Customer relationship categories. Direct and indirect costs (fixed and variable). Common start-up costs. Business costs calculators. Perceived value. Pricing strategies.

1. From Customer Relationship
to Costs
Frieda Brioschi / Emma Tracanella
frieda.brioschi@gmail.com / emma.tracanella@gmail.com
IED, 30 Oct 2018
Lesson 5/2018-2019

2. 5. Actiivities & Costs
Course program
1. Start-ups
2. Business Model & Canvas
3. Value Proposition Design
4. Customers & Market
5. Activities & Costs
2

3. 5. From Customer Relationship to Costs
Customer relationship
3

4. 5. From Customer Relationship to Costs4
1 2
3

5. 5. From Customer Relationship to Costs5
Customer relationship
CR could rely on different motivations, three common ones
are:
1. Customer acquisition
2. Customer retention
3. Increased sales (upselling)
Consider the mobile phone market: at the beginning CR
were driven by acquisition strategies, but when the market
was saturated, operators switched to customer retention
and tried to increase the average revenue per customer.
http://www.ecommerce-digest.com/customer-relationships.html

6. 5. From Customer Relationship to Costs6
Categories of CR
• personal assistance
• dedicated personal assistance
• self-service
• automated service
• communities
• co-creation
http://www.whittakercpas.com/what-type-of-customer-relationship-builds-value-for-your-business/

7. 5. From Customer Relationship to Costs7
Personal assistance
This is based on human interaction. Customers can
communicate directly with company representatives
throughout the sales process and after the sale is
complete. This may happen in person, by email, through
call centers, etc. Nordstrom’s would be a good example
of this. There is usually a customer service
representative in the department that can help you find
your perfect fit, help you with the sale, and help if there
is a problem down the road.
http://www.whittakercpas.com/what-type-of-customer-relationship-builds-value-for-your-business/

8. 5. From Customer Relationship to Costs8
Dedicated personal
assistance
This is also based on human interaction, but adds the
specificity of a dedicated customer service
representative. This is the deepest type of customer
relationship and normally develops over a long period of
time. Think of this with an investment advisor, CPA or an
attorney.
http://www.whittakercpas.com/what-type-of-customer-relationship-builds-value-for-your-business/

9. 5. From Customer Relationship to Costs9
Self-service
In this relationship, the company does not maintain a
direct relationship with its customers. Instead, it
provides all the necessary means for the customer to
help themselves. Think of how you buy music through
iTunes. This service does not require any customer
service; you can begin and complete the transaction on
your own. Another example would be how you purchase
gas for you cars. This transaction typically happens at
the pump and you never speak to an attendant.
http://www.whittakercpas.com/what-type-of-customer-relationship-builds-value-for-your-business/

10. 5. From Customer Relationship to Costs10
Automated service
This relationship mixes customer self-service with
automated processes. Automated services can
recognize individual customers and their characteristics.
While iTunes is an example of self-service, Pandora (a
web-based music service) is an example of an
automated service. With Pandora, you create a profile
and populate a couple of “stations” you like to listen to.
As you continue to listen to music, you can give the
songs a ‘thumbs-up’ or a ‘thumbs-down’ when you like
or dislike music. Over time, the software actually tailors
the music it plays to your liking.
http://www.whittakercpas.com/what-type-of-customer-relationship-builds-value-for-your-business/

11. 5. From Customer Relationship to Costs11
Communities
Many companies are using communities to become more
involved with their customers/prospects and to facilitate
connections between community members. Many
companies maintain online communities to exchange
knowledge and solve problems. There are several
examples of this that come to mind. Most technology
companies have online communities where people share
questions and solve problems. If you have ever Googled a
computer or software problem, you were probably provided
with several online communities that had answers. Some of
these forums (online communities) are established and
monitored by the software and hardware companies.
http://www.whittakercpas.com/what-type-of-customer-relationship-builds-value-for-your-business/

12. 5. From Customer Relationship to Costs12
Co-creation
This is a model in which the company and the customer
co-create value, done quite frequently with technology.
When you purchase something online, you typically get
to peruse through the reviews of the item that you are
buying prior to making your decision. In this instance,
the seller and previous customers are working together
to co-create value. The customer reviews add value to
the product as well as to the customer service of the
seller. This can also be done with testimonials for typical
brick and mortar companies.
http://www.whittakercpas.com/what-type-of-customer-relationship-builds-value-for-your-business/

13. 5. From Customer Relationship to Costs13
Case study:
HYM Originals
Hi! We’re HYM Originals, a vinyl record player team with the goal of
spreading our love for vinyl across the world. Our aim is to make
great record players accessible to everyone!
1. Seed turntable | Quality, power and design, in one setup (2015-17)
https://www.kickstarter.com/projects/hym-seed/seed-turntable-
quality-power-and-design-in-one-set
2. DUO: Turntable with a Detachable Bluetooth Speaker (2017-18)
https://www.kickstarter.com/projects/hym-seed/duo-turntable-with-
a-detachable-bluetooth-speaker

14. 5. From Customer Relationship to Costs
List the costs you foresee if your
core business is making bicycle
14

15. 5. From Customer Relationship to Costs
…according to you/1 -
Money
15
• Nobody

16. 5. From Customer Relationship to Costs
…according to you/2 -
materials
16
• Steel and rubber
• Materials and manufacturing
• Raw materials and cost of manufacturing
• Materials, people

17. 5. From Customer Relationship to Costs
…according to you/3
17
• Workers, good quality products, advertising
• Bycicle parts, design, communication, labor, traffic，
customer service
• Design cost, material cost, product cost, advertisement cost
• Prime materials (wheels etc) - An engineer - A designer

18. 5. From Customer Relationship to Costs
…according to you/4 - ?
18
•No idea
•? (2)
•App Development
•Functionality
•Design marketing

19. 5. From Customer Relationship to Costs
All you need to know
about costs
19

20. 5. From Customer Relationship to Costs
Costs
In production, research, retail, and accounting, a cost is
the value of money that has been used up to produce
something, and hence is not available for use anymore.
Two kind of costs:
• Direct costs
• Indirect costs
20

21. 5. From Customer Relationship to Costs
Direct costs
Costs that can be identified specifically with a particular
project or activity, or that can be directly assigned to them
with a high degree of accuracy.
Direct costs generally includes:
• Salary and wages
• Material, supplies and equipment purchased directly
for the specific project
• Communication and travels costs
21

22. 5. From Customer Relationship to Costs
Indirect costs
Costs that are not classified as direct
Indirect costs generally includes:
• Salary of administrative staff providing normal support
activities
• Office supplies, computers
• Local telephone calls
• Memberships
=> Overhead
22

23. 5. From Customer Relationship to Costs23
http://www.ryansharkey.com/blog/direct-vs-indirect-costs-government-contracting

24. 5. From Customer Relationship to Costs
Bykes
Direct costs:
• Metals
• Wages for assembly
Indirect costs:
• Abrasive, glue, pink
• Rent
• Insurance
24

25. 5. From Customer Relationship to Costs
Actual cost of doing
business
Before you can price a product or a service, you need
to know your cost to produce it.
A start-up usually should divide costs in one-time and
recurring.
25

26. 5. From Customer Relationship to Costs
Common start-up costs
• market research
• preliminary accounting and legal advice
• tenancy/lease bond, stamp duty and lease agreement
advice
• telephone/internet installation
• statutory requirements such as licences and insurance
• power connection and bond
• signage and initial marketing
• equipment, fixture and fittings purchases
• staffing and wages
• initial raw materials and/or stock purchases.
26 https://www.business.qld.gov.au/business/starting/starting-a-business/calculating-your-costs-when-starting-a-business

27. 5. From Customer Relationship to Costs27

28. 5. From Customer Relationship to Costs
How much does it cost to
start a business?
Be sure to identify all the possible costs:
• Start-up expenses, e.g. legal, regulatory,
insurance, staff, rent advances, office supplies
and stationery, consultants, etc.
• Start-up assets, e.g. cash in the bank, starting
stocks, office furniture, etc.
• Recurring start-up costs, e.g. rent, salaries,
etc.
28
http://businessingambia.com/startup-costs-start-business/

29. 5. From Customer Relationship to Costs
Photographer
• How much charge a photo?
• Minimum fee?
• No costs?
A useful tool: the Cost of Business calculator. It list annual
expenses, but it depends on your inputs which can be hard to
estimate.
29

30. 5. From Customer Relationship to Costs
Cost of doing business
calculator/1
Expenses
• Office and/or studio (rent, mortgage payments, taxes,
insurances, home maintenance, …)
• Phone (cell and/or landline and faxes) – remember to
include also the cost of the phone itself
• Photo/Video/Audio Equipment and Accessories
• Equipment services and Repairs
30
https://nppa.org/calculator

31. 5. From Customer Relationship to Costs
Cost of doing business
calculator/2
• Computer(s) (harware and software)
• Broadband internet
• Web hosting/Portal services
• Vehicle Expenses (Lease, Insurance, Maintenance)
• Office supplies and Furnitures
• Postage and Shipping
31
https://nppa.org/calculator

32. 5. From Customer Relationship to Costs
Cost of doing business
calculator/3
• Professional Development
• Advertising and Promotion
• Subscription and Dues
• Equipment and Business Insurance
• Health Insurance/Deductibles/Copays
• Legal and Accounting Services
32 https://www.calcxml.com/calculators/bus02

33. 5. From Customer Relationship to Costs
Cost of doing business
calculator/4
• Taxes and Licenses (Business and Self-Employment)
• Office Assistance (Payroll, Answering Service, Intern,
etc.)
• Utilities
• Travel and Entertainment
33 http://www.wsj.com/public/page/news-small-business-startupCalculator.html

34. 5. From Customer Relationship to Costs
Cost of doing business
calculator/5
• Income factors
• Desired Annual Salary
• Non-assigment Income
• Number of Days You Can Bill Per Year
34 https://www.business.qld.gov.au/business/starting/starting-a-business/calculating-your-costs-when-starting-a-business

35. 5. From Customer Relationship to Costs
Cost of doing business
calculator /6
https://nppa.org/calculator
35

36. 5. From Customer Relationship to Costs
Money doesn’t make
(always) the difference
36

37. 5. From Customer Relationship to Costs37

38. 5. From Customer Relationship to Costs38

39. 5. From Customer Relationship to Costs
Perceived Value
39

40. 5. From Customer Relationship to Costs40

41. 5. From Customer Relationship to Costs
Value
The extent to which a good or service is perceived by its
customer to meet his or her needs or wants, measured by
the customer’s willingness to pay for it.
It depends more on the customer’s perception of the
worth of the product than on its intrinsict value.
How do we create the perception of value when we talk to
our customers?
41

42. 5. From Customer Relationship to Costs42 https://beyondphilosophy.com/comparing-perceived-value-drivers-employees-customers/

43. 5. From Customer Relationship to Costs
Price vs Value
43
http://www.acceleratenow.org/what-is-value-investing-part-2/

44. 5. From Customer Relationship to Costs
Pricing strategies
44
https://julieaskewblog.wordpress.com/marketing-principles/pricing-strategies-elasticity/

45. 4. Market and Value5. From Customer Relationship to Costs
Gillette Fusion
• Amazon price: 19.25$
• 8 cartridges
• Cost/cartridge: 2.41$
• You need the razor (11.49$)
45

46. 4. Market and Value5. From Customer Relationship to Costs
Gillette Custom Plus
Disposable
• Amazon’s price: 20.97$
• 30 razors
• Cost/razor: 0.70$
46

47. 4. Market, Value and Business Model5. From Customer Relationship to Costs
Gillette Fusion vs. Custom
Plus
• Prices
• 19.25$ vs. 20.97$
• 8 cartridge vs. 30 razors
• Cost in use
• 2.41$ vs. 0.70$
• Additional perceived value justify the additional cost in use
• Durability of blade
• Comfort
• Less irritation
47

48. 4. Market, Value and Business Model5. From Customer Relationship to Costs
Gillette idea
By providing something at below the market price
(the razor), you can create a market for a secondary
product (the blade) upon which you make ongoing
profits.
The mark-up on the secondary products is
disproportionate relative to their cost so were highly
profitable for the manufacturer.
48

49. 4. Market, Value and Business Model5. From Customer Relationship to Costs49
https://chadbockius.com/2017/08/02/life-lessons-buying-stuff/

50. 4. Market, Value and Business Model5. From Customer Relationship to Costs
3M Scotch® Tape
• Amazon’s price: $1.70
• Lenght: 650 inch
• Cost/inch: $0.003
• Cost to hang a poster: $0.01
50

51. 4. Market, Value and Business Model5. From Customer Relationship to Costs
3M Scotch® Command
Strips
• Amazon’s price: $2.70
• 12 strips
• Cost/strips: $0.08$
• Cost to hang a poster: $0.32
51

52. 4. Market, Value and Business Model5. From Customer Relationship to Costs
Tape vs. 3M Scotch® Strips
• Price
• $1.70 vs. $2.70
• Using Scotch Tape, the user can hang 75 posters vs. 3 for the
command strips
• Cost in use
• $0.01 vs. $0.32 to hang 1 poster
• Additional perceived value justify the additional cost in use
• Less damage to wall
• Simplicity to remove
• Durability
52

53. 4. Market, Value and Business Model5. From Customer Relationship to Costs
CocaCola
53

54. 5. From Customer Relationship to Costs5. From Customer Relationship to Costs
Nespresso
54
What else?

55. 4. Market, Value and Business Model5. From Customer Relationship to Costs
Lacoste
• Founded in 1933 by the
tennis man Rene Lacoste
• At the end of 1990 the
company change its strategy:
marketing, retails outlets,
product range, ...
• Sale of t-shirts in limited
series
• Re-establishing Lacoste as “a
distinctive premium brand”
55

56. 5. From Customer Relationship to Costs56
Case study:
Neck Hammock
The Most Portable Neck Pain Solution
Ever
https://tomsfinds.com/neck-hammock/
a100-001-i1/
https://www.kickstarter.com/projects/
neckhammock/the-neck-hammock-best-
neck-pain-relief

57. 5. From Customer Relationship to Costs
Making an app
57

58. 4. Market, Value and Business Model5. From Customer Relationship to Costs58 https://www.comscore.com/Products/Audience-Analytics/Mobile