Legitimate businesses are built on the idea of exchanging the value of one thing for another. Most commonly, a customer pays you a monetary amount in exchange for some thing or service of value you can offer them. But exactly how that value is measured can depend heavily on multiple different layers of context. By understanding various contextual elements, you as a business owner can better understand your customer value. What is customer value: why is it important and how can it be increased?
What is value?
Although customer value sounds like it may be what value each customer contributes to your business, it’s not. Rather, it refers to the value a customer receives in exchange for the price they pay. And as the customer is the one paying, what they receive is not monetary in nature. Rather, value is the worth of economic, technical, and social benefits a customer receives. So when a customer purchases something, they believe they are receiving something of worth equal to the worth they gave away in monetary form.
Say, for example, a potential customer is in need of a new toothbrush. Much of a toothbrush’s value is readily apparent to the customer: it will help clean their teeth. However, there are other valuable benefits that this person will receive by using a toothbrush. They’ll increase the likelihood of avoiding painful toothaches and cavities, and save money by decreasing the frequency of dentist trips. In exchange for their money, the customer will receive these benefits and more, whether or not they’re aware of them. And this awareness of benefits received or a lack thereof is the domain of customer value in marketing.
What is customer value?
A customer becomes a customer once someone actually finalizes a purchase of an item or service. Once they have done so, they’ve transitioned from being a potential customer to a customer. The difference here matters because the awareness of benefit(s) is what can nudge someone to actually make a purchase. If a potential customer isn’t aware of the value an item or service would give them, there’s less chance they’ll make a purchase. Customer value, then, is not just the inherent value of a product or service, but how that value is communicated to the customer and what the customer believes the value to be.
Along with the hypothetical customer’s interest in buying a new toothbrush comes the complementary purchase of toothpaste. One brand’s toothpaste packaging says that it helps fight cavities and whitens your teeth at the same time. Another brand says the same, but also notes that the average cavity costs $200 — $600 without insurance. By using brand #2’s toothpaste, you’ll save yourself time, money, and pain down the line. While both kinds of toothpaste will likely provide the same benefit, one makes its customer value more contextually explicit.
How to identify customer value
Now, while it’s nice to know about the average cost of an uninsured cavity, that kind of information isn’t always relevant. Plenty of toothpaste purchasers aren’t worried about cavities and, instead, are more interested in whitening effects. However, in the case of brand #2, those effects weren’t emphasized in favor of the cavity angle. Thus, someone interested in toothpaste that specializes in whitening their teeth would more likely pass by the cavity prevention-focused brand. Whether this is good or bad for your company depends on who your target audience is and what your customer value model is.
Field value assessments are a method by which suppliers gather data about their customers firsthand. They are one of the best ways for building customer value models, as they’ll provide direct information that provides insight into what values your customers actually have. Direct feedback isn’t always possible, however, so you can also gather data by conducting surveys, hiring focus groups, intentional performance reviews, and analytical inventory management. Once analyzed, aggregate data will allow you to see what your customers actually value with their money. Then, you can take that information to create a customer value model to use as a basis for ongoing and future products and services.
How to increase customer value
Sourcing information on perceived values and benefits from customers is a great way to help build your customer value model. An additional way to do so is to generate a list of value elements that comprise your product or service. As mentioned prior, a value element could be economic, technical, or social in nature. An economic benefit would save a customer money or time; a technical benefit could be the efficacy of something like durable windows; and a social benefit could increase a customer’s reputation among peers. A list of value elements should reflect all possible beneficial effects that your products or service would have on a customer were they to purchase from you.
Generating value elements, gathering customer purchase data, and then analyzing it are all difficult tasks. They require a good grasp of your industry, trends, and economics to evaluate properly. If you want to become more knowledgeable and proficient in your industry, consider pursuing a Master’s in Business Administration. It’s simpler than ever to get your MBA online with Aston University – their comprehensive online program will give you the leadership edge you need to outperform your competition.
Maximize value
Understanding customer value is integral to developing your business. Customer value is the value that your potential customers perceive. If you understand your target audience’s wants and needs correctly, you can market your product or service to emphasize that potential value. However, doing so can be tricky, so it can be worthwhile to consider getting a degree to help you understand your market better. Customer value is just one of many critical strategic elements that comprise an effective and lucrative business.
