Fundamentals of Customer Value

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Fundamentals of Customer Value
To create successful customer relationships, companies must understand what their customers care about and what value proposition appeals to them. by Mohanbir Sawhney Kellogg School of Management

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uccessful customer relationships are built on the bedrock of superior customer value. To attract and retain your most important customers, you must understand what they care about and what value propositions will appeal to them. While “value” is an overused buzzword, we rarely pause to reflect if we really understand what value is. It is a natural human failing to question the concepts that we think we know well. As Marshall McLuhan said, “We don’t know who it was that discovered water, but we’re pretty sure it wasn’t a fish.” In my decade-long career as a teacher, researcher, and author, I have written extensively about different aspects of creating, delivering, and capturing customer value. But this is my first attempt to distill my understanding of customer value into seven fundamental lessons. I hope these lessons help you in your quest for profitable customer relationships.

This definition embodies seven fundamental lessons on customer value:

1. Value Is Customer-Defined
You don’t define value. Your customers do. As Peter Drucker, the patriarch of management theory, notes, “What the business thinks it produces is not of first importance. … What the customer thinks he is buying, what he considers value, is decisive. And what the customer buys and considers value is never a product. It is always utility, that is, what a product does for him.” So the first lesson on value is that what you sell (products and services) is not what your customers buy (utility and value). As Ted Levitt pointed out so eloquently in his classic article “Marketing Myopia,” you may grossly misunderstand what business you are in if you see your business through the product lens. It is a myth that “if you build a better mousetrap, the

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