Episode 30: Customer Value
Doug and Glenn get a bit wonky in this one, so skip this episode if you don’t like math, especially division. As the saying goes, “never play poker with someone who says they don’t like math.” Do they say that? Doesn’t matter. What matters is what the customer says matters, and how they measure those things that matter, matters. Like the value of a beer. So, pull up a chair, get your headphones on and join us for math class. Trust us, it’ll be better than a class from a mad inventor who scalded, burned and made himself bleed to prove the value of his soothing balm to gasping crowds of would-be customers.
Transcript
Glenn Suart 0:00
But when you’re an entrepreneur thinking about stuff, don’t just think about again your product, think about your customer and think about the benefits for them – but think about how they weigh those benefits, and that is the value proposition of the formula you’re just talking about, utility over cost.
Doug Ross 0:28
Welcome to Conversations on Startups, a podcast brought to you by Douglas Ross, author of the book, Spark Click Go: How to Bring Your Creative Business Idea to Life, and Glenn Suart, of Today’s Great Idea, a radio series featuring over 300 origin stories of businesses, brands and inventions that have changed the culture. Welcome to today’s conversation.
Doug Ross 0:51
Hey, Glenn, how ya’ doing?
Glenn Suart 0:53
I’m doing great, Doug. It is a wonderful day. Excited to talk to you and talk about some of these great subjects. And today, I think we are talking about customer value. What do we mean by customer value in this context?
Doug Ross 1:06
Well, in this context, it’s… it comes down to how the customer… or just the very fact that the customer always defines what value is. So that’s what we’re really talking about here is How does the customer define what value is (?), because this is super important to you. The customer is evaluating your offering, whatever it may be, against something, we don’t necessarily know what it is, we think we know. It could be against doing nothing. It could be against doing something on their own – using a competitive offering, this kind of thing. So it’s customer value. How does the customer look at this and then, as an entrepreneur, what does it mean for us? For you.
Doug Ross 1:07
Well definitely, customers value different things in different ways. And you can’t just make assumptions about what they value. As you said, I think they do look at things differently. I got a story here. This is a way of demonstrating value. And this guy successfully created a product which I think most people will know.
Doug Ross 2:20
Okay, great, and remind me to come back to booze. You just made me think about booze.
Glenn Suart 2:25
I will do that. You know, so Robert was a chemist in England. And he heard about the profits to be made in the American petroleum industry. So he jumped on a boat and came over. And he’s in Pennsylvania and he’s touring all the oil fields and meeting oil barons and he noticed one day a rigger scraping this rod wax off the rigging. It was worthless stuff that comes up with the crude and it often gummed up the works. And the rigger told Robert that some of the riggers thought that this stuff actually helped wounds heal faster. And Robert was intrigued, so he sets out to see if you can make something out of it. And 10 years later, after a lot of effort, he opened a factory to make one of his patented miracle cures he called, Wonder Jelly. He promoted it, but nothing happened. He would go to pharmacists, and they weren’t just in… they just weren’t interested in this Wonder Jelly. So to demonstrate value, he had a unique idea. He went on the road and started demonstrating the properties of the product to everyday people and he gave away free samples. But the demonstrations were Robert burning himself, cutting himself, scolding himself and then applying this Wonder Jelly. And of course… the customers could see the value of what Robert was doing by this – ’cause everybody, you know, scrapes themselves and things happen to them – but putting on this Wonder Jelly it was like Oh, this makes sense, and it actually helped. So, once they saw that and they used up the free samples he gave out, the pharmacist started ordering Robert’s Wonder Jelly in a big, big way. This was about 100 / 150 years ago. So today the product Robert Chesebrough initially called Wonder Jelly is extremely popular worldwide under its brand name derived from the combination of the German word for water and the Greek word for oil. Any guesses?
Doug Ross 4:19
Well, I don’t know my Greek necessarily nor my German but I’m gonna guess, Vaseline?
Glenn Suart 4:23
Correct? Vaseline. Very good guess, today.
Doug Ross 4:27
I love the demo.
Glenn Suart 4:28
Oh, that’s exactly right? So, you can talk ’til you’re blue in the face about value and benefits but nothing beats a demonstration to show that… the value to a customer. And when they see that, they bring it into themselves and they go Yeah, I want that. You can’t just talk about benefits for customers. You got to show them if you can, and that’s… that’s really understanding the value that customers hold.
Din 4:56
You’re listening to Conversations on Startups with Doug and Glenn. Thanks for joining us. Let’s get back to the show.
Doug Ross 5:06
And I guess in his case, he is thinking that a lot of people are going to relate to this… these situations that you mentioned, What was it? A cut, a burn? What was the last one?
Glenn Suart 5:18
And, scalding. Because you know, the steam or something like that? Oh, my God…
Doug Ross 5:22
How many demos can he do in one day? How many days can he do in a trip, demoing this? Imagine hiring your employees and saying, Look, this is how we demo this stuff. Come over here. I love that.
Glenn Suart 5:38
I don’t know I just find value is… is in the eye of the beholder. But you got to realize, it’s not your eye, it’s the customer’s eye.
Doug Ross 5:46
Love that, totally love that. Now, I’ve got something wonky here – we don’t usually get too wonky but I’ll try an equation on you [Ok] to define value. I think this one is quite useful. So value is equal to utility (as defined by the customer) over cost (also defined by the customer). What do you think of that? Value equals, utility over cost?
Glenn Suart 6:12
I kind of like that actually. I don’t think I’ve heard that before. And what I… It does make some good sense, the better the utility, the lower the costs, the better the value in terms of the… the quant of the number, and it’s a fair statement. What do you think?
Doug Ross 6:28
Well, I find it useful from a number of points of view. So again, the key is this is from the customer’s point of view. So as you were just saying, we don’t know exactly which benefits they’re necessarily going to value. It could be a performance one, it could be a usefulness one. So for example, Hey, can I use this Wonder Jelly, on burns as well as cuts – or something like that, and we don’t really know. But the idea being something about it that’s… that’s a utility, a performance, and cost. The easiest thing to think about with cost is price. Of course, it’s very tangible. [Yep] But there might be other costs for a customer. So for example, if you are very poorly distributed, whatever your good is, and a customer has to, let’s say, walk three miles to get it or drive 100 miles to get it, that person’s got to factor the costs of getting your product into the whole equation. So price is obviously one of the things on the cost side of things, but it’s not only that. And, I remember, I think it was Mercedes Benz, they tried to really push this and they said, Hey, yes, our cars are expensive but you[‘ve] got to think about the value. Not only are they great on quality, so this is some kind of utility, they’re luxurious, also utility – they perform well – but they are so well built, that you will not have to take them in to get repaired, which is on the cost side. So yeah, you have your price but you’ve also got… you avoid cost to maintain these things and therefore, from the customer’s perspective, the total cost of ownership is lower, hence, the value goes up. So I really like this… this equation to think about value from the customer’s perspective.
Glenn Suart 8:22
That’s really intriguing actually to think about it that way. Because now that you say it, and from what you just said, if you don’t really understand what the costs are of what you’re doing, you might get a false sense of the value that you’re providing.
Doug Ross 8:38
Yeah, absolutely. And if we’re talking about b2b enterprises, it’s looking at whatever it is you might be selling to another business, looking at it in the context of their business. How does it fit into their workflow or into their operations? And what are the costs? So for example, training costs, what are those? What are the maintenance costs, just having a more holistic view I think can be really, really, really helpful. And same for a consumer goods, same sort of thing. What are the costs? Obviously, if you make a product that has low reliability, it’s going to have costs to the customer because they’re going to have to go and replace it, or replace it more frequently – they’re going to have to take time away from whatever it is they’re trying to do in their life. So there’s all sorts of costs from this point of view. From the perspective of the entrepreneur, I find this really helpful too, because if you want to break into an existing market, you want to understand this and say, Okay, what are the levers I can go after? Maybe I’m a little bit higher on performance, but that might not be enough. You might have to be really, really good on at least one aspect of… of, say utility or on cost, or a combination of both. And I think last episode, you were talking about that in the context of your own business. Premium quality, but at a lower price point. That’s the kind of win win kind of power sort of offer because you’re better on the top end and lower on the bottom end. So, so yeah, so that’s an equation, I think that can be quite useful when thinking about value from the customers perspective,
Glenn Suart 10:18
Very much so. I think that actually brings [it] into perspective because for that business, I was doing exactly that. Before we had our conversation today, we were analyzing how we’re going to enter the United States with our product. The question was, what do we price it at? And it comes down to this exact thing about the utility. The utility for us is, the quality of the cooler works really well, it’s the look of the cooler, it’s the performance, for sure, all those things, then we have to balance that against the cost, not only of getting it in the country, but then into marketing and etc. So what’s the value we’re delivering? We think it’s high relative to our competitors. But you never know. That’s our perception. We’re gonna test it out in the market to see, Are people valuing it the same way?
Doug Ross 11:06
Yeah, exactly. And so we talked in a recent episode about customer needs, and remember, we were talking about the sort of the functional needs, the performance needs, but there’s also those emotional needs which can include things such as pride or affiliation [Yes] ego needs, some of these things. And that’s difficult to weigh up if you’re going against an established brand.
Doug Ross 11:30
Hey podcast listeners, we’re gonna take a short break now. If you’re enjoying the show, feel free to invite your friends, remember to subscribe, and if you want to help spread the word leave us a review on Apple Podcasts or your favorite podcast app. Each episode of Conversations on Startups focuses on a single topic. If you want to comment on something you’ve heard on the podcast, or suggest a topic for us to cover in a future episode, send an email to: go@todaysgreatidea.com or douglas@sparkclickgo.com. Glenn and I appreciate you and hope you find our uncut and unrehearsed stories, perspectives, and tips helpful. Speaking of helpful stuff-let’s pick up where we left off.
Glenn Suart 12:16
A lot of people like to buy a Yeti for it… because it’s a quality brand. But you’re paying for it. A lot of people want Yeti but don’t want to pay the Yeti price. That’s why there’s… like competitors… like ourselves – like others in the marketplace, who see value in delivering a quality product but without the name. But from a… Yeti’s perspective, their value that they deliver is tied to the brand as you just said they deliver and the experience and the credibility and the panache of owning a Yeti.
Doug Ross 12:48
Yeah, absolutely, so interesting challenge.
Glenn Suart 12:51
It’s never easy. But when you’re an entrepreneur thinking about stuff, don’t just think about again your product, think about your customer and think about the benefits for them – but think about how they weigh those benefits, and that is the value proposition of the formula you’re just talking about, utility over cost.
Doug Ross 13:09
Yeah. And… I think about how this can affect your customer. If you’re talking about these two things, the better you get this, higher utility lower cost, the better able you will be to retain these customers. I think we talked as well, last time, that it’s easier to get a new customer than to retain one. Well, it’s not necessarily easier, but you can get someone to try anything almost once. But to get them to be a repeat customer is… this is where it really comes down to, Are you delivering value that they can really feel and maybe measure in some way? That’s how you’re going to retain them over time. And that’s obviously a key goal for you.
Glenn Suart 13:54
I think it’s very good. I was just thinking about that in the context of… we’re touching on customer acquisition there a little bit. And that’s probably going to be a subject of an episode coming up because…
Doug Ross 14:05
Maybe we should do that next time?
Glenn Suart 14:06
Maybe we should. And the reason I’m thinking about it is the context of value versus acquisition. Here in Canada, there are several major telecom companies. And two years ago, I was with one company and they had given me some great deals on phones and then I went to go to renew, but like the competitor is giving me [an] extra special deal to move over and I go back to my legacy company and say, Hey, they’re gonna give me this, will you do that for me? And they said, No, we can’t do that. And the deal was so good that I moved to a new telecom company two years ago. And then of course, that deal has just come up. And I say to them now, Do you want to keep me as a customer because this other company wants to give me a great deal? And they said the same thing. They… they’re not valuing me as a long term customer. They’re in a numbers game for acquisition. They didn’t… long story short is I moved back to the company from two years ago, because they gave me a great deal again, now that I wasn’t a customer anymore. It’s great for me, it’s not great for them. They’re not retaining me as a customer, they’re treating me as a commodity. And I’m treating them as a commodity now [Yeah] as a result of that. So interesting lesson, both from a customer value point of view, and from a customer acquisition point of view. Yeah, I think next week, It’d be quite interesting talking more about acquisition.
Doug Ross 15:24
Yeah, we can focus on that. Now, I mentioned booze to you a little while ago, [Yes], I was thinking about booze to illustrate this concept of customer value, and how we sort of, you know, think about booze, and we’re near the Christmas time. Now, I’m not advocating more drinking, but let’s face it, people do tend to indulge a little bit more. But if you think about it, even for the same customer they may define utility that they get from from something differently in different contexts. So, if I’m with my buddies and we’re out, or let’s say we’re on a golf trip, how I value booze may not be defined by Oh, you know, how long was this… what was the distilling process? What ingredients did they use? How long has this been in oak barrels (?) or something like this to get a taste, and therefore I’m willing to pay more for it. It might be a little bit more practical than that. It might be, Hey, what tastes good (?) could be the most important thing to me, or especially in the context of what’s happening now, with inflation hitting us everywhere, it might be, you know, I just kind of want to get a bit of a buzz going here, have a little bit of a of a party time. Well, I don’t really care so much for taste, or necessarily even brand or anything like that. I might go for something that’s… that’s got a bang for the buck. And that’s just one person changing over time what they value. Now imagine looking at the whole market and thinking about that, from that perspective, there are people that are out there… it’s all about the bang for the buck – give me the most alcohol for the least price. And then we have the other end of the spectrum, which is… which is ridiculous. People that pay $350 a bottle for wine and think nothing of it. And it’s feeding their idea of themselves as a connoisseur.
Glenn Suart 17:18
I hadn’t thought of it that way. That’s really interesting. What you’re essentially saying is that for a single customer, value is fluid. And… no pun intended there. But..
Doug Ross 17:29
Good one.
Glenn Suart 17:29
That was a good one. That it changes based on location or other aspects. So you can’t just make… it’s not stagnant, or it’s always the same. It depends on the circumstances with… which you’re in. And, for example, in that context of what you just talked about, I’ll go to the store, and I want to buy a case of Coca Cola… cans. And it might be seven bucks. If it’s $8, I won’t buy it for a case of 24 because it’s too expensive.
Doug Ross 17:59
And, we haven’t shopped together, but I’m gonna think about the same – that’s my price point.
Glenn Suart 18:04
Well there you go. But you see… but then if I go to a restaurant, and I’m there having a great time and I order a Coke and it cost me four bucks for a single, Oh, that’s okay. The value is different, even if its the same product, it’s the context of where you are is what you’re saying just the same as your booze example. So it really matters. I didn’t quite think of it from that perspective. But for… that’s very true.
Doug Ross 18:27
So you’re illustrating the point about a customer’s weighing this against some sort of alternative.
Glenn Suart 18:32
Yes.
Doug Ross 18:33
[If] you’re out at a nightclub a $4 Coke compared to a $16 cocktail, from a pure price point of view… cost to you is very attractive. If you’re at home, and you can have a coke that costs you $1 or you can have a beer that cost you $1.50, let’s say or maybe two bucks, something like that, you’re gonna weigh that differently, as well. So I think it’s always relative to some sort of alternative. And we don’t always know what our existing or prospective customers are comparing our offering to, and in what context. And this is where we’re pushing people to try and understand this really, really well so they can then push on the right levers, or create new levers – create new ways that customers think of value. Like think of Uber. They created a whole bunch of factors that just didn’t exist before when we had taxis such as ease of calling up a ride, ease of paying for a ride. People didn’t think about this in the pre-carsharing days. They created new factors upon which to think about value.
Glenn Suart 19:46
Yes, I totally get that.
Glenn Suart 19:49
You’re listening to Conversations on Startups with Doug and Glenn, merci pour nous avoir joindre.
Glenn Suart 19:57
So, maybe to summarize, what do you think there, Doug? How do you deal with customer value?
Doug Ross 20:02
Well, from my perspective, the key thing is the customer always defines what value is. So you may think that whatever feature, let’s say it’s a feature you’re building into your offering, or it’s a particular flavor if you’re making something in the consumer food area, you don’t decide whether the customer is going to value that. It’s always the customer. So you’ve got to go out and explore, put it out there, do some sort of pilot test. But the point is that customers always define what value is. I think you pointed to one of the key things, which is that it changes over time. And we can change it as entrepreneurs, we want to be changing it – creating the wave, as opposed to just riding the wave that somebody else created. And that can change over time for an entire market or for an individual customer depending on what the use case might be. So I think those are some of the things in that wonky equation that I gave that… that value equals, utility over cost. From an entrepreneur’s perspective, I think you can really think about that, What am I going to do? Am I going to push on one of these or both, and in which direction? I know that in Silicon Valley they have this… you’ve got to be 10x better than the next guy. And I think the point is on at least one of these factors. So let’s say it’s performance. Well, Can I be 10 times better or bigger or something than the other person? Like if it’s cloud storage, if I’m offering one gigabyte for 10 bucks a month, can I offer 10 gigabytes for the same price point? Oh, no, I can’t do that. Well, can I offer the same amount for $1? Playing with these different things when you’re thinking about your… your offering, I think can be useful for an entrepreneur.
Glenn Suart 21:54
I think that’s a really good summary. All right. Well, next week is… we already talked about, customer acquisition. That should be quite entertaining.
Doug Ross 22:02
Excellent. Let’s do that.
Glenn Suart 22:03
Sounds good, Doug.
Doug Ross 22:05
This has been Conversations on Startups and… we’ll see you next time.
Doug Ross 22:17
Conversations on Startups is a production of Glenn Suart and Douglas Ross. We hope you’re having fun listening but mostly that you take action on your business idea. For more inspiration visit our websites: todaysgreatidea.com and sparkclickgo.com. Another episode of Conversations on Startups will drop soon, or is already available to binge. Thanks for joining us, and remember to subscribe and invite your friends. See ya next time!
Transcribed by https://otter.ai