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Customer Value Management Concepts and Case Study

Customer Value Management Concepts and Case Study. by Sunil Thawani Adnoc Distribution thawanis@hotmail.com Dubai Quality Group Evening Seminar 30 th May’2000. Customer Value Management Concepts and Case Study. Purpose of the Presentation: Share Concepts of CVM Application of CVM

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Customer Value Management Concepts and Case Study

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  1. Customer Value ManagementConcepts and Case Study by Sunil Thawani Adnoc Distribution thawanis@hotmail.com Dubai Quality Group Evening Seminar 30th May’2000

  2. Customer Value ManagementConcepts and Case Study Purpose of the Presentation: • Share Concepts of CVM • Application of CVM • Using CVM as a Strategic tool to drive business

  3. CVM - The Concept “What do we buy ? Value (Benefits) Value/ Benefit = Use + Esteem function of a product (service)

  4. Price, Cost, Profit vs. Value Marginal Price Realization Price Zero Value Costs Price, Cost, Profit Cost Profit Desired Required (Value) Increasing Benefits- Functions- Performance

  5. CVM – Definitions • Value: is the customer’s perception of benefits received in relation to the competition • Price:total price perceived to be paid by the customer in comparison to the competition. • Cost : total cost to company in comparison to the competition.

  6. The Market Leadership Supplier offering highest Value to Price ratio should attainMarket Leadership. (V/P >= 1) Supplier having superior Value to Cost ratio should attainFinancial Leadership (V/C <= 1)

  7. Making Quality a Strategic Weapon Conformance Quality (Before 80’s): Deming, Juran, Crosby era Focus - Process Control, Reduce Scrap, SQC, Conformance to Requirements Product with Zero Defects may not necessarily make customers happy ? Effectiveness Time Stage 1

  8. Making Quality a Strategic Weapon Customer satisfaction (late 1980s): Focus : Get close to customer, Understand their needs, Be customer driven e.g. Xerox Part of MBNQA Did not answer why we win/ loose customers ? Often non customers not included Failed to measure performance relative to competition. Effectiveness Time Stage2 Conformance Quality

  9. Making Quality a Strategic Weapon Mkt. perceived Qlty & value relative to competition (1990s) Entire market included How our products compare with competition Requirement of MBNQA Effectiveness T Q M Stage 1 Stage2 Time Conformance Qlty. Customer satisfaction Stage 3

  10. Unanswered Questions ? • What are the key buying factors that customers value when they choose among our business and our toughest competition ? • How do customers rate our performance vs. competition on each of the buying factors ? • What is the percentage importance of each of these components of customer value ?

  11. Making Quality a Strategic Weapon Quality key to CVM Use changes in market place as a strategy to drive business and create most value for customers Build on TQM principles C V M Effectiveness T Q M Time Stage 4 Conformance Qlty. Customer satisfaction Mkt-perceived Qlty & value relative to competitors

  12. Making Quality a Strategic Weapon Customer Value Management Total Quality Management Stage 4 Effectiveness Stage 3 Stage 1 Stage2 Time Quality key to CVM Conformance Qlty. Customer satisfaction Mkt-perceived Qlty & value relative to competitors

  13. Perceived Quality Quality means little in business unless Customers perceive your quality as superior to your competition’s. Knowing how to achieve “ this “ kind of quality is all that matters.

  14. “Birth” & Development of CVM • 30 world Quality experts assembled in US in 1987 for Baldrige Quality Award criterion meeting • Main focus – Manufacturing Quality/ Process Control • Many “ thought “ customers opinions cannot be measured & is subjective • Curt Reimann wanted Quality to be defined & measured from customer perspective • Contribution of Sidney Schoeffler & Bradley Gale

  15. What is CVM ? • How to identify attributes that are important to customers ? • How to understand the importance customers give to those attributes ? • How to analyse performance relative to competitors on each attribute ? • How to use CVM as a Strategy to drive the business ?

  16. AT & T Story • Successful monopoly business spilt in early 1980s • Pioneer in Customer Satisfaction measurement • Excellent plus Good scores 90 % in Equipment, Installation, Repair, Billing, Training, Marketing etc. • Mgt. target to maximize excellent plus good scores. • Data used for recognition & rewards program Shortcomings : • Did not explain declining market share even with hi scores • No correlation between satisfaction scores & Mkt share • Focussed on internal competition rather than external • “ Useless” info to understand competitive position

  17. AT & T Story Ray Kordupleski & West Vogel Study Findings 1987 • Customers “ willing to shop around” increased dramatically from 10 % to 40 % for Excellent to Good category. • Company did nothing to convert “ good “ into “ excellent” • Low scores in What Worth Paid For (WWPF) question even though overall scores of 95+.

  18. AT & T Story - Startling Discoveries • Realised “ Quality was a relative thing “ ( What ultimately matters is not the % of satisfied customers but the extent to which customers are more satisfied with our product than by the competition - Market Perceived Quality) • Relationship between WWPF (Customer Value) scores and Market Share. • Changes in WWPF scores predicted changes in market share.

  19. Customer Value is a Leading Indicator of Market Share WWPF- AT & T market share 1987 1988 1989 Adapted from speech given by Raymond E. Kordupleski at the American Marketing Association’s Customer Satisfaction Congress, 1991.

  20. AT & T - Shift to CV Management 1990-91 Bob Allen uses CV as strategy : • Top leadership made to commit to customer value • CV data used in reviews & planning processes • Incorporated in AT & T Chairman Quality Award • Executive compensation revised to include CV indices • Identified processes which drive relative performance on each attribute. • Benchmarking studies to improve processes • Cascaded to employees by teaching & their role in improving CV. 1992 - AT & T gains significant market share

  21. Conventional Surveys • “ Backward looking “ process • Non customers, Opinion/ Decision makers often left out. Incomplete market opinion • Customer Service Deptt. is the “ owner “ • Tactical action (not strategic) • Does not explain why we win or lose customers ? • Satisfaction scores lack co relation to Market Share

  22. The Value Edge Process 1. Select Product & Market segment 2. Collect Price, costs, market share data 3. Select competitors 4. Develop in-house Value Profile, Value/ Price & Value/ Cost ratios. 5. Validate Value Profile in market & & Align with Customer Requirements 6. Identify improvement opportunities 7. Prioritise, develop & Implement action plans 8. Attain market & financial leadership

  23. Step # 3 Selecting Competitors • Must include all important customers – 2 to 3 largest competitors • Fastest growing competitor • Any competitor with latest/ unusual technology • Imports

  24. Step # 4 Developing In-house Value Profile • List key characteristics - Quality attributes that affect the customers buying decision (other than Price) • Assign relative weights for each attribute • Estimate customers’ opinion of performance of each of the criterion on a scale of 1-10 • Develop Value Profile

  25. Step # 4 Value Profile - Car Co. Category/ Weightage Performance (1-10) Value Score (WxP) Factor A B C A B C Style 20 5 7.5 6 100 150 120 - Shape -Colour -Glass Area Engineering 30 8 8 6 240 240 180 -Power - Maintenance - Safety Comfort 30 6 8 7 180 240 210 -Legroom -Driving - Options Spares & 20 8 8.5 5 160 170 100 Services Total 100 680 800 610

  26. Step # 4 – Inhouse Value Profile

  27. Step # 5 – Validate Value Profile In Market • Identify & contact all the users of “Product” in customers/ non customers’ organisation • Drive it from top • Validate value profile. (Information may not be as structured as inhouse profile) • Realign value profile Findings bound to be different from in-house

  28. The Competitive Advantage Strategy • Attain uniqueness in a factor/ category that customers value greatly • Select one/ more factors that many buyers perceive as important. Position yourself to meet those needs • Customers will be willing to pay for uniqueness with premium

  29. Step # 7 Prioritise to ImproveCar C’s Competitive Strategy

  30. Customer Value Map Higher Price Worse Value DD AA Price Index 1.0 BB CC Better Value Lower Price 1.0 Superior Inferior Value Index

  31. Step # 7 - Value Factor – Process Matrix

  32. Value Edge - Internal Customer Application in Hospital • Set up about 20 years back in small town in India. • Vision to provide best possible health care to residents. • Developed into a 150 bed hospital with all facilities like OPD, Diagnostic centre, Surgery • Concern - Declining Quality of Service & Loss of Market Share to competition from within town & from nearby big city.

  33. Sample Customer Value Structure Supplier : Pharmacy Customer : Patient/ Relative Quality Attributes Weight Perf Wx P Max. Poss. Gap 1-10 Score • Minimum Waiting15 6 90 150 60 Time • Availability of prescribed 30 7 210 300 90 Medicines • Explain doses details15 6 90 150 60 • Timings - open after 10 2 20 100 80 OPD closes • Properly packed medicine 15 8 120 150 30 • Courtesy 10 7 70 100 30 • Provide empty bottles 05 0 00 50 50 Total 100

  34. Sample Customer Value Structure Supplier : Radiology Customer : Ward Patients Quality Attributes Weight Perf Wx P Max. Poss. Gap ( 1- 10) Score • No/ Min. Waiting 25 4 100 250 150 Time • Reports delivered 30 7 210 300 90 promptly to ward • Accuracy 30 9 270 300 30 • Courtesy to patient 15 7 105 150 45 Total 100

  35. CVM – Today’s Business Need • “ Be better than your best competitors in providing customer value “ – Bob Allen, AT & T • “ Yesterday does not count. All that counts is providing the most value to customers tomorrow “ – Jack Welch, GE • We have to become single minded in our quest to deliver better value “ – Ed Artzt, P & G. • “ Premier companies are serious about delivering value to customers. “– Larry Bossidy, Allied Signal

  36. CVM - A Versatile Tool • Honda - applied to luxury car segment • Milliken & Company - applied to carpet tile business • NBC Bearings - applied to ball bearings • Michelin Tyre company - applied to radial tyres And Parke Davis,, AT & T, Allied Signal, J & J, Gillette, Hewlett Packard, Westinghouse, FedEX

  37. Benefits • Delighted Customers • Benchmarking against the competitors. • Identifying the right things. • Teamwork by committed employees. • Enhanced Market Share • Gaining Competitive Edge • Enables Competitive Strategic planning.

  38. Thank you Questions & Answers Session

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