Post on 05-Dec-2014
description
1
Customer Value ManagementConcepts and Case Study
by
Sunil Thawani
Adnoc Distribution
thawanis@hotmail.com
Dubai Quality Group Evening Seminar
30th May’2000
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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
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CVM - The Concept
“What do we buy ?
Value (Benefits)
Value/ Benefit = Use + Esteem function
of a product (service)
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Price, Cost, Profit vs. Value
0
100
1stQtr
3rdQtr
EastWestNorth
Required Desired
(Value) Increasing Benefits- Functions- Performance
Price, Cost,
Profit
Price
Cost
Zero Value Costs
Marginal PriceRealization
Profit
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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.
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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 <= 1)
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Making Quality a Strategic Weapon
Effectiveness
TimeStage 1
Conformance Quality (Before 80’s): Deming, Juran, Crosby eraFocus - Process Control, Reduce Scrap, SQC,
Conformance to Requirements
Product with Zero Defects may not necessarily make customers happy ?
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Making Quality a Strategic Weapon
Effectiveness
TimeStage2
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 includedFailed to measure performance relative to competition.
Conformance Quality
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Making Quality a Strategic Weapon
Effectiveness
Conformance Qlty.
Customersatisfaction
T Q M
Time
Stage2
Stage 3
Stage 1
Mkt. perceived Qlty & value relative to competition (1990s)Entire market includedHow our products compare with competitionRequirement of MBNQA
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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 ?
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Making Quality a Strategic Weapon
Effectiveness
Conformance Qlty.
Customersatisfaction Mkt-perceived Qlty & value
relative to competitors
C V M
T Q M
TimeStage 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
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Making Quality a Strategic Weapon
Effectiveness
Conformance Qlty.
Customersatisfaction
Mkt-perceived Qlty & valuerelative to competitors
Quality key toCVM
Customer Value Management
Total Quality Management
Time
Stage2
Stage 3
Stage 4
Stage 1
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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.
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“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
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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 ?
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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 programShortcomings :• 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
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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+.
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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.
CVM DQG
Customer Value is a Leading Indicator of Market Share
AT & T market share
WWPF-
1987 1988 1989Adapted from speech given by Raymond E. Kordupleski at the American Marketing Association’s Customer Satisfaction Congress, 1991.
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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
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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
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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
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Step # 3 Selecting Competitors
• Must include all important customers – 2 to 3 largest competitors
• Fastest growing competitor
• Any competitor with latest/ unusual technology
• Imports
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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
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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
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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-PriceProfile
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
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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
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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
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Step # 7 Prioritise to ImproveCar C’s Competitive Strategy
Category MaxPossScore
C'sScore
A'sScore
B'sScore
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
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Customer Value Map
Worse Value
SuperiorInferior
HigherPrice
LowerPrice
DD
CC
BB
AA
Better Value
Value Index
1.0
Price Index
1.0
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Step # 7 - Value Factor – Process Matrix
Process
Value Factor
Design Manufacturing QA Purchase After Sales
Service
Low Power
** **
Leg Room
** **
Shape ** **
Costly Spares
** **
Poor Servicing
**
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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.
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Sample Customer Value Structure
Supplier : Pharmacy Customer : Patient/ Relative
Quality Attributes Weight Perf Wx P Max. Poss. Gap 1-10 Score
• Minimum Waiting 15 6 90 150 60Time
• Availability of prescribed 30 7 210 300 90Medicines
• Explain doses details 15 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
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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
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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
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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
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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.
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Thank you
Questions & Answers Session