What is customer value in marketing management?

What is Customer Value?

Customer Value is the incremental benefit which a customer derives from consuming a product after paying in return. The term value signifies the benefit that a customer gets from a product. It is the difference between the benefits (sum of tangible and intangible benefits) and the cost. Customer value is dependent on the three factors – Quality, Service and Price. Hence, these three together form the ‘Customer Value Triad’. The value of a product increases with its quality and service, as the benefits increase. On the other hand, the value decreases with increase in price because of the increase in costs increase in this case.

Customer Value Parameters

The image below shows the different parameters which can determine the actual customer value delivered to customer from the marketer or manufacturer. 

These are: 

1. Quality

2. Price

3. Service

4. Marketing/Branding

5. Social Influence

6. Past Experience with the product

The above parameters can be used by the sellers to define the customer value they want their product or service to deliver.

Customer Value Types

Customer Value can be calculated in two ways : Desired Value and Perceived Value. Desired value is what customer expects without still buying the product whereas perceived value includes cost into calculation.

Perceived Value = Tangible Benefits/Costs Paid

Actual value is what comes out after consuming the product. If actual value is more than perceived value then the customer value is very high and vice versa.

Cost plays a very important role in customer value as it is the parameter which a customer can use to evaluate similar competitors. Similar products with same perceived value can have different customer value based on the price they sell for.

The concept of value is vital for any marketer as any product or service can be sold only if the customer is getting some value out of it. Hence, marketing itself is defined as, the creation, communication and delivery of Value.

Importance of Customer Value

Customer value is important both for the customer as well as the producer or manufacturer. Customer value is the metric through which better product and service offerings can be produced. A positive customer value will keep the product in demand in the market and will result in repeat business for the seller or the manufacturer. On the other hand, if after paying the price, the customer is not able to derive a tangible (or intangible) benefit from the product or service, the product will not sell again.

Customer value can also be seen as 'Value for Money'. If a customer perceives that he/she received a positive value of the money paid for the product, they will buy again and also spread word of mouth leading to market success. Customer value is single most important parameter in business but is not straight forward to apply or calculate. It is very important for the pricing and product departments who can use it to have a precise balance between the features and price so that the customer derives the value post purchase.

Customer Value Example

Let us imagine a cake shop selling pineapple pastry with basic ingredients and look. The pastry has cake at the bottom and some cream in the middle with a slice of pineapple at the top a 2$ per piece. The customer who buy it don't return nor review the pastries well. This shows that at 2$ per piece the customer may or may not be getting the actual value he or she perceived before buying.

Let us see the scenarios below :

1) The same seller started selling the pastry at 1$ per piece. Suddenly the sales rose and customer started coming back. This may have happened because at 1$ the customer is happy with the pastry he is getting even if it is just average pastry.

2) The same seller made the pastry different with small pieces of pineapple included in the cream as well as added 2 pieces of pineapple on the top. Again similar customer response followed as scenario 1. Again the answer can be increase in actual value at 2$ a piece.

The above 2 scenarios show how product can be changed either in attributes or price to alter the value it can deliver.

Hence, this concludes the definition of Customer Value along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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The customer value concept has become a meaningful phenomenon for all firms and organizations that offer their products or services to the target audience. It is not enough for teams to fit the niche requirements and be competitive with other brands thanks to innovative technologies applied. Understanding how long-term relationships with customers can and should be maintained is what allows companies to avoid the risks of bankruptcy and achieve new horizons in their performance. 

Organizations that fail to keep up with the standards and requirements provided by end-users can’t dictate the game rules anymore and face business-damaging scenarios. What are the necessary steps to do? There are numerous definitions of value, and choosing the right one and using its benefits will come in handy. Stay tuned to find out how to keep the balance between theory and practice with customer value in the marketing field.

So many people, so many minds, but that is not the case. Though value may be perceived divergently, finding the right term description will help your business evolve and blossom. In simple words, customer value is all about the balance between brands’ desire to gain profits and satisfy end users. That is the ratio between efforts put into getting someone’s product/service and benefits achieved thanks to them. 

Customer value is a pretty fluctuating phenomenon and is influenced by several inner and outer factors. When an individual considers whether their effort to get your offer is worth it or it is better to apply to someone else’s deals, great attention is paid not only to the cost-value balance of the deal to purchase itself. The importance, practicality, usefulness, and helpfulness of the latter are analyzed too. This so-called research doesn’t necessarily take long — lots of decisions are made subconsciously and instantly. Just compare the chances your goods will be preferred if the same is available at the other venue but with free delivery. 

What is customer value in marketing? This is an important parameter that guarantees customer loyalty and strong customer relationships with regular clients, allowing creating and capturing customers from the brand’s rivals too. Once you know what is what, it is the right time to find out how practical knowledge is to be realized in practice.

Why Is Customer Value Important? 

Such notions as customer experience, satisfaction, and value are interdependent. If you create the latter, you will increase the first two aspects of every business activity, and vice versa. These features are absolutely beneficial, but the way the phenomenon under analysis influences your performance is often underestimated. Here are a few bright but commonly unnoticed reasons to invest in marketing and customer value:

●      Changing the perspective for acquisition cost — nobody says thinking about your profits is a bad thing, but it is pretty misleading to consider it one and the only meaningful feature that defines your success. According to research, it is cheaper to satisfy the objectives of retaining consumers than to entice new users. Both ways of interactions are necessary, but forwarding your effort only to increase the number of fans is a way to nowhere. It is undeniable that offering advantageous policies for new customers only, forgetting about the needs of your loyal ones, will result in a lower number of people who stick to your services in the long-term perspective.

●      Active ambassadors — customer loyalty is achieved via satisfactory degrees of customer value. When an individual is ready to advocate your deals in front of others, recommending them as well, it means your performance complies with that person’s expectations and needs. In the era of digital technologies, it is as simple as ABC to share your opinion about the company. People tend to believe in real reviews of real customers, not pure advertisements from brands themselves. So delighted consumers guarantee a solid means of spreading customer awareness of their favorite companies (even if not publicly through social networks, then in a word-of-mouth manner in daily life).

●      Eternal support — according to several surveys, loyal customers are also enthusiastic about supporting brands they love and spend more funds. In turn, the more loyal customers a brand has, the more positive effect on its profitability and turnover will be. What is more important, they are more prepared for dialogs and compromises while being less volatile.

●      Working on mistakes and implementing new ideas — core customers allow companies to become better and more appealing. Online questionnaires or other tools are used to check consumers’ opinions about a particular brand’s performance. When people are delighted, a strong emotional connection is created, so there will be no difficulty to involve your fans to enhance your potential. Creating customer value for end-users also opens new horizons for your future development. Regular buyers would love to share their thoughts on which functionality is missing or what can be implemented to make their customer experience better.

How to Measure Customer Value 

The degree of satisfaction is still detected via defining customer spending by many teams, but it provides only temporary results. Unlike getting an understanding of customer value as a whole, they achieve data describing separate transactions and consumer behavior here and now only. If you are going to predict and stop potential users from leaving your brand for another venue, this method is a highway to hell. In this case, the appliance of CRM technologies would be much more efficient. 

The cultivation of trustworthy relationships with customers starts with checking their needs, desires, and habits. CRM systems like Bitrix24 enable enthusiasts to operate tons of divergent data and maintain its in-depth analysis. Once you know your audience’s expectations and reactions toward different actions at your end, it is simpler to prepare marketing campaigns and pick up the right business development strategy.

Advanced platforms like Bitrix24 are the best candidates to lead your team to mass customization. “What is customer value in its mathematical aspect?” — the first question to answer before you start work with more complicated operations.

Measuring customer value, interested parties are to deal with the following: 

●      Duration of cooperation with end-users (please note that you don’t have to consider only strong customer relationships here);

●      Number of purchases made (or services ordered), their frequency, and volume;

●      Total number of deals realized over customer lifetime;

●      The average amount of money spent during cooperation at the buyer’s end.

Of course, deciding how to measure customer value, some businesses prefer to stop on the characteristics above, which result in certain misconceptions. It is crucial to realize that the customer value concept can’t be boiled down to cash only.

In turn, there are several kinds of benefits that forward to a simple customer value formula — the analyzed parameter is achieved by subtracting total customer costs from perceived customer benefits. 

Creating customer value and understanding its qualities requires brands to take into account their own distinctive features, how they are perceived by the target recipients, and what helps them to make buying decisions in your favor. To identify total customer benefits, businesses have to be critical and open-minded to their services, considering the overall brand’s reputation, quality of communication channels, shopping platforms (the presence of several ways to make a deal, their social advantages, etc.).

Referring to the second part of the customer value formula, tangible and intangible costs are the leading characters here. For instance, knowing your renewal and maintenance spendings won’t be enough if you fail to offer instant and thorough purchase methods, making your clients spend extra time to understand how your service/goods work and how to access them.

To receive accurate data, it is also recommended to pay attention to value and satisfaction among several buyer personas. It is logical their senior clients and teenagers would have unlike customer habits and show interest in different aspects of your work.

Customer Value Equation

What is the value equation? As has been already mentioned, the customer value formula can be written as: CV = B - C. Here B goes for benefits, and C — for costs. Taking into account a lot of parameters that aren't defined by pure mathematics, it should be treated as a larger domain than a typical equation.

Physical commitment, emotional stress, customer effort, and time invested in your brand can’t be just guessed. Thanks to advanced website layouts and modern widgets, organizations are welcome to find out what attracts customers more, how long it takes them to make a shopping decision, which groups of services/goods are bestsellers, and why. 

Your current revenue streams may be great. But if your customer value decreases at the same time, it leads to increased risks of losses both profits and loyal customers. If the customer value concept still seems confusing, here are some customer value examples to sort things out:

●      When there are two same products at stake, the one that is more beneficial is going to win. What would you choose — to have a coffee break in a cozy restaurant or to get a takeaway? The cost coincides, but impressions and delight received will not. 

●      Even if the product is a dream to achieve for end-users, it can be easily abandoned if the shopping process is lasting and complicated. In this case, the effort put into the operation isn’t worth the result, so customer value is decreased.

●      When something is off and inconvenient for customers, there is nothing weird for them to refuse from making a shopping decision. However, there are scenarios when perceived value wins over the cost requested to spend. If you are being late for an important meeting, you would rather not choose cheaper public transport but prefer a faster means to get to the target destination point. The fact the latter is more expensive won’t play that great role — comfort is more important here.

How to Increase Customer Value

Customer value largely depends on buyers. Things that are important for one consumer (for instance, there is a great interest in fast delivery) will be the opposite to the desires and preferences of others (some individuals would choose to wait longer to get their product hand-made). Defining the value source will be helpful. Conditional, emotional, functional, and social aspects that make you say “yes” or “no” to the offer are crucial.

Depending on your list of services, it is highly recommended to subdivide your target audience into groups of like-minded personalities and then research how to bring the best value to them. To improve all the aspects of your work simultaneously is usually troublesome and complicated even if you have a huge budget to spare, so these pieces of information will guide you within urgent matters and those that can wait a bit to be fixed.

Supplies have to bear in mind some crucial aspects that will assist in realizing how to create value and engagement in different customer value chains and succeeding in customer value management:

●      People evaluate your goods/services before and after the purchase is made. So none of these stages should be lacking in quality. For example, it won’t contribute to your customer value if the purchase process takes a few minutes, but there is no feedback from you after the buyer’s funds are transferred to you. 

●      There are numerous levels where end-users assess value, so brands have to deliver it at all of them.

Building customer value, any brand’s actions are to be reactive and proactive. It is always better to understand a genuine customer value meaning than trying to solve the issues caused by its false interpretation. Whether you are a small company or a large enterprise, the following methods of how to create value for customers will come in handy:

●      Without a doubt, customer value has turned out to be a massively competitive marketplace. In order to deliver the desired value to customers, a lot of analysis has to be done. The party that is capable of doing that faster and more efficiently wins. With the help of CRM systems like Bitrix24, it is easier to find the balance between myriads of consumer feedback reviews and conclusions that lead to perfection in the future.

●      Preferring Bitrix24 as a key analytical powerhouse and database should be accompanied by investing in technology. If it is an online store, intuitive interface, advanced search filters, beautiful yet not distracting color scheme — a bunch of features has to be present to provide the best customer experience and therefore implement a satisfactory and flexible customer value model.

●      For those who are interested in how to create customer value, making a unique offer will be helpful. Exclusive promotions, additionals to the main service, and more are what grab customers’ attention. In this case, you will increase customer value by previously non-available deals. Please note that the final priority should be given to quality, not price. 

●      These days, when the divergence of services and products is at its peak, designing new inventions may be far from your cup of tea. From this perspective, it is a must to identify your own strengths and weaknesses, working hard to find what lets you stand out. Even if you aren’t a manufacturer but a distributor only, the niche should differ from the main brand or the methods of delivering goods, for example.

●      Don’t forget about interacting with customers. Apart from different options like live chats, phone calls, and emails that are offered by the support team (its services have to be second to none, naturally), it is great to include FAQ pages on your web. Video tutorials are deeply appreciated, especially when it is a first-time buyer or the specialized tools that are distributed. Maximize the use of social networks as well.

●      Support your customers in need and indeed. Along with enticing campaigns, your marketing strategy is recommended to include policies to prize your loyal fans. Meanwhile, listen to your customers. Discovering their perceptions may require rapid changes at your end, but you shouldn’t be afraid of altering your own approach.

Conclusion 

There is a long way before brands can become successful and not worry that their audience may switch them to other virtues. It is a process that requires being competitive 24/7 and improving your own deals whenever possible and impossible. Understanding customer value concept helps brands organize their work in a more healthy and efficient manner, and their size and number of consumers don’t really matter. If there is a balance between your offerings’ quality, price, and value to end-users, a lot of advantages are received.

On the way to your dream, it is up to you whether third-party tools are useful to reach the planned goals. But some of them, including CRM platforms like Bitrix24, will help not to be lost in tons of data received from myriads of sources. The right attitude to customer value transforms the latter into a powerhouse engine to fuel your motivation and growth. Building genuine customer value is multi-optional and multicomponent, but your patience will be rewarded by solid customer relationships, increasing sales, and room for further development. 

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