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Creating and Sustaining Customer Value
What is Customer Value?
Customer value can be thought of, simply, as “the value a product can bring to life of the customer.” It is the difference between the amount of benefit a customer gets from using a product or service, and the cost, to the customer, for acquiring and using that same product or service.
When it comes to customer value, what you see is not always what you get. For example, a product that has lots of bells and whistles could also have high maintenance costs, poor customer service, and a high price tag. At the same time, a product with fewer bells and whistles, that still does what the customer needs it to do, can have lower maintenance costs, excellent customer service, and a lower price tag. After comparing all that the customer will get (the good and the bad) from these two alternative products, the lower-priced option could be viewed as having higher customer value than the higher-priced product with all the bells and whistles.
Customer value takes into consideration the advantages as well as the sacrifices a customer will encounter as a result of choosing a particular product or service. Maximum customer value will consider the sum total of customer advantages and sacrifices.
The advantages to be gained from using a particular product or service include such things as product benefits (what problems the product solves for the customer) product features, product quality, and service after the sale.
But what will the customer have to sacrifice in order to use the product? How much time and effort will be required for the customer to learn how to use the product? And how much will it cost the customer to use and to maintain the product? What about disposal costs? After its useful life is over, will the customer encounter problems or challenges in disposing of the product?
Three Major Considerations for Value Creation
The first rule for staying in business is figuring out how to get repeat purchases of products and services, therefore, companies are always searching for ways to keep customers coming back for more. The constant conundrum is figuring out how to get repeat purchases, which depends on customer satisfaction, which depends on maintaining customer value. Following are three major tactics that marketers often use in efforts designed to create customer value. These tactics, however, should be used only after much consideration, because even though each can have a positive effect on sales, they can also have a detrimental effect on customer value creation. Therefore, it is important to consider the possible effects of these popular tactics before using them to create customer value.
- The Relationship Between "More" and Value
"Buy one get one free" is a much-used promotional tactic marketers use in hopes of getting an instant push in sales. But, it is important to consider, prior to offering "more," how customers might feel/behave at the end of the promotion. How will the customer feel when the price he/she has been paying for two items suddenly buys only one? Will it feel like paying 100% more for the same benefits? Will the customer remain loyal, or will he/she look for lower-priced alternatives that deliver the same, or nearly the same, benefits? Will dissatisfaction with the price/benefits lead to value erosion in the mind of the customer?
- The Relationship Between Price and Value
Offering special prices is often a good way to attract new customers, and it is often helpful in increasing business from loyal customers. But is it always a good idea to offer lower price as a way to offer customers more value? It is important for marketers to consider that lowering the price of a product can sometimes cause it to be perceived as second best. Higher priced products with similar attributes often are market leaders based on perceived higher value and brand image. These considerations can often seem to offer higher customer satisfaction. Product offerings in the automobile markets provide a good example of quality/image perceptions relative to higher versus lower priced products.
- The Relationship Between Value and Multiple Features and “Add-ons”
Many companies will load a product or service with more features believing they are offering higher value to customers or potential customers. While this may be attractive, if the features are not backed by adequate supports, customer satisfaction may be less, and value can be reduced. Providers of mobile technology (such as phones, cameras, e-book readers, and so on), for example, may offer an array of “add-ons,” such as text-messaging or free incoming calls, etc. However, if billing or customer service is poor, the customer will be dissatisfied and will leave for another provider.
So what does this tell us about sustaining customer value? It tells us there is more to the story than meets the eye. Finding ways to maintain customer value is a constant challenge, especially as competition in an industry intensifies and as markets become "saturated" with more and more product offerings. Strategies and tactics must be discovered, or created, for maintaining customer value in order to keep loyal customers coming back for more.
Customer Value Through Customer Relationship Management (CRM)
Many companies have sustained a competitive advantage, through the years, by knowing who their primary customer is. In addition to knowing who their main customer is, these companies also begin, early in the relationship, speaking directly to customers, working hard and consistently to manage and to maintain a “lifetime” relationship with them.
Customer relationship management (CRM) can help marketers increase their share of customer—that is, the share they get of the customer’s purchasing in their product categories. To increase the share of customer, there are several ways firms can leverage customer relationships. For example, they can offer a greater variety of products and/or services to current customers; or they can train their sales force to cross-sell (offer customers related products and services sold by the same company) and up-sell (offer customers more expensive products and services sold by the same company). These are strategies that are often used to allow companies to market more products and services to existing customers.
Building customer equity is the goal of CRM. Customer equity is the combined discounted customer lifetime value of all the company’s current and potential customers. It is possible for a company to categorize or classify their customers according to their potential profitability. Doing this allows them to manage more precisely their relationships with each group, according to their potential for profitability. Since the characteristics of each group are different, each group requires a different customer relationship management strategy.
Group One: The first group comprises customers with high projected profitability and high potential for brand loyalty. Needless to say, this group represents any marketers idea of "dream customers." Still, careful consideration must be given to how much and what kind of marketing efforts are needed, and to how much/what kinds of efforts to place on cultivating and maintaining relationships with this group.
Group Two: The second group of customers are those with high projected profitability, but low potential for brand loyalty. Marketers need to determine how much and what kind of marketing efforts are needed, mainly to cultivate relationships with this group of customers. While there are definite opportunities to get good return on investment, the low potential for loyalty must play a role in company decision-making.
Group Three: This group has customers with high potential for brand loyalty, but they have a low projected profitability. Great potential for brand loyalty is always attractive, but the potential for low profitability lessens the attractiveness of the group. Marketers must decide how much and what kind of marketing efforts to place on cultivating and maintaining relationships with customers in this group. Low-cost but effective efforts, especially those involving social media able to reach this group, might be good considerations.
Group Four: The last group is those customers with both low projected profitability, and low potential for brand loyalty. The firm would need to determine how much marketing effort to place on building and cultivating relationships with this group. In making this determination, the company's potential return on its marketing investment must be weighed carefully. It could be that information/appeals contained in marketing efforts targeting other groups, primarily, might be sufficient in reaching these customers as well.
Company Characteristics as Competitive Advantages
There are some company characteristics that have helped many businesses maintain a competitive advantage while providing customer value and customer satisfaction. Some of these characteristics are:
- Consistent customer focus\creation of customer loyalty
- Superior product quality
- Extensive distribution contracts
- Accumulated brand equity and positive image/company reputation
- Low cost production techniques
- Ownership of patents and copyrights
- Being a government protected monopoly
- Hiring and keeping superior employees and management teams
In fact, the list of potential sustainable competitive advantage characteristics is very long. However, many experts believe that in a fast changing competitive world, none of these advantages can be sustained in the long run. Because this is the case with most products and services, experts claim that the only truly sustainable competitive advantage is to build an organization that is so alert and so agile that it will always be able to find an advantage, no matter what changes occur in society, or in the marketplace.
The Hub's Author
Dr. Middlebrook is a former college professor of marketing and mass communications. She spent nearly twenty years behind the desk teaching courses in advertising, marketing, public relations, and journalism. In addition, she worked, for many years, as a consultant and as an employee in corporate marketing and communications.
© 2012 Sallie B Middlebrook PhD