What Is Customer Value?
As it is used in the business world, customer value is the amount of benefit that a customer will get from a service or product relative to its cost. Some businesspeople explain customer value as “realization” compared to “sacrifice.” Realization is a formal term for what customers get out of their purchases. Sacrifice is what they pay for the product or service.
Businesses of all sizes use customer value as part of a greater analysis to determine how well they are supplying their customer base. Detailed research might include what customers generally do with the products they receive, or how they use services to increase the value of assets like real estate. Businesses also look at the prices of their products in order to price them competitively.
Businesses that identify the value of their wares to customers might go a step further and consider other similar ideas. In order to generate more thought about customer value, and to reach out to a customer base, a business might promote a customer value proposition. The customer value proposition is basically a promise of benefits from a vendor to customers.
We see examples of customer value propositions all the time in advertising. Companies pinpoint the benefits that they believe a customer will realize, and display them in advertising to attract more customers. The question is whether these propositions are made in good faith, or whether they may not be entirely true.
When business leaders and others are talking about customer value, it is important that everyone at the table understands that customer value does not relate to the value of customers, but to the value that customers receive from the business. Those who are talking about how valuable customers are to a business might use terms like customer retention, or refer to the customer base as “valued customers,” or VIPs. Since customer service is also a critical element for many businesses, it's possible that these two ideas might sometimes get confused.
Along with the basic idea of customer value, other terms help further define that value precisely. Relative performance identifies how the product or service gives customer value relative to what competitors offer. Access cost is something that business analysts add into the mix as an estimated cost of the effort involved in purchase. Value propositions often include these levels of detail to help leaders look at how well a business is serving its intended audience.
Written by A. Leverkuhn
