Superior Customer Value: A Competitive Advantage

A competitive advantage results in some level of superior customer value based on a customer’s preference for performance benefits, the cost of the purchase, and the ease of the purchase. Businesses with a cost advantage are able to create superior customer value even with products that have average performance benefits if the businesses offer the products at below-average cost. Businesses that have a meaningful differentiation advan- tage are likewise able to create superior customer value with above-average performance benefits, even at above-average prices.
Figure 6-1 illustrates how either low cost of purchase or high performance benefits can create customer value and how customer value can be mapped. Businesses that have either of these two sources of competitive advantage find it easier to attract and retain customers. It is important to keep in mind, however, that the two sources of customer value attract two different kinds of customers.
Price-sensitive customers are attracted by a lower purchase price, and performance- conscious customers are attracted by superior performance and are willing to pay a pre- mium price for it. In either case, the superior customer value results in superior profits. As Figure 6-2 illustrates, businesses with above-average customer value produce higher levels of pre-tax return on investment. Businesses with an average customer value, where the cost of purchase equals performance benefits, produce average pre-tax profits. The businesses in this second group need to spend more to acquire customers, and they have more difficulty retaining customers because their value propositions are merely average. The net result is average profits.
Businesses with a negative customer value, where the cost of purchase exceeds per- formance benefits, produce a negative value and have difficulties attracting customers and even greater difficulties keeping them. These businesses have been shown to produce lower profits and tend to lose market