Select Page
Customer Value Equation

Customer Value Equation

Value = (benefits – costs)

This equation is the most fundamental conscious or subconscious calculation made by a customer when comparing products, or purchasing goods and services.

For a couple of reasons, it also presents a real challenge for marketers:

A, Benefits and costs incorporate both tangible (quantitative) and intangible (qualitative) concerns, and consumers will also base assessments on both rational and emotional needs.

B, Although tangible components may be relatively simple to identify and understand (such as the benefit of a widget or feature versus how much it will cost), intangible components can be much harder to quantify.

Changes in the value equation can be seen all around us, creating changes in either benefit or cost – these are just a sample of changes I’ve noticed in the last couple of weeks:

  • Online purchases linked to an excessive (three page) sign-up process (increased cost)
  • Android phone sign-up, ranging across three screens and requiring two new passwords (increased cost)
  • Xero accepting photos of receipts directly into their platform (increased benefit)
  • Sony offering to repair an out of warranty e-reader for free (increased benefit)
  • Improvements made to My Food Bag around packaging and recycling (increased benefit)
  • The introduction of text authentication processes for large bank transfers (neutral – the increase in cost [time] is offset by increase in benefits [security])
  • Moving booking for school parent teacher interviews online (increased benefit)
  • Infighting and perceived lack of commitment across the Blues rugby organisation (decreased benefits)

Key Takeaways

Every time you are considering a change to your customer proposition, you need to ask yourself a simple but powerful question:

“Will this change enhance or diminish my customers’ value equation?”

Some questions to help you dig into this a little deeper should include:

  • How will enhancing customer value be reflected in my metrics? Will customer satisfaction increase? Will I get increased acquisition or reduced churn?
  • If my change diminishes the value equation, will this increase churn or lower acquisition? Can I accept the diminished equation if it helps me elsewhere in the business – through either increased productivity or cost savings?
  • Why am I considering a change – is it to match a competitor’s move? If so, am I really increasing the customer’s value equation, or just meeting a competitor’s offer?

 

KS

This post was originally posted on www.theexponential.agency

Related Posts

More from my site

  • Beware of the ‘sample of one’Beware of the ‘sample of one’ A few months back I found myself sitting in the offices of one of the country’s market leading companies, surrounded by clever people, in a proposition development meeting featuring a potentially ground-breaking product. There was a problem. All our decision making was going wrong. We had broken apart what had started as a strong proposition, and now had a hybrid version that no-one […]
  • A way to get an eight times better chance in improving salesA way to get an eight times better chance in improving sales Timing is everything, right? Here I am, smack in the middle of an extended riff on sales, and the Herald considerately decides to go with my theme…  imitation is after all, the sincerest form of flattery….. Here’s another insight on the same theme – this time from Steve Waterhouse, out of the US’ Waterhouse Group. You can double (yes, double!) your sales just by…. Picking up the […]