Measuring customer value

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© 2001 Don Barnes, Bristol Group

So you want to create value for your customers. You’ve identified the various means by which you will do so, from streamlining billing systems and improving customer interactions to decreasing delivery times and helping to increase product utility. Now what?

Some years ago, a department for motor vehicle registration in one of the western United States decided to improve the quality of their service. They felt that the queues for service were the major problem their clients faced, and so planned changes to reduce wait times. But rather than simply proceeding, they decided to talk to their clients about what they saw as the problem areas. They discovered that the most pressing problem from the perspective of the customer was the poor quality of the photo on the driver’s license. People complained that the photo did not resemble them, yet they had to show it on a regular basis as identification for several years. The most effective way in which the department could improve quality – and add value – was to adopt new camera equipment, which they subsequently did, with an exceptional improvement in satisfaction scores.

Companies often recognise that value exists in the mind of the customer. However, they often fail to measure that value in a way that incorporates the customer viewpoint. To do so effectively, you must first understand that there are several ways in which value can be added, and then you need to assess the relative importance and performance of each type of value.

Both of these – importance and performance – are necessary to understand the effectiveness of your actions in adding value for customers. In working with clients in Europe and North America, we have identified a number of types of value – from the standard price-based value to the novel surprise-based value – that are applicable to different degrees across customer segments. The key is to identify the value each offers, and to whom, in order to build a market approach that consistently delivers the right kind of value to the right customer.

While customer databases can play a valuable role here, these offer a perspective that may not be shared by the customer. Databases most often offer historical, behavioural data. The various value bases that comprise the overall value proposition for the customer cannot necessarily be derived from these alone; repeat behaviour can be identified, and perhaps analysed in such a way as to suggest that convenience of location is the source of value for a specific customer. But it is unlikely to tell you that the same customer sees value in the chat she has with the checkout clerk every Thursday afternoon.

The spectrum of value creation levers that are available to you can only be understood through the experiences of your customers. You must explore this with them, and measure what they see as important and as adding value, not simply adding what is most cost effective for the company and believing – or telling yourself – that it also adds value for your customers.

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