What is Customer Value and How Can you Deliver It?

Delivering value is vital for any business to win customers. The term “value” means the extent to which a customer perceives a good or service to be worth (it measures the willingness to buy a particular good or service relative to alternatives). Thus, the perceived benefit and cost of a good or service, as well as the available options in the market, influence a customer’s buying decision. Value creation opportunities arise when vendors can deliver a credible promise that the benefit of purchasing with them will be higher than the cost versus their competitors.

We can think of delivering customer value through a simple formula:

Benefits – Cost = Value Creation

This formula identifies two ways of creating value, either by increasing customer benefits (delivering high-quality products or superior services) or reducing costs (lowering prices). This formula also helps derive other innovative value creation techniques that businesses can employ to grow sales.

One technique is creative pricing strategies. For example, businesses can deliver both benefit and cost advantages by bundling goods and services as packaged deals and selling them at a discount (travel companies often sell flights, hotel and car rental as a single vacation package). Offering the freedom to choose different combinations of goods and services can empower customers to make optimal choices as well (one buyer may assign a high priority value to a set of features that another buyer may consciously overlook).

In this section, we will explore different ways of delivering value by examining the benefit and cost components of the value creation formula.

Offer the Right Solution

The benefit component of the formula is an important part of determining the right solution for each customer. One-size fits all solutions are often more convenient for businesses to sell than a selected number of customizable options, which build complexity into the sales process. However, the one-size fits all approach may not capture the different preferences of customers who are willing to pay for some features over others (a risk-averse customer may want extended warranty or insurance as an added protection that a risk-neutral customer may not necessarily value). Perhaps a better approach would be to tailor the solution by offering a set of features that the customer can select, and price accordingly.

Value creation occurs at the intersecting point of the below diagram where the proposed business solution meets the customer needs. Knowing the drivers that motivate a customer to buy can help you present appropriate choices. The sales narrative would be first to understand the customer needs and then offer well-matched solutions.

One-size fits all is not always an optimal solution because not everyone fits the mould.

By presenting options to prospective customers, and asking for feedback, may help fine-tune your sales presentation. Encourage participation, brainstorming and idea-generation throughout the sales process to come up with more viable alternatives. This interactive process builds a co-creation dynamic that enables you to sell solutions that better capture customer preferences and can improve the likelihood of winning the sale.

Develop the Right Price

The cost component of the formula helps to evaluate different pricing options. On the one hand, pricing an item too low will erode income, and may not necessarily reflect the true worth of the offering. On the other hand, customers may not purchase a good or service priced too high unless there is inherent value in doing so.

Below are three strategies to consider when setting prices:

Introduction Pricing

Offering first-time-buyers a discount can entice new customers to make a purchase. Customers will likely repeat the purchase if they are satisfied with the outcome of the first transaction. By the second or third transaction, a business should be able to recuperate the forgone profit from the original discount. Many companies adopt this strategy to drive customers away from competitors in markets with little or no switching costs (customers are free to purchase from any vendor).

Premium Pricing

Benjamin Franklin reminds us that “the bitterness of poor quality remains long after the sweetness of low price is forgotten.” Depending on the nature of your business and the competitive landscape, premium pricing can be employed in markets that present opportunities to position high-value goods or services. For example, some customers are willing to pay extra for a personal trainer or a language tutor to receive the personalized attention and discipline that can generate faster results than resorting to a gym membership or self-taught online videos. The ability to deliver quality results as a premium service is a unique selling point.

Bundled Pricing

As highlighted earlier, bundling creates opportunities to deliver value by combining goods or services as a package at a lower price than if the items were sold separately. This strategy helps serve the needs of different customer segments at different price points (a music instructor may offer an hourly rate to service the non-sticky customer while providing a bundled set of classes at a discounted price to reward the loyal customer). Bundling lets you combine or omit items in a sales basket. You can then calculate the price mark-up for each basket based on the associated cost of the items to determine the discount. This pricing technique can help you generate sales while maintaining a healthy profit.