"What's the value-add?" "I just want to add some value." This question and comment are ubiquitous in business conversations all over the world, and are abstract enough that they apply to myriad customer situations and interactions. When you hear these questions/comments, you should then ask: How do you define value? What does it mean to "add value?" How do you know if you're successful? And finally, what do you do if you know that the value attributes are changing and/or migrating?
How Do You Define Value?
I've seen many definitions of value over the years. One definition that seems accommodating enough to be applicable to most situations is: Value = Benefits - Costs. This cost-benefit equation is flexible enough, definitionally, to include both tangible and intangible inputs in modeling each equation component (i.e., Costs and Benefits). Of note in that definition is "intangible:" a benefit or a cost may not be directly ascertainable given that costs-benefits are often subjective, individual, and fluid (Hence the word perceived could be put in front of each term). Thus, the message from this section is that value, like beauty, is often in the eye of the beholder.
What Does it Mean to "add-Value?""
If value is in the eye of the beholder, how do you determine the importance of the cost-benefits customers' place on what they behold? This is where the world of negotiation sheds some light. In negotiation, one of the key tasks is to find out what someone's underlying (implicit) need is for each of his or her (explicit) wants. Essentially, if you uncover a customer's need, you can be more creative in brainstorming the many wants that would satisfy it, and not just the want that is top-of-mind for them.
For example, a piece of property may have a fair market value of $20,000, but if you uncover that the buyer has a daughter that lives on a lot that is adjacent to the property, and the parent has a need to live closer to this daughter, it is likely that he or she will value this piece of property quite a bit higher than someone who does not have such a need. You might offer another piece of property that is on the other side of the daughter for another family member to build on given that you have uncovered that "being close to family" is a highly valued need. Thus, the message from this section is that in order to better understand how a customer values a product or service, you should uncover his or her underlying need, and attempt to place some sort of quantifiable (what is additive?) value on this need.
How Do You Know If You're Successful?
Once you have determined customers' value attributes, their specific weightings, and their cost-benefit models, how do you know if you've been successful in meeting their value expectations? All things being equal, one way would be to see if your customers continue to spend equal or greater amounts (e.g., % of their spending on the product/service segment) on your product or service over time. This type of customer loyalty assumes the customer has other choices (e.g., not a monopoly), is not locked into a contract (e.g., cell phone contracts), and does not have extraordinarily high switching costs (e.g., switch from Microsoft to Apple). If the aforementioned assumptions are met, it is likely that a customer who continually buys from you is getting some sort of need met through, and value from, the relationship.
Customer loyalty indicators have become increasingly important as businesses scrutinize customer acquisition costs, defection rates, and various loyalty drivers. The message from this section is that you should have a continuous (not episodic) dialogue with your customers in order to quickly, adeptly, and consistently adapt to meet their changing value needs and interpretations.
What Do You Do If You Know That the Value Attributes Are Changing and/or migrating?
If a company attentively and empathically listens to its customers on a regular basis, and determines that their value attributes are changing, they can begin to proactively calibrate and modify their value delivery system. For example, if some profitable segment of your customers are asking for more convenience from their relationship with your company, you may want to develop and deploy a 24/7-365 Web site where the customer can check payment status, order products or services, or input a service request at anytime, day or night.
Another company (e.g., dry cleaner) might start a home delivery system for customers who value this type of convenience high enough to make it profitable for the company to offer this service. The benefit of consistently listening to your customers is that they will often tell you what needs to change, and even how to implement it. The message from this section is that if you view every customer complaint as an insightful gift, and every customer idea as potentially a profitable application, then you will truly be on your way to customer-centricity and top-line growth, year after year.
In summary, if you are to consistently add-value to the customer relationship, you need to fully understand how your customers interpret, define, and quantify the value they receive from your products and services. It's not enough to wonder what went wrong after 20% of your customers leave--you must have leading indicators (e.g., customer satisfaction questionnaires, focus group data, surveys, etc.) in place to anticipate when the customer value drivers are changing and/or are being re-interpreted.
Without clear, unequivocal, and measurable proxies of value to monitor and track, you are unlikely to be able to consistently and sustainably satisfy the value determiners: your customers. Finally, if your customers are well taken care of, it is likely that your investors (shareholder value) will be taken care of as well, closing the loop to a valuable relationship for all involved.
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