What Customers Value – Really

Adapted from our letter as printed in the  Letters page of Financial Times on 18/19 February 2017

There is a need to stress the word ‘really’. That’s because the important concept of customer value is often misunderstood and littered with misconceptions which severely hinder its application in practice. Here are a few examples.

Firstly, low price is often confused with value. The so-called ‘value’ ranges of many retailers are just one example. These are two very different animals: price is what someone pays; value is what they get. So, getting a real grip on value means seeing and interpreting things from the customer’s perspective, which can present an unexpected level of challenge.

Secondly, the idea that customers are primarily focused on price. Over many years, and across many sectors, we have found it rare for more than fifteen per cent of customers to choose on price alone. What constitutes customer value for the majority is therefore a more complex trade-off amongst a host of non-price factors.

Third is the notion of added-value. For many organisations, this means providing something extra which normally involves extra costs. Unfortunately, customers do not care about costs. So, if that extra isn’t valued by the customer more than any additional price premium, not only is there no added-value the overall customer value is actually diluted.

Lastly is the idea that customer value can be identified by simply asking. If only it were so easy. Most customers can only readily give feedback on product or service characteristics. Whilst this is useful at one level, it is quite shallow in the scheme of understanding customer value. This helps explains for example why such a high proportion of new product introductions, usually validated by standard market research, fail. That’s why Steve Jobs wasn’t a fan.

The concept of customer value may appear self-evident, but I wonder how many of the companies we read about in the FT have a real understanding and apply it to make happier customers and happier shareholders alike?

Adapted from our letter as printed in the  Letters page of Financial Times on 18/19 February 2017

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