Posted by: Greg Siefert | October 26, 2009

What is value anyway?

As I interact with executives of mid-sized companies to the Fortune 100, I love to ask this question:  At the core, what do you want to do with our business?

Without fail, the answers fall into four categories:
1)  Attract new customers
2)  Increase revenue by getting people to purchase more from us
3)  Produce loyal customers – customers that keep coming back
4) Reduce our operating/production costs to increase profits

In digging in further, I quickly find that Value is at the center of these responses. We have to demonstrate value to produce loyal customers, to increase revenue by getting people to purchase more from us, and to attract new customers. We have to be committed to delivering value as we reduce our operating/production costs while keeping high product quality.

Let me give you four ways to think about value:
 
Extrapolated ValueExtrapolated Value
The additional revenue that results as an individual customer chooses to continue to do business with a company over time.  This is what many businesses refer to when they speak of loyalty.  The act of coming back is behavioral loyalty.  Attitudinal loyalty implies coming back even when it’s not convenient.

Incremental ValueIncremental Value
The additional revenue that results from an individual customer spending more per transaction on average than they would have in the past.  Increasing incremental value represents gains in share of wallet – many times this is accomplished via the sale of complimentary and add-on products or services.  Instead of one box, they come home with four.

Strategic ValueStrategic Value
The additional revenue that results from and individual customer buying a company’s other goods and services – those unrelated to the customer’s past purchases from this company.  For instance, when a company extends its brands or enters a new line of business, they need customers who give them the benefit of the doubt that this new product or service will meet their expectation even though it is in an area not traditionally associated with the company – Think a few years back to Apple.  They were known for their hardware, but they asked people to buy MP3 players and music from them through this goofy iTunes thing.  That’ll never catch on…Next thing you know, they’ll try to tap into the mobile phone business too…

Social Network ValueSocial Network Value
The additional revenue that results from an individual customer influencing others to buy from a particular business.  This is what happens when a customer becomes an evangelist for your brand.  It is the person’s ability to accomplish viral spread. Isn’t this where we want to be?!

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