How Can We Create Maximum Customer Value?

28th Apr 2011

  I would like to draw attention to a fundamental economic postulate, dating since Adam Smith and still valid today, like the law of gravity: 

"Value is only created in the process of satisfying Needs.

This has tremendous business implications: 

1. Without Needs value cannot be created, and a business has no reason to exist. The person with the Needs is (just accidentally) called the Customer - and the above postulate makes the Customer indispensable, central and critically important. The only business case for Customer Centricity. 

2. It puts logic into Customer Segmentation: the only(!) two dimensions that we ever want to segment by are Value and Needs, because they are fundamentally linked. Everything else (e.g. demographics, lifestyles, etc.) is just not at the same semantic level and is only a proxy (clue) for one or both of the main dimensions. The popular behaviour segmentation, for example, is a 80% proxy for Needs and 20% for Value (don't take these percentages seriously - but do take seriously the fact that Behaviour is, in fact, Needs). 

3. It offers a simple answer to "How can we create maximum customer value?" - By deeply understanding and comprehensively satisfying customer needs. 

This (misleadingly simple) response requires from an organisation quite a lot:

- A top-level strategic commitment to basing the business on the customer-centric model

- Building (or acquiring) ever growing capabilities to 'understand needs' (from traditional insight and analytics to close customer engagement in this)

- Translating this 'understanding' into relevant (!) propositions, again - with close involvement of customers in co-creation

- Alignment of all end-to-end business processes with the differentiated (segmented) approach and the core customer-centric strategy

- Alignment of the organisation design (structure, but also work patterns and culture) with the above

- Subordinating technology as a powerful enabler of strategy and processes (but not the other way round - allowing technology to dictate our customer approaches)

- Measuring the right things ('if you don't measure it you can't manage it') making the KPI ecosystem as customer-centric as the core strategy.

- Did I mention engaging Customers in all this? Can't emphasise it enough! 

When all this is in place and is practised consistently, we can hope that the intimate understanding and successful addressing of customer Needs will translate into maximum Value for customers. Which will return as shareholder Value.

This opinion appeared originally at 1to1 Insiders, where the question was asked in a discussion


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