Exclusive on MyCustomer.com: The future of marketing – Understanding Value Co-creation

This is part two in a three part series on the future of marketing. Last time I wrote how Service Dominant Logic and its value-in-use thinking can be helpful to rethink your marketing goals and approaches. Today I will explain the concept of value co-creation, whereas in the third article I’ll try to provide you with the implications for today’s marketers, willing to explore new territories.

You can read the full story here..

On The Creation Of Value WITH Social CRM

This post is cross-published at Customer Think. Please take some time to read the extensive and valuable commenting there.

One of the fundamental flaws in thinking about value is based on the persistent logic that value is something you add, or provide. I’ll try to explain, in as simple words as possible, why and how you should think about value creation instead and what, in my humble opinion, the impact on Social CRM is or should be.

Value is not derived from your product, but created with your product

It’s persistence is shown e.g. in the way we think about value chains. It is vested thoroughly in our minds that each step in the production and delivery of goods or services is about adding value, whilst at best it is about adding knowledge, features or capabilities. None of these elements are creating value for the Customer though before they are consumed or used.

As a consequence today’s marketers continue to focus on explaining to (potential) Customers what value they are providing or adding. Firms seem not to understand that the other side of the table is not deriving value FROM the product. The other side is trying to get a job done and your product or service is a means to that end, thus they are creating value WITH the product. And – this is really important – they can’t do that job without themselves.. Indeed, themselves:

Customers can only create value for themselves WITH themselves..

If it weren’t for yourself, how would you be able to make a phone call? How would you be able to make dinner? How would you be able to enjoy it with your friends? How would you be able to use your satellite TV? How would you, well …. basically get anything done? I think you get my drift here. And although it sounds incredibly logical, this is not the logic most companies use when designing experiences or targeting new Customers.

Ignoring the Customer’s role

Most companies (their marketing departments in particular) are stuck in telling Customers what value for their money they get, based on the flawed thinking that the Customer derives value from the product itself. Yet, they are completely ignoring the Customer’s role in the process of value creation.

When they should be thinking how to further enable the Customer’s value creating capabilities, they are thinking of how to capture value from the Customer. Which in essence they ask in return prior to the value being created. (yes, most purchases are actually pre-payments). Why?

Because value only comes to life when Customers are using the product or service.

Once you understand that the Customer has an important, even decisive, role in the process of value creation, and that value is only created in use, it is not a quantum leap to the next stage: asking yourself what Customers need to do, in order to be able to create the value they are after. Asking yourself: What do they need to know, understand, be able to? (and I’m not even touching upon the contextual and emotional side of value creation here). Or taken from the opposite angle: what is hindering them? what don’t they have? what don’t they understand? what can’t they do? and how come?

Many in the area of marketing, Customer experience or even Service design, try to answer similar questions, yes. But dominantly in the context of selling goods or services (how can we make buying easier?). Too few ask themselves these questions in relation to the Customer’s experience when consuming the goods or services.

What could be, if you would truly understand?

Imagine if you would understand what “resources” Customers bring to the table to create value, beyond the product or service you provide? How powerful would that understanding be? What if you would understand that better than your Customer’s alternative suppliers? What would happen if you could support your Customers creating value in a more easy, better or quicker way, not just make them buy in a more easy, better or quicker way? Would that not provide you with the competitive advantage you want? Would that not create the advocates you want? Would that not allow you to capture higher margins over a longer Customer lifetime? I think so..

Why this is important to Social CRM?

Here’s my take on it: Lot’s of companies are starting their Social CRM efforts with listening. The first thing they do, is turning their brand new ears towards the conversation about their brand, being worried mostly about the threat of negative word of mouth. Many are also “listening” to identify influencers and analytics of social data seems to be focused mostly on understanding how messages travel, through which nodes, from which nodes and to which nodes in the social network. And it’s focused on what the sentiment is. Although I believe there is certainly value to be created for the Company in understanding all this I think it is as important that you listen to understand how your Customers create value..

Don’t wait for the feedback to come to you!

It is likely that the current chatter on Social Media does not provide you with that actionable insight. As a consequence Marketing should think about sparking conversations amongs Customers and in their social networks about their way of creating value, in order for you to have something worth listening to.. something that is worth analyzing.

Actionable insights are not only derived from good analytics, you need to understand what it is you want your Customers to talk about too, and then see if you can get them to do so.. Don’t wait for the feedback to come to you, but actively seek the feedback you need.

Once you have them talking then you can think about how integrating social data and actionable insights in your experience (platforms) and/or crm systems can help your Customer create more value with your product or service..

What is your company doing? Waiting for the conversation to take place by accident or do you have something better to do with your time? Any other applications of the above you can think of?

Measuring Customer Performance – The Value Co-Creation Way

[tweetmeme source=’MarkTamis’ service=’bit.ly’]

I found a new Dutch initiative to measure a Company’s Customer Performance: The Dutch Customer Performance Index (DCPI) (Dutch only) – a new objective and validated index for measurement of Customer performance – . I thought it worthwhile sharing with you.

The Dutch Customer Performance Index is an initiative of the Customer Insights Center of the University of Groningen (Dutch only), intelligence bureau MIcompany and market researcher MetrixLab. The University of Groningen is responsible for the scientific bases of the research. MIcompany determines wich value companies create for themselves from their Customers and MetricLab is repsonsible for data collection and building the benchmark database.

The DCPI conducts their research on a regular basis for 80 of the largest service providers in The Netherlands, which is based on a research base of 4.000 Dutch consumers.

The DCPI measures and compares these 80 companies based on two perspectives of a company’s Customer performance:

  • The value a company creates FOR their Customers: Value to the Customer (V2C)
  • The value a company creates for themeselves WITH their Customers: Value to the Firm (V2F)

The Value to Customer Dimension

The V2C dimension is based on articles by Rust, Lemon and Zeithaml and Verhoef, Langerak and Donkers and is based on four components, all equal in weight to the total score:

  1. Relationship Equity: Valuation by Customers of the relationship with the company.
  2. Value Equity: Valuation by Customers of the price-to-value relationship.
  3. Brand Equity: Valuation by Customers of the brand
  4. Emotions: Valuation by Customers of both positive and negative emotions that can be associated with a company

The Value to Firm Dimension

The V2F dimension is based on articles by Gupta and Zeithaml, Reichheld and Gupta, Lehmann and Stuart and also has 4, equally weighted components:

  1. Revenue: Customer spend on a company’s service(s)
  2. NPS: Net Promotor Score
  3. Retention: The likelihood of Customer retention
  4. Risk: The risk of future revenue. This one is based on the variation between the three previous components. In short: the higher the variation between the three individual scores, the higher the risk.

My take on this

I like this research for a few reasons:

  • It’s Dutch.. but that doesn’t mean anything to most of you probably ;-)
  • It has a scientific/academic foundation and the research is conducted under the responsibility of a respected Dutch University.
  • The two dimensions fit into my “value co-creation” thinking.
  • The fact that the Value to Firm dimension does not talk only of financial value and it’s not based on one number.
  • I particularly like the way the research approaches the Risk of future earnings by bringing it into the equation for starters, but mainly by it being a component based on the variation between the three other components. This makes a whole lot of sense to me.

Additionally I would like to add that I’m not a fan of NPS as an indicator. Most certainly not when it’s presented as a “silver bullit”. I would choose to add at least one more question to the NPS question:
– Did you recommend company x/y/z over the past three months.

Unfortunately I do not have insight in the questionnaire itself. Hopefully I will obtain this. If I do, and get permission, I will put it up here too.

Curious as to what you all think. Is there something similar to this somewhere else in the world? If so, how’s that working? Is this the closest we get to measurement of value co-creation on a company to company comparable level? If not, what are your suggestions for improvement? [tweetmeme source=’MarkTamis’ service=’bit.ly’]