Customer value goes beyond offering a good price for a quality product. Value can have vivid meanings. In the business scenario, people compare prices, quality, return on investment to name a few. The word ‘value’ may not always mean something tangible, however both products and services have value.
In this blog,we will explain the meaning of customer value in the context of customer experience. We will also explain the formula to determine value and how to calculate it including tips on how the metrics of customer value can upgrade customer experience as a whole.
What is Customer Value?
Customer value will measure the tangible and intangible worth of a product/ service and compare it with its alternatives. This is done to know if customers feel like they have received enough value for the price they paid on the product/ service.
As per buyer’s remorse, when customers feel that they have spent more than the actual value, they might end up regretting the purchase. This can happen in a competitive setting when competitors offer similar yet better products or services.
Customer value is not a one-dimensional concept. It contains both qualitative and quantitative aspects. On the qualitative aspect, it is measured by customer satisfaction and the usefulness a buyer derives from a product. On the quantitative side, it is measured by revenue generation and cost savings.
Qualitative metrics include how well the product meets customer expectations, the emotional connection customers feel with the brand, and the level of customer satisfaction. Quantitative metrics include the financial benefits such as cost savings, return on investment, and revenue contribution per customer.
Why is customer value important?
It is a critical metric that helps companies to align their products and services with customer needs for long-term loyalty and competitive advantage. As per a company report from 2022, 90% of customers prefer personalization while 60% of business leaders state that this improves customer retention. Here is why you need to measure customer value:
- Customers perceiving high value in a product or service are more likely to remain loyal. Customers with high perceived value are less price-sensitive. This loyalty will generate consistent revenue for the company.
- High customer value brings better scores for customer satisfaction metrics. This builds trust for existing customers and reinforces authenticity for incoming consumers.
- It encourages companies to create better products and upgrade existing products and services. This can help scale a business across other demographics.
- A targeted approach can reduce customer acquisition costs. It also maximizes the return on investment.
- Customer value serves as a foundation for improving customer relationships. Companies delivering high value are more likely to receive positive feedback.
- Higher brand reputation is the sum total of better word of mouth marketing, organic growth and memorable customer experience service.
3 Ways to Measure Customer Value
1. Identity customer benefits
There are basic values to consider when it comes to your products. These are the basic values that every buyer will judge your product on. This includes the quality of your product, the problems it will solve, the post-purchase experience, brand authority and complimentary incentives of being associated with the brand.
2. Total tangible and intangible cost
Differentiate between tangible and intangible cost. You can take the total cost and pair it against other costs. Tangible cost includes the selling price of your product/ service, installation or onboarding cost, cost of accessing your product (if it is a subscription model), and other maintenance cost. Intangible cost includes the type of customer experience provided, emotional stress from installing or using the product, dynamic brand reputation and learning curve of using the product.
3. Difference between customer benefit and customer cost
Even though there is a formula, it will not be accurate when considering tangible and intangible cost. Companies must consider a combination of brand reputation, service convenience and compare it with cost like time investment and emotional stress of buyers. In reality, the level of ‘value’ perceived is different. This depends on various customer segmentation or buyer persona.
The Formula for Calculating Customer Value
The basic formula to calculate customer value is:
Customer Value = (Total Perceived Benefits) / (Total Costs Incurred by the Customer)
The total perceived benefits have all the advantages a customer gains- product quality, convenience, customer service, and emotional satisfaction.
Total costs include not only the price of the product but also the time and effort required from the customer’s end.
Moreover, a more specific and advanced metric is Customer Lifetime Value (CLV or CLTV). The formula for calculating CLV is:
CLV = (Annual Profit Contribution per Customer x Average Number of Years Customer Retains) – Customer Acquisition Cost
This formula helps in understanding the long-term value of a customer. It enables a business to identify areas where they can reduce costs or improve benefits and increase the overall perceived value.
Quantitative Metrics to Measure Customer Value
Here are some key metrics to consider:
- Net Promoter Score (NPS): Net Promoter Score measures customer advocacy by asking customers how likely they are to recommend your product or service to their peers. A higher NPS indicates greater customer satisfaction and loyalty. The responses are categorized into promoters, passives, and detractors and it is mapped between -100 to 100.
- Customer Satisfaction Score (CSAT): CSAT measures the immediate satisfaction of customers with a particular interaction or transaction. It is typically gathered through post-purchase surveys where customers rate their satisfaction on a scale. A higher CSAT means that the buyers are happy with the specific interaction or product.
- Customer Effort Score (CES): Customer Effort Score measures the amount of effort a customer has to put in to interact with a company. It aims to gauge how easy or difficult it is for customers to get their issues resolved or complete a purchase. Lower CES indicates a smoother and more efficient customer experience.
- Customer Retention Rate (CRR): CRR measures the percentage of customers who continue to do business with a company over a specific period. It is a critical metric for understanding customer loyalty and long-term value.
- Churn Rate: The churn rate quantifies the percentage of customers who stop doing business with a company over a specified period. A lower churn rate indicates higher customer retention and value.
Other than formulated satisfaction metrics, opt for qualitative metrics by adding open-ended questions. This can enable people to express their opinions via texts, audio, video or photo format.
7 Tips for Improving Customer Value
Offering customer value goes beyond price comparison. It is a collection of internal and external assessments among departments and customer data. Here is how to cultivate more customer value.
1. Focus on customer experience:
Assess customer experience with the help of data. For products that have a long buyer journey, create a detailed customer journey map. As per this map, collect experiences at critical touchpoints. Capture high friction touchpoints with the experience and offer feasible solutions. When you understand your consumers through a detailed buyer’s process, it is easier to add value at each step.
2. Work on your value proposition:
The market will be flooded with similar products and similar offerings. You need to communicate what makes you stand out. Do that with the following points in mind:
- Talk about your offerings and its benefits clearly.
- Showcase social proof via testimonials and tell customers why they need to buy from you.
- Stay consistent on the value proposition in all your marketing campaigns.
- Refine your campaigns using real world data.
3. Collect customer feedback and data:
Customer feedback is the main part of improving experiences. This means collecting feedback at touchpoints, understanding pain points and closing feedback loops. Assess every qualitative and quantitative data. Implement feedback mechanisms, such as surveys, reviews, and social media interactions, and provide valuable insights into customer preferences and areas for improvement.
4. Segregate as per buyer persona:
A buyer persona segregation can help you determine the exact target audience you are selling to. People have a variety of motivations to buy. Segregating the buyer base can assist you in creating guides that cater to a specific buyer base. In this manner, you can determine the ‘value’ for each group in a systematic manner.
5. Focus on brand advocates:
Brand advocates offer positive word-of-mouth recommendations. Rewarding repeat customers through loyalty programs can increase retention and customer value. Loyalty programs can include discounts, exclusive offers, early access to new products. Look for opportunities that can help you upsell or cross sell to your loyal buyers. To add to this, offer your loyal customers a chance to give reviews on new product launches in exclusive communities.
6. Keep a tab on competition:
Is there something that your product lacks? What does the competition offer that can sway your customers away? Doing regular SWOT assessments can help you gather market data and get insights on developing better offerings. Use this data to continuously improve product quality and features. Quality improvements also involve upgrading product materials, adding new features, or addressing common issues reported by customers.
7. Equip and train your team:
A well-trained team can handle customers in the forefront. They can educate your customers on how to get the most out of your products or services. Even during the installation process, a well-equipped staff member can take their customer through an all-round product tutorial. This can be achieved through product tutorials, webinars, how-to guides, and customer support resources. Offer self service resources like free ebooks, and interactive FAQ chatbots that can answer their questions.
Integrating Customer Value into Business Strategy
1. Embed customer value into company culture:
Promote a culture where every employee understands and prioritizes customer value. This can be achieved through training programs, regular communication, and aligning performance metrics with customer-centric goals.
2. Customer-centric product development:
Incorporate customer feedback and preferences into the product development process. Seek customer input during product design, testing, and iteration stages.
3. Cross-functional collaboration:
Encourage collaboration between different departments, such as marketing, sales, customer service, and product development. Ensure a unified approach to enhancing customer value. A collaborative environment ensures that all teams work towards a common goal of maximizing customer value.
4. Regular review and adjustment:
Continuously monitor customer value metrics and adjust strategies based on feedback and market dynamics. Regularly revisit customer value calculations, conduct market research, and stay updated on industry trends.
5. Strategic use of customer data:
Leverage customer data to gain insights into customer behavior, preferences, and needs. Use data analytics tools to identify patterns and trends that can inform strategic decisions aimed at enhancing customer value.
6. Transparent communication:
Maintain transparent communication with customers regarding product changes, updates, and improvements. This builds trust and ensures that customers are aware of the efforts being made to enhance their value.
Conclusion
Prioritizing customer value is essential for achieving sustainable business success. Understanding what customer value is, helps businesses align their offerings with customer needs. The main aim is to create a loyal customer base and long-term profitability.
Key metrics such as NPS, CSAT, and CES provide valuable insights into customer satisfaction and loyalty. Practical strategies like personalization, customer feedback, memorable customer support, and loyalty programs can significantly enhance customer value. To start tracking critical customer metrics, sign up for a 14 day free trial with Merren. No credit card required. Get started right away, hassle free.