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Customer value: Designing the value proposition

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28th Jul 2008
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Organisations are aware of the importance in delivering value to their customers, but can often come unstuck when defining what value is - particularly as it can differ from customer to customer. Julie Walker looks at what companies need to understand about customers and what tools can help on the way to establishing a value proposition.

By Julie Walker, Beyond Analysis

Value propositions are defined from two perspectives. The internal perspective looks at the need that has been identified and looks to match how well a product or service fulfills that need and from this an external definition is created which highlights the need and identifies the points of differentiation between one offering and their competition.

Historically, organisations have focused on the product or the service, focusing on their features and functionality, as the primary means of identifying value and differentiating from the competition, using customer focus groups, market research and customer satisfaction surveys to validate their assumptions.

With new technologies, these techniques have been automated and the amount of data collected and analysed has vastly increased. This has provided new insights to organisations, resulting in organisations asking new questions about their customer base. With the increase in the amount of data being collected on sales, products and buyer behaviour increasing both inside an organisation and through a number of external sources, more tools and techniques are being developed.

The challenge is to identify the right questions to ask, the right data to collect and the right tools to develop the insight and understanding.

The first question: what is customer value?

Customer value is defined in many ways, however it is not what a vendor or academic defines it as but what each consumer perceives it to be. Consumers make an investment of time, energy and money in every transaction they make and value is gauged by each individual, therefore there is no one size fits all research technique or methodology to measuring customer value. However, there are a number of tools and techniques which can be used to assist vendor organisations to better understand their customers and the value they put on their products and services.

What do I want to understand about my customer?

Each organisation has a unique product and service offering, which they are looking to sell to new and existing customers. In order to maximise their opportunity, they need to understand who their customers are today, why they buy, when they buy, how often they buy, where they buy and how much more could they buy. This level of understanding cannot be achieved through one tool or methodology; it will only be achieved by selecting the correct range of market research and customer insight tools for that organisation.

What data can be used?

Data is available in all departments within an organisation; it is therefore key to create a data map for the organisation as this will help in establishing what is available internally, where the gaps are in the data and help make decisions about using external sources.

 

"Customer value is defined in many ways, however it is not what a vendor or academic defines it as but what each consumer perceives it to be."

Historically, departments and teams within organisations collect the data which is relevant to that area of the business, for example, the sales team will track sales figures and trends, the marketing team will carry out market research and customer satisfaction surveys, the new product development teams will carry out research in to features and functionality, in a retail organisation, the store designers will collect data on what products sell in what store, FMCG collect data on product sales through the different channels, car manufacturers collect data about dealership performance, professional services collect data on the business networks of their clients and so on.

Today, all organisations must look at all data within the organisation as the pot of gold at the end of their rainbow and identify the right tools to extract the greatest value for the organisation as a whole and not the individual departments and teams.

Tools

There are a number of tools and techniques available, most of which have taken advantage of technology in the collection and analysis of data.

'Traditional' market research
Before technology, market research was the primary means of collecting information about customers and the task was fairly labour intensive as it usually involved a market researcher speaking to target customer groups on a one-to-many basis and for the responses to be manually collated and the results delivered. However, technology has improved this process through the creation of online survey tools, which can be used for customer research and satisfaction surveys, customer focus groups and competitive intelligence and analysis.

Data mining
Data mining is a term whose meaning differs depending on the department doing the mining. For this article it is the identification of information which is required to build a rounded view of a customer, their need for and their buying behaviour around a product or service. The type of data which may be identified and collected may include, but not be limited to:

  • Sales transactional data
  • Channel sales data
  • Loyalty programme data
  • Demographic data
  • Store Data location, size and format
  • Product range data

Data may be extracted and put into a central repository or may be left in situ, for the analysis process to take place. The data analysis may be carried out by internal teams, external specialist consultancies or a combination of the two, which is the optimal path for most organisations.

Data mining is fast becoming the 'must have' for organisations, but is it right for everyone?

Social web and internet analysis

The internet has increased the variety and number of data sources which can be used to establish customer value. The first of these is the organisation’s website itself, which holds valuable information about the customer’s path to the web site, the journey they take around the site, the content they look at and download and their exit path.

Outside of the organisation, customers are creating and contributing to independent product review sites and customer forums. These sites provide additional information about customers’ perceptions of products and services and are generally monitored by organisations rather than run by them, providing the independence which affords customers the freedom to express their views.

 

"The internet has increased the variety and number of data sources which can be used to establish customer value."

Other sources of information can be found on retailers’ and publishers’ websites; these are generally run by external organisations who are either a sales channel or another online publisher that shares the same target customer base.
Collectively these sites can be used for secondary market research purposes.

Within many websites are customer support forums where customers can find out information about products, get help to resolve queries and problems with products and services and in some cases provide a reference point for new customers look for advice about a potential purchase. Through the conversations which take place within these forums important information can be found which can be used to understand how customers use products and services, providing indicators of customer satisfaction, word of mouth recommendations and highlights problem areas and potential issues which may result in customer defection.

A number of brands have created social networks around their product or brand, through which they engage customers in discussing an issue. Dove, for example, supplemented its 'Campaign for Real Beauty' with an online community. Both Harley Davidson and Mini have online communities which support their offline bike and car enthusiasts, maintaining the engagement between purchases and providing opportunities to understand their customer base more fully.

Establishing the value proposition

With the internal market research, competitive intelligence and customer insight teams often working flat out to answer questions for the business, there is also the option to work with customer insight partners to help identify and source new data from both internal and external sources to supplement the work they are currently doing and creating new insight models to help the business answer questions about the customer, the value proposition and the opportunities for growth.

Ultimately, however, whether the work is done alone or with a partner, the issues above remain the cornerstones of understanding and creating value. When establishing the value proposition, an organisation looks to understand:

  • Who is my customer?
  • What am I selling them?
  • How are we different to the competitors?
  • Are we getting it right?
  • How can we improve our proposition?

And in order to achieve this then they must look to all available data sources and filter out valuable nuggets of information which will help them answer these questions.

 

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