Customer Value ManagementConcepts and Case Study by

Sunil Thawani

Adnoc Distribution

thawanis@hotmail.com

Dubai Quality Group Evening Seminar30th May2000

Customer Value ManagementConcepts and Case StudyPurpose of the Presentation:

Share Concepts of CVMApplication of CVM Using CVM as a Strategic tool to drive business

CVM - The Concept

What do we buy ?

Value (Benefits)

Value/ Benefit = Use + Esteem function of a product (service)

Price, Cost, Profit vs. ValueRequiredDesired(Value) Increasing Benefits- Functions- Performance Price, Cost, Profit PriceCostZero Value CostsMarginal PriceRealizationProfit

CVM Definitions Value : is the customers 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.

The Market Leadership Supplier offering highest Value to Price ratio should attain Market Leadership. (V/P >= 1)

Supplier having superior Value to Cost ratio should attain Financial Leadership (V/C

Making Quality a Strategic Weapon

EffectivenessTimeStage 1

Conformance Quality (Before 80s): Deming, Juran, Crosby eraFocus - Process Control, Reduce Scrap, SQC, Conformance to Requirements

Product with Zero Defects may not necessarily make customers happy ?

Making Quality a Strategic Weapon

EffectivenessTimeStage2Customer 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 includedFailed to measure performance relative to competition.Conformance Quality

Making Quality a Strategic Weapon

EffectivenessConformance Qlty.CustomersatisfactionT Q M TimeStage2Stage 3

Stage 1

Mkt. perceived Qlty & value relative to competition (1990s)Entire market includedHow our products compare with competitionRequirement of MBNQA

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 ?

Making Quality a Strategic WeaponEffectivenessConformance Qlty.CustomersatisfactionMkt-perceived Qlty & valuerelative to competitorsC V MT Q MTimeStage 4

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

Making Quality a Strategic Weapon

EffectivenessConformance Qlty.CustomersatisfactionMkt-perceived Qlty & valuerelative to competitorsQuality key toCVM

Customer Value ManagementTotal Quality ManagementTimeStage2Stage 3

Stage 4

Stage 1

Perceived Quality Quality means little in business unless Customers perceive your quality as superior to your competitions.

Knowing how to achieve this kind of quality is all that matters.

Birth & Development of CVM30 world Quality experts assembled in US in 1987 for Baldrige Quality Award criterion meetingMain focus Manufacturing Quality/ Process ControlMany thought customers opinions cannot be measured & is subjective Curt Reimann wanted Quality to be defined & measured from customer perspectiveContribution of Sidney Schoeffler & Bradley Gale

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 ?

AT & T StorySuccessful 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 programShortcomings :Did not explain declining market share even with hi scores No correlation between satisfaction scores & Mkt shareFocussed on internal competition rather than external Useless info to understand competitive position

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 excellentLow scores in What Worth Paid For (WWPF) question even though overall scores of 95+.

AT & T Story - Startling DiscoveriesRealised 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.

Customer Value is a Leading Indicator of Market Share

AT & T market shareWWPF-198719881989Adapted from speech given by Raymond E. Kordupleski at the American Marketing Associations Customer Satisfaction Congress, 1991.

AT & T - Shift to CV Management1990-91 Bob Allen uses CV as strategy : Top leadership made to commit to customer valueCV data used in reviews & planning processesIncorporated in AT & T Chairman Quality AwardExecutive compensation revised to include CV indicesIdentified processes which drive relative performance on each attribute.Benchmarking studies to improve processesCascaded to employees by teaching & their role in improving CV.1992 - AT & T gains significant market share

Conventional Surveys

Backward looking processNon 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

The Value Edge Process 1. Select Product & Market segment2. Collect Price, costs, market share data3. Select competitors4. Develop in-house Value Profile, Value/ Price & Value/ Cost ratios.5. Validate Value Profile in market & & Align with Customer Requirements6. Identify improvement opportunities7. Prioritise, develop & Implement action plans8. Attain market & financial leadership

Step # 3 Selecting CompetitorsMust include all important customers 2 to 3 largest competitorsFastest growing competitorAny competitor with latest/ unusual technology Imports

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 attributeEstimate customers opinion of performance of each of the criterion on a scale of 1-10Develop Value Profile

Step # 4 Value Profile - Car Co.Category/ WeightagePerformance (1-10) Value Score (WxP) Factor A B C A B C

Style 20 5 7.5 6100 150 120 - Shape -Colour -Glass Area

Engineering 30 8 8 6240 240 180 -Power - Maintenance - Safety

Comfort 30 68 7180 240 210 -Legroom -Driving - Options

Spares & 20 88.55160 170 100ServicesTotal 100 680 800 610

Step # 4 Inhouse Value Profile

Co. A

Co. B

Co. C

Value Score

680

800

610

Price $

10,000

11,000

9,500

Value-Price

0.068

0.073

0.064

Value-Price

Profile

1.063

1.141

1

Cost

8000

8100

7500

Value Cost

0.085

0.099

0.065

Value-Cost Profile

1.308

1.523

1

Step # 5 Validate Value Profile In MarketIdentify & contact all the users of Product in customers/ non customers organisationDrive it from topValidate value profile. (Information may not be as structured as inhouse profile)Realign value profile

Findings bound to be different from in-house

The Competitive Advantage StrategyAttain 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

Step # 7 Prioritise to ImproveCar Cs Competitive Strategy

Category

Max Poss Score

C's

Score

A's

Score

B's

Score

C vs. A

C Vs B

Style

200

120

100

150

+20

-30

Engg.

300

180

240

240

-60

-60

Comfort

300

210

180

240

+30

-30

Spares &

Service

200

80

160

170

-60

-70

Customer Value MapWorse Value

SuperiorInferiorHigherPriceLowerPriceDDCCBBAABetter ValueValue Index1.0Price Index1.0

Step # 7 - Value Factor Process Matrix

Value Edge - Internal Customer Application in HospitalSet 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, SurgeryConcern - Declining Quality of Service & Loss of Market Share to competition from within town & from nearby big city.

Sample Customer Value StructureSupplier : PharmacyCustomer : Patient/ Relative

Quality AttributesWeight Perf Wx P Max. Poss. Gap 1-10 ScoreMinimum Waiting 15 6 90 150 60TimeAvailability of prescribed 30 7 210 300 90MedicinesExplain doses details 15 6 90 150 60Timings - open after 10 2 20 100 80OPD closesProperly packed medicine 15 8 120 150 30 Courtesy 10 7 70 100 30Provide empty bottles 05 0 00 50 50 Total 100

Sample Customer Value StructureSupplier : RadiologyCustomer : Ward Patients

Quality AttributesWeight Perf Wx P Max. Poss. Gap ( 1- 10) ScoreNo/ Min. Waiting 25 4 100 250 150TimeReports delivered 30 7 210 300 90promptly to wardAccuracy 30 9 270 300 30Courtesy to patient 15 7 105 150 45 Total 100

CVM Todays 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

CVM - A Versatile ToolHonda - applied to luxury car segment Milliken & Company - applied to carpet tile business NBC Bearings - applied to ball bearingsMichelin Tyre company - applied to radial tyres

And Parke Davis,, AT & T, Allied Signal, J & J,Gillette, Hewlett Packard, Westinghouse, FedEX

BenefitsDelighted CustomersBenchmarking against the competitors.Identifying the right things.Teamwork by committed employees.Enhanced Market Share Gaining Competitive EdgeEnables Competitive Strategic planning.

Thank you

Questions & Answers Session