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Customer value is a key concept that businesses must understand to succeed. It's not just about offering a great product or service; it's about providing something the customer perceives as valuable enough to justify the cost. In this article, we'll explore the different aspects of customer value, from its definition to its management and everything in between. We'll dive into the customer value proposition and explore how companies can use it to differentiate themselves from their competitors. We'll also take a look at the customer value journey, which maps out the different stages of the customer's experience with a company.
Whether you're a student looking to understand the basics of customer value or an entrepreneur trying to improve your business, this article has something for everyone!
Customer Value Definition
Customer value is the worth a product or service has for a customer. It's the benefit they receive in exchange for what they pay, including both functional and emotional aspects. The higher the perceived customer value, the more likely they are to purchase and remain loyal to the product or service. Thus, the customer value definition is as follows:
Customer value refers to the perceived benefit that a customer receives from a product or service, considering the functional, emotional, and social aspects of the offering in relation to its cost.
The value attached to products and services may refer to several different things, including the benefits these goods or services deliver to the company's target market and the value for money they provide consumers.
Imagine you are deciding between two coffee shops. One is cheaper, but the coffee is mediocre, and the other is a bit more expensive but has great coffee and a cozy atmosphere. Even though the second option is pricier, if you value good coffee and a pleasant experience, you might choose it over the cheaper option. This illustrates how customer value is not solely based on price but rather on the perceived benefits a customer receives from the product or service.
Companies constantly try to understand and improve the value they add for their clients, allowing them to bring in new customers and keep the ones they already have satisfied.
In particular, finding out why clients are drawn to a brand enables much more efficient targeting and appealing to specific demographics.
It may also help develop trust between businesses and their consumers, leading to repeat purchases.
In addition, by understanding the factors that influence value, companies can begin actively shaping perceptions and ensuring that they constantly fulfill the expectations of their customers.
Customer Value Proposition
The customer value proposition clearly states what makes a company different from others - what they bring to the table for customers.
The customer value proposition is a company's statement to convince customers why they should buy their products instead of competitors' products.
The following are elements of a customer value proposition:
Quantified value: A customer value proposition should contain a list of the advantages a product provides consumers. This includes the numerous ways a product adds value for consumers beyond the practical value of the product - the emotional, economic, and symbolic value.
Differentiation: The customer value proposition should explain to clients how a product differs from others in a particular category to demonstrate why it is the superior option.
Relevance: A customer value proposition should clearly explain how a product help solves problems and responds to potential customers' needs.
Customers create expectations about the value and satisfaction of different market offers and acquire products and services based on these expectations.
Customers pleased with their experiences are more likely to make repeat purchases and share positive feedback. Customers unhappy with a product are more likely to speak poorly about it to others and switch to a competitor.
Facebook's value proposition enables users to "connect and share with the people in their lives".1 At the same time, YouTube "provides a space for individuals to connect, inform, and inspire others around the world".2
Value propositions like these are what set one brand apart from another. They answer the buyer's query: "Why should I purchase your brand rather than one of your competitors?".
Customer Value Journey
A customer value journey is the process a customer goes through when interacting with a company, from the first point of contact to post-purchase follow-up. It involves creating a positive experience for the customer at each stage of the journey, from awareness to consideration to decision to retention, with the goal of building a long-term relationship and maximizing the customer's lifetime value.
The customer value journey is the set of interactions and touchpoints a customer experiences when engaging with a company, from initial awareness to post-purchase follow-up. It involves creating a seamless, positive experience for the customer at each journey stage to build a long-term relationship and maximize the customer's lifetime value.
Imagine you are in the market for a new car. You start by doing some research online, comparing prices and features of different models. You then visit a dealership, where you are greeted by a friendly salesperson who takes you on a test drive and answers all your questions. You decide to purchase the car and are pleased with the financing options offered by the dealership. After the sale, the dealership follows up with you to ensure that you are satisfied with your purchase and to offer any additional support or services you may need. This entire process is an example of a customer value journey, where the dealership has created a positive experience for you at each stage of the journey, with the goal of building a long-term relationship and maximizing your lifetime value as a customer.
It is based on the dynamics of human connections and consists of various phases absent from a conventional marketing funnel. Not only does this result in a more natural sequence of encounters, but it also helps align the interests of the organization and the consumer around a shared success.
This results in satisfied customers who are more likely to be company advocates. The customer value journey is one of the most critical phases in developing an effective marketing strategy.
Some essential steps in the process of building a compelling customer value journey include:
Awareness refers to the channels a brand uses to make potential customers aware of the brand and its products.
Engage: Engaging is the phase in which the brand tries to receive the prospect's attention and trust.
Convert: Converting potential customers to actual customers through offering them various unique experiences.
Depending on the strategy and target audience, a company might use additional phases during its customer value journey.
Customer Value Management
Customer value management refers to managing all aspects of a customer's value journey, from the initial contact with customers to post-sales activities.
Customer value management is an approach to managing all aspects of a customer's value journey.
Customer value management can build a customer value-driven marketing strategy if they comprehensively understand customers and the market.
Customer value management is both the art and the science of selecting target markets and developing mutually beneficial partnerships with those markets.
First, the firm must determine who its customers will be. It accomplishes this goal via the process of market segmentation.
Market segmentation involves splitting the consumer base into smaller subgroups.
Finding as many clients as possible and generating demand is part of marketing management. However, customer value managers know that they cannot satisfy all of their clients' needs. In fact, they may not provide satisfactory service to their existing customers if they use their efforts to accommodate everyone. Therefore, the business needs to prioritize acquiring clients it can successfully and economically attend to.
At the end of the day, customer value managers must identify which consumers they want to target, when, and at what volumes.
Additionally, the firm must determine how it will serve its targeted clients and how it will separate itself from its competitors and position itself in the market.
A brand's value proposition refers to the collection of advantages or qualities that the brand declares it will provide to customers to fulfill customer wants and needs.
Uber's value proposition is to ensure that its customers always get the ride they want.
Types of Customer Value
There are different ways to categorize customer value, but one common framework identifies four types of customer value: functional, monetary social, and psychological value.
Functional value
This type of value is derived from the product's ability to perform its intended function effectively and efficiently. For example, a laptop's functional value is based on how well it performs tasks like word processing, web browsing, and running software applications. Customers look for products that offer high functional value.
Monetary value
This type of value is related to the price that a customer pays for a product or service in relation to its perceived worth. It involves a trade-off between the monetary cost and the benefits or value the customer expects from the product or service. Customers seek monetary value to maximize the value they get from their spending.
Social value
Social value is created when a product is associated with a specific social group or status. For example, luxury cars are often associated with wealth and status, and owning one can provide the owner a sense of social value. Social value can be created by the product's design, branding, or marketing, and it can be an important factor in the purchase decision for many consumers.
Psychological value
This type of value relates to the emotional or psychological benefits a product or service provides to the customer. It includes factors such as the product's aesthetics, sensory appeal, self-expression, and the emotional response that it elicits. Customers seek psychological value to satisfy their emotional and self-expressive needs.
By understanding the different types of customer value, companies can design and market their products and services to better meet the needs and desires of their customers, and create a more compelling value proposition that drives customer loyalty and satisfaction.
Customer Value - Key Takeaways
- Customer value refers to the worth a product or service has for a customer, including functional and emotional aspects.
- Customer value is not solely based on price but on the perceived benefits a customer receives from the product or service.
- Understanding and improving the value a company adds for its clients can help target specific demographics, develop trust, and ensure customer satisfaction.
- A customer value proposition should contain a list of a product's advantages, explain how it differs from competitors, and demonstrate how it responds to potential customers' needs.
- A customer value journey is the set of interactions and touchpoints a customer experiences when engaging with a company to build a long-term relationship and maximize the customer's lifetime value.
- The customer value journey involves creating a positive experience for the customer at each journey stage, from awareness to consideration to decision to retention.
References
- Daniel Pereira.Facebook Business Model. Businessmodelanalyst. 2022. https://businessmodelanalyst.com/facebook-business-model/
- Daniel Pereira. Youtube Business Model. Businessmodelanalyst. 2022. https://businessmodelanalyst.com/youtube-business-model/
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Frequently Asked Questions about Customer Value
What is the customer value?
Customer value refers to the perceived benefit that a customer receives from a product or service, considering the functional, emotional, and social aspects of the offering in relation to its cost.
What are the 4 customer values?
The 4 customer values are:
- Functional value
- Social Value
- Monetary Value
- Psychological Value
Why is customer value management important?
Customer value management is important because it can build a customer value-driven marketing strategy if they comprehensively understand customers and the market.
What are 4 steps of the customer value journey?
The 4 steps of the customer value journey are:
- Awareness
- Engage
- Convert
- Retention
What are the key elements of customer value proposition?
The following are key elements of the customer value proposition:
Quantified value: A customer value proposition should contain a list of the advantages a product provides consumers. This includes the numerous ways a product adds value for consumers beyond the practical value of the product - the emotional, economic, and symbolic value.
Differentiation: The customer value proposition should explain to clients how a product differs from others in a particular category to demonstrate why it is the superior option.
Relevance: A customer value proposition should clearly explain how a product help solves problems and responds to potential customers' needs.
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