The days of “you are selling it, and people are buying it because there is no other option” are long gone. Not only the business practices and marketing strategies have evolved, but customers are also more aware of their needs and preferences.
A customer spends money on buying your product or service. What does he/she want in return? Of course, he/she wants a value that justifies or exceeds the price he/she paid.
Customers have several options and alternatives today. So, the question is, how can a company please and retain its customers? The answer is simple; you have to give them value for their money. With that being said, the next question is, what is value? Or what is customer value?
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What is Customer Value?
Customer value is a measure to determine the worth of a product or service and its comparison with its alternatives. It is a tool that determines whether a customer feels that he/she got enough value for the money he/she spent. So, technically, it works as an insight into customer remorse. If your customer feels that he/she didn’t get enough value for the money he/she paid, it will create a feeling of remorse and vice versa.
In a nutshell, customer value means:
- A product or service’s worth in the customer’s eye.
- A comparison of cost and benefits of a product or service.
- The level of satisfaction a customer gets after using a product or service.
Why Is Customer Value Important? 3 Major Reasons
Obviously, customer value is crucial because you can only retain customers if you give them the value they want or paid for. Apart from that, here are other top 3 reasons why is customer value important:
- Generate More Resources. If you give more and more value to your customer, you will generate more financial resources. Then, you can use these resources for further customer acquisition and ultimately lead to sustainable growth.
- Better Product Assortment. Once you know who your ideal customers are, you will be able to evaluate your best-selling products. This way, you can assort your product according to your customers’ preferences.
- Access to Capital. The bigger the customer value, the better the lifetime value of a customer acquisition cost ratio is.
Components Of Customer Value
It is the customer’s perception that defines the value of a product or service. Customer value is a combination of four components:
|Functional Value||Social Value||Psychological Value||Monetary Value|
|A value that the customer gets in terms of solutions or remedies for his/her problem/issue. The functional value increases with the increase in the intensity of a problem.||It’s the calculation of perceptual benefits derived from a product or service concerning social class, social status, or a particular social category.||It is a value your product or service gives in terms of psychological benefits such as pleasure, satisfaction, etc.||It’s the value a consumer derives after weighing the price he/she paid against the perceived worth of the product or service. It is that point where all of the non-monetary costs also kick in.|
Customer Value Drivers
The bitter truth about customer value is you cannot control it. However, there are specific ways to influence it. Here are some customer value drivers that can help you in making your product or service more valuable.
- Price. It is a monetary element, is one of the main factors that a customer considers before buying any offering. It has a massive impact on customer’s buying decisions.
- Function Of The Product Or Service. A customer buys an offering as a solution to a particular problem. Therefore, a product’s functional features are an essential driver for a customer. If your offering is giving more features than a customer’s expectation, your product will have more perceived value.
- Positioning. Positioning means how unique your offering is in a customer’s mind. It includes the sentiments, emotions, feelings, traits, etc., attached to your offering.
- Quality. The extent or degree to which your product or service meets the expectations and needs of your customers. If your offering exceeds customer expectations, you are selling a high-quality product or service.
- Service. Service means how do you facilitate your customer during the purchasing process. It includes the pre-purchase and post-purchase phases as well.
- Current And Previous Customer Relationship. A firm’s relationship with a customer is also a major driving factor when it comes to creating value. If your customer had a pleasing experience, the intensity of perceived value would be higher and vice versa.
- Branding And Marketing. A company’s branding or marketing strategies play a vital role in developing or influencing the perceived value in the customer’s mind. Empathetic and problem-solving marketing campaigns get better results.
- Personal Attributes/Preferences. A customer’s personal, religious, or cultural believes also drive him/her to buy a certain product. If someone’s culture doesn’t appreciate the consumption of alcohol, he/she will devalue it.
Measuring Customer Value
Businesses use different models to measure customer value. However, here is a generally accepted formula and model for customer value measurement:
From the formula, you can clearly understand that if the cost of any offering increases for a specific set of benefits, the total perceived value will decline. That means a customer is happy to pay a particular price for specific benefits. If the cost increases while benefits remain the same, customer value will decrease.
Important Factors In Product Comparison
- Cost-based analysis of two products is only possible when both of them have identical exposure.
- It is impossible to compare two different products on the basis of cost.
- Brand reputation also affects the comparison between two brands offering the same product.
Toyota is famous for its “reliability.” Therefore, if Toyota launches a car, it will be perceived differently in the market. However, if another car manufacturer launches a car with the exact same features, customer perception will be different.
Practical Examples of Customer Value
When a brand can at least justify the cost and benefit of any product, it can retain customers. That said, if you can give a value-added product that can justify the cost incurred by the customer, customer retention becomes easy.
Double Cheese Burger — Au Cheval
Au Cheval, a brand famous for selling mouthwatering burgers, can be an excellent example of providing full value for the money. The prices of Au Cheval burgers range from 10.95 USD to 12.95 USD. Now, these prices are way higher than many other famous brands such as McDonald’s, KFC, etc. For instance, McDonald’s and Au Cheval sell cheeseburgers, but the price difference is massive.
The question is, why do people pay these extra bucks to Au Cheval? Yes, the answer is simple. Au Cheval provides that value-added product that justifies its high prices. Au Cheval provides that taste which McDonald’s or KFC doesn’t offer.
Apple – The Trendsetter
Apple Inc had faced severe criticism in its early days. The criticism mostly came from competitors, consumers, and critics. However, later, those competitors started copying the features introduced by Apple inc. So, why do people pay “hefty bucks” for Apple products? Apple Is A Trendsetter That Always Brings Uniqueness.
Apple was the first company that introduced the concept of digital audio as a replacement for analog audio. Later, Google and Motorola followed the footsteps of Apple. Similarly, so many smartphone brands are blindly copying the iPhone X design.
Apple cashes on its uniqueness and innovation. It always amazes its customers with jaw-dropping features. That is why Apple can charge higher for its products.
Tips For Increasing Customer Value
As mentioned earlier, you have no control over customer value, but you can make things better. Here is how:
Asses the Customer Experience
If you want to better the customer value, the first thing to work on is your customer experience. You can make a customer journey map that covers all the steps from buying your product to the point of friction/conflict. This way, you can better the process and add value to your offerings.
Keep Your Focus on Other Things Rather Than Just Price
Yes, prices are a vital factor when you are competing in a competitive market. Sometimes, a business cannot lower its product prices due to static costs of production. However, you always have the option to add some value to your product. There are non-monetary benefits that can add value to what you are offering.
Be Loyal to Your Loyal Customers
You might be thinking that why work hard on a “loyal customer”? Well, if you don’t make your loyal customers feel special, you may end up losing them. Yes, you are already serving them with your valuable products, but you can reward their loyalty with additional steps.
For instance, you can start a customer loyalty program or greet them with gifts and warm wishes on special occasions. This approach can help you in certain ways. A loyal customer is your most robust marketing tool because word-of-mouth is still one of the most influential marketing channels.
Statistically, 93 percent of consumers make their purchase decisions based on the reviews given to a certain product or brand. So, please your customers and get new ones smoothly.