It is an obvious fact of business that you need to keep your customers from going elsewhere. The costs of acquiring new customers can run five to 10 times the costs of retaining existing ones. Loyal customers are less price sensitive, less eager to negotiate on price, less likely to “shop around” for better deals, and less likely to defect. Providing the value that keeps a customer loyal is much more profitable than providing just average, non-differentiating value that pushes customers into your competitors’ hands.

Following are eight tips on how to become an undisputed value leader in the eyes of your customers.

Learn the difference between price and value.
When a customer says that something is “a good value,” he does not mean that it’s the lowest price he could possibly find. What he means is that the product or service is “worth it” — worth the price he paid. In south Louisiana there is a Cajun word, “lagniappe,” which means a little bit extra for the same price, a concept similar to “a baker’s dozen.” This expression defines the central idea of value. Think of value as “the interaction between customer benefits and the price that the customer is willing to pay to acquire these benefits.”

Fact: Boosting customer retention by two percent can have the same effect on profits as cutting costs by 10 percent.

Realize that becoming a value-driven organization is not easy.
Before you take on this gargantuan task, be aware that you are choosing a tough row to hoe — but the results are very much worth the effort. Ultimately, becoming a value-driven organization requires understanding what customers in the various market segments you serve mean when they refer to value. Remember that value, like beauty, is in the eyes of the beholder.

First, you need to know what your is competition doing. Because customers make value judgments based on what your competitors are doing, so must you. Value does not exist in a vacuum. By itself, it is a measure or concept lacking power and robustness.

However, when used within a competitive ramework, value alone predicts loyalty and performance.

Throughout the process, it’s important to make the distinction between a value driver and a price driver. “Value driver” is the term used to identify specific value benefits such as responsiveness, credibility, and dependability. “Price driver” may refer to a number of pricing components such as satisfaction with price, fairness of price, the company’s willingness to negotiate price, and/or customer perceptions of the relative competitive position of price.

Determine the market segments or product lines that are critical to your future.
Too often, companies try to conduct a value analysis without any coordination with their overall strategic growth initiatives. Obviously this is not a good idea. You cannot be all things to all customers — and it’s foolish to try. Likewise, it’s impossible to offer superior value to every customer that wanders across your radar screen (all of whom have different ideas about what value even means). Figure out which segments and product lines provide your organization with the best opportunities for growth.

Map out your “value stream” from start to finish.
Called value stream analysis, this is the heart and soul of becoming an undisputed value leader. Basically, pick apart every process involved in serving the market niche you have identified as most critical, figuring out exactly how value is currently being delivered and how you can deliver it more effectively and efficiently.

You are going to be looking carefully at the comprehensive set of activities and communications that collectively creates and delivers value to the customer. The starting and stopping points of this process may surprise you. It actually begins with the customer need for a product or service, and ends with that customer’s belief that he has received something of genuine value.

Put together strong value analysis teams.
These teams should consist of five to seven people from different functional areas of the organization. These are the people who are directly involved in doing the actual work. They will become the vehicles for conducting the analysis and, ultimately, taking ownership of the value stream. Be sure to choose people who will tell you how their particular system actually works, not how it’s supposed to work. You need team members who are willing to be honest about the shortcomings in their areas.

List the departments and functional areas involved in the value stream you want to analyze. Because you may not know which ones are actually involved, you may find it useful to list all the departments and functional areas in your company, then delete them at a later date. Don’t be surprised if there is a discussion or debate as to exactly which departments or unctional areas should be included; the team will have different perspectives on this.

You will find that the perspective and knowledge set each team member brings to the analysis is indispensable. Typically, bringing these people together proves that most employees do not know what is involved in the creation and delivery of value.

Once they “toss their work over the wall” they have no idea what happens to it further down the line. Therefore, the analysis itself fosters cross-departmental understanding — which will later promote the buy-in necessary for becoming a true value leader.

Identify ways in which value delivery processes can be improved.
The problem most companies notice right away is that they can spot plenty of things that need to be “fixed”; the sheer number of them can be overwhelming. To determine which issues to focus on, you will need to go back to your customer’s definition of value.

There are a number of “symptoms”—problems in achieving value—that, when found, can help you locate potential bottlenecks in your value stream. Here are a few of them:

Many hand-offs between departments.
Whenever work is transferred from one department to another, there’s a risk of faulty communications. As such handoffs increase, the risk multiplies exponentially. How many times have you called a company with a customer service problem only to be told “that’s not my department”? This is a prime example of too many hand-offs.

Unusual situations or too many exceptions.
Most companies do fine as long as customer situations fall within predictable, expected guidelines. It’s when exceptions arise that employees begin to drop the ball—and when companies begin losing customers. That’s why it’s so important for all employees to be prepared, equipped and empowered to solve unusual problems.

Failure to capture information.
There are many situations in which employees acquire information but fail to retain that information in a systematic way. Customer inquiries are frequently dealt with in an ad hoc manner, with no systematic procedure for capturing and storing information about that inquiry. Such information would be very useful in analyzing lost sales or in following up with customers at a later date. (See the article on page 9 on information management.)

Poor utilization of reports.
Sometimes large numbers of reports are generated by the information system, but these reports are not getting to the people who would benefit from the information or the “hard copy” is simply put on the shelf and forgotten.

When it’s time to implement process improvements, don’t drop the ball.
By the time you’ve analyzed your existing value stream, identified opportunities for improvements, and charted a new course for improved value delivery, you must develop a work plan to implement the changes. The hardest part has already been done. Now that you know where you are and where you’re going, it will be relatively easy to identify the actions or steps required to take you there.
At this stage you must set clear, specific goals — with deadlines — and make sure someone is responsible for getting them done. This is what will ultimately distinguish your value leadership program from all the other “flavor of the week” business initiatives your company has tried.

Know that what constitutes value today will not necessarily define value tomorrow.
Once you’ve become a value leader, do not think that your work is done. Once you’ve implemented your process improvement program, you must begin monitoring im- provements in value delivery. How will you know when you have achieved your objectives if you don’t measure performance related to those objectives? In the absence of systematic monitoring, any improvements that might be achieved are often short-lived. You cannot manage what you don’t measure.

So what can you expect from your transformation into a true value leader? The answer is, a great deal. For instance, you can leverage your value position to increase your share of the customer and market pie, boost goodwill with customers, avoid the trap of price competition, and more. Everything improves. Once you have an overarching strategy of value in place, it will drive every move you make. Embracing a customer value model is almost like undergoing a religious conversion — it redefines everything you do, and the problems you used to agonize over effortlessly solve themselves.

Copyright © ASTM, 2003