How Customers Think About Value. And What To Do About It
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PrintJohn Todor's post on Do Customers Care About Your Green-ness? got me thinking about how customers think about value. His suggestion that value is more than just the economist's dry 'utility' is obviously right.
Customer perceptions of value can be broken down into a number of components such as utility (does the product do what you want it to do), feelings (do I feel good about using the product), sociality (does the product support social contacts), etc. Each of these can be measured at key touchpoints during the product and customer lifecycle. The value of the end-to-end experience is thus some kind of Bayesian-updated weighted average of value at the individual touchpoints.
This has a number of implications. Firstly, companies need to understand how customers perceive value. Most companies still use hard-to-action concepts like needs, wants and expectations to understand customers, rather than look at the jobs they are trying to do. The result is that insights about customers go unactioned. Tony Ulwick & Chris Lawer's work on the jobs people are trying to do provides a pragmatic framework to understand this from the customer's perspective.
Secondly, companies need to bundle products, services and experiences in a way that helps customers to do their most important jobs. Most companies offering 'solutions' base them on how they want to bundle products and associated services, not on how customers want them bundled. The result is that customers have to go to the trouble of mashing-up their own solutions and resent paying for bundle components they don't want. Sundar Bharadwaj's work on customer-oriented solutions provides the best framework here.
And finally, companies need to understand what capabilities they need to develop to hear the inner voice of the customer, to respond with the right solutions and to deliver them cost effectively. Chris Lawer's on-going work on capability models for customer co-creation will provide a robust way to look at what companies need to do to make this work. And Toyota's lean thinking further developed by Womack & Jones into customer-pulled lean consumption already provides the best framework for implementing the capabilities.
There is obviously a lot of work left to do. But as John quite rightly points out, customer perceived value as a balance to customer lifetime value is going to be increasingly important in these times of abundance.
What do you think? Are customer perceptions of value important? Or should customers be heppy with what they get?
Post a comment and get the conversation going.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Graham Hill
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10 comments »
Vandana Ahuja
Consumer Behaviour is a function of Perceived value
Great thought. In this time of 'abundance' as you say...the value of CUSTOMER PERCEIVED VALUE cannot be discarded. Consumer Value as a function of the gains accrued by a product purchase and the cost incurred while doing so, has always been a sound way of defining it. However, the 'gains' accrued from a purchase, are further a function of a customer's perception.Customers often do not judge product values and costs objectively. A lot of consumer behaviour is a result of 'Perceived Value'.It's this customer perception that needs to be targetted...after all this is what is finally driving market share!!!
Graham Hill
Perception is Reality
Vandana
I agree wholeheartedly with you.
As much recent work in what has become known as Neuroeconomics has shown, most of us are not 'utility maximisers' at all. A whole host of cognitive biases limit our ability to weight up costs and benefits in a rational way. Instead, we use bounded rationality and make value judgments based upon a range of heuristics.
As the great man David Ogilvy said, "Perception is Reality!. And customer perceive value is reality too.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
John Todor
What's Meaningful - the Customers' Perspective
Vandana and Graham,
This is becoming a good discussion on an important topic. In an effort to attract some other input I have posted a follow-up blog on another blog site and invited those readers to join in.
Here's the link http://contextrules.typepad.com/transformer/
John I. Todor, Ph.D.
Frank Hurtte
Customer Value - Why is thinking about it radically new?
It doesn't seem like rocket science to me; to be better at placing (notice I didn't say selling) your products into a customer organization - you have to understand the customer's perception of value. Yet, day-in and day-out I meet sales people who have fallen into the product trap. Here is my product - buy it! Prior to making a coaching call, I ask salespeople the question: "Why should this guy buy from you?" Most of the time, the answer is some obscure product feature. When pressed less than half can understand the value - to the customer.
I work the industrial side of distribution - the measure is money. And, it is pretty easy to learn to crank out the value. Why aren't sales people learning faster? Why is this thinking still "radically new" where the rubber meets the road? Strange but true, it is because, you can still make a nice sales-living with product details alone. The highly successful salespeople make a great sales living.. selling value.
John Todor
Sales Organizations as Predators
Frank,
You ask why is this thinking so radical? In my experience sales organizations, at least in the technology sector, are designed and operated to be predators. The sale and making sales quotas are it. Even if a sales person wants to sell value, the pressure pushes them into forcing deals that don't make sense to either party.
Sales get rewarded for making the deals then others in the company get stuck with servicing and supporting a customer where there is a bad fit. In all too many cases, the leasing company is forced to repo the equipment and both the customer and the company lose. Since the process takes time, often the sales person doesn't suffer repercussions.
I am aware of all too many situations where a sales person had a great year and got paid a huge incentive check. Took the check and the glory and moved to another company. Within a year nearly 50% of deal failed.
What's the answer? If a company wants to build customer relationships around value, they need to realign the whole organization, including sales. But, who is going to take away those big commission checks?
John I. Todor, Ph.D.
Bob Thompson
You get what you pay for
Organizations that recruit and reward predators for sales reps will get that behavior.
I'm sure we've all had our share of sales experiences where we felt like nothing more than a target to be conquered by rep trained at the school of ABC (Always Be Closing). That's why I wrote Why I Hate Sales Reps.
But it doesn't have to be that way. I've also had experiences that were great, which lead to a follow-up blog, Sell More by Showing Your Customers Some Love!.
The reward system of an organization determines its behavior. By "rewards" I mean all the ways employees are encouraged to perform in certain ways--by the culture, management recognition, advancement, type of assignments, ... and of course, salary and other direct financial compensation.
The difficulty is that it's easy to count a sale made. Did you get a contract? Then high five and commission check is on the way. This is nothing more than "piece work" for white color sales professionals, but you have to admit it does work. In the short term, anyway.
But it's far more difficult to measure whether you've delivered the value that customers really want, and reward for that. I would be interested in hearing from sales managers that have managed this with a balanced scorecard approach where other factors are included in the commission calculation. Or those that pay no commissions at all, yet still are successful.
Bob Thompson, CustomerThink Corp.
Blog: Unconventional Wisdom
John Todor
The Courage to Change the Culture
Bob,
I agree that it doesn't have to be that way. It does, however, require some real leadership to change the attitude that "nothing happens until a sale is made." This attitude gives sales power in organizations.
If my memory serves me right, Dow Corning made a radical shift in how they sell customers a few years ago. Here was a company with tremendous intellectual assets that was force to sell on price. To differentiate themselves and increase the value of their offerings, they got involved in co-creation, co-operation and collaboration with their customers. At the time it was working out well for Dow Corning and their customers. But, it took a cultural change.
I would be very interested in hearing about other companies who have disrupted their dependency on traditional sales.
John I. Todor, Ph.D.
Graham Hill
Work in Progress
As the comments show, this is all still work in progress.
The shake-up caused by newly empowered customers is only just starting to work its way through the business ecosystem. Traditional organisational behaviour archetypes like those typically found in industrial sales organisations take time to evolve. Part of this evolution is the migration from the idea that value is delivered at the point of sale to the idea that value is delivered at the point of use. It is common sense to you and me, but paradoxically, not when we put on our corporate marketing or sales hats.
This will obviously be a tough sell (pun intended) to salesmen used to collecting their commission up-front, once the papers were signed. We will have to wait and see if the sales organisation does indeed change, as it did at Saturn or Lexus, or whether it just stays the same.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
John Todor
The Tough Sell
It is a tough sell. Over the past couple of months I have discussed this issue with three seasoned sales VPs. One got visibly upset and changed the subject. One went silent as if confronted with a horrible thought. The third acknowledged that there was a problem but felt like he was under too much pressure to become involved in any change initiative.
John I. Todor, Ph.D.
Bob Thompson
Sales executives are the problem, not the solution
Why would sales VPs, who have probably spent their entire career in a commission-driven "make your numbers" system, be part of an effort to change all that?
The change must come from elsewhere -- up the corporate food chain. Until CEOs start measuring and rewarding something other than sales closed, that's all that will matter to the sales VP and everyone in that organization.
Bob Thompson, CustomerThink Corp.
Blog: Unconventional Wisdom
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