In a business environment, you are constantly trying to make all stakeholders happy. Stakeholders could be investors, employees, managers, and of course, customers. In this article, I will focus on creating value for the most important of them, the customer.
We often hear that “Customer is King”. Now, why is that?
Plain and simple, if the customer isn't happy, they will not buy your products or use your services. So how do you make customers happy?
Provide them with great products and services? Is that all they want? Not really. Let’s find out more…
Suppose you’re producing the world's greatest laptops, but each unit costs the customer $200,000. Would customers buy it? Most probably not. Why? Because customers could probably get the second-best laptop (which provides features very close to the one you produce), for less than $1,000.
They want great products and services at a great price. In operations, this is what is known as “Value”.
To keep things simple, value is the ratio of what the customer gets divided by how much did it cost them to get it. This calculation of value is done almost every time a customer makes a purchasing decision.
Elements of value are usually perceived through 4 main categories (as shown in the illustration below followed by the explanation):
In this category, the customer is looking at direct benefits he/she will get by purchasing that product. Such benefits could be that the product (or service) Saves time, simplifies a process, generates income, reduces risk, organizes or integrates a process, connects one thing to another, reduces the effort of a certain process, reduces cost, provides information or provides a favorable sensory experience.
Emotional value is perceived in a product or service if it reduces anxiety, acts as a means of reward, increases wellness, provides entertainment or provides access to a desired group or sector.
A product or service might be seen by the customer as having a life changing value if it provides hope, helps with self-esteem, boosts motivation or enhances affiliation and belonging to a certain group, profession, etc.
The fourth main category of evaluation by a customer is the social impact. When a product or services directly helps the customer with self-actualization within their community, it is perceived to have a social impact that will lead to the purchase decision.
As we mentioned earlier, the Value of a product or service is calculated by dividing the benefits the customer gets by the cost they endure. This clearly indicates that the way to “Maximizing Value” is by increasing the benefits, lowering the cost or a mix of both.
Having said that, there are some actions you can consider to maximize value for your customer, which are shown in the diagram below. Each of these action items needs to be carefully studied for both feasibility and impact on the business before you decide on its use in your business.
In today’s competitive business, you need to be continuously on the lookout for what your competitors are they doing to improve the value they provide to customers.
Think about the products and services they sell, then analyze how they've changed over time. Is it functionality and ease of use? Is it durability? Is it added services, extended warranties, etc?.
Once you have this data, you need to engage in a realistic comparison with your product or service and work on regaining or maintaining your competitive edge.
The size and scope of your business will determine how this research and development effort should be done, which will be the focus of future articles.
A firm believer in Quality and Excellence in all aspects of life. In my life, there is always a higher level to get to.
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