The value of understanding customer value

IMG_20170207_104927.jpgMany of the misunderstandings and challenges with exploring customer value were discussed at the seminar Tuesday. We were privileged to have Per Linstedt, Value Model, sharing his insights and extensive experience from supporting many MNCs within this important but many times tricky area. Starting from the basic definition of customer value a number of cases were discussed. One critical issue is that many categorize the acquired customer information incorrectly, for instance mistaking a mentioned possible solution for being an expressed need. Such mistakes many times lead to that services developed fail on the market. The model presented will be used by the students in this phase of the course and assignment work when developing business concepts capitalizing on the identified business roles.

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3 responses to “The value of understanding customer value

  1. Comment on the difference between value networks and business ecosystems
    A value network can be defined as a set of connections between different organizations/individuals interacting between each other for the benefit of the entire group. From a company perspective value networks exists both internally as well as externally. James F Moore described a business eco-system as “An economic community supported by a foundation of interacting organizations and individuals—the organisms of the business world” in the Harvard Business Review 1993 [1]. Members in the business eco-system coevolve and align themselves after the market leader/s.
    One of the biggest differences is that the business ecosystem also includes competitors in excess of suppliers, customers and government agencies etc. which usually are included in value networks. The main idea being that each business acting in the ecosystems affects one another and each business must be flexible and adaptable in order to survive [2]. To me it seems that business ecosystems are a better suited analysis approach in terms of being aware of how your industry is changing. Not saying that you can’t identify new trends within an industry in a value network but rather that it doesn’t hurt being aware of what route the competition is taking. For example if there would be a new disruptive innovation in the market e.g. the smartphone. Identifying early that the entire business ecosystem is changing makes you better suited to adapt for the new environment. At the same time I think that it’s easier to identify value networks whereas business ecosystems seems perhaps a bit more complex and all-round which might make it harder to implement as an analysis tool.
    Another difference between them is that value network often focuses on a certain industry and the different roles within it whereas business eco-systems crosses a variety of industries. You can identify a value network within a business eco-system. Moore used Apple as example saying they were the leader of an ecosystem that crossed at least four different industries: personal computers, consumer electronics, information and communications [1].
    [1] https://hbr.org/1993/05/predators-and-prey-a-new-ecology-of-competition
    [2] http://www.investopedia.com/terms/b/business-ecosystem.asp

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  2. Comment on customer value and its challenges:
    To explain how customer value is created we first start with the basic definition:

    Customer value = Satisfaction of customer needs / Use of customer resources

    Value is built by the problems you solve (pains), the results you create (gains/jobs) and the positive feelings in the customer experience. Value is lost by the time-loss caused, the money investments required and the efforts demanded by obtaining and using the product.

    The first step to delivering customer value is understanding the concept. The company can then focus their resources on the values important for customers such as cost, utility, or emotional or social value. Customers need to associate the company with these values. As Björn Duzäll from Visma wrote, delivering customer value needs to be a constant process, where the company strives to understand and anticipate future needs of what their customers will value and then deliver that. [1]

    By looking at the definition again we see that there are two potential strategies to increase customer value. One is to increase the numerators value, trying to make the benefits of using the product/service for the customer greater. The other one is to reduce resource consumption. Even though the potential of the numerator is bigger, “cust cutting” projects are much more common than trying to increase the customer satisfaction. This can prove to be a treacherous strategy since a product is worthless if it can’t meet the needs the customer requires. Of course, on long term both of these strategies are important.

    Exploring customer value can be challenging. If you dont pin-point an actual need of the customers on the market the service/product developed will fail. To understand what really creates customer value is not an obvious thing. But it is very important for the company’s possibility to compete and survive on the market. I think that without a detailed understanding of the customer’s requirements and preferences companies can end up doing the wrong things and trying to differentiate themselves without stressing the important things for customers. By understanding the target customers, the companies can provide better consumer value propositions by using the few elements that matters the most for target customers. [2]

    The customer’s world needs to be considered into the company’s world. One can’t exist without the other. One way to start understanding and discussing the customer value and how to understand it is to use the value model presented by Per Lindqvist. [3]

    [1] https://www.visma.se/blogg/vad-ar-kundnytta-och-hur-levererar-du-det-del-2-av-3-foretag/

    [2] https://hbr.org/2006/03/customer-value-propositions-in-business-markets

    [3] http://valuemodel.se/organisk-tillvaxt/#kundvarde

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  3. When asked a question, a good answer is more often than not “it depends” because all actors and events in the world are part of a system with relations and dependencies. Behind the shades of our prejudice we see the world in models and simplifications but to simplify something so much that a question can be answered without knowing anything more about the model or network where it acts is often hard. So, the answer to “What is the best strategy?” will then of course also be “it depends”. To describe how it depends a good tool is the value network, defined by Clayton Christensen in 1997 as a more complex version of the value chain showing flows of transactions and information.

    Different roles in the value network differ in forms of eg competence required, dependencies and scale advantages. Some roles may be more powerful due to entry barriers. Outsourcing, consolidation and business model innovation change the value networks and raises the pressure to stay competitive. As an engineering student many problems are seen from a system/network perspective but when looking at businesses it tends to get stuck on a value chain level, more understanding of the networks and different roles acting in it will create a better understanding of industries and development within industries due to changes in these value networks.

    It seems like many companies have a problem with seeing their role in the value networks and how they should evolve to strengthen and adjust it to be in balance it the industry’s future value network role. To not only understand the pull from the market to develop new technology but also how the technology delta will transform the roles and network. There might be new roles such as a business guaranteeing the quality of the design of a 3D printed spare engine part as mentioned in the video.

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