These days 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 a few of the things I have seen that do an effective job of destroying customer value. This post will not be all-inclusive. However, it will highlight some decisions that can quickly backfire.
Since customer value is the difference between economic value gained and cost expended, any price increase without a commensurate increase in economic value actually destroys value for your customer. This does not mean that increasing your pricing is bad; it means that when you increase price, you must also increase value.
Increasing value is hard work, and in some cases is not practical. 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 actually 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.
You may be supporting 20-year-old products and your company wants to obsolete them and offer a trade-in for the current model. You may even agree; servicing the old stuff is getting more and 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) very happy 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 perfectly good unit”.
Your company’s decision to obsolete a product will destroy some or much of the value you have banked in the effected 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, if 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, 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, then 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
Similar to slipping on quality, if the “rules of engagement” with your company change, then the customer has to change processes. 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 that 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?
Unless you are confident that you understand how you deliver value to your customers, you are at risk of destroying value with most of your decisions. While your opinion about where you create value is interesting, 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, then that is what it is worth.
Be thoughtful and avoid being labeled a “Value Destroyer”.