How Valuable is Creating Customer Value?

Wouldn’t it be nice if you were the only game in town? Unfortunately, for most companies, when it comes to purchasing a product or a service, your customers have plenty of choices. Customers need to see value as the key deliverable from your business to be motivated to purchase. That doesn’t mean being the least expensive. Price is only a small part of the value.  

Value reflects the importance, worth, or usefulness of something. When used in a business context, a value is a worth in monetary terms of the product or service, as well as the social benefits a customer receives in exchange for the price they pay. The words of Peter Drucker bear repeating:The starting point has to be what customers consider value.”

To create a way to measure customer value, we need to be clear by what we mean by value. My associate, Gautam Mahajan, the president of Customer Value Foundation, defines customer value as “the perception of what a product or service is worth to a Customer versus the possible alternatives. Worth means whether the Customer feels s/he got benefits and services over what s/he paid.”

How to Solve the Customer Value Equation

At its most basic level, a customer value equation = benefits-costs. James Anderson, a professor at Northwestern University’s Kellogg School of Management, and James Narus, a professor at Wake Forest University suggested the following equation to define customer value.

Values and Prices are the value and price of the supplier’s market offering. Values and Prices are the value and price of the next best alternative. The difference between value and price equals the customer’s incentive to purchase. This equation conveys that the customer’s incentive to purchase a supplier’s offering must exceed the incentive to pursue the next best alternative. To create your customer value metric start with these three variables.

How to Define the Fundamental Mission of Marketing

Marketing creates, communicates, and delivers value to customers. Customer value is the fundamental mission of Marketing. It is Marketing’s job to capture and communicate the “value elements” of your organization and its offerings. Value elements are anything that affects the costs and benefits of your offer. While a good quality product at a low cost represents great value, there are non-price value elements to consider in the benefits side of the value equation, such as (but not limited to):

  • customer service and experience
  • subject matter, domain, industry expertise
  • warranties and guarantees
  • reliability
  • delivery

Marketing plays a crucial role in your company’s ability to create customer value. As Marketers, you must think in terms of how everything you do delivers value to your customers. Given Marketing’s focus on finding, keeping and growing the value of the customer, if you cannot connect what you do to creating customer value, you may need to ask yourself why you are doing it.

What should you be doing? Think beyond activities and tactical execution. It is Marketing’s responsibility to understand the company’s markets, segments, and customers. This most likely will require Marketing to undertake research, gather data, and employ analysis. Different value propositions are relevant to different customers. Marketing needs to develop these propositions and the associated and supporting messaging. And then Marketing must be able to communicate the value at the right time through the right channel. This means everyone on the Marketing team must understand the various customer personas and buying processes.   

Increase Consideration and Consumption by Your Customers

Creating customer value grows your market share. If you want to see increased consideration and consumption of your products, consider seeking an objective expert. Remember, you must focus on and invest in creating customer value. Your market and shareholder value are derived from it. We began this article with a quote by Peter Drucker. We’ll conclude this article with a quote by Jean Baudrillard, “Consumption is driven by the sign value of the object (what it imparts upon the possessor) and this determines the exchange value (what it’s worth).”