The Labyrinth of Customer Value

There is no rule to determine customer value accurately. Customers typically buy when they perceive the value obtained, outweighs the cost of the transaction.

Customer value is the assessment or experience, by the customer, of a product or service worth, versus its substitutes. Worth implies the customer believes they achieve benefits that exceed the price paid.

These are typically broad definitions of customer value. To apply them practically we firstly need to understand the customer. Contemplate these classes of customers:

·      Procurer – this customer buys the product or service, usually to a specification. Critically, they need to achieve the specification, along with quality, availability, delivery, price, and an ongoing relationship.   

·      Consumer – while not necessarily participating directly in the purchase, this customer is involved in the application or use of the product or service. Their involvement is personal, and they are impacted by quality, delivery, reliability, total cost of ownership, and service support.

·      Dealer – this customer is an intermediary. They buy the product or service to on sell to others. The focus is on the ongoing relationship, margin on cost, availability, and service support.

·      Acquirer – while different to the rest this customer is just as relevant. They don’t want to buy the product or service, they want to buy the company. As with the others the acquirer wants value; however, the measures of value relate to the ability of the business to continue to prosper, grow into the future and provide an anticipated level of return.

·      Non-customer – this person is the prospect customer – a growth opportunity. They currently buy what you sell, from others. They perceive better value elsewhere.

The customers’ listed, all have their own value guides, while they are all vital to the well-being of the supplier business. For example: the non-customer is the opportunity to grow the business, while the acquirer’s value is not only important when a business sale is imminent, it guides the business to operate effectively on a daily basis. In turn this enables increased profit, reduced management participation, greater engagement, and an enriched customer experience.    

Value can be grouped into 3 differentiators.  All three have an impact on the customer’s view of their investment, or pending investment:

·      Economic – the financial impact of the investment. “Did we get value for money?”

·      Personal – The influence on the individual. “What did I gain from this experience?”

·      Business – The impact on the business. “Did ‘this …’ enable us to progress toward our goal?”

Surveys and other direct contact instruments need to identify responses from each differentiator.

These 3 differentiators can then be sub-grouped with 4 elements:

1.    Functional Benefits – Efficiency, excellence, performance

2.    Social Benefits – Status, esteem, reputation

3.    Emotional Benefits – Feeling, aesthetic, “the feel-good factor”

4.    Altruistic Benefits – Ethics, spirituality, philanthropic

The result is a multifaceted view of value which can be used to select the essential aspects of value for a specific product or service, in a price range and marketed through selective channels to a particular demographic. A challenging exercise, but nevertheless useful to differentiate your business.

To complete the picture, the value for the acquirer should be added to the analysis. Fortunately, acquirers’ requirements are more predictable and can be described as the 8 drivers of value for acquirers:

1.    Financial Performance - Your history of producing revenue and profit combined with the professionalism of your record keeping.

2.    Growth Potential - Your likelihood to grow your business in the future and at what rate.

3.    Key reliance - How dependent your business is on any one employee, customer, or supplier.

4.    Cash Flow - Whether your business is a cash draw or a cash cow.

5.    Recurring Revenue - The proportion and quality of automatic, annuity-based revenue you collect each month.

6.    Monopoly Position - How well differentiated your business is from competitors in your industry.

7.    Customer Satisfaction - The likelihood that your customers will

re-purchase and refer you.

8.    Controlling Hub - How your business would perform if you were unexpectedly unable to work for a period of three months.

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 increases loyalty, market share, price, reduces errors and increases efficiency. Higher market share and better efficiency leads to higher profits.

The ultimate truth of your understanding of your customers’ value is best tested with surveys or similar direct contact with the customer. Consistently asking simple questions can be more enlightening than the occasional comprehensive study.

Jon Anstey is a Certified Value Builder? with an organisation called The Value Builder System? where we have a simple system for boosting the value of the companies we work with. Jon can be contacted by email, [email protected] or mobile, 0425 827 691.