In a recent webinar with CPC Strategy, we took a look at how to use Customer Lifetime Value to increase CLV. One of the topics I touched on was the Elements of Value Pyramid, which essentially makes the case that when you add value to your customers, you increase Customer Lifetime Value. This theory is simple enough to understand on a surface level; however, spending time understanding the Elements of Value Pyramid can help marketers focus their message, create more value for their customer base, and increase Customer Lifetime Value.

The Elements of Value Pyramid

The Elements of Value Pyramid (seen above), extends Maslow’s hierarchy of needs to the consumer world with some slight variations. Similar to Maslow’s heirarchy of needs, the most powerful forms of value for consumers lives at the top of the pyramid; however, marketers need not attain all of the different elements in the lower pyramids to achieve this top level of value. In order to deliver on those higher-order elements a company must provide at least some of the functional elements required by a particular product category. Here’s the good news: any number of combinations of these elements exists in successful products and services today.[1]

While the pyramid is an interesting standalone theory, you’re probably wondering how you can use this information to your advantage. A study conducted by Harvard Business Review and ResearchNow helped pull back the curtain on why we should care. They surveyed more than 10,000 US consumers about their perceptions on approximately 50 US based companies. Each respondent was asked to score one company – from which they had bought products or services in the past six months – on each element, using a 0-10 scale. I’ve summarized the findings for you below:

1. Companies that performed well on multiple elements of value have more loyal customers; however, you don’t need to score high on all 30 elements to succeed. Be strategic.

Companies with high scores (defined as an 8 or above) on four or more elements from at least 50% of respondents had, on average, 3x the NPS of companies with just one high score, and 20x the NPS of companies with none. It’s important to note that Apple, one of the best performers only scored high on 11 out of the 30 elements.

2. High performance on multiple elements leads to higher and sustained revenue growth.

Companies that scored high on four or more elements had recent revenue growth 4x greater than that of companies with only one high score.

3. Not all elements are equal.

Products and services must attain a certain minimum level of product or service quality, as this affects customer advocacy more than any other element.

4. Well-designed, online business have a leg up on “Saves Time” and “Avoids Hassel.”

eCommerce stores tend to excel on the values “saves time” and “avoids hassel.” Zappos scored 2x as high as traditional apparel competitors on these two elements, as well as several others.

5. Brick-and-Mortar Can Still Win in Certain Arenas

Brick-and-Mortar should focus on creating a stellar in-store experience. Brick-and-Mortar and omnichannel retailers are 2x as likely as online-only retailers to score high on “badge value,” “attractiveness,” and “affiliation and belonging.” Good customer service in stores is rewarded by higher ratings by consumers in these areas.

Using the Elements of Value Pyramid to Increase CLV

The goal of exploring this model is to show marketers hat by understanding their business’ strengths, they can create more value for their customers, leading to increased customer lifetime value.

The first step is in this process is taking stock of where you excel, and where you may have gaps. There are a few ways you can do this:

• Review online feedback from customers and look for patterns
• Speak with best customers and look for patterns
• Ask best customers and/or frequent purchases in the past 6 months to take a quick survey rating you on a subset of the values that you believe you deploy

Once you figure out which values you excel in, start incorporating these themes into your marketing. The goal will be to highlight the value you bring to your customers and subscribers in a customer-centric way – remember it’s about them not you.

Based on the data, identify low-hanging fruit – what are the values that you could improve upon with minimal effort? What’s your perfect set of values? Using this information, you can start to put together a plan for attainment. This will most likely include buy-in from other departments, such as product, customer service, etc; however, putting these values at the forefront will help you find direction in terms of where you are and where you want to be.

Creating value for your customers directly influences the amount of money they will spend with you during their lifetime. The Elements of Value Pyramid is a useful tool for helping marketers visualize how to attain ultimate customer satisfaction and increase revenue.

[1] https://hbr.org/2016/09/the-elements-of-value