Truly Understanding Customer Value
S A Partners, LLP
Many organizations assume that customer surveys tell them what their customers truly value. This approach has its limitations. There is a difference between customer satisfaction and customer value. These must link to strategy and deploy throughout the organization.
A deep understanding of customer value is critical to drive business excellence and innovation. Traditional survey approaches fail to identify customer value so an alternative methodology must be used.
What is Customer Value?
According to Womack and Jones (Lean Thinking, 1996) the first lean principle is to understand what customers value. At first this may seem a very obvious starting point for any organization wishing success in whatever products or services they seek to supply. However, in reality it is often overlooked with organizations assuming they know what customers value.
Customer value is constantly changing and one of the models that helps describe this is from Professor Noriaki Kano who divided value into three categories. These are illustrated in Diagram 1:
Diagram 1 Customer Value Kano
Kano’s model illustrates that customers only articulate basic value criteria when the criteria are absent, and that most often it is performance criteria that are expressed. Delighters that can help to inform future value are not readily articulated and need a structured process to help bring them to light.
The Kano model helps to illustrate that what customers value changes over time and that expectations are constantly increasing. Today’s delighter quickly becomes tomorrow’s performance expectation, and the day after that, a basic requirement. This is easily illustrated in an everyday example, such as computer technology, where today’s delighter quickly becomes a performance factor, then a basic, and then falls even further to have little or no value.
True customer value can only be understood by using a structured dialogue that focuses discussion on the future rather than just assesses historical performance. Customer value looks forward whereas satisfaction looks backwards.
This model helps explain why every organization needs to embed a culture of continuous improvement focused on customer value. Without this, organizations cannot thrive in the long term as their offerings become out of date.
Why Customer Surveys do not help us to understand customer value
Customer surveys can be useful to give an indication of how we perform today against a range of predetermined criteria. They are useful to collate feedback in a standard format and can give indications for areas of performance improvement.
There are, however, a number of dangers to relying on customer surveys to help understand customer value, such as:
· Surveys tend to look at historical performance, whereas customer value needs to look ahead at what customers will value in the future.
· Surveys are often completed by only a relatively small number of customers. Often, these customers complete the survey to voice an opinion about which they feel strongly. With only these opinions expressed, a survey can give a distorted picture.
· Survey instruments are often designed using far too many questions. This can give the organization more data than is useful. A long survey can also be discouraging to potential respondents.
· The criteria that customers are asked to score is predetermined by what the supplier thinks the customer values. These assumptions are often wrong, and therefore what’s really important can be left off the survey altogether.
· A survey rarely helps us to understand the reasons why customers have scored criteria in a certain way, and as such can be misleading. For example, customers may value “speed of response,” but expectations can vary widely between customers. Unless the survey question is very specific, we may get low and high scores to the same question with the same level of service.
In summary, surveys tend to look backward reviewing performance against a set of criteria determined by the supplier, whereas customer value needs to look forward, focusing on what customers truly value.
An alternative approach to understanding customer value
Increasingly, customer value is referred to as “The Voice of Customer” (VOC), and to truly understand VOC, organizations need to engage in a structured dialogue rather than rely on static surveys.
The VOC approach follows a number of key steps:
- Determine who the strategically important customers are with whom we want to grow business in the future.
- Within that group of key customers, identify the ones whose views on value are most essential to understand.
- Undertake structured interviews with those key customers using trained personnel to determine the vital few value criteria.
- Get insight from each key customer on how current performance compares to their expectations against the value criteria they have said is important.
- Get insight into how the supplier compares to competitors against the value criteria.
- Get insight into how the supplier compares to each customer’s best other supplier of anything at all.
- Collate and analyze the feedback.
- Build action plans to address the areas of opportunity and set ongoing review dates with the customer.
It is often a very useful exercise to get a range of managers in an organization to determine what they think their customers value and rate themselves against the criteria they have set. In many cases it quickly becomes apparent to the managers that they are guessing. Comparing the actual feedback from the customer insight process to what the managers initially thought can be very enlightening for the management team.
Example of the Importance of linking Customer Value to strategy
It is possible to attain consistently high scores in customer satisfaction but still lose work with a customer due to a failure to truly understand value. This was illustrated in the case of a manufacturer of electrical connectors that year-on-year achieved very high feedback scores on their customer satisfaction survey. Initially there was some scepticism as to the need to undertake the customer insights process, but this soon evaporated when the main customer revealed as part of the interview process that all future designs were based on wireless technology. At the time, all production and all products in development at the supplier were based on hardwire technology. Excellent customer value scores had lulled the supplier into a false sense of security, and they were in danger of becoming the best supplier of products the customer no longer needed. The customer insights work led to a rapid shift in strategic direction and product development activity.
An organization cannot gain a full understanding of true customer value through the use of customer surveys alone. A structured process that enables dialogue to take place across a range of key stakeholders is essential to ensure that any organization focuses its strategy and people on what’s really important to the customer – both now and in the future.
Kano, Noriaki; Nobuhiku Seraku, Fumio Takahashi, Shinichi Tsuji (April 1984). "Attractive quality and must-be quality" (in Japanese). Journal of the Japanese Society for Quality Control 14(2): 39–48. ISSN 0386-8230)
Womack & Jones (1996; 2003). Lean Thinking: Banish Waste and Create Wealth in Your Corporation, 2nd Edition Revised Simon & Schuster Audio - 2003 | ISBN: 0743530489 | 2003-02-01
Chris Butterworth was the industrial program manager for the Lean Processing Program (LEAP) where he worked closely with the academic lead, Professor Peter Hines. This major three-year, UK government-funded program directly involved nine companies across a multi-tier network successfully developing and applying new tools and techniques for lean implementation along the extended supply chain.
Mr. Butterworth was the overall program manager for the work with Cogent Power, which was described in the Shingo Research Award-winning book Staying Lean. He has spoken on lean thinking at several international conferences and has published papers in various journals and books. M. Butterworth has been a partner with S A Partners for over 15 years and is a certified Shingo Institute facilitator and a Shingo examiner.