MEASURING CUSTOMER VALUE

We know customer value is part of every business daily life, but the degree of this variable may vary depending on the company’s activities. Customer Champions, a team focused on converting customer feedback into profitable action has published valuable information about Customer Value Management (CVM), it helps to identify the elements of value which matter to customers, as well as assess the degree of significance each element holds within the overall value mix. 

This tool links customers to KPI’S by directly measuring the drivers of purchasing behaviour, and the impact it has on market share, profit and loss, recommendation, share of wallet and ROI amongst others. Using client’s data, Customer Champion has demonstrated how an increasing value has a positive impact on both willingness to recommend and the expected change in share of wallet for customers. 

How is CVM measured and interpreted?

Through surveys with predefined questions about customer’s perception of a product or service, and its competitors a ratio is created. Overall, a ratio higher than 1 means that the company has a relative competitive advantage in the market. If the ratio is lower than 1 the level of competitive weakness is high. And a score of 1 is direct parity with the competition. A more specific interpretation to different ratios is further explained in the graph below:

To change this ratio, it is essential to know which elements drive your customer’s perception of value. Data collection through surveys is the best way to shed light on this issue. In short, customer value can be improved by increasing relative perceive quality, by reducing relative perceived price or using a combination of both.

Delivering higher customer value should be a long term strategy. From my point of view, the idea of reducing relative perceived price can be an effective way to gain market share in the short term, however those customers that have once demonstrated a willingness to move for price will do so over and over again. The market will be doomed to operate on low margins with a customer base with propensity to constantly switch to the lowest-price operator.

After this analysis, we know how customer value can be measured and interpreted. I feel the need to discover which the best ways to improve this variable are. For my next post I will gather information about specific tools to increase customer value.

CREATING CUSTOMER VALUE

In order to be competitive in the market a company must deliver value to its customers. One of the most important questions a company has to formulate themselves is: how can a company create customer value to generate big profits? Many of us will suggest that the company has two options; either lower prices or increase quality of the product. But the truth is that there is much more behind the concept of customer value.

Nils de Witte, an expert on marketing posted the following video on YouTube, explaining what is customer value and how can it be improved.

Nils starts describing customer value as the result of dividing benefits by costs. Having said that, customer value will increase when either benefits increase and/or costs decrease. In addition, Nils affirms that the essence of creating value is: trading something that is low cost to you for something that is of high value to the customer. Therefore if a company aims to increase customer value, can either increase the benefits related to the purchase or decrease the costs attached to it.

As shown in the video benefits and costs should be analysed as something else than just value per money. It involves also time, attention, reputation, privacy, status, comfort, ease of mind excitement, entertainment or effort amongst others…

At this stage, I am really interested in getting to know specific tools to increase customer value from a company’s point of view.

DEFINING CUSTOMER VALUE

The first thing we need to know before search for best practice examples about customer value is to fully understand its meaning and which are the main elements embedded in this concept.

As stated by the SEO agency Builtvisible the market has radically changed. We were used to have a few brands in a seller’s market, where the focus was on decreasing costs and increasing volume becoming more efficient. The communicative process was not as important as it is today.

Now everything has changed, we have an overwhelming abundance of offer, and the market is known by having a fierce competition. Customers have high expectations and little loyalty if they are not met. We are living in a buyers’ market. In this scenario companies have to communicate value in order to attract consumers. That is why we need to understand what value is and what is not.

CONCEPT: CUSTOMER VALUE 

According to a dictionary definition, customer value is the difference between what a customer pays for a product or service and the value they get from it

Following a post from Harvard Business Review, customer value is the worth in monetary terms of the technical, economic, service and social benefits a customer receives in exchange for the price it pays for a market offering.

I personally, find this definition quite limited since it is just taking into account money and benefits... I believe there is more costs of acquiring a product/service beyond money.

Supporting my point of view, Chron defines customer value as the satisfaction a consumer feels after making a purchase for goods or services relative to what she must give up to receive them. A consumer doesn't consider value just in terms of money spent, but can also consider the time it takes to obtain a purchased product and interactions with customer service personnel. In summary, "customer value" focuses on a buyer's evaluation at the time of a certain purchase. The higher the value the higher the probability of having loyal customers.

WiseGeek warn us that the term "customer value" is frequently confused with the value of customer to businesses. I will try to differentiate them so that I will not use them indistinctly in future posts.

CUSTOMER VALUE VS CUSTOMER LIFETIME VALUE

When looking for information about customer value, I found out that it is common to use customer value (CV) and customer lifetime value (CLV) indistinctly, but I realized that both concepts are extremely different and shouldn't be confused. 

As stated by Techtarget, Customer Lifetime Value is a metric that represents the total net profit a company makes from any given customer. CLV is a projection to estimate a customer's monetary worth to a business after factoring in the value of the relationship with a customer over time. CLV is an important metric for determining how much money a company wants to spend on acquiring new customers and how much repeat business a company can expect from certain consumers.

Customer lifetime value is a tool for companies to use but customer value is a perception that will vary depending on what the offering is.

Having understood both concepts and knowing the main differences between them, I am ready to dig into customer value and learn more about it.

WELCOME TO THE BLOG!

As an MSc Marketing student, I have created this blog to help me develop my understanding on a certain marketing management topic. I will critically analyse the importance of customer value, supporting my arguments on best practice trends.

As a customer I make purchase decisions based on how valuable I perceive the product or service in relation to the price I will have to pay for it. This means that the company who is delivering a higher customer value will get a higher market share.

I am really interested in analysing how this concept is currently driving the marketplace. In order to be competitive it seems crucial to deliver the highest customer value, but is it up to company? Or is the customer determining the level of customer value from a product or service? I haven´t got an answer for it yet…

This project will be focused on achieving the following learning objectives:
1. Understand the concept of customer value: how to create it and how to measure it.

2. Find best practice examples to deliver higher customer value.

3. To understand until what extent customer value is on the company´s hand

 I will use this e-portfolio to show my progress in this learning journey.