On Value Capture

Tim Ferriss, my old job, and countless others insist we capture maximum value from our customers.

And let’s be real… value = dollars.

Perhaps I’m a communist (false) but this never made sense to me.

When consumers purchase something one of two sentiments follows: buyer’s remorse or customer satisfaction.

Once I bought 5lbs of Muscle Milk for $45 and smiled all the way home. I wasn’t satisfied, I was delighted. So much I’m sharing where I got it and how great it tasted.

Last week I spent $10 at a national taco chain and I’m still shuddering at the expense.

What happened here?

The first vendor (Vitamin Shoppe) captured only a fraction of value I received from the sale while the second (unnamed) vendor captured all of it.

Economics tells us the second vendor is better because they maximized profitability. My price elasticity was 1.0 and the graph lines of taco prices and my willingness to spend intersected.

Problem is, I’ll never buy from them again. Which makes me think…

The only customer worth having is a repeating one.

Now a step further.

Can anything be done to salvage the value capture (cash) Vitamin Shoppe left on the table? I admitted to enjoying the $45 price point… could they have charged me $60?

Absolutely.

But then you wouldn’t hear about it. The transaction would be characterized by full value capture, and that’s not worth talking about. Which makes me think…

Customer satisfaction = Δ (difference) between what we pay and what we’re willing to pay.

The $15 I saved on protein powder — $15 Vitamin Shoppe “left on the table” — is now being captured indirectly with relentless franchise promotion in this writeup.

And that’s worth something. Which makes me think…

Word of mouth potential = customer satisfaction realization.

So let your customers think they got a great deal.

They’ll tell friends about you, who then become new customers. And those customers will love you, because you’ll give them good deals too.

That’s worth a lot more than $10 tacos, don’t ya think?

1 Comment

  1. Jeff Greenspan July 9, 2015 at 4:25 pm

    I captured maximum value from this.

    Reply

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