CUSTOMER VALUE ( CUSTOMER PERCIEVED VALUE) It means the customers’ evaluation of the difference between all the benefits and all the costs of the product.
If Product A costs- Rs. 100 Benefits- 500 units and Product B costs- Rs. 150 Benefits- 750 units The customer’s perceived value is more in the case of Product B
Total Customer Value =Customer Benefits(Economic+ Functional+psychological) MinusCustomer Costs (cost of evaluation+cost of obtaining+cost ofusing+cost of disposing)
Customer Benefits“It is the bundle of benefits customer expect from a givenproduct or service”Total Customer benefits is the summation of: -Product Value -Services Value -Personnel Value -Image Value
Customer Costs“It is the bundle of costs customers expect to incur inevaluating, obtaining, and using the product or service”Total Customer Cost is the summation of: -Monetary Cost -Time Cost -Energy Cost -Psychic Cost
Value Calculus Perceived product or service attributes Perceived substitute product or service attributes Perceived benefits Value = Perceived price Perceived product or service price Perceived substitute product or service price
Customer Value Results From Consequence Trade-Offs Perceived Benefits Perceived Value PerceivedMoney Sacrifices Psychological Stress Time Risk Mental Effort
Steps in a Customer Value Analysis •Identify major attributes and benefits that customers value •Assess the qualitative importance of different attributes and benefits •Assess the company’s and competitor’s performances on the different customer values against rated importance •Examine ratings of specific segments •Monitor customer values over time
The Dimensions of Customer Value •Conformance to requirements. •Product selection. •Price and brand. •Value-added services. •Relationships and experiences.
Why Superior Customer Value? Designing and delivering superior customer value propels organizations to market leadership positions in highly competitive global markets
The Importance ofSuperior Customer Value Continuous creation of business experiences to exceed customer expectations
Companies Practicing CV Focus on 9 Key Criteria•Innovation•Social Responsibility•Quality Management•Quality of Products and Services•Long-term Investment Value•Financial Soundness•Effective/Efficient use of CorporateResources•Employees’ Skills/Abilities•The Constant Creation/Addition ofValue
Value-Driven Marketing Strategies Assist in 10 Areas •Understanding customer choices •Identifying customer segments •Increasing their competitive options •Avoiding price wars •Improving services quality •Strengthening communications •Focusing on what is meaningful to customers •Building customer loyalty •Improving brand success •Developing strong customer brand success and relationships
Customers Seek…..•fair prices•acceptable/good value•valued business transactions/relationships•Innovativeness•image status•value-added services•convenience in goods and outlets
The Value-Creating Organization• Organizations (along with individual employees) should be seen as value-creating entities• Value-creating organizations solve individual customer problems• A strong competitive edge can be gained by consistently providing superior customer value• In order to create and deliver superior customer value organizations must be strong in both purpose and process.
Value Creation IndexInnovationQualityCustomer RelationsManagement CapabilitiesAlliancesTechnologyBrand ValueEmployee RelationsEnvironmental & Community Issues
Stage One Stage Two Stage Three Stage Four Minimum Customer Customer Competitive Focus on Requirements Focus Attitudes Targeted Markets Customer Value Customer • Meeting critical Loyalty needs of targeted Customer customers Satisfaction • Retaining ourConformance Quality customers • Outperforming • Providing what competitors customers want • Getting them to • Creating new,• Delivering what we recommend us • Responding to unique benefits promise customer complaints 21st Century• Meeting standards Growth Company Source: Adapted from Managing Customer Value by Bradley T. Gale, (New York, The Free Press, 1994)
Benefits of Customer Value•Delighted Customers•Benchmarking against thecompetitors.•Identifying the right things.•Teamwork by committed employees.•Enhanced Market Share•Gaining Competitive Edge•Enables Competitive Strategicplanning.
SUMMARY• Creating customer value is the driving force behind a company’s goals• Customer access to information about the availability of products and the status of orders and deliveries is becoming an essential capability.• Adding services, relationships, and experiences differentiates company offerings in the market• Identifying the appropriate customer value measure not an easy task.• Ability to provide sophisticated customer interactions very different from the ability to manufacture and distribute products.• No real customer value without a close relationship with customers.
Customer EquityThe total of allcustomer values ofall the customers of acompany is known ascustomer equity.
Customer Lifetime Value (CLV)The profit generatedby the customer’spurchase of anorganization’sproduct or serviceover the customer’slifetime.
Customer Lifetime Value (CLV)The amount by whichrevenues from agiven customer overtime will exceed thecompany’s cost ofattracting, selling to,and servicing thatcustomer.
EXAMPLEEstimated customer Revenue p.a.= Rs. 20 000Estimated no. of loyal years of the customer= 25Total estimated revenue from thecustomer= Rs.500 000The profit margin= 20%The CLV= 5 00 000 X 20%= Rs. 100 000
Customer Satisfaction The match between customer expectations of theproduct and the product’s actual performance.
Customer Satisfaction• “It is a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance in relation to his or her expectations”
Customers evaluate experiences as: Dis-satisfaction - Satisfaction 0 High satisfaction + Such assessments impact future purchase decisions and ongoing relationships with organizations
Customer SatisfactionExpectations are Based on Customer’s PastBuying Experiences, the Opinions of Friends, &Marketer and Competitor Information and Product ExceedsPromises. Expectations Customer is Highly Satisfied or Product Falls Product Matches Delighted! Short of Expectations Expectations Customer is Customer is Satisfied Dissatisfied
Customer Satisfaction To maximize satisfaction . . . Don’t exaggerate the product / service’s capabilities in advertising or other communications Dissatisfaction will result Don’t set expectations too low Market size will be limited
Identifyseveral Keys to Success stakeholder groups for your business Stakeholders How might the Processes needs of these Resources groups conflict with Organization each other?
Keys to Success Stakeholders New product development Processes Customer attraction Resources Better Service Organization
Keys to Success Resources include labor, materials, Stakeholders machines, energy, Processes and information Outsourcing vs. Resources Organization ownership: Own and nurture core competencies
Keys to Success Stakeholders Organization refers to Processes the organization’s policies, structures, Resources and corporate culture Organization
MEASURING CUSTOMER SATISFACTION Getting the feedback right Drawing the right conclusions on customer loyalty from feedback (satisfaction does not mean loyalty) Building customer satisfaction index.
The Effects of Customer dissatisfaction Customers stop purchasing from the company Company loses the relationship with the customer Dissatisfied customers spread it to 9 to 10 some other customers They lose further 9 to 10 customers 90% of the customers leave without giving the reasons.
Customer Retention Customer Retention is the activity that a selling organization undertake in order to reduce customer defections. Successful customer retention starts with the first contact an organisation has with a customer and continues throughout the entire lifetime of a relationship.
WHY CUSTOMER RETENTION ISIMPORTANT? Good customer retention is vital to anyorganization because a slight reduction (5%) inthe customer defection rate has adisproportionately positive effect on profitability.Companies with high retention also grow faster.However, customers can only be retained if theyare loyal and motivated to resist competition .
DETERMINANTS : There are six determinants of customer retention:1. Customer expectations versus the delivered quality of the product or service2. Value3. Product uniqueness and suitability4. Loyalty mechanisms5. Ease of purchase6. Customer service
Customer Retention Acquisition of customers can cost 5 times more than retaining current customers. On an average company loses 10% of its customers each year. A 5% reduction to the customer defection rate can increase profits by 25% to 85%. The customer profit rate increases over the life of a retained customer.
Customer Retention Reducing customer defection is highly desirable Define and measure retention rate Identify causes of leaving Estimate profit lost from customer defection (customer lifetime value) Estimate cost to reduce defection; take appropriate action
Customer Retention Highly satisfied (delighted) customers produce benefits: They are less price sensitive, They remain as customers longer, They talk favorably about the company and products to others. Tremendous difference between the loyalty of satisfied customers and completely satisfied customers. Delighted customers have emotional and rational preferences for products, and this creates high customer loyalty. 47
20 – 80 – 30 Rule20 20% of your customers 80 Generate 80% of your profit 3 Half of your profit is lost serving the bottom 30% 0 of your customer base
COMPETITIVE ADVANTAGECompetitive Advantage Anadvantage over competitors gained by offering consumers greater value than competitors offer.
Definition Competitive Analysis The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.
Competitive AdvantageA company has a C A when its profitability is greater than the average profitability of all companies in the industry It has a sustained C A when it is able to maintain above-average profitability over a number of years
Building Blocks of CompetitiveAdvantage Efficiency-input:output Quality-excellence,reliability Innovation-product, process Customer responsiveness-customization, customer response time
Competitor Analysis Steps in the Firms face a wide Process: range of competition Methods of identifying Identifying competitors: Competitors Industry point-of-view Assessing Market point-of-view Competitors Selecting Competitors to Attack or Avoid
Competitor Analysis Steps in the Determining competitors’ objectives Process: Identifying competitors’ strategies Identifying Competitors Assessing competitors’ strengths and weaknesses Assessing Estimating competitors’ Competitors reactions Selecting Competitors to Attack or Avoid
Competitor Analysis Steps in the Process: Strong or weak Identifying competitors Competitors Close or distant Assessing competitors Competitors “Good” or “Bad” competitors Selecting Competitors to Attack or Avoid
Competitive Strategies Basic Winning Competitive Strategies: Porter Overall cost leadership Lowest production and distribution costs Differentiation Creating a highly differentiated product line and marketing program Focus Effort is focused on serving a few market segments
Competitive Strategies Basic Competitive Strategies: Operational excellence Superior value via price and convenience Customer intimacy Superior value by means of building strong relationships with buyers and satisfying needs Product leadership Superior value via product innovation
Competitive MarketingStrategies Firms Competing in a Given Target Market Differ in their Objectives and Resources so May Choose the Following Forms: 60
Competitive Marketing StrategiesFirm With the Largest MarketFirm With the Largest Market Runner-Up Firms that Fight Runner-Up Firms that Fight Share Share to Increase Market Share to Increase Market ShareExpand the Expand the Protecting Protecting Attack the Avoid the Attack the Avoid theTotal MarketTotal Market Market Share Market Share Market Leader Market Leader Market Leader Market Leader Expanding Expanding Attack Other Acquire Smaller Attack Other Acquire Smaller Market Share Market Share Firms Firms Firms Firms 61
Competitive MarketingStrategiesRunner-Up Firms that Want Runner-Up Firms that Want Firms that Serve Small Segments Firms that Serve Small Segmentsto Hold Their Share Without to Hold Their Share Without Not Pursued by Other Firms Not Pursued by Other Firms Rocking the Boat Rocking the Boat End-User End-User Customer-Size Customer-Size Specialist Specialist Specialist Specialist Follow Follow Follow at a Follow at a Closely Closely Distance Distance Geographic Geographic Quality- Quality- Service Service Market Market Price Price Specialist Specialist Specialist Specialist Specialist Specialist 62
Competitive Strategy Expanding the total Competitive demand Positions Finding new users Discovering and promoting new product uses Market Leader Encouraging greater product usage Market Protecting market share Challenger Continuous innovation Expanding market share Market Profitability rises with market Follower share Market Nicher
Competitive Strategy Competitive Option 1: challenge the market leader Positions High-risk but high-gain Sustainable competitive Market Leader advantage over the leader is key to success Market Option 2: challenge firms Challenger of the same size, smaller Market size or challenge regional Follower or local firms Market Nicher
Competitive Strategy Competitive Follow the market Positions leader Focus is on improving Market Leader profit instead of market share Market Many advantages: Challenger Learn from the market Market leader’s experience Follower Copy or improve on the leader’s offerings Market Nicher
Competitive Strategy Competitive Serving market niches means targeting Positions subsegments Good strategy for Market Leader small firms with limited Market resources Offers high margins Challenger Specialization is key Market By market, customer, Follower product, or marketing mix lines Market Nicher
Balancing Customer andCompetitor Orientations Companies can become so competitor centered, then they lose their customer focus. Types of companies: Competitor-centered companies Customer-centered companies
Balancing Customer and Competitor Orientations Customer-Centered No Yes No Product Orientation Customer OrientationCompetition Product Orientation Customer Orientation -centered Yes Competitor Orientation Market Orientation Competitor Orientation Market Orientation
Total Quality Marketing Japan was the first country to award a national quality prize, the Deming prize. Mid-1980’s, the U.S. established the Malcolm Baldridge National Quality Award. Europe has developed the ISO 9000 which is an exacting set of quality standards. Total quality has become a truly global concern.
Total Quality Marketing Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. Marketers play a major role in helping their companies define & deliver high quality products and services to target customers: Must correctly identify the customers’ needs and requirements and communicate this to product designers, Marketing must deliver each marketing activity to high quality standards. 70
Total Quality Marketing It is different from the production-oriented Total Quality Management (TQM) concept. Perfect products do not sell themselves without proper marketing effort. Unless customers "perceive" quality, improving the product quality alone is not enough. Market Perceived Quality is also important. 71
Total Quality Marketing The term quality means different things to different people. It has many meanings depending on whose perspective is used -- the manufacturers or the consumers. For a manufacturer, quality means the most effective way of producing a product -- saving time and money. For a consumer, it means that the product is "the best value" that money could buy. 72
Total commitment to quality from topmanagement.Customer-orientation of the organization.Organization wise involvement.Team effort. Decision making by crossfunctional process teams. 74
New technology, such as digitalization,computerization, etc.Information communication technologyis used for marketing purposes.Use of improved quality material andother inputs.Flexible production process andmethods.Use of statistical quality control toolsfor measurement of quality. 75
IMPLEMENTING TOTAL QUALITYMARKETING:They must communicate customer expectations correctly toproduct designers.They must make sure that the customers’ orders are filledcorrectly and on time.They must check that customers have received properinstructions, training, and technical assistance.They must stay in touch with customers after the sale toensure that they are satisfied and remain satisfied.They are making their specific contributions to total qualitymanagement and customer satisfaction. 76