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The Level 4 Customer Value Proposition

Posted by Bill Lee on February 12, 2013 at 01:44 PM

from the February Issue, Reference Point (and adopted from my HBR blog post, "Building Customer Communities Is The Key To Creating Value")

Caution: lengthy post!

'How do we keep our customer reference and advocacy pipeline full?" and "How do we avoid reference burnout?" are two of the most common questions I hear.

 The short answer to these is to make it worthwhile, even compelling, for customers to engage in reference activities. But let me be clear: resorting to incentives, discounts, special deals, freebies, extravagant gifts, and the like are NOT what I have in mind. Such things can seriously undermine the integrity of the reference process. How would you feel if a colleague recommended a cell phone service to you, and you found out later he was being compensated to do so?

Companies who succeed at getting customers to do amazing feats of referencing and advocating are doing so by reinventing the customer value proposition: they're developing what I call a Level 4 Customer Value Proposition. Here I'll outline what this means with a few examples. and included some graphics (below).

Btw, I've presented this to several executive audiences recently--at forum's like Forrester's Technology Marketing Council in San Francisco, an invitation-only Executive Breakfast at the US Net Promoter Score Summit in Miami, and at a meeting of the Dallas Chapter of MENG (Marketing Executives Networking Group), as well as posting on this on the Harvard Business Review site (from which this article is adopted)--and it was greeted with great enthusiasm. Feel free to use this post and the graphics on my blog in your own communications with your boss and senior management (with proper attribution--thanks).

Here's how the progression to Level 4 works, and I think you'll see why companies are finding that this is both effective at getting customers passionate about advocating while preserving the integrity of the process.

 At Level 1. . .

Buyers perceive you as the supplier of a commodity. They're entirely price sensitive. And more companies are at this level than think they are. Think PC makers, who load their computers with features and functionality believing they're adding value and creating differentiation. In fact, the vast majority of their customers not only don't care about such features, but find that all the clutter detracts from the user experience.

At Level 2 . . 

Buyers perceive you as helping them get a job done. They associate your product or service with their desired outcome, and the fact that you help them achieve that in some way that makes you stand out. Significantly (and ironically) companies that reach Level 2 often remove features or functionality that competitors provide. Think Apple, or Southwest Airlines, or for a more recent example, Zipcar.

At Level 3 . . 

You engage the customer emotionally, which strengthens loyalty and retention. And here's where it gets interesting. Some firms have such great offerings (at least, great compared to the competition) that their products or services alone are enough to create significant emotional attachment, again, such as Apple and Southwest (when I fly Southwest, I can actually feel my blood pressure drop as I interact with their friendly people.) 

But not everyone can create such awesome products or services - and even when you do, maintaining that emotional connection through your products and services may be fleeting. (With TiVo, for instance, customers have come to rely on the service so much, they don't even think about it.) Firms that excel in the new world are discovering that they can create strong emotional attachment by moving to the next level...

At Level 4 . . . 

You're helping customers build their social capital - that is, helping them to build and expand valuable support groups and communities.

 Helping customers build social capital may seem far removed from the concerns a competitive business--or a customer reference program--should occupy itself with. But think about it: these days, buyers and prospects are open to receiving, and are even seeking, information from your customers--their peers. Helping your customers build social capital is the way to make it attractive to them to provide this information. Here are some specific ways companies are doing this:

Help customers build their reputation

When Jeff Bezos made the controversial decision to allow customers to post reviews of the books they bought on Amazon's site — a seminal event ushering customer-based marketing into the online world — he reasoned simply that ordinary reader reviews were what buyers wanted. To encourage more of this, Amazon now designates top reviewers on the site and a reviewer Hall of Fame (based in part on ratings from readers), lets reviewers set up their own pages showing their reviews of other books, provides them with a distinctive badge for their pen names, and more — all of which builds their reputation in the book buying community. Top Amazon reviewers are often more powerful than traditional media reviewers. 

Help customers build their affiliation networks

Customer advisory boards — in which a firm's customers provide input and guidance on products and strategy — have been around for years and are often an effective way to gain "buy-in" from customers. Firms like Microsoft are taking this up a notch, with industry councils. These are groups that focus not on Microsoft's products, services and strategy, but rather on a compelling industry issue that is top-of-mind with people in the industry — a significant difference with great appeal to buyers. In particular, Microsoft formed a council that focused on one of the most vexing of all business technology issues: interoperability (the council is called the Interoperability Executive Council or IEC). Once people were convinced that this was a serious attempt to address the issue (and not a vehicle to push marketing), Microsoft was able to attract a marquee list of senior technology executives from around the world. At times, the IEC will address issues that Microsoft can't help with — and the firm will go so far as to bring competitors into the discussion who can.

What's in it for Microsoft? Over time, the discussions and work performed by the IEC have given the firm insider access to the best thinking on this issue, which informs its product decisions, helps it establish thought leadership, and burnishes its standing as a constructive force for the industry. 

Help customers build status in the community

When marketing services and software firm, Eloqua, for example, decided to start recognizing outstanding work and results achieved by firms in its industry with awards, it decided to go whole hog. And for good reason: helping customers build status is an exceptionally valued aspect of one's social capital. Eloqua patterned the awards ceremony after the Emmy awards (it even hired the firm that designs the Emmy statues — calling it the "Markie"). They're awarded at a lavish black tie ceremony at a posh location, where some 20 awards are handed out over the course of the evening. Over the years, the event has built substantial media attention. 

Give them a say

High glamour isn't the only way to help customers build social capital. CSC, which creates financial services software, has built a tier of for-customer communities that allow customers to exchange ideas and best practices, and have a say in new releases. As products or updates are being developed, customers can subscribe to RSS feeds keeping them apprised of new release progress, and provide input — which CSC takes seriously. This can slow the process down, but it creates enthusiasm, as borne out by the numbers. After implementing the process, request rates for new software releases increased 50%.

What do all of these efforts have in common? They build communities that exert positive peer influence across all the relevant companies' markets. The ability to create this kind of Level 4 customer value proposition is the key skill set that companies will need in the new world of marketing.

Here are a few graphics I use to help make this clear to audiences


Level 4 CVP-rev_Page_1
Level 4 CVP-rev_Page_2

Level 4 CVP-rev_Page_3

Reference Community Comments

We wholeheartedly agree with this premise Bill. At the core of any successful reference program there are meaningful customer relationships. These might be between salespeople and customers, product managers and customers, or executives and customers.

The basis for the relationship is mutual benefit. When targeting more senior customer reference customers the win should be centered around career benefits: knowledge/education and peer networking.

Thanks for the thoughtful post.

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