The long accepted barometer of business success is to maximise shareholder value. It is so ubiquitous that many assume it is a legal obligation.

However, the financial crisis and ensuing recession have shown that the relentless focus on keeping shareholders happy may not be the best measure of long term success for a company. The counter voices are getting louder and current, perhaps more enlightened thinking is moving towards a measure of customer value instead.

Why shareholder value?

Using shareholder value as the single determinant of success has many benefits, not least clarity and single-mindedness. It is simple to apply easily comparable numeric values and has the added value of being largely internally defined.

It directs all the efforts of a company’s executive to the immediate delivery of the company investor’s short term requirements and allows the creation of company executive investment programmes in share allocation schemes that tie executives closely to that shared short-term delivery.

Short-term gain / long-term loss

However, fast forward to present day, and this solution does not seem so good. Maximising shareholder gain is a short-term measure of success. Broadly speaking it means the company’s executives can be more focused on meeting analysts’ expectations than ensuring the business is in a good shape. The situation is not helped by private equity firms and hedge funds which typically look for even shorter-term financial gains.

Short-term focus is exacerbated by the tenure of the senior team – according to the University of Southampton the average tenure of a FTSE 100 CEO is just under 6 years, and any perusal of the pages of the marketing trade press will show that marketing directors turn over with startling rapidity.

Putting customers first

In the years since the financial crisis it is easy to see that that the focus on shareholder value and the big rewards of some chief executives despite poor company performance has driven a wedge between business (especially financially-orientated companies) and society.

Increasingly the articles in the Harvard Business Review, Forbes and academic publications have pointed out that sustainable success is dependent on continuous product innovation and evidence of genuine delivery of customer value.

The ‘selfish’ company, one which is driven only by its own internally-derived metrics, forgetting the customer on whom such results ultimately rely, is being demonstrated as increasingly vulnerable.

It has been shown that concentrating on customer value creates better sustained relationships with customers and still increases shareholder value in the long term. 

Other trends

The pressures of new technology and techniques from crowd sourcing to social media will only increase the pressure on ‘selfish’ organisations.

Handling social media demands redistribution of power throughout an organisation.  These days’ consumers demand instant responses, which mean that old hierarchical contacts with customers must give way to company wide customer responsibility and new definitions of success.

The speed and ubiquity of social media, the instant access of mobile has indeed given customers a power that they recognise, has created a new pressure of customer activists and ‘shareholder value’ is not a language they acknowledge.

A lesson well learned

Many years ago as young Unilever marketing graduate trainee, I was hauled in, as were all my colleagues, for an individual pep talk with one of Lever Brothers’ greatest chairmen: Len Hardy.

The talk was very brief. Pointing to his immaculately (Persil) white shirt he demanded to know what it represented. Luckily he answered his own question: great brands like Persil represent three forms of value: to the customers, or why should we expect them to go on choosing the brand; to our staff, because customer success means rewarding employment; and lastly value to our stakeholders, in this case Unilever. The latter two do not exist without the former.

Customer value

Customer value is, put simply, what makes customers continue to your goods or services over the next best alternative.

To understand what value means to your customers, you must first understand and respect them. This is where market research is key as it provides real, tangible results, showing you what works with your customers and, just as importantly, what doesn’t.

Using market research to understand customer value

Market research can and should come from many sources, free from desk research, analysing social and purchase information and other data – but above all from asking questions and observing behaviour.

From this comes actionable insight to drive your strategy support your distinctive value and thus retain your customers and build their numbers

Defining value so it can be managed and measured is not always easy. Value judgements are individual and as much about psychology and emotion as function and price – perhaps why so many companies are wary of addressing the issue.

Value is comparative and contextual and will change. Quantitative measures of price availability and service standards are critical but only with a deep understanding of consumer priorities and semantics will you truly understand value.

Many companies embarking on a journey of refocusing themselves around customers make the mistake of defining both value and the competitive set in terms of their own internal language and prejudices forgetting that customers make comparative judgements not just in terms of alternative products but in terms of other demands on their time and effort. So insurance and other savings products need to look not only at competitors, but at their customers’ decision processes which pits them against, say, buying a nice holiday!

Get out and talk

Data and information should be gathered from customers firsthand if possible as the quality of such data is better and more valuable. This means getting out and speaking to your customers directly. Online and mobile surveys have the benefits of flexibility and speed, but nothing beats talking to your customers face to face. And of course surveys are only as good as the quality of the questions being asked.

Make use of big data where possible, as this will add layers of vital detail. But remember, big data should not be used as a replacement for judgement. Big data may tell you what your customers are buying but not why. 

Research by the Institute of Practitioners in Advertising also shows that big data might push you to select and develop marketing and communication strategies that deliver the best results in the short term, but not necessarily over the long term. This suggests that campaigns solely based on big data emphasise quick wins and ignore the benefits of building long-term relationships with customers. 

Whatever the outcome, and however you do it, taking staff out to talk to and listen to customers will be transformative.

Know your customer, know your own business

Customer value is becoming a more accepted gauge of business success and the only way to establish this measure it to conduct research which gives you the evidence you need to make good business decisions. With the right information a company can build a picture of what customers value and companies can ensure they continue to satisfy customers and their goods and services are purchased – enabling long term success, not just short term gain.

Box out on big data

The digital age has meant that masses of data is now readily available to be analysed. Big data is the amalgamation of large amounts/streams of this data which has been made available through a range of different sources.

The data sets collected and analysed are often so large and complex that traditional software is unable to manage and process the data in an acceptable amount of time. Big data therefore requires new tools to enable enhanced decision making; but more than this, it needs human interpretation. Just 1,000 pieces of data analysed by a human, it is said, is worth more than 1 million analysed by a computer, even when they invent an algorithm that copes with irony.