What do your customers value? How does your organization ensure that it consistently maximizes customer value every day?
Customer value is best and most-simply understood as the benefit a customer derives from your product and what they are willing to pay to obtain that benefit. Customers are willing to pay for the cost of materials, the cost of manufacturing, and some administrative costs to run the company. They are also willing to pay for how that product makes them feel or influences their lives. And, there is a limit to the amount they will pay. Anything that increases the cost of the item beyond what a customer is willing to pay for the derived benefit is considered waste, and customers don’t want to pay for that waste.
What a customer values may extend beyond how the product is used or the problem in their life that it helps solve. For instance, a coat has the immediate and obvious value of keeping the consumer warm and/or dry. In some cases that may be all the consumer values. In other instances, the consumer may derive additional value from the type of material, the color or pattern, the degree of stylishness (or not), and/or the relative scarcity or popularity of item. The quality and durability of the coat may provide value. The brand, the company culture, and the company mission may also create or represent value for the customer.
Consider Patagonia, whose “sales quadrupled over the past decade and recently surpassed $1 billion” according to Time Magazine. Customers buy Patagonia’s products because Patagonia:
- produces high-quality products that last and they stand behind them. Patagonia provides resources and support to repair clothes and gear that are ripped, torn, or damaged, even offering a mail-in service where they make the repairs with the only cost to the customer being the initial shipping to their repair facility.
- “seek[s] out ’dirt bags’ who feel more at home in a base camp or on the river than they do in the office” when hiring to be their employees rather than MBAs. This ensures their products are functional and that employees share the same value-set as the company and are naturally aligned to Patagonia’s mission.
- is an activist company from their original founding that is focused on saving the environment and making the world a better place. They stand for something that their core users believe in, and that a majority of humanity also cares about.
The value that Patagonia creates with their clothing and gear is diverse, extensive, and contributes directly to their success. And they know where value is derived in their company.
If you don’t know already, it is important to understand where customer value is created in throughout your operations and in your internal processes. Creating value stream (or value chain) maps is an effective way to identify where value is created, delivered, maximized, and impeded in your organization. Taking time to create this insight allows you identify where problems are more likely to erode customer value and gives your management team more direction on where to focus their efforts.
Maximizing customer value involves creating a culture that is focused on quality outcomes, solving problems, creating efficiency, and eliminating waste in operational processes. Defects in products impact customer satisfaction and can quickly result in lost business if not managed properly. Inefficient processes that include waste (e.g., time, materials) increase expenses and either raise the cost of the product or impact profitability. Employees should be empowered to identify issues within their own work and processes throughout the company to create efficiency and ultimately improve customer outcomes. How you make things is equally as important as what you are making.
Maximizing customer value also requires creating a culture where every employee understands the company’s mission, financial and operational objectives, performance expectations for employees at all levels, and the fundamentals of accountability. More importantly, the company’s culture, mission, objectives, and expectations need to be tightly integrated into everything the company does, including operational processes, decision-making, performance reviews, hiring, etc. If customers value high-quality, durable products it is impossible to deliver that type of product if any of the components above do not directly align with, promote, and ensure quality and durability.
The late Clayton Christensen, the renowned professor of business and innovation, said that “[i]t’s easier to hold your principles 100 percent of the time than it is to hold them 98 percent of the time”. This concept applies to maximizing customer value as well. As soon as you begin to comprise your own values – your principles and what you stand for – you begin to erode the value customers receive from your product or service. If you have not integrated how you maximize customer value into every aspect of your business, you begin signaling to employees that other objectives are potentially more important. And whether intentionally or not, you are creating a new culture and negatively impacting your ability to serve your customers in the way they expect to be served.
In a recent blog, we explained how Paul O’Neill (former Secretary of the Treasury, not the one-time Phillies star) increased Alcoa’s revenues and profits by creating a culture of safety and then vigorously managing expectations about instilling and maintaining that culture in everything the company and employees did. In another post, we mentioned Disney’s approach to the customer experience and how their commitment to providing magical experiences is well understood by all employees and front-and-center in everything Disney does. And in this post we highlighted Patagonia. All three companies understand what their customers want and have created ingrained cultures and developed systems to ensure that customers and the core company mission are always in focus. They also have a deep understanding of where in their organizations (e.g., people and process) customer value is created and delivered so that they have the ability to finely tune all aspects of their product and customer experience. Lastly, they don’t compromise their values or mission at any time.
Driving customer value, then, requires the right culture along with:
- understanding what customers value and how (and where) that value is created and delivered within your company
- clearly defined company values and the relentless commitment to adhere to those values at all times
- integration of company values and culture into everything the company does
- effective and transparent communication through all levels of the company
- alignment of company strategy with company values, customer value, decision-making processes, operational processes, project prioritization, and employee performance management
- articulated employee expectations that are integrated into processes, employee performance objectives, and the performance objectives of their managers
- metrics that give insight into how value is created, where value creation may be impacted, and where value may be impeded so that you can quickly adjust when issues occur
Maximizing customer value is a complicated process that requires the coordination of complex systems and even more-complex human beings. It requires vision, discipline, and commitment because the challenges of managing a business never stop. At the same time, it doesn’t have to be hard. Live the culture you expect, empower people to do their job, and treat all employees with the dignity and respect that should be afforded to all human beings and the job of maximizing value becomes much easier.
Overwhelmed? We’ve got this. For the good.