Customer Value Model

Ericsson as a supplier of network equipments for Airtel

Indian Institute of Management Kozhikode

Business to Business Marketing Assignment

Submitted By: Kumar Gaurav PGP 15/286

Customer Value Models The customer based models are the estimates of the present and prospective market offering in monetary terms to the customers relative to the next best alternative offering for those customers. Suppliers in particular use these type of models to have a clear idea of the value the market offering has in monetary terms to the customers. In most of the cases the kind of models that the suppliers come up with are loaded with assumption and less emphasis is given to the data part. However, this approach may not serve the purpose for them. Ideally, it should lay more focus on the statistical part of the research and reduce the assumptions to the minimum to overcome the abstract perspective. Customer value management is a process that can be viewed as five phases: 1. Treating business issues into projects 2. Customer value workshop 3. Customer value research 4. Constructing a business case for change 5. Value realization These models are indispensable in the B2B market. From customers point of view it is mandatory for them to evaluate the overall offering which is also referred to as the total cost of ownership. They need to analyze the offering not only from the point of view of the product price but also from the perspective of what are the superior services they are being offered compared to the other offerings. Similarly, for the suppliers it requires them to have good idea of the value their product brings to the customers and then transform it into monetary value. For the kind of services that they associate with the product they need to take that into consideration as well. It can be summed up as (valuef- pricef) > (valuea- pricea) (valuef- valuea) > (pricef pricea) Where valuef and pricef are the value and price of the focal firms offering. Valuea and pricea are the value and price of the next best market offering. Thus, what really matters is not the value of each offering but difference in value between two offerings compared to the difference in their prices.
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Hence, this model allows the customer to get answers to certain questions such as: why should our firm purchase your offering?; why should our firm purchase your offering instead of your competitors? Or what is the most worthwhile for our firm to keep in mind about your offering? Points of Parity: Value offerings in which it is believed that there is no difference in the between the focus offering and the next best alternative. Point of Differentiation: Value elements on which the team believes there are differences. Points of Contention: Value elements about which the suppliers and the customers disagree regarding how their performance or functionality compares with those of the next best alternative.

Industry Example: Ericsson as a supplier of network equipments to Airtel

Bargaining Power of Suppliers This is how much pressure suppliers can place on a business. If one supplier h a s a l a r g e e n o u g h i m p a c t t o a f f e c t a c o m p a n y' s m a r g i n s a n d v o l u m e s , then it holds substantial power. Here are a few reasons that suppliers might have power in case of Airtel.

1. There are very few suppliers of a particular product. 2. There are no substitutes 3. Switching to another (competitive) product is very costly 4. The product is extremely important to buyers - can't do without it 5. The supplying industry has a higher profitability than the buying industry

Airtel is the largest telecom operator in India both in terms of overall revenue and total number of subscribers. It has it operations spread over in as many as 23 circles. Out of these 15 of them are managed and provided by Ericsson and the remaining by Siemens. Ericsson supplies its industry-leading portfolio of energy efficient 2G/2.5G radio base stations, circuit and packet core, microwave transmission and Intelligent Network.

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Customer: Bharti Airtel, India Customer Objective Delivery of cutting-edge services Optimize capex and opex Retain and grow market share

Ericsson Solution Managed Services

Customer Benefits High quality network services Increased efficiency Strong platform for future development Cost Savings

Customer Value Factors Monetary (Revenues) Customer Profile Demographics Industry Code Customer Profitability Customer Based Revenues Customer Based Cost Customer Lifetime Value Discount Rate Expected Value Up-Buy / Cross-Buy Referrals

Next Best Alternative: The next best alternative for Airtel is Siemens which manages 8 of the 23 circles for them. However, there are certain reasons which make Ericsson as a preferred choice.

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The switching cost is one of the leading factors which make Ericsson as the preferred choice. Changing the equipment manufacturer for already existing network would call for a lot of changes which will require huge expenditure.

The overall management and quality of services and management provided by Ericsson has been excellent. Trust and loyalty developed over a long period of relationship

Customer Value Proposition: The value proposition which Ericsson offers to Airtel: High quality network services Cost Savings

Highquality of the network equipments Quality Services

Reliable management of equipments and services

Cost
Exapansion of the network is done at a reduced cost

Relationship
Long relationship b/w the two companies has build trust between them

Ericssons long association with Airtel and its excellent services have build trust between the two companies. The overall quality of the network equipment and the managing services which Ericsson offers have been critical in driving Airtel as the industry leader.

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Also, the cost of switching form one equipment manufacturer to another is very high. Continuing with the services offered by Ericsson and using it as a base for further expansion has provided tremendous cost savings for Airtel.

Recommendations and Conclusion It is of extreme importance for a marketer in a B2B market to perceive the value offering in as accurate manner as feasible to explore the opportunities which can be used. It brings a choice that most often remains implicit for suppliers and, as such, one they cannot fully know the consequences of implicitly making. They can spend the time and money upfront to persuasively demonstrate and document the superior value that their offerings deliver and capture a more equitable portion of this delivered value.

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