Knowledge Library

The Customer Value Conundrum: Value Destruction Multiplier

Customer Value Foundation

I have great pleasure in presenting an article by my associate, Dr Moshe Davidow

Most managers are obsessed with efficiency, and cutting costs. They have a burning desire to avoid any exceptions to the rule, and to keep everything flowing smoothly. Unfortunately, this does not carry over into creating customer value, or enhancing the customer experience. Here, managers seem determined to shoot for the stars, and delight the customer. The same teachings that supported the obsession with efficiency in day to day dealings with the customer hold true here as well, but they are not heeded.

Parasuraman, Zeithaml and Berry (1988) stress that reliability is the most important feature in service quality, the ability to do what you promised to do, when you promised to do it, and how you promised to do it. No exceptions.

Kano (1984) focuses on "must-be" quality, stating that firms have to prevent problems with must-be quality before focusing on "attractive" quality.

So why is it so difficult for managers to channel their inner selves into increasing customer value by reducing value destruction? It is not as sexy as creating positive customer value or "WOW", but it is, perhaps, far more effective. The first rule of medicine, I have been told, is First Do No Harm.

This is good advice for dealing with any customer. Creating customer value should be the goal of any organization. It hasn't always turned out that way. Drucker (1973) wrote that the purpose of a business is to create and keep a customer.

But let's look at this carefully. An organization's marketing budget can usually be divided into two parts: customer acquisition and customer retention. There are many definitions of marketing, but the one I like best states simply that the purpose of marketing is to give the customer a good reason to come back.

It is fairly easy to get a customer to try a product once; you can even give it away for free. The difficult part is to convince the customer that your product is worth buying again, that it has value and that it is better than any other product out there. But what happens when your marketing not only doesn't give the customer a good reason to come back, but it actually gives the customer a good reason NOT to come back. We call this negative marketing, and it is very prevalent in business today. What are the things that organizations do that drive customers away? This is value destruction.

I see customer value as a ratio between the benefits received (value creation) and the costs endured (value destruction). Any customer experience has elements of both value creation (positive value) and value destruction (negative value). The overall value of the customer experience is a function of the various valences of the individual elements of that experience.

 We know from consumer behavior that negative information is more powerful than positive information. Negative word of mouth is more than twice as powerful as positive word of mouth (and gets communicated twice as much!) in shaping customer perceptions. In much the same way, I would propose that value destruction has a much greater impact than value creation.

When a customer has an experience, it seems as if one bad thing can ruin the entire experience for them. This means that it takes a lot more positive value to overcome the negative value. This is the "Value Destruction Multiplier", the amount of positive value (value creation) that is needed to offset the negative value (value destruction) of a bad decision. What is the multiplier for your organization? How can you tell?

Fortunately, the easiest way to calculate the multiplier is simply to ask the consumer. They may not be able to quantify exactly (I am currently working on academic research to quantify exactly), but they can tell you what destroys value for them. I recently complained to my supermarket about one of their products. Their written response was to blame me. They might as well have hung a huge sign in the entrance "Value Destroyer". I might have been mistaken (I wasn't), in which case an appropriate response would have been to try and find out why I thought there was a problem. Maybe there was a lack of communication, maybe there was an oral promise that didn't get fulfilled, maybe there was a problem with the product. Blaming the customer doesn't help with any of those, it just pushed me out the door to another supermarket.

What many organizations don't understand is that perception is reality for the customer. If the customer thinks that there is a problem, then there is. This is the story they are telling all their acquaintances about. It is not a balanced story, and it may even get embellished a little. Managers need to understand the customer's perception, and react to it. They need to take care of the customer first, and then determine how that perception got started in the first place.

By focusing on making it easier for a customer to do business with you, you are reducing the multiplier and thus increasing customer value exponentially. Make a baseline measure of satisfaction or customer effort. Now, ask your customers what makes it difficult for them to do business with you, and then find a way to eliminate it. Ask your employees to list the organizational policies that most get in their way of offering great service to your customers, and then change them. Now measure again, and the results will astound you. Customers will perceive a lot more value and be happier and more loyal. Isn't that what it is all about?
Your comments are welcome!

Gautam Mahajan, President - Customer Value Foundation
M: +91 9810060368

Tel: 11-26831226, Fax: 11-26929055


Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person's role in Creating Customer Value and getting shareholder wealth and Value.

Share The Knowledge
Amazing Amazon Slipups: Lessons to be Learnt

Customer Value Foundation

Amazon has an amazing name for great service and being customeric. So much so that ShepHyken lauded them. And I have been an admirer, till recently. Amazon India had many slipups in fulfilling my orders.

Share The Knowledge
From Total Quality to Total Customer Value Management

Customer Value Foundation

The Quality Revolution was meant to be customer focused, instead became process centric and one of record keeping. Nonetheless, Total Customer Value Management can learn from the Quality movement. There is much to learn.

Share The Knowledge
Why is the Customer Taken for Granted?

Customer Value Foundation

I notice more and more that the Customer is taken for granted or allotted a by the way mention in new business strategies. Forbes and many others have written about this and bemoaned the fact, and warned companies not to ignore the customer.

Share The Knowledge
Why Value Culture Boosts Customer Satisfaction

Customer Value Foundation

Here is an excellent review on Gautam Mahajan's book on Value Creation written by Colin Shaw, founder and CEO of Beyond Philosophy. Colin is an international author of five bestselling books and an engaging keynote speaker..

Share The Knowledge
The 4A’s that build Incredible Management and Successful Executives

Customer Value Foundation

In my book, Value Creation: The Definitive Guide for Business Leaders, I added a 4th A (Ability) to what Management gurus talk about in the 3 A’s to ready ourselves for the future

Share The Knowledge