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Robert took every opportunity available to better understand his customers and provide them

with value. One way his business does this is by developing a personal relationship with its

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customers. This may mean carefully looking at checks or credit cards, not for security reasons,

but to identify customers by name. Robert points out that he always pays careful attention to

what customers like and dislike; by doing so, they develop confidence in his suggestions. To

foster this confidence, he and his family actively engage their customers in conversations.

Customers, Robert, and the employees share stories, which is a key way to build better customer

relationships. By listening to his customers, Robert can identify what they are looking for and

assist him in knowing what new products he might offer.

In addition to this personalized level of service, the Cheshire Package Store also recognizes the

importance of other factors. Robert talks about the importance of maintaining a well-lit store

with spacious aisles, making it an inviting place in which to shop. He is careful about even minor

details, such as assuring that there are open parking spaces near the entrance to his store. He

recognizes that even walking short distances to or from the store might be a burden or deterrent

for his customers. Robert’s store possesses a cutting-edge inventory software package designed

specifically for liquor stores. It enables him to track inventory levels, which can provide

estimates for future inventory levels of different products; however, he sees this as a guide only.

As he puts it, “Your knowledge of your customers will be the key determinant for your success.”

Robert also strongly believes that the success of a small business depends on the owner being

there. Stores have their own personality, in his view, and that personality is created by the

owner. This personality imparted by the owner impacts all operational aspects of the business—

“Your employees will pick up on what you expect, and they will know what your customers



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2.1 Defining the Customer’s Concept of Value


1. Define customer value. 2. Understand the five sources of perceived customer benefits. 3. Understand the three sources of perceived costs.

Look beneath the surface; let not the several qualities of neither the thing, nor its worth escape


Marcus Aurelius Antoninus

In the previous chapter, Peter Drucker and W. Edward Deming placed the customer at the

center of their definitions of the purpose of a business. They used the customer as being at the

core of that purpose rather than focusing on financial measures such as profit, return on

investment (ROI), or shareholders’ wealth. Drucker’s logic was that if a business did not create a

sufficient number of customers, there never would be a profit with the business. Deming argued

that delighting customers would become the basis for them to consistently return, and loyalty

would ensure that the business would have a higher probability of surviving in the long term.

The clearest way of doing that is by focusing on providing your customers with a clear sense of

value. This emphasis on value will produce economic benefits. Gale Consulting explains the

notion of value this way, “If customers don’t get good value from you, they will shop around to

find a better deal.” [1] A recent study put it this way, “These firms have been successful…by

consistently creating superior customer value—and profiting handsomely from that customer

value.” [2]

Strong evidence indicates that this focus on making the customer central to defining the

business translates into economic success. It has been estimated that the cost of gaining a new

customer over retaining a current customer is a multiple of five. The costs of regaining a

dissatisfied customer over the cost of retaining a customer are ten times as much. [3] So a key

question for any business then becomes, “How does one then go about making the customer the

center of one’s business?”

What Is Value?



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It is essential to recognize that value is not just price. Value is a much richer concept.

Fundamentally, the notion of customer value is fairly basic and relatively simple to understand;

however, implementing this concept can prove to be tremendously challenging. It is a challenge

because customer value is highly dynamic and can change for a variety of reasons, including the

following: the business may change elements that are important to the customer value

calculation, customers’ preferences and perceptions may change over time, and competitors may

change what they offer to customers. One author states that the challenge is to “understand the

ever changing customer needs and innovate to gratify those needs.” [4]

The simple version of the concept of customer value is that individuals evaluate the perceived

benefits of some product or service and then compare that with their perceived cost of acquiring

that product or service. If the benefits outweigh the cost, the product or the service is then seen

as attractive (see Figure 2.1 “Perceived Cost versus Perceived Benefits”). This concept is often

expressed as a straightforward equation that measures the difference between these two values:

customer value = perceived benefits − perceived cost.

Figure 2.1 Perceived Cost versus Perceived Benefits


Some researchers express this idea of customer value not as a difference but as a ratio of these

two factors. [5] Either way, it needs to be understood that customers do not evaluate these factors

in isolation. They evaluate them with respect to their expectations and the competition.



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Firms that provide greater customer value relative to their competitors should expect to see

higher revenues and superior returns. Robert Buzzell and Bradley Gale, reporting on one finding

in the Profit Impact through Marketing Strategy study, a massive research project involving

2,800 businesses, showed that firms with superior customer value outperform their competitors

on ROI and market share gains. [6]

Given this importance, it is critical to understand what makes up the perceived benefits and the

perceived costs in the eyes of the consumer. These critical issues have produced a considerable

body of research. Some of the major themes in customer value are evolving, and there is no

universal consensus or agreement on all aspects of defining these two components. First, there

are approaches that provide richly detailed and academically flavored definitions; others provide

simpler and more practical definitions. These latter definitions tend to be ones that are closer to

the aforementioned equation approach, where customers evaluate the benefits they gain from

the purchase versus what it costs them to purchase. However, one is still left with the issue of

identifying the specific components of these benefits and costs. In looking at the benefits portion

of the value equation, most researchers find that customer needs define the benefits component

of value. But there still is no consensus as to what specific needs should be considered. Park,

Jaworski, and McGinnis (1986) specified three broad types of needs of consumers that

determine or impact value. [7] Seth, Newman, and Gross (1991) [8] provided five types of value, as

did Woodall (2003), although he did not identify the same five values. [9] To add to the

confusion, Heard (1993–94) [10] identified three factors, while Ulaga (2003) [11] specified eight

categories of value; and Gentile, Spiller, and Noci (2007) mentioned six components of

value. [12] Smith and Colgate (2007) attempted to place the discussion of customer value in a

pragmatic context that might aid practitioners. They identified four types of values and five

sources of value. Their purpose was to provide “a foundation for measuring or assessing value

creation strategies.” [13] In some of these works, the components or dimensions of value

singularly consider the benefits side of the equation, while others incorporate cost dimensions

as part of value.

From the standpoint of small businesses, what sense can be made of all this confusion? First, the

components of the benefits portion of customer value need to be identified in a way that has


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