Mistakes in Business Strategy Formation: Does Your Client Truly Value What You Offer? + Fashion Industry Business Case

Many people often make mistakes when forming a business strategy, using the wrong perspective to approach this task. Of course, everyone understands that today, creating and developing a value proposition clearly understood and, most importantly, accepted by your client is the foundation of any strategy. But how can you make sure that your client thinks the value proposition you have developed is exactly like the ideas, thoughts, and values you intended? Is what you offer and consider valuable to the client valuable to them?

How can you ensure that your client perceives the value proposition you have developed exactly as the ideas, thoughts, and values you intended? Is what you offer and consider valuable to the client actually valuable to them

The answer to this question can be found in a formula that evaluates the client's acceptance of the value proposition you offer as part of your service or product.

I will explain in a somewhat simplified form how this works and provide a specific business case in the fashion industry we worked on recently.

What is customer perceived value (CPV)?

Customer perceived value (CPV) is the customer's evaluation of the benefits and costs of a product or service compared to alternatives. It is a subjective assessment of a product or service's overall worth or desirability based on the customer's needs, preferences, and expectations.

CPV is a key concept in marketing and pricing strategies. It helps businesses understand how customers perceive their offerings and make purchasing decisions. By focusing on increasing CPV, businesses can attract and retain customers, increase sales, and achieve long-term success.

Simply put, it is the ratio between what your customer receives and what they give in return.

CPV Formula

CPV = (Value received by the customer) / (Costs incurred by the customer)

Below, I will present this as a fairly simple formula to provide clarity for this example:Your value proposition consists of the value the customer receives from your product or service.

Examples of Product Values

1. Quality: The product is made from high-quality materials, is durable, and reliable.

2. Functionality: The product offers a variety of features that meet the customer's needs.

3. Ease of Use: The product is easy to use, has an intuitive design, and requires minimal effort to learn.

4. Time Savings: The product helps customers complete tasks faster, saving them time.

5. Cost Savings: The product offers good value for money, helping to reduce customer expenses.

6. Image and Status: Using the product can enhance the customer's social status or image.

7. Warranty and Support: The product has a long warranty and reliable customer support.

8. Innovation: The product uses the latest technology or offers unique solutions.

9. Safety: The product provides a high level of user safety.

10. Eco-friendliness: The product is made from environmentally friendly materials or contributes to environmental preservation.

Examples of Service Benefits

1. Professionalism: Highly qualified specialists with extensive experience.

2. Time Savings: Quick and efficient task execution, allowing the client to focus on other important matters.

3. Personalization: An individualized approach to each client's needs, ensuring the most appropriate solutions.

4. Convenience: Services are available at a convenient time and place for the client, often with the possibility of online consultations or services.

5. Cost Savings: Optimal prices and the opportunity to take advantage of promotions or discounts.

6. Quality Guarantee: A high level of service with a satisfaction guarantee.

7. Support and Consultations: Providing continuous support and professional consultations.

8. Innovation: Using the latest technologies and methods to improve service quality.

9. Safety: Ensuring confidentiality and protection of client personal data.

10. Comprehensiveness: Offering a full range of services, allowing clients to get everything they need in one place.

Of course, this list is not exhaustive and can vary greatly depending on your specific case, namely your products and services. However, it gives you a general idea of what we are discussing.

Customer Costs

Now, let's briefly talk about the costs that the customer incurs, which they effectively exchange for the value received from your product or service. Typically, these costs are divided into direct and indirect costs. Direct costs are those directly associated with purchasing the product or service, such as the cost of the product or service itself, insurance, delivery, and so on. But there are also indirect costs—these are related to, for example, the time the customer has to spend to obtain the product or service, such as the cost of installation at your location and many others.

The concept of "customer perceived value" is widely discussed in marketing and business literature, and many authors have contributed to this topic. One of the key figures often associated with this concept is Philip Kotler, a well-known marketing expert and author. Kotler's work on marketing management extensively covers customer value and its importance for business success.

Example of CPV Assessment from an Ecommerce to Brick-and-Mortar Retail Case in the Fashion Industry

The most challenging question remains whether what you consider a benefit for the customer is a benefit for them. To show this, I would like to provide an example from our latest business cases, specifically our work on assessing the perceived value of a proposed product for a fashion brand.

We will not delve into the entire case but focus on how the customer perceives the product, specifically one value. The fashion brand sells 80% of its turnover online and is represented in several physical boutiques in major cities in Ukraine and abroad. In the initial stage, when the value proposition was being formed, one element considered extremely valuable was that every customer wanted the product they ordered online to be delivered within 1-3 business days. During communication with the customer, it was explained that services like Amazon or Rozetka usually deliver within this timeframe, especially for premium subscribers. We understood that delivery time matters, but immediately questioned whether the 1-3 business days timeframe was truly critical for the customer and if this was the value influencing their purchase decision. When we began testing this idea in practice by talking to customers, we realized that since the brand operates in the premium clothing segment and produces custom-made items for each client, this timeframe was not a significant value for most customers. The number of customers who cancelled their purchase because they couldn't wait for the production time, which was 5-7 business days plus delivery time, was only 10%. This is, of course, an important percentage that needs to be addressed, but it did not match the initial estimates included in the company's value proposition.

"In the premium segment, delivery speed is a nice-to-have value but not a must-have."

I'll also provide an example where the estimates used to form the value proposition truly matched reality. During our work with the client, we assumed that clothing buyers would be willing to pay a premium for the ability to customize their clothing, specifically tailoring it to their individual measurements. This hypothesis was confirmed with over 60% accuracy.

It is also worth considering the customer's costs when purchasing your product or service. Here is a brief example: when making an online clothing purchase, over 30% of customers abandoned their purchase when they saw that the delivery cost was added separately during checkout. When the delivery cost was included in the product price, the percentage of cancellations dropped significantly. The same applies to various ancillary costs, such as online transaction fees and so on.

Conclusion and Recommendations

We can discuss several different types of mistakes and correct choices made by the client in this case. Would you like to read a more detailed analysis of this case?

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