There are many ways to differentiate a business. One of the easiest to understand is to find an unoccupied position on the customer value map where there is latent demand from customers.
What Is A Customer Value Map?
It’s a graphical representation of your market with price on one axis and customer value (i.e. what the customer gets for her money) on the other.
Customer value has many different components or attributes but at this stage, assume that value has a strong relationship with price along the lines of the old cliché… you get what you pay for.
This cliche is used to justify spending more on an item because (generally) price is a reliable signal of inherent quality.
An Example of A Customer Value Map
Here’s an example from the car industry which shows the fair value line for different brands.
To keep things simple, I’ve listed four brands.
Hyundai is at the low price, low value end, then Ford (medium price, medium value), then BMW (high price and high value) and at the very top is Rolls Royce with the highest price and the highest value.
BMWs cost more in general than Fords but, because plenty of people buy them, they must offer more customer value (certainly more prestige and arguably also a better driving experience, more performance and more luxury). Notice they still do the same basic job of moving you from location A to location B when you want to travel. This is the difference between order winners and qualifiers.
People are prepared to pay more to get more but economics come into the decision as well.
Many may dream of having a Rolls but few can afford to indulge themselves by buying a Rolls Royce. Within the population of people who can afford to spend £250.000 for a car, many will struggle to justify the decision when they can get a nice BMW for a quarter of the price.
Some might want more exclusivity than BMW can offer without being ready to splash out on the Roller. On my graph, there’s big space between BMW and Rolls Royce and that gap represents a potential opportunity.
In reality it’s where the big Mercedes saloons lie but imagine they didn’t exist.
You could create a luxury saloon designed to fit the gap and expect to attract some people who buy BMWs but really want more than BMW can offer and some of those Rolls Royce buyers who don’t really want to spend so much money but insist on having more than a BMW.
Drawing A Customer Value Map
Drawing the customer value map gives you a clear view of where competitors are lining up and where there may be space to position your product – this is differentiation by price and customer value.
Take another look at the car brand customer value map and you’ll see a more gaps.
In particular, at the two extremes.
What’s lower price than a Hyundai?
Not much and that’s the opportunity for a basic car from India, China or Africa where the labour costs are very low and modern manufacturing equipment can be used to create a cost advantage.
What about more expensive than a Rolls Royce?
This is a chance to go really over the top.
The Bugatti Veyron, (although a completely different type of car) has shown that the extremely rich will pay over £1 million for a car and show the world they can afford such an extravagant purchase.
To me it’s crazy but I’m not in the target market.
When Is The Market The Right Market To Analyse?
In my car example, I’ve looked at saloon cars as the appropriate market segment to evaluate.
It would confuse things if I were to start including two seat sport cars, coupés, convertibles and SUV’s. These would each have their own customer value map.
When you start looking at individual purchase decisions between different offerings, you may see some merging of these markets. It seems reasonable that a person looking for a four door saloon could be tempted to buy a four door SUV if it was offered at a very low price or he suddenly fell in love with the design.
When thinking about market segments, try to keep them to similar products unless there is clear evidence of substitution.
Customer Value For Money And Market Share
The price is often easy to find out for competitors so you can get a price ranking which you can assume matches the value provided if each product is successful and holding its own in the market place.
However firms can be above or below the fair value line on the customer value map.
- If a product provides more value for money than competitors, it is likely to gain market share.
- If it provides less value for money than competitors, it is likely to lose market share.
Customer value depends on the individual customer’s priorities, needs and wants although customers can usually be grouped together into similar thinking segments. You can find out more about this by reading my article on Customer Value Attribute Maps (the excellent book Blue Ocean Strategy calls these charts the Strategy Canvas).
Moving From Cars To Your Business
It’s easy to see the customer value map in action in an established market like cars but you can apply the same logic to your business.
Pick one of your markets (or niches) and map your business and your competitors. You may want to map an average price point or the range so you can see cross-overs.
In some markets, you’ll see everyone very closely packed together in what you can think of as the mass market.
These represent a potential opportunity to go above or below on the map, with:
- a high value, high price offering or
- a low value, low price offering.
The idea is to give customers more choice so that they don’t have to make a random selection they struggle to see any differences between the existing products or services .
The different moves you can make on the customer value map are explained more in my article on Bowman’s Strategy Clock.
The Right Move On A Customer Value Map
The right move depends on:
- What customers want – there’s no substitute for research and finding out if customers want to pay more and get more or pay less and get less.
- Your capabilities to deliver on your marketing promises. You can’t sell at a low price if your costs are high and maintain good profitability. And you can’t sell at a high price if you can’t justify the price in a way customers will believe.
An Example Of Changing Customer Value Position For A Restaurant
Let’s imagine you want to start a restaurant and you look around at your local competition.
You see that there’s a lot of cheap and cheerful places that are popular and sell meals at £10 to £20 per head. You also find a very exclusive restaurant that charges £100 a head.
There’s a big gap in the middle – nowhere that’s going to give customers a special experience and good food without being outrageously expensive.
Market research shows that the demographics are good. The area has plenty of people with a wide variety of incomes. Your customer research shows you that there is an unfilled demand for a mid-to-high priced restaurant.
You can design your business to fit the gap on the customer value map – good food which regularly changes, a great atmosphere and friendly, attentive service. You’re not having to cut corners to compete at the low priced end and you don’t have to indulge in expensive extravagances to compete at the very top.
An important part of differentiating your business is seeing the opportunity to be different and then following through in your business design.
The customer value map and the idea of differentiating by price and designing what you give to customers to match their price expectations, is a powerful way to think about your business.
Have You Used The Customer Value Mapping Principle?
- Did you do it intuitively, seeing the gap in the market or did you deliberate map out the different competitors.
- Did you find the customer value mapping process helpful?
- Did it show you how crowded the middle market was and point to opportunities at either extreme or in an unoccupied place in the middle?
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- The Stop Start More Less Process For Differentiation Of Products And Services
- How To Understand Customer Value With The Strategy Canvas – Customer Matrix – Customer Value Attribute Map
- How To Find Your Niche Market
- Customer Value : What Do You Get For Your Money?
- Pricing Strategies for Winners by Steve Prescott