Customer Value: The Elements of Value

Main Idea:

Growing Revenue

To test whether the elements of value can be tied to company performance—specifically, a company’s customer relationships and revenue growth—we collaborated with Research Now to survey more than 10,000 U.S. consumers about their perceptions of nearly 50 U.S.-based companies.

Patterns of Value

Pricing usually consists of managing a relatively small set of numbers, and pricing analytics and tactics are highly evolved.
What consumers truly value, however, can be difficult to pin down and psychologically complicated. How can leadership teams actively manage value or devise ways to deliver more of it, whether functional or emotional.

To help companies think about managing the value side of the equation more directly, we wanted to un- derstand how the elements translate to successful business performance

Across all the industries we studied, perceived qual- ity affects customer advocacy more than any other element. Products and services must attain a certain minimum level, and no other elements can make up for a significant shortfall on this one.

After quality, the critical elements depend on the industry. In food and beverages, sensory appeal, not surprisingly, runs a close second. In consumer banking, provides access and heirloom are the elements that matter; in fact, heirloom is crucial in financial services generally, because of the con- nection between money and inheritance.

Consumers perceive: Digital firms as offering more value.

Brick-and-mortar businesses can still win on certain elements

Omnichannel retailers win on some emotional and life-changing elements.Consumers who get help from employees in stores give much higher ratings to those retailers; indeed, emotional elements have probably helped some store-based retailers stay in business.

Well-designed online businesses make many consumer interactions easier and more conve- nient. Mainly digital companies thus excel on saves time and avoids hassles. Zappos, for example, scored twice as high as traditional apparel competitors did on those two elements and several others.

Putting the Elements to Work

Companies have begun to use our method in several practical ways, instilling a “hunt for value” mentality in their employees. Although many suc- cessful entrepreneurs have instinctively found ways to deliver value as part of their innovation process, that becomes harder as companies grow. The leaders of most large organizations spend less time with cus- tomers, and innovation often slows. The elements can help them identify new value once again.

Ideation sessions.

Customer-centric design of prototype concepts.

Structured listening.

The goal was to understand consumers’ pri- orities for a checking account, their frustrations, their compromises, and their reasons for using multiple institutions for banking services.

Those insights, combined with the consumer research, informed ideation sessions with a project team consisting of people from all customer-touching departments across the bank, not just marketers.

Each concept approved by the project team contained a different mix of product features, fees, and levels of customer service. Many of these new concepts could be delivered through an improved smartphone app that would increase customer engagement with the bank. Almost all the targeted consumers used smartphones for financial services The financial services company then conducted further one-on-one interviews with consumers and got fast feedback that allowed it to winnow the 12 prototypes down to four concepts for enhanced value. Then, on the basis of the feedback, it refined them in the fourth, quantitative stage

Getting Started.

Rigorous choice modeling.


Having designed the four prototypes, the project team tested them with thousands of customers using discrete choice analysis, which requires people to make a sequence of explicit choices when presented with a series of product options. The researchers began by amass- ing a detailed list of the attributes for each proto- type—ATM fees, overdraft fees, credit monitoring, customer service hours, and so on. They presented respondents with several sets of checking accounts that varied on these attributes, asking them to select which prototype from each set they preferred. This process was repeated several times, as attributes changed according to an experimental design, until the team derived the winning combination of attributes.

New-product development.

Pricing.

Customer segmentation

Our model can stimulate ideas for new products and for elements to add to existing products. Managers might ask, for ex- ample: Can we connect in a new way with consum- ers? Can our customers benefit from integration with other software applications? Can we add therapeutic value to our service?

Managers commonly view pricing as one of the most important levers in demand man- agement, because when demand is constant, higher prices accrue directly to profits. But higher prices also change the consumer value equation, so any discussion about raising prices should consider the addition of value elements. Recall how Amazon’s judicious increases in value helped justify higher prices over time.

Most companies have a formal method of segmenting their custom- ers into demographic or behavioral groups, which presents an opportunity to analyze what each of these groups values and then develop products and services that deliver those elements.