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Managing Customer Value by Bradley T Gale

The full title of this book by Bradley Gale is

Managing Customer Value: Creating Quality and Service That Customers Can See“.

In my review posted on Amazon.co.uk, I rated this book as Four Stars. This means I think it is Good and Well Worth Reading.

Here is my book review.

Puts “value” numbers to the idea of differentiation but it has a big company bias

This is a landmark in the development of the concept of customer value as a way to make decisions about differentiation strategies.

While Michael Porter argued that the only ways to gain a competitive advantage were a cost advantage (in effect coming from the supply side) and differentiation advantage (from the demand side), he didn’t provide many practical tools for understanding the customer purchase decision and how companies could differentiate themselves in ways that matter.

This book fills this gap by providing practical tools like the customer value map where you could see the respective positioning of competitors and the attributes that underpinned the customer value.

I was first introduced to the idea of Customer Value in Competitive and Corporate Strategy by Cliff Bowman and David Faulkner and I then started searching for more details about customer value and this was one of the first books I found.

The basic idea is that many customers buy on a “value for money” basis and will spend more if they get more but otherwise will try to minimise the price they pay. It’s hard to argue against that basic concept.

For example, if hotels A and B offer the same level of rooms, customer care and service and A costs £100 and B costs £80 and they are next to each other, the rational choice is to stay at hotel B. But if hotel A is more up-to-date, has Internet access in every room and has nicer staff then some people will see this as enough extra value to stay at hotel A and pay the £20 premium. If dinner is included in both room rates but hotel A has a Michelin starred restaurant, then even more people will see that as enough extra value to switch.

The author’s interest in the idea of Customer Value came from the work he did in the PIMS (Profit Impact of Market Strategy) Program which is captured in the classic book The PIMS Principles. This project tracked how strategy influenced profitability across a huge number of companies and came back with a list of strategies and their average profit effect. Both relative price and relative quality were seen to be big determinants of profit. If you had better quality and/or charged higher prices that the average in the market, profitability was shown to be significantly above average.

Quality is a nebulous term with many different definitions so the emphasis was switched to perceived customer value. This focuses on a customer’s assessment of the benefits – or attributes of the benefits – he or she is buying.

While you can get into a long debate about the issue of logical and emotional decisions and how deliberate the purchase decision is, anyone buying consciously or unconsciously makes an assessment: “Is this worth the money that I am being asked to pay?”

This book takes you through a process to identify the factors that are taken into account and how you can then focus on improving processes to deliver the newly identified value attributes.

It explains how to calculate a precise customer value for a product offering based on the value criteria identified, the relative importance of each criteria and the rating of each criteria based on customer assessments.

It effectively creates an objective number from a subjective process. While the number itself is too precise, the positioning and a wider circle of potential values based around the number is interesting and useful both relative to competitors and for the company tracked over time.

This book is a classic and customer value is such an important but overlooked topic since it provides the bridge between business strategy, and marketing campaigns designed to raise awareness and alter customer perceptions and operational/cost improvements.

What has held the final star back from my review rating is that I believe that there is a strong bias towards big companies. These are sections that are impractical for smaller businesses and I worry that an “I can’t do that” attitude may cause readers to miss the invaluable lessons. Also the book and therefore the examples are old.

It is rightly seen as a classic as it introduced the concept of Customer Value and made sense of the ideas for creating a differentiation strategy.

It is available to buy from Amazon.co.uk and Amazon.com.


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