What is Customer Value and How Can You Create It?

Value has many different meanings. To some Value means price (what is the value of this car?)
to others it means benefit (the value I got from this car). It also means the worth of something.
That is why you hear some people saying “value for money” (meaning they are price sensitive);
and others who prefer “money for value” (meaning they are willing to pay for what they consider
as benefits, as from a brand or a better product, or more convenience etc.)

The dictionary meaning includes: The regard that something is held to deserve; the importance,
worth, or usefulness of something. Synonyms are: merit, worth, usefulness, use, utility,
practicality, advantage, desirability, benefit, gain, profit, good, service, help, helpfulness,
assistance, effectiveness, efficacy, avail, importance, significance, point, sense.

Customer Value is 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 or he got benefits and
services over what s/he paid.

In a simplistic equation form, Customer Value is Benefits-Cost (CV=B-C).

What the Customer pays is not only price (cash, cheque, interest, payment during use such as
fuel and servicing for a car) but also non-price terms such as time, effort, energy, and
inconvenience).

The benefits include the advantages or quality of the product, service, image and brand of the
company or the brand of the product, values, experience, success one gets in using the product
and so on.

Customer value measures a product or service's worth and compares it to its possible
alternatives. This determines whether the customer feels like they received enough value for the
price they paid for the product/service.
How is Value Created and What Does It Do?

Value is created just as much by a focus on processes and systems as much as it is by mind-set
and culture. Mind-set and culture are much more difficult to change, and also difficult to
emulate. It is easier to copy products and systems than to change mind-sets and culture.
Therefore, for long term success, mind-set and culture are important and lasting. These, along
with systems create great experience and value.

Value changes during the use of a product or during the Customer Journey. Value is perceived
during the purchase intent, the shopping, the actual purchase or buying, the installation or start-
up, the use and even the re-sale. We sometimes call this the waterfall of needs. Needs change
during the Customer Journey.

Creating Customer Value increases customer satisfaction and the customer experience. (The
reverse is also true. A good customer experience will create value for a Customer). Creating
Customer Value (better benefits versus price) increases loyalty, market share, price, reduces
errors and increases efficiency. Higher market share and better efficiency leads to higher profits.

How to Create Real Value

You first have to understand the Customer Value concept, what a Customer perceives as value,
and how a customer’s value needs change over time, and how to get Customer feedback. You
must realise that people buy a product or service that creates the most value over competing
options.

To create real value, you must recognize what a Customer perceives as value. You must
understand how the Customer views your competition’s product. What is important to the
Customer in his buying decision? Is price more important or are benefits? Are you good at
delivering what the Customer believes is important? Are you able to deliver more than your
competition on these factors?
Let us take some examples on how to create Customer Value:

1. Giving a price that makes the Customer believe he is getting more than he pays for the
benefits he gets versus competitive offers

2. Reducing the price, or keeping the same price and giving something extra over competition
(this could be service, better attention, an add on to the product)

3. Making it convenient for the Customer to buy, and how he wants to buy and pay.

4. For B2B getting a proper price justification, not just a price.

5. For dealers, the feeling the company will grow and offer new products for the dealers to sell.
These are things that the dealer may not have an experience of, but dos Value

6. The image of the company, including the brand and the trust in the company or when the
Customer appreciates the Values of the company including sustainability. These create Value for
the Customer

7. Giving the Customer a product that works as it is meant to (as perceived by the Customer) and
easy for him/her to understand and use (so that no unnecessary time or energy has to be
expended)

8. Making the Customer feel valued. For example:

Smiling at and being attentive to a Customer creates value for him. Ignoring him/her destroys
value for the Customer

Making it easy for the Customer to contact the company, and an assurance that an answer will be
given when and how promised (how many times do you have to wait to talk to someone and how
often does s/he promises to call back and how often do you get a call)

Not making you repeat questions or answers, and keep relating the problem

Receiving a call from a service person confirming his/her visit (the Customer is not kept
wondering whether the service visit will take place)

Not answering queries destroys Value

 Measuring Customer Value

To measure customer value, we first need to recognize these different types of costs and benefits.
The graphic below can help by summarizing the factors you should be addressing when
calculating customer value.

1. Identify customer benefits.

While the graphic above highlights some general benefits, here are some specific one you can
consider:

 The quality of your product or service

 The ability to provide a better solution

 Your brand's reputation

 Your unique customer experience

 The quality of your customer service team

 The social advantages of partnering with your business

 2. Total customer costs.

When measuring customer costs, it helps to differentiate between tangible and intangible. That
way you can calculate the total of your monetary costs and compare it to your other costs.

Tangible Costs:

 The price of your product or service

 Installation or onboarding costs

 The cost of accessing your product or service

 Maintenance costs

 Renewal costs

Intangible Costs:

 Time invested in buying your product or service

 A poor customer experience

 Physical or emotional stress induced from buying or installing your product

 A poor brand reputation

 Time spent understanding how your product or service works

3. Find the difference between customer benefits and customer costs.

To calculate customer value, we can use the equation below.

Customer Value Formula: The formula for customer value can be written as: (Total Customer
Benefits - Total Customer Costs) = Customer Value, or (B - C = CV).
However, it's important to note that since you're working with tangible and intangible elements,
this formula won't look like your typical math equation. You'll need to determine how much
benefits like brand reputation, social status, and service convenience are worth compared to costs
like time investment, emotional stress, and physical commitment.

Additionally, customer value is going to vary depending on the segment of customers you're
analyzing. Since each person is different and has specific needs, goals, and expectations, you
might find the definition of "good value" is inconsistent. If you do, try segmenting your customer
base into different buyer personas, then calculate customer value for each group.

Now that we're familiar with customer value and how to calculate, let's look at some ways you
can generate it through customer service.

Tips for Increasing Customer Value

1. Evaluate your customer experience: When increasing customer value, the best place to start
is by analyzing your customer experience. Create a customer journey map that outlines each step
your customers take when buying something from your business and look for interactions that
might cause friction within the experience. Once you can visualize every action your customers
are taking, it's easier to identify opportunities to add value.

2. Focus on more than price: For some businesses, it's tough to compete through price alone.
Sometimes the cost to make a product is static, and there's not much room for a business to lower
their price tag.

But, that doesn't mean you can't create a competitive offer in your industry.

This is where you should look for alternative ways to add value to your customer experience.
Keep in mind that customer needs range from convenience to performance and there are plenty
of non-monetary benefits that can convince people to buy your product.

3. Collect customer data: It's hard to make effective changes if you're only looking at customer
value from the business perspective. Instead, you should be centering your focus on the
customer's perceived value of your product or service.
To do that, you'll need access to quantitative and qualitative customer data. With it, management
teams will have facts and statistics that justify their proposed changes. Leadership can make
decisions confidently knowing their perception of customer value aligns with your customer
base.

Additionally, it's important to collect both quantitative and qualitative data as this will give you a
diverse data set that includes insightful statistics and captures the voice of the customer.

4. Target your most loyal customers: You might think that because a customer is loyal, they're
already receiving value from your business. And, you'd be right.

However, just because someone is loyal to your business, that doesn't mean you can't — or
shouldn't — outsize their customer value. Encompassing additional benefits through customer
loyalty programs can generate even more value for these customers.
While this approach not only retains your most valuable audience, it acquires new customers as
well. For example, you can leverage benefits in exchange for customer advocacy. Have
customers submit feedback or write a testimonial that shares their positive experience with
potential leads. Since 93% of consumers use reviews when making buying decisions, this will
add another benefit to your customer value equation.

5. Segment your customer base: As we mentioned earlier, customer value can vary depending
on who you're surveying, and a customer's needs and goals influences their definition of "value."
Since not all customers are alike, this creates discrepancies when measuring value at your
business.

That's why it's important to segment your customer base into specific target audiences. Start with
your buyer personas and use customer data to identify specific purchasing behaviors. Once your
groups are established, you can measure customer value for each.