What is customer value in technology?

We often hear “we want to deliver more value than our competitors”. Yet, although customer value is often the source of the success or failure of products and offerings in their markets, its different dimensions are often insufficiently explored and understood. How do we go about analysing this so-called “customer value”?

Customer value is basically A BALANCE between benefits and sacrifices for the customer.

A balance between benefits and sacrifices

These benefits and sacrifices have an impact on both the client’s costs and revenues in the case of a private client and on the costs, budgets obtained and ability to fulfil its “mission” in the case of a public or governmental client.

The benefits may be associated with an increase in turnover, the reduction of certain cost items or the simplicity of implementation, for example. They may also be psychological, such as image or status. Sacrifices are related to costs, delays, adaptation and learning efforts associated with the purchase and use of a product or solution.

From the supplier’s point of view, customer value analysis is sometimes referred to as ‘use value analysis’. The customer value (use value) is usually higher than the price paid (exchange value). The “value for money” is what the customer gets for a certain level of price he is willing to pay.

This balance between benefits, sacrifices and price is the basis for the comparison that customers make between different suppliers, products or solutions, between existing products or solutions and possible alternatives. This comparison is influenced by perceptions and explains the majority of customer decisions. Often a customer decision that seems illogical or incomprehensible is in fact a reflection of a lack of understanding of this balance or a targeting error.

The underlying reason why a customer makes a decision for or against a supplier, product or solution is the perceived comparison of the “value for money” between different alternatives. This is called “perceived value for money”.

This comparison can be made between products or solutions from different suppliers, between an existing and a new solution, between doing it today and doing it tomorrow, between buying/sourcing or doing it yourself.

Practical consequences: how to explore customer value?

The notion of comparing ‘perceived value for money’, which is the main explanation of customer motivations and decisions, has many practical implications when exploring and seeking to understand customer value.

First and foremost, the fact that a product has unique specifications but has multiple customer values! Both the real and perceived benefits, the sacrifices and the price the customer is willing to pay will differ from one market segment to another, from one situation to another. The often quoted example is “what is an ordinary spare part worth if its breakage has caused the shutdown of an oil rig?”

Regardless of the method used to conduct the analysis, all dimensions of customer value and needs must be identified and understood in the process, sometimes referred to as MCVU (Market & Customer Value Understanding): organisational, individual, over time, beyond demand and need, beyond technique, in a given situation, etc.

Let us mention some guidelines for analysing customer value: 

• Value is a balance between benefits and sacrifices: sacrifices should not be underestimated in relation to benefits. In technology, people are often legitimately proud of their products. This sometimes makes it easier to see the benefits for customers than the sacrifices they have to make to acquire or use them.
• An important part of value can and should be expressed in monetary terms: value should be expressed by a supplier in Euros, Dollars or any other monetary unit whenever and wherever possible. Even if this requires detailed knowledge and even a model of customer operations and costs, this monetary quantification is more often possible than one might think. Benefits, sacrifices and the balance between the two should be expressed in monetary terms whenever possible. Other monetary dimensions such as budget issues, budget lines, budget deadlines are also part of customer needs and should be analysed.
• Nowadays, value is less and less about the value of the product, service or solution performance alone, but increasingly about the costs and consequences of implementation on all customer processes and the total cost of ownership over time.

• Value is multi-dimensional and requires characterising several aspects of benefits and sacrifices:
  • For the client as an organisation :
    • all the benefits whether they be additional income, improved competitiveness in its own market, improved image, risk reduction, increased operational ease, cost reductions quantified and compared by cost accounting with the equipment and processes already in place,
    • all the sacrifices, whether financial or human investments, additional costs such as the management of a double stock of spare parts, process changes, organisational efforts, training efforts, the taking of various risks including those of supplier failure or “wiping the slate clean”, particularly present in the case of an innovative solution.
  • For individuals within the client organisation, depending on their function: tasks made easier, richer or, on the contrary, more complex or poorer, responsibilities lightened or increased, individual efforts to be made in the face of change. For example, what are the benefits and sacrifices associated with the choice of new equipment within an aircraft manufacturer or airline: what is the outcome for a pilot, a maintenance manager, a system architect, etc.?
  • For individuals within the client organisation from a purely personal point of view: personal risks or benefits in terms of image, career, bonus, workload, etc.
  • During the entire life cycle of the product within the client organisation: purchase, installation, training, commissioning, deployment, all aspects of operations during use, maintenance, end of life…
  • Taking into account the benefits the customer would like to have: unfulfilled expectations, unresolved problems: “I wish that…”, “this subject always blocks us”, etc.
  • By successively analysing its current product or offer and its future product or offer, which will make it possible to identify the future differentiating elements after a well-conducted competitive benchmark.

• The client organisation buys, but the buying decision process involves individuals. Customer value is therefore inherently filtered through perceptions: it is important to understand whether the customer values the proposed value correctly or not and why; this is to demonstrate that the customer will frequently see increased value in use, much higher than their initial perception; also to understand what kinds of perceptions make sense to individuals both for pure operational use (will this new product really be easier to use, will it really reduce costs? ) and beyond (is it associated with pride and hope or fear and anger?)
• Value is associated with a specific context: the market segment, the individuals and the time: the actual and perceived value of the same product may differ from one market segment to another (this is the basis of a needs-based segmentation) or from one time to another. Perceptions of value vary between different individuals, even within the same type of shopping centre. It is therefore necessary to understand and anticipate how the perception of value may differ between individuals and their function as well as how it may change over time, depending on the state of the competition for example.
• The customer always compares the value to a competing alternative. The customer compares the “value for money” between different possible alternatives: between existing and new products, between different solutions from different suppliers, between doing it now and doing it later, between doing it yourself and buying from outside, between spending in a capital budget and spending in an operating budget (e.g. between paying for an annual licence and buying software … when it is still possible!)
• Customers choose a supplier, select a product or solution, agree to pay a certain price, only on the basis of the DIFFERENCES of “perceived value for money”. Anything that is not perceived as a differentiator is either a “must have” or plays little or no part in the decision: a certain level of performance, transaction effort, ease of implementation and deployment, reduction in operational costs etc. only makes sense to the customer in comparison to another option when it exists. The customer’s decision is based solely on what is perceived to meet the needs or problems they identify or discover as being a better option than a competing alternative.

Value cycle and pricing power

One of the best ways to generate results in a given market segment and therefore for a given type of customer is to get the customer to pay the right price for the perceived value within a value strategy. This is called “extracting value” and is sometimes referred to as “pricing power”, i.e. the ability to extract value correctly by getting the customer to accept a price that matches the value offered.

But before value can be extracted from the market and paid for by customers, it must go through a cycle. It must be:

• Understood: identifying what the customer is actually paying today (what benefits versus sacrifices?) what he might be willing to pay and why he prefers one product, solution or supplier over another, in all possible dimensions. This is the subject of part of the analysis of market ecosystems and customer behaviour.
• Created: creating products, services, systems or solutions that provide the customer with greater value than that offered by the competition or by the current version of its own product, taking into account both monetary and non-monetary aspects such as image. This is the purpose of creating value propositions.
• Delivered: value must be brought to the customer through distribution networks, service centres, OEMs or partners. This is the purpose of commercial partnerships and channel management.
• Communicated: ensuring that the market and customers know and understand the value proposition. This is the purpose of value proposition formulation, promotion and communication in the technology world.

NB: In addition, once value has been created, it must be protected against attempts by suppliers, customers and partners to capture more of the value that customers are willing to pay for.