Customer Values?

1. Customer Values?

2. How Do Customers Determine Value? • They review products to identify quality features such as style and technology. • They select those features they feel provide personal benefits. • They estimate the value of those benefits by comparing them to the price of the product. • They then decide if the features are worth the price? NOTE: A properly designed product will have taken all of these into consideration when developing the product concept.

3. Views of Quality • Two views of quality exist, the customer quality view and the manufacturing quality view. • Customer quality view represents a group of product features and characteristics that meet customer preferences and expectations. • They can include a number of characteristics which contribute little or nothing to the functionality of the product but are significant in providing customer satisfaction, such as the appearance of an item. • Manufacturing quality view is usually stated in terms of minimum defects. • BTW, I asked a physical therapist to define quality. She said without hesitation, “expensive”. Quality versus the cost of quality products usually influences customer purchase decisions.

4. Customer Quality (Value) Features • David Garvin (Managing Quality: The Strategic and Competitive Edge, 1988)described product quality in terms of seven quality features that customers look for: • Performance – primary operating characteristics • Reliability – probability of a malfunction or failure • Conformance – the degree established standards are met • Durability – a measure of product life • Serviceability – ease, speed, courtesy, and competence of repairs • Aesthetics – how a product looks, feels, sounds, smells, tastes… • Perceived Quality – a person’s perception of quality

5. Customer Quality Features • Note that all these customer quality features are more a function of how a product is designed and developed and not necessarily on a company’s Lean capabilities.

6. Determining Customer Value • Desired Product: Used Automobile • Quality Features: Performance – primary operating characteristics • Reliability – probability of a malfunction or failure • Conformance – the degree established standards are met • Durability – a measure of product life • Serviceability – ease, speed, courtesy, of repairs • Aesthetics – how a product looks, feels, sounds, smells, etc. • Style, technology and performance (STP) • Car mileage – how many miles on the car • Miles per gallon – economy • Other “bells and whistles” • Selected Benefits: Selected quality features • Determine Price: Sales price of the car • Sales tax, insurance, etc. • Operating costs • Tires replacement costs • Etc. • Determine Value:Selected Benefits • Price

7. Marketing’s 3 P’s Values Versus Lean’s Values • Marketing describes customer value requirements by the 3 P’s: • Price Competitive • Product All customer desired quality features • Place Right item, quantity, place, and time • Lean values are described as benefits in: • Cost Lowest • Quality Minimum defects • Time Shortest process time

8. Another View on How Customers Purchase Items? • Professor Terry Hill of the London Business School indicated that customers make purchase decisions at two levels: • A qualification level: Suppliers must first be qualified on low prices and short lead times to be considered to be a viable suppliers. • A winner level: Customers then select a final supplier from the qualified ones using different selection criteria, such as specific quality features. Here they look for the most value.

9. Qualification Level • Lean’s low cost and short lead times are classified as “Order Qualifiers” and not “Order Winners” by Terry Hill. • Order qualifiers are product characteristics that suppliers offer to influence customers to initially consider their products for purchase. • Firms must provide order qualifiers that are competitive to stay in a market. • Considered by many to be a cost of doing business.

10. Are Order Qualifiers Sufficient to Assure Sales? • Order qualifiers do not assure sales will occur. What is needed in addition are the quality features that Hill identifies as order winners. • An order winner is a product characteristic that will improve the probability of a sale. It should ideally exceed what competitors are offering. • Order winners fall into the “customers view of quality” used in determining customer values.

11. Providing Order Winners • How difficult is it for a company to provide order winning features? It depends upon a number of things: • Understanding of customer’s value requirements. • Ability to conceive and rapidly design and develop new products. • Ability to rapidly ramp up production. • Ability to manage everything in a complex, rapidly changing environment.

12. Identifying Customer Desired Values Is Not Always Easy! • Listening to the VOC’s (Voice of the Customer’s) CTQ (critical to quality) features is a starting point, but is that enough? • How will you know when you are satisfying those key customer values? • How do you measure what customers think they received in the way of value? • How do you measure what customers think it cost them? • If companies can answer those questions they’re probably way ahead of they’re competitors.

13. To Complicate Matters, Not all Customer’s Stated Benefits of a Product are of Equal Importance to Them • Customers themselves rate their selected benefits three ways: • Some are: Must have • Must have a car with a GPS navigation system • Some are: Would like to have, if they can afford it • Would like to have a Bose sound system in the car with a 6-disk changer, 12 speakers, and 500 W of audio power but can’t afford the $3,000+ cost. • The rest are: Nice to have if they can get them cheap • Don’t much care for a car’s moon roof but I’ll take one if it’s cheap.

14. How Do You Provide Customer Desired Values? (Where Does Lean Fit In?) • For Garvin’s list of product quality features: • Use Product Design & Development tools mostly to design the values in. • For low prices and reduced lead times: • Design it in for new products. • Use Lean to eliminate or reduce wastes and non-value added activities to reduce product costs. • For quality – minimum defects: • Use Six Sigma’s variability reduction DMAIC process to reduce process variability and defects.

15. Should Customer Requested New Products Always be Developed? • Because a customer says he wants a new product doesn’t mean a company should develop it necessarily. • The starting point for new product development is new product position analysis which includes: • What the estimated market demand and profitability for the new product would be, and at what selling price? • How well the new product fits in with the company’s current products and can be promoted. • How the new product can be differentiated from competitor products, etc. • If it’s determined that the product won’t be popular with other customers, it should not be developed.

16. Understanding User’s Needs • In order to create a breakthrough product, a company must know who their customers are and how to place that knowledge in the perspective of the market that the product competes in. • Traditional methods of ergonomic research are supported by a range of other techniques which include new product ethnography, scenario development, and life style reference. • The results of this research provide insights that characterize potential customers in the target market and serve as a basis for testing the validity of product concepts. • Product development has moved to a period of mass customer-zation, or the act of attempting to understand the needs, wants, and desires of ever smaller and rapidly changing markets. Mass customization is the product that results from that understanding.

17. Differentiate With New Products?

18. Will this innovative outdoor barbeque sell?

19. How Popular Was This 1957 Chevy Bel Air?

20. How Popular Was This 1959 Pink Cadillac? By the 1960’s the pink color lost its popularity although Mary Kay (Cosmetics) brought it back for a while as a prize for its sales persons for reaching sales goals.

21. What Challenges Companies Today? • The critical success factor for a company is its ability to detect, capture, and respond to the best market and growth opportunities from a variety of diverse options within a complex internal and external environment because things change rapidly. • Unfortunately, the capacity of a company to take action is often restricted by its complexity and chaotic operational constraints.

22. Can unexpected changes be anticipated? THE CUBIC CENTIMETER OF CHANCE All of us, whether or not we are warriors, have a cubic centimeter of chance that pops in front of our eyes from time to time. The difference between an average person and a warrior is that the warrior is aware of this, and one of his tasks is to be alert, deliberately waiting, so that when the warrior’s cubic centimeter pops out he has the necessary prowess to pick it up. Prof. Carlos Castaneda UCLA