Understanding Customer Value 101

Understanding Customer Value 101

The first thing you should do in any of your business actions is think about your customers. Whether you’re creating an offering or sale, or new product, etc., you have to put your customers’ best interests first. After all, their needs and wants are what businesses strive to satisfy.

But do we understand what customer value is (or rather, customer-perceived value)?

What is Customer Value?

Customer value can be considered as the balance between the benefits of the product or service and the sacrifices made to obtain it. There are two ways to increase customer value: increase customer benefits or decrease sacrifices. If you’re in the small business industry, that’s your job.

Product benefits can be categorised into 6 aspects:

  • Functional — Purpose and performance
  • Economic — Time, money, and effort
  • Social — Reputation, recognition, or relationships
  • Hedonic — Liking, pleasure, and aesthetics
  • Epistemic — Information, knowledge, and novelty
  • Altruistic — Ethics, society, and environment

Whereas, some examples of sacrifices include:

  • Money
    The amount of money a customer is willing to spend is important! It could be the turning point in a customer’s purchase process. Obviously, any additional costs — such as credit card surcharges or warranty costs — are unattractive, while any discounts are super attractive.
  • Search costs
    The purchase process is a tedious one when a customer has to research as well as search for alternatives. Making this stage of the process cleaner and quicker would be extremely beneficial to a small business.
  • Emotional costs
    The purchase process can also be a somewhat stressful or boring one, especially if it’s before or during a holiday period. One of your aims should be to reduce anything that would produce any negative emotions for the customer during the purchase process.

Four meanings of Customer Value

There are four meanings of customer value that can be used to understand customers and their purchase process:

1. Value is low price

Lowest price = Best value

Many customers, if not all, usually base their purchase decisions off the price that they are willing to pay — and that is preferably a low price.

In order to create customer value, try to make the price more attractive by offering bundles, some free add-ons, maybe some sales, etc. Basically, you want to sell the ice cream, but to make it look nicer to buy, you’re better off putting sprinkles on top.

2. Value is getting what I want from a product or service

Benefits > Price

Some customers perceive value as the complete satisfaction of their needs or wants. Rather than the price that they pay, these customers look towards the benefits they receive.

What a small business could do to create customer value is add features to or further develop benefits of your products or services, as these types of customers can be willing to pay more money for more benefits.

3. Value is the quality I get for the price I pay

Value = Price

Similar to the first meaning, but with a twist. Basically, customer value can be considered as a tradeoff between the price of a product or service and the quality or performance that they experience. When customers settle for the price of a product or service, they develop expectations of its performance — in fact, they start developing expectations even before they purchase it.

4. Value is all I get for all I sacrifice

Value = Sacrifice

Customer value can be seen as what you get for what you give. Customers focus on the benefits of a product or service and weigh them up against the sacrifices that they made to get it. The experience that the customer goes through is make-or-break, where the benefits can outweigh the sacrifices (good!), or the sacrifices can outweigh the benefits (bad!).

Essentially, in order to address this, you need to reduce the amount of sacrifices that the customer needs to make in order to purchase, experience and evaluate the product or service you’re providing.

Based on: Buttle, F. and Maklan S. (2015). Customer Relationship Management: Concepts and Technologies. 3rd Edition. Oxford: Elsevier Butterworth-Heinemann. ISBN: 978-1-13-878983-8