The full title of this excellent book by Bradley T. Gale is “ Managing Customer Value : Creating Quality and Service That Customers Can See” and it is a landmark in the development of the concept of customer value as a way to operationalise differentiation strategies.
While Michael Porter argued that the only ways to gain a competitive advantage were a cost advantage (in effect coming from the supply side) and differentiation advantage (from the demand side) he didn’t provide many practical tools for understanding the customer purchase decision and how companies could differentiate themselves.
Bradley Gale and “Managing Customer Value” filled in this gap by providing practical tools like the customer value map where you could see the respective positioning of competitors and the attributes that underpinned the customer value.
My Introduction To Customer Value Concepts
I was first introduced to the idea of Customer Value in Competitive and Corporate Strategy by Cliff Bowman and David Faulkner I then started searching got more details about customer value and this book was one of the first resources I found.
The basic idea is that many customers by on a “value for money” basis and will spend more if they get more but otherwise will try to minimise the price they pay.
Customer Value Example
If hotels A and B offer the same level of rooms, customer care and service and A costs £100 and B costs £80 and they are next to each other, the rational choice is to stay at hotel B.
But if hotel A is more up-to-date, has Internet access in every room and has nicer staff then some people will see this as enough extra value to stay at hotel A and pay the £20 premium.
If dinner is included in both room rates but hotel A has a Michelin starred restaurant, then more people will see that as enough extra value to switch.
Extra Quality and Price Lead To Higher Profits
Bradley Gale’s interest in the idea of Customer Value came from the work he did in the PIMS (Profit Impact of Market Strategy) Program which was captured in the classic book The PIMS Principles (affiliate link to Amazon.com). (How I wish this book would be updated for the changes in the last 20 years althoiugh it is still a must read for anyone serious about mastering business strategy).
The PIMS project tracked how strategy influenced profitability across a huge number of companies and came back with a list of strategies and their average profit effect.
Both relative price and relative quality were seen to be big determinants of profit. If you had better quality and/or charged higher prices that the average in the market, profitability was shown to be significantly above average.
Customer Value Combines Price and Quality
Quality is a nebulous term with many different definitions so the emphasis was switched to perceived customer value.
This focuses on the customer’s assessment of the benefits – or attributes of the benefits he or she is buying.
While you can get into a long debate about the issue of logical and emotional decisions and how deliberate the purchase decision is, anyone buying makes an assessment:
“Is this worth the money that I am being asked to pay?”
Managing Customer Value takes you through a process to identify the factors that are taken into account and how you can then focus on improving processes to deliver the newly identified value attributes.
Is Customer Value A Precision Numbers Game?
The book shares a process that will allow you to calculate a precise customer value for a product offering based on the value criteria identified, the relative importance of each criteria and the rating of each criteria.
It effectively creates an objective number from a subjective process. While the number itself is too precise, the positioning and a wider circle of potential values based around the number is interesting and useful both relative to competitors and tracked over time.
Managing Customer Value Has A Bias Towards Big Companies
This book is a classic and customer value is such an important but overlooked topic since it provides the bridge between business strategy and marketing campaigns designed to raise awareness and alter customer perceptions.
But what has held Managing Customer Values back from a five star rating on my blog is that I believe that there is a strong bias towards big companies.
This is no surprise. Bradley Gale’s background with the PIMS project is in big companies and, let’s be honest, it is where the big money is in consulting.
But when I first read Managing Customer Value I was coming from a mid size company perspective and there were sections in there that were out of reach.
Since my focus has moved towards the small business owner and entrepreneur community, this has only increased my concern that a “I can’t do that” attitude may cause my readers to miss the invaluable lessons in Managing Customer Value.
Managing Customer Value Summary Review
I decided to rate Managing Customer Value by Bradley Gale as a 4.5 star book which is a strong buy recommendation for anyone interested in the topic.
It is rightly seen as a classic as it introduced the concept of Customer Value and made sense of the ideas for creating a differentiation strategy.
Paul Simister is a business coach who helps small business owners to profit from differentiating their businesses, being distinctive in the eyes of their customers and standing out in a crowded marketplace.
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