HERDING GAZELLES | Karl Stark and Bill Stewart

5 Steps to Creating More Customer Value

By focusing efforts on your best customers, you can increase customer value and grow your business.

 

Recently, we’ve explored the concept of customer value and how critical it is to driving the growth of your business:

With these concepts in mind, think about ways you can improve customer value to grow your business. Here are 5 steps you can take:

Step 1:  Understand what drives value for your customers

Talk to them, survey them, and watch their actions and reactions. In short, capture data to understand what is important to your customers and what opportunities you have to help them.

Step 2:  Understand your value proposition

The value customers receive is equal to the benefits of a product or service minus its costs.  What value does your product or service create for them? What does it cost them–in terms of price plus any ancillary costs of ownership or usage (e.g., how much of their time do they have to devote to buying or using your product or service?)

Step 3:  Identify the customers and segments where are you can create more value relative to competitors

Different customers will have varying perceptions of your value relative to your competitors, based on geographic proximity, for example, or a product attribute that one segment may find particularly attractive.

Step 4:  Create a win-win price

Set a price that makes it clear that customers are receiving value but also maximizes your “take.” Satisfied customers that perceive a lot of value in your offering are usually willing to pay more, while unsatisfied customers will leave, even at a low price. Using “cost-plus” pricing (i.e., pricing at some fixed multiple of product costs) often results in giving away margin unnecessarily to some customers while losing incremental profits from others.

Step 5:  Focus investments on your most valuable customers

Disproportionately allocate your sales force, marketing dollars, and R&D investments toward the customers and segments that you can best serve and will provide the greatest value in return. Also, allocate your growth capital toward new products and solutions that serve your best customers or can attract more customers that are similar to your best customers.

Your customers are the lifeblood of your business. They are the source of current profits and the foundation of future growth. These steps will help you find more ways to grow your business by better serving your best customers.

 

Karl Stark and Bill Stewart are Managing Directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself, and is ranked No. 95 on the 2011 Inc. 500 list. @karlstark