Most innovation efforts are about creating new products and services or improving existing ones. While the products and services differ, the goal of the innovation effort is the same—to find new and better ways of creating customer value. More precisely, the goal is to provide more customer value than competing companies.
But what, exactly, does customer value mean? And how does one go about creating it?
When it comes to innovating, a useful definition is to say that customer value equals the benefits received by the customer minus the costs that the customer incurs in obtaining the benefits.
A simpler way to put it is the equation: Value = Benefits – Costs.
Other ways of putting it are the get-give equation (value equals what the customer gets minus what he gives), the positive-negative equation (value equals the positives minus the negatives), and the good-bad equation (value equals the good minus the bad).
Once you understand the meaning of customer value, the next question is how to go about creating it.
A quick look at the benefit-cost equation provides the answer: Increase the benefits, lower the costs, or do both. It sounds simple enough, but it’s not. There are all sorts of benefits and costs to consider, and few companies have a systematic way of thinking about them. To help you think about innovative ways to create or increase customer value, let’s take a closer look at benefits and costs.
Attributes and benefits
The first thing to understand is the difference between an attribute and a benefit. An attribute is some aspect or feature of a product or service. A benefit is a positive thing a customer gets from the attribute.
For example, the location of a hotel is one of its attributes. One of the benefits of the location is that it enables customers to get to where they are going faster.
The number of attributes and benefits of a product or service can be enormous. In one study published in the Cornell Hospitality Quarterly titled “Creating visible customer value: How customers view best-practice champions,” the survey respondents identified 1,275 hotel attributes that play a role in driving their purchase decision.
Another thing to understand is that the same attribute can benefit a customer in multiple ways, or it can benefit different customers in different ways. Staying with the hotel-location example, one customer might value the benefit of getting to his destination faster, while a second customer might value the benefit of feeling safer about the surrounding neighborhood. A third customer might value both of these benefits.
Basic and motivating
The final issue to understand is the difference between basic and motivating attributes and benefits. As the name implies, basic attributes and benefits are the basic things you need to get in the game. For example, basic to getting in the hotel game is the attribute of cleanliness and the associated benefits of knowing that one isn’t going to feel disgusted, catch a disease or be bitten by bed bugs.
Motivating attributes and benefits are those that go beyond the basics and serve to motivate a customer to select one product or service over another. An example would be the attribute of having an awards program and the associated benefit of enjoying free hotel stays. All else being equal (including cleanliness), customers will be motivated to select a hotel that offers an awards program over a hotel that does not.
The other half of the value equation has to do with costs. Here, the important thing to know is that costs can be divided into two types. The first is the purchase price. The second is all of the other monetary and non-monetary costs associated with buying and using a product or service.
An example of a monetary cost is the cost of complementary services, such as the air and ground transportation costs associated with staying at a particular hotel. An example of a non-monetary cost is the time it takes a customer to search for and book a reservation at a hotel.
So, how do you go about devising innovative ways to provide more customer value than your competitors? Your first step is to divide the market into a set of market segments. Why? Because, as previously explained, different customers derive different benefits from the same attribute of a product or service. Consider, for example, the different benefits that are sought by group and leisure travelers. Next, for each market segment, you want to devise creative ways to provide greater benefits and lower costs than your competitors. There are various ways to carry out this step, all of which involve methodical processes for disciplining and stimulating your thinking.
One method is to disassemble your product and processes into their component attributes. Do the same with your competitor’s products and processes. Then, organize the attributes so that they can be compared side by side. The next step is to identify the differences between the attributes. Finally, analyze the differences in terms of customer benefits and costs. Comparative analyses of this sort are an excellent way to stimulate creativity. Often, the comparison leads to a combination that is better than the two attributes being compared.
Ideally, you want to create customer value that is difficult or impossible for your competitors to copy. While easier said than done, it is doable.
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