Business Marketing: Understand What Customers Value

I D E A S AT W O R K u n d e r s t a n d w h at c u s t o m e r s va l u e

Many customers, like the com- mists may care about "utils," but we

some context. Even when no compa-

mercial grower, understand their

own requirements but do not neces-

sarily know what fulfilling those

requirements is worth to them. To

suppliers, this lack of understanding

is an opportunity to demonstrate

persuasively the value of what they

provide and to help customers make

smarter purchasing decisions.

A small but growing number of

suppliers in business markets draw

on their knowledge of what cus-

tomers value, and would value, to

gain marketplace advantages over

their less knowledgeable competi-

tors. These suppliers have developed

what we call customer value models,

which are data-driven representations

of the worth, in monetary terms, of

what the supplier is doing or could

have never met a manager who did!

Second, by benefits, we mean net

benefits, in which any costs a cus-

tomer incurs in obtaining the de-

sired benefits, except for purchase

price, are included. Third, value is

what a customer gets in exchange for

the price it pays. We see a market of-

fering as having two elemental char-

acteristics: its value and its price.

Thus raising or lowering the price of

a market offering does not change the

value that such an offering provides

to a customer. Rather, it changes the

customer's incentive to purchase

that market offering. Finally, consid-

erations of value take place within

rable market offerings exist, there is

always a competitive alternative. In

business markets, one competitive

alternative may be that the customer

decides to make the product itself

rather than purchase it.

We can capture the essence of this

definition of value in the following

equation:

(Values 2 Prices) > (Valuea 2 Pricea)

Values and Prices are the value and

price of the supplier's market offer-

ing, and Valuea and Pricea are the

value and price of the next best alter-

native. The difference between value

and price equals the customer's in-

do for its customers.

Customer value models are based

on assessments of the costs and ben-

efits of a given market offering in a

Using Customer Focus Groups

to Assess Value

particular customer application. De-

pending on circumstances, such as

availability of data and a customer's

cooperation, a supplier might build

a value model for an individual cus-

tomer or for a market segment, draw-

ing on data gathered from several

customers in that segment.

Customer value models are not

easy to develop. But the experiences

of suppliers that have built and used

them successfully suggest several

guidelines that we believe will be

useful to any company attempting

to define and measure value for its

customers.

A Common Definition of Value

To measure value in practice, it is

crucial to have a shared understand-

ing of exactly what value is in busi-

ness markets. Before we go into any

detail about building value models,

we need to provide a brief explana-

tion of what we mean by value. Value

in business markets is the worth in

monetary terms of the technical, eco-

nomic, service, and social benefits a

customer company receives in ex-

change for the price it pays for a mar-

ket offering. We will elaborate on

some aspects of this definition.

First, we express value in monetary

terms, such as dollars per