- By Shaun Smith
- Dec 14 2008
Where value comes from (Part 2)
One concept that top managers commonly struggle with is the new meaning of ‘customer value’. For years, customer value - as with the acronym CVM or Customer Value Management - meant the value of the customer to the organization.
Much of the marketing work around customer segmentation over the past decade has been focussed on categorising customers according to how much actual and potential value they deliver to you, the supplier. Hence the emergence of the phrase ’share of wallet’, and the assumption behind it - you measure how much a customer spends with you versus how much they could spend with you, and go after the gap.
The driving principle is you get better at working out who the most valuable and potentially valuable customers are and you differentiate your communications and your service and so on based on those categories.
All very well up to a point. But, it’s only fifty per cent of the equation. Far too much of the focus of CRM has actually alienated so-called ‘valued’ customers as you and other suppliers using the same formulae home in on the same set of people and harass them. In fact, I often joke that CRM really stands for ‘Constantly Receiving Mailshots’ from the customers’ perspective.
The real meaning of ‘customer value’ is the value you create for the customer . That’s your start point in doing business. Starting from the other way around - what value can I get out of this customer - won’t get you anywhere with savvy, sales and marketing-resistant customers.
So, I offer you the value equation, above (use the value equation if you wish but please do attribute it). Customer perceived value comes from product quality plus service quality, over the price you pay and the hassle factor (cost of inconvenience).
So, to take Lexus as an example, Toyota penetrated the prestige car market by removing the hassle from car ownership by offering free pick-up, loan cars and guaranteed residuals . Based on their research this was the easiest way they could create added value for their target customers. The customers responded and Lexus now has the highest rating for customer retention of any car brand.
In an unforgiving market, with most sectors suffering from over-supply, a core understanding of how value is created for customers is vital. The challenge in a soft market is to create so much value for your customers so that they would not even think of spending their limited funds on anyone else.
Last week I was in Warsaw, giving a workshop on Customer Experience Management. I used the above slide to illustrate the start point for CEM+ thinking and then worked through the stages for executing the creation of value through a designed customer experience using the CEM+ methodology.
My presentation drew on research with 550 Polish executives we conducted with ‘Executive Conversations’, our Polish partner in this market. The findings are relevant for any organization seeking to implement CEM.
For example, 63 percent of the senior management respondents agreed with the statement ‘‘Leaders make decisions that are consistent with our customer experience strategy’ yet only 41 percent of their non-management colleagues concurred with them. This matters. No matter how committed to the customer experience you feel your organization is, it is what you do that counts.
I’ve written up some of the findings of the research into an article, which you can download here I’ve also attached the Polish workshop slides, that show the stages you need to go through in the CEM+ process to deliver that value the customer wants more effectively than your competitors. Contact us if you are interested in the CEM+ process.