start-up incubator company. We had begun the conversation by asking how his company was doing, and although the Internet bubble was over, his answer still took our breath away.
"Yes, over the past eighteen months, we lost nine billion dollars in equity and a billion dollars in cash." When we asked what had happened, Bob said they began to believe they were invincible and knew better than their customers what would work. We kept investing more money without doing rigorous due diligence. It seemed apparent that all our dot.com companies would continue to go up forever. It was a classic case of hubris."?
After more discussion, Norman pointed out that their decisions were based on how many computers they could access rather than whether their owners wanted to buy anything. Not enough did. We would ask people in these companies to describe the value proposition for their customers and, in turn, how that would allow them to make a profit. They would say, "We'll figure that out later; our focus is getting eyeballs looking at our website." Eyeballs? Eyeballs! By 2001, thousands of companies, hundreds of thousands of employees, and five trillion dollars were lost. It's a rule: you should be able to quickly understand the value proposition of any company that aspires to be successful. If you can't, stay away.
Bob is a clever, savvy entrepreneur, but the excitement of the bubble distracted him from the hard work of understanding and addressing important customer and market needs—not just interesting ones. While the company got in trouble and had to be restructured, Bob bounced back. Smart people often do, especially when they learn important lessons like understanding customer value. He has a senior position with a prestigious communication company in Silicon Valley today.
Customers Define Value: The hard lesson that, unfortunately, must be learned repeatedly is that you don't define value—only your customers do. Whether it is the Ford Edsel, the Apple Newton, the Xerox Alto, or the thousands of other failed products and services that few can now remember, you must have a customer. The bubble was a fever swamp where customers were often forgotten in the rush to get rich quickly. The list of companies that initially made a splash but disappeared is legion. Webvan, Pets.com and eToys are just three examples of hundreds of companies that failed.
We are now entering the Age of AI. No doubt there will be another bubble. Almost every week, I get introduced to a new AI company. It is as if the word "artificial intelligence" (AI) is added to any business plan; magic will happen. A few entrepreneurs will create substantial new companies, but most will disappear.??
Everyone in an enterprise has customers, either external or internal. Whether you are an actor on a television show, a government agency member, a salesman, a researcher, an educator, a writer, or a priest, customers are critical because they define your success when they hire you or buy and use your products and services. They demonstrate with their actions whether you are creating value or not.
Many people misperceive what customers want, seldom asking whether their needs are met. For example, if you manage the local Meals on Wheels program, you will want to know how your clients respond to the timeliness of delivery, taste, and other aspects of the food of significance to them. You can't guess what customers want. Additionally, you can't use your preferences as the perfect guide. You may be surprised that the most important benefit for some Meals on Wheels clients is having a short, sympathetic conversation with the delivery person.
Unfortunately, some people in companies can't even tell you who their customers are. Identifying your customers and working to uncover their needs is the first, most crucial step on the path toward maximizing customer value. The lack of that knowledge is the central point of innovative failure.
Value Creation Is Everyone's Job
Since everyone in an organization has external or internal customers, everyone should clearly understand the different dimensions of customer value and how their efforts contribute to the organization's success. Ask people in companies, government organizations, and universities for the value they are providing, and you will seldom get a compelling answer. For example, who are the customers of a tenured professor at a university: the students, the student's parents, the wider public, the administration, the Board of Regents, or the professor's colleagues?
In a remarkably candid comment in a New York Times story, Ellen Willis, professor and President of the American Association of University Professors chapter at New York University, was disappointed that increasingly "students and their parents are seen as customers to be satisfied" [2]. She implied that, somehow, the teachers are the ones who should be considered the customers! Sorry, but who is paying the bill? Willis's attitude makes us wonder what education will be like when organizations worldwide learn how to compete for tens of millions of students yearly over the Internet and in new, for-profit schools. Since the education market is over $2.0 trillion annually in the United States alone, someone will determine how to treat students as their customers, provide superior value, and change how we learn [2.1]. This shift is already beginning, as illustrated by online education from Coursera and many major U.S. universities. At Northeastern, they are moving to hybrid education, where the education experience during a course uses the most cost-effective method, whether online, via videoconferencing, or in person. The advent of AI Tutors will accelerate the development of more effective, less costly university education. The Khan Academy is already leading the way in using AI to advance middle and high-school student education [2.2}.
Many jobs in an enterprise do not deal directly with external, paying customers. These employees have "internal customers." For example, a lawyer working for the vice president of a product division might have the task of drafting contracts for outside vendors. Does the vice president feel like a customer? Has she ever been asked to prioritize her needs? She can certainly say what her three or four most important needs are and whether they are being satisfied. Few companies have an effective way to determine internal customer satisfaction of people like the vice president.
We once asked the chief scientist of a high-tech start-up company, "What's the customer value that will result from the product you are building?" He mentioned several product features, such as "We have fast processing speed and a great user interface." When we asked whether these features were the ones his customers cared about the most, he replied that he thought they were, but he didn't know. He didn't know if these were the most critical features compared with the competition. At this point, we thought, "How can he lead his team and make the dozens of decisions necessary every day when he doesn't understand his customers and the value proposition for his product?" Soon after our conversation, his company went out of business.
Another time, while working with a major international organization, we asked a group of mid-level managers for their project's value proposition. To our amazement, they said, "We work hard." We agreed that they worked hard and explained that we were interested in knowing about the customer value they created through their hard work. Again, we were told, "We work hard." These were intelligent people. The problem was that their organization needed to focus on understanding and developing new customer value. We were speaking a foreign language to them.
The objective of all healthy enterprises is to constantly strive to create new customer value, first by understanding the customer's most critical needs and then by addressing these needs by rapidly creating compelling customer benefits at lower costs. This process is a vital part of every professional's job.
Types of Value
There are many meanings of value, which leads to confusion about how to think about it and deliver it to customers. All organizations must address at least the following:
These stakeholders must all be satisfied to be a sustainable enterprise. Customer value—value to the customer—is the focus around which all other types of value revolve. You can't develop additional forms of enterprise value until you understand your customers' needs and decide whether you can create a compelling product or service. If a CEO talks exclusively about increasing shareholder value, they provide little or no guidance to employees about improving their jobs. All employees, especially the CEO, should spend the bulk of their time talking about their customers and how to address their needs. Stakeholder value only comes from an increasing number of happy customers.?
However, if you produce products with high customer value and a poor business model and they cause the company to lose money, the company won't be around long. Consequently, if you are launching a new product, you should construct at least two value propositions—one focused on your customers and the business model and one on your enterprise. The next chapter provides a template for these value propositions. Of course, value propositions for the other stakeholders are also essential.
Shareholder value flows from delivering high customer value in a large, growing, profitable market with a compelling business model. In a publicly traded corporation, shareholder value is a primary concern of the CEO, board of directors, and upper management. It is factored into all strategic investment decisions. Yet a company that emphasizes shareholder value at the expense of customer value eventually fails, as DEC did.
Employee value involves salaries, bonuses, and other reward programs. But it also includes the nature of the work, the quality of colleagues, what the organization values, and the enterprise's location, facilities, and other amenities. It includes the enterprise's stability, prospects, professional growth, and achievement opportunities. Critically, do employees feel welcomed, included, and respected? The most important reward for the best employees is making a meaningful contribution.??
Public value recognizes enterprises' legal and moral obligations to support their communities. A company could, for example, maximize its return at the expense of the environment, which would negatively impact overall public value. The government sets the minimum rules in these situations. These rules come in many forms—taxes, work regulations, and environmental standards. An innovation must not only create customer, shareholder, and employee value; it must also satisfy public value needs. Most companies, like HP, take a more comprehensive view of their obligations to their communities, going beyond the minimum legal requirements. Good corporate citizenship includes supporting local education, transportation, and community activities, such as sponsoring the neighborhood soccer team, to name a few.
State-owned corporations, like the British Broadcasting Corporation (BBC), confront the issue of public value directly. Working with us, the BBC decided that its objective was to create the maximum "public value." Given the BBC's varied constituents, this is challenging since they vary from passive TV viewers to bloggers to cutting-edge, independent content providers. The BBC's mission—to maximize public value—can impact how we measure public enterprises' performance by altering all aspects of their operation, from how they decide on new initiatives to treating suppliers. It is challenging, but focusing on the customer is undoubtedly a major positive step for the BBC.??
Because there are so many forms of value, it is essential to clarify the kind of value you are discussing. This book focuses primarily on customer or end-user value because it is the starting point. However, the same concepts and methods must be used to satisfy all stakeholders rapidly and efficiently.??
The tricky part of this is the "value balance." If any stakeholders are over-served, it will often lead to trouble. For example, projects that help protect the environment must still be profitable and serve the company's financial interests.?
In fields like education, media, and health, some feel customers do not know what is best for them, so they can't be considered "customers." For instance, within academia, treating students as customers is often challenging. This challenge arises because students cannot evaluate the value of the knowledge in the course, and the professor is asking students to work hard to acquire it. While educators possess that knowledge, the key is effectively conveying it to maximize its value for the students. This goal requires consistent refinement and iteration of the learning methods to ensure that the educational experience truly serves the student's needs regarding the value of the knowledge communicated and their learning experience, even though it will be challenging.
Elements of Customer Value
When selecting any product or service, customers consider its benefits and costs. For example, when you purchase a bottle of wine, the benefits and the prices come quickly to mind. And then all it takes is a little mental math to decide whether a given bottle is worth it to you. Therefore, this equation might come to mind:
Customer Worth = Benefits - Costs
A product or service's total benefits minus costs are called its "worth," a financial quantity. This definition is how financial people often measure worth, but it is not primarily how humans do, as I will describe shortly.
The customer costs of a product or service include the amount to be paid. But there are often other costs as well. For example, the cost of printer cartridges, paper, and maintenance must be included in the case of a computer printer. Costs can also include the transition costs, which include the work of:
Some costs may be significant to the customer, and some may not. Thus, like benefits, costs are calculated and weighted in importance only by the customer. They are perceptual. A segment of consumers, for example, may discount the price of printer cartridges when they buy a computer printer. However, the printer cartridges may, over time, be the most expensive part of the purchase.
Most products include multiple features that benefit consumers in a specific market segment. For your purchases, such as a computer, you evaluate your needs—for instance, word processing, battery life, and portability—and see which product has features that match your needs. Then, of course, you look at the costs to see if it is "worth" buying.
Through market segmentation, companies attempt to find relatively large clusters of customers willing to pay a premium for certain benefits. You can, for example, buy computers in various market segments, such as those with the most powerful word processing features, those with built-in wireless capability, and those that cost the least. The same thing is true for cars. If you want high mileage, you might be interested in a hybrid, such as the Honda Civic or the Toyota Prius. If you want prestige, buy a high-performance Tesla, BMW, Corvette, or Jaguar.
It is important to emphasize that product features become benefits only when they address the consumer's needs. Benefits are specifically those features for which customers will pay money. Thus, you must begin by identifying and quantifying the specific customer needs you want to serve.
There are many kinds of needs, both tangible and intangible. Tangible needs include mobility, shelter, and hunger. Intangible needs include styling, prestige, identity, fear, security, love, sex appeal, and group identity, such as being associated with environmentally benign "green products." The broad range of potential customer needs is captured in psychologist Maslow's hierarchy [4]. Maslow's hierarchy is a five-level pyramid of basic human needs:?
In Maslow's hierarchy, basic physical needs such as breathing, and sustenance must be satisfied first. Once these are satisfied, the next level of needs is activated. At the top of his pyramid is the need for self-actualization, which Maslow described as what a person was "born to do." Maria Callas, the most renowned and famous opera singer of the past century, was born to sing and act. Others might say they were born to drive their Harley-Davidson motorcycles.
Maslow's hierarchy suggests there is an unlimited number of customer needs. Each higher level opens families of possible products and services in each market segment, such as food, communication, transportation, and entertainment. Each category has endless ways to balance benefits against costs to create unique products and services.
Product Maps: Consider, for example, the possibilities created by different combinations of quality versus convenience features for consumer entertainment and communication products, as suggested in the Product Map shown in Figure 4.1.5. It illustrates that when a product is significantly improved in quality or convenience, it can spawn a new industry. For example, consider the journey from radio to black-and-white TV, color TV, and HDTV. These product innovations significantly increased quality through better sound and images for the customer. And it continues now with 4-K video and NextGen TV, called ATSC 3.0 [2.3].??
Alternatively, the journey from the LP record to the Walkman, iPod, and now smartphones represents significant innovations in customer convenience regarding music choice, quality, and portability. The telephone has gone through multiple generations, and now Musk is attempting to make a communications system using an embedded brain chip, Neuralink.??
Figure 4.1: Product Map for different consumer electronics products categorized according to quality and convenience.? The empty ‘white spaces” potentially allow for new offerings in unique market segments.
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A colleague once asked us, "Do you think Steve Jobs's success with the Apple iPad and iPhone were flukes?" We suggested that it was doubtful – meaning no chance. Like Morita at Sony, he fully understood the latent value often found in convenience.
For example, the iPod Nano was almost as far to the right in Figure 4.1 as you could make it. These achievements don't happen by accident. In Japan, by contrast, the instinct is often to add on every product feature imaginable. I once found a combination toilet paper dispenser in Japan with a radio and telephone.??
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Jobs took all features out of the iPod but two—audio and choice—to minimize size and maximize convenience so he could move to a new "white space" without significant competition. The iPhone was in keeping with that theme. He created a profoundly more convenient "phone" that also added the features of the iPod, a complete graphical interface, and an internet navigator. That didn't happen by accident.
The products shown in Figure 4.1 are all major disruptive innovations. Most innovations are improvements to already-identified products and services. But minor innovations can still distinguish a product. Consider, for example, adding nonslip rubber pads on toothbrush handles, allowing the customer to hold the brush in a wet, slippery hand securely. Upside-down ketchup bottles are another example.??
Companies or individuals must think systematically about the dimensions of a product's or service's possible benefits. Steve Jobs did, and that is why he was envied. Charts like Figure 4.1 can be developed in any business segment to help visualize potential trade-offs and to find the "white space" where there are unmet customer needs that you can address better than the competition. Try it for your activity to see how you are positioned and whether you have additional opportunities for innovation.
People will place different financial worth on a product or service's benefits. That is how flea markets work: one person's junk is another's priceless find. For a given product or service, you have a number in mind for what its benefits are worth. If you can get the product for nothing and it has some benefits, the customer value to you is the product's total worth. That is why even simple gifts are so lovely.
Include All Elements of Customer Value
Providing maximum customer value means considering all factors contributing to value, including the customers' experience using a product or service, which is often a significant source of customer satisfaction and potential competitive advantage in the exponential economy.
When Toyota developed the Lexus, for example, one key element of customer value was having dealers provide the highest level of service. The company extensively studied the marketplace in Europe and the United States to understand potential customer needs. Two of the targeted competitors were BMW and Mercedes, which had mixed reputations for customer service. Toyota's research found that less than 50 percent of Mercedes owners used the services offered by their dealers. Customers wanted to talk directly to the people who were going to work on their cars, and they couldn't do that at Mercedes service shops. In response to that customer need, Lexus dealers have white-shirted "diagnostic specialists," mechanics who interact directly with customers. Customers can relax in comfortable lounges while viewing spotless service bays through large plate-glass windows [6].
On the other side of the coin is the original videocassette recorder (VCR), designed to record television programs and play prerecorded VCR-formatted movies. It was a transformational innovation, but most people needed help setting the clock right and programming the VCR to record shows at the scheduled time. At the time, a running joke was that it took a Ph.D. to set the clock. These difficulties significantly reduced the value for the customer. Intelligence and education were not factors for the more than 60 percent of consumers who could not use their VCRs efficiently [7]. No wonder there has been a rush to digital recording devices.??
Another example is the 3M Post-it easel pads in your office. Easel pads have been around for decades. 3M experimenters differentiated a commodity by making the product more convenient to use. First, they cut a handle on the cardboard top so you can easily carry easel pads to meetings. Then, they put sticky adhesive at the top of each page so you can stick sheets on walls without bringing an easel. These simple improvements required thinking about the customers' experience and needs.
The most widely used word-processing program is Microsoft Word. It has a host of features most users don't know exist. Even after years of use, most users are surprised when a colleague says, "Oh, did you know you can use 'document map' to easily view the headings of your paper as you produce it?" You think, "How could they design this so I can't find these things?" Then, there are default features, such as outlining, which have been made so "automatic" that many users can't figure out how to turn them off. With no easy workaround, customers become irate and stop using the features. These items are, after all, supposed to be productivity tools rather than sources of frustration and dissatisfaction.
When designing your new product or service, take a comprehensive view of its value. Yes, physical features are important, but so are the users' experiences and intangible attributes, such as emotion and identity. Remember that customers know much about you and your products and services in the exponential economy. A good rule is to assume they have complete knowledge. If you produce an excellent product or service, the word will spread at the speed of light over the Internet, and you will experience success, as now with ChatGPT and Bard. But if some aspect of your product fails, the world will know that just as quickly.
Family of Higher Benefits
Certain products and brands command a premium because they address many benefits, including prestige, identity, sex appeal, risk reduction, durability, service, and customer experience. Consider:
These companies address needs other than the tangible elements of the product. In the list, you can quickly identify what else they are selling. For Starbucks, it is fresh, customized coffee in a comfortable, friendly setting with Internet access. After a few visits, they also know your name and the drink you prefer. This level of convenience allows Starbucks to sell a product for $2 to $3 that sells at a corner store for $1 to $2. Starbucks' experience and choice are worth almost as much as the product. For Apple it is user-friendly products and an appeal to the "dare to be different" identity of its customers. For Tesla, especially at the start, it was its "green" identity. For Gucci, it is prestige. For Mikimoto, it is a guarantee of quality in a market where most consumers cannot judge the excellence of pearls. The guarantee reduces risk and increases value.
Michael Markowitz describes a hierarchy to aid in identifying possible needs and benefits, like Maslow's [8]. The hierarchy, shown in Figure 4.2, emphasizes that the best products and brands touch our needs at multiple levels, including the need for "deeper meaning." "Kodak, an iconic company for over 100 years before being almost totally eclipsed by smartphones, understood that it offered benefits on multiple levels, including the idea of "immortality." Kodak's advertising touched all levels of Markowitz's hierarchy to maximize the customer benefits and, thus, the customer value. In the past, before it had severe competition and better alternatives, it allowed Kodak to sell its print products at a premium [9]. Now, the striking still and video quality and unprecedented convenience of smartphones dominate.
Figure 4.2: A version of Markowitz's value hierarchy to help identify "deeper" needs and thus provide additional customer benefits. Create a Markowitz hierarchy for your product or service. See if you are taking advantage of all the ways you can create value for your customers.
Quantifying Value
Quantifying, or at least estimating, customer value is a subtle exercise. After all, value is perceptual and changes over time as determined by each customer. One day, pink cars are cool, and a few years later, you can't give them away. If you ask customers to tell you how much something new is worth, they may not fully understand what you mean. And until they put their money down, they have no real motivation to clarify their judgments. All these difficulties and more exist when you attempt to quantify value. But you can at least estimate customer value.??
Earlier in her career, Anne had been a marketing director for a large, well-known corporation. It was once a great company but is now out of business, and we were curious about why. Anne told me that the CEO and senior management were consumed with increasing the stock price. Every public company wants a higher stock price, but increases must be based on a solid foundation of customer value.?
Management should have done more productive things than just buying back the company's stock. Yes, the price went up as the corporation bought back stock, but as soon as it stopped, the price went down again. Buying your own stock at a premium price does not create distinguished new products, which is the only way to increase the actual value of a company. And, as Anne said, "After a few silly moves like the stock buy-back plan, the company got in trouble because it didn't have the great products it needed. It went away."
Then Anne spoke passionately about why understanding customer value is the key to success. Not surprisingly, few at her former corporation were interested. It was a company of executives who felt they knew what customers needed. Besides, they said, "Everyone knows that you can't understand or measure customer value. Why bother talking to customers?"
Customer Value: Earlier, we described the equation for the worth of a product or service. However, consumers mostly judge the comparative value of a product or service. Thus, the buy-or-not-buy decision by customers is based on the product's total benefits versus its total costs. Consequently, the formula given here is a perceptual quantity. Dividing benefits by costs sharpens the relief between two or more products [10]. Thus:
Customer Value = Benefits/Costs
Because this expression is how we compare almost all actions and products, including what food to order at a restaurant, it defines the starting value proposition we use, as described in Chapter 5. As we will now show, it also allows you to compare the relative values of different products or services.
As indicated in Figure 4.1 the benefits of a product or service can be further divided into two dimensions—quality and convenience. The chart indicates they are independent variables; thus, the dimension can be multiplied to determine their overall position in the Product Map. Each "white space" in the Product Map represents an opportunity for a new offering. The chart can be extended to include other independent elements of value, like cost and those listed as parts of the value hierarchy. We focus on these core dimensions because they are significant elements of almost all products and services.?
Value Factor Analysis: One of our colleagues, Len Polizzotto, shares our unrelenting commitment to focusing on customer value as the key to success. He recognized the independent dimensions of value, as shown in the figure, and created Value Factor Analysis (VFA). It is a tool to help teams estimate the customer value of a product or service compared with the alternatives. He developed it as a university professor, teaching students how to think about a new product's attributes and value. It also helps the students understand the trade-offs that must be made when designing any new product or service. To do this kind of analysis, you need a way to understand which quality, convenience, and costs matter most to your customers. That is the point of VFA.??
Figure 4.3 shows an example of Value Factor Analysis for our colleague, Herman, an environmentally conscious ("green") consumer. The figure shows features or attributes an automobile can have with estimates of the Importance of these attributes to someone like Herman. He already has two electric cars and recently bought a Toyota Prius. Why did he buy a Prius, not a Ford Taurus, for nearly the same price? As we will show, the Prius has significantly greater customer value for Herman than the Ford. Conversely, the Ford Taurus might provide better customer value for other people.
The top row in the figure is for Quality features. Importance represents a feature significant to a customer, and Satisfaction indicates how well the offering addresses it. We use a scale from 0 (no importance) to 5 (very important). The Benefit is the product of Importance X Satisfaction. The Convenience and Cost rows are computed similarly. To avoid confusion, we show Cost as dollar signs, where $ = low cost and $$$$$ = high cost.
For example, for styling, the Importance = 2, Satisfaction = 3, and the Benefit = 6. The fancy rear spoiler has no value for Herman, so it gets a 0 for Importance and thus a 0 for the Benefit.??The green identity of the car is the most critical feature for Herman, so it gets a 5 for Satisfaction with a Benefit score of 25. Similarly, pollution from carbon dioxide is very important, so it gets a 5.
The bottom third of the chart calculates the customer's costs. We want to keep costs significant to the customer as low as possible. Because gasoline is what Herman wants to eliminate, Importance = 5, and since it gets excellent gas mileage, it gets only one dollar sign for Expense.
Next, we sum the Benefits for Quality and Convivence and then sum those for Cost. Here Quality = 50, Convenience = 67, and Cost = 26. The final step is multiplying the sum of Quality Benefits by the sum of Convenience Benefits and dividing the total by the sum of Costs. That is the VFA score, here 129.??The objective is to make the VFA as big as possible to provide maximum customer value.?
A similar calculation for a Ford Taurus using the same attributes and costs gives a value of 63 using Herman's criteria. This simple calculation helps indicate why Herman bought the Prius and would not test-drive the Ford. Other people may value styling and other features the Ford better represents. For these customers, the score for the Taurus may be higher than the Prius—Vive la différence.
Figure 4.3: Value Factor Analysis chart showing the comparative value of different products or services, using the Prius hybrid automobile as the example and the criteria of an environmentally conscious consumer, Herman.?
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The calculation shown in Figure 4.3 is highly simplified, but it does provide a straightforward way of identifying attributes that are significant to a customer. When talking with Herman about these results, we pointed out that the Prius was more expensive than a comparable conventional car and would take more than a decade to return its additional cost in gas savings.
Herman responded, "Why do people buy BMWs? What's the 'payback' from an Acura, Lexus, or Cadillac, rather than the nearly equivalent but cheaper Honda, Toyota, or Chevy product? To some, owning a hybrid is cooler than owning a BMW, which we could equally afford." Different people have different yardsticks to measure value.
It is always beneficial to go through Value Factor Analysis to help identify all the possible features we might consider for a new product or service. It also helps frame questions for prospective customers about how they perceive the benefits and costs of different features. If there was doubt about the conclusions from Value Factor Analysis, additional market and customer studies could be performed to obtain better, more quantitative information. Those in marketing attempt to use tools like this to find clusters of benefits and costs that appeal to sizeable untapped market segments called "white-space innovation."
A Tip: Sometimes, you may wonder if an attribute goes into the Quality or Convenience columns. The general rule is that tangible attributes go into the Quality column and non-tangible ones in the Convivence column. ?If you are uncertain, because this is a qualitative analysis it will not seriously impact the conclusions you make from the analysis.
In our workshops, we often find that when a team does this analysis, they discover they have differing views on what they are developing. VFA helps them look at all the elements of the proposed solution and better align their objectives.
Consider another everyday example: You undergo the same process of assessing your worth when selecting a hotel. One interesting study of more than 400 respondents showed that the astonishing 1275 hotel attributes determine the decision to pick a hotel [2.4]. Fortunately for the hotels, each traveler has only three or four main attributes that are the basis for comparative choices. This example is like Herman and his selection of the Prius. For him, just a few characteristics determine his decision. Having a fancy spoiler is not one of them.
Other techniques can further help quantify customer value. For example, the books by Harry Cook provide a broad array of helpful methods [2.5]. At a minimum, always complete a Value Factor Analysis and iterate it with your teammates and prospective customers. It will open your eyes to the possibilities available to you.
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