You’ve likely heard the saying “The customer is always right.” But have you stopped to think about why the customer is so vital to a business?
It’s not just about having a great location or high-quality products. Without customers purchasing your offerings, you won’t stay in business long. The most brilliant idea, perfect pricing, and prime location are useless if buyers aren’t interested.
This is where customer value analysis comes in. It helps you gain a 360-degree view of your customers’ needs, motivations, and perceptions. By benchmarking against competitors and measuring where your value proposition falls short or shines, you gain actionable insights to keep customers satisfied.
In this article, we’ll explore how to properly conduct customer value analysis and leverage it to build loyalty and maximize perceived value.
What is Customer Value Analysis (CVA)?
Customer value analysis (CVA) is a process of evaluating how your customers perceive the worth of your products or services. The goal is to measure the benefits your offerings provide and weigh them against the total costs your customers incur.
CVA allows you to identify gaps between your perception of value versus your customers’ perception. It involves researching sentiment through surveys, interviews, and data analysis to uncover your customers’ needs and wants.
The insights gained from CVA enable you to improve customer satisfaction, benchmark against competitors, build loyalty, and inform pricing and marketing decisions.
Customer value analysis is essential for deeply understanding the value your customers see in your offerings. It provides the critical customer perspective that allows you to maximize perceived value. By regularly conducting CVA, you can ensure your business continues to deliver offerings aligned with your customers’ evolving needs.
What are the 5 Types of Customer Value?
There are five core types of value to consider when conducting customer value analysis (CVA):
1. Functional Value
Functional value is based on performance, features, and overall usefulness. It refers to how well your product or service meets the customer’s practical and utilitarian needs.
2. Monetary Value
This represents the perceived worth of your offering based on price, discounts, financing options, and overall cost to the customer.
3. Emotional Value
This stems from how your brand and product makes customers feel. Emotional value arises from experiences and the fulfillment of psychological needs like enjoyment.
4. Social Value
This type of value comes from the social currency or approval associated with your product. It’s based on the customer’s desire for prestige or belonging.
5. Epistemic Value
This relates to the curiosity, novelty, and knowledge your offering provides to customers. New experiences and opportunities to learn create epistemic value.
Analyzing these different facets of value allows you to fully understand your customers’ motivations and needs, enabling you to optimize your business to maximize the total perceived value delivered.
What is the Purpose of a Customer Value Analysis?
The core purpose of customer value analysis (CVA) is to fully understand your customers’ perceptions of the value your business provides. CVA allows you to benchmark your offerings against competitors and identify gaps in your value proposition.
Fundamentally, CVA aims to maximize customer satisfaction. It provides insights you can use to improve products and services to better meet customer needs. The analysis also reveals threats to customer relationships and loyalty so you can address issues proactively.
Additionally, CVA informs pricing by elucidating the monetary value your customers place on offerings. It can also uncover opportunities for new revenue streams.
Essentially, by quantifying the value exchange between your business and customers, you gain actionable intelligence to strengthen loyalty and drive growth. CVA enables data-driven decision-making in service of enhancing the customer experience. Conducting periodic analysis provides the customer perspective required to sustain competitive advantage.
How to Measure Customer Value
To conduct an effective customer value analysis (CVA), you need to accurately measure the total value your customers receive from your products or services. Follow these key steps:
1. Identify Customer Benefits
The first step is to thoroughly research and compile a comprehensive list of all the tangible and intangible benefits your customers gain from your offerings. These can include factors like:
- Product or service quality
- Performance
- Reliability
- Unique features
- Warranties or guarantees
- Customer service and support
- Convenience and ease of use
- Brand reputation and trust
- Emotional engagement
- Enjoyment/fun
- Status and prestige
Surveys, interviews, focus groups, and customer data analysis will reveal insights into which benefits your customers value most. Assign numerical ratings to each benefit factor to quantify it.
2. Calculate Total Customer Costs
Next, carefully examine the full costs incurred by customers when acquiring, using, and maintaining your products.
Tangible costs include:
- Purchase price
- Shipping/delivery fees
- Installation or set-up costs
- Required accessories or add-ons
- Learning curve and training time
- Maintenance, upgrades, or repair costs
- Cancellation or switching costs
While intangible costs include:
- Time spent researching products
- Inconvenience of installations
- Stress or frustration during usage
- Reputational risks
- Learning new interfaces
- Lost opportunity costs
As with benefits, assign monetary or numerical values to each cost factor identified.
3. Find the Perceived Value Difference
With the two total values for benefits and costs, simply subtract the total customer costs from the total customer benefits. The higher the final value, the greater the overall value delivered to your customer.
Compare this perceived value rating to industry averages or key competitors to benchmark your performance. Conducting periodic value measurements will illuminate areas where improvements can enhance delivered value.
Customer Value Analysis Formula
The customer value analysis (CVA) formula is:
Customer Value = Total Customer Benefits – Total Customer Costs
5 Steps in Customer Value Analysis
Conducting a comprehensive customer value analysis (CVA) requires the following key steps:
Step 1: Identify Customer Value Drivers
Inquire with target customers directly to understand what attributes they expect in your product and how they evaluate sellers. Identify the main factors driving their perception of value.
Step 2: Quantify Attribute Importance
Have customers rate the importance of each value driver. Then calculate average ratings to prioritize which attributes have the greatest influence on perceived value.
Step 3: Benchmark Performance
Ask customers to compare your product’s performance against competitors for each key attribute. This reveals where you excel or fall short versus your rivals.
Step 4: Determine Competitive Position
With customer feedback in hand, directly compare attribute-by-attribute performance with competitors. Analyze where you stand and glean insights to determine if changes need to be made to pricing, marketing, and accessibility.
Step 5: Monitor Changes Over Time
Customer values evolve, so regularly check back for updates. Conduct abbreviated surveys to track changing priorities and sentiments. Stay abreast of competitors as well.
Following these steps will generate data-driven insights into how customers weigh benefits versus costs. Quantifying perceived value and benchmarking against others provides the input needed to maximize customer satisfaction.
Related: A Guide to Using Benchmarking Techniques in Project Management
Benefits of Customer Value Analysis to Organizations
Customer value analysis (CVA) offers organizations several strategic advantages. By systematically evaluating customer perceptions, CVA provides actionable insights that can drive business growth and competitive advantage. Here are the key benefits:
1. Measuring Value
CVA provides a quantitative framework to assess customer perceptions. By assigning numerical values to various aspects of your offering, you gain a concrete measure of how customers view your products or services. This data allows you to:
- Track changes in customer satisfaction over time
- Identify which product features or service elements contribute most to perceived value
- Make data-driven decisions to enhance your value proposition
2. Benchmark Against Competitors
CVA enables you to gauge your performance relative to competitors through the customer’s eyes. This competitive intelligence helps you:
- Identify areas where you outperform or lag behind rivals
- Understand why customers might choose a competitor’s offering
- Develop strategies to differentiate your brand and capture market share
3. Building Customer Loyalty
By uncovering what truly matters to your customers, CVA provides a roadmap for fostering loyalty. You can:
- Tailor your offerings to align with customer priorities
- Enhance aspects of your product or service that customers value most
- Create targeted marketing messages that resonate with your audience
4. Identify Threats
CVA helps you spot potential risks to your market position early. By analyzing customer feedback, you can:
- Detect emerging competitors or disruptive technologies
- Identify product weaknesses before they lead to customer churn
- Anticipate shifting customer preferences and adapt proactively
Customer Value Analysis Example
Let’s walk through a sample customer value analysis for a company, Home Cleaners. They want to analyze customer perceptions of their house cleaning service’s value.
First, Home Cleaners surveys customers to rate the benefits of their service like thoroughness, convenience, politeness of staff, etc on a 1-10 scale. The average total benefit rating is 8.5 out of 10.
Next, they research customer costs. Key costs include the service fee ($100 per cleaning), time spent arranging appointments (30 mins), and occasional mistakes like broken items. These are quantified as a total cost of $105 and 2 hours time.
Comparing benefits to costs gives a preliminary value rating of $205 in benefits minus $105 in costs equals $100 of net customer value received. However, Home Cleaners gets feedback that customers see competitors as more professional.
This competitive gap in perceived professionalism represents a threat. Home Cleaners can now revamp staff training and improve uniforms to boost professionalism and close the value gap versus rivals.
Final Thoughts on Customer Value Analysis
In closing, customer value analysis is clearly an essential process for deeply understanding your customers and intelligently maximizing the value of your offerings.
By quantifying benefits versus costs and benchmarking against competitors, you gain actionable insights to improve customer satisfaction and build competitive advantage. To sustain growth, customer loyalty is key, and CVA provides the customer perspective needed to optimize value delivery.
Conduct periodic analysis, focus on enhancing perceived value, and you’ll be well-positioned to meet evolving needs and succeed in the modern market.
