What is Customer Value and How to Create It

What is Customer Value and How to Create ItIf I were to ask you what is customer value, what would you say?

  • How loyal are they to your brand?
  • How much do they spend on your products?
  • Or any profit you reap from your customers?

I’d say you are spot on. 

But, there is more to it than just “profits” and many companies fail to see the effort they need to put in to get good customer value.

Companies need to give their all when it comes to customer acquisition and retention to make sure the company maximizes customer value. 

But how to define customer value? Let’s find out!

What is Customer Value?

Customer value is an estimation of the value that customers derive from the products or services they choose. Customers put in the effort, time, and money in finalizing a particular product/service and they need to feel worth after all this investment. 

This worth is customer value and it is calculated by subtracting cost from benefits.

This can be represented in a simple equation: Customer Value = Benefits – Cost (CV=B-C)

In modern times, these simple principles have undergone a 360-degree transformation.

Customer values, today, are a subset of direct or indirect environment and social influences and immediate access to competitive alternatives. 

The simple concept has become way more complex and now consists of multiple levels. These levels become the parameters to decide on the significance of services received by customers in comparison to their expectations.

Customer Value ParametersCreating strong relationships between the customer and the business helps to gain their trust and love. This is done by value creation.

But that should not be only limited to the products being functional or concentrating on their quality.

It should be considered as a more wholesome way to create a value proposition that your consumers can buy in the long term. An injection of ethics, a splurge in their confidence, being dependable, and triggering positive emotions are the fundamentals of creating value for customers.

How to Measure Customer Value

Measuring customer value is enormously important simply because it gives you in-depth insights into the health of your business and how it is expected to perform in the future. The concept works both ways in terms of value creation for the customer and the business too.

An imbalance in the customer value equation generated by the business can result in your company operating at a loss.

This is actually an indication that the business is not faring well, or it is not able to serve certain segments of the customers as per their expectations.

Therefore, the long term strategy should ideally focus on how well the business can improve its margins for its clients.

But measuring the customer value is not easy as it involves too many factors and costs. The best way forward is to investigate the financial, predictable, and soft value for customers.

✔️ Determining the Financial Value

Turnover and costs can help you map the financial value of customers. The cost segment again can be subdivided into expenditures in marketing and recruitment expenses.

Let’s take a look at it in more detail.

1. Turnover Costs:

Calculate the average turnover per customer on a yearly basis. For example, if you have a product or service that only generates revenue per customer once in ‘x’ number of years, then you need to spread the turnover across that many years.  

2. Marketing Costs:

Any costs related to marketing is a direct investment in enhancing customer satisfaction. For instance, discounts and coupons, business gifts, and more are just mere avenues to add more to the customer’s perceived value of the purchase. This, in turn, enriches the overall customer experience.

3. Recruitment Costs

Marketing costs are generally associated with customer retention. But what about the investment in terms of acquiring the same customer into your business pipeline. Hence, mapping the acquisition cost of the customer step by step until the client actually commits to the brand with a confirmed sale forms the overall part of determining the lifetime value of the customer.

A word of the wise, having a marketing automation system can come in handy at this stage of measuring customer value.

✔️ Define Predictable Customer Value

Customer Lifetime Value Report

Did you know that only 76% of companies see Customer Lifetime Value as an important concept for their organization?

Turnover and costs are not the only parameters in action that can help you measure customer values

You also need to map the customers’ future value addition to the business because a client that sticks with your brand for 5 years or more will contribute more in comparison to the customer who switches to a competitor in less than a year.

This is where you convert customer loyalty into hard figures.

The RFM segmentation enables you to divide your customers into groups depending on their buying behavior.

Take a look at these three values:

  • Did the customer make a recent purchase?
  • What is the frequency of the customer’s purchase?
  • What is the average monetary value of the customer’s purchase?

Identify and analyze these customer segments and use the information to calculate the customer value creation during their life span with the business.

✔️ Calculate Soft Customer Value

Even though this is the last parameter of measuring customer values, it is possibly the most important. While the above factors mainly saw the idea from a business perspective, determining the soft customer value recognizes it from a customer point of view.

There are two methods of measuring this.

Customer Satisfaction (NPS): If you are looking for credible customer value examples, then mapping the NPS or the Net Promoter Score is ideal. The question that you ask is simple – Will, your customer, recommend your brand? But the question should not focus on the ‘will’ but the ‘why’. Perhaps the experience has been par excellence, which answers your ‘why’.

Customer Experience: You need to take into consideration both the qualitative and quantitative value perceptions that constitute the overall customer experience with your brand. Lastly, concentrate on the possibility of adding more value to this experience by showering them with attention, care, and top-notch service.

Measuring customer value may result in you asking a lot of unwanted questions. In the end, the exercise is worth the effort as you have a better overview of how to allocate your budgets and investments in the future.

Why Customer Value is Important

The value lies inside the mind of the customer, and it means different things to different people. Therefore, that automatically makes understanding customer values extremely important. After all, it is a trusted medium to grow your business.

Other than that, the process can also help in the following ways:

  • Identify groups and segments of customers to invest in
  • Determine new target markets
  • Categorize services and product lines that seem to offer more value to customers
  • Extract more value by revisiting pricing models
  • Detect customers who are not profitable
  • Find where to cut down on expenses and investments
  • Isolate unprofitable growth areas to cut costs and investments

Uncovering customer needs lets you align customer value. So, not only do you get a comprehensive understanding of the lifetime value of each individual customer, but you can also locate potential growth opportunities for the future.

Understanding Customer Lifetime Value Contribution to the Firm Over TimeRemember that customer value is the only thing that can successfully link the customer, company, and shareholder together.

So, how to create value for customers?

How you create value for your customers primarily assists them with their decision to buy from you or not. Focus on a more realistic snapshot of their approach to purchasing your products or services. This, in turn, needs to be connected back to your strategy.

Other than that, customer value is also about what is important or unimportant to your clients. For instance, if they feel that they are happy to pay more for a premium service or product, they will. Otherwise, many tend to bypass these offerings for more regular goods and services available at a more reasonable price range.

This is possibly how you can define customer value in action. The key is to allow customer value to drive your strategies and offerings.

This gives you a more robust understanding about the value that every customer can provide to your business, plus the potential opportunities to increase value going forward.

How to Create Value for Customers?

Motista collected gathered data between 2016 and 2018 and came out with a report ‘Leveraging the Value of Emotional Connection for Retailers’. According to this report, consumers with an emotional connection to a brand:

  • Have a 306% higher lifetime value
  • Stay with a brand for an average of 5.1 years
  • Will recommend brands at a much higher rate

Therefore, it is just common sense for businesses to go full throttle on creating customer value.

We’ve identified some innovative ideas that can help you accomplish this. Take a look.

1. Go the Digital Way to Increase Convenience

So, your customer buys a product from you but is now facing issues with it. While they can go the old fashioned way of taking up the concern over an email, where is the fun and value addition in that.

Integrate a dependable live chat software that can help with offering more instant solutions to customer concerns in real-time.

Develop a unique method to treat your customers, handle complaints with care. You will reap the benefits shortly.

2. Promote Customer Intimacy

This is a new mindset of doing business where companies are concentrating on coming up with customer-intimate strategies that elevate new systems, structures, and visions. 

For example, incorporating an automated help desk service certainly does a lot towards promoting an environment of efficient ticket handling, responding to customer queries, and integrating with third-party applications such as CRM or Marketing automation systems.

At the end of the day, discovering how to provide complete solutions to customers' needs works as a definite value addition for them.

3. Offer Instant Gratification Through Self-Service

For the modern-day customer, time is often more valuable than anything else. 

Hence, having a comprehensive knowledge base that helps customers look for quick answers to their issues is a huge value generator.

Access to a strong FAQ section, no doubt, makes purchasing your product more attractive.

4. Improve Your Brand by Conducting Regular Surveys

You may think that you are doing a great job of creating immense value for your customers. In reality, the sentiment may be completely opposite. 

So, how do you find out what your customers are thinking of your brand and the value additions through your offerings?

Simple - by conducting regular customer surveys.

You do not want to miss out on an opportunity to strike a conversation and build bridges. Most importantly, it is an avenue to gather honest feedback that you can help you deepen customer relationships.

5. Evoke the Right Customer Emotions to Drive Value

Digitization and automation are unquestionably smart business investments. However, the key to creating value is to understand their customer’s emotional journey that they experience when they decide on purchasing a product.

 It is up to the business to motivate the customer by triggering the right emotions to drive value.  

Wrapping Up

Customer values in this new landscape are elusive. Because your loyal customers may bolt to your competitor at the slightest error in your judgment. Remember that you need to understand the fact that your customer has choices and you are not the only one in the game. So, you should do everything in your power to deliver a world-class customer value experience.

A lot has to do with how well you manage experience, social impact, empowerment, and feedback. The strategy to go direct and putting the customer in charge can work as an intelligent value lever.

With so many new dimensions of customer value in play, ensure that you concentrate on the ones that are right for your customer base. What you gain in return for your business will let you live long and prosper.

How to increase customer value?

Assuming that you cannot make too many changes to your fundamental offerings, the best way forward to increase customer value is to sell more to your existing clients. This should be followed by initializing more power-packed customer retention strategies.

Remember that it costs a lot more to acquire new customers for the business. Lastly, you can consider lowering your prices to add more value to when your customers purchase from you.

What are the types of customer values?

There are four types of customer values:

  • Functional: This characterizes the brand, product and service qualities
  • Emotional: This focuses on customer sentiments associated with the brand, product, or service
  • Life-Changing: This emphasizes the customers’ way of life being redefined by the brand, product, or service in any way
  • Social Impact: This shifts the attention from the customer to the society at large and how the brand, product, or service transforms the lives of others through social impact

What are customer value creators?

The concept of customer value is ambiguous in nature. Therefore, what one particular customer may consider as a value may not work for another customer in the same manner. The primary value creator is dependent on what the customer perceives as value.

This is usually a notion that is put in action after your customer has had a chance to evaluate your competition. If your customer believes that your product delivers more in terms of your competitor, you’ve done your bit, albeit partially, as a value creator.

What is customer value analysis?

CVA or Customer Value Analysis is a research method that helps businesses identify customer perceptions of the brand as opposed to their immediate competition. If offers a quantitative analysis which means that the evidence gathered is primarily numerical data that assess customer opinions and their value about the business and their industry rivals.

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About the author

Jared is a customer support expert. He has been published in CrazyEgg, Foundr, and CXL. As a customer support executive at ProProfs, he has been instrumental in developing a complete customer support system that more than doubled customer satisfaction.

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