Customer Value Analysis – an overview
What is CVA?
Customer Value Analysis is a measure of the satisfaction of a company’s customers relative to that of their competitors’ customers.
Why use CVA?
Customer Value Analysis is a powerful business tool as it directly measures the drivers of purchasing behaviour and changes in CVA drive changes in market share. The higher the CVA score the higher the relative market share.
How is CVA 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. This value is also established for the competitors’ offers. A simple calculation gives an index score based around a parity score of 100. The higher the score above 100 the greater the competitive advantage and the lower the score the greater the level of competitive weakness.
What is a good CVA score?
Although a score of 100 is direct parity with the competition, analysis of companies implementing this approach has shown that scores in the range 98-102 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 98 indicate competitive weakness and scores in the range 103 to 110 indicate competitive advantage. Greater than 110 is considered world class performance. The length of time at a particular score, and the direction and rate of change in CVA are also factors that should be considered.
Changes in CVA scores
Market changes and the value of a company’s offer changes relative to its competitors will be reflected in a change in the CVA score. There is a time-lag, which is unique to each market place between a change in the CVA score and a corresponding shift in market share. This market share change will also be ultimately reflected in the profitability of the company.
What drives a change in the CVA 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 some combination of both.
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.
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 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.
Take the next step
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.
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