Customer Value Management
How do you define value? Can you measure it? What are your products and services actually worth to your customers? Remarkably few suppliers in business markets are able to answer these questions. And, yet, the ability to pinpoint the value of a product or service for one’s customers has never been more important. Everything is about the distinctive character toward your main competitor and to quantify this clearly. Value should be able to be demonstrated and set down, previous to get hold of a proportional part in the form of lower costs or a higher price.
Customer Value Management was developed in the United States by Professor James C. Anderson, the William L. Ford Distinguished Professor of Marketing and Wholesale Distribution at the well-known Kellogg School of Management at Northwestern University. Prof. James Anderson and Orange Orca implement Customer Value Management at client firms in Europe (www.customervalueexpert.com).
Customer value management is a progressive, practical approach to clarify why users decide to do business with your company or with your competitor. In essence, Customer Value Management has two basic goals:
- Deliver superior value to targeted market segments and customer firms.
- Get an equitable return on the value delivered.
Customer Value Management relies upon customer value assessment to gain an understanding of customer requirements and preferences, and what it is worth in monetary terms to fulfil them. Although firms may be able to achieve the first goal without any formal assessment of customer value, it is increasingly unlikely that they will be able to accomplish the second goal – getting an equitable return on the value delivered – without it. Simply put, to gain an equitable or fair return on the value their offerings deliver, suppliers must be able to persuasively demonstrate and document the value they provide customers relative to the next-best-alternative for those customers.
An essential undertaking in customer value management is building Customer Value Models, which are data-driven estimates of what a present or prospective market offering is worth in monetary terms to targeted customers relative to the next-best-alternative offering. Some suppliers have built what they regard as customer value models, but these models are, by nature, “data light” and “assumption heavy”. Customers are sceptical of such models, claiming that they do not accurately reflect their businesses.
In contrast, Customer Value Management stresses building customer value models that are “data heavy” and “assumption light” in cooperation with the customer. Together with our clients we gather data at the suppliers to minimize the number of assumptions made and to ensure that the assumptions that are made are reasonable.
Together with our clients we built a tool to calculate the value. This ‘value-calculator’ gets input from the gathered data to determine the value of each distinguishable element. The next step is to determine how the market offer adds value or cost reduction when it is applied to by the client. The client is part of the learning curve.
Customer Value Management demand a major effort and is not straightforward. However, the question is who can afford to not do it.