Insights | By Howard Tiersky

Four Ways to Increase Customer Value

Most business value is created through customer behavior; therefore it's important to clearly define which specific customer behaviors you want to drive so that you can focus on how to motivate and measure those behaviors. 

Now the customer behaviors that are valuable to say, a bakery, might be somewhat different than those valuable to a hospital, or an accounting firm.  Nevertheless, there are four core categories of customer behavior that encapsulate the vast majority of opportunities to create customer value across a wide range of different types of businesses.

It’s valuable to periodically review and make sure you are clear on all of the "value creating behaviors" that your customers could potentially engage in so you can come up with fresh ideas on how to motivate even more of those behaviors. It may be that you are focused on certain more obvious value-creating behaviors (such as buying your product) but not on other more subtle behaviors which, if focused on, could increase total customer value to your enterprise.

Here are the four major categories and common sub-categories of customer behaviors. Many of these probably apply in your industry, a few might not, and you may need to brainstorm some additional ones that are specific to your business.  The list below can provide a useful starting framework to tackling your customers’ behaviors

Marketing Related Behaviors

We often think that value starts when the customer gives us his credit card, but the opportunity begins before that. There are behaviors that customers can engage in to make it easier for us to market to them. These include:

  • "Opting in": Generally to a mailing list
  • Social Connections: Following, liking, or subscribing to your brand on various social channels
  • Profiling themselves or providing other information that we can use to target or personalize marketing material.
  • Engaging with your marketing materials, which could simply mean reading  rather than tossing the catalog you send them, or finding you on the web and learning more about your products and services.
  • Sampling: Customers who agree to try a free product sample may be more likely to buy in the future.
  • Visiting: your store or other physical location which also increases their likelihood to buy.  If they were going to buy anyway, coming to a physical location often increases the size of the total sale.

When customers engage in these behaviors they lower our marketing costs (we can reach our FaceBook subscribers for free where we have to pay FaceBook to reach others, for example), and of course they move themselves one step closer to buying, which creates a different type of value.

Purchase Behaviors

These are the behaviors we tend to think of first when it comes to creating value; however there are several distinct sub-categories which are important to consider as you may need to motivate these behaviors differently from the basic buying behavior. Here are six sub-categories of purchase behaviors:

  • Buying:  In your industry this might be subscribing, donating, retaining your firm, etc.
  • Up Selling: Most businesses have tiers of offerings and motivating the customer not just to buy but to buy a more premium version of your product and service.  This  generally increases revenue and margin.
  • Cross selling: Motivating a customer to buy a second, third or fourth product or service along with the core item:  batteries, warranties, meal plans at resorts, etc.
  • Preferred channel or tender: Customers having options in terms of how to buy from you and which choice they make may adjust the amount of value they create. For example a customer might be able to buy your product directly from you or choose to go to a third party for the same product. In both cases you make money but you probably make more if they buy direct. Similarly if a customer pays by check you avoid credit card processing fees, which increases your margin.
  • Not returning/cancelling: Remember that once the sale is done you are not "home free." Most products and services have some type of return or satisfaction guarantee. We want to motivate customers not to take us up on reversing the sale or cancelling the reservation.
  • Re-purchasing/renewing: Ideally we want a customer for life. Whether it’s a magazine subscription that gets renewed or an airline that motivates a customer to keep coming back, a key goal is to encourage customers to buy as frequently as possible.

Promotional Behaviors

The most powerful form of marketing is word-of-mouth. There are multiple ways your customers can create value by helping promote your brand and products. Here are three examples:

  • Referring friends: Whether verbally, via social media or via a structured "refer-a-friend" program you may provide, or having your customers advocate on your behalf to friends is an effective technique with typically low cost of sales.
  • Lobbying retailers: In certain industries it’s helpful if customers give feedback to your distribution chain regarding stocking your products or a wider array of your products.
  • Creating content: In today's world of user generated content there are numerous ways that your customers can create content that creates value for your business. This can include writing reviews, answering questions, or posting information in forums about their experiences. It can also include participating in contests or other programs designed to encourage UGC creation.

Usage Behaviors

Finally, customers can create value for your enterprise in the ordinary course of using your product. Again these will vary by industry but here are a few common sub-categories:

  • Ordering supplies: Some products have an ongoing revenue stream in the form of supplies. This means that simply by using your product they are creating value for you because they are depleting consumables which will need to be replenished.
  • Paying for service: Some products require periodic servicing or repair and customers may have the option when that happens to come directly to you for that as a paid service.
  • Paying bills on time: If a product involves recurring payments, customers can pay their bills on time. (Although in some industries customers create more value by not paying their bills on time and incurring service fees, this is not a great business model for developing strong customer loyalty however).
  • Handling service inquiries through self service:  When customers have a question they generally have multiple ways they can interact with your brand such as web, IVR and phone representative. Some of these methods are less expensive than others for your business. In general, motivating customers to use the less expensive (generally self-service) channel creates more value, although if a strong cross or up-sell opportunity exists, more value can sometimes be created through more personal interactions even though the cost is greater because of the potential for incremental revenue.
  • Complaining: It may seem counter-intuitive, but if customers have a bad experience with your product or service they create value by telling you about it so you can improve it for future customers and potentially "save" the reporter as a customer. 

I suggest you gather some colleagues together and brainstorm the matrix of value-creating customer behaviors in your business. You can use this list as a starting point. Remove those that don't apply and add specialized ones. Then consider the value opportunity of each;  some are larger than others. Finally, consider which you are currently focused on and which might be getting overlooked. This might lead you to some fresh ideas for how to move the needle on your business. Call FROM if we can help!

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