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Customer Value: A Beginner’s Guide

Customer Value

RisePath has been working in the field of Customer Success and Customer Experience, for quite a long while. And over the years we have seen many an organization take their eye off the ball and chase vanity metrics instead of metrics that really matter — customer loyalty and/or advocacy.

The best metric to measure this is Customer Value. This metric is simple, actionable and predictive of growth. In this guide, you will learn how to use Customer Value as part of your overall customer experience program.

When you set out to do something, anything, you are hoping for a specific result. You have a goal in mind—what we call the desired outcome. If you succeed, then you achieve the outcome. That’s not all there is to it though; along the way to achieving the outcome, we often experience a series of events that we call an experience. We say that a customer has an experience when they interact with your brand in any way.

The outcome is what customers really want, but it’s the experience that creates the value. When people have a good experience, they have positive feelings about your brand and will be more likely to come back for more. But if it’s bad or just okay? Then customers will probably write off your brand and find somewhere else to go.

As you might imagine, experiences aren’t always easy to create, especially if you want them to be good ones for customers. So how do you create experiences that are so valuable that customers keep coming back? That’s where customer value comes into play.

What is a Customer Value?

Customer Value is a term that has been around for many years, and in one form or another, it is used by almost every business; but there is little agreement on what it actually means.

It’s used in sales and marketing to describe the perceived value of a company’s product or service from the customer’s point of view. It’s also used to describe how much value a customer gets from a product or service compared to its cost.

Although Customer Value comes in many forms and definitions, this article looks at Customer Value as it relates to business growth; specifically, how companies can create more value for their customers than their competitors.

Which things should be considered about customer value?

The first thing to understand about customer value is that it is relative. The same product can have very different customer values for different customers. Or, to be more precise, we should say the same product can have very different customer values at different times for the same customer.

If you’re planning a trip to Europe and struggling with what kind of camera to bring, the Sony RX100 will seem like an amazing bargain. But if you already own a perfectly good point-and-shoot camera and are just looking for something cheap to keep in the glove compartment of your car, you’ll think its $650 price tag is outrageous.

The second thing to understand about customer value is that it’s not just a matter of opinion or taste. It’s determined by two factors: how well a product solves your problem, and how much it costs you to solve your problem without using the product.

Why is Customer Value important?

Customer Value is important because Businesses exist to create value for their customers.  This is why business owners go into business in the first place.  They want to create goods or services that bring value to their customers.  If you don’t value your customers, you won’t be in business for very long.

Of course, it’s not enough to just have a product or service that brings value to your customers.  You also need to deliver it at a price point that makes sense for your business, so you can make a profit.  This can be tricky.

Customer Value is a number that compares the benefit of having your product or service with its cost.  Simply put, if your products and services don’t bring enough value to your customer compared to the price they pay for them, they have no reason to buy from you.

Firms are born when an individual or a group of individuals see an opportunity to create value for customers. These opportunities can be identified by analyzing the unmet needs of customers and by focusing on the value creation process.

For example, an entrepreneur may observe that many people are dissatisfied with the quality of current home cleaning services, that they are willing to pay for a better service, and that it is possible to hire good cleaners at reasonable wages. The entrepreneur then starts a firm to deliver this service.

This example illustrates three important things about the customer value creation process:

  • Customer Value is created through a series of activities (the Value Chain). 
  • Customer Value must be created at each step in the Value Chain; if not, the final product or service will not be attractive. 
  • The company must manage each step in the chain carefully or it will fail to deliver customer value.

What are the types of customer value?

There are three main types of customer value. 

  1. The first is totally intangible; it’s what you get from the customer when no one else is watching. That’s why, if you’re in a business like fashion modeling, the most important thing for you to do is get your pictures in magazines. It doesn’t matter how many customers buy your clothes, or how much profit your business makes. For a fashion model, it’s all about whether anyone sees her pictures in a magazine, and that’s why she does the kind of things that get her pictures in magazines.
  2. The second type of customer value is about the relationship between you and your customers. You want customers to like you and think well of you; they want to feel good about what they do with your products or services. A luxury car dealer wants his customers to feel good while they are driving away in a new Mercedes Benz; he doesn’t care whether they come back next week and buy a new BMW or Ford. But an airline wants its passengers to feel good while they are on the plane: the flight never takes off unless the passengers feel good.
  3. The third type of customer value is about characteristics that change over time. If your product or service isn’t changing fast enough, people will stop buying it.