Many bloggers, including me, are writing about how important it is to create customer value. We talk about segmentation, employee engagement, solutions, and value pricing. Unfortunately, we forget about the other side of the coin – things we do to destroy customer value. In this post, I will discuss some things I have seen that do an adequate job of destroying customer value. This post will not be all-inclusive. However, it will highlight some decisions that can quickly backfire.
Related information: Read about Customer Value Creation.
Here is the link to Does Value Creation Need Financial Incentives? This article discussed both creating and destroying customer value.
Raising prices may destroy customer value
Since customer value is the difference between economic value gained and cost expended, any price increase without a commensurate economic value will destroy customer value. This does not mean increasing your pricing is terrible; you must also increase value when you increase the price.
Increasing value is hard work and, in some cases, impractical. For example, in the B2C world, how do you make soda, cereal, milk, or butter more valuable? This is why consumer goods manufacturers frequently reduce package size while maintaining the same price – they are raising the unit price while maintaining a stable end-user cost. In the B2B space, you have to increase value when you raise prices because purchases are less frequent than in B2C and may only be in unit quantities.
Obsoleting items
You may support 20-year-old products; your company wants to obsolete them and offer a trade-in for the current model. You may even agree that servicing the old stuff is getting more difficult as replacement parts become obsolete, or your engineers rarely work on this model and so do not meet your customer’s expectations for service quality. The difficulty is that the customers who still use these old products are 1) pleased with the performance of their current product, 2) don’t want to learn how to use a new product, and 3) don’t want to spend the money to replace “a perfect unit.” Your company’s decision to make a product obsolete will destroy some or much of the value you have banked in the affected customers. This destruction will be considered when they make their next purchasing decision.
Slipping on quality
Your customers create formal and informal processes partially based on their experiences with the business partners. For example, suppose they have a support plan with your company and have been trained that your organization will reach out to schedule the annual preventative maintenance inspection. In that case, they do not think about it – they trust your company. If your organization forgets to do the PM and their internal quality audit writes them up for being out of calibration, they now have to do extra work that you always did – delete some value! The same thing happens with any quality slip that your customers observe first-hand.
Change rules with no good reason
Like slipping on quality, the customer must change processes if your company’s “rules of engagement” change. Sometimes, this increases value, but other times, it destroys value. For example, your order entry organization is changing from receiving orders by telephone or e-mail and shifting exclusively to EDI (electronic data interchange). This change will save work on both sides of the transaction. However, some purchasing people will miss their conversations with your order entry person, which has been going on for years. In this case, how likely will the customer be to cut your company some slack when your group inevitably screws something up?
Key Takeaway
Unless you are confident that you understand how you deliver value to your customers, you risk turning into someone who accidentally starts to destroy customer value with most of your decisions. While your opinion about where you create value is attractive, your customer’s opinions are the only ones that matter. You can tell your customers that your services deliver value worth $X.00 each year, but if the customer thinks it is only worth $0.1X, that is what it is worth.
Be thoughtful and avoid being labeled a “Value Destroyer.”
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.