Are you really creating customer value?

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Just about every organization professes to be customer-focused. The question is: Would their customers agree? While most have developed clear strategies related to marketing, product development and other business functions, very few have taken the time to create a well-formulated customer strategy to address the development of deep connections with customers. In today’s omni-channel environment, such a strategy is increasingly essential to an enterprise’s long-term success.

Leaders must recognize that a business does not decide what is valuable, the customer does. The challenge for every organization is to understand how to create value in the mind of the customer—how to make your offering ‘worth it’, not just in terms of price, but also with respect to time, effort and other intangibles.

Furthermore, customers seek value in what a product enables them to achieve—often realizing value two or three steps removed from the purchase and well outside the line of sight of the seller.  Firms may not realize that the value experience is something to which they can contribute beyond the point of sale.

What exactly do customers value? It depends. Like beauty, value exists in the mind of the beholder. It is also highly contextual, depending on the day and situation. With virtually every purchase decision, customers make a judgment call as to whether what they are getting is ‘worth it’, weighing what they will receive against what they must commit.

Given that customers’ perception of value involves an implicit weighing of ‘give vs. get’, it stands to reason that value is created by adding to what is obtained or by reducing what must be given. Our research shows that value creation also involves reducing or removing elements from interactions between the customer and the firm. Furthermore, these efforts can resonate at an emotional level with the customer, beyond design and process-based elements of value.

If you ask customers to comment on the value they receive in a certain situation, they will usually couch their answer in monetary terms. But if you probe further, they will admit to placing considerable value on things that extend beyond price. Customers are human, and as such they attach value to the emotions that are elicited by their interaction with companies and brands. When negative emotions such as frustration, annoyance, confusion or exasperation are replaced by positive feelings of relief, gratitude, and delight, the results are memorable and customer loyalty begins to take shape.

As a result, it is important to look beyond what you can add to your products or services and consider what you can remove or reduce.

The Reducing and Removing Framework
Not unlike Abraham Maslow’s Hierarchy of Needs, our framework begins with a functional view of value creation and extends upwards—addressing progressively higher-order forms of value and culminating with the most powerful form of value possible: The establishment of a genuine emotional connection to your firm or brand.  At each level of the framework, value can be created for the customer through the reduction or removal of something that impedes value creation. Let’s examine each level in turn.

VALUE LEVEL 1: Core product or service.  To create value and attract customers at this level, many companies focus on reducing their price. However, dropping price represents a blunt-instrument approach to value creation. This tactic attracts primarily price-conscious customers, builds little if any customer loyalty, and results in the firm missing opportunities to attract customers who are less price-motivated.

Rather than reducing prices, firms should look for ways to create ‘compensatory value’—value for which customers would be prepared to pay and that enables the firm to earn the price it wishes to charge. Of course, it goes without saying that the baseline for generating any perception of value is to begin by reducing shoddy quality, defects and product/service failure.

As an example of reducing and removing in the product or service arena, the plethora of tech devices available today provide endless opportunities to reduce complexity and the frustration associated with getting them to work. Witness the many hours spent by two professional engineers tasked with getting their 13-year-old skateboarding son’s GoPro to connect to the WiFi system and sync with the remote, his laptop and the app on his phone. At the other end of the spectrum, imagine the delight of the customer who is able to exclaim ‘Wow! That was so easy!’

VALUE LEVEL 2: Processes and support systems.  Value can also be created by taking away particular elements of service delivery that customers find frustrating. For instance, firms are well advised to remove ‘barriers to exit’ that cause customers to feel trapped—for example, by providing a clear unsubscribe feature on e-mail newsletters. Removing automated responses can be another route to value, as evidenced in the fact that customers routinely tell us that they are always surprised when they call a business and the phone is answered by a ‘real human being’. For many customers, reducing worry, stress, effort, and the depersonalization associated with tech-based interactions represent genuine value features.

How about reducing your company’s inflexibility, the customer effort required in dealing with you, red tape, or stupid rules? Consider the experience of checking in online for a vacation to the Caribbean. Because it’s an international flight, you have passports at the ready. You log in, enter your frequent-flyer number, and proceed to check in for you, your spouse and three children. As anticipated, you dutifully enter each passenger’s full name, date of birth, passport number, and expiry date—all the while thinking: ‘I had to do this last summer when we visited my parents, with the same airline. Why isn’t it in their system?’ With the data capturing tools available to companies today, this should not happen.

VALUE LEVEL 3: Technical performance.  Most companies strive to establish themselves as leaders in the realm of service excellence. Customers typically speak of ‘service’ in terms of access, convenience, accuracy and responsiveness. Psychological costs can be reduced here by making it easier for customers to deal with a firm, obtain information and advice. For example, FedEx and UPS allow customers to track packages so they know precisely when they will be delivered. This reduces time, effort and anxiety, thereby increasing value significantly for the customer. Value can also be created through the reduction or elimination of delays, errors in order filling, stock-outs, waiting lines, systems failures, and employee error.

At this level, online retailers shine. European retailers like Farfetch and Rafaello Network present an impressive array of clothing items from leading designers, prices are in your home-country currency and represent the landed price at your door, including all shipping, taxes and import duties. Most retailers doing business online, especially Amazon, make returning items super-easy, allowing customers to print the return label at home, drop the package at a nearby Post Office or UPS Store, where the label is scanned and the refund processed to their credit card within an hour.

VALUE LEVEL 4: Organizational and employee interaction. As soon as customer-employee interactions occur, Human Resources plays a prominent role in creating value. When human contact is involved, the dynamic with the customer shifts squarely into the emotional realm. Poor treatment by frontline staff is definitely enough to cause customers to go elsewhere. On the other hand, customers who are treated with respect, empathy and genuine concern will perceive psychological costs to be low and benefits high, leading to a better view of overall value obtained.

The firm’s ability to create value at this level is dependent on its HR policies and the importance placed on hiring the right people. In this area, creating value for customers is very much connected to creating value for employees. Engaged, satisfied employees are much more likely to deliver superb interpersonal service, and are unlikely to be rude, unhelpful or disgruntled.

For example, from our research, we know that customers anticipate that interactions with their cellphone providers will be stressful. Yet one small mobile network operator we know found a way to impress its customers. Knowing that people brace themselves for the worst before calling their provider (endless ‘interactive voice response’, unhelpful customer reps), this firm decided to proactively address everything that could go wrong with an employee-customer interaction. Its customers are still amazed when the phone is picked up by a real human—and that rep stays with them through the course of the call.

In order to deliver this type of value, employee training must be intensive. The mandate for this particular firm’s employees is to help solve the customer’s problem in any way possible—with no scripts to follow and no limitations. In short, employees are equipped and entrusted to delight their customers. The result: both customer and employee retention are significantly higher than the industry average.

VALUE LEVEL 5: Emotional elements.  The ultimate focus for every organization must be on the Holy Grail of value creation: How your product or service makes your customers feel. As indicated, customer emotions are deeply held and have a profound influence on whether a customer will continue to do business with you. Reducing negative emotions is key, and demands paying attention to everything that might make a customer feel disappointed, neglected, let down, unimportant or ignored—whether through interactions with products, processes, systems or employees. Everyone in your organization should constantly be on the lookout for things that lead to negative customer emotions; they should also be empowered to address them.

Take the example of a very customer-focused regional airline. A valued business customer flies the same route on a regular basis. This frequent flyer is a larger person, always selecting a bulkhead seat and requesting a seatbelt extension on each trip. An observant flight attendant noted the passenger’s repeated request and brought it to the attention of senior management. As a result, the airline retrofitted every bulkhead seat with longer seatbelts to accommodate all passengers. The customer never has to ask for an extension again—sparing potentially negative emotions like embarrassment and irritation. At the end of the day, every customer wants to be seen and valued as a human being and will return an organization’s thoughtful accommodation with long-term loyalty.

Dynamics Across the Value Levels
The first three levels of our framework primarily involve the creation of functional value, including what customers typically expect with respect to product and service quality. These are the things that customers fully expect you to get right and, if you do, most will rate your firm at 8 or better on a 10-point customer satisfaction survey. If you don’t get these things right, you have very little hope of building a long-term customer relationship, and most leaders recognize this. However, because they are expected, such elements rarely serve to impress or delight people. Sadly, corporate thinking is often ‘stuck’ at these levels. Executives of such firms believe that, if the customer is satisfied, what is left to be accomplished?

The answer is, a lot. As indicated, the top two levels of our framework represent opportunities to create a much more powerful form of value: emotional value. This is where small and medium-sized enterprises (SMEs) may have a differential advantage over big business, because they are able to consistently offer more personalized and genuine interactions. Because of their sheer size, major corporations usually resort to the use of technology to interact with customers. Some do it well, but customers instinctively know when a service is being initiated and delivered via technology (such as auto-dialing and social media targeting). They recognize that such tactics are derived algorithmically rather than from a genuine interest in delivering value to them.

While the top two levels of our framework are rife with opportunity to create deep, long-lasting connection with your customer, each level contributes to enhancing or diminishing overall value creation.

One customer experience with a national window and door manufacturer serves to illustrate.  The company had quality products and a solid sales function, but abysmal after-sales service. Owing to antiquated systems, it took eight weeks to replace a simple door lock. Because of process deficiencies, the after-sales customer rep had to continuously deal with dissatisfied customers. Recognizing that she had no real power to solve the problems she repeatedly faced, she became disengaged from her job, which customers could sense in their interactions. In short, the employee was set up for failure, customers were frustrated, and value was destroyed.

So, what is needed for a firm to develop a value-generation approach to customer strategy?

A deep understanding of value. Like service and quality, value is central to management thinking. Many firms dutifully outline their value proposition without giving a great deal of thought to how value is perceived by their customers. As we have indicated, there is far more to value than what the customer gets for his or her money.

Leadership. Empathy is a requirement for success in customer value creation. One CEO whom we have encountered summons empathy at every strategic decision point, by asking, ‘What would ‘Mrs. Murphy’ [a hypothetical customer] say?’ To build genuine customer loyalty, corporate leadership must emphasize sensitivity to the customer, from the top down. The organizational objective must be to remove the negative emotions that get in the way of the customer perceiving value.

A value-based culture.  An awareness of how and when value can be created must permeate the firm. Employees at every level should be constantly on the lookout for opportunities to reduce and remove barriers to value creation. They must understand the potential that exists to impress customers by making things easier or by taking something off their plate. In our own work, we regularly ask customers what they dread. By identifying such things through active listening and insight gathering, you can proactively reduce negative emotions.

In Closing
The goal for every organization is to create meaningful value that contributes to building long-term customer connections. As indicated herein, this can be accomplished in part by removing systemic barriers to value creation.

Who doesn’t want to hear their customer say, ‘That’s one less thing I have to worry about’ or ‘They don’t treat me like a number’. Such comments reflect the creation of emotional value—the Holy Grail in the quest for long-term value creation.  

Jim Barnes (Rotman PhD ’75) is Chief Customer Strategist at BMAI, a strategy consultancy that advises corporate clients and member-based organizations on customer strategy and the measurement of customer engagement.  He is former Dean of Business Administration at Memorial University, where he is currently Professor Emeritus. Cristina Austin (Ivey MBA ’99) is Senior Strategist at BMAI and former President and Owner of StratoFlo Inc., a logistics firm that was acquired by CP Rail in 2015.

[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]