Customer Value Perception

Everywhere you look, every ‘expert’ on service is telling you that the name of the game is to provide values. And that is true. No value, no business. Everytime you see a high profile brand or product tanks and disappears from the horizon, just think Nokia, Polaroid Kodak, it is basically because they lost it. From the customer perspective, they were no longer providing values.

In the drawing above, the square box represents the company’s offering. It is deliberately drawn as a square to illustrate that we often fall into the trap of having a set solution, a basic service package, our way of doing it. The polygon illustrates the uneven, ever-changing needs of our customers. So, when we overlay what we offer with what they need, we get three zones. The overlap represents the fit (A) where we meet customer needs. The better the fit, the more values we are providing. B is the part of our offering that we charge for, but what the customer does not actually need. And C is the money left lying on the table, in the sense that this is what the customer would really like, but they cannot find it with us and, therefore, either go without it (frustration) or source it from someone else.

Market leaders in a given segment easily get wrapped up in the beauties and benefits of their own products. When they do, the value fit shrinks.

Typically what happens is that they drift slowly from being the customer-centric companies that they were when they were created, and as a result of over-focus on their own attributes and brilliance, they gradually become more and more product-centric.

This is the danger that lies in the asymmetry that is at the core of the service purchase. What the customer purchases is not what the supplier thinks he is selling. When we forget that, we get lost.

In order to avoid that, we need to understand the the crucial difference between an inside-out and outside-in customer strategy

Basically you have three options:

I stay behind my own walls, convinced that what I do is great. Great service, great product. It is so great that the world will always beat a path to my door, as they have done in the past. Those who are not here with me must be idiots.As a consequence, I become a hostage of my own past patterns. I look at and understand the world through a filter that is primarily composed of what has worked previously, not realising at all that none of the tomorrow’s problems will be solved with yesterday’s solutions.

I venture to my window from time to time to look out and observe the world. Still, from the security of my own tower, I shake my head at what is going on out there and thank the Lord that I have the right solution. I may feel some concerns, or even frustrations, that out there “they” don’t get it. Maybe I should start thinking of ways to make them listen and understand, possibly turn up the advertising, or make more noise. Or maybe I should start by sending out a survey. I delude myself that I have understood the world by looking out the window.

I leave the security of my tower. I stand next to my customers and together we look at what it is that I am offering. I even try to walk in their shoes for a while and gradually I start to understand what it really means to be in their place. It scares the living daylight out of me to suddenly be in such a vulnerable position.

Only option three will enable you to maximise the value fit.

That is is why the whole philosophy of Service Design Thinking is so important. This is the toolbox that will help you transition from inside out to outside in thinking in your organisation.

Why Value Is Not about Money

In the old economy – the one dominated by goods – value was created through the transfer of ownership. I create or produce something; and when I transfer the ownership to you, you give me money in return. The way you check the value of what you bought has to do with the specifications. Whether you are looking for strawberries or a new car, it is about product attributes. This ‘widget’ is _______ (stronger, faster, slimmer, tastier…) than the other ones you have looked at.

In the new economy – the service economy – value is created in use.
When I rent a car, use a consultant, or search for a great place to stay for my vacation, there is no transfer of ownership. It is all about utility – I need something, and my preferred service is the one that best takes care of that need. When my need is met, it translates into a result for me. And most of us are more than happy to pay for getting the result we need.
So, if our aim is to create a great customer service experience, the starting point is to make sure that what we are offering matches the value expectation of the customer.

In order to do that, we use the Value Equation – a tool that originates from the research conducted to produce the Service Profit Chain framework. The Value Equation has four elements:

R Is for Result

What is the result that the client is expecting or looking for? Do we understand the need? If I buy an airline ticket from Paris to Rome, and we end up in Berlin, the airline did not deliver the result that I was expecting. So, no matter how cheap the ticket is or how many drinks they serve, it is a lousy service experience. Do you book a table in a restaurant because you are hungry? Maybe. More often, you have a different need. Maybe you are looking for a special moment, an occasion to celebrate or an ideal setting for a special conversation. Whatever it is, the food is just an instrument in providing the real result that you are looking for.
This means that for every service product we create, we need to ask ourselves, “What is the result they are looking for?”

P Is for Process.
You can fly from A to B with many different airlines. In general, they will all get you to where you planned to go; but each one does it their way. The difference comes out in their process.
From a customer point-of-view, a process has five elements. Each plays a part when evaluating to what extent the value proposition actually covered their needs.

Time. How does time play into the need or result that they have? Is it important that we are on time? Is it important that we are fast or slow? If my wife and I are having dinner before the cinema, we are looking for one kind of time experience. If we are celebrating her birthday the following week, we are looking for a different kind of time experience. Same people, same restaurant, but different situations.

Reliability. Do we do what we say we will do? Are we consistent?
Competence. How does the customer experience the competence level of our employee at a given touchpoint? How well do our frontline teams respond when asked a question or a request for help?

Empathy. To what extent are our employees able to see the situation from the client’s point-of-view? When a customer feels understood, we are more than halfway to solving their needs.

Proof of service. Do we provide a service that the client does not notice – are there ways that we could remind the client that we are servicing them?
Under the fraction line we have –

$ for price and E for effort
The client pays a price for our service; but depending on the service package, they also put in more or less effort themselves. If you buy a sofa from IKEA, the price is low; but you put in quite a bit of effort yourself. If you fly Virgin Upper Class, they will pick you up at your office and take you and your stuff right to the plane. A different experience than flying Ryanair – and, to be fair, also at a different price point.
So, there you have it.

If you want to understand how customers perceive value, the value equation is your key. And, your starting point for developing a great customer experience is to understand how you tailor your customer value proposition to each segment using the Value Equation.

Simply enter your email below to download the Value Equation

How do you achieve the best value fit: Inside out or outside in?

What has Value – From a Customer Perspective?