In the post on Why does my business exist? it was stated that the prime aim of any company must be that customers receive value; but what is value?
Your internal company chain of sourcing, operations, sales, marketing, and customer service all contribute to the creation of value. So do your enabling functions such as HR, Legal and Finance. All of these components affect your customers directly or indirectly in some way, informing their perception of your company.
And this leads to the fundamental point:
The results of your efforts to create value are measured in the customers’ perception of that value.
More importantly, in this world of choice:
Customers compare their perceived value of similar products when making a decision.
Customer value is all about subjective perceptions, which can only be influenced, not controlled.
Measuring Customer Value
There are many equations and models for measuring customer value. The simplest is this:
Perceived Value = Perceived Benefits / Cost
In other words, for a given set of benefits, as the cost rises, the perceived value drops.
This is an important point. Value does not refer to price. It refers to the perceived benefits stood to be gained in the context of price. Cost is only part of the equation.
Two identical products with identical exposure can only compete on cost. Two differentiated products do not have to compete on cost. Products are not just differentiated by their features. They can also be differentiated because of their brand, and brand clarity is helped by being clear on the Why behind the company.
The Drivers of Value
Below are some drivers that impact a customer’s perception of value. Some you can control, some you cannot.
- Product function
- Points of differentiation
- Existing relationships or experience
- Personal bias from experience and upbringing.
For any individual customer these drivers will rank differently in importance. Some people love brands. Some people only buy cheaply. Some favour content quality. Some people treasure personal relationships. We are all different.
By identifying groups of people with shared values you can start to create products and messages that resonate with the value that each group recognises. Be authentic. Know your Why and align ALL decisions, actions and communication with the Why.
Next: How do I know that my organisation is creating customer value?
All organisational activity should be about generating value for our customers. Each team in your internal value chain is contributing their own value to the total end-value generated for customers. The work that each team does should benefit the organisation or business as a whole somehow. But this is all a bit vague. In How do I know that my organisation is creating customer value? we explore how to acknowledge the value contributions of your teams.