1.

CDC principles

Companies with clearly defined customer focus are more profitable than
profit-driven companies
CC is clear, focused, profitable, ethical and rewarding for all!
Situation in practice
o Companies show little interest in customers (not truly committed)
o Most companies do not reflect customers understanding of quality
o 50 % do no market research
o 80 % have no executive with marketing background in top
management
o Customer is not well defined
o Take any customer who is willing to pay
o No dialogue with customers, do not meet frequently with customers
Milestones in understanding of economy
o Mercantilism
Unpacked and undifferentiated goods
Profit by distribution (price demand )
Adam smith: the invisible hand, the wealth of nations
o Industrialization
Production know how
Profit by production (move products instead of people,
standard products)
Frederic Taylor, Henry Ford (a car for everyone, black car)
o Differentiation and competition
Strategy, management
Profit by volume (economies of scale)
Michael Porter, BCG (goal: growing big low costs, high
profits)
o Value management
Customer centricity
Profit by value (value chain)
Peter Drucker (produce what market needs sell what
company produces)
Customer orientation/centricity
o America lost sight on the customer
o Peter Drucker: marketing and innovation are the only 2 basic
functions
Innovation: Joseph Schumpeter (creative destruction)
Marketing: Peter Drucker
o Marketing concept: a simple idea but hard to implement in practice
Validity and soundness: abstract, how to analyze customer
needs, understand what firms can do well (core
competencies)
Errors in implementing: long term, seems not very attractive
Conflicts between marketing and other management
functions
Managerial confusion in search of profits
Kaizen, Lean Management, Reengineering, TQM etc.
each year another fad making strategy ineffective
Chief Marketing Officer (CMO) compared to other C-suite roles

CDC Summary (Kraigher-Krainer)

Difficulties and challenges

Young position lack of experience
Requires a mix of skills and broad experience
Transformation often takes longer than expected
Operational visibility difficult
o Chances and skills
Great opportunities in an increasingly customer focused
marketplace
Broker of knowledge about the customer
Must speak the company language of finance and profits
Think strategically
Marketing not as a cost center but as a profit driver
Stakeholder approach
o The opposite of CC, but still very popular
o Everybody-pulling-approach (managers, investors, customers,
retailers, suppliers, others, e.g. logistics, media, politicians, tax
consultants, banks)
Procter&Gamble: a customer focused company
o Understand customers
o Brand creation, > 250 brands (trust, respect, love)
o Why is it relevant for the consumer?
o Market research customer behavior
o Consumer is the centre of anything they do
o More effective and efficient targeting
o Packaging differentiation (different in each market place, e.g.
colour, name)
o Continuous innovation is challenging but fun
o Technology to get in contact with customers
o Word-of-mouth tends to be underestimated
Defining terms
o Customer driven/centric/intimate = value management many
terms, one idea
o Conformance quality: zero defect products, not necessarily make
customer happy
o Customer satisfaction: customer needs, but neglect competitor
o Market perceived quality: customers opinion of products compared
to competition
o Customer value: bundle of sacrifices (effort, time, distance, etc.)
o Value management (superior profits through happy customers)
o 2 meanings of customer value
Value for customers: market perceived net benefits = benefits
expenses relative to competition (focus of this lecture!)
Value of customers = customer lifetime value: profits made
with an average customer over an average retention period
(new thinking/change perspective, instead of transactions
CLV)
Paradigmatic differences
o

Traditional management
Thinking in periods, e.g. quarterly
Cause-effect-thinking
CDC Summary (Kraigher-Krainer)

Customer value management

Thinking in time series
Loop-thinking
2

Short term rewards

Realism
Targets, measures, reengineering
Quality is objective and measurable
Management is about technique
Derived from hard sciences

Long term rewards

Constructivism
Co-evolution, co-realization
Quality depends on expectations
Management is about people
Derived from soft sciences

2. CDC and strategy

Business must be run at profit, else it will die. But when it solely run for
profit, then also the business must die, because there is no longer a reason for
existence Henry Ford

3 strategies where profit come from

o Volume strategy: low price (economies of scale)
o Margin strategy: quality
o Quality strategy: combination of low price and quality cc company
Tracking customer-perceived quality
Importance of quality for profitability
Quality precedes and causes high market share
High correlation between market share and profitability
because of economies of scale, experience curve, more
money for R&D, less risk perception of customers
Time delay problem: transformation of CV into market share
and profit

CDC Summary (Kraigher-Krainer)

Do value leaders face higher costs? No.

Low perceived quality businesses have the highest costs

Loyalty effect no 1: 5% improvement in customer retention rate (how many

customers can we keep) will yield a 25-100% increase in profits
o Reasons for increased profitability
Base profit (margin)
Revenue growth : cross-selling, customers buy more
Cost savings: customers become less costly
Referrals: positive word-of-mouth
Price premium: customers become less price-sensitive
+ customer tenure grows exponentially with retention rate
Loyalty effect no 2: the cycle effect: customer loyalty employee loyalty
investor loyalty
Well recognized strategic approaches helpful in understanding CV?
e.g. 5 forces, Ansoff matrix, swot analysis, experience curve, BCG-matrix,
strategic advantage
o these models are basically about growth
o unfortunately do not help a lot to find cc companies
the micro-perspective of value management the company value chain
value = benefits price

CDC Summary (Kraigher-Krainer)

benefit =
attributes
desirable to
customer
price = total
costs to
customer
superior
perceived
value = net
value in
buying/using
product compared to alternatives value

value network

the macro perspective of value management: value networks

CDC Summary (Kraigher-Krainer)

resume on customer oriented strategy

o find segments you can serve better than anyone else, provide
superior value, communicate externally as well as internally and
stick to that principle
o cycle of strategic value management
1. identify set of skills where youre superior (core competencies
= starting point) segmenting, targeting
2. check whether these skills are perceived as valuable by
market segment
3. provide the value
4. communicate the value (externally + internally)
5. deliver and continuously improve the value + find new
combinations
6. start all over again

3. Market perceived value

Net customer value = benefits - expenditures

o Benefits relative to reference points
Core product and quality
Pre- and after-sales services
Brands, prestige and status
Availability and ease of access
o Expenditures relative to reference points
Sales price
time invested
physical and cognitive effort
costs of ownership and disposal
however: different people have different needs

CDC Summary (Kraigher-Krainer)

degrees of segmentation
o mass marketing: an attempt to sell the same thing to a wide range
of customers
o market segmentation: dividing market into distinct groups of buyers
with different needs and behavior who might require separate
products
o niche marketing: a segment of a segment with very specialized
interests
o customized marketing: serving each customer individually
o mass customization: customers get the impression that the product
is customized
segmentation methods
o no segmentation: mass marketing, niche marketing
o cultural and geographic segmentation: language, geography,
religion
o demographic characteristics: age, gender, family size, social class
o based on usage
o psychographic characteristics
o benefit segmentation
further considerations on segmenting markets
o business markets: type of industry, order size, product usage,
personal characterist.
o international markets: geographic, economic, political/legal, cultural
factors

possible catalogue for finding the right customers

evaluate
4
segments
resources
=
company
based
choose
the
segment
with the
highest
score

Comparing markets to resources

CDC Summary (Kraigher-Krainer)

Customer value profile has 2 elements

o Market-perceived benefits profile
o Market-perceived expenses profile
Customer value map
o Simple, but time-consuming
o Ask customers to list factors that are imprtant for the
purchase decision
o Ask how these facotrs are weihgted
o Ask them to rate the performance of each (0-10)
o Multiply each busnesses scor by the weight of this factor
> 100
superior to competiion
= 100
average
< 100
inferior to competition
Value map
o Expenses
direct costs: aquisition costs (collect info, physical & cognitive
effort)
implementation, operation, disposal: cost of ownership
(energy, repair)
switching costs: additional direct costs, opportunity costs,
sunk costs
worries about post purchase phase: cognitive dissonance,
compaints, returns, anger, social and status costs
o benefits
pleasant time
qulaity and performance
image and reputation
design
entertaiment
get the product immediately
extraodinary service

CDC Summary (Kraigher-Krainer)

competition superiority
Core condiseration:
product superiority

Tracey/Wiersema approach on customer value

CDC Summary (Kraigher-Krainer)

Achive low cost position on product/service support OR

Build a better rpduct, for which customers will pay a preium OR
Solve the clients broader problem
most convincing value propositions
Operational excellence best total cost
Hofer, Wal-Mart
Middle-of-the-market produts at the best price with the least
inconvenience
Low price and hassle-free service
o Product leadership best product
Sony, Intel, Nike
Product differentiation
Continuous innovation
o Customer intimacy best total solution
IBM
Focus on what specific sutomers want
Cultivate relationships, customer responsive

o
o
o
Three
o

4. Customer loyalty

The importance of satisfaction and loyalty

o more diffiult & expensive (5*)to find a new customer than retaining
an existing one
o if you lose a customer temporarily, he might find out about a
competitiors product
o you may not only lose the next transaction but a customer lifetime
profit
o loyal customera are mcuh more profitalbe (loyalty effects)
o loyal customers talk positive about the company (positive word-ofmouth)
o dissatisfies customers talk abouth their fustrations frquently
(negative WOM)

improving customer loyalty

CDC Summary (Kraigher-Krainer)

10

select customers diligently

develop a rich database
use key accounts
improve relationship continuously
build strong brands
develop dialogue instruments, e.g. 7/24 call centers, websites, email-marketing
o develop lock-in-methods, e.g. contracts, replacement parts
(nespresso capsules)
o employ and empower good people, especially frontline people
o be faster
o provide extraordinary service
o training and sonsultation
o provide customers with unique tools and software
o gifts & bribery
o reward systems, e.g. clubs and cards CRM
decision funnel
1. aware
i. knows the brand (unaided recall, aided recall, recognition)
2. familiar
3. condiered
4. bought
5. satisfied
6. loyal
Song Airline: Low cost isnt necessarily low quality
o Leather seats instead of textile seats
Reduced cleaning time + costs
Increased the time the plane is in the air
Lower prices for the customers
o Increase utilisation + more seats
o Flight attendents work more hours a day, but less hours a month
(more days off)
o Focussed on women (decision takers): discounts, healthy food,
entertainment
Who is our competition?
o Always customer perceived
o Basically there are 4 layers of current competition
Generic layer: competition for the money of custoemrs
(holiday vs new car)
Functional layer: all competitors offering same function
(all transport, e.g. railway, airlines, public transport)
Product class layer: those in the same product class (car
industry)
not necessarily direct competitors
Segment layer: aapeling the same target group direct
competitors
eg. BMW vs. Mercedes
o Regarding future competition
New possible competitors within our segment
Substitutes, e.g. steel vs plastic (automotive industry)
Forward and backward integration
o Good or bad?
o
o
o
o
o
o

CDC Summary (Kraigher-Krainer)

11

One, two or three competitors usually add credibility to a

category, which tends to broaden the market rather than hurt
the pioneer
To be a leader you have to have followers

5. The path to salient product attributes

Finding out what the customer really wants!

1) Item collection
o Secondary research:
Consumer reports, Web-forums, Prior studies, Complaint reports, Sales
reports
o Primary research:
Focus groups with customers, experts, R&D, sales reps, lead
users, etc.
In-depth interviews
Customer visit
Critical incident technique (pos./neg. emotional event)
2) Item reduction
o Omit items that obviously do not meet the characteristics mentioned
above
o Pre-test the remaining 30 items
o Identify bundles by correlations matrices and reduce over-represented
factors
o Pre-test the remaining 20 items
o Find underlying dimensions and items with highest factor loadings
3) Importance estimation
CDC Summary (Kraigher-Krainer)

12

Distribute 100 points to quality factors and another 100 points to costrelated factors
o By groups to identify segments
4) Performance mapping
o Value map related methods: quality and price relative to competition
o ECID
o Graphs: image profiles and image spaces
5) Future estimates - What will be salient tomorrow?
o Difficult, but possible
o Experts and Delphi-method, scenario technique, trend research
o Combine basic motives of people with company competencies
(innovation tree)
o Laddering technique: combine motives with product attributes
o Brainstorming, brain writing, SWOT analysis
o

Performance metrics

Pre-economic measures (as they precede economic development)

o Tracking developments by updating funnel analysis or value map
o Satisfaction measures
o Likelihood of recommendation
o Quality- and price-profiles
Economic measures:
market share, price premium and volume premium, cost advantages,
customer loyalty and retention rates, financial data, sales data

6. Company culture

5-R-idea of CRM in CDC clear hierarchy of activities

1. Retention of profitable customers and strengthening the ties to them
2. Recovery of lost customers by winning them back
3. Reanimating unprofitable relations
4. Release of still unprofitable customers
5. Recruitment of new customers
Assessing customers by activity-based costs (ABC)
What does it cost to satisfy each customer?
Problem: difficult to calculate, figures often not available
ABC or CLV frequently generate 3 groups
20/80 customers intensive care
80/20 customers cross selling
30/50 customers customer visits + following programs
Upgrading
Price corrections
Cross selling by adding premium products
Joint activities to reduce costs
Clubs, cards, bonus-programs
Direct marketing
Importance of customer prioritization (Homburg et al. 2008)
Firms frequently fail to implement customer prioritization strategies
Customer prioritization ultimately leads to higher average customer
profitability and a higher return on sales because

CDC Summary (Kraigher-Krainer)

13

Affects relationships with top-tier customers positively but does

not affect relationships with bottom-tier customers
Reduces marketing and sales costs
Moderator variables (link between firms prioritization strategy &
customer prioritizat.)
Ability to assess customer profitability
Quality of customer information
Selective organizational alignment
Selective senior-level involvement
Selective elaboration of planning and control
Paradigm shift toward competitiveness

From

to

Driven by financial marketplace

driven by customer marketplace

Short-term financial focus

longer-term competitiveness focus

Long-product-development circle

short-product-development circle

Technology, product-forward view

market-back, competitive view

Mega, administrative business units BUs defined by competitive reality

Functional business units

Fundamental state of leadership

In a crisis, most mangers are forced to enter a state of fundamental
leadership
However, you do not have to wait for such a crisis.
Getting there requires a shift along 4 dimensions
In

interfunctional business units

the normal state I ..

stick with what I know
am comfort centered
follow the path of least resistance
feel safe, yet ultimately
meaningless
am externally directed
comply with others to keep the
peace
conform to current culture
Place my interests above groups
interests
Self focus over time leads to
feelings of isolation

in

the fundamental state I ..

beyond familiar territory
result centered
ambitious new outcome
am internally directed (behave
according to my values)
have clarified my values
have increased my integrity &
authenticity

Block out external stimuli (taskfocus, avoid risk)

Self-protection separates us from
the ever-changing world

Put the collective good first

Others reward us with trust &
respect
Create enriched sense of
community
Learn from environment (openminded)
Recognize outside signals and need
for change

Market orientation and profitability (Narver and Slater 1990)

5 possible factors

CDC Summary (Kraigher-Krainer)

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Customer orientation
Competitor orientation
triangle of market
orientation
Interfunctional coordination
Long term horizon
Profit focus
interviews with managers
customer orientation is the most reliable measure of market
orientation
market orientation and performance are strongly related
long term horizon and profit focus are weak measures
market orientat. is a company-wide phenomenon by
interfunctional coordinat.
Market orientation has a significant positive effect on profits
High market orientation always leads to high profits, which
underscores the idea that usually serving existing customers is
cheaper than finding new ones
In rapidly growing markets smaller but market oriented
businesses gain profits, whereas large businesses with little
market orientation lose profits due to their inadequate reactions
on market change
Technology-oriented subcultures tend to overlook market
changes
Measures
Customer orientation
c commitment, create CV, understand c needs, c
satisfaction objective, measure c satisfaction, after sales
service
Competitor orientation
salespeople share competitor information, respond rapidly
to competitors actions, top management discuss
competitors strategies, target opportunities for
competitive advantage
Interfunctional coordination
interfunctional customer calls, information shared among
functions, functional integration in strategy, all functions
contribute to CV, share resources with other business units
Webster (2002) on corporate culture
= pattern of shared values and beliefs that help the organization
understand its function
We know surprisingly little about the c orientation construct its still
more a phrase
Kohli and Jaworsky (1990) on market orientation
Customer focus
center of market orientation
more than a philosophy, requires market data on c needs,
instruments on anticipating future needs, market intelligence,
impact of changing environment
Integrated marketing
Primarily driven by market intelligence

CDC Summary (Kraigher-Krainer)

15

Applied by the management to make the right decisions

Profits instead of sales volume
Profits as a result of market orientation

Market orientation is strongly correlated with

Visible top management support for market orientation
Reward systems directly tied to tracking and responding to
market needs
Strong connectedness of departments within the organization
Decentralized decision making
Important hinderers of market orientation
Top managements risk aversion
Interdepartmental conflicts
Furthermore market orientation
Increases employees morale and commitment to the
organization
Increases business performance
Steps towards the customer near organization

CDC implementation program (Webster 2002)

1. Customer focus + build customer commitment throughout the
organization
CEO must be the chief advocate in showing that customers always
come first
2. Invest in market intelligence
customer knowledge is the key distinctive competence and strategic
asset
Secondary information about markets
Customer database
Studies of customer behavior
Define distinctive competence
3. Select customers carefully
4. Develop and communicate the value proposition

CDC Summary (Kraigher-Krainer)

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5. Manage for profitability, not sales volume

6. Put value capture into the business model
7. Position the firm carefully in the value chain
8. Develop customer relationships and manage customer loyalty
9. Build and manage brand equity
10.Develop strategic partnerships with vendors and resellers
11.Innovate and improve continuously
12.Define the business as a service business
13.Create customized solutions
14.Dont confuse marketing with selling
15.Destroy marketing bureaucracy
Easier said than done!
What is more tempting?
Satisfying investors or customers
Quarterly earnings per share or a growing community of hardly
heard customers
Immediate profits or long term profits
Momentary media or subtle positive WOM of communities
Although the CDC concept is the most convincing concept for a
company to survive, it nonetheless is the most difficult concept to sell
within the company
Frequently customer orientation comes in times of troubles and goes in
times of success
can easily outperform the large stock corporations by growing first
better & then bigger

CDC Summary (Kraigher-Krainer)

17