Customers’ Elements of Value Affect Company Performance
Shoppers in business-to-business and business-to-consumer settings have different “elements of value”—deeper aspirations behind their purchasing decisions—that have a dramatic effect on customer loyalty, how much customers are willing to pay for a company’s products or services, and overall company revenue and market growth, according to a study by management consulting firm Bain & Company.
The research, presented in the report, “Delivering What Consumers Really Value,” found that companies that can identify these customer motivations and meet more of them are in a better position to strengthen customer loyalty while increasing revenue.
In fact, companies strong in four or more value elements had almost 9 percent more revenue growth than companies strong in only one element, according to the research.
Additionally, companies that added four or more value elements to their business models had more than twice the customer loyalty rating of companies with just one high score in an element and more than five times the customer loyalty rating of companies with none. Companies that delivered on four or more value elements also captured five times more market growth and grew annual revenue more than five times faster. Customers are also willing to pay significantly more for products from companies delivering on more of the value elements.
The results, drawn from a survey of more than 45,000 U.S. consumers to uncover their perceptions of 190 companies across 22 retail categories, identified separate elements of value for B2B and B2C buyers. The list for B2B customers comprises 40 elements sorted into five categories. At the most basic level are “table stakes” values, such as meeting specifications, complying with regulations and ethical standards, and price acceptability. Going up the pyramid, the next level is functional value, taking into account economic factors like cost reductions and top-line improvements and performance factors like product quality, scalability, and innovation. The next tier involves the ease of doing business with the company and includes factors like productivity increases; operational benefits like ease of integration and connectivity; accessibility benefits like availability and variety; relationship factors like responsiveness, expertise, and cultural fit; and strategic factors like risk reduction, flexibility, and quality. The next level is individual values geared mostly around one’s career, such as network expansion, improved marketability and reputation, and personal growth and development. At the highest level of the pyramid are the inspirational values of purpose, vision, hope, and social responsibility.
The B2C list is divided into 30 elements spread across four categories. At the lowest level are functional elements, like time and financial savings, risk reduction, integrations, quality, sensory appeal, variety, and simplicity. The next level includes emotional elements like reduced anxiety, rewards, nostalgia, aesthetics, and a sense of wellness, fun, or attractiveness. Above that are life-changing elements, such as a sense of hope, self-actualization, and a sense of affiliation or belonging. At the top of this pyramid is the social impact element, which encompasses self-transcendence.
In analyzing the results, Bain’s researchers also found that perceived quality affects customer advocacy more than any other element. Well-designed online companies score higher than traditional businesses because they deliver more functional elements of value, and retailers that combine digital and physical channels can outperform on emotional and life-changing elements.
But, in general, “the more elements of value one delivers to customers, the higher one’s Net Promoter Score, growth, share gain, and pricing power,” says Eric Almquist, a partner in Bain & Company’s customer strategy and marketing practice and one of the authors of the report.
Beyond that, knowing the specific mix of elements of value that their customers crave gives companies an analytical, objective anchor to understand how consumers perceive value and what they are willing to purchase, the study finds.
To get that data, Almquist recommends that companies survey their customers annually.
Doing so can also help companies inform their marketing messages, pricing tactics, and ongoing support, effectively guiding companies on where to play and how to win even against competitors as formidable as Amazon, according to Almquist.
The report singles out pet food and supply e-tailer Chewy.com as one company that was able to upend Amazon by addressing these elements. Customer survey respondents ranked Chewy.com higher than Amazon on such elements of value as variety, quality, simplicity, and reduced time, cost, and effort. By figuring out which elements matter to pet owners and deliberately improving its performance on those elements, Chewy grew its revenue at an 89 percent compound annual growth rate from 2013 through 2017, and the company’s share of the online pet supplies market rose from 8 percent to 26 percent during that time.