Thinking strategically about customer experience: the 5 components of customer value

How do you think about Customer Experience?

In my view too many people are thinking about Customer Experience tactically.  Or put simply: too many people are thinking of Customer Experience in terms of making changes to the interaction channels.

Being a strategist, I prefer to think strategically and have been looking for a way that helps me to do that when it comes to:

  • Attracting and keeping customers; and
  • Thinking about, organising and executing Customer Experience.

So how do you attract and keep customers?  And how should you think about (frame) your customer experience efforts?  I assert that the answer to both of these questions is the same: create superior value for your customers and keep doing it continuously.

Which begs the question: what is ‘value’ from a customer perspective?

Fifield: customer value equation

One of the most useful frameworks that I have come across is the one developed by Paul Fifield (by building on some work done by Osterwalder and Pigneur) in his book Marketing Strategy Masterclass.

  • Value = Benefit – Effort – Risk – Price

Maz Iqbal: customer value equation

If it was OK for Newton to stand on the ‘shoulders of giants’ I am more than happy to steal from Professor Fifield.  Yet, I believe that Prof. Fifield’s equation neglects a critical piece of the puzzle.  So I have added it in and thus my equation is:

  • Value = Benefit – Effort – Risk – Price +/- Treatment

Let’s take a closer at the six elements of this equation.

Value

The first point to make is that value does not reside in the product or service that you offer.  Value is in mind of the customer.  Put differently, customer value is the value that each individual customer perceives in:

  • what you are offering including any implied or explicit promises; and
  • getting the job done in the way that you are proposing in your offer.

This means that ‘value’ will occur differently to different customers.  So a customer who is housebound is likely to value the home delivery of their weekly groceries very differently to another customer who is able to and enjoys visiting her local supermarket.

Finally, it is worth stressing that ‘value’ from a customer perspective is much more than price.  And it certainly is not about being cheap.  Recent wine tests have shown that in blind taste tests customers rate the same wine differently: if the wine is priced cheaply then the wine is rated as being of an inferior quality even though it is exactly the same wine in the same bottle!

Benefit

Your offer must promise and deliver the benefits that the customer is looking for.  One way of thinking about this is in terms of the job that the customer wants done and the outcomes he desires.  The closer you offer is to the perfect solution for the job and the desired outcomes, the more benefit it deliver and the more value that you create for your customer.

Clearly, each customer will have a different perception of the importance of the job, the perfect solution and the value of that solution. To make this manageable you must segment your customer base into distinct customer segments.

Effort

Customers have been conditioned to want ease and convenience.   I would go further and say that ease and experience are so important to us that once we have found a supplier that delivers this we stop looking for other suppliers.

The desire for ease and convenience spans the process of finding, evaluating, buying, taking receipt of and using the product or service. This means that the organisation needs to pay attention to more than the product or service.  It needs to pay as much attention to interaction and distribution channels as it does to the product or service.

It is worth noting that real value, from the customer’s perspective, is only created in the usage process.  Too many suppliers neglect to pay sufficient attention to the customer’s actual usage process.  So they fail to come up with solutions that minimise the effort of using these product or service.  This is an area in which Apple has excelled and made its fortune.  Now compare Apples attention to detail (as regards the user experience) to this: How “wrap rage is hurting the customer experience”

As Fifield says “Generally, there will be greater customer value attached to those offerings, where the organisation has spent time, research, effort and insight into finding new ways of making the old jobs easier.”

Risk

The greater the level of risk that the customer sees in you the vendor and your offer, the lower the perceived value of your offer.

The perceived risk is much higher when the customer has a lack of knowledge and prior experience in how best to get his job done.  And in particular how to judge the expertise of the supplier and the quality of the offer.

It is worth noting that risk is always present: usually at a subconscious level.  Customer are particularly sensitive to things that can go wrong and which make them look stupid in their own eyes (self-esteem issue) or in the eyes of others (social standing).  It is the reason that advertising is not dead, will not die and why established brands do well despite doing poorly on other elements of the customer value equation.  We are risk averse and stick with the devil we know;  brand recognition matters – ask anyone who does not have an established brand.

Price

In some ways this is one of the more complex components of the customer value equation.  Why  Because it is not as simple as the price being too high.  From a customer perspective, it cover the following aspects:

  • Price being too low (wine example under Value heading) and thus leading the customer to think that the offer is of inferior quality or not fit for purpose (increasing the Risk component of the Value equation);
  • Price being too high;
  • Seeing the same product cheaper somewhere else;
  • Depreciation in value – how fast the resale value of the product will fall;
  • The time/effort trade-off in searching for the lowest price;
  • Buy now or buy later when price falls etc

Treatment

Treatment recognises that customers are people and as such the place a value in how they are treated as human beings.  Put differently, customers put a high value on ‘service.  In particular, they prefer to do business with organisations that leave them feeling ‘valued’.

I have placed a +/- in front of the Treatment component because if customers are treated well (especially by the employees of the company) then it make a positive contribution to customer value as perceived by the customer.  If the company fails to do that then the Treatment component becomes negative and decreases the value of the rest of the offer.

Two companies that excel in the Treatment component are Amazon and Zappos. Here is an example of the kind of impact this has on the customer:  “Great Customer Service Build your Revenue and Brand: My Amazon Experience”


Posted on May 3, 2011, in Case Studies, Customer Experience, Customer Strategy, Marketing and tagged , , , , , , , , . Bookmark the permalink. Comments Off.

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