Customers buy products and services because they need the outcomes they will receive from owning or using them. When the buyer has a choice, they will buy from the company that delivers the most benefits for the lowest cost. At Middlesex Consulting, we define customer value as the buyer’s perception of tangible (economic) and/or experiential (emotional) net improvements (benefits minus costs) to business outcomes (profit, CSAT, etc.) resulting from using or owning the supplier’s products and/or services, compared to all alternatives.
If the customer continues to receive the original value from their purchase, they will continue to be loyal customers. In the B2B environment, value is primarily created first by the product and then by their aftermarket experiences. With capital goods, once the equipment is in use, it is challenging to replace it until it is fully depreciated. Conversely, because aftermarket experiences are generally created from OPEX transactions with alternative sources, the sources can more easily be switched.
“Customer Value and Loyalty are interchangeable.”
Why is this important to an OEM?
This concept is essential because it impacts the following:
- Your customer retention strategy
- Your customer experience (CX) and loyalty metrics, goals, and remuneration
- Your employee training and development program
- How you design some internal departments and channel partner relationships
- How quickly you begin and run your digital transformation program
- Internal investments
- Bonus and commission plans
- Your relationship with your suppliers
This list covers almost everything we do when we are open for business.
To understand why this is so important, let’s consider the differences between the product and the aftermarket.
|
Product |
Aftermarket |
| All products with the same model number usually perform similarly, so new customer expectations are based on actual experiences. | Preventative maintenance and similar services are well documented, but most unique situations require aftermarket service intervention. Therefore, customer’s expectations are, at best, guesses. |
| Limited interactions with OEM’s employees since delivery and installation are one-time. | High level of interactions. Frequently face-to-face plus many other remote calls, texts, emails, etc. |
| Interaction time is measured in days or weeks. | Interaction time lasts for the total useful product lifetime, which can be ten years or longer. |
| Activities are usually well-documented. | New situations constantly arise. |
| Activities are scheduled in advance. | Response time is typically critical. |
| The product’s cost is fixed at the time of sale or lease. | Prices vary and can change during the interaction. |
| The same people are used for each product installation | You may be dealing with new people each time service is involved |
Looking at this table, we can imagine two types of employees the buyer interacts with. They are:
- The Value Creator – These people work on the product before it is turned over to the buyer for their use.
- The Value Maintainer – The people who restore the product to good operating condition or add new product features.
Value Creator
In a manufacturing company, the value creators are all those who engage in work that directly helps the business create value for its customers. Here is a sample of the kinds of people who fall into this category:
- Product managers who define the product
- Design engineers (hardware, software, reliability, materials, technical writers, manufacturing and test engineers, quality engineers, etc.)
- People in Operations who purchase parts, are receivers, stockkeepers, mechanics, assemblers, painters, testers, packagers, and shippers.
- Salespeople whose selling style is consultative. They teach the customer and help them make better decisions than they would on their own.
These people are all involved in creating the product delivered to the customer. If they do something out of the ordinary to create more value for the customer, their effort will make the buyer feel slightly more loyal than if they just did their thing. For example, if the final inspector has a picture taken of themself while climbing on the product as part of the final inspection and he signs it with a personal comment like “this is the best one I have inspected this month,” the customer will tell the story to fellow workers and friends. This is a recommendation and carries a lot of weight.
When the value creator interacts with the buyer (or prospect), they also set expectations about how the two businesses will work together after a purchase. As we pointed out in the table, buyers do not have valid expectations about how the long-term relationship will work. John A. Goodman, author of Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty, and Maximize Profits and customer experience expert, recently told me, “30% of customer dissatisfaction is caused by customer error and incorrect expectations. Sales does most of the work, but it continues with onboarding.”
Value Maintainer
In the same manufacturing company, the value maintainers are the people whose job includes ensuring the product’s original value or restoring the product to fully operating conditions if there is a failure. Here are a few of their roles:
- Technical support people who deal directly with the customer from the call center, including applications engineers and software experts. When the customer contacts these people, the product’s outcomes have declined below the level expected by the purchaser.
- Field service engineers, including installers, calibration people, trainers, break/fix engineers, depot repair people, and people who handle all the logistics for support. As Goodman said, “They feed back to the customer on ways of avoiding problems and getting more value, e.g., “You are not using these three functionalities.”
- Service salespeople whose products either prevent a decline in customer value or handle the administration when there is a need for paid services.
According to Matt Dixon et al, authors of The Effortless Experience: Conquering the New Battleground for Customer Loyalty:
“The harsh reality of the customer service world is that we tend to do more harm than good. According to our research, any customer service interaction is four times more likely to drive disloyalty than to drive loyalty.”
Dixon’s disloyalty is usually caused by the support person failing to meet the customer’s expectations. Most people will default to Amazon’s performance if the value creators do not set realistic expectations. They will expect one-day free delivery, real-time delivery status, and a generally easy experience.
But what is the effect of meeting or exceeding the customer’s real or imagined expectations? Again, from Goodman,
“Our Delight studies have shown that effectively satisfying customers can result in as much as 8% higher satisfaction than those customers with no problem. Delighting adds even more value, results in a willingness to pay more, and moves word-of-mouth (WOM) recommendations from stars and smiles to compelling stories that win new customers. Further, the Delight study found that WOM from delighted customers had twice the impact of completely satisfied customers. The compelling payoff of delight.”
The value maintainer usually cannot create loyalty with the product because the maximum value was generated when the machine was turned on. However, any value maintainer can increase customer loyalty by exceeding the customer’s expectations. For example, the value maintainer can enhance value by introducing additional functionality or improving the process around the product. Again, from Goodman:
“They take customer requests and questions and develop new best practices to fulfill their needs. They co-create an advanced product or process with our customers and spread the good news via conferences where we often co-present with our clients.”
Merging employee’s role in value creation with your organization’s structure and strategic plans
Everything you have read so far is probably a new concept for you. How do you explain all this to your team, identify the needed changes, create and deliver new training classes, and establish new job descriptions and goals while having them work as usual?
Unfortunately, we are not going to discuss each step in this document. We will give you an overview of the significant change that should be selectively implemented across your organization. First, you should explain all this to everyone in your organization, and then your focus should be on working with the value maintainers. While maintainers can create incremental loyalty, they can also destroy a lot of loyalty.
Fortunately, the maintainers can be coached on how to avoid destroying loyalty. The actions that destroy loyalty are simple; they create situations that make interacting with your company difficult. Suppose you can change how they act, think, and communicate; your likelihood of having them create extra value increases. The critical actions for you are:
- Design customer feedback processes so you can link customer effort and likely-to-buy metrics to all transactional contacts.
- Identify and remove policies, processes, and actions that increase customer and service employee effort.
- Train managers not to micromanage maintainers but to coach them on communications and practices that make customer interactions difficult.
- Monitor the two metrics in step 1 and see how each team is doing. DO NOT TIE THIS ACTIVITY INTO COMPENSATION! Good outcomes should get public exposure, and poor or little results deserve additional coaching.
- Keep looking to expand this approach.
Good luck, and enjoy your improved customer retention rates.
Related articles
- Businesses Must Innovate to Create Customer Value Post-COVID-19
- Selling Customer Value Turns Your Business Into An Unconquerable Fortress
- Creating Competitive Advantage Through Customer Loyalty
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 through customer-centric solutions, please contact us or check out some of our free articles and white papers here.
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