Customer value is the benefit that a customer will get from a product or service in comparison with its cost. This benefit might be measured in monetary terms, such as when a product helps save the customer money that would have been spent on something else. A benefit also can be difficult to quantify, such as the enjoyment that a customer receives from a product or service. The term “customer value” should not be confused with the value of customers to businesses. It refers to the value that the customers receive, not to how valuable customers are.
Realization vs. Sacrifice
Some businesspeople explain customer value as realization compared with sacrifice. “Realization” is a formal term for what customers get out of their purchases. Sacrifice is what they pay for the product or service.
Measuring Value
A product or service can provide value in many ways. Along with helping a customer save money or providing enjoyment, it also could save the consumer time, provide a benefit that could not be obtained without the product or increase the value of something the customer already owns. For example, if a self-employed woman buys a computer that allows her to save time doing tasks such as creating invoices, keeping records or managing a budget, she might be able to devote more time to the aspects of her business that make money. This could allow her to increase her monthly profits by more than the original cost of the computer, making it easy to identify the net value that she received from her investment of buying the computer.
Used by Businesses
Businesses of all sizes use customer value as part of a greater analysis to determine how well they are serving their customer base. Detailed research might include what customers generally do with the products they purchase or how they use services to increase the value of their assets, such as real estate or cars. Businesses also look at the prices of their products in comparison with the value that customers receive from them, in order to price them competitively and to maximize profits.
Promoting to Customers
When a business identifies the value its products or services provide to customers, it might consider a customer value proposition. This basically is a promise of benefits to customers who buy the products or services. Examples of customer value propositions can be seen in advertising. Companies pinpoint the benefits that they believe customers will realize, and they display them in advertisements in the hope of attracting more customers. Laws that ensure truth in advertising make it illegal for companies to advertise greatly exaggerated or false customer values for their products or services.
Related Concepts
Along with the basic idea of customer value, other terms help further define that value precisely. Relative performance identifies how a company’s product or service provides customer value in comparison with that of competitors’ products or services. Access cost is something that business analysts add as an estimated cost of the effort involved in a purchase. Value propositions often include these levels of detail to help managers look at how well a business is serving its intended audience.