So, Larry goes out to the market to buy a washing machine. Seller A offers Larry “The best washing machine in town,” with good horsepower and a sleek new design. Seller B offers Larry a smartly designed, German-engineered washing machine, with 5 HP, 14 lbs. capacity, and one year warranty.
Which machine do you think Larry would end up buying? Which machine would You, as a consumer, prefer and what are the factors that influenced your buying decision? As a buyer, you will prefer a product that offers better value for your investment. This is exactly what Customer Value is. Simply put, customer value is the evaluation of the advantages and disadvantages of a transaction, made by the consumer himself, or in other words, a personal pros and cons list of a product.
A common misconception is that customer value only refers to monetary investment. Although the monetary transaction is a major part of this equation, customer value also considers product quality, services offered, cost, marketing, and packaging. The customers invest not only money but also their time, effort, trust, and energy. More importantly, they are actively choosing you over the other players in the market. This is why customer value is such a crucial component of a good marketing strategy.
Table of Contents
Classification of Customer Value
Customer Value can be classified into five distinct categories.
- Primary Value – Primary value refers to the value assessment based on the core qualities of the product.
- Monetary Value – The monetary value of the product determines whether or not the product is worth the money invested in it.
- Functional Value – The utility of the product determines its functional value. The assessment is based on metrics such as performance, durability, and efficiency of service.
- Social Value – The social value assessment of the product is based on the social status that is either associated with the brand or its products. For example, Rolls Royce is always associated with the elite class, as are Rolex Watches.
- Psychological Value – Assessment of psychological value is determined by how the product or service makes the consumer feel. The product’s emotional impact can range from feelings of excitement and nostalgia, to a need for security and comfort, even fear of the future or unprecedented mishaps.
Benefits of Customer Value
- Lowering customer acquisition costs – Creating a strong customer value assures repeat purchases. This subsequently lowers the cost involved in acquiring new customers.
- Creating brand loyalty – Repeat purchases over the long run is often what converts consumers to actual advocates. Brand advocates are strong proponents of the brand and have higher lifetime value.
- Driving sales – Customer value generates a sense of urgency that leads to increased production, lower downtime, and enhanced efficiency.
- Save both time and cost – By concentrating on your supporters, you as a brand can save considerable time and cost, plus devise strategic and custom marketing campaigns for your target group.
Determining the Value of a Customer
Determining customer value is a crucial business metric. It allows brands to allocate costs efficiently and also gives forecasting insights as well as feedback on the efficiency of their marketing strategies. It enables brands to identify their target group, retain customers, and provide a better customer experience.
If customer value were an equation, it would be
Customer Value = Benefits – Cost
In short, when the total customer cost is deducted from factors that are deemed as ‘benefits’ by the customer, the remainder is called customer value. The difference between product benefits and price is the customer’s inducement to buy the said product.
5 Strategies for Creating Value for Your Customers
Listed below are five strategies that will empower you to create value for your customers.
Explore the Option of Loyalty Programs
The purpose of loyalty programs is to keep the customer engaged with the brand for as long as possible. Loyalty programs are a great way to show gratitude and appreciation to customers by offering exclusive deals, discounts, and other incentives that window shoppers and occasional buyers wouldn’t get. A report on customer loyalty by HubSpot reported that almost three-quarters of consumers are more likely to refer brands with loyalty programs to people they know while 79% are more inclined to repeat their purchases from these companies. To know more about optimized loyalty solutions, click here.
Add Value to Overall Customer Experience
Customer experience is a huge factor in the creation of customer value. If a customer is unhappy with the brand, including the product service itself, or finds the customer experience to be unsatisfactory, they are very unlikely to return to the brand. Consistently working on creating an unparalleled customer experience has long-term benefits and enhances brand image.
It is also crucial for brands to not waste their marketing campaigns (and budgets) on the unwilling, or a disinterested audience. You, as a brand, must ascertain that you are consistently marketing to target groups that are already customers and loyal to the brand.
Concentrate on Customer Retention
Your prime focus as a brand must be to retain existing customers and keep them content. Consumers that express the desire to cancel subscriptions are showing an inclination toward alternate brands, which you will want to curb.
Keep Customers Engaged with Valuable and Relevant Content
Sharing valuable and relevant information projects a company as an expert in certain subject matters. Value-driven content builds a positive brand image and improves the brand’s credibility in the long run.