Needs and Results. Anchors of the Value Equation.
All organizations are responsible to drive measurable results, and all organizations, whether they are commercial businesses, government services, non-profits/NGOs, universities, etc., exist in order to serve the needs of their customers (see Customer Lifecycle, Journeys, and Needs for more information on Needs). This is why organizations produce their products, services, and other offerings - so that organizations can meet the needs of customers in the markets where they exist. If organizations help customers solve needs, results will likely be good. The reverse is also true: If customer needs are unfilled or only partially met, then organizations will continue to see the same results. In order to change results, organizations need to change something in the Value Equation.
Attitudes drive Behaviours that deliver Results
Results are delivered by customers behaving in certain ways. Specific customer actions are ultimately how organizations yield their results. As an example, in order for the US-based online retailer Amazon.com to change Conversion Rate to increase their Net Sales, Amazon needs to have their customers exhibit very specific behaviours in their journeys to fulfill needs. One of these specific behaviours is to have customers add items to their shopping baskets and then submit their orders for purchase (“buy now”). The behaviour of an Amazon customer clicking “buy-now” drives an increased conversion rate for Amazon, and this behaviour can be observed and measured by others. Please refer to the Lifecycle, Journey, and Needs Guide for more information.
Unfortunately for Amazon, customers often show restraint in their behaviours and don’t always exhibit the behaviour of “buy now”. In most cases when Amazon observes behaviours that are not delivering the desired results, customer attitudes (what customers think and feel in pursuit of their needs) are behind the un-desirable behaviour (site abandonment). If a customer feels unsure about an item because they lack confidence (is it the right price, right color, right quality, etc.), they likely won’t exhibit the desired “buy-now” behaviour.
Attitudes are “trailheads” or indicators of whether needs are being fulfilled or not. When needs are being fulfilled, positive attitudes can be observed (positive reviews, posts, comments, etc.). The reverse is also true. By measuring attitudes, it can be inferred whether needs are being fulfilled or not, and why observed customer behaviours are taking place. Needs generate attitudes which drive behaviours, ultimately delivering results.
Customer Expectations, Experience, and Engagement
As customers embark on their journey to fulfill useful, usable, and meaningful needs, they engage with people and things through various interaction channels. Some of the people engaged with customers are influencers, employee resources of the organization, partners, and/or competitors. Through their engagements, customers form their own perceptions about individual interactions and the overall engagement. These perceptions are the customer’s recollection of what transpired during their journey. These recollections may be accurate or not, but they are what is referred to in the Value Equation as the customer’s experiences. The customer’s experience is their assessment of whether the engagement satisfied their useful, usable, and meaningful needs.
As customers engage with people and things in order to fulfill needs, their experiences along their journey influence new attitudes, ultimately driving the next set of customer behaviours that can be observed in the next set of interactions.
Customer perceptions of their engagements are framed by their expectations. Expectations are formed through exposure to elements such as culture and upbringing, situational context, P.E.S.T.L.E. trends relevant at discreet moments in the journey, as well as previous engagements customers have had with the organization and with others during their journey to fulfill needs.
Manipulating the Value Equation
Organizations engage by executing a series of specific activities in order to make propositions available to their customers. Propositions are developed and activities are enabled via resources (people, technology, infrastructure, IP, etc.), and in some cases, partners that provide the resources, execute the activities, or are integrated into the final proposition. Finally, aligning partners and resources in order to execute the specific activities and propositions during customer engagements impacts an organization’s cost structure and financial results.
The variables in the Execution Layer are the only elements that an organization can actively control and manage. All other attributes in the Empathy and Engagement Layers, including Results, can only be influenced through the Value Equation.
External Factors and the Value Equation
When considering Influencers, Trends, and Competitors present in The Business Snapshot, influencers have an opportunity to set customer expectations, as well as inhibit or help customers fulfill needs in an engagement. In addition to expectations and engagements, trends and competitors also can impact an organization’s Execution Layer (their partners, resources, activities, and propositions).
The Value Equation and Measurement
Measurement is critical to executing successful innovations, and the Value Equation is an effective way to frame a measurement strategy. Key Performance Indicators (KPIs) and financial performance metrics are placed into context of the Value Equation in order to assess correlation and causation.