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CREATING, COMMUNICATING, AND DISTRIBUTING CUSTOMER VALUE
Timothy M. Smith
BBE 3503-5503
2
Market Sensing (Finding the Value…)
3
VALUE-IN-USE
Vinyl Siding WCC Siding
Est. Installed Sales $10,000 Est. Installed Sales $11,000
Est. Callback Expense $300 Est. Callback Expense $150
Est. Labor Expense $3,000 Est. Labor Expense $2,550
Price $5,000 Price ???
Contractor Gross Margin $1,700 Contractor Gross Margin ???
• How much value do the two products create for the contractor?
• How would you price the WCC siding product? What impacts this decision?
New Product Scenario:• Opportunity to carry a new innovative Wood-Cement Composite siding product.• In part, due to lower energy costs in production, the new product is offered to you at a lower
cost than the current vinyl siding option (Your Cost of Goods Sold for an average WCC siding job is estimated to be $3,900 versus $4,250 for the average vinyl job).
• Superior strength, stiffness, and wood-like appearance of the WCC product is expected to result in higher installed sales to the homeowner.
• Improved durability and fastener system is expected to reduce callback expenses by 50%.• The improved fastener system is also expected to decrease labor expenses associated with
installation by approximately 15%.
Summary Table:
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CUSTOMER VALUE
Two sides of Value:
A customer perceived quality-price relationship of company’s offerings. more demanding customers increased global competition improved access/speed of communications superior customer value: the next major source of
competitive advantage. (Day 1994, Woodruff 1997)
A measure of worth attributed to a customer, realized by a company Delivering customer perceived value profitably
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CUSTOMER VALUE
Two Focal Questions Impacting Customer Value:
What dimensions of value do customers care about?
How do competing offerings fare along these dimensions?
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PRODUCT ATTRITUTES AND VALUE
7
CUSTOMER VALUE
Two Focal Questions Impacting Customer Value:
What dimensions of value do customers care about?
How do competing offerings fare along these dimensions?
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Value
Fundamental Value Equation:
(Valuef – Pricef) > (Valuea – Pricea)
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THE VALUE SALAMI: A CONCEPTUAL FRAMEWORK
Total Value Created
Total Costs (Value to the
Supply Chain)
Profit Margin
Customer Value
Price
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CUSTOMER VALUE: A CONCEPTUAL FRAMEWORK
Compete against other value offerings distributed to customers!
Value Captured by
the Firm(Margin)
Value Distributed to Customer
ProductQuality
ServiceQuality
Total Costs(Value to the
Supply Chain)
Value Captured by
the Firm(Margin)
Pricet
Total Value
Created
ServiceQualityt
Value Distributed to Customer
Added CV
PricesPricet
Total Costs(Value to the
Supply Chain)
Value Captured by
the Firm(Margin)
PricetPricec
Traditional Supplier Service StrategyCost Leadership
Added CV
CostcCostt
Service Qualitys
CosttCosts
ProductQuality
ServiceQuality
ProductQuality
Total Costs(Value to the
Supply Chain)
Value Distributed to Customer
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Quality and Price
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
-1.2 -1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2
Competitive Price
Overall Quality
Owens Forest P roducts St. Croix Valley Metro HardwoodsC Baumgarten Woodland Forest P roducts Kretz LumberBanks Midwest North WestGeorgia P acific Shannon Wolf RiverIndustrial Timberland (ITL) Bennet Hardwoods Northern P acificBaillie Lumber Rajala
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THE IMPORTANCE AND NATURE OF CUSTOMER VALUE
Value
Loy
alty
/Pur
chas
e V
olum
e
3 4 5
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THE IMPORTANCE AND NATURE OF CUSTOMER VALUE
Value
Loy
alty
/Pur
chas
e
3 4 5
High
Low
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CUSTOMER VALUE – HARDWOOD LUMBER CASE
Top 3 Suppliers by VolumeSuppliers
Ranked #1Suppliers
Ranked #2 Suppliers
Ranked #3Percent of Purchases 52.67
(n=75)26.78(n=75)
20.55(n=75)
Relationship (years) 7.95(n=80)
7.43(n=75)
5.88(n=62)
Perceived Value Delivered 4.39(n=94)
4.13(n=90)
3.96(n=82)
Significant differences were detected between each supplier category for all variables (except for Relationship - S1:S2).
Ten percent reduction in perceived value, corresponds with a 61% reduction in purchase volume and a 26% reduction in customer tenure.
Customer Value is ALL or NOTHING?
*
* Percent of top-3 suppliers only; 33%, 16%, 13% of total company purchases, respectively.
Evidence from the Hardwood Lumber Industry
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SEGMENTATION
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SEGMENTATION
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Segmentation Variables
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CUSTOMER VALUE – HARDWOOD LUMBER CASE
Segments Matter!
Dependent Variable: High Value (High Value = 1, Average/Low Value= 0)
Furniture/Cabinet Segment (n=48) Variable B Wald Sig Exp(B) Consistent color 1.332 5.778 0.016 3.789 Packaging 1.640 4.907 0.027 5.154 Availability of desired species 2.858 4.878 0.027 17.428 Constant -25.204 8.191 0.004
Distribution Segment (n=74) Variable B Wald Sig Exp(B) Packaging 1.235 8.882 0.003 3.437 Availability of desired species 0.960 7.852 0.005 2.611 Ability to place orders electronically 0.714 6.370 0.012 2.043 Constant -10.869 17.124 0.000
Millwork/Flooring/Component Segment (n=55) Variable B Wald Sig Exp(B) Availability of desired species 1.407 9.630 0.002 4.085 Constant -6.033 10.134 0.002
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COMMUNICATING VALUE
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ADDING VALUE – COOPERATIVE ADVERTISING
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INSTALLATION SOLUTIONS – Stock Building Supply
Direct to the Builder Installed Service Program.
We take the worry off of your hands and do the installation while you continue to build more homes! What could be easier?
You never have to deal with another subcontractor...we do it all for you. All of the materials and service applied to your account...one less invoice for you to deal with! We stand behind the quality workmanship and the product. Our installers are professionals. They work
quickly and efficiently.
We offer the Professional Advantage in Quality Service and Installation on:
Framing Siding -- Vinyl, Fiber Cement, and Cedar Windows -- PORTRAIT Convertible, Wood and Vinyl Insulation Sheetrock Garage Doors Exterior/Interior Doors -- PORTRAIT Distinction, Fiberclassic, and Classic Craft Locks and Hardware Custom Stairs Specialty Millwork Full line of Moulding and Interior Products Cabinets -- Most Brand Name Cabinets Countertops -- Solid Surface, Granite and Custom Laminate Countertops Flooring & Carpet Decks, Porches, & Fences -- Treated Pine, Chain Link, PVC, and Aluminum
22
SO, WHAT DOES THIS MEAN?
If customer value is something consciously left on the table by a supplier, this value proposition must be DISTINQUISHABLE from competitors and of a MAGNITUDE sufficient to affect behavior.
The factors determining “high value” can be very different between segments – value is determined by the customer.
Important attributes in the buying decision are not necessarily “value-adding” attributes (typically thought of as adding further processing to the product). The most important attributes in purchasing hardwood lumber -
consistent thickness and price - did little to influence customer perceptions of high value.
Ability to transact on-line plays a very small role in hardwood lumber purchase decisions, even among distributors, but significantly impacted this segment’s value perceptions of suppliers.