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.