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How to work out your customer value

How to work out your customer value

Published February 12, 2013 by Gillian Hunter

Whenever you buy anything, you work out the value of the item. It's such an automatic response, that you may not even be aware that you are doing it. Marketing-savvy businesses are very aware of this 'value' thought process, and hone their offers so that the service or product is irresistable to the potential purchaser. Here's a simple formula to work out customer value.

To work out value, you need to ensure the benefits need to outweigh the costs, risk and effort to the customer. 

Value = + Benefits - Cost - Risk - Effort

The art is in taking the findings and honing your offer. This isn't about creating a marketing message. It is about walking the talk. Making sure your value message is an integral part of your operations. 

What benefits do you offer... 

Benefits differ from customer to customer and a key benefit to one customer may not be an important to a second. Therefore we need to look at benefits in the context of the market we wish to focus on - your niche. If you don't know, do customer research to understand what each segments will see as a benefit and how important that would be to them.

 Ask: Why do customers buy our product or service? What benefits does it provide? What are the most important benefits? What benefits have the greatest influence in the purchasing decision? What benefits are least important to our customers? Are there benefits we don't provide that we should think of providing?

What are the costs to the customer ... 

Most items we buy have additional costs. If you buy a car for example, you have the costs of insurance, running it, petrol, road tax, garaging, servicing, cleaning, etc. Our objective is to understand all the related costs - both the obvious and not so obvious - and to work out if these costs could prevent or hinder a purchase.

Ask: What are the costs of the purchase to our customers? What will it cost them today and into the future? Accessory and additional item costs? Running costs? Maintenance costs? Support costs? Resource and people costs? Building & storage costs? Financing and loans?

What is the downside of the purchase ... 

Every potential purchase has a potential downside - a risk to the customer. Our aim is to understand the preceived risks, evaluate the impact of these risks and work out how we can alleviate, downplay or negate the risks.

Ask: What are the risks to the customer? Status? Financing? Commercial? Failure of product? Support and maintenance issues? Third party involvement? Confidentiality? Internal politics? 

How much effort is involved ...

Buying the product or service may mean more work or effort on the part of the customer. If they are buying a car, for example, they have to maintain it, service it, and tax it. They will evaluate whether putting in that effort is worth it. 

Ask: What does the customer need to do when they buy this product or service. How much time and energy will it take them to buy, install, implement or maintain? Do they need specialist skills and knowledge? Do they need to employ extra resources? How much management time and effort will it involve? 

Finally, understand the big picture 

Take all the above information and work out where the pain points are and where you can make a difference by changing your offer so that in the customers see the benefits of the purchase are greater than the perceived costs or risk. Many businesses offer packages that absorb the costs and the risk.

For example, offering free petrol and servicing for a year, or including maintenance costs, providing insurance. However, you need to make sure your answers you achieve need to align with your business, your market and brand identity.

Ask: If there is one thing that we could do that would radically change perception of value - what is it? What will make a difference to our customers? What will make us different in the competitive landscape? What can we operationally implement? Who do we need to align with to achieve our value goals?

Understanding how you add customer value is essential. I can't see how you can be in business if you don't understand and communicate your customer value. The less powerful the benefit - the harder you'll need to work to eliminate costs and risk.