Customer value model

A customer value model (CVM) is a data-driven representation of the worth, in monetary terms, of what a company is doing or could do for its customers. Customer value models are tools used primarily in B2B markets where the choice of a given product, service, or offering is based primarily upon the amount customer value created. Customer value has been often defined as Value = Benefits - Price. Thus, customer benefits are quantified in a CVM - product features and capabilities are translated into dollars. Customer value models are different from customer lifetime value models, which seek to quantify the value of a customer to its suppliers.

Using the Value = Benefits - Price is regarded by some current research as overly simplistic to the point of being dangerous. Don Shapiro, President of First Concepts Consultants, Inc. has been researching customer value for 28 years. According to his findings, value involves a lot more than benefits or a combination of features redefined as benefits as compared to a price. His research states that "only the customer can define value". It cannot be defined by what a company offers or what a company considers a benefit to the customer. It also can't be defined simply by price because the price the customer pays includes their time and effort as well as money expended.

Shapiro's research lead to the following definition: CUSTOMER VALUE = IMPORTANCE + VISIBLITY. What Shapiro discovered is that not all benefits are ranked as equally important to the customer. In fact, some things that would be considered beneficial to the customer by a vendor are actually considered unimportant to the customer. Based on his conclusions, it is not enough to define a list of benefits the customer can receive and then compare them to the time, effort and money the customer must spend to get these benefits. Only those benefits the customer ranks high in importance will cause their perceptions of value to rise. Since customers use their perceptions of value to decide what they buy and if they buy, only those things customers consider highly important will actually cause them to buy. This means the customer value model needs to be modified to adjust for everything customers consider important and unimportant. According to Shapiro, it is a failure to consider the issue of importance that has led many firms to offer something customers were unwilling to pay for simply because they had built too much into the offering that was unimportant to the customer which raised its cost and profitable pricing.

Firms using customer value models

Many firms have been reported to use customer value models, including General Electric, Alcoa, W.W. Grainger, Qualcomm, Sonoco, BT Industries Group, Rockwell Automation, and Akzo Nobel..

Uses of customer value models

1. New product and service development and refinement: The dialog and customer immersion that is part of a CVM is used to discover and determine which potential product features and functionality would create the most value for customers. This on-site interaction can be used to frame and define those features and functionality. Often a key is to focus on product or service capabilities rather than on features. Successful CVM efforts change the basis of the customer-supplier product conversation away from features and functions and toward problems, benefits, and value.
2. Sales tools: CVMs can serve as a quantified statement of value and benefits for a customer that is used by the vendor sales staff to both sell into a new account, as well as to reaffirm and validate value created for current customers as a means to retain and grow current customer.

Customer value model methods

There are several methods and approaches used to create customer value models. All of these approaches appear to depend on substantial customer interaction and on-site interviews and observations of customers' challenges related to the product or service being valued. The CVMs are of varying complexity. One consulting firm has found it useful to reverse-engineer customer P&Ls (profit and loss statements) to establish a clear connection between the product benefits and the customer bottom-line.