The holiday season is the time of year where people buy the most and companies receive the most revenue. But – just like the story of the Grinch – businesses need to remember that the true meaning of this season is not about the “packages, boxes, and bags” and the “rare Who-roast beast” but of building relationships. Especially with customers. Many companies focus on their brands and on selling the most. What they should really be asking themselves is “Are we serving people well? Are we meeting their needs?” Businesses need to remember that the world doesn’t revolve around their products. Products don’t have value without customers.
THE CUSTOMER VALUE
Getting really basic here: If there were no customers, businesses would fail. Customers truly are the most valuable thing to help your business succeed.
“The value you place on certain individuals will show in your behavior towards them” –Sarah White
Show that you care. Live what you say to win their trust. Customers aren’t people to be manipulated into doing your bidding. People are too smart for that and will distrust you even more. Personally getting to know your customers helps you to know their needs and win their loyalty over a long period of time.
“Value is always long term. Price is short term.” –Tom Reily, Author and Value Based Shopping Expert
What value to do your customers add to your business? DoTerra, a world-wide multi-level marketing company, uses its customers to advertise, find new customers, and bring in revenue. They provide top-rated customer, give their customers good deals and even cash to reward them for their efforts. As a result, DoTerra has a 65% retention rate. Which means that, on a normal day, they make a million dollars. All because they value their customers. Whenever they make a decision in their company, they think of the customer.
Choose your target customers wisely to determine your prices. Businesses need clients and customers that match their price need, and not just those people that want the cheapest option. Many companies are not narrowing their target market, and you have got to understand that your products likely aren’t for everyone. Targeting the right people is very important to the survival of your company.
Customer Lifetime Value helps businesses determine the revenue they can receive from a customer over the lifetime of their relationship. In other words, the dollar value of the customer relationship. CIO says that the customer lifetime value number is based off of:
• The total value of their relationship with your company
• The potential value of their relationship
• The profitability of their relationship
• The insights they can provide your company
• The influence that they wield over other customers
It is important to keep in mind the benefits businesses receive from customers aren’t only profits, but many other things.
“There are customers you earn from, and there are customers you learn from.” –CIO Leadership and Management
Customers can bring to light needs for your business’ improvement, and can give ideas to help your company flourish. Like DoTerra, customers can also be your advertisers and which leads to your business making a greater profit.
“Your largest customers are not necessarily the most profitable customers.” –CIO Leadership and Management
How do you know which customers are largest and which are your most profitable? By determining the Customer Lifetime Value. The Customer Lifetime Value is different from customer profitability, which is the difference between revenues and costs related with the customer over a specific period of time. Customer Lifetime Value can be determined by this equation:
Customer Lifetime Value ($) = Margin ($) * (Retention Rate (%) / [1 + Discount Rate (%)] * Retention Rate (%)) –From Wikipedia
The customers and clients that do not have a good Lifetime Value may need to be “fired”, as recommended in a previous blog article, because they don’t fit your company well and you may not be fitting their needs. It’s a slightly different way of thinking about it, but sometimes you need to fire a customer, too.
THE PRODUCT VALUE
Customers have importance because they determine the value of your products. You, as a business owner, can control the product, price, place, and promotion, but you can’t control all the factors that deliver value to the customer.
“People don’t place value on things, but on how they can use them.” –Sarah White
Value is shown to products by how they are treated, in a similar way that customers value to a company is shown in how they are treated. If a product is valued, it won’t be dropped, abused, or thrown away. On creating products:
“Meaningless attributes often lead to meaningful differentiation” –Ravi Dhar, Professor, Yale School of Management
The smallest details, no matter how mundane and small, can make the difference on value and price. For example, people value Heinz ketchup over other types of ketchup, not because it has any special ingredient or tastes different, but because it’s thicker. So how do you know what details, meaningless or meaningful, people appreciate? Why, you ask them.
One of the best ways to try to understand what your current and potential customer’s value is to ask them through surveys. Seeking to understand helps your customers feel valued while telling you what they value. It’s a win-win situation for everybody. To truly understand value, analysts must understand how people use a product, for how long, and if they like it or not.
A technique to increase value is to persuade customers of the product’s perceived value. They do this all the time with wine. The more vintage it seems, the higher the producer can charge. Original pieces of artwork are worth more than copies.
“The main takeaway here is that customers place a higher value on products they believe contain the aura of authenticity.” –Ilan Mochari
Businesses need confidence when setting prices. You shouldn’t use phrases like “generally, we charge” and “your price” because it suggests flexibility. Confidence is key to telling and showing people why your product is valued more than low-priced options.
Value is determined by the customers. Customer and product value are determined by how they are treated. To have valued customers that treat you and your products as valuable enterprises, customers themselves must be treated that way.