Understanding the value you create

News 04.06.19

Understanding the value you create

Companies tend to measure results in time and money. It provides a good indication of performance, but doesn’t really say anything about what customers value. To research what customers think, companies use NPS surveys, questionnaires about how different aspects of the product or service work and, sometimes, focus groups and other more qualitative methods.

If you are, however, really interested in where value is actually created then helpfully Bain & Co developed a handy framework structuring 30 components of value. These are divided into functional, emotional, life changing and social impact categories. By joyous happenstance, this mirrors Abraham Maslow’s famous hierarchy of needs.

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We’ve developed this into a holistic KPI and benchmarking framework, that serves as a practical tool for companies to look at where customers actually receive value for their purchase, how to granularly measure this and where to look for improvements, based on the value created, not any particular industry or method.

The components of value

Divided into functional, emotional, life changing and social impact categories, the components of value allow you to gauge your company’s value proposition from the customer’s perspective. As Bain & Co noted, the functional aspects of your product or service are more or less hygiene factors and only an entry ticket into your business category.

The most important functional value is quality. Without quality (which presumes that whatever the product or service is, it does what it says it will do), your business won’t sell anything more than once. Other functional aspects depend on what matters to your customers. However, the magic starts when your brand can deliver emotional value and continues to grow as you move to life changing and social impact. No company ticks all 30 boxes, but more than 5 is necessary and coming close to 10 is already impressive. Bain & Co’s own research conclusively shows, that the more emotional value the customer gets the more loyal they are. Which is also a note of caution to all functional product and service companies: that it works, even very well, is no guarantee of repeat business if that is all it does.

Determining where your company delivers value for customers requires you to take a critical look at your product or service, and those of your competitors, and try to define what value the customer receives from you. Ideally, you go and talk to customers, map their customer journey and really get inside their head about where your brand fits into their lives. But once you are sure that you know what they buy from you, not what you’re selling then you can go to the next step.

Value vs deliverable

For each value that the customer receives from your brand, determine what you actually do inside the company, to deliver it. What are the processes involved in creating that value, who is involved and is it something that is done consciously or as part of another process. Finally, determine how you can measure this particular value. In short, determine the KPI for the value the customer receives and how you can consistently measure it, and whether you are improving or getting worse.

Repeat the process for each value. Be critical and don’t rely just on discussion, but check with hard data and other stakeholders, whether your presumptions are warranted.

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Benchmark yourself

Looking at each value component separately, look around you to determine what brand / service / product delivers on that particular component the best, irrespective of industry, country, whatnot. Do as much digging as possible, online / offline, directly with customers, go to their store etc, to understand what it is they do to excel in that value component.

Finally, determine what it is that you can learn from what the benchmarks are doing better. Can you copy part of their process? Can you apply a different way of working to achieve the same results? Moreover, looking at the value component in isolation, is there something they do that you don’t do that delivers more value to customers.

For obvious reasons the value component of emotional aspects is higher, so if your quality is OK, focus on the high-value components. If you have quality issues, focus on the functional first.

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From values to measurables to benchmarks

Moving from the 30 components of value developed by Bain & Co to benchmarking via KPIs allows you not only to understand where value is created, but also identify and measure how you deliver it as well as a means to learn and improve. All you have to do is invest some time. Go on. Go for it.