Redefining Customer Value


Companies aiming to thrive in today’s dynamic and competitive landscape must consider cultivating meaningful customer relationships that enable more sustainable and profitable business models.


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We all know that today’s world is connected, but many have yet to realise how much the rules of engagement have changed. This realisation is critical for businesses still relying on transactional customer relationships because these models have become insufficient for long-term success. This evolution requires understanding a customer’s total value – both positive and negative – while meeting their evolving expectations, building trust, and nurturing their loyalty. In exchange, modern organisations can differentiate themselves with a healthy network of external advocates willing to help the business stay relevant and ahead of the competition.

Traditional Customer Value Measurement

Many businesses today leverage revenue-based metrics almost exclusively. While some of these metrics are well-established, such as those related to sales, retention and churn, some are not yet broadly adopted, such as Customer Lifetime Value (CLV or CLTV). CLV allows businesses to determine the value a customer brings over the duration of their relationship, and it is calculated by examining the net profit generated by a specific customer. It is an essential metric for understanding marketing expenses and forecasting future revenue, enabling a focus on profitability over revenue. It encourages businesses to shift their focus from short-term results (quarterly profits) to long-term success (customer loyalty).

However, while this method is effective, it predominantly focuses on transactional interactions and misses the multi-dimensional nature of deeper customer engagement. It, therefore, fails to consider the nuanced ways customers can contribute to or hinder a business.


A Modern Approach

Organisations can achieve a broader understanding of Customer Value by including additional dimensions to their measurement framework. This approach gives companies a deeper and more holistic understanding of their customers’ value and impact beyond direct revenue, enabling scalable growth and contributing to long-term success.

Some of these dimensions are:

  1. Referral Value: A customer’s potential to introduce new clients to your brand can boost organic growth.

  2. Support Cost: Customers who frequently require support can be resource-intensive, increasing operational costs.

  3. Feedback Value: The customer’s product and service improvement insights can provide a competitive advantage.

  4. Engagement Value: The interactions and brand visibility gained from a customer’s activity on various platforms.

  5. Loyalty Value: The stability and consistent additional value generated by long-standing customers.

  6. Reputational Risk: Customers expressing dissatisfaction on social media or other public outlets can negatively shape potential clients’ perceptions.

Businesses often overlook the impact of these dimensions either because they don’t have a direct financial impact or because they don’t know how to measure them. However, in today’s landscape, these dimensions can significantly influence a company’s success (or demise), and thus, it is paramount for modern businesses to understand their customers’ influence holistically.


Real-World Example: Nokia

Nokia, once the world’s largest vendor of mobile phones, boasted significant CLV, with many consumers owning multiple Nokia devices over the years. Named mobile phones global leader in 1998, it continued to dominate worldwide until 2007, when it achieved a market share of 49.4%. However, despite its dominance, Nokia was slow to adapt to the smartphone revolution. Their robust customer base, which in theory should have indicated sustained success through high CLV, was tarnished by their failure to meet evolving customer needs amid competition from Android and Apple ecosystems.

Initially, customers were attracted to the brand’s promise of durability, innovation, and user-centric design. As we entered the era of smartphones, cracks began to appear in their strategy. Nokia failed to listen and understand the changes in the market and their customers’ demands. Instead of adjusting their strategy to drive innovation, they emphasised mass production to boost revenue. Nokia remained stuck with Symbian OS -which had usability issues and lacked support in the developer ecosystem- and customers started shifting to devices that supported iOS and Android. With Apple and Samsung claiming this seemingly unattended market space, Nokia continued to ignore the voice of the customers and signed a strategic partnership with Microsoft in 2011, which ultimately led to continued losses and the sale of its mobile and devices division to Microsoft, which wrote the assets off by 2015.


Why Adopt a Modern Customer Value Approach?

To develop a strategy that thrives in the modern world and adapts to the ever-evolving needs of customers, organisations need to consider dimensions beyond those focused on the transactional nature of their relationships.

By incorporating both positive and negative additional customer value dimensions, businesses can:


Conclusion

While traditional revenue-based metrics like CLV will remain foundational to assessing customer value, a comprehensive approach incorporating these intertwined dimensions provides a broader and more insightful perspective. This multi-dimensional approach captures the realities of modern customer interactions, empowering businesses to strategise more effectively and nurture genuine, long-lasting relationships that can drive and accelerate their success.