Every day, we are reminded that providing value to customers is a surefire route to success.
The concept of customer value has been around for over 20 years, and many books and articles have been written about it. Yet its growth in popularity has also been accompanied by frequent misunderstandings and spotty application. This article revisits the customer value concept, reviews a common misunderstanding about customer value, and presents a comprehensive definition that both synthesizes existing research and serves as a model for delivering higher levels of value to your customers.
Let's start with a misunderstanding.
Value Does Not Always Equal Low Price
The most prevalent misunderstanding of the customer value concept is that value means low price. For example, companies like Wal-Mart, Hyundai, and Marshalls are identified as providing high value to their target customers by offering their products at the lowest prices.
While these discount merchandisers and low-price manufacturers may provide high levels of value in terms of product cost versus competitor pricing... luxury, premium-priced products and services also provide extraordinary levels of value to customers.
Even the highest-priced products provide high levels of value to their customers. For example, Porsche recently introduced the $400,000 Carrera GT—a vehicle that is racecar fast, superbly engineered, and elegantly styled. While many people would argue that the Carrera GT does not provide a high level of value (i.e., its high cost compared with other vehicles'), those who purchase it might argue otherwise. So much so that Porsche expects to easily sell out the Carrera GT's limited annual production.
This example demonstrates that value is a subjective idea, depending on the consumer, and that the functionality or utility of a product is just one component of its perceived customer value.
Customer Value Defined
If value is unique to the individual customer, how then can it be defined in a way that is simple, easy to understand, and comprehensive, and helps marketers to apply the concept to a broader audience or segment as opposed to the individual customer?
One clear definition might be this:
"Value" is the benefits you receive from a product for the price you pay for it.
The definition is succinct, simple, and identifies two core elements of customer value—benefit to the customer and price of the product or service. Of course, as the old cliché goes, the devil is in the details—especially the details involved in understanding the full context of the range of "benefits" the customer desires.
Benefits
Benefits are what customers receive from the products they purchase. For example, dandruff shampoo provides the benefit of a dandruff-free scalp—a relatively easy-to-understand functional benefit. However, dandruff shampoo also provides the customer with a compelling and nuanced emotional benefit—confidence. The customer feels secure that those annoying white flecks will not embarrass him when he goes out on that big date.
Another example that typifies the complexity of understanding value in terms of benefits is your car. The primary benefit of a car is transportation—getting you from one place to another. You might add that reliability is a key element to a car's value—you must be able to depend on the car to start up and not break down when you need it. Someone else might add that a car must also get good gas mileage to provide value.
Transportation, reliability, and fuel efficiency are all functional benefits that you desire from a car. However, when you look at the emotional benefits that a vehicle can provide, you realize that automobiles provide a constellation of both functional and emotional benefits.
For example, many people own or aspire to own a Mercedes Benz. When asked why, people usually identify the brand's dependability, durability, and safety record. However, the unspoken and often unconscious rationale for purchasing or desiring to purchase a Mercedes is the craving for a "self-esteem smoothie" filled with feelings like a sense of achievement, economic success, social status, and, for some, power. Rest assured, Mercedes is acutely aware of this, and designs and markets vehicles accordingly.
Volvo is another example of a company that provides its customers with a powerful emotional benefit—peace of mind in the form of very safe vehicles. Engineers from Volvo have consistently developed advanced safety features for their cars, which, in turn, have enabled Volvo marketers to creatively position their cars as the safest on the road. For parents, this emotional benefit is highly valuable.
So far, we've introduced a definition of value, discussed emotional and functional benefits, and provided some examples of companies that have created products that provide functional and emotional benefits. This confluence of information is graphically represented as follows:
Every one of your customers wants you to provide specific benefits at the right price. The prior examples demonstrate that all product categories provide both functional and emotional benefits. At the heart of each product category is a core functional benefit that is non-negotiable.
For example, toothpaste provides the core functional benefit of cavity prevention; clothes provide protection from the elements; and telephones enable us to communicate with others over a distance. The delivery of core functional benefits has been significantly improved through the rigorous application of Total Quality Management techniques such as Six Sigma. Moreover, these improvements in technical quality have been accompanied by reductions in expenses that, in turn, have restrained price increases.
Consequently, excellent technical quality and competitive pricing have become table stakes in this relentlessly competitive environment.
In light of the heavy demands of the current competitive environment, many companies are searching for a hard-to-replicate competitive advantage. The answer just might be to provide your customers with a high level of value through the delivery of the right combination of functional and emotional benefits at the right price. Increasingly, how well you provide your customers with the emotional benefits they desire in addition to the functional benefits they need is essential to marketplace success.
Keying in on Emotional Benefits
Senior executives are starting to recognize the need to provide customers with emotional benefits. Research sponsored by Beyond Philosophy, a London based consultancy, revealed that 85% of senior executives agreed that differentiation based on price and quality is no longer sustainable. However, only 5% of these executives knew what emotions they were trying to evoke in the customer experience.
Why are so many executives unaware of or struggle with the importance of emotional benefits? One of the reasons is that senior management is very comfortable with the perceived objectivity and rationality of functional benefits.
For example, companies have standards for the time it should take to return phone calls, the number of defects per thousand units, the length of time spent in line, etc. All are relatively easily measured and monitored and, therefore, very appealing to our need for indisputable facts and figures.
However, emotions are customer psychology—a messy prospect even in the best of circumstances. Customer emotions are hard to identify and even harder to monitor. Identifying and then providing the subtle and nuanced emotional benefits to your target market require a deep and persistent customer-focused culture.
Yet, despite the difficulties, many techniques are available for identifying your customer's emotional needs. The recent surge in ethnographic research (observing your customers in their everyday environment) is just one example of these methods. While this article does not focus on market research, I would point out that truly customer-focused companies are so thoroughly attuned to their customers that they rarely use sophisticated market research techniques.
For example, the leadership of the Ritz-Carlton hotel chain is fanatical about observing and documenting their customer's needs, and, as a result, they infrequently perform broad market research.
Customer-focused companies are led by management that is deeply committed to providing competitively superior customer value. These leaders demonstrate their commitment to providing higher levels of value by spending a significant amount of time with customers.
For example, Jack Welch, the former CEO of GE, spent 30 percent of his time with customers. John Chambers, CEO of Cisco, spends more than 30 percent of his time with customers as well. This leadership behavior sends a distinct message to the organization that all employees should focus on providing customers with higher levels of value. If the heads of these highly successful corporations can spend at least 30 percent of their time with customers, the leadership of your organization can certainly do the same.
Where to Start
Existing research on emotional benefits is robust and comprehensive. Diana LaSalle's MarketingProfs article Experiencing Value provides an excellent description of more than 20 emotional benefits. However, if your company is just beginning to recognize the power of emotional benefits, you may just be overwhelmed by the complexity of the process and the sheer number of emotions you could address.
In that case, start by attempting to provide the three essential emotional benefits described by Benjamin Schneider and David E. Bowen in their book Winning the Service Game. Those benefits are justice, security, and esteem.
Justice/Equitable Treatment
The need to be treated fairly is an almost universal (though sometimes a bit of a high-five to the forehead) observation. Unfortunately, many companies neglect to provide this highly valued emotional benefit.
Justice or fair treatment includes fulfilling commitments. Why then do many people lack confidence that a company will return a phone call at the time they say they will? They simply don't trust the majority of organizations to meet this basic commitment.
Another area where there is an opportunity to provide the emotional benefit of justice is in complaint recovery. Research on the value of positively resolving complaints is well-documented and thorough. However, many companies struggling to provide value to their customers continue to view complaints as a nuisance and not as a means to meet their customer's emotional need for justice.
An additional and highly rewarding area where your company can meet customers' emotional needs for justice is in dealings with loyal customers. As a subscriber to many periodicals, it always fries me to see better offers given to new subscribers than to me, a loyal customer. Why can't the publishers reward their loyal customers of, let's say five years or more, with a guarantee that new customers will not get a better deal? This would ensure that my emotional need for justice is met and the company's loyalty rates would increase.
Security
Customers' emotional need for security is also close to universal. All of us desire safety, stability, and some kind of order and/or predictability in our lives. When we order something on the Internet, we want to be sure that our financial information is safe and secure.
Concerned retail stores in mini-malls have excellent lighting in their parking lots to ensure patrons' feelings of safety. Hotels that offer the latest in door locks provide you with the emotional benefit of security. Disney keeps its theme parks impeccably clean because we have come to associate cleanliness with safety.
Every organization must provide the emotional benefit of security by providing safe transactions, environments, and products. While seemingly obvious, how many companies do you know consciously identify security as a benefit they must provide?
Higher Esteem
Last, but certainly not least, is the emotional benefit of esteem. Arguably, this is the most difficult emotional benefit to provide, as it incorporates our needs for status, accomplishment, power, value, respect, appreciation, and uniqueness. I previously mentioned Mercedes Benz as a company that meets their customers' needs for status, power, and accomplishment. Other luxury goods providers also do this well.
But, you don't have to be a luxury goods provider to meet customers' emotional need for esteem. Quite simply, treat your customers with respect—listen to them, respond quickly, courteously and thoroughly to their inquiries and complaints, and never present situations where the customers feel inadequate.
The Teaching Company, a provider of college courses on DVDs, continually asks customers for input on products but also follows up that research with communication to the customer describing what the company discovered and what it has done about it. This company authentically values its customers, respects their input, and appreciates their patronage—all of which provide customers with higher levels of esteem.
Keys to providing the emotional benefit of esteem is (1) to authentically appreciate your customers' patronage and (2) solicit, respect, and take action on their feedback.
Providing emotional benefits to your target customers may sound difficult at the outset, but it is not an impossible task. Start by identifying the emotional benefits your customers' want most, or begin with the three I have outlined. Follow up by designing or modifying your products, services, and marketing strategies accordingly.
Emotional Benefits—a Way Out of the Low Price Treadmill
If you are diligent in identifying and providing the emotional benefits your customers' want, you will differentiate yourself from your competitors and avoid competing on price. Note, for example, that USAA, a truly extraordinary insurance company, provides its customers with the emotional benefits of security, justice, and esteem while other insurance companies bombard us with advertising that is so price driven, they compare their prices with competitors'. This inevitably leads to commoditizing your product category and competing solely on price.
Wal-Mart and others have deployed the low-price strategy successfully but have designed all their systems to relentlessly focus on reducing expenses. If you are unprepared or choose not to compete in the low price arena, you need to excel at delivering the emotional benefits your target markets desire most.
