Building Customer value

Building Customer Building Customer Value, Satisfaction, Value, Satisfaction,

and Retentionand Retention

Learning ObjectivesLearning Objectives

Understand how companies Understand how companies deliver customer value and deliver customer value and satisfaction.satisfaction.

Identify the factors that make a Identify the factors that make a high performance business.high performance business.

Understand how companies Understand how companies attract and retain customers.attract and retain customers.

DELIVERING PROFITABLE DELIVERING PROFITABLE VALUEVALUE

BusinessBusiness: is a value delivery system.: is a value delivery system.

Business ProcessBusiness Process : is the task of : is the task of

delivering value to the market at a delivering value to the market at a

profit .profit .

TWO VIEWS OF VALUE TWO VIEWS OF VALUE DELIVERY PROCESSDELIVERY PROCESS

(A) (A) Traditional Physical Process Traditional Physical Process

SequenceSequence : :Sell the productMake the product

Design Procure

MakePrice Sell

Advertise Promote

Distribute

Service

( Used in Economies of Scarcities )

TWO VIEWS OF VALUE TWO VIEWS OF VALUE DELIVERY PROCESSDELIVERY PROCESS

(B) (B) The Value Creation and Delivery The Value Creation and Delivery SequenceSequence

Choose the value Provide the value Communicate the value

Customer

Segmentation

Market

Selection /

Focus

Value

Positioning

Product

Dev.

Service

Development

Pricing

Sourcing

Making

Distributing

Servicing

Sales Force

Sales Promotion

( Used in More Competitive Economies )

A VALUE DELIVERY SYSTEMA VALUE DELIVERY SYSTEM

Develop the product Produce the product

Market the product

Choose a value proposition

Provide this value proposition

Communicate this value proposition

Japanese Value Delivery Japanese Value Delivery ProcessProcess

Zero customer feedback timeZero customer feedback time Zero product improvement timeZero product improvement time Zero purchasing timeZero purchasing time Zero setup timeZero setup time Zero defectsZero defects


Business is a value delivery system.Business is a value delivery system. Each business is the disciplined choice of a Each business is the disciplined choice of a

true winning value proposition and true winning value proposition and deliberately designed integration of all deliberately designed integration of all resources and actions around the profitable resources and actions around the profitable delivery of this value proposition.delivery of this value proposition.

Profitable value is the resulting experiences Profitable value is the resulting experiences customers derive by doing business with customers derive by doing business with the organization.the organization.


An Organization bases its decision about products and An Organization bases its decision about products and services and how they are developed, made and services and how they are developed, made and distributed entirely on the profitable superiority of the distributed entirely on the profitable superiority of the resulting experiences for customers.resulting experiences for customers.

A customer chooses a firm over others because it A customer chooses a firm over others because it offers the greatest positive combination of end-result offers the greatest positive combination of end-result benefits and price (i.e. the greatest value ) in the benefits and price (i.e. the greatest value ) in the perception of that customer.perception of that customer.

DELIVERING CUSTOMER VALUEDELIVERING CUSTOMER VALUE( THE VALUE CHAIN )( THE VALUE CHAIN )

Michael Porter of Harvard proposed the Value Michael Porter of Harvard proposed the Value Chain as a tool for identifying ways to create Chain as a tool for identifying ways to create more customer value.more customer value.

Every firm is a collection of activities that are Every firm is a collection of activities that are performed to design, produce, market, deliver performed to design, produce, market, deliver and support its product.and support its product.

The value chain identifies nine strategically The value chain identifies nine strategically relevant activities that create value and cost in relevant activities that create value and cost in a specific business. These nine value-creating a specific business. These nine value-creating activities consist of five primary activities and activities consist of five primary activities and four support activities.four support activities.

The Generic Value Chain

The Value ChainThe Value Chain Every firm is a synthesis of activities performed Every firm is a synthesis of activities performed

to design, produce, market, deliver and support to design, produce, market, deliver and support its product.its product.

Nine strategically activities (primary and Nine strategically activities (primary and support activities) which create value and cost support activities) which create value and cost in a specific business.in a specific business.

The firm’s task is to examine its costs and The firm’s task is to examine its costs and performance in each value-creating activities performance in each value-creating activities and to look for ways to improve it.and to look for ways to improve it.

The firm benchmarks its performance and cost The firm benchmarks its performance and cost as compared to competitors.as compared to competitors.

The Value ChainThe Value Chain The firm’s success depends not only on how well The firm’s success depends not only on how well

each department performs its work, but also on each department performs its work, but also on how well the various departmental activities are how well the various departmental activities are coordinated to conduct coordinated to conduct core business processescore business processes..

The marketing sensing processThe marketing sensing process The new offering realisation processThe new offering realisation process The customer acquisition processThe customer acquisition process The customer relationship management processThe customer relationship management process The fulfillment management processThe fulfillment management process

Core CompetenciesCore Competencies To carry out its core business processes, To carry out its core business processes,

a company needs resources (labour, a company needs resources (labour, materials, machines, information and materials, machines, information and energy).energy).

Traditionally, companies owned and Traditionally, companies owned and controlled most of the resources that controlled most of the resources that entered their businesses.entered their businesses.

Outsourcing (own and nurture the Outsourcing (own and nurture the resources and competencies that make resources and competencies that make up the essence of the business). up the essence of the business).

A holistic Marketing Orientation A holistic Marketing Orientation and Customer Valueand Customer Value

Integrating the value exploration, value Integrating the value exploration, value creation and value delivery activities with creation and value delivery activities with the purpose of building long-term the purpose of building long-term mutually satisfying relationships and co-mutually satisfying relationships and co-prosperity among key stakeholders.prosperity among key stakeholders.

Interaction between relevant actors Interaction between relevant actors (customer, company and collaborators) (customer, company and collaborators) and value based activities help to create, and value based activities help to create, maintain and renew customer value.maintain and renew customer value.

Holistic Marketing FrameworkHolistic Marketing Framework Value exploration- Value exploration- How can a company identify How can a company identify

new value opportunity? Developing such new value opportunity? Developing such strategy requires an understanding of the strategy requires an understanding of the relationships and interactions among :relationships and interactions among : The customer’s The customer’s cognitive spacecognitive space reflects existing and reflects existing and

latent needslatent needs The company’s The company’s competency spacecompetency space (in terms of (in terms of

breadth-broad vs focused scope of business; and breadth-broad vs focused scope of business; and depth- physical vs knowledge based capability)depth- physical vs knowledge based capability)

The collaborator’sThe collaborator’s resource space resource space involves involves horizontal and vertical partnershipshorizontal and vertical partnerships

Holistic Marketing FrameworkHolistic Marketing Framework Value creation: How can a company Value creation: How can a company

efficiently create more promising new efficiently create more promising new value offering?value offering?

Marketers need to:Marketers need to: Identify new customer benefits from the Identify new customer benefits from the

customer’s viewcustomer’s view Utilize core competencies from its business Utilize core competencies from its business

domaindomain Select and manage business partners from Select and manage business partners from

its collaborative networks.its collaborative networks.

Holistic Marketing FrameworkHolistic Marketing Framework Value delivery- How can a company use its Value delivery- How can a company use its

capabilities and infrastructure to deliver the capabilities and infrastructure to deliver the new value offerings more efficiently? It requires new value offerings more efficiently? It requires substantial investment in infrastructure and substantial investment in infrastructure and capabilities.capabilities. Customer relationship managementCustomer relationship management Internal resource management- to integrate major Internal resource management- to integrate major

business processes within a single family of business processes within a single family of software module.software module.

Business partnership management- allows to handle Business partnership management- allows to handle complex relationships with its trading partners to complex relationships with its trading partners to source, process and deliver products. source, process and deliver products.

Customer SatisfactionCustomer Satisfaction

SatisfactionSatisfaction is defined as . . . is defined as . . . “ “a person’s feelings of pleasure or a person’s feelings of pleasure or

disappointment resulting from disappointment resulting from comparing a product’s perceived comparing a product’s perceived performance (or outcome) in performance (or outcome) in relation to his or her expectations.”relation to his or her expectations.”

Customer SatisfactionCustomer Satisfaction

To maximize satisfaction . . .To maximize satisfaction . . . Don’t exaggerate the product / Don’t exaggerate the product /

service’s capabilities in advertising service’s capabilities in advertising or other communications or other communications Dissatisfaction will resultDissatisfaction will result

Don’t set expectations too low Don’t set expectations too low Market size will be limitedMarket size will be limited

High Performance High Performance BusinessesBusinesses


Keys to SuccessKeys to Success

StakeholdersStakeholders ProcessesProcesses ResourcesResources OrganizationOrganization

•Identify several stakeholder groups•How might the needs of these groups conflict with each other?




•New product development•Customer attraction and retention•Order fulfillment•Reengineering work flows•Building cross functional teams




•Resources include labor, materials, machines, energy, and information•Outsourcing vs. ownership: Own and nurture core competencies




•Organization refers to the organization’s policies, structures, and corporate culture• Corporate culture: shared experiences, stories, beliefs, and norms within an organization

Customer ValueCustomer Value

is defined by the following equation :is defined by the following equation : V = Q+F / P V = Q+F / P Where; Where; V= Customer ValueV= Customer Value Q= Product Quality as Perceived Q= Product Quality as Perceived

by Customersby Customers F= Product Features Valued byF= Product Features Valued by CustomersCustomers P= Price of Product to theP= Price of Product to the CustomersCustomers- - an increase in the numerator or a decrease in the an increase in the numerator or a decrease in the

denominator will increase the valuedenominator will increase the value..

CREATING AND DELIVERING CREATING AND DELIVERING CUSTOMER VALUECUSTOMER VALUE

The Linkage Among Benefit-The Linkage Among Benefit-Value-Cost-Satisfaction ( The firm Value-Cost-Satisfaction ( The firm has to achieve the best possible has to achieve the best possible configuration of these, that configuration of these, that appeals most to the customer ).appeals most to the customer ).

The Marketing Concept Gets The Marketing Concept Gets Executed Through Value Delivery.Executed Through Value Delivery.

CREATING AND DELIVERING CREATING AND DELIVERING CUSTOMER VALUECUSTOMER VALUE

The Firm Builds Benefits/Value The Firm Builds Benefits/Value into the Market Offer, through into the Market Offer, through 4 Ps (by adjusting any element 4 Ps (by adjusting any element of the mix , customer value of the mix , customer value can be enhanced).can be enhanced).

CUSTOMER’S MENTAL PROCESS CUSTOMER’S MENTAL PROCESS OF JUDGING VALUEOF JUDGING VALUE

Customer delivered value is the difference Customer delivered value is the difference between total customer value and total between total customer value and total customer cost.customer cost.

(Total Customer Value : is the bundle of benefits customers expect from a given product or service ).

(Total Customer Cost : Buyer evaluates time, energy and psychic costs along with the monetary cost to form a total customer cost ).

CUSTOMER VALUECUSTOMER VALUE• Buyers will buy from the firm that they perceive to Buyers will buy from the firm that they perceive to

offer the higher customer delivered value.offer the higher customer delivered value.

Product

ValueServices Value

Personnel

ValueImage

Value

Monetary

Price

TimeCost

EnergyCost

Psychic Cost

Total Customer Value

Total Customer Total Customer CostCost

Differenc

e

CUSTOMER

DELIVERED

VALUE

Determinants of Customer Delivered Determinants of Customer Delivered ValueValue

MARKETING IS…………..MARKETING IS…………..

a value-creating and value delivery processa value-creating and value delivery process In any marketing situation, one can discern In any marketing situation, one can discern

four distinct steps in the value providing four distinct steps in the value providing process :process :

Value selectionValue selection Value creation/value deliveryValue creation/value delivery

Value communicationValue communication Value enhancementValue enhancement

Levi Strauss’s Value-Delivery NetworkLevi Strauss’s Value-Delivery Network

Customer RetentionCustomer Retention

Reducing customer churn (defection) Reducing customer churn (defection) is highly desirableis highly desirable Define and measure retention rateDefine and measure retention rate Identify causes of attritionIdentify causes of attrition Estimate profit lost from customer Estimate profit lost from customer

defection (customer lifetime value)defection (customer lifetime value) Estimate cost to reduce defection; take Estimate cost to reduce defection; take

appropriate actionappropriate action

Attracting and Retaining Attracting and Retaining CustomersCustomers

The Need for Customer RetentionThe Need for Customer Retention Measuring Customer Lifetime Value (CLV) Measuring Customer Lifetime Value (CLV) Customer Relationship Management (CRM): Customer Relationship Management (CRM):

The KeyThe Key Customer equity- Total of the discounted Customer equity- Total of the discounted

lifetime values of all the of the firm’s customers. lifetime values of all the of the firm’s customers. The more loyal the customers, the higher the The more loyal the customers, the higher the customer equity.customer equity.

Three drivers of customer equityThree drivers of customer equity Value equityValue equity Brand equityBrand equity Relationship equityRelationship equity

Drivers of Customer Drivers of Customer EquityEquity

Relationship Equity

Brand Equity

Value EquityCustomer

Focus

Customer EquityCustomer Equity Value Equity-Value Equity- is the customer’s objective assessment of is the customer’s objective assessment of

the utility of an offering based on perceptions of its the utility of an offering based on perceptions of its benefits relative to its costs. The sub-drivers are quality, benefits relative to its costs. The sub-drivers are quality, price, and convenience.price, and convenience.

Brand equity-Brand equity- is the customer’s subjective and intangible is the customer’s subjective and intangible assessment of the brand, above and beyond its assessment of the brand, above and beyond its objectively perceived value. The sub-drivers are customer objectively perceived value. The sub-drivers are customer rand awareness, attitude towards brand, and customer rand awareness, attitude towards brand, and customer perception of brand ethics.perception of brand ethics.

Relationship equity-Relationship equity- is the customer’s tendency to stick is the customer’s tendency to stick with the brand, above and beyond objective and with the brand, above and beyond objective and subjective assessments of its worth. Sub-drivers include subjective assessments of its worth. Sub-drivers include loyalty programs, special recognition , community-building loyalty programs, special recognition , community-building programs and knowledge building programs.programs and knowledge building programs.

Customer Development Customer Development ProcessProcess

Relationship Marketing-Relationship Marketing-LevelsLevels

How much should a company invest in building loyalty so that the cost do not exceed the gains?

We need to distinguish five different levels of investment in customer relationship building:

1. Basic Marketing: The sales person simply sells the product.

2. Reactive Marketing: The sales person sells the product and encourages the customer to call if he or she has questions, comments or complaints.

Relationship Marketing-Relationship Marketing-LevelsLevels

3. Accountable Marketing: The sales person phones the customer to check whether the product is meeting expectations. The sales person also asks the customer for any product or service improvement suggestions and specific disappointment.

4. Proactive Marketing: The sales person contacts the customer from time to time with suggestions about improved product uses or new product.

5. Partnership Marketing: The company works continuously with its large customers to help improve their performance. (General Electrical, for example has stationed engineers at large utilities to help them produce more power).

20 – 80 Rule20 – 80 Rule

20% of your customers20% of your customers

Generate 80% of your profit8020

Documents

Building Customer value