Customer value: definition, measurement and strategy

What is customer value?

Customer value is the customer’s perception of the worth of your product or service. Worth can mean several things: the benefit these products or services provide to your target market, or the value for money they offer.

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Why is customer value important?

Understanding the value you provide customers can help you to better attract potential customers and better service existing ones.

If, for example, a customer only values you for your low prices, offering a higher-priced product might make them leave for a competitor. If your brand is perceived to provide excellent quality products, offering items that appear of a lower quality might lead to customer churn.

Figuring out why customers are coming to your brand, in particular, helps you to better tailor your products and services to new audiences. It can also help build stronger trust, and get existing customers purchasing more. Meeting expectations and exceeding them in terms of experience, quality, service, and more is easier when you know what standard you’re being held to and exactly what your customers expect.

Not only that, but once you understand what’s affecting your customer value, you can start to actively shape perception and ensure you consistently meet customer expectations. First, however, you need to measure it.

How to measure customer value

Customer value can encompass many factors: your brand’s reliability, the effort level they need to put in to get what they want, how innovative your products are, how useful your services are, how they feel about your public image, and how successful their interactions with you are.

Measuring all these factors can seem daunting, but at the end of the day, customer value can be best measured by answering the following questions:

• What are the customer benefits?
• What are the customer costs?

Measuring customer benefits

Customer benefits can include:

• The quality of your product or service
• Your public image and company values
• Your ability to provide a better offering than competitors
• The customer experience you provide
• The quality of your customer service
• The value you impart on them when they choose to buy with you

Some of these are easier to measure than others. For example, you can survey customers with simple binary or multiple choice questions to get feedback on customer experience and product quality – but understanding the social benefit of choosing you over another brand is harder to quantify.

Continually reviewing customer feedback and collating data will help you to determine what benefits attract customers. Using scoring metrics and feedback from the customer can help to pinpoint what benefits matter most, so you can act accordingly.

Measuring customer costs

Customer costs can be divided into two types: the tangible operational data that can be proven) and the intangible (how your customer feels about your product and how much they invest in your brand).

Tangible costs might include:

• The financial cost of your product or service
• Upfront costs, such as installation or onboarding fees
• Maintenance costs
• Renewal or repurchasing costs
• Access costs for your product or service

The costs that are hard to quantify are:

• Bad customer experience
• The time it takes to make a purchase
• The emotional cost of engaging with your brand and making a purchase
• The social cost of choosing you over competitors
• The time cost of undergoing the learning curve for your products or services

The costs that are easier to quantify can easily be gauged through your operational data. For the intangible costs, gather real-time feedback from customers so you get data that’s honest and relevant. Customer surveys and other feedback channels will help you to measure these more difficult metrics.

Customer value formulas

Once you’ve calculated the monetary and personal benefits and costs of engaging with your brand, you can then calculate your customer value.

Customer value can be calculated using a simple formula:

The benefits for the customer must outweigh the costs to result in a higher customer value.

The calculation for customers choosing your product or service can also be captured in a formula:

(Value¹ — Price¹) > (Value² — Price²)

Value¹ is the value of your product or service in your customer’s eyes. Price¹ is the cost of that product or service. Value² and Price² are the same for the next best alternative from your competitor.

This formula simply means that the value of your product (minus the price it costs) must be more than that of the best alternative. Your customers must see your value as being worth the cost, and that your offering is worth more than the next best thing.

Obviously, these formulas won’t provide you with a neat financial sum in the end. However, calculating whether your customers think the benefits are worth the cost of buying your offering – and understanding the factors that go into that decision – will help you to maintain and improve your customer value.

How to increase customer value

Increasing your customer value requires some introspection about your customers and their experience with your brand.

Make customer experience a top priority

Your customers’ experience with your brand may be the most important factor in how much they value your products and services. Does their experience with your brand reflect what they believe about you? Are you meeting their expectations for a smooth service with quality products?

Your customer value is shaped by the experiences they have with your brand. If you want your customers to see your brand as reliable, high quality, and value for money, then your customer experience needs to reflect these traits. Great customer experience leads to great customer value and vice versa.

Understand why customers choose you

Understanding your customers’ motivations in coming to your brand can help you pinpoint how they value your offering. Collecting qualitative and quantitative customer data – such as survey responses, repeat purchase rates, and more – can help you to see what’s attracted customers to your brand, and repeat the winning formula.

It can also give you a better gauge of whether price is a vital factor for customer choice, or whether quality and experience are more highly rated. By letting customers’ needs and wishes guide you in what you offer, you can create a more positive customer value.

Not only that, but you can segment your customers to better provide the value that they expect. Not all customers will be drawn to you for the same reasons – so make sure you’re providing each customer segment with the value they’re looking for.

Think about more than just the cost

Though the cost of your products and services might be a big factor in why someone chooses you over your competitors, it’s not the only reason. Finding out from your customer what makes you competitive aside from price can help you to focus more on what your customers value.

Remove obstacles

When being judged on your value, you don’t want customers to get stuck thinking about issues that don’t reflect your product or service quality. If your payment system is slow or difficult to use, customers are likely to focus on that, instead of your great offering. Make sure that customers judge you on the quality of your product or service– not how difficult it was to achieve what they set out to do.

Don’t forget your loyal customers

Customers that are loyal are likely to place a high value on your brand. However, customer needs can change dramatically over time, meaning you need to continually work to maintain the high value you’ve been given by a loyal customer base.

Reward your loyal customers with more of what they like, and keep up to date on their motivations for choosing you. You’ll be able to figure out why they value you over the long term and ensure they’ll keep on sticking around.

Leveraging their insights to draw new customers means your perceived value can spread from authentic sources that new customers are likely to trust.