Customer Value and Costs
In the long-run, an organization’s financial success depends on how well they manage two things: value to customers and costs. Both determine margin and demand, and both need to be managed in concert.
Over the years, some management gurus have suggested that being the customer value leader or the cost leader produces winning strategies.19 That is not the case. Focusing solely on customer value or cost can lead to implementation of lopsided strategies.
Having the highest customer value does not guarantee success, just as having the lowest costs does not guarantee success. High customer value can lead to high costs. Low costs can lead to low customer value. Customer value and costs must be in balance.
What determines financial success is how well an organization maximizes the difference between the value to customers and the costs of providing that value. That difference is known as Customer Value Added (CVA®), the focus of this book.
CVA® has two important components: perceived value and cost. Perceived value is discussed at length in Chapter 4, “Perceived Value,” and costs are explored in Chapter 5, “Costs.”