How much is a random person worth to your business? The answer changes dramatically as you gather more information. Let’s explore how customer value assessments evolve with data, using examples from probability theory to illuminate the powerful impact of information on business decisions.
Assessing value with limited information
Imagine I called you out of the blue. Against your better judgment, you answer the call. I say, “Hi! I am standing next to someone. What do you think they are worth to your company?”
Assuming you don’t just hang up on the random madman I represent, how would you answer? Knowing nothing else, how would you place a value on this random individual?
You would have to be very generic — and probably throw in several caveats. You might say, “Assuming they are an adult in the U.S., then…” and quickly do the calculation for a truly unqualified individual.
The next thing you would probably do is play a quick game of 20 questions with me:
- “How old are they?”
- “What is their gender (if relevant to your product)?”
- “What region do they live in?”
- “Are they users of my product category?”
- “Are they currently in the market?”
With this information, you could give a more nuanced and accurate assessment of their value .
The things you care about depend on your specific business, but the key thing to notice here is the “value” of the person isn’t changing. I am still standing next to the same individual. What changed is your assessment based on the information you received.
While this may seem obvious, it is rarely properly understood. The true business value of the individual, in this case, remains the same. What changed is the accuracy of your assessment.
The Monty Hall problem: The surprising value of new information
One math/logic problem probably sparked more internet debates than any other. Known as the Monty Hall problem, it goes like this:
- A contestant on a game show is shown three doors. Behind two of them, there are goats, and behind one is a brand-new car. If a contestant picks the right door, they win the car, otherwise it’s goats for them.
- The contestant, knowing only this, chooses a door at random. However, before that door is opened, the game show host opens one of the others, revealing a goat.
- The contestant is then given the choice to either stick with their original choice or switch to the other door. What should they do?
Mathematics proves there is one clear and correct answer — the contestant should switch.
If they switch, the probability of getting the car is 2/3. If they stick, the probability is 1/3. This seems counter-intuitive, as nothing changed with the car or goats. So, how did the probability change?
It didn’t. The probability of getting the car behind the initially chosen door was 1/3 before the door was opened and stayed at 1/3 after. What changed is the information we have about the other two doors: that one door now has a probability of zero, and so the other must now have a probability of 2/3. The contestant should switch.
(By the way, if you are not convinced and believe it shouldn’t matter whether the contestant switches, I recommend a quick Internet search — but be prepared for an avalanche of results!)
Dig deeper: How to categorize customer data for actionable insights
The power of information in measuring customer value
The Monty Hall problem is an excellent example of how the assessed value of something depends heavily on available information. If the car is worth $60,000, then the expected “value” of playing the game (to the contestant) is originally $20,000. Once the host opens another door and the contestant switches, the value doubles to $40,000.
This also demonstrates the mathematics behind even a simple case is complex and non-intuitive. It involves conditional probabilities and Bayesian statistics. Unlike frequentist statistics, which you might know from high school, Bayesian statistics uses prior knowledge and updates estimates with new data to find a “posterior” probability. What was once a controversial approach to statistics is nowadays at the core of how the web and ecommerce function.
Returning to your business case, what can you know about people who are potential customers of yours? How does their (assessed) value change as you have more information about them? We usually think about the “path to purchase” or “customer journey,” but we don’t always calculate the expected value of customers at each stage. Once you start thinking this way, you might consider:
- How does the value change as we know more about our potential customers?
- Are there actions or interventions that can increase (or diminish) their real value?
- How do we determine how much we should invest to help move someone from one part of the path to another? (Not that anyone ever had arguments about marketing spend.)
The reason fully quantified customer journeys are not more commonly utilized is simple — the mathematics is hard, sometimes really hard.
However, with modern Bayesian techniques and with readily available software (i.e., PyMC, Stan and BUGS), there is no excuse for organizations not to know the true value of customers at any part of their journey.
This is especially true online, where analytics lets us gather information more easily. However, this should also be extended to the “real” offline world.
The next time I call you with a prospect, remember that with the right information, you can assign value to this potential customer, which informs stakeholders and drives customer-centered strategies.
Dig deeper: Beyond the tech: Mastering customer data with a modern approach
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**The Impact of Additional Information on Customer Value Assessments**
In today’s information-rich environment, consumers are inundated with data from various sources, influencing their purchasing decisions and perceptions of value. The impact of additional information on customer value assessments is a critical area of study for businesses aiming to enhance customer satisfaction and loyalty. This article explores how supplementary information affects customer evaluations and the implications for marketing strategies.
### Understanding Customer Value Assessments
Customer value assessment is the process by which consumers evaluate the benefits and costs of a product or service to determine its worth. This evaluation is influenced by various factors, including price, quality, brand reputation, and personal preferences. The availability and presentation of information play a pivotal role in shaping these assessments.
### The Role of Additional Information
#### 1. **Enhanced Decision-Making**
Additional information can significantly enhance a customer’s decision-making process. When consumers have access to comprehensive data about a product, including specifications, reviews, and comparisons, they are better equipped to make informed choices. This transparency builds trust and can lead to higher perceived value.
For example, detailed product descriptions and user reviews on e-commerce platforms help customers understand the benefits and drawbacks of a product, leading to more confident purchasing decisions.
#### 2. **Perceived Quality and Trust**
Information about the quality and origin of a product can positively influence customer value assessments. Consumers tend to associate detailed information with higher quality and reliability. For instance, knowing that a product is made from sustainable materials or has undergone rigorous testing can enhance its perceived value.
Moreover, transparency about company practices and product sourcing can build trust. Brands that openly share information about their supply chains and ethical practices often enjoy higher customer loyalty.
#### 3. **Price Justification**
Additional information can also help justify higher prices. When customers understand the reasons behind a product’s cost, such as superior materials, advanced technology, or ethical production methods, they are more likely to perceive it as valuable. This is particularly relevant for premium brands that rely on conveying the added value of their offerings.
#### 4. **Reducing Perceived Risk**
One of the primary concerns for consumers is the risk associated with purchasing a new product. Additional information can mitigate this risk by providing assurances about the product’s performance and reliability. Detailed warranties, return policies, and customer testimonials can alleviate concerns and enhance perceived value.
### The Impact on Marketing Strategies
Given the significant impact of additional information on customer value assessments, businesses must strategically manage the information they provide. Here are some key considerations:
#### 1. **Transparency and Honesty**
Transparency is crucial in building trust and enhancing perceived value. Companies should provide clear, honest, and comprehensive information about their products and services. This includes detailed descriptions, specifications, and any potential drawbacks. Honesty in marketing communications fosters long-term customer relationships.
#### 2. **Leveraging Technology**
Advancements in technology offer new ways to present information effectively. Augmented reality (AR), virtual reality (VR), and interactive product demos can provide immersive experiences that help customers understand the value of a product. For instance, AR apps that allow customers to visualize furniture in their homes can significantly enhance perceived value.
#### 3. **Personalization**
Personalized information can make a significant difference in customer value assessments. By leveraging data analytics and artificial intelligence, businesses can tailor information to individual customer preferences and needs. Personalized recommendations and targeted content can enhance the relevance and perceived value of a product.
#### 4. **Customer Education**
Educating customers about the benefits and features of a product can enhance their value assessments. This can be achieved through informative content such as blog posts, videos, webinars, and tutorials. Educated customers are more likely to appreciate the value of a product and make informed purchasing decisions.
### Conclusion
The impact of additional information on customer value assessments cannot be overstated. In an era where consumers have access to vast amounts of data, businesses must strategically manage the information they provide to enhance perceived value. Transparency, leveraging technology, personalization, and customer education are key strategies in this endeavor. By effectively communicating the value of their products and services, businesses can build trust, justify pricing, reduce perceived risk, and ultimately drive customer satisfaction and loyalty.
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