Session 5a Cv
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Transcript of Session 5a Cv
HBM525 – Session 5a. CUSTOMER VALUE (=Benefits-Costs)
Dr. Bill Callaghan
Structure- 3 parts(1) The customer perspective(2) The supplier perspective(3) Some analytical/metrics tools
Part 1.The customer perspective A while ago HBR article sought to understand the
benefits of a service by considering “ a day in the life of a customer”. - the idea was to examine the needs and benefits a
customer received from a service or product – and their frustrations.
- other analysts say we should “staple ourselves to an order” and follow it through the system to help us understand customer experiences fully and what goes right and wrong in delivering the product.
Definitions- Customer Value- what is it?
Sometimes called “VC” – value to the customer- when we are looking at the customers perspective.
CV=Benefits minus Costs Consider the purchase of a car and outline
(1) the benefits and (2) the costs.
So Defining Customer Value …….. Value is:
The ratio of (or difference between)- all received benefits (functional, emotional, and social) as compared to all sacrifices (again, functional, emotional, and social).
Net difference is value and can be positive (good) or negative (bad).
Presumably, if value is negative, you will not engage in this exchange or with this person/firm again (why not?) OR
Alternatively, you may choose to adjust your perception of value
Other Views of Value Some see value as a tradeoff between
quality and price or Value as a long term business asset rather
than a transaction based evaluation by the customer
“value for money” has different interpretations by consumers. e.g. the cheapest . It is a relative measure.
Customer Value Components Three component parts often used in the literature
Functional value (i.e. rational) Does it do what the customer wants it to do?
Emotional value How does the customer feel about the product/service?
Social value Does the product/service enhance or diminish the
customer’s social standing?
PART 1 – THE CUSTOMER PERSPECTIVE
(1) Woodall’s Inventory of costs and benefits See benefits and sacrifices on the next
slide. Note Woodall uses the term “VC” for
value to the customer.
Types of Value- Exercise Pick some products such as
a pair of shoes, conveyance for a property purchase, a haircut, education, and life insurance
In your groups discuss each aspect of functional, emotional, and social value from the customer’s perspective for one of these. Consider if any tradeoffs might be involved between the 3
types of value. What would you measure to assess perceived customer
value for one of the products above?
(2) The Kano way of looking at product attributes. Based on a product design view of
customers assessment of features in terms of benefits.
Attributes Expectations and Requirements from a product design perspective ( Kano) 5 Types of Product Attributes
1. Must have features -needed for customer to have any interest in the product. If not there will cause very high levels of dissatisfaction.
2. One dimensional features – degree to which present has a direct impact on customer satisfaction or dissatisfaction..
3. Attractive features. Not expected but when delivered are a bonus – and really enhance satisfaction.
4. Reverse features. Frustration and dissatisfaction drivers. Customer does not want and interfere with product use.
5. Indifferent features. Does not really care about. Removing them would not change satisfaction or dissatisfaction.
From Kano Method
All above have cost implications as well as benefit implications!
(3) A product lifecycle approach- costs to the owner. This considers an accountancy approach to
assessing value. Useful for looking at competitive products
over the ownership life. See next slide.
Costs to the Customer – A product over its lifetime/lifecycle of the customer.Lifecycle of a product- areas of economic costs
Price Paid e.g. capital cost.
Acquisition Costs e.g. time and effort spent looking and placing order.
Usage Costs e.g. covers installation, training and operator costs and running costs – e.g. consumerables.
Maintenance Costs e.g. cost of repair, servicing
Ownership Costse.g. risk if needs to be replaced because of breakdown, lease/rental costs, insurance costs
etc
Disposal costs e.g. ….
Example – cars Honda BMW
Price Paid $50k $60k
Acquisition Costs $2k $2k
Usage Costs $1k $1k
Maintenance Costs $15k $20k
Ownership Costs $3k $5k
Disposal costsDepreciation/ trade in loss
Depreciation/trade in loss
When we look at costs this way we have to ask what are the Value Drivers for our brand?
Exercise - How does the above framework work for a mobile phone? A refrigerator?
This is also known as an Economic Value or “Savings” Perspective We could look at the sources of economic value for a customer.These
are sometimes seen as “savings” for the customer Sources of economic value are:
1.Price paid e.g. online prices – books /software.- covers terms of payment as well as price
2. Acquisition costs e.g. costs of ordering- covers logistics , inventory aspects
3. Usage costs e.g. reduce labor handling costs with packaging- may also cover installation and training costs
4. Maintenance Costs
5. Ownership Costs e.g. financing terms- also might cover insurance/ warranty
6. Disposal Costs e.g. guaranteed pickup
(4) Factors influencing customers perception of value. What influences how a customer sees
value? – and what might cause this to change over time?
Woodall’s view is on the next slide.
From Woodall (2003)
The Values change process Flint and Woodruff (2001) provide a model for considering what
influences customer values. Their focus was on business purchasing officers as customers i.e
customers who buy supplies for their organization. First they define the environmental factors:
Changing external customer demands Changing internal demands Competitor moves e.g. innovation Changing supplier demands e.g. price increase Macro environmental change ( economic, social, technological,
government, social forces)e.g. exchange rates
They then define “current capabilities tension drivers”.
Knowledge level ( knowledge of customer about the changed requirement) Performance Level ( past and current performance) Control level ( degree of control over decision)
These drivers lead to 3 dimensions of TENSION: 1 Affective – i.e. emotional stress, panic, features may be part of this. 2 Perceived Extensiveness i.e. impact on personal workload and others
workload. Effort and time frame involved. 3 Temporal Dynamism – refers to changes in tension. i.e. it may grow and
subside in urgency/pace required.
The outcome The researchers see that this may lead to customers becoming more aware of their
dependence on suppliers. ( for service assistance, information, new ideas, design help etc)
This in turn finally leads to changes in what customers value.
(5) Quality – what is it? And How do we measure Quality? We distinguish here between tangible products
and services a bit more directly. Two ways of looking at the product and its quality- one for the more tangible products and one for services.
The Services one is based on the SERVQUAL (from the 90’s) approach by the 3 researchers- and has links to customer satisfaction.
Do we assume a Price – Quality relationship in different categories?
price - quality relationship
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$0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00
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Quality Definition- tangible
Garvin (1984)
Service Quality
Parasuranam, Zeithaml and Berry (1988)
1. Performance Primary product characteristics
1. Tangibles Physical evidence associated with the service
2. Features Secondary product characteristics
2. Reliability Reliability and consistency of service
3. Reliability 3. Assurance Ability of employees to inspire trust and confidence
4. Conformance Degree to which design and operating characteristics match specifications
4. Responsiveness Willingness to help, Promptness of the response
5. Durability Product life 5. Empathy Caring, individualised attention
6. Serviceability Speed, courtesy and competence of repair
7. Aesthetics Product looks, feels, sounds
8. Perceived quality
(6) Woodall’s summary of CV components. Splitting Monetary and non monetary
issues. See next slide.
From Woodall (2003)
Some Complications in taking a Value perspective. 1. We are often dealing with Perceptions. Measurement is may be
indirect. 2. Identifying and Assessing Emotional Value – much customer
value delivery work has been done in a b2b context and involves mainly rational benefits- but with b2c environments….and services, b2c where such issues may be relatively more important.
3.Tradeoffs are frequently involved– e.g customers might weigh up the brand, price, and maybe the technical sophistication of the offer before making the purchase decision. Compensatory and non compensatory models.
4. Other issues?……………………..
PART 2 – THE SUPPLIER PERSPECTIVE
Part 2.The supplier/business perspective We have mostly been focused on the
customer viewpoint – now it is time to look at it more from a business perspective.
(1) A Customer Experience Approach. Process Improvement and Cost reduction ( as well as generating Ideas for CV improvements).
If we look at the customer experience by examining the processes that are involved in the buying process and after (i.e. following a customer order) we may get ideas about: (a) areas that need to be improved to improve
value. (b) areas that need to be monitored carefully.
General Example -Stages in Customer Ordering Cycle
Order Planning Order Development Order Evaluation Order Placement
Customers do not recognize your solution in solving a problems
insufficient or incorrect information on your solution
Misperceptions or incomplete information limit fair evaluation
Difficulties in placing order with your business
Stages in the customer cycle
Potential problems/ opportunities to build value
Order Entry Order Processing Order Delivery Customer Invoice
Order recorded or priced incorrectly
Order in process but customer not aware of order status and delivery
Product delivered late or damaged; wrong product delivered
Bill has errors, no one to contact, and calls lead to voice mail hell
Potential problems/ opportunities to build value
Stages in the customer cycle
After-Sale Services Product Usage Product Problems Returns and claims
Problems after purchase with no one to call; calls not returned
inadequate instructions; no hot line offered
Product does not work and must be returned at customer's expense
Customer has to fight to get warranty claim resolved
Stages in the customer cycle
Potential problems/ opportunities to build value
A more management driven view. In the previous example we took the customer viewpoint
fairly strongly to find ideas for CV improvement. We can also look at processes ( which we do using
“service blueprints” or process mapping or analyzing touchpoints to see if we can reduce either: (1) direct costs of providing the service or doing the process (2) reducing the costs of errors.
The logic is that if we can reduce costs we can also pas some savings on to improve the CV equation.
Aspects of the Supplier Perspective Customers are seen as assets and having a long
term value (customer lifetime value concepts etc). The organization must attract, serve and retain
customers – sometimes referred to as managing “customer equity”. Customer acquisition and the cost of customer
acquisition is currently a major issue in may businesses. Customer retention is a basic management challenge.
The company must also manage the many processes that are involved in product or service delivery – and these impact on value performance.
(2) The Strategic Supply Chain Management Approach Idea is that the Total Supply Chain to the
Customer is seamless and operating in the most cost efficient manner. View is that there is never a steady state and change
has to be adapted to. Many factors may impact on the supply chain approach. E.g. currency movements, competitor moves, changing consumer attitudes/needs, growth rates, shareholder priorities, joint ventures, availability of capital funds etc
Formal Definition Supply chain management (SCM) is the
integration of the activities that procure materials and services, transform them into intermediate goods and final products and services and deliver them to customers.
Principles of SCM It starts with the customer Manages logistics assets
(warehouses/inventory/delivery/transport etc) Organizes customer management Integrates sales and operations planning Leverages manufacturing and sourcing
capabilities Focus on strategic alliances Develop customer driven performance measures
Value Creation – supply chain emphasis Three Drivers of Value
1. Customer Service (service levels by segments, billing accuracy, consistent quality, communications)
2.Costs of goods sold ( cost reductions, productivity increases, procurement and distribution savings)
3. Capital Efficiency ( inventory optimizations, capacity utilization
Marketing’s Role The simple idea is that marketing,
operations management and all other areas of the organization work together to meet customer requirements! marketing may be seen more about sales and
marketing communications and managing demand!
Hallmarks of a strong supply chain approach 1. Coordination/ synchronization of processes. E.g. JIT,
effective use of information for planning/ forecasting. May mean emphasis on scheduling challenges in manufacturing.
2. Alliances with suppliers and others
3. Quality management Approach. TQM philosophy
Changing SCM approach/issues Coverage of services ( emphasis on service
standards) Time compression for products to market /
faster information flow Globalization Organizational integration Customization and ………………………..
(3) Joint Ventures /Partnerships/ Diversification Approach to delivering customer value
This perspective recognizes that many business markets are organized as networks. This is value that is created as the result of being part of a networks (channel arrangements, partnering, alliances etc). SCM puts emphasis on this but it is worth a separate point.
Networks are everywhere – both business and personal Current example – Qantas rumored to be seeking
ownership of a retail network of travel agents. Other examples – e.g. Sony Ericsson mobile phones.
The Role of Channels in CV What do they do
1. Transformation 2. Timeliness 3. Location (logistics is part of this service) 4. Possession 5. Information transfer 6. Channels also take risks
Transformation Key areas
Manufacturing Assorting e.g Dell Sorting – buying large quantities and selling
smaller quantities Standardisation – grading into categories Storing
Risk Sharing Key way to add value is to assume risk Assuming risk may or may not be risky
What is risky to one may be mundane to another Knowledge and skill are often keys to this
Sharing risk is often as important as all other means of creating value This is one reason why Ford hires another firm to
ship its cars
Risk Sharing cont Risk often not eliminated, only spread
Distributor carries many products Retailer stocks several lines Manufacturer sells through several channels Banks lend to several customers
All this adds up to spreading risk Each additional risk must be balanced by additional value
capture Think of your own firm
How does it share risk with others? Either by farming out or by assuming it from others
Shared Value Facilitation Organisations team up to create value
Sometimes value is more easily created in partnership Matching skills creates more attractive proposition to end
customer
Obvious ways this happens Manufacturer and retailer
get right products to consumers where they want them And manufacturer does not have to deal with consumers,
something they are sometimes bad at doing.
Shared Value Facilitation Aside from risk sharing/assumption how
does your firm facilitate value creation with others? Why not go it alone?
Specialisation is key to this Firms that specialise find that others come for
shared value facilitation Examples include logistics firms, brokerage firms,
auction houses, job shops, etc.
Channel Length Channels can be any length at all
Some are very short (producer sells directly to end user)
Others very long (many organisations involved along the way)
Think of several different channels. How long is each one? Why are some long and some short?
PART 3 – METRICS AND ANALYIC TOOLS FOR CV
SOME ANALYTIC TOOLS FOR CV Obviously market research can measure
perceptions and satisfaction with experiences. We also have compliant systems that may help
identify problem processes/ reasons for failures. In addition we have direct logistics measures for
managing stock, transport and delivery performance ( e.g. in terms of time, % of orders filled etc), costs and more.
Other tools Productivity measures may also be relevant to see the
efficiency of our business versus competitors – or in order to have abase line to improve on.
We have looked at Life Cycle Costing. If we monitor prices we can compare o competitors
e.g. Relative price of Brand x= Product price of x/Average price of all market offerings (competitors)*100
= $55/$34*100= 161 i.e. 61% more expensive. But we also need to know about the relative performance of
brand x. to work out CV.