The Value of Value: What are you really offering your customers?

The concept of value is integral to marketing. According to the American Marketing Association (AMA), ‘marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers and stakeholders’.

So, what does it mean to create value for your customers? It is a simple question, but one that is easy for businesses to get wrong. To define value, businesses must answer the ‘Why should I buy from you?’ question.

A business may genuinely put effort into advancing technology, enriching product features, improving packaging, or introducing a loyalty scheme, assuming it is creating more value for customers. However, value is not determined only by what a business puts into an offering. Value is determined by what the customer gets out of it and is shaped by how customers perceive and experience an offering, not just by the supplier’s intentions or assumptions.

Your customers, not your business, decide what is valuable compared with similar offerings in the market, making the idea of superior perceived value crucial. Businesses must ensure that customers perceive higher value than any available competitive alternative.

There is more to value than price

A useful way to think about customer value is as a trade-off between what customers receive and what they must give up. Customers receive tangible and intangible benefits from an offering, but they also incur various tangible and intangible costs. The obvious cost is money, but there are many others, such as time, effort, information search, learning how to use something, waiting, or sharing personal data with businesses. An offering is evaluated by customers as having positive value when perceived benefits outweigh costs.

Value as a dual concept

There is another important point: value works in both directions. A sustainable business needs to create value for its customers, but it also needs to capture value from those customers.

For customers, value might mean getting a high-quality product, saving time, feeling confident, enjoying an experience, or feeling that a purchase reflects who they are (tangible and intangible benefits). For the business, value might come through purchases, repeat business, customer loyalty, recommendations, referrals, and advocacy.

Think about a local restaurant. It creates value for customers through good food, convenience, atmosphere, and service. In return, customers create value for the restaurant by becoming regular customers, recommending it to friends, and leaving positive reviews. The real opportunity is to create a value cycle, as illustrated below:

Customer value can take different forms, and customers rarely value only one thing.

Functional value

Does your offering do what customers need it to do in terms of attributes? This may include quality, reliability, convenience, performance, saving time, avoiding hassle, or reducing risk. If the product does not work as promised and creates unnecessary friction, other forms of value may not compensate. Of course, not all customers define value in terms of product features, but rather in terms of the results those features deliver. Instead, they value the outcome those features help them achieve.

Financial value

Does the customer feel that what they receive is worth what they pay? This does not necessarily mean being the cheapest. A customer may pay more if they believe they are receiving greater quality, convenience, service, or simply peace of mind.

Psychological and experiential value

How does the offer make customers feel? What is the experience of buying and using it? A retailer can create value through ambience, personal interaction, fun and entertainment, and memorable experiences. Customers may value products because they signal identity, status, belonging, and affiliation. Branding, product design, and customer experience can be sources of competitive advantage, and the emotional benefits resulting from them are harder for competitors to copy.

Social value

How can businesses use social connections and interactions to enhance the value consumers derive from their offerings? Starbucks was once positioned as a community-oriented brand, a third place between home and work. Consumers increasingly experience offerings through their relationships and interactions with others, and small businesses can have an advantage in providing an offering that helps people connect.

Key thoughts

• Value is customer-centric. Look at your offering through customers’ eyes. Understand what matters to them, and deliver it consistently to create a mutually beneficial relationship.

• Different customers appreciate different elements of value. What matters in one industry or customer segment may be relatively unimportant in another. The value you offer to customers must be specific and well-defined.

• Successful businesses with loyal customers and faster revenue growth often perform well on multiple elements of value rather than relying on just one. What distinctive combination of value elements can you deliver exceptionally well that matters to your customers and gives you an advantage that competitors cannot easily copy?

• Quality is particularly important. Customers expect a minimum level of quality before other value elements are provided.

• Functional value can lead to business success. However, businesses that emphasise emotional value too tend to have a higher Net Promoter Score.

References

Almquist, E., Senior, J., and Bloch, N. (2016) ‘The Elements of Value’, Harvard Business Review, September, pp. 46–53.

Drucker, P.F. (1954) The Practice of Management. New York: Harper & Brothers.

Khalifa, A.S. (2004) ‘Customer value: A review of recent literature and an integrative configuration’, Management Decision, 42(5), pp. 645–666.

Kumar, V. and Reinartz, W. (2016) ‘Creating Enduring Customer Value’, Journal of Marketing, 80(6), pp. 36–68.