Introduction to Customer Value Management (CVM)
What is Customer Value Management (CVM)?
CVM is a measure of a company’s customers’ view of the perceived value for money delivered relative to that of their competitors’ customers. It is sometimes known as a Customer Value Added (CVA) approach.
Why use Customer Value Management (CVM)?
CVM is a powerful business tool as it links customers to KPIs by directly measuring the drivers of purchasing behaviour and the impact these have upon delivering KPIs such as market share, profit and loss, recommendation, share of wallet, ROI etc. The following two graphs are based upon Customer Champions’ clients’ data and illustrate the strong relationship between Customer Value Management and the customer’s willingness to recommend, and the positive impact on increasing the share of wallet of that customer.
How is Customer Value Management (CVM) measured and calculated?
The perception of a product or service’s value in the market place can be measured through surveys which ask customers a series of predefined questions. These questions are also asked of the competitors’ customers to establish the equivalent value for competitors’ offers. A simple calculation gives a ratio score based around a parity score of 1 when comparing your business with the competition. The higher the score above 1 the greater the relative competitive advantage for that company, and as the score falls below 1 the greater the level of competitive weakness.
What is a good Customer Value Management (CVM) score?
Although a score of 1.00 is direct parity with the competition, analysis of companies implementing this approach has shown that scores in the range 0.98-1.02 should also be considered parity. In this range neither the competitive advantage nor weakness is substantial enough to significantly impact on customer choice. However scores below 0.98 indicate competitive weakness and scores in the range 1.03 to 1.10 indicate competitive advantage. Greater than 1.10 is considered world class performance. We have seen businesses and business units struggling to survive at a score of 0.70 or below. The length of time at a particular score, and the direction and rate of change in CVM are also factors that should be considered when linking customers to KPIs in this way.
Changes in Customer Value Management (CVM) scores
Market changes and the value of a company’s offer relative to its competitors will be reflected in a change in the CVM score. There is a time-lag, unique to each market place, between a change in the CVM score and a corresponding shift in KPIs. A shift in a CVM score can therefore provide a good prediction of an impending change in a company’s fortunes.
What drives a change in the Customer Value Management (CVM) score?
To drive change, a business must manage the elements which drive the market place’s perception of value, namely quality received for price paid. Value can be improved by increasing relative perceived quality, reducing relative perceived price, or using combinations of both. In short, a Customer Value-Added approach.
Overall quality is a function of the perceived quality of individual product and service attributes which affect purchase and repurchase decisions. Factors that drive the perception of overall price include initial and life cycle costs, as well as aspects such as ease of understanding that price.
The relative weight of each of these drivers can be derived through statistical modelling thereby ensuring companies not only focus on relatively poor performance areas but also those with the biggest impact for the customer. In the example above the attributes are also colour coded to show the relative competitive performance, with the percentages detailing the impact these attributes have on the aspect above, e.g. knowledgeable staff represents 60% of overall knowledge.
In order to manage the elements that drive value, a company needs to establish their customers’ perception of their performance and also the perceived performance of their competition. As well as structured data collection such as surveys additional data is often collected in businesses that will support root cause analysis.
Customer Champions has over fifteen years of practical experience in implementing Customer Value Management programmes, and have an international network of associates specialising in linking customers to KPIs in this way.
Find out more
Read other Customer Champions’ articles on Customer Value Management
- Forget the value of the customer to you, and think about your value to the customer
- Price? Reliability? Service? Trust? Value? Which of these really matters to customers in increasingly competitive energy markets?
- Net Promoter Score (NPS) – a balanced view
- Customer feedback driven corporate strategy
- Maximising account management through customer feedback
- Churchillian approach to competitive customer service
Books on Customer Value Management
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Effective Customer Value Analysis brings tangible benefits to a company. To find out how a CVA programme could improve your organisation’s bottom line, please contact us.