A unique value proposition is central to much of any company’s business strategy. Understanding the value that your product brings to consumers, and how it sets you apart in the marketplace, unlocks your ability to identify and segment your audience, craft your marketing message, and increase your sales. Measuring customer value helps you to identify the products and features that differentiate you most, and leverage them into business growth.

What is customer value?

Customer value consists of the combination of factors that motivate a consumer to buy your product or service, instead of choosing an alternative product or none at all. In essence, it’s all the ways your product makes a customer’s life better or gets them closer to their goals. 

Naturally, customer value will vary between segments of your audience and even between individual consumers. Different features of your product may have a greater or lesser impact given the unique circumstances of different customers’ lives.

That’s why it’s especially important when considering customer value to know your audience. To learn more about this kind of market research, check out our post on customer insights.

The advantages of understanding customer value.

Insights into your target audience help you get the most out of your business strategy. When you understand why customers purchase your product, you can lean into the features that mean the most to them. 

Customization is a high priority for today’s consumers. Catering to your audience’s priorities brings in new sales, but will also build loyalty and satisfaction with your existing customers.

Measuring Customer Value

Customer value has elements that are both tangible and intangible. Benefits of a product can be physical, but they can also be harder to quantify. Your customers might value your product because it’s constructed well, or they might appreciate it for your brand’s environmentally-friendly image or the time your product saves them. 

In the same way, product costs can include literal financial outlays like up-front payment or subscription fees. But they can also consist of logistical hurdles, time, and social or emotional costs. Examples might be subscription products that require several time-consuming steps to sign up for, or a chat app that can’t communicate with its major competitors. 

Measuring customer value involves an honest and thorough assessment of your product’s benefits to consumers, and the costs they incur by choosing it. 

Identifying Benefits

Customer value is rooted in your customer’s perception of your product. The advantages that you had in mind when you developed your product aren’t necessarily the only ones that consumers see. Therefore, identifying the ways your product benefits consumers involves some level of putting yourself in their shoes. 

The immediately obvious benefit may be a high-quality product or service. But when totaling your product’s advantages, you should also consider:

• Quality of customer experience
• Quality of customer service
• Accessibility
• Convenience
• The perception of your brand in the marketplace: luxury, eco-friendly, etc.
• The quality of your closest competitors
• Your company values

These are by no means the only benefits your product can bring. However, they illustrate the importance of thinking broadly when considering the needs your product meets for your customers.

As an example, let’s say our product is a messenger bag. The first benefits you think of might be its sturdy construction, ability to carry larger books, and laptop pocket.

Another factor to consider might be our brand’s reputation as a socially conscious company, which will be of particular importance to the segments of our target market who share that ethos and want to buy from brands that align with their values. Additionally, our bag is the only one widely available that has a side pocket large enough for a water bottle. 

All of these attributes play into a consumer’s perception of our bag’s value to them, and contribute to their motivation to buy it.

Identifying Costs

In the same way as benefits, costs should be considered broadly when measuring your customer value. Of course, the price of the product or service is a cost to the consumer, but there are many other possible functional, social, and emotional costs. Here are a few to consider:

• Maintenance fees
• Renewal fees
• Installation costs
• Transportation costs
• Customer service hurdles
• Difficulty finding your product
• Your product’s learning curve or usability hurdles
• Social or reputational impacts

Consider our messenger bag example. Installation and maintenance fees don’t apply to this kind of physical product, naturally. But because of the bag’s high-quality construction and our socially conscious manufacturing process, it might have a higher price than similar options. Additionally, if it’s only sold in specific retail outlets, potential customers who don’t have a store nearby will have to work harder to find it. 

Quantifying the Intangibles

It’s clear that the cost-benefit analysis of customer value covers a broad range of factors. Not all of those factors are easily measured in numerical terms. Time savings or subscription costs can be translated into a mathematical value relatively simply, but social approval is harder to quantify.

Measuring customer value isn’t an exact science. Because of the wide variety of intangible benefits and costs you’re considering, it’s unlikely that you’ll wind up with a precise, mathematical apples-to-apples comparison for every product on the market. But it is possible to get closer to this kind of data by leveraging customer feedback.

Customer surveys can help you capture the voice of your customers and, depending on the types of questions you ask, help you put a number on the less tangible aspects of your product. More open-ended questions also offer customers the opportunity to surprise you with values you hadn’t previously considered. 

If you aren’t already collecting customer feedback data, you’re missing out on an enormous opportunity to inform your business strategy. Constructing your customer feedback channels with customer-value measurements in mind will help you capture important insights that can shape your product development and marketing efforts.

Calculating Customer Value

After all those caveats about mathematical precision, it turns out that there are indeed formulas to calculate customer value. Once you have tallied your product or service’s benefits and costs from a consumer perspective, the simplest way to conceptualize the overall value is to subtract costs from benefits:

Total benefits to customer — Total costs to customer = Customer Value

To compare products more directly, you can also apply a different equation:

(Value¹ — Price¹) > (Value² — Price²)

Value¹ and Price¹ are the value your product provides and its cost. Value² and Price² are the value and cost of a similar product, either another of your offerings or one of your competitors’. Ideally, the net value of your product to customers will be greater than comparable products on the market.

However you choose to quantify your benefits and costs, these equations will help you capture the—hopefully!—net positive impact that your product or service has on your customers’ lives. 

You can collect the necessary data to run these equations for each product you offer, as well as for each customer segment that the product targets. This will give you a way to compare the impact of each product, and the potential return on investment for further marketing or product development. 

Applying customer value measurements.

Once you have an understanding of the value your product or service offers customers, you have a powerful tool in your toolbox. Customer value measurements allow you to make informed decisions about where to spend your marketing dollars and how to craft your message. They can tell you which of your offerings bring in new customers, and which features drive customer loyalty to your brand. 

Let’s return to the messenger bag example. It has a side pocket big enough for a water bottle, which sets it apart from other products on the market. One of our other offerings doesn’t have the same pocket.

We’ve discovered, through our customer feedback, that students see a lot of value in the bag with the water bottle pocket. Professionals, on the other hand, gain less from it—they place more value on visual styling appropriate for an office setting.

Now we know that we don’t have to distribute both offerings evenly across retail outlets. We can target campus bookstores with one bag, and downtown stores with the other. Customer value measurements help our business distribute its resources efficiently, and get the greatest return on our investment.

Customer value measurements depend on customer insight.

It should be clear by now that customer value is one of a suite of key business metrics. But to get the most out of it, a company needs robust information channels to gather feedback from their customers. Reliable customer insight is the best way to make customer value metrics work for your brand.

In our highly connected world, consumers are sharing valuable feedback constantly. It’s up to businesses to gather and interpret that data, which can seem like an overwhelming task.

But with the right technology in your corner, understanding your customers and the marketplace as a whole becomes a lot more manageable. The right software, like GapScout, can help you sift through the sea of information. The insights you gain are your springboard to growing your brand.

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