There are a variety of reasons consumers feel a product is “worth it.” The purpose of the customer value metric is to quantify how “worth it” a product is to your customer base. Understanding perceived value requires identifying the benefits to your customer, taking costs into consideration, gathering feedback, analyzing customer expectations, and more.
Learn how to measure and increase customer value for your business with insights from Claudia Snoh, cofounder of the premium coffee concentrate company Kloo. She used customer value insights to shape her brand’s launch strategy, and so can you.
What is customer value?
Customer value reflects a product’s perceived value relative to its costs. Businesses measure customer value by first identifying the specific perceived benefits that draw customers to their product. Then they assign values to these benefits and analyze those values against the cost to the consumer.
For example, imagine a shopper is looking for an at-home pizza oven and finds that the average market price is $350. However, the customer decides to splurge on a model that is $550 because it offers exceptional heat distribution and versatility, and it’s very easy to clean. In the customer’s mind, the perceived value makes the product worth paying $200 above the average market price. In other words, the value outweighs the cost.
Why does customer value matter?
Customer value helps your business understand how its products are performing with your target audience. By analyzing customer value data, you can determine why they value (or don’t value) a product and pivot your strategy as needed to enhance customer success.
Imagine an artisanal soda company wants to raise the price of its product by nearly a dollar per can. Before doing so, it distributes a survey to better understand the preferences of its target audience. After survey data reveals that all-natural ingredients are a top consumer priority, the company—which had been using a combination of artificial and natural sweeteners—updates its recipe to use all-natural sweeteners exclusively. Only after doing this does the company implement its price increase. The thought is that prioritizing the customers’ preferences will increase customer value, with more shoppers finding the slightly higher price justified, and prevent a steep decline in sales.
How customer value informs marketing
Understanding your product’s strengths from a consumer point of view can also inform your marketing strategies. The soda company from the example above would likely highlight its new all-natural ingredients in its marketing campaigns after learning how important this element was to consumers.
Customer value data helped Claudia come up with a win-win packing solution for Kloo. After reviewing customer survey data, she learned that subscribers didn’t need new glass coffee concentrate bottles with every order, and many offered to ship their glass bottles back for refills. Claudia decided to introduce recyclable refill coffee pouches, which met customer requests and cut costs. As she explains on the Shopify Masters podcast, “It ended up being a silver lining because it reduced shipping weight and helped us achieve a better margin. As a result, we were actually able to offer our subscribers a much better price.”
Types of customer value
Cost is an important aspect of customer value, but lower prices aren’t always the answer. Consumers may be willing to pay more for a premium product that delivers outstanding benefits. Here are some of the factors that influence the customer experience and value perception:
Functional value
Functional value describes how well a product fulfills its stated purpose. Products with high functional value resolve pain points and make the consumer’s life easier. For example, consumers might be willing to pay more for a laundry detergent that eliminates tough stains without damaging clothes simply because it works so well.
Social value
Social value is related to a product’s status or trendiness. Some people like to purchase products that go viral on social media because it demonstrates to their network that they’re in the know. Purchasing luxury items and limited-edition goods shows they can access exclusive things and lets them express their social status.
Monetary value
Monetary value describes how consumers feel about a product’s cost. Undercutting your competitor’s prices isn’t the only way to create monetary appeal—your pricing strategy, promotions, and loyalty programs can all affect perceived monetary value. Try offering discounts or rewards points to help customers feel like they’re getting a good deal.
Psychological value
Similar to social value, psychological value is intangible, emotional, and highly personal. Psychological value occurs when customers feel an emotional connection to your product or company. Discussing your company’s mission and core brand values can build psychological value for like-minded consumers.
Kloo’s commitment to eco-friendly practices adds psychological value for customers. “People really appreciate the fact that we practice sustainability,” Claudia explains, “from sourcing all the way to our biodegradable packaging. Those little things really helped us build great brand affinity.”
How to measure customer value
- Survey your customers
- Identify customer benefits
- Consider customer costs
- Calculate the customer value formula
Businesses use a combination of qualitative and quantitative data to measure customer value. Collecting this information requires direct consumer communication. Here’s how to first gather the necessary survey data and then use customer value formulas to measure customer value:
1. Survey your customers
Certain aspects of customer value (like social and emotional benefits) are abstract, so the best way to surface customer sentiment around these aspects is to distribute a well-designed survey. These surveys seek to translate these intangible benefits into quantitative data for evaluation.
To quantify the results, ask multiple-choice and numerical-ranking questions (i.e., “rate the product’s effectiveness on a scale of 1 to 5”). For example, you might ask, “What do you like about our product? Check all that apply,” and provide a list of attributes like packaging design, availability, price, flavor, brand values, nutritional profile, etc. Conversely, ask “What is your least favorite thing about our product?” to get data around costs and drawbacks.
You can ask open-ended questions as well to identify common themes and outliers, but keep it relatively brief. “Survey fatigue is really real,” notes Claudia. “If you try to keep it less than 10 minutes, which equates to about 10 to 15 questions, that’s the really sweet spot to target,” she says.
Once your survey is ready, distribute it to a group of customers via your preferred customer feedback tools.
2. Identify customer benefits
Once you’ve collected feedback, categorize the benefits your customers mention. These may include:
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Functional benefits like convenience, speed, and reliability
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Emotional benefits like trust, enjoyment, and peace of mind
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Social benefits like status or a sense of belonging
Quantify these benefits where possible, assigning numerical value to phrases that come up repeatedly to create a clearer picture of what your customers truly gain. For instance, imagine our hypothetical artisanal soda brand discovers that 70% of respondents say they’re looking for a healthy soda they can feel good about giving to their kids.
When more than half of the respondents say they experience a benefit, you can add that to the tally of overall benefits for your product.
3. Consider customer costs
Do the same analysis for perceived costs as you did for perceived benefits. Factor in what your customers must give up to receive these benefits, keeping an eye out for drawbacks like:
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Monetary costs like the price, fees, or recurring maintenance expenses
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Time and effort like the setup, required learning curve, and support wait times
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Emotional costs like frustration with the packaging or uncertainty about the benefits
Reducing these costs can increase the product’s perceived value, even if the benefits stay the same. For example, in the case of the artisanal soda brand, potential customers might overlook the higher price compared to other brands if the soda is made of ultra-premium ingredients.
4. Calculate the customer value formula
Assign a dollar value to every benefit and drawback for your product, using data from your customer feedback. Or create a simple tally system of costs and benefits. Then, use this formula to calculate a customer value score:
Total customer benefits – total customer costs = Customer value
For example, the artisanal soda brand might go with a simple tally system like this:
Benefits:
1. Great flavors
2. Appealing product design
Costs:
1. High product cost
2. Low availability
3. Skepticism about the nutritional value
In this scenario, the costs outweigh the benefits three to two. To improve the perceived value of its products, the brand could expand its distribution network to improve availability, get endorsements from nutrition experts, or lower the per-unit price. These changes can boost the value without the brand having to make any changes to the product itself.
How to increase customer value
- Offer strong customer support
- Develop an onboarding experience
- Implement a customer loyalty program
- Focus on product quality
The best technique for increasing value depends on your customers’ needs. This process often involves a combination of relationship building and product development. Here are some common strategies for increasing customer value:
Offer strong customer support
Good customer support involves direct communication between brands and consumers. These interactions play a big role in shaping consumer expectations. Offering an efficient, friendly customer support experience can generate goodwill, resolve customer pain points, and improve customer retention because satisfied customers are more likely to return for another purchase. You can offer strong customer support by responding quickly to emails and text messages, resolving issues with empathy, and making it easy for people to get help by offering multiple channels (like chat, email, and phone). Proactive follow-ups and personalized service show customers they’re valued, which in turn makes your brand more valuable.
Develop an onboarding experience
In Claudia’s experience, once people make up their mind about a premium brand (for good or bad), it’s hard to change their perspective. A thoughtful onboarding experience can help your product make a positive first impression. Welcome emails, product guides, use case ideas, and thorough instructions ensure a good customer experience by answering questions before they arise.
Implement a customer loyalty program
Loyalty programs reward existing customers with exclusive discounts, free shipping, or rewards points. These programs increase the overall benefits customers receive without raising their costs. They also encourage repeat purchases, strengthening your long-term relationship and boosting perceived value over time. Plus, receiving an exclusive perk can make loyal customers feel celebrated and generate goodwill.
Focus on product quality
Keep customer value in mind as you refine and update your product. Look for opportunities to enhance consumer benefits and reduce costs. If customers love your product’s functionality but complain that it breaks easily, implementing a new, shatter-proof material could increase customer value.
Claudia practiced this principle during Kloo’s product development. When subscriber demand increased, Kloo tested production with several co-packers to help meet the demand. After reviewing the results, Claudia concluded that her product “just didn’t taste the same.” She explains, “The quality didn’t match our standards, and when it comes to quality and flavor, we have a very hard line because that’s really the genesis of Kloo. That’s who we are.” Instead of working with co-packers, Kloo opted for a vertical integration model that allowed her company to increase production without compromising on product quality.
Customer value FAQ
What is meant by customer value?
Customer value measures a product’s perceived benefits relative to its costs. To calculate a figure, brands use this formula: Total customer benefits – total customer costs = Customer value.
What are the four types of customer value?
The four types of customer value are functional value, social value, monetary value, and psychological value. Functional value reflects how well a product works, social value is related to trendiness and social status, monetary value pertains to cost, and psychological value addresses personal emotional appeal.
What is an example of a core customer value?
Core customer values include convenience, affordability, quality, and ease. Customer values describe what consumers are looking for; these preferences and needs drive their purchasing behaviors.
