What is Customer Value? Definition, Measurement and Strategy for Creating More Customer-centric Business
What is customer value?
Customer value is the perception of what a product or service is worth to a customer against the possible alternatives. It is the feeling of contentment and satisfaction a customer experiences when they engage with a business and experience its customer service. Customer value measures the customer’s perception of the worth of a product or service to them, in contrast to the price they pay for it and compared to alternatives. Customer value is the balance between the benefits a customer derives from a service or product and the customer's effort, or the difficulties they face in using or obtaining the product or service in question. Companies can use customer value to determine which products or services they offer can achieve the most success in the market and produce the highest number of satisfied customers. Understanding customer value and how to calculate it can help businesses price products fairly and reduce friction within the customer experience.
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 got benefits and services over what s/he paid. In a simplistic equation form, Customer Value is Benefits-Cost (CV=B-C).
How to measure customer value
Step 1: Identify Your Buyer Personas
The first step to measuring customer value is to identify your buyer personas and segment them into specific target audiences. Leverage customer data to get a better understanding of their purchasing behavior and to create groups accordingly.
Step 2: Measure Customer Benefits and Costs
Once your customer segments are established, measure the benefits and costs of your offerings for each segment. This should include both the tangible value and perceived value. Estimate the monetary benefits and costs, as well as the personal benefits and costs that come with engaging with your brand.
Step 3: Calculate Customer Value
Once the customer benefits and costs have been identified, it’s time to calculate the customer value. Use the following formula: Total Customer Benefits — Total Customer Costs = Customer Value. This will help you to determine whether the customer feels like they are getting enough value for the price they paid.
Step 4: Evaluate Your Offerings Against Your Competitor
To make sure that you are meeting the customer’s needs and expectations, evaluate your offerings against the next best alternative from your competitors. This formula can be used to compare the two: (Value¹ — Price¹) > (Value² — Price²). This ensures that the value of your product (minus the price it costs) is more than that of the next best thing.
Step 5: Track Satisfaction and Loyalty
Finally, track customer satisfaction and loyalty to get a better understanding of the customer’s overall experience with your business. Research has shown that companies who use online resources to better understand their customers grow by 21%, so it’s important to keep customer value in mind and adjust your offerings accordingly.
Strategies for creating more customer-centric business with higher customer value
1. Identify and understand customer value
Identifying and understanding customer value can help create more customer-centric businesses with higher customer value by understanding what drives value for customers. By researching competitors and adjusting the value proposition accordingly, businesses can deliver a unique experience that stands out from the competition and ultimately builds customer loyalty. Additionally, by setting a win-win price that offers value to both customers and the company, businesses can ensure that customers are getting their money's worth and perceive value in their products, which builds trust and encourages customers to purchase more. Lastly, understanding customer expectations and creating a customer journey map helps businesses to identify and eliminate friction points in the customer experience, as well as create a better customer experience overall. All of these tactics combine to create more customer-centric businesses with higher customer value.
2. Develop a customer value proposition
Developing a customer value proposition can help create a more customer-centric business by giving customers a clear understanding of how a company's product or service will provide value to them. By understanding what customers want, what is important to them, and what they are trying to accomplish through purchasing products, businesses can create a unique value proposition tailored to each customer segment. This ensures that customers receive the value they expect, allowing them to feel like they are getting their money's worth. Furthermore, by quantifying their value with real data and communicating the benefits of their services, businesses can further demonstrate their value and set themselves apart from competitors. Ultimately, this will help businesses create an experience that is customer-centric, as customers will be able to clearly identify why they should choose one product or service over another.
3. Focus on delivering superior value
Focusing on delivering superior value can help create a more customer-centric business with higher customer value by making the value/price ratio seem bigger than it is, offering different ways to pay for products, creating a unique value proposition, working on the brand and providing excellent customer service. By listening to customers and understanding what drives value for them, businesses can create a unique value proposition that makes them stand out from the competition and communicate this value more effectively. Additionally, segmenting customers and adjusting the value proposition accordingly can help businesses provide a more tailored service. By setting a win-win price that brings value to both customers and the company, businesses can ensure everyone benefits from the exchange.
4. Understand your customers' value perceptions
Understanding a customer's perception of the value they get from a product or service is essential for creating a customer-centric business. Knowing what customers want, what is important to them, and what they are trying to accomplish by purchasing a product can help businesses build better relationships with customers and make sure they are delivering the right solution. Establishing customer value and communicating it effectively helps businesses to stay ahead of the competition and ensure they are consistently meeting customer expectations. Furthermore, it helps businesses to shape their products and services to better fit customer needs and can even help to increase customer loyalty. By understanding customer value perceptions, businesses can design strategies that focus on creating a strong customer experience, which in turn can drive more sales and increase customer lifetime value.
5. Develop a targeted value proposition
Developing a targeted value proposition can help create a more customer-centric business with higher customer value by understanding what customers want and need, and then delivering value accordingly. By researching competitors, understanding the competitive landscape, and segmenting customers, businesses can create a value proposition that speaks to their target audience. This will help businesses stand out in a competitive marketplace by making their offerings more attractive to potential customers. Additionally, setting a win-win price that brings value to both customers and the company is essential for creating high customer value. By understanding and communicating the benefits of its offerings, a business can create trust and loyalty with its customers. By prioritizing customer value and creating a value proposition tailored to each segment, businesses can better serve their customers, resulting in higher customer value.
6. Invest in customer loyalty programs
Investing in customer loyalty programs can help create more customer-centric businesses with higher customer value. By offering additional value such as discounts for repeat purchases, rewards for referring friends, or a loyalty points program, businesses can reward loyal customers and show their appreciation. This creates more value for customers and encourages them to keep coming back. Paid loyalty programs, such as Amazon Prime, have been shown to generate even greater customer value by altering customer behavior without offering rewards in the traditional sense. Additionally, businesses can use customer surveys to get to know customers better and personalize their experience. All of these investment strategies can help create a more customer-centric business with higher customer value.
7. Use your core strengths to deliver greater value
Using your core strengths to deliver greater value to your customers is a great way to stand out in the market and ensure customer satisfaction. By understanding your market, you can identify the needs of each customer segment and create value propositions tailored to their needs. You can then use your core strengths to provide additional services, programs, and systems that give them the best value for their money. Additionally, leveraging your brand and creating unique customer service experiences will make your customers feel appreciated and valued. Finally, by continually researching and understanding your market, you can stay ahead of competitors and find new opportunities to create innovative value propositions.
8. Incorporate feedback into your value proposition
Incorporating feedback into your value proposition can help create more customer-centric business by allowing you to not only understand their needs and wants, but also to continuously evolve and adapt to the changing needs and wants of your customers. By creating feedback loops, you can always be in the know of your customers' needs, enabling you to adjust your value proposition to better meet their needs and create a deeper connection. This will not only help you boost customer satisfaction, but also create a more meaningful bond with them, thus allowing for more successful customer retention.
9. Leverage your competitors' weaknesses
Step 1: Research and understand your market by dividing it into segments. Analyze each audience segment to understand their most pressing needs and what they find valuable.
Step 2: Use the unifying characteristics of each segment to build a strong value proposition that stands out compared to that of your competitors.
Step 3: Look for opportunities to add value in current and emerging market segments. By staying ahead of your competitors, you can gain an edge in terms of customer value.
Step 4: Consider alternatives to competing on price alone. Understand what your customers value—from convenience to performance—and find ways to add value to your customer experience.
Step 5: Think strategically about customer service and successful teams. Understand what kind of value can be provided and how to convey this value at the right time and place.
Step 6: Listen to customer feedback and take action to update and reinvigorate customer relationships based on what you have learned. Use customer feedback to tailor services, programs and systems in your current market offerings, and to help guide the development of new offerings.
10. Track and measure results
Tracking and measurement can be instrumental in helping create customer-centric businesses that prioritize higher customer value. By collecting data on customer behavior, companies can understand their customers better and create targeted experiences tailored to each customer’s preferences. This data can also be used to determine customer satisfaction and loyalty metrics, which businesses can use to make decisions regarding offering a better value to customers. Additionally, feedback from customers can help companies understand what customers like about their products and what changes could be made to increase customer value. By utilizing tracking and measurement methods, companies can assess customer value and create experiences that truly meet their customers’ needs and expectations.
How much does a customer really worth?
How much does a customer really worth? This is a question many businesses ask themselves when trying to measure the value of their products and services. Understanding a customer's perceived worth is essential for success, as it allows businesses to understand the balance between the benefits the customer derives from their product or service and the customer's effort or the difficulties they face in using or obtaining the product or service in question.
This is why it's important to measure customer value using the well-known formula: CV=(perceived customer benefits – total customer cost). This formula ensures that the benefits for the customer outweigh the costs, resulting in a higher customer value. Additionally, businesses must also make sure that their customers perceive the value of their product or service to be worth the cost. If the value is not seen to be worth the cost, customers will go elsewhere.
Moreover, businesses must also consider other factors that may contribute to a customer's perceived value, such as the status the product may provide, the time and energy customers are willing to put into the brand, and how the product makes the customer feel.
Understanding how much customers are worth is essential for businesses to ensure that their customers are satisfied with the product or service. Businesses must make sure that customers feel that they are getting their money's worth and that the value they receive is greater than what they would receive from their competitors. Customer value is a key component to customer loyalty, so businesses must make sure they are investing in understanding their customer's perceived worth.
- Definition - What Does Customer Value Mean? Customer Think