What we mean by customer value
Beyond economic theory
Ever since Adam Smith’s The Wealth of Nations in 1776, the economic value that the state needs to produce in order to maximise its prosperity – which was, as the title indicates, the precise focus of that work – has been confused with the commercial value that corporations need to realise for their own profitability and growth.
The approach to value here will be both pragmatic and primarily commercial. We won’t enter into the centuries-old back and forth about the nature of economic value. We will, however, where useful, draw here and there on concepts and terms that derive from economic analysis.
We are primarily focused, for the purposes of this paper, on value only insofar as it impacts on how firms can better realise it for themselves, by creating it for their customers.
When a term is intrinsically problematic – and value certainly is that – it’s wise to reduce the scope of any attempt at definition to how it’s most commonly used. When we use the word in the context of day-to-day business, what exactly are we saying?
In the past, it’s been assumed, for example, that anything that makes money has value, and, in turn, that those products and services that make more money are therefore more valuable. But price as a prime determinant of value – linked to the economists’ hypothesis of value-in-exchange – has had a patchy record, not least among economists themselves.
Does this help a firm in the early stages of developing a new product or service? If every sector were like, for example, real estate, then very likely yes: because real estate valuations are nothing if not guided by “comps” – properties that are seen as comparable across a range of accepted criteria.
Meaningful customer benefit
However, in most other sectors, whether goods or services are the root of the proposition, while pricing is naturally an important element of the calculation of value, it’s unhelpful as the primary determinant. While price itself varies contingent on many factors, it’s those factors themselves that demand our attention. We could say, therefore, that price is one symptom of value, rather than a cause.
I propose we plunge in and start with the hypothesis that the most common and accessible definition of customer value is around some kind of “meaningful benefit”. But while “benefit” passes the common sense test, why do we need “meaningful” in there?
First of all, while earlier, typically agricultural or industrial notions of value assumed that value was built into the commodity, product or service, and thus determined by the provider, this view has not survived either in economic theory or, more important for us, business practice.
Commercial value today is, as is pretty much accepted, experienced both “in-context” and “in-use”, and thus ultimately determined by the customer. But it’s what makes a benefit meaningful that needs our attention.
Why meaningful? To whom? When, where, how and why? And perhaps above all, Compared To What?
How we decide what is valuable
Rational? Emotional? Or both?
Ideas about how consumers make decisions – where they choose to spend money and on what, why they choose Brand X over Brand Y, the determinants of acceptable price points, the drivers of brand loyalty and so on – have understandably dominated economic debate, corporate planning, and marketing strategy and execution for generations.
At one extreme, we have the neoclassical model of the rational, utility-maximising consumer. At the other, we have the behavioural scientist’s view of the consumer as far less rational: logic gives way to emotion.
I’d like to sidestep, or perhaps subsume, this long-standing and unhelpful tension between the rational and the emotional, to get to a common sense, pragmatic and usable way of thinking about customer value.
We don’t need to wait for a conclusive, holistic theory of human behaviour – after many decades, we’re still awaiting and vigorously debating that today – to get to a way of looking at how people identify, assess and commit to what they see as valuable.
Trading off narratives
There is a continuous flow of inner dialogue that we, as customers, carry within ourselves. For the immediate and pragmatic purposes of this enquiry, we don’t need to qualify that conversation as conscious or unconscious, rational or emotional, instinctive or learned … In fact, it’s likely to combine elements of all of these.
At the heart of customer choice we will always find one question: “Compared To What?” And the “What” is most usefully considered in terms of narratives.
When we, as consumers, arrive at a comfortable purchasing choice, we are of course trading off the cost of the item – the money we need to part with – for the perceived benefits that the item offers us. But the financial exchange is only a final trade off, before and behind which has occurred a series of narrative exchanges. Through these, we arrive at a conclusion that represents – to you or I, as unique individuals, in these particular circumstances, in this ever-shifting context – meaningful benefit.
This is not a process exclusively determined either, on one hand, by cold calculation or, on the other, by hot emotional impulses. The narratives that we refer to, in this “Compared To What?” sequence that we cycle through, feature and blend both rational considerations and feelings, both of which may be conscious, semi-conscious or unconscious.
While degrees of mathematical probability can, and will continue to be, applied in the hunt for more accurate predictions, no firm – however AI, ML and Big Data may evolve – can hope to entirely lock this process down.
Neoclassical (rational) and behavioural (less so) economic behaviours are both represented in this process of narrative trade-offs. Utility should, in fact, include emotional as well as rational benefit, and behind what may seem like impulsive, knee-jerk decisions may well lie perfectly reasonable estimates.
We can begin to see more clearly how, far from being something that is “done to” consumers by firms, value is established and committed to through a dynamic process.
And the ability of the firm to, first of all, get onto the customer’s dance card, and then to perform the dance – the sequence of narrative trade-offs – successfully – originates, of course, in the well-formed value proposition.
Narratives in marketing
Insights are narratives
Brands in classical marketing practice are defined, built, communicated and grown out of a revered concept: the customer insight. The insight, in order to support the successful positioning of a new brand (or of course, the repositioning of an existing one) needs to be fresh and differentiated – in terms of what’s in the market already – and credibly ownable by the brand.
The world’s most successful brands have refined and mastered this process. And the outcomes of that work – brand positionings and communications – form ideas that have become long-standing, highly influential, global cultural touchstones.
“Just Do It” … “Because I’m Worth It” … “Dirt Is Good” …
The precious thing that a brand comes to understand when it identifies, assesses and selects a desirable customer insight is, as it turns out, both invariably and usefully reducible to the language and dynamics of narrative.
How dirt got to be good
The international FMCG firm Unilever has produced many of the world’s most successful and familiar products, brands and campaigns. Its ability to identify, develop and to speak powerfully to unique consumer insights is legendary in marketing. Who is not familiar, for example, with Dove’s iconic and durable ‘Campaign for Real Beauty’?
A useful illustration of applied narrative dynamics emerges from their global detergent positioning (applied worldwide to a number of local brands, most notably Persil) and the many powerful advertising campaigns it has guided: ‘Dirt Is Good’.
Where two or more narratives conflict, there is uncomfortable dissonance for the individual. Unilever – as we saw with Dove – is particularly skilled at pinpointing an established or emerging conflict in consumer values, to then position the brand and its products as solutions that relax or resolve the tension.
Mothers (among which I include, here, modern fathers …) want their kids to have clean clothes. But many parents also understand that kids need to play, and that proper play means mess. They also appreciate that if kids don’t get out in the world to be exposed to germs, they are unable to develop a healthy immune system. While such tensions are far from earth-shaking, they are meaningful, and the conflict they produce is not insignificant.
Enter Persil. You can, and should, let your kids get as muddy and snotty as you like – it’s good for them, after all – knowing that all that gunk will come out in the wash, and tomorrow you’ll send them out as clean and fragrant as you could wish. The brand is thus woven deeply into the fabric of responsible parenting.
What’s more, when one or more resonant consumer narratives are accessed, the resulting storytelling opportunities are many and highly fertile.
In one engaging and witty Dirt Is Good campaign, ‘Free The Kids’, long-term inmates of a US prison are interviewed about their allocated daily outdoor exercise time, and how they would feel if it were cut from two hours to one. The punchline arrives when the prisoners are told – and visibly shocked – that kids’ average daily outdoor playtime is half of what they are allowed … one hour.
We should note, before moving on, that the customer problem which – in the category of laundry detergent – is being resolved by the brand is far more than merely the functional need to provide fresh and hygienic clothing for a family. ‘Dirt Is Good’ touches and activates multiple powerful human narratives, about childhood, about parenting, about health, well-being and learning, and – admittedly a bit of a stretch – also about freedom and human rights.
The consumer wins by balancing what would otherwise have been dissonant personal and familial narratives. And, to cut to the commercial bottom line, when you’re hovering in the supermarket aisle considering – or online with your mouse poised over – a variety of detergent brands – this makes all the difference.
Explosions of narrative
Perhaps the biggest challenge facing marketers, in the time of digital, is the biblical flood of changing narratives – often referred to as ‘memes’ – that flow across networks. Contrast the ever-increasing velocity and volume of this shifting cultural and commercial environment with, for example, the relative homogeneity of American culture in the post-war boom years from the early 1950s.
There were – with, of course, pockets of counter-cultural resistance, mainly on the urban East and West Coasts – only a handful of widely-shared popular narratives for brands and advertising to get to grips with. Many millions of households shared very similar values, watched the same shows, and, of course, bought the same brands. This fact, along with the explosion of national prosperity that followed the war, and the ubiquity of the television, enabled a Golden Age of media and marketing.
Whether they chose to align with these distinct and widely-shared narratives, or perhaps occasionally to challenge them, these lucky brands and their advertising campaigns enjoyed the luxury of addressing a very limited and clearly defined range of cultural and personal reference points. The Mad Men of the period – in sharp contrast to today’s beleaguered marketers – could reasonably claim to have directly built both brands and the businesses that owned them.
While the disruption and fragmentation of today’s media landscape is well-recognised, the overwhelming explosion of new and different narratives to which we are now constantly exposed suggests an equally important and challenging disruption. If our individual narratives make up the toolkit by which we receive and assign meaning to daily events and communications, then to the familiar challenge of achieving effective brand communications is added the very human problem of making sense of a world that has been described as “post-truth”.
“Compared To What” becomes an ever more pressing and bewildering question, when the context within which value is experienced and purchased is in churning, chronic turbulence.
At the time of writing, the double impact of the COVID-19 virus, alongside the global outrage and growth in the Black Lives Matter cause, which erupted after the killing by police in the US of George Floyd, has thrown many of the world’s cultural and commercial assumptions into chaos. We should be under no illusion, however, that even enormous disruptions such as these are no longer to be seen as rare, ‘once in a generation’ exceptions.
From here on, the narratives of meaning which our customers refer to every day are in constant, rapid flux.
This means that, as a direct result, customer value is in the same state of flux. So before we move on to consider the role and impact of the Customer Value Proposition, it’s worth summarising four attributes of value that make the proposition work both more complex and more critical to success.
The essentials of customer value
It’s long been a truism to point out that customers are ‘in control’, with significant power over brands. What we have not fully considered, until now, is the particular impacts of the Web on how value itself is received, experienced and judged.
There are four attributes of customer value that, while they have been evident for decades, have been sharply accentuated by an environment that consistently raises experience and expectation in parallel.
Subjective and referential
Value – irrespective of the role and power of its provider – always belongs to each customer and is decided on their terms. They may, indeed, pay the asking price, but that shouldn’t be taken as meaning that what they are receiving is the same as what the firm thinks it’s delivering.
Furthermore, the uniquely personal nature of value is both informed and enhanced by the equally unique range and number of reference points to which every customer – no matter how opaquely and unpredictably – turns in order to make a value choice.
Variable and contextual
However a firm may wish to manage and fix the value of a product or service, for the customer it’s infinitely variable, and that variation is itself determined by an indefinite range of factors. We’ve seen an explosive revolution in valuable, often free, online and mobile services, and services, by definition, are valued more or less entirely in the context of use.
We judge service quality today in terms of intelligence. Brands that apply technology and information to make their service offerings contextually relevant – the right offer at the right time and place – immediately set the bar for customer value. This ability to match the intrinsic variability of customers’ experience and expectation of value ‘in context and in use’ is fundamental to the competitiveness of their service.