What is Customer Value?
Customer value is a business and marketing concept which analyzes the level of satisfaction a customer receives from making a purchase. Additionally, it attempts to assess the likelihood as to whether the consumer will make repeat purchases for an ongoing business entity. Organizations tend to analyze customer value in an attempt to solidify their customer base, analyze the performance of their products along with marketing those products more effectively.
Definition of Customer Value
Customer value can be defined as an incremental benefit derived by the customer from consuming a product for paying its cost. The term value signifies all the benefits being offered to the customer by the product. The equation of customer value is the difference between the benefits (sum of both tangible and intangible benefits) and the cost.
Benefits – Cost = Customer Value
Customer values are weighed against customer values that are assigned for similar products and services and which would give similar benefits. Customers will purchase those products that offer the highest value amongst all offerings in the marketplace. Each customer holds a unique set of needs and resources which means that no two customers will be having the same value on the same products or services. Even the highest quality product may not deliver the highest value as the benefit of every item will be measured against its cost. There are some customers who may pay a higher price for a high-quality product whereas, others may make a decision that the benefits are not worth the price.
Customer value is dependent upon three factors – Quality, Price, and Service. The value of the product tends to increase with its service and quality as its benefits increase. On the contrary, the value of a product reduces with an increase in its price.
Why Customer Value is Important
Importance of customer value for successful marketing has become essential for every business nowadays. Customer value has become one of the most important aspects of the acquisition as well as the development of profitable customer relationships. Below mentioned are some reasons which explain why customer value is important:
- Prospective customers are not specifically looking for your product or service. They are in search of products which fulfills their needs and wants. Determining customers’ needs and wants and getting to know how to help them in their specific needs is the key.
- Customer value means different things to different people. When selling products, its intrinsic characteristics do not change from one customer to another. However, the customer value or customer satisfaction level being offered can be changed from one situation to another. One customer may find the product to be an immediate solution of a pressing need whereas, others may not. In this aspect, customer value becomes very important as value can be customized as required wherever a potential fit exists.
- Understanding customer requirements helps in aligning customer value. Making every customer feel valued is a very good practice; however, some customers may be more valuable than others. These are lifelong customers and provide repeat business and high referrals and recommendations as well. The product that delivers customer value may support major sales for particular market segments which also allows targeted selling based on integral values.
5 Steps to Create Customer Value
Step 1: Understanding what is Driving Value for Customers. This can be known through research made by surveys or simple conversations and analyze their actions and reactions. In this way, businesses can understand what is important for customers and how they can create opportunities to help.
Step 2: Understand the Customer Value Proposition. According to the equation, customer value is product benefit minus its cost. Determine what value your product or service creates? What is its price for them and what ancillary cost of usage or ownership (what amount of time was served to buy or use the product?).
Step 3: Identify those Customers where more Value can be Created Relative to Competitors. Different customers have different perspectives of value in comparison to competitors based upon their geographic vicinity. This can make a product attractive for a particular segment.
Step 4: Create a Price which provides a win-win Situation. Set a price which makes the customer feel they are being valued along with also maximizing your share of profits. Customers who are satisfied with value will many times be willing to pay more whereas; unsatisfied customers may even leave the product at lower prices.
Step 5: Make an Investment on most Valuable Customers. Allocate sales force, R&D and marketing investments disproportionately within customers and segments where the product best serves and offers the greatest value. Additionally, allocating growth capital in new products will attract more customers.
How to Deliver Customer Value
- Offering distribution channels as well as payment options which make the process easy and convenient for customers.
- Changes in price will make customers feel valued. Reducing prices, maintaining it or giving something extra from competitors can be useful.
- Making customers feel that their patronage is valued by moving apart from the minimum acceptable effort.
- Creating and enhancing brand image which reinforces customer relationship and is in alignment with their values.