20, June 2016
The raison d’être of any business is to create value for its customers, employees, stakeholders and investors. However, measuring the most appropriate type of value has been debated time and again. Is it stock market valuation or the balance sheet scores or customer value creation the most critical component of any business? But how does a business create customer value? A simple response could be a) solving customers’ problems b) making their lives easier c) exploring and fixing unmet requirements. Suffice to say, any customer value creation strategy revolves around the customers’ needs. This article aims to analyze the evolution of customer value creation, with an emphasis on how businesses have transformed over the years trying to satisfy their customers.
The Evolution of Customer Value Creation
Customer Value Creation is an age-old concept. In fact, it originates back to the industrial revolution. We can see three distinct phases, with each distinction characterized by changing needs, changing metrics and innovation.
The Era of Production: 18th and 19th century
The industrial revolution was a period when rural and agrarian societies were turning to industrialization for sustenance. The rise of the machine helped in transforming the science of manufacturing. Hand production gave way to automated tools. Human energy was soon replaced by steam power.
A new factory system was born.
The focus was to create value by assembling people, material, and machines. Practically every convenience we have now can be traced to this period. If it weren’t for the industrial revolution, there would be no electricity. Air travel would have been an unattainable dream. Televisions, telephones and radios – mere figments of our imagination.
It ensured that the overall quality of life was improved, thereby giving birth to new products that brought the convenience of comfort to doorsteps.
It was indeed the era of value creation through production, where customer value was created and measured by the capacity of the production centers.
The Era of Distribution: 20th century
While the industrial revolution brought in a variety of manufactured goods, it was limited to the First World countries. Production centers were too far from the reach of citizens all over the world. Hence, there was a strong need to connect the producers with the customers.
Logistical models date back to the early 20th century. They were originally developed for the military to ensure supply of essential material to the right place, at the right time. By the middle of the 20th century, with the arrival of intermodal transportation, this concept could be extended to manufacturing and production sectors. The advent of computers then paved the way for the first computerized inventory management systems during the late 1970s.
Concepts of warehousing and retail were also formed. Lo and behold, supply chain management had entered the picture.
During this era of distribution, customer value was created and measured by efficiency of supply chains and inventory turnover. Yet, the real customer remained elusive, connected only during the purchase. The only other time they resurfaced was when they came to service centers for complaint resolutions.
The Era of Services: 21st century
With the development of the digital economy, it gave way to commoditization. By the time a new product was ready to be launched, competitors had already started to market their own indistinguishable versions. With more choices, customers were looking far beyond purchase and mere problem resolutions. They were seeking out unique and personalized experiences.
The unsatisfied customer had become the figurative guardian of every new product or service.
Business leaders began to rethink how they engaged with their customers and expanded beyond traditional models to differentiate themselves from the clutter of experience providers. This created a need to connect, inform and serve the customer better than ever before.
The age of the intangible service industry came into existence.
It was truly the era of customer value creation through services and measured by the last mile.
The Last Mile
In today’s digitized landscape, the walls between customers and enterprises are further crumbling down. Instead, bridges are built in their places. It is making customers interact regularly with enterprises through multiple channels (IVR / chat / email / social media).
Customer value is now being measured by the capacity of the enterprises to design differentiated experiences for customers as they keep walking the last mile to loyalty.
Stay tuned for the changing dynamics in the last mile.