CUSTOMER VALUE HIERARCHY

Let’s get a bit academic. According to Karl Albrecht, a leading thinker in the services marketing area, customer value is best thought of as a hierarchy. This hierarchy is going to determine the perceived value of a certain product or service in terms of what the consumer expects and does not expect from the purchase experience. I will use a hotel as an example to explain each level of customer value.

1.       Basic customer value

It encompass all the requirements of doing business. In other words, it is the fundamental component of your value proposition to be in business. At the basic level, a company provides essential core attributes that customers need. If this basic level is not provided, customers will not buy the product. However delivering it will not generate competitiveness in the market.

In our hotel example, a clean bed is part of the basic value that the company can offer.

2.       Expected customer value

At this level the company provides attributes that customers take for granted. A company providing attributes at the expected level is only providing an average standard service; there is nothing better about the service offer compared to the competition. Customers may only be moderately satisfied, and there is no incentive to return or recommend this company.

Expected attributes of a mid-scale hotel might be an efficient check-in or availability of a bar/restaurant.

3.       Desired customer value

Involves what the customer would like to have from the purchase and service experience. According to Destination Marketing's website, desired value presents the first opportunity for a small business to move ahead of competitors by giving the customer desirable add-on features to the purchase and service experience. Companies providing the desirable offer are competing more effectively than most of their competitors.

The friendliness of the staff, the quality of the food and the efficiency of the service are examples of attributes that customers know, but do not always expect.

4.       Unanticipated customer value

At the unanticipated level companies offer customers ‘delightful and surprising’ attributes that demonstrate outstanding service quality. These features can help a small business win consumer loyalty over the competition and generate repeat sales over time. Companies operating at the unanticipated level can be said to delight their customers with memorable experiences, and are achieving a significant advantage over their competitors. The difficulty with providing unanticipated levels of service all the time is that customers begin to expect these delightful surprises, and competitors copy them.

Examples might include imaginative decor and fittings, staff who perform exceptional service, or cuisine with unforgettable taste sensations.  

As we can see the marketing implication should go beyond the basics and expectations and strive to offer truly superior customer value by providing desired or unanticipated values.

Albrecht, K., 1994. Customer value, Executive Excellence. Sept. pp. 14-15.

PROVIDING EVIDENCE OF YOUR CUSTOMER VALUE

We understand how important is to deliver high customer value but this will mean nothing if our customers are not aware of it. A critical factor is being able to prove your value. Potential customers require evidence of your capability and value. As stated by Barnes et al (2009) in a “world made cynical by hype, your word is simply not enough”.

It is essential to provide a reason to choose you through credible evidence to prove your claims. The authors propose the following tools; case studies, write a book and become a thought leader, develop articles or use on- and off-line, publish customer testimonials and a value calculator. This last point relates to the need to adopt formal measurement techniques to measure and track the impact of your value proposition.

British Airways represents a good example of how a company can create a value calculator to materialise customer value. They are using EasyJet and Ryanair to demonstrate how BA’s customer value is higher than their competitors. This tool enable users to select how they are choosing to travel; checking at the airport or online, selection seat 24 hours before they fly, taking a bag or even opting for food and drinks on board. Once all the options are selected it will calculate what Ryanair, EasyJet and BA will charge for those options.

The objective of the calculator is to highlight the customer value delivered by BA in comparison to what their closest competitors are offering for a higher price. BA head of UK and Ireland sales Richard Tams said: ‘Some no-frills carriers charge for a range of ‘extras’ that we consider to be part of our core service, from checking in a bag to food and drinks on board. On a round trip customers can be paying up to £375 on Ryanair and £79 on EasyJet for these ‘extras’ in addition to their fare. The no frills airlines claim they’re always cheaper. Our calculator shows they are not.’

As we can see, providing evidence of your value is critical for your ongoing success. Any company must decide which measures to use and implement them, communicating the results to help them growing sales and keep the business focused on value.

Barnes C., Blake H. and Pinder D., 2009. Creating & delivering your value proposition: managing customer experience for profit. London. Kogan Page.

CUSTOMER VALUE: RESIDES ON COMPANIES OR ON CUSTOMERS?

So far, I have analysed customer value as a group of characteristics attached to a company’s offering. It looks like the company can play with them to increase customer value. From my point of view, I wonder whether customer value is in the company’s hands. It seems to me that customers have the power to decide whether a company is delivering customer value or not depending on what they value the most.

The Customer and Leadership Blog, states that value does not reside in the product or service a company offer. Value is in customer’s mind. Each individual will perceive it in a different way. For example, a supermarket introducing home delivery service, will be much appreciated by a housebound customer than someone who enjoys visiting the establishment.

Well… Let’s say that customer value is in customer’s hands. Now we need to distinguish what kind of elements create customer value. Continuing with the previous blog, they describe 5 elements in customer value:

1.       Benefit.

The closer you offer is to the perfect solution for the job and the desired outcomes, the more benefit it deliver and the more value you create for your customer. As we have said above, each customer will have a different perceptions of customer value. To manage this situation it is important to detect different segments among the customer base.

2.       Effort

This element goes beyond the product benefits and focus on the ease and convenience of using a certain product. It is essential that the company pays attention to more than just product and service, in this case, we are talking about distribution channels and the whole usage process of the product as a key to increase customer value.

As stated by Fifield “Generally, there will be greater customer value attached to those offerings, where the organisation has spent time, research, effort and insight into finding new ways of making the old jobs easier”.

3.       Risk

The perceived value will be diminished when a great level of risk is attached to a certain product. The perceived risk is much higher when the customer has a lack of knowledge and prior experience in how best to get his job done.  And in particular how to judge the expertise of the supplier and the quality of the offer. Since we are risk averse, it is in the company’s hand to minimize this element.

4.       Price

Undoubtedly this is the most complex component of the customer value equation. There are innumerable variables to take into account when determining the price of a product or service. It is not a simple formula and depending on the price we decide for our product it will have multiple connotations. For example, we may think that a cheap product is always better from a customer’s point of view but they may link this with a low quality and prefer to buy something more expensive.

5.       Treatment

The last element of perceived customer value makes reference to service. Customers will always prefer to do business with organizations that leave them feeling “valued”.  Again we see how important customer service is.