Note: Sam Klaidman and Art Drake wrote this post; both are members of the Customer Value Creation International Board of Directors.Sam Klaidman and Art Drake wrote this post; both are members of the Customer Value Creation International Board of Directors.

Introduction

During a recent telephone conversation between the two of us, we started a vigorous discussion about customer value creation and what constituted value creation.  This was not the first time we had this type of discussion.  At the end of previous “debates,” we came to compromise agreements but then said “so what?”  This time it was a little different because we both felt we had achieved an important insight.

We started talking about the importance of customer value creation and followed our individual streams of consciousness until Art finally blurted out “When competing on value, your industry becomes very narrow.  Few survive!”  Sam made Art stop talking (took some effort) and wrote down his quote because it was something Sam had never thought about.

We talked about this concept for a few more minutes and then decided we would co-author this post.

Drucker on business

According to Peter Drucker, “the purpose of a business is to create and keep a customer.”

Today, more than ever, customer acquisition and retention are increasingly harder to do.  Information is constantly shared on the web and through social media.  Digitization and the internet of everything is creating greater disruption in how information is created and distributed.  Customers and companies are forced to adapt to this disruption.  But connecting with and keeping customers requires that companies define their winning ‘recipe’ for success.

Securing the recipe of your secret sauce is a serious challenge.  Know-how and trade secrets are temporary.  There are so many companies working hard to improve the experiences their customers have with businesses that in a relatively short time CX will be table-stakes and not a differentiator.  For these reasons, we believe that the only universal, sustainable differentiator is Customer Value Creation.

Creating customer value

In all our personnel and business endeavors, we all try to complete our jobs-to-be-done.  And completion means producing the output that meets the needs of our customer (external or internal).

For example, if your boss asks you to prepare a comparative analysis of your new product with the competitor’s current product and projected models by a certain date, then the only thing that matters is delivering a well thought out report to her on or before the specified date.

On the surface, if the report is delivered earlier than expected then the more valuable it may be (e.g., speed of decision making).  The more specific the report and its findings, the more valuable it may be (e.g., product design insights).  There are a number of things that can be done to increase the value of the report, creating value for the customer.  However, unless you understand the specifics of her needs, the report may or may not create any benefits.  And, unless you keep in reasonably close contact with your boss, you may miss the fact that her boss needs “something” quickly and will accept a general document early if there is a commitment to provide a more detailed version in a few days.

The lesson here is that value is “context driven,” and the only way to know the latest customer needs (context or outcomes) is to communicate frequently with her.  This frequent, in-depth contact, combined with a good system of categorizing and sharing the information learned, is the input into the value creation process.  This process starts with outcomes that must be improved and ends with products and/or services that help the customer achieve her needed outcomes.

Once your business develops a self-sustaining customer value creation process, it can become a significant barrier to entry for new and/or existing competitors.  After all, how many suppliers can develop close working relationships with any single person?  When a customer really trusts you, and you act on their information to their benefit, then you have a near watertight lockout situation.  Repeat with enough members of a market and you dominate!

The beauty of this approach is that to be successful, the value created must improve customer outcomes compared to all other currently available methods.  While your so-called competitors are working to try and catch-up to you, your team is working to further improve customer outcomes.  They are always coming in second because your team has the insight into what outcomes are most vexing to your customers.  Or, as leisure clothing company Big Dog says:

 A final thought

“Any source of competitive advantage that is not based on doing something truly unique, wonderful, and imaginative for the customer, is simply going to disappear.”

⎯ Gary Hamel, was named as the world’s leading expert on business strategy by Fortune magazine

Art Drake is Principal, Discite, LLC in New York City.