Valuespace: Why Invent a New Term?
Here is why.
Customer Value-- What does it mean to you?
To some it means the value of a customer (rather than value to or for the customer). That meaning has produced such management practices as the computation of the lifetime value of a customer, customer segmentation by their profitability, and an analysis of customer equity. That is not what we mean by ValueSpace.
To others it means your value proposition to the customer. A value proposition is the principal, overall, global benefit of an offering: A transition contact lens’ value proposition is that the lens changes its transparency according to light intensity. American Express’s value proposition to its merchant customers is that it will bring them a different type of customer, a customer with higher average spend. For Akamai, the value proposition is quicker download of web content as it resides on its distributed hosting network. Every business must no doubt define its principal value proposition. But the concept of Valuespace goes beyond.
Some others view customer value as weighted attribute utility analysis; each of the offering’s attributes is compared with competitors’ and the differential weighted with attribute importance assigned by the customer. That analysis is important; but ValueSpace goes further.
Some define value as a ratio of benefits customers get and costs (monetary as well as non-monetary) they believe they incur. That is a nice, scientific statistic, good for modeling. But it does not quite jibe with how customers actually think. If you give them two product choices, ‘A’ and ‘B’—where ‘A’ gives only half the benefits of ‘B’ but also has only one fourth of the costs, making A’s value twice that of ‘B’; still, customers may find ‘A’ unacceptable, due to very limited benefits. Customers begin with an idea of specific benefits they want; then seek to find the best price. A ratio conception of value fails to capture this reality. They may consider some benefits and cost tradeoffs at this stage (i.e., value as a ratio), but the general idea of benefits they wanted from the outset serves as the anchor around a zone of acceptable benefits. It is important to build customer valuespace around these benefits rather than an abstract statistic like benefits to cost ratio.
Likewise, customers also focus on price in its own right (and not just as a denominator in the benefits-to-cost ratio). They compare the price with some ‘reference’ price—may be a competitor’s price, or the price they expected to pay, or some other anchors, but the thrill of getting a good price deal is a value in itself regardless of the benefits level.
Third, quite apart from the benefits and price, they also consider ease or pleasure of doing business. The customer may sometimes incorporate these non-monetary costs and benefits as part of the benefits-to-costs ratio, but often the hassle of transaction or, alternately, the delightful interaction experience with the company create their own imprint on the customer’s mind, in turn influencing customer’s repeat patronage.
Besides, what can managers do with the ratio? They must of necessity manage each one (benefits, costs, and interface with customer in its own right; in harmony and coordination, no doubt, but still each as an individual action focus.
ValueSpace then is the sum total of all three sources of value to the customer: the product benefits, the price advantage (compared to a reference price), and the hassle versus pleasantness of the transaction. We call them the 3P’s of valuespace— performance, price, and personalization. ValueSpace then refers to this trilogy of market value customers seek.
* * * * * * *
Next question: What is Personalization? Why don’t we simply call it “Service, ” as everybody else does.
Our answer: The trouble is “service” is an overused term; everybody makes claims to delivering excellent service. First off, some business offerings are not physical products but services, such as consulting and counseling; so what is customer service for service businesses?
Then, all sorts of things count as service: In a car dealership, credit and financing is service; in a restaurant, preparing a special order is service; some consider sales person call a service. For some only customer service (the formal department) is service. When a credit card company sends you an annualized itemized spend report, it can be called service. The problem with this is not only that the boundaries and scope of service activities are un-definable, but also that the essential properties of service have not been articulated.
Therefore, we had to use a new term. Personalization. It has three specific components, which capture, progressively and hierarchically, the ease and positive pleasure of doing business. No more need there be any vagueness about it. Deliver those three subcomponents, and you will have delivered a personalized experience of doing business.
* * *
Marketspace vs. Valuespace.
Valuespace is also different from Marketspace. Marketspace is where you display your wares. Along with your competitors. And you want customers to visit this space, look at your wares, and buy them. Valuespace is the space customers have in their mind; it is the space in which they roam, seeking the three market values. This is the space in which you have to find an entry. You have to map that space—understand just what the customer is looking for; what would best fit his or her needs. Then you have to create those values. One and all. Better than all competitors. That is how you build customer’s valuespace.
Marketspace is also how the markets are segmented—in terms of broad divisions of performance; and likewise, price; and personalization. Say upscale, average, and downscale. Like, luxury cars versus pricey sports cars versus utility cars. Nordstrom versus Wal-Mart. So choose your market, carefully—taking to heart the lessons of the “discipline of market leaders.” But that is where the “discipline” stops. Don’t think for a minute now that you have a choice between the three-valuespace components. Within the narrow Marketspace (the discipline) you have decided to play, within that market, for that set of customers, now you need to focus on your moves in the customer valuespace. All three components of it. The best combination of product, price, and personalization.
Imagine if you will that Valuespace is a playground with customers as the spectators. You have to constantly ask yourself, what is my play in the customer valuespace. If your play is inadequate for solving the customer’s problem, or if it is inferior to your competitors’, then you have lost your battle in that valuespace. While your play is pitted against your competitors’, you don’t win by watching the competitor; you win by focusing on the customer valuespace, and by delivering in that valuespace.
Your goal is to keep making smart moves in the customer valuespace. When Caterpillar incorporated a terrain mapping technology in is tractors, that was a smart move in the customers’ valuespace. When UPS invented a way to figure out an optimum transportation mode for packages, thus reducing price to customers, that was a smart move in customer’s valuespace. And when AutoNation (like Saturn before it) decided to craft distinctive buying experience for its customers, that was a smart move.
What was your last smart move in the customer’s valuespace? What will be your next? What new value can you invent in that valuespace? These are the questions Valuespace invites you to ask, and guides you to answer them. No other term would have served that purpose.
Remember, you are a player in the customer valuespace. You have to wow the customer in that valuespace. You have to contemplate that valuespace. And then build new value in it. Constantly.
* * * * *