BUS807: VALUE AS A STRATEGIC CONCEPT

1. BUS807: VALUE AS A STRATEGIC CONCEPT

2. Lecture One: Outline • Customer Value • Value Proposition • Components of the Value Proposition • The Traditional Stages of Competitiveness • Identifying Value Driver Strengths and Weaknesses • Customer Value: Influences and Delivered Value • Customer Value Criteria and Value Perceptions • Customer Centricity • The Gap Between Customer Expectations and Perceptions • Closing the Value Delivery Gap • Customer Costs • The Consumer Surplus • Discussion Questions

3. Customer Value • Shenkman (1992) illustrates the vagaries of the concept of value: “Does it mean we get a good price, or a bargain, on a particular item? Is it a term that applies to anything that has a price? Does a price designate a specific value for something? If so, what does this value relate to – the product’s usefulness, its durability, or the brand nameplate it bears? Or is value something that is completely subjective, something that is only determined individually by the one assigning the value to things on the basis of personal requirements, demands or pleasure?”

4. Customer Value (cont’d) • Kotler (2000) explains Product Levels

5. Customer Value (cont’d) • The core product is the core benefits sought by the customer.

6. Customer Value (cont’d) • The basic product is the actual physical product.

7. Customer Value (cont’d) • The expected product is a normal set of attributes and conditions buyers normally expect when they purchase a product.

8. Customer Value (cont’d) • The augmented product is the additional consumer services and benefits built around other layers, which exceed customer requirements.

9. Customer Value (cont’d) • The potential product encompasses all the possible augmentations and transformations the product might undergo in the future.

10. Customer Value (cont’d) • Objective value - the value derived by all customers. Otherwise known as the core benefit.

11. Customer Value (cont’d) • Subjective value - the value derived by the individual. Value based on individual customer value models.

12. The Value Proposition • Bovet and Martha (2000) show that: “The value proposition is the utility-creating product and/or service that a company offers to customers”.

13. Components of the Value Proposition Source: Walters (2002)

14. Transitional Stages of Competitiveness Source: Walters (2002)

15. Identifying Value Driver Strengths and Weaknesses Source: Walters (2002)

16. Customer Value: Influences and Delivered Value Source: Walters (2002)

17. The Consumption Chain • How do people become aware of their need for a product or service? • How do consumers find a specific offering? • How do consumers make final selections? • How do customers order and purchase a product or service? • How is the selected product or service delivered? • What happens when a product or service is delivered? • How is the product installed? • What is the customer really using the product for? • How is the product or service paid for? • How is the product stored? • How is the product moved around? • What do customers need help with when they select a product? • What about returns or exchanges? • How is the product serviced? Source: Adapted from MacMillan and McGrath (1997)

18. Customer Value Criteria and Value Perceptions Source: Walters (2002)

19. Customer Value Criteria and Value Perceptions (cont’d) Source: Walters (2002)

20. Customer Centricity • Slywotzky et al (1997) identifies customer centric thinking as deciphering the puzzle of the customer’s top two or three priorities with enough insight to have a good chance of matching those priorities profitably

21. The Gap between Customer Expectations and Perceptions Source: Walters (2002)

22. The Gap between Customer Expectations and Perceptions (cont’d) • Walters (2002) shows that:

23. The Gap between Customer Expectations and Perceptions (cont’d) • Perceptions greater than or equal to Expectations = Competitive Advantage

24. The Gap between Customer Expectations and Perceptions (cont’d) • Perceptions < Expectations = Competitive Disadvantage

25. The Gap between Customer Expectations and Perceptions (cont’d) • Perceptions > Expectations = Sustainable Competitive Advantage

26. Closing the ‘Value Delivery Gap’ • Walters (2002) describes a process to close this gap:

27. Closing the ‘Value Delivery Gap’ (cont’d) • Exploration

28. Closing the ‘Value Delivery Gap’ (cont’d) • Translation

29. Closing the ‘Value Delivery Gap’ (cont’d) • Interpretation

30. Closing the ‘Value Delivery Gap’ (cont’d) • Implementation

31. Customer Costs • According to Kotler (2000), customer value is equal to benefits minus costs.

32. Customer Costs (cont’d) • Kotler (2000) outlines Customer Costs

33. Customer Costs (cont’d) • Transaction costs

34. Customer Costs (cont’d) • Evaluation costs

35. Customer Costs (cont’d) • Usage costs

36. Customer Costs (cont’d) • Disposal costs

37. The Consumer Surplus Source: Walters (2002)

38. Value Positioning Strategies • Kotler (1999) illustrates five generic value propositions

39. Value Positioning Strategies (cont’d) • More for more

40. Value Positioning Strategies (cont’d) • More for the same

41. Value Positioning Strategies (cont’d) • The same for less

42. Value Positioning Strategies (cont’d) • Less for much less

43. The Producer’s Surplus Source: Walters (2002)

44. Managing the consumer surplus Source: Walters (2002)

45. Discussion Questions • Identify a value proposition you are familiar with and identify was in which it can be improved using concepts covered in this lecture. • What is customer centricity? Why is it important to be truly customer centric in today’s economic climate? • Explain the difference between customer expectations and customer perceptions and identify ways to take advantage of this difference by citing examples. • How can the consumer surplus be used to improve corporate profitability?