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.

No wonder, the reader is confused about the value word that s/he uses so often.
When used in the vernacular it does not matter, but when used as a technical term,
like Customer Value, the meaning of Value must be precise, so that everyone
understands what it means, as shown below:

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.

Values are distinct from Value (the plural of value as defined above is Value).
Values are what someone or a firm stands for: Honesty, morals, ethics,
sustainability, integrity, trust.

Consumers are distinct from Customers. Consumers use the product or the
service, but in all cases do not buy the product/service. The value the consumer
perceives influences the buying evaluation and perception of the decision maker
or the Customer. The Customer is someone who buys or makes the decision to
buy. A Non-Customer is someone who could buy from us, but is buying from
someone else.

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?

I understand these are general terms, but they will help you to create value as you
understand your Customer’s need and perceptions. 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

All readers have real life examples of Value creators and Value destroyers and
can add many more examples. Do add yours. Answer the following:

• What could I do to create Value for my Customer?

• What can destroy Value for my Customer?
• Does experience create Value?
• List things that you do not experience that can create Value for you.
You can contact the author at Mahajan@customervaluefoundation.com for
answers or view the website www.customervaluefoundation.com

Customer Value – Case study

CUSTOMER VALUE – A CASE STUDY

A firm must design and create products and services which customers consider
as value and not in the opinion of the firm. We have given below a case study
how even reputed firms like P&G can go wrong in their assessment of customer
perception.

In the 1970s P&G recognized a mass-market opportunity in the potato chip

business in the US and decided to tap it, banking on its time-tested strength in
marketing, advertising and distribution.

Findings from Market Research:

P&G did some market research and found out that in the potato chips business,
two problems on the distribution front hampered national-level marketing.

1. The fragile nature of the product rendered long distance dispatches

unworkable; the product was getting broken in transit.
2. It also spoiled quickly, leading to a low shelf-life.

P&G felt that by solving these two problems, it could enter the industry as a
national marketer and gather a sizeable share of the market.

P&G improved the product to suit distribution: P&G solved the two problems and
entered the industry with Pringles. It ensured that Pringles did not break easily. It
also tackled the ‘poor shelf’ issue by improving the product suitably. It
tested the product prior to launch and received feedback that consumers judged
Pringles to be ‘as good as’ competing brands.

Aggressive entry: P&G entered the business with a bang. It organized its
distribution across the US and spent $15 million on advertising during the launch
and $50 million over a period of eight years. It followed a policy of premium
pricing, keeping its price 10% above competition. Its goal was 25% share of the
market and $350 million sales revenue per annum by the second year of operation.
The downslide: P&G did achieve 25% market share in the early period, largely
on account of customers who were eager to try out a new product. But, repeat
purchases fell and market share fell to 10% by the third year. The share continued
to drop time and reached less than 7% by 1978. P&G thereafter continuously
withdrew advertising and brand support for Pringles, as both revenue and market
share continued to decline.

P&G found that now consumers were of the opinion that Pringles tasted
‘artificial’, though earlier in blind taste tests, they had said it tasted
as good as other brands. P&G found that consumers now inferred the
‘artificially’ from the very characteristics, which, according to P&G, were
the innovative ‘add-ons’. Pringles were uniform in shape and texture. It
was not broken. It was not burnt or greasy. It was sold in red cans. It contained
preservatives. These attributes were plus points of the product in the opinion of
P&G. The company wondered why customers did not patronize Pringles despite
the delivery of good value.

What went wrong with P&G?: P&G wrongly assumed that the customer would
be delighted with the two attributes—better shelf life and absence of
breakage—it had added to the product and would be willing to pay 10%
premium price. But, in the customer’s perception, neither of the two attributes
meant significant value. In improving breakage and shelf life, the company was
merely solving its problems in distribution. The customer, in any case, was not
willing to pay a 10 % premium price. On the contrary, local brands fared better
in the customer’s value cost balance. In short, the Pringles venture failed
because P&G failed to develop a product that was important to the customers.

The Lessons

1. Value is fundamental to the marketing process.

2. Value is what the customer thinks is value.
3. Customer analysis is of vital importance in marketing, as it is the route for
finding out what is of value to the customer.

How restaurants are innovating with digital loyalty programs

Digital sales have more than tripled for restaurants since the start of the pandemic,
says Paytronix’s Annual Order & Delivery Report. Other research mirrors these
findings, suggesting that digital is increasingly a differentiator for restaurants.
According to the Restaurant Readiness Index, restaurants now generate around
40% of their total sales by selling to customers online, via a mobile app, using
third-party aggregators, or via other digital ordering options.
But this isn’t the only way that restaurants can compete for the attention of digital
customers. The RR Index also found that 16.1% of restaurant customers would
be more inclined to order from restaurants that offer loyalty and rewards features,
making this the most-desired digital feature. What’s more, 16.7% also said that
loyalty or rewards programs would be the one feature that would encourage them
to spend more at any given restaurant.

So, how are restaurants tapping into this opportunity?

Digital rewards are driving higher frequency and spend among digital
customers

A small number of quick-service restaurants offered digital loyalty schemes

before the pandemic, such as Starbucks and Chipotle, but the pandemic has
spurred many more to do so.

McDonald’s is the latest to bet on digital loyalty, with the fast food chain now
piloting its MyMcDonald’s Rewards program in the UK. It has launched in 10
restaurants in England, with plans to add 65 before the end of January, and roll
out nationwide by the end of this year. Customers can access the scheme via the
MyMcDonalds app, and earn points which can eventually be redeemed for menu
items.

Chris Kempczinski, President and CEO, explained in McDonald’s Q3 2021

earnings call how the scheme has already generated success for the fast food
chain. “It also creates another touch point to increase engagement and take our
relationship with customers to more responsive, more personalised places,” he
said. “We’re already seeing increased customer satisfaction and higher frequency
among digital customers, compared to non-digital.” According to McDonald’s,
the scheme – which is already active in the US, Canada, and Germany – already
has more than than 21 million enrolled customers.

Chipotle is another restaurant that has seen huge success from its digital loyalty
program, which CEO Brian Niccol says now has more than 23 million members,
and is “consistently able to generate more transactions from light, medium and
high frequency users.” Chipotle also says that its digital loyalty members
represent around 25% of its total customer base, making it a big driver for overall
sales.

Similarly, Taco Bell’s Rewards program continues to drive digital sales.

Speaking in the company’s Q2 2021 earnings call, CEO David Gibbs said that it
has resulted in an uptick in frequency and higher spend per visit, resulting in a
35% increase of overall spend for active customers compared to their pre-loyalty
behaviour.
During the Covid-19 pandemic, loyalty also turned into a lifeline for some, with
Starbucks’ digital scheme helping the company to recover from a difficult 2020.
The company added over one million active Starbucks Rewards members in Q3
2021, with over 24 million active members representing 51% of all spend in US
Starbucks stores. CEO Kevin Johnson stated that it is “very clear that our
Rewards program has accelerated our recovery in a meaningful way.”

Engaging customers through deeper personalisation

Digital loyalty schemes aren’t only about driving top line sales, of course.
Restaurants want data, in turn using it to create personalised experiences that
deepen engagement with loyal customers. This is particularly important given the
amount of choice within the quick-service market, and the fact that customers are
likely to be loyal to more than one restaurant. According to PYMNTS’ ‘Digital
Divide: Mind The Loyalty Gap’ report, 64% of customers who use loyalty
programs do so at multiple restaurants from which they frequently purchase.

So how are restaurants using this data? Interestingly, with many also working to
enhance the drive-thru experience – for example, using automation to make
ordering faster – another related trend is restaurants incorporating data from
digital loyalty programs to personalise the experience. One example of this comes
from Burger King, which last year began testing Bluetooth technology to identify
members of its Royal Perks program at the drive thru, and showing their previous
or recommended orders on digital signage boards. The idea is that customers are
likely to have a favourite or regular order, so automatically delivering this option
creates a more tailored and convenient experience.

Panera Bread is also working on automatic identification, integrating into

its ‘Next Gen’ bakery store which opened late in 2021. The store, which is
designed to offer a seamless experience for both dine-in and dine-out customers,
automatically identifies loyalty members in both the drive thru and when entering
the store. Speaking to CNBC, chief brand and concept officer, Edward Luz,
explains that “Once you are identified, the vision is that we interact and
acknowledge and treat you as a person, with preferences. It’s what you expect
when you go to a neighbourhood cafe.”

In some ways, this also aims to offset the ‘contactless’ technology that restaurants
are also using, which can often feel rather impersonal. Panera’s store aims to offer
a personalised experience, one that recognises the individual rather than a faceless
customer, even if the customer in question chooses to order via a digital kiosk.
This also aligns with the rising consumer demand for multi-channel,
acknowledging that even digital customers are not exclusively digital (and vice
versa), and that long-term loyalty more likely stems from meeting customers
wherever they are.
Going beyond transactions to drive emotional loyalty

Alongside personalisation, restaurants are also integrating gamification into

digital loyalty programs, which can help to incentivise the customer to continue
being active.

Starbucks Rewards members have been able to play games such

as Starland (celebrating the company’s 50th anniversary) and the Starbucks
Summer Game for a chance to win either badges in-game, prizes, coupons or
raffle tickets.

Chipotle does too this with its ‘Extras’ feature, enabling customers to unlock
rewards faster and more often, rather than having to wait and earn them via
transactions. Last June, it also launched the ‘Chipotle Race to Rewards’ video
game – available for just 48 hours – which challenged users to compete for points,
with the top player winning a 2021 Tesla Model 3 and other high ranking players
winning an electric bike.

Alongside short-term, high-impact activations like this, Chipotle’s Rewards

program also allows members to redeem points in support of the company’s
charity partners, including the Farmlink Project, as well as a range of additional
menu items and Chipotle branded merchandise.

Altogether, with competition in the space increasing, there appears to be

increasing recognition of the importance of driving emotional and experience-
based loyalty in customers rather than basic, transaction-driven loyalty, with
restaurants becoming increasingly creative in how they do so.

Again, this often boils down to personalisation, with restaurants using data to
target and engage customers in meaningful ways. Another good example of this
is Dunkin Donuts and its ‘Year in Review’ emails, which it sends to DDPerks
members based on their yearly purchases and activity. Similar to Spotify’s
campaign, this email helps to build a story around the individual customer
instilling the sense that they are valued by the brand, which in turn, fosters
continued loyalty.