7 Steps to Sustain Value to your Customer Base!
In many cases, organizations allocate time and money on their marketing campaigns, but at the end they do not achieve the desired results in sales. Usually, the problem is in defining the target market. Companies need to narrow down their target marketing definition so they can be effective. The more narrow the market definition, the more focused will be the efforts on serving the target audience and, as a result, the more effective the business results will be.
Why Is Value Mapping important?
“Value” is one of the most overused and misrepresented terms in marketing today. The real essence of value revolves around the trade-off between the benefits the customer receives from a product (tangible and intangible) and the price (total cost of ownership).
In the modern world, product features and prices change continuously, as customers seek for products that give them the best value for money. The Value Map is a valuable tool for managers tracking how customers perceive their products. Managers can view instantly how competitive their products are with a carefully developed Value Map.
7 Steps for a focused Value Mapping:
- Identify the key buying factors (criteria for the perceived benefits) that customers use to evaluate a product or service.
- The perceived benefits must be measurable. Assign them a “weight” depending on the importance of each benefit in the eyes of the consumers. All the assigned weight numbers should add up to a total of 100.
- Benchmark each benefit from the client’s point of view. Rate the criteria: assign +3 if it is excellent) vs. (-1) if it is bad. (For example, if service is a perceived benefit; rate this with +3 if it is excellent vs. -1 if service is bad.)
- Calculate the Value Perception score for your product and the competing ones. Multiply the weight number of each benefit with its score (ranges from +3 to -1). The maximum possible product score that can be achieved for all benefits is 300.
- Calculate the total cost of ownership: price plus all the hidden costs.
- Calibrate the performance for the total cost of ownership and plot it on the Value Map. The best results are going to be above the ISO line, thus above market average.
- Use the Value Map to understand what the true market value of your product. Prioritize plans to improve the product’s performance, competitiveness and worth. Customize your value proposition to the customer segments that place more weight on attributes that you outperform the competition.
The best approach is the product to deliver a noticeable increase in benefits (for example, greater than 20% increase) and to be priced so that it divides the value created with 1/3 for the customer and 2/3 to the company. In this case, the product is well positioned against other competitive options, its market value is enhanced and the company will have the capability to reduce prices when needed (and still stay above the price floor).
In late 2012, Apple launched the first major extension of its iPad line, the iPad Mini. In doing so, Apple entered a growing and crowded market. Analysts’ opinions varied all over the map in reference to what constitutes a fair price for the product. However, such undisciplined thinking within a company can lead to mistakes in overpricing, and mispositioning. The iPad Mini offered an exceptional array of features as well as Apple’s vaunted design elements. Yet, the price of the base model started at $329, 50% higher than some of competitors, like Nook and Kindle. At the same time, prices at the upper end of the Mini line were off the charts. Nevertheless, through the lens of the customer value analysis, Apple’s pricing and positioning of the iPad Mini models was consistent with the company’s preference and reputation for premium performance and design at premium price. The Apple 32GB Mini was priced at $429, which was very close to its true market value of $428. The pricing of this product was consistent wih the implied market value of the Minis’ performance advantages. Indeed, despite its high prices and critical indifference, the iPad Mini got off to a roaring start. In the first quarter of 2013, Apple’s tablet sales almost doubled compared to last year’s for the same period.
Drawing a meaningful Map is simple, yet difficult.
- It is critical to understand your market. Specify the market boundaries and provide a wide selection for the products and services that satisfy the customer needs. This way, the company will not be distracted by new entrants & technologies or unusual offerings that care to those needs.
- Limit the analysis geographical scope. Especially, in markets where customers, competitors or product usage vary across borders.
- Determine the market monitoring. Companies need to decide if they will track the entire market or a specific segment. Also, important decisions need to be made if the company will explore the retail or wholesale market and if products or brands will be monitored. The decisions will determine if different maps will be needed for the analysis.
- Design and branding are important characteristics to customers but cannot be measured scientifically. For example, the aesthetics of hardware and software design in the iPad. Brand image attributes are cues to customer perception on product reliability and viability. Market researchers and focus groups can measure brand attractiveness and design and their results will be added to the value map on the following analysis.
- According to a 2004 survey by Strativity, a global research and consulting firm, most customers are unable to identify the features that determine the prices they are willing to pay for products or services. Also, 50% of salespeople don’t know the attributes that justify the prices of the products and services they sell in markets, where technologies and strategies change all the time
As customers’ priorities change, the product benefits they desire also change. Careful price-benefit analysis can provide an early warning for these changes. Focus usually makes the difference between a business that grows profitably and one that never gains any momentum. You can continue to hope that “next time email is going to work better” or you can develop a clear focus and a realistic strategy.