Any entrepreneur will tell you that the true purpose of starting a business and selling a product or service is to make money.
But, while making money is your ultimate endgame, focusing solely on profits is like putting the cart before the horse: it will get you nowhere.
Sure, you can make a quick buck from unsuspecting customers by selling a shoddy product at an inflated price. But, once the word gets out that you’re nothing more than a snake oil salesman, your customer base will crumble – along with your business as a whole.
But if you focus instead on providing value to your customers through the product or service you offer, you’ll begin to create a stable foundation that will support your business for years to come.
Before be discuss the many benefits of providing value to your customers (and how to do so), let’s come to a consensus on what “customer value” actually is.
Defining Customer Value
In its simplest terms, customer value is defined as:
the difference between what a customer gets from you and what they have to give up to get it.
The most obvious tradeoff considered when determining customer value is monetary: How much money will your customer need to pay to receive your product or service?
But money is only part of the equation.
According to Builtvisible, there are nine factors to consider when determining the value your product or service provides your customers:
- Product function: What will your product or service do for your customer? What effect will it have on their life?
- Points of differentiation: What is your product’s unique selling point? What sets it apart from similar products on the market?
- Quality: Is your product durable? Is it made to last? Will the services you provide continue to benefit your customers over time?
- Service: What “extras” do you provide your customers once they’ve paid for your product or service?
- Marketing: Have you created a “buzz” around your product or service? Are the benefits of your product well-known?
- Branding: Is your brand a true representation of the level of quality you provide, and of the values your company stands for?
- Customers’ existing relationship with your company: What have your customers’ experiences been when interacting with your company in the past
- Personal bias from experience: Unrelated to your company specifically, what does your target customer think about the product you offer?
- Price: How much do you sell your product or service for? How does the price of your product compare to that competing companies’?
Some of these factors are explicitly and objectively defined. For example, the price you’ve set for your product is tangible and specific; it is what it is. As a business owner or manager, you have a certain amount of control over these factors, and can easily adjust them as time goes on.
On the other hand, many of these factors vary from customer to customer. Each of your potential customers will have different expectations as to the benefits your product will provide them, the relationship that will be forged between themselves and your company, and and the overall value they will get from interacting with your company.
When you consider how both of these “types” of factors come together, you can more easily determine your product’s perceived value from a customer’s perspective.
What Is Perceived Value?
A product’s perceived value is its value as defined by the individual consumer.
Think of The Price is Right. During the qualifying rounds, contestants are shown various items and asked to determine what they believe the “actual retail price” of said items to be. When a contestant names a price, what they’re saying is: “I think this item is worth this much, and I wouldn’t pay more than this amount for it.”
That’s perceived value.
Of course, each contestant on The Price is Right comes up with a different value for a single item. What this tells you, as a business owner, is an item’s perceived value varies depending on specific customers’ needs and expectations.
Let’s take a look at some of the factors customers consider – either knowingly or subconsciously – when determining the perceived value of an item.
Potential customers will determine whether an item is “worth it” or not based on whether or not they can afford it.
When determining if they can afford an item, customers might assess some – or all – of the following factors:
- The money they have on hand
- The amount of time it would take to pay off a purchase made on credit
- The amount of hours they’d have to put in at their job to pay for the purchase
- Whether they can spare the amount upfront, or if they need to allocate their funds elsewhere.
Some of your customers might not have to think twice about buying your product, while others will need to consider all (and possibly more) of the above factors before going through with a purchase.
Of course, as a business owner, it’s in your best interest to determine a price that is most affordable for your target customer base rather than turning away the people who may be your most loyal buyers.
Product Use and Longevity
Another main factor consumers assess before making a purchase is how they will be able to use a product, and how long they’ll be able to use it for.
Their focus here is on whether or not using the product will actually be “worth it” in terms of the benefits it provides.
Though this factor takes money into consideration (as in,“is it worth x amount of money to achieve y?”) as well, it also takes into consideration other investments, such as time and energy (as in, “will I be able to put in the time/energy necessary to use this product and achieve the desired result?”).
Along with this, consumers will also assess a product’s longevity as it relates to its price. To illustrate this concept, consider the following example:
Throughout the recent Christmas season, Starbucks offered a holiday-themed tumbler at an initial price of $40. However, customers who purchased the tumbler were allowed to have it filled for free every day throughout the month of January.
For customers who drink Starbucks coffee on a daily basis, purchasing the tumbler for $40 gave them access to over $100 worth of refills (not to mention a new tumbler).
Of course, not all products offer a monetary return on investment.
But longevity can come into play when considering perceived value in other ways, too. The perceived value of an item can be determined by dividing the price of the item by the amount of times (or the length of time) it will be used.
Say you sell brooms for $20. If a customer purchases one from your company, they’ve spent $20 that they’ll never get back. But, the more they use the broom – and the longer it lasts – the farther they’ll have stretched that $20.
If your customer believes the broom will start to lose its bristles after ten uses, he’s determined the broom to be worth $2 per use – and likely won’t go through with the purchase.
If he believes the broom might not lose its bristles until after 100 uses, the cost per use drops to $.20 per use – a much more reasonable cost that he will be much more likely to pay without thinking too much about doing so.
Perceived Value From The Vendor’s Standpoint
As a business owner, there are two ways you can think of your product or service.
One way is to think in terms of the singular sale. Once you make the sale, the product is out of your hands, and what happens next has no bearing on your business.
The other way is to consider how your product will be used once it’s purchased, and whether it will provide the customer with the value they expected it to.
At the risk of being assumptive, I’ll let you figure out which perspective will be more beneficial to your business in the long run.
The Benefits Of Delivering Value To Customers
Just so we’re on the same page, you chose the second option, right?
As an entrepreneur or business owner hoping to create a long-standing, sustainable company, focusing on the value you bring to your customers through your product or service should be one of your top priorities.
Let’s take a look at exactly why a customer-focused approach is beneficial to both your target consumer base and your company.
Insight Gained Into Customers’ Needs
No matter how amazing you think your product or service is, your customers are the ones who define its true value.
That being said, you won’t get very far if you create a product first and define how your customers will use it second.
But, by determining your customers’ pain points before you design your product ensures that, when you do design it, you’ll being aiming to solve a specific problem in your customers’ lives. In doing so, you won’t have to tell them that they need your product – they’ll already be dying to get their hands on it.
Take the original iPod, for example.
Before its release in 2001, we already had Walkmans and Discmans to listen to music on the go. But there were multiple problems with the existing technology: the devices were cumbersome, the tapes/CDs only held 12-15 songs, tapes unwound and CDs became scratched easily – the list goes on.
In one fell swoop, Apple alleviated all of these issues – and ushered in a new era of portable electronic devices at the same time.
(Also, note that the iPod wasn’t an immediate success, either. Over time, Steve Jobs and Apple fine-tuned the product based on insight they gained from their customers’ experiences with earlier iPod iterations.)
The takeaway here is that, while the iPod was a revolutionary invention, Apple didn’t reinvent the wheel when creating it. Jobs simply understood the improvements that could be made on the current technology of the time, and developed a product that solved the major pain points music lovers faced throughout the previous two decades.
It’s worth noting that providing value to your customers by understanding their needs requires you to do more than simply listen to them. You need to pay attention to them.
Jobs is famous for saying “A lot of times, people don’t know what they want until you show it to them.”
But, there’s no way for you to know what your customers want unless you take the time to truly know them.
Focused Marketing Campaigns Created
Peter Drucker once said, “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.”
When gaining insight into your customers’ needs, you’ll undoubtedly uncover a treasure trove of related information about your customer personas.
This information will, in turn, help you create marketing campaigns that will get the attention of these personas, and make them more likely to do business with you.
In 2014, furniture giant IKEA created an app that used augmented reality technology to help consumers get a better idea of how a specific piece of furniture would look in their homes. The innovative marketing campaign clearly worked: it has since been downloaded over 8.5 million times.
Above providing extra value to its consumers, IKEA also showed that it knows its customers on a personal level. For every shopper who has ever walked through IKEA and said “This is gorgeous, but I don’t know if it’ll look good in my house,” this app solved a major problem – and, in doing so, increased the chances that they would make a purchase during their next visit.
Simply put, the better you know your customers, the more targeted your marketing initiatives will be. The more targeted your marketing, the more likely you are to catch your potential customer’s attention, and hopefully make a sale.
Your Unique Selling Point Becomes Solidified
Along with fully understanding your customers’ needs, you should also be able to define with confidence why, exactly, consumers should choose your product over a competitor’s.
Your company’s USP should be something that aligns your product with your customers’ needs just a touch more than that of a competing company. It’s in this added “oomph” that you’ll sway the indecisive customer away from the competition and toward your product.
Seth Godin believes entrepreneurs should:
“Delight the true believers. They deserve it, after all, and they’re the ones that are going to spread the word for you.”
Think about the shoe company, TOMS. Although the product is quality-made, there are many other brands that are just as comfortable and durable as the ones TOMS creates.
However, TOMS is well-known for its “One for One” policy: for each pair of shoes it sells, it donates another pair to a child in need. To the socially-conscious consumer who may be on the fence when deciding which shoes to purchase, TOMS’ USP makes the decision a no-brainer.
When you understand and flaunt your product’s unique selling point, you not only differentiate your company from the competition, but you also show that you have a deeper understanding of your customer’s needs and are willing to go the extra mile to better provide for them.
You’re In The Experience Business
We’ve alluded to this a few times throughout the article:
When you sell a product or service, you’re not just selling a product or service. You’re selling an experience.
Or, at least, you should be.
As a business owner, you want your customers to know that, when they buy your product, they’re also buying your dedication to their satisfaction.
You want them to understand that, in exchange for the price they pay for your product, they’re getting a promise from you that your product will solve a specific problem they face.
And you want them to be confident that, should your product not deliver on the promise you’ve made, that you’ll do whatever you can to alleviate their worries.
For a textbook example of customer service done right, check out how Elon Musk handled a recent customer complaint regarding a lack of Tesla charging spaces in his area.
Within a week of receiving the complaint, Musk rolled out a policy stating that owners who leave their cars idle after reaching full charge would be assessed a $.40-per-minute fee (The policy also states that the fee would be waived if owners return to and move their cars within a five-minute grace period).
While the new policy may bring in a minimal amount of extra revenue to Tesla Motors, its true purpose is to alleviate a common concern among the company’s consumer base – proving that customer satisfaction is one of Tesla’s top priorities.
Genuine Relationships with Customers Built
Since you’re really selling your customers an experience (and not just a product or service), you want this experience to last.
In doing so, you increase the chances that a customer will return to you when they have a similar problem or are in need of additional services.
One of the best ways to ensure your relationship with your customers remains steady is to stay in touch with them through various means. Thanks to modern technology, this is easier than ever. Nowadays, companies can connect with their customers through email, social media, blogs and forums.
While it’s of course beneficial to provide valuable content through these methods, companies can also use them as a way to reach out in a light-hearted, less business-oriented manner.
Denny’s diner, for example, is infamous in the world of social media for its offbeat Twitter postings. Rather than constantly promoting menu additions ad nauseum, the company isn’t afraid to have a little fun. And, with each tweet getting hundreds (sometimes thousands) of retweets, it’s hard to argue the effectiveness of this tactic.
tbt throw back the fish ya caught, throw back the bad boyfriend, DO NOT throw back the french fries
— Denny's (@DennysDiner) January 19, 2017
By building genuine relationships with your customers, you show them that your company sees them not as statistics or sources of money, but as people. And you make them more likely to become loyal to your company if a need for the services you provide arises in the future.
Positive Customer Experience Leads to Increased Reputation
It’s been said that your customers are your best marketers.
Let’s clarify that a bit:
Your satisfied customers are your best marketers.
When the value you provide to your customers goes above and beyond what they expect to receive, they’ll be more than happy to spread the good word to their friends and family members.
If they’re really happy with the service you provided them, they might even sing your praises on social media – allowing your company to gain maximum exposure at the click of a button.
Consider the following tweet:
Good morning! Just need to thank JetBlue for an awesome flight from RDU to JFK and then another awesome flight… https://t.co/uTOooD4hdc
— JennyWrites (@Jennywrites) January 22, 2017
The person who wrote that tweet has over 28,000 followers on Twitter. There’s a good chance that, of those followers, a good hundred or so are currently looking into taking a trip sometime in the near future. If they happen to notice this tweet while researching which airline to choose, guess which one will be on the top of their mind?
One other thing to notice about the tweet: a representative at JetBlue offered a sincere “thank you” almost immediately after the happy customer posted their message.
Going along with the last section, this shows that JetBlue cares not only about providing top-quality service to its customers, but also about connecting with them on a human level, as well. When your customers know you see them as people first and customers second, they’ll be even more likely to recommend your services to others.
Wrapping It All Up…
While the ultimate goal of running a business is to make money by selling a product or service, the best way to ensure your company sees sustained profits over time is to provide as much value to your customers whenever possible.
Your goal as an entrepreneur or manager, then, is to discover the “sweet spot” in which you can provide maximum value to your customers while still making an honest profit.
To recap, you can provide this value by:
- Gaining insight in your customers’ needs
- Creating focused marketing campaigns targeting these needs
- Defining your product’s unique selling proposition
- Providing quality customer service
- Building genuine relationships with your customers