March 4, 2020

Customer Value - Your Complete Guide

Finance Leadership
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Without customers, you can’t have a business. As the life force of any organisation, your customers and their satisfaction should always be one of your top priorities. When it comes to creating customer value, there are many different interpretations and definitions of what value means. 

According to the dictionary, value is defined as “the monetary worth of something.” While products and services do have a value in terms of pricing, customers also place their subjective value on your business offering. 

Here, we will take a look at what customer value means, how you can measure customer value and the different ways to build value models. 

What is Customer Value?

Customer value is how a customer defines the worth of your product or service in comparison to your competition’s offerings. To break down customer value mathematically, it can be determined by the following equation:

Customer Value = Benefits - Cost 

However, it’s essential to understand that the cost covers more than the monetary value or price of a product or service. Cost also entails the effort, energy, convenience and time that a customer spends to attain your product or service. 

Value is a very subjective measurement because different customers find different benefits in what they buy. Some benefits include: 

  • Product quality
  • Image
  • Ownership advantages
  • Success gained from the product or service 
  • Experience
  • Problem-solving abilities of the product or service
  • Company brand
  • Knowledge 


Measuring Customer Value

Since customer value is subjective, their measurement depends on perception. One of the simplest measures of customer value is: 

Perceived Value = Perceived Benefits/ Cost 

So, it’s clear to see that as the cost rises, the perceived value decreases. Products that are identical end up competing solely on cost. When products are not similar, it is their differentiators that can raise their perceived value. 

Since measuring customer value comes down to perception, this means that marketing plays a massive role in increasing customer value. If two companies release identical products at the same price point, then the benefits of one over the other must be conveyed to customers. Ultimately, this is why strong branding and marketing can make or break a business. 

Build Customer Value Models 

As a business owner, CFO or brand manager, you’ll want to have a steady pulse on customer value. Different models can be used. This most popular model is called Field Value Assessments (a.k.a. value-in-use). As the name implies, this means you go straight to the source, namely the customers for more information! 

This means you need data! By gathering data from customers through surveys or using automation software to track KPIs, you can get a sense of how customers are responding to your product. 

Let’s take a look at how you can do this in the following steps:

  • Build the Team and Strategise: Put together a team that understands your product and your customers well. This can consist of people from the marketing team, sales, engineering, or product. The next step is choosing the market segment from which you want to glean insights. Once you know who you want to survey, put together a list of the right questions and data points to collect. 
  • List Value Elements: Value elements are any aspect that can alter the cost or benefits of a product or service. These may include technical, economical, service or social details. For example, if you are an e-commerce store and a customer buys several items from you, how you send your invoices and receipts would be considered an economic value element. To get the most out of this process, you’ll want to consider the entire lifecycle a customer goes through when in contact with your business or product. That way, you can maximise every touchpoint to be an enjoyable experience, thereby increasing the benefits to your customers. 
  • Gather Data: Once you have the value elements listed, you want to gather data from customers. This can come in the form of surveys and questionnaires or could be more technical and come from using digital analytics to see how customers spend their time on your website, for example. You can use data automation tools to gather, store and report such data so that your team could track processes and progress. 
  • Validate the Model: When validating a model, you must put it to the test. Since you are trying to associate a monetary value with elements that are inherently not priced, you will need to test its accuracy. This means that your model gets tested with your target audience. You will want to organise such data according to personas or customers in cohorts so that if there are variances, you can make sense of why they exist. By automating your manual data tasks, you can keep track of this performance, and key metrics live, and free up staff time for analysis and refining your model.
  • Sell Based on Value: Once you understand what and how your customers value your product or services, you can sell based on pushing said benefits. For example, marketing and sales efforts can be informed by data and analytics. That way, you can always make sure that every division in your business is operating to maximise customer value, and in turn, add to your bottom line! 


Tips for Cultivating Customer Value 

Your product or service may or may not be the right fit for every person. But, you can position your product or service as the right fit if you know what your audience wants. There are ways to cultivate and build customer value based on research, data and information. 

Define your value proposition: In a highly competitive marketplace, you want to have an easy-to-understand and true value proposition. Your value proposition is your business’ purpose for existing, and it answers the question of the problem you solve and why you are the best choice to do so. You can refine your value proposition by answering the following:

  • What is your business good at?
  • Why do customers choose you over your competition?
  • What benefits do you offer?

Then, use data to help quantify these answers. You will also want to communicate your value proposition in all your communication and marketing efforts. 

  • Segment your audience: Since customer value is subjective, you can organise your clients in segments so that you can communicate the respective benefits to those customers who are chasing that need. Some ways to segment your audience and tailor your communication can be by gender, location, age, engagement level, etc. 
  • Forget about price: Cost is a factor for many customers, but it isn’t everything. If you solely compete on price, you will end up losing to competition or taking part in a race to the bottom, removing any profit margins. When customers are satisfied with your business, they are more likely to spend more. You should undoubtedly use data to understand the market price and maximum price that a customer is willing to pay, but you can increase the cost as you increase your benefits to increase perceived value. 
  • Focus on MVCs: Every business has its own most valuable customers or those who are loyal and consistent customers. Customer retention is less costly than customer acquisition, so be sure to engage with your customers and build strong relationships. 

How to Create More Value 

Customer value can be created, boosted and maintained. It encompasses a variety of factors, most of which you have control over. Some ways to generate more value include:

  • Product function: Make sure that you’re product or service is functioning the way you say it will. 
  • Points of differentiation: Try to find ways that you can beat out your competition with differentiators. 
  • Quality: Test and upkeep product quality so that the customer experience is enjoyable. 
  • Service: Good customer service can make or break customer relationships. 
  • Marketing: Use marketing to your advantage to communicate the right message to the right audience so that you can showcase benefits accordingly. 
  • Existing relationships or experience: Build existing relationships accordingly to retain customers. 
  • Value/price: Make sure that the price or your product correlates to how much value a customer can derive. 
  • Ease: If your business or product is hard to deal with, a customer will not stick around. Make things easy for customers. 
  • Branding: Ultimately, any business becomes a brand, and a brand is how your customers perceive your business. With a better brand, customers will associate higher perceived benefits with your business, and thus, you can increase costs and customer value.  
  • Customer service: Your customer’s experience comes down to the service they receive. From digital to in-person, everyone on your team should know how to support customers. 
  • Unique proposition: There’s always competition, but it’s up to you to define a unique value proposition that communicates why a customer should choose you over your competitor. 

The Bottom Line 

Customer value is unique to every customer. This is because everyone derives different benefits from the same product or service. At the same time, people view costs differently and are willing to spend different amounts on the same product. To maximise customer value, it’s most important to get a pulse on how your customers feel. 

By breaking your customers into segments, using data automation tools to gather data and performing analytics, you can enhance your business processes and ultimately your products to optimise customer value. 

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