How to Craft a Customer Centric Value Strategy

As a founder, build your business around who your customer is, what they need, and how you will help them find the solution that meet that need. These are the three pillars every successful customer value strategy should be built upon. In this article, I will share Mark Davies’ 6-step process for building an effective Customer Value Strategy for your startup.

Step 1: What are the objectives of your business?

As the founder and leader of your business, you have to set the direction for your business by determining the goals and objectives you want to achieve during a period of time. According to Davies, these objectives can be hard or soft. Hard objectives are specified by numbers, while soft objectives are described with words. For instance, a hard objective for a business could be to increase sales by 50% within 6 months, while a soft objective could be “to become the best business in our industry by 2030. More examples are specified in the table below.

Hard Objectives (Numbers) Soft Objectives (Words)

Market Share “Be recognized as a category New Customers “Be recognized as the industry leader

captain with top three key customers” providing value-based solutions”

Number of Stores Number of Employees Profit “Win new business in Asian region (establish supply

position)”

Step 2: Market Analysis

This step is about using the latest data and emerging macro-trends to re-imagine what the future of your business, industry, and target audience could look like. You can use the PESTLE Framework and Porter’s Five Forces to assess how emerging trends and macroeconomic forces could affect how your business operates.

Using the PESTLE Framework for Your Business

1. Political trends: Changes in government policies can significantly impact markets and how businesses operate. You should consistently track all the relevant policies which shape your industry and influence your business. Determining what regulatory institutions are prioritising in terms of health, finance, competition, and consumer protection is very important for your business. One law or policy change can significantly change the strategy of your business.
2. Economic trends: Key economic factors include interest and tax rates, GDP, consumer expenditure, exchange rate movements, inflation or deflation, access to bank financing, financial stability, and stock market performance. Furthermore, you should strive to understand how people’s economic state is changing.
3. Social trends: According to Mark, businesses should examine the cultural, demographic, and behavioural factors that influence how people live and make decisions in target markets. These include health and lifestyle choices, population growth, age distribution, education levels, income and wealth, social behaviours, and changing family structures.
4. Technology trends: The rapid emergence and adoption of AI is the clearest example of how significant technology is in the business world. As an entrepreneur, you should know the latest technologies reshaping and disrupting your industry.
5. Legal trends: Economic and political policies are often translated into enforceable laws and regulations that directly affect how businesses operate. Examples of legal factors include tax legislation, employment and labour laws, health and safety regulations, competition laws, consumer protection laws, and industry-specific regulations.
6. Environmental trends: Environmental sustainability is increasingly becoming a core strategic consideration for businesses. Organisations are paying greater attention to how their operations contribute to environmental challenges, while climate, finance, ESG (Enviromental, Social and Governance), initiatives, and sustainability strategies are becoming more common in corporate decision-making. Businesses should understand how climate change, natural disasters, pollution, deforestation, and other environmental pressures may influence government policies, operating conditions, and consumer behaviour.

Using Porter’s Five Forces to Inform Your Strategy

According to Michael Porter, the five competitive forces that shape strategy are: Customer Power, Supplier Power, Threat of New Entrants, Threat of Substitution, and Competitor Rivalry. These forces are present in every industry, and businesses should analyse how they affect their industries.

1. Customer Power: To determine customers’ power within your industry, you must consider the number of customers (market size), how sensitive customers are to price changes, how easily they can switch brands/suppliers, and overall buying behaviour. Customers have greater bargaining power when they can choose from several suppliers offering similar products or services. This lets them compare options, negotiate prices, and switch providers easily.
2. Supplier Power: When assessing suppliers’ power, consider the number of suppliers, the uniqueness of suppliers’ technology, and the cost of switching suppliers. Suppliers have greater power when they offer highly specialised, unique products, as they can significantly raise prices and reduce your profits.
3. Threat of New Entrants: This force examines the threat of new competitors entering an industry. New entrants can disrupt established businesses as they seek to capture market share, intensifying competition and putting pressure on prices, operating costs, and the level of investment required to remain competitive. As competition increases, the potential profitability of the entire industry may be constrained. According to Porter (2008), the threat of new entrants is largely determined by the height of the barriers to entry. The higher the barriers, the more difficult and costly it is for new competitors to enter the market. Common barriers include technological requirements, high start-up costs, access to skilled labour, regulatory requirements, and patents or intellectual property protection.
4. Threat of Substitution: A substitute product can be defined as a product that “performs the same or a similar function as an industry’s product by a different means.” (Porter, 2008) states that the threat of substitutes is high when the following criteria are met: it offers an attractive price-performance trade-off to the industry’s product. The better the relative value of the substitute, the tighter is the lid on an industry’s profit potential. The buyer’s cost of switching to the substitute is low.
5. Competitor Rivalry: This force usually takes the form of price discounting, new product introductions, advertising campaigns and service improvements, resulting in low profitability in the industry. The degree to which profits are driven down in an industry depends on the intensity and basis on which the businesses compete.

Step 3: Customer Segmentation and Discovering Customer Needs

Before you can discover what your customers need and desire, you should segment your customers based on different criteria. There are four key market segmentation methods you can use:

1. Demographic: Segmentation based on basic variables describing who people are, such as age, gender, income, occupation, education, nationality, religion, race and marital status. For example, you can go through your client list and segment them into different age groups. This exercise will help you know which age group most of your customers belong to.
2. Geographic: This segmentation method is based on people’s geographic location. You can use this type of segmentation to determine where most of your customers live.
3. Behavioural: Segmentation is based on people’s behaviours in a store, website or app. Based on people’s behaviour towards a brand/industry. For example, you can segment your customer base according to who usually orders via different channels such as phone, online, or in-store.
4. Psychographic: Segmentation based on consumers’ psychographic attributes such as personality, values, interests, opinions, and lifestyles. For instance, you can use customer feedback surveys to determine what customers think about your products & services and segment your customers based on the results.

The Tikvah Pathways People Dynamics Assessment can assist the entrepreneurs on how to analyse the data they obtained for points 3 and 4 above. if asssistance is needed in compilling a survey, TP is able to assist.

To get the best out of the customer segmentation process, you can also categorise your customer segments based on which segments generate the most revenue for your business. For example, you might discover that the female segment generates more revenue for your business than the male segment. This suggests that the female segment could be considered the key segment and revenue driver for your business.

The purpose of customer segmentation is to help you identify and understand the distinct needs, expectations, and behaviours of different customer groups. Conduct customer research to gain insight into how each segment currently perceives your products or services and what they are likely to expect in the future. These insights enable you to develop tailored customer value strategies that address the specific needs of each segment, rather than relying on a one-size-fits-all approach.

Step 4: Establish What You Need to Set Your Business Apart

Now that you know your industry’s dynamics and customers’ needs and desires, you must assess your company’s capabilities to decide how to position your business in the marketplace. According to Mark Davies, there are four key categories of organisational capability:

1. Tangible Assets: These resources include physical assets—such as factories, offices, equipment, and machinery—as well as financial resources, including cash and access to funding through shareholders, investors, or loans. Physical assets often take significant time and capital to develop and can provide a competitive advantage when they are strategically located, technologically advanced, and capable of producing the right products efficiently. Limited financial resources can restrict a company’s ability to invest, expand, manage unexpected challenges, or maintain operations during periods of cash-flow pressure.
2. Intangible Assets: Intangible assets are the often-invisible resources that can be among a company’s most valuable. They include brand equity, reputation, organisational culture, and technology. Strong intangible assets can strengthen customer relationships, protect market share, support pricing power, and create competitive advantages, particularly when technologies and innovations are protected through patents.
3. Human resources: include an organisation’s leaders, employees, skills, and talent. Strong people are essential to delivering customer value, particularly for service-based businesses where employee capabilities and performance directly influence the customer experience.
4. Other resources: and capabilities include the various assets, skills, competencies, and organisational capabilities that contribute to a company’s ability to compete. Since not every resource fits neatly into a specific category, this broader category captures other important factors that support the business model and create value.

Your responsibility as an entrepreneur is to determine how you can use these different resources to develop core organisational capabilities to help you create significant value and compete in your industry.

Consider the following questions:

1. What tangible assets do we need to create memorable offerings and experiences for our different customer segments?
2. How do we want to differentiate our brand in our market?
3. What type of employees do we need to deliver excellent customer service?

Step 5: Craft Value Creation Strategies

Once you have learned how your industry operates, who your different customers are and their needs, and your business’ capabilities, you can develop compelling customer value creation strategies. Based on our research, you can create value by pursuing any of these value creation strategies and orientations.

1. Price Oriented: This value creation strategy refers to when firms choose to focus on creating economic value for their customers. Maybe during your customer segmentation and research exercises, you realise your target audience values affordable prices and ‘value for money’ products and services. On the other hand, maybe you realise cost efficiency and cost leadership are core competencies for your business.
2. Solution-oriented: Firms focused on functional value pursue the solution-oriented value creation strategy. This strategy is built around creating offerings of the highest quality because they know their customers really care about buying solutions that actually function properly.
3. Experience-Oriented: This strategy is for firms focused on creating experiential value for their customers. Businesses which opt for this strategy want to appeal to their customers’ five senses to create memorable experiences. You should pursue this strategy if your customers are vocal about how your products and services make them feel.
4. Meaning-Oriented: Firms focused on meaning devote their resources to aligning their products and services to a social cause or something aspirational. TOMS, for example donate shoes to the less fortunate whenever their customers buy a pair of shoes.

Step 6: Action Plans

The final step of the Customer Value Strategy Cycle is to create actionable plans that guide the implementation and monitoring of your customer value strategy. During this stage, you should clearly document the specific actions required to execute the strategy, assign realistic timelines, and identify the individuals responsible for each task.

These actions may include sourcing materials, securing strategic partnerships, selecting marketing channels, developing products or services, and establishing operational processes. Clearly defining what needs to be done, when it should be completed, and who is accountable ensures that your strategy moves beyond planning and is translated into measurable action.

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