Too Much of a Good Thing

We’ve all been there – probably with food.

I love shrimp. I’m like the Bubba character in Forrest Gump – except I can not only name the various ways to fix shrimp, I freely partake in sampling the results. Recently, my wife and I decided to make a meal of a shrimp appetizer platter. I overdid it and ate too many shrimp. Economists talk about declining marginal utility, and I lived it. By the end, those last few shrimp created negative marginal utility – they made me feel terrible.

The same thing can happen in an organization. There are obvious cases where an organization overdoes it on activities – especially those that don’t have an impact on the customer. Cutting those extra efforts that do not contribute to a stronger relationship with your customers can be an easy way to reduce costs and improve efficiency in your organization.

But what if the customers say they value these extra efforts?

Value is a great measure when thinking about an organization’s relationship with its customers. It’s strongly related to behavior, especially relative value. (I recommend Brad Gale’s book, Managing Customer Value. Although published in 1994, it’s a timeless classic).

When asking customers to evaluate value, you’re getting a measure of what they perceive they’re getting relative to what they’re giving. Consumers love higher value in a market transaction.

If behavior is strongly related to customer value, then a higher value evaluation by customers is better. Right? As Lee Corso says on ESPN’s Gameday, “Not so fast, my friend.”

For example, we recently had some interesting results come back for a client. They had very high value evaluations, even among their Vulnerable customers. Our value benchmark for this industry is 50% of customers providing a value evaluation of excellent or very good value. This company had a 73%. Cause for a minor celebration.

Then the discussion started. Is that a good thing? They began asking: “Are we leaving too much money on the table?” “Why is value so high?”

Our research indicated that their pricing was the lowest in the industry. Several open-ended responses strengthened this finding. Our client had suspected this, and they’re now armed with the knowledge of where they are.

Sometimes “too much of a good thing” is tricky and is often related to creating value only for the customer and not extracting some of it for the company. Although the customer’s evaluation of value may decline, the health of the organization – both customer health AND company financial health – may actually improve when done the right way.

Sometimes too much of a good thing may not be obvious.

Posted in Blog, Insights, LRC Blog.