Customer and Value Migration

Your Customers move where they perceive they get better Customer Value, causing your company Value to migrate to competition

Step1: The Company does something to reduce the value they deliver: by increasing price, making it difficult to buy or maintain or get service, or reduce product features. They reduce value to Customer.
Step 2: Customer Value Migrates to (is better at) your Competitor.

Step 3: Customer starts to look for better Value.

Step 4: Customer Migrates to your Competitor.

Step 5: Value (profits/returns/sales) Migrates to your Competitor

Why do some Customers migrate? And why don’t others?

Many Customers remain with a company because of convenience and inertia. They are just too lazy to move. Just because they stay they are not essentially loyal.

And loyalty is not necessarily a long term or a lifelong phenomenon. Loyalty has to be gained and maintained by providing higher Customer Value.

And as your competitors start to provide better Customer Value, there is consequent Customer and Value migration away from your company towards competition.

In 1996, Adrian Slywotzky described Value migration. Bala V. Balachandran in a 2007 article, Customer Centricity Drivers: Driver for Sustainability Profitability cautions that failure to keep up with Customer Value migration is a key reason for a reduction in the performance of a company

Value Migration of Customers happens because your business model is outmoded and Customers are finding companies which create more Value for them and probably through a better business model.  The competing Value-creating forces have moved beyond your company’s offerings.

And Marketing strategy, according to Adrian is the art of creating Value for the Customer. This can only be done by offering a product or service that corresponds to Customer needs. In a fast changing business environment, the factors that determine Value are constantly changing.

A business model describes the rationale of how an organization creates, delivers, and captures Value

We have seen the shift from land lines to cell phones

From teletype to fax to email/scans

From full fare to discount airlines

From Lotus 123 to Excel

The various storage and replay devices, spool tapes, cassettes, video tapes, floppies, CDs, iPod, Pen drives

Thus Value can flow between industries, between companies, and within a company. And this happens in stages.

Value can be absorbed by different industries or companies, iphone and the Samsung clone (the inflow stage). Then there is a Value equilibrium stage where there is some stability. And as companies fail to innovate and move ahead and do not create Customer Value there is the Value outflow stage.

Since we are looking at the Value your firm creates versus competition, Customer Value Added is always relative. This is a necessary measurement for you to make.

Unfortunately marketing and CXO thinking is focused more on acquisition, and sometimes retention. But the Customer is growing, evolving and changing. He graduates from being a student to an earning member of society and acquires a family and affluence. His needs are changing, and just trying to get him to remain loyal is not enough. How do we get him to buy the things he was never buying before? Or he will migrate.

And more importantly, when he migrates you might ignore him. That is why your data has to show when a person moves from being a heavy user to an influencer and a light user. Take someone who stays in a hotel chain and acquires titanium status and then gets promoted and travels less, but influences the use of the chain within his company. But he is ignored because he no longer is a heavy user of rooms!

Therefore beware when you reduce Customer Value. It will hit you because as your actions reduce Customer Value, you are causing Customer Value to migrate to your competitor, and consequentially Customers migrate and Value migrates with them away from you. Be careful when you reduce Customer Value. You might be reducing your profits!

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) transform 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.

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