Customer Perceived Value Is Changing ... and What to Do About It

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Many Western economies are currently either in a downturn, or about to enter one. Customers have already drawn in their horns and are only spending on necessary items. Automobiles are not being replaced, foreign holidays are being replaced by two weeks by the lake and that new kitchen will just have to wait. And companies are following suit as their profits nose-dive. There is hardly a company that hasn't announced rounds of cost-cutting, job layoffs and profit warnings. And then there is the financial credit crunch, whose unexpected effects are only just starting to work their way through the struggling economies.

In amongst all the doom and gloom, there are big opportunities for forward-looking companies to take advantage of the situation. As I set out in a recent blog post on 'What Private Equity Teaches Us About CRM in a Downturn' one such opportunity is to realign themselves around the customer-value equation. That not only means understanding which customers are most valuable to your company, but also how the customer's perception of value changes in a downturn.

Talk to most marketers about value and they will tell you all about their extensive customer needs research, their customer-oriented value propositions and how they will drive sales with their exciting new marketing campaign. Value for marketers is generally something they deliver to the customer at the point of sale. The customer gets the product (and any associated services) and the marketer gets the customer's cash. “Ker’ching”, value delivery is complete at the point of sale. And don't dare asking for expensive after-sale customer service. That can be grounds for firing the customer if they are not careful!

Do you see the customer-value equation disconnect?

Marketers are from Mars, customers are from Venus. Unlike marketers who consider value to have been delivered at the point of sale, from the customer's perspective, value only starts to be delivered at the point of sale. As marketing academics Lusch, Vargo & O’Brien point out in their recent article on ‘Competing through service: Insights from service-dominant logic’, value for customers is what they get from using the product in the weeks, months and sometimes even years after the product has been bought. Value is only delivered by the product-in-use. That is why customers place such value on product quality, product warranties, after-sales service and the myriad of other ways they can get more value out of the products during its lifetime.

Let’s take the humble automobile for example. For automobive marketers, value is all about selling customers a new vehicle and the financing that guarantees revenue over the lifetime of vehicle ownership. And there are plenty of financial sweeteners for customers to persuade them to sign on the dotted line. Once the vehicle has been sold, the marketer’s only concern is getting the customer to come back when the finance contract comes to an end, so that they will refinance another new vehicle. Then the process starts all over again. For automobile marketers, value is delivered at the point of sale. Things are very different from the customer’s perspective. Sure, a hot new automobile is a key driver for many customers to sign-up for a new finance contract, but the real value is how the vehicle enables their social and work life. That means the mileage they get for every gallon of petrol, how good dealer network coverage is and in these quality-conscious days, whether they can rely upon their vehicle come rain and snow, and on their dealer if something goes wrong. For automobile customers, value is very much in how they use their vehicle to enable their life.

As we all know, customers are much more demanding in a downturn. That means companies must look at how customers perceive value from using their products and organise themselves accordingly. Flashy marketing campaigns for new products that don’t deliver on their promise will no longer be tolerated. Instead, customers will favour companies whose products deliver the greatest value-in-use and who provide the customer with the support they thought they had bought when they handed over their cash. And organising to deliver value-in-use doesn’t have to cost the Earth either. Most companies already have the building bricks for a superior product-in-use experience in place, they are just managed them as though they were costs rather than as though they were value drivers. So the Warranty Department is managed on minimising warranty costs, rather than maximising repurchase likelihood. After-sales customer service on minimising call duration, rather than maximising customer satisfaction. And isn’t that the dealer’s responsibility anyway?

So before you get hung up on simply marketing harder at your customers in the vain hope that they will buy, think about the customer value equation from the customer’s side for a change. About how the customer drives value from your products-in-use. And about how you need to reorganise yourself to deliver superior cost-effective value. I guarantee you that the insights will help you drive increased sales, will help serve your customers better and will stop you wasting money on stuff that doesn’t add value to customers in the first place. And never forget, it is the customer who decides whether you are offering the best value for money, not your marketing department.

What do you think? Is value really delivered at the point of sale? Or is it time to rethink what value is and how to deliver it cost-effectively?

Post a comment or email me at graham(dot)hill(at)web(dot)de to get the conversation going.

Graham Hill
Independent CRM Consultant
Interim CRM Manager