Definition of Customer Value
We define customer value as the tangible and experiential (emotional) net improvements (benefits minus costs) to customer outcomes resulting from using or owning the supplier’s products and services, compared to all alternatives. You must consistently deliver enough customer value to get and keep customers.
Does Your Service Business Deliver Enough Customer Value?
If we agree that Value is the difference between a customer’s evaluation of benefits and costs, what does your business deliver? Do you provide enough customer value? These are tough questions. The answers will shape not only the future of your service business but also the future of the entire business!
When we think about the value we deliver, we may list some or all of these perceived benefits:
- Maximize equipment
- Control costs
- No hassle
- Peace of mind
- Factory-trained field engineers
- Original factory-produced parts
- Software upgrades
- Easy escalation into Engineering
In some cases, we may be correct, but who cares? Why? Because it’s not your opinion that matters! The only characterization of Value that matters is your customers. They know what they need, what is essential to their organization, how much you charge, and how much it is worth. They understand how significant the ROI must be to make the buying decision. This means the benefits must be expressed in dollars and cents because the customer has to subtract the cost from the benefits to get the Value in a form that can be used to calculate ROI.
How Do You Find Out How The Customer Will Calculate the Value
Here are the steps to identify and quantify Value for each prospect. As I’ve said, “You have questions, and your customer or prospect has most of the answers.” This is because each prospect has a different internal cost structure, different cost drivers, and different operating requirements. Once you get the answer for a single prospect, you can use that as a starting point for additional conversations with new prospects. Here are the steps:
- Establish a professional relationship based on mutual trust. (In my experience, this is a big assumption.) it would help if you were doing this anyway, so let’s tick off that box.
- Meet with the prospect. Bring your list of the items you think will be valuable to the prospect. Discuss each item and determine how important each one is. Use a simple scale like critical, so-so, and who cares?
- For the top few items, describe how each will add Value and, if the prospect agrees, then either present your value calculation or, better yet, ask the prospect to work with you to quantify the benefits in his business’s terms.
- Stop when the Value defined above exceeds the cost of the proposed solution.
Here is an example:
Your proposal of providing a 4-hour on-site response contract will mean a maximum equipment downtime of 6 hours. Without the contract, it could be 24 hours. You then probe until you hear her say, “We use a loss estimate of $250,000 for every hour of equipment downtime like yours. (This is not unusual for a semiconductor fab or other high-volume manufacturing operations.) Your proposed contract will save 18 hours of downtime at $250k per hour for $4.5 million. If your annual contract costs less than $4.0 million, and your equipment is likely to fail at least once during a year of 24×7 operation, stop talking and let the number close the deal! If it is not that easy, keep going down your list until you exceed the break-even point. Sometimes you have to get very creative, and sometimes your value proposition does not resonate with the prospect. If you have not yet been shown the door, you can continue probing about what is important until you identify new ways to add enough Value to get the business.
Warning: Ensure you can deliver everything you offer and sell. Failure to meet expectations will mean this customer tells at least 10 close friends, who each say to a bunch more until your company’s reputation is worth zero. To read more about not over-promising, click here.
It is better to lose an order than to over-promise and under-deliver – the B2B communities are small, and everyone loves hearing about a bad experience that someone else had!
Good selling, and remember that Value sells and BS smells! Do you deliver enough customer value?
About Middlesex Consulting
Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more Value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing, Customer Experience, and Engineering. If you want to learn more about how we can help your organization create more Value for your customers, please contact us or check out some of our free articles and white papers here.