Share this content
MyCustomer.com

The value of customer value management

by
18th May 2009
Share this content

Customer value management not only helps firms to understand their customers better, it can also help them sell smarter, according to Leigh Caldwell, who explains how firms can take advantage of CVM.

By Leigh Caldwell, Inon

The new field of behavioural economics offers big opportunities for sales and marketing professionals. Want to have more people upgrade from your £5 to your £9 bottle of wine? Just put a £15 bottle on the same shelf and about half will switch to the £9 option. Even though almost nobody chooses the highest-priced one, it influences them subconsciously by increasing their subjective valuation of the wine. And the best thing about this? In tests, consumers report that the same wine actually tastes better when they have spent more money on it.

If you would like people to spend more on business services, remind them that they can spread the payments; with consumer electronics, remind them of the option of credit card payment - even if the customer doesn’t end up buying on credit, these reminders nudge upwards their assumptions about the appropriate price for the service or product. The psychology and economics of pricing and value allow you to serve your customer’s interests and your own, by ensuring that they perceive the highest possible value in what you offer.

"Unlike customer relationship management, CVM lets you tailor the value of each proposal specifically to each client – very effective in a volatile sales environment and ideal for professional B2B users."

Behavioural economics research provides a range of around 20 such cognitive biases – ways that people can be guided to perceive more value in the products and services they buy. Some will be familiar to marketers as rules of thumb, but this new area of research provides ways to quantify and optimise the price and message. The big question for marketers is how to take advantage of this research to increase sales. Every prospect is different, so how can you understand your client’s motivations to then make the offer that will work best for each individual?

Customer value management (CVM) is the business process of analysing a client, understanding what they value most and designing your offer to match it. Like CRM, customer value management is an organisational approach enabled by a specific systems technology. But unlike customer relationship management, CVM lets you tailor the value of each proposal specifically to each client – very effective in a volatile sales environment and ideal for professional B2B users.

Traditionally, the way businesses have tailored proposals is through networking and individual conversations, sales meetings and customised pitches and, finally, by adapting the service to client demands, even after the sale takes place. While these are effective processes they are also time-consuming and the return on that time could be improved.

CVM uses behavioural economics to understand and measure the emotional and psychological relationship between what person 'A' does and what person 'B' receives. This supports the traditional process described above, making it more effective and increasing its commercial impact. CVM tools help sales teams and marketers to understand why their clients buy from them to make it happen more often.

For example, accountancy firms are using CVM to offer a self-completed profiling questionnaire to new prospects over the Web, providing valuable insight to the client and generating new sales leads. Procurement consultants use it to understand their clients’ buying patterns and offer tailored new services and pricing.

CVM vs CRM

Traditional CRM systems are good for high-volume consumer marketing but they are not very popular (or effective) amongst B2B providers such as professional services firms. This is because CRM systems have been designed to simultaneously manage large numbers of people by making simplifying assumptions. For example, 'If we assume that people fall into one of four demographic groups then we can send each group its own message and hit a million people with a £40,000 campaign'.

The downside, however, is that the messages are untargeted and, therefore, much less effective because they are not attuned to the specific value model of each recipient. If a company sells consumer goods costing a few pounds each this may be fine, but if an organisation's target market is less than around 100,000 buyers, if its service typically costs more than £1000 and is tailored uniquely to each client, then CRM is not going to be enough. To be truly effective, the business needs to customise its pitch to each client to ensure that its offer provides what they value most.

"Industry experience shows that CVM can help firms generate at least 20% (and sometimes over 100%) more revenue from their existing clients and services – and that is a powerful tool for winning new business in tough times."

In practice, CVM uses a number of management techniques supported by technology that enables firms to sell smarter. A key performance indicator dashboard measures the status of the business in real-time, allowing commercial decisions to be made instantly (no waiting for the monthly report). Also, value models allow you to see trends in the psychological factors your customer base responds to - for example, in a recession they may become more risk-averse or may prefer to preserve cashflow, or perhaps they respond better to escapist or 'comfort' messages.

Also, structured pricing, which is based on value modelling, increases sales revenue by 10-30% by aligning charges with what customers and clients want most. Most professional firms, consultancies and modern service-based businesses base their pricing on an hourly or daily rate, even when they quote a fixed project price. The danger is that the customer and supplier’s interests may not match or that the supplier over-services the client and is not fairly paid for the value they produce. In contrast, structured pricing aligns charges with what customers and clients want most and is a powerful sales technique.

Overall, industry experience shows that CVM can help firms generate at least 20% (and sometimes over 100%) more revenue from their existing clients and services – and that is a powerful tool for winning new business in tough times.

Leigh Caldwell is chief executive of Inon

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.