Understanding your value to your customer
In the past decade, businesses around the world have started placing a renewed focus on customers. They’re doing this because they see that customers have more choice than ever before. If customers don’t perceive that a company’s offering is worth what they’ve paid for it, they’ll take their money to a competitor who offers better value. That competitor may be right next door or on the other side of the world. So what do customers value and how can we go about understanding customer drivers?
The idea that business success comes from focusing on customers is not new, and vision and mission statements are full of aspirational language about customer satisfaction, customer loyalty, and being customer centric. Yet, some of the most metric-driven companies would be hard pressed to explain how they are measuring and managing the customers’ view of their company’s value to them.
What’s lacking in most companies is a real understanding, alignment and focus on their customers, and a genuine understanding of what value they can provide to their customers. To date, companies have focused on “what they can do to their customers”, rather than “what they can do for their customers”.
Companies have invested heavily in the much-hyped introduction of CRM systems so that they can segment their customers. This then allows them to sell more effectively to them, provide customer support to them at the lowest cost, and target marketing campaigns to them more cost effectively. The only mention of value is the value of the customer through lifetime value calculations. You never hear of CRM systems being introduced to make it easier for the customer, and thereby offer them greater value.
To be successful, businesses need useful and practical ways to capture customer needs, measure how well they’re satisfying those needs compared to the competition, and build action plans based on what customers value to win in the marketplace. Firms of all sizes and in varying industries are struggling to:
- gain a deeper understanding of and agreement on precisely what customers value
- create reliable methods of measuring the value of what they offer compared to the competition
- provide the best value to customers, to employees, and to shareholders; and then establish the connection among these three imperatives
- increase market share and loyalty while maintaining and even improving profitability.
Businesses that know what customers value, know how to deliver this value better than the competition, and know when it’s important to communicate with customers so that they perceive the true value delivered achieve competitive advantage, better business results and increased shareholder value. A growing body of statistical research is proving this common-sense principle.
The “why” of Customer Value Management
There is an emerging art and science of Customer Value Management (CVM) that is proving its worth when it comes to understanding what customers’ value. Firms of all sizes that capture and use customer data with the discipline, passion and understanding they give to operational and financial data are learning that this business practice is well worth the time and money involved. By focusing on understanding customer drivers they are winning in the customer market, they also win in the employment market (attracting and retaining talented people) and in the financial market (attracting and retaining the investment required to keep the business alive and growing).
At the heart of Customer Value Management (CVM) is an understanding of how value is created for the customer by a company’s:
- products, services and business relationships
- overall cost of doing business
Customer Value Management is both a way of thinking and a set of techniques and methods that anyone in business can use to determine where to focus time, energy and money to create value for customers. Research and experience have shown that if you do this better than the competition, you’ll win business and reap the rewards in the form of profit and shareholder value.
Customer Champions, the leading practitioner of Customer Value Management in the UK and Europe, has witnessed firsthand some of the difficulties that companies face while running customer-focused programmes. They have found that, although nearly all major companies in the UK and Europe are conducting some form of customer feedback programme, only one in three plans any actions based on that input, and only one in nine actually implements any change because of it.
Colin Bates, MD of Customer Champions, believes that “the fundamental problem that is overcome through the use of Customer Value Management is the lack of a strong link between a customer feedback programme and the other key business metrics. CVM programmes provide links into profitability and track changes in market share and ROI. It is these links that can support the successful deployment of programmes based on customer feedback.”
A CVM initiative can help businesses clearly understand what customers value, agree on what needs to be accomplished to improve their competitive value proposition, and align their people and processes around the initiatives that will deliver the best value in the marketplace.
The “how” of Customer Value Management
In the book Mastering Customer Value Management: The Art and Science of Creating Competitive Advantage, Ray Kordupleski, president of CVM, Inc. and US associate of Customer Champions, presents the basic concepts of Customer Value Management and the practical tools that have been developed to implement them in business. He points out that the concept of Customer Value Management is really very simple. It’s about:
- Choosing value: Asking customers in your target market what they value, finding out how they rate the value you deliver compared to the competition, and using the understanding of customer drivers to focus priorities and then decide what value proposition to take to market.
- Delivering value: Making sure your business processes are aligned with your value proposition, and determining what business improvements on your part will deliver greatest value to customers.
- Communicating value: Educating the market on your value proposition and how you’re focusing investment to deliver greater value than the competition.
The book is a practical guide designed to help readers:
- understand the process and business impact of CVM
- correlate customer value and business results
- learn about the tools needed to implement a customer value business approach
- capture actionable competitive information
- use customer data to determine priorities and drive improvements
- implement ten critical steps to customer value management
- institute strategies to make the program work
- overcome resistance to change
- create a customer-focused culture.
Based on the author’s many years of global consulting with firms from multiple industry sectors in the U.K., Europe, Asia Pacific, North America and South America, the book offers pragmatic, actionable strategies based on real-life experiences of using what customer’s value to inform strategy. It walks the reader through the process of translating good intentions and slogans into actions that can have dramatic impact on a company’s performance.
Examples of CVM efforts underway are documented throughout the book. Six extended case studies on a variety of global companies provide specific details of successful programs from the following industries:
- Financial services – Suncorp
- Telecommunications – Vodafone
- Wholesale industrial hardware distribution – J. Heller and Sons
- Medical diagnostics – Roche Diagnostics
- Production of packaging, paper and office products – Mead Corporation
- White goods – Multibras S. A. Eletrodomesticos.
In addition, the book features graphic presentations and explanations of the CVM tools that the author has developed and used successfully:
- Value Maps. A tool for understanding your competitive position in the overall market (as opposed to just with your own customers).
- Attribute Trees. The next schematic step after Value Maps in determining what drives value in the eyes of your customers. Very useful in determining what actions you can take to deliver the value you’ve chosen (the second part of the Value Creation Arrow).
- Customer Waterfall of Needs. A tool to look at the business processes that together make up customers’ experience of your company. The Waterfall establishes the sequencing and interconnection of your key business processes and summarizes for each the three or four things that are most important to your customers.
- Kordupleski Cube. A unique cube diagram that illustrates the three sets of processes that contribute to the overall goal of creating value for customers.
- The Slippery Slope. The graphical slope produced when overall customer ratings are correlated with their willingness to repurchase from the company.
- Steps to Mastery. The ten-step process developed by Ray Kordupleski to effectively implement a CVM initiative.
For business leaders and their teams, the author outlines the business case for Customer Value Management, the key concepts, and the role of the leadership team in making it work. For those charged with implementation, his Ten Steps to Mastery and the other tools and strategies presented will be invaluable.
Mastering Customer Value Management will help anyone on the CVM journey to fast track the process by learning from others who have taken the path before them.
Customer Champions, Ray Kordupleski’s partner in the UK and Europe, believe that “the book provides excellent step-by-step advice with practical tools on how to successfully implement CVM.”
Take the next step
Customer Champions specialises in maximising the effectiveness of Customer Value Management. To discuss how we could help your organisation make more of its most valuable asset, please contact us.