Customer Value Management

Concepts and Case Study

by
Sunil Thawani
Adnoc Distribution
thawanis@hotmail.com
Dubai Quality Group Evening Seminar
30th May2000

Customer Value Management

Concepts and Case Study
Purpose of the Presentation:
Share Concepts of CVM
Application 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. Value

Marginal Price
Realization
Price
Zero Value Costs

Price,
Cost,
Profit

Cost

Profit

Required
Benefits- FunctionsPerformance

Desired

100
0

(Value) Increasing

1st
Qtr

3rd
Qtr

East
We st
North

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.
5

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)
6

Making Quality a Strategic Weapon

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

Product with Zero Defects may not necessarily

make customers happy ?

Stage 1

Time

Making Quality a Strategic Weapon

Customer satisfaction (late 1980s):
Focus : Get close to customer, Understand their
needs, Be customer driven e.g. Xerox
Part of MBNQA

Effectiveness

Did not answer why we win/ loose customers ?

Often non customers not included
Failed to measure performance relative to
competition.

Time
Conformance
Quality

Stage2

Making Quality a Strategic Weapon

Mkt. perceived Qlty & value relative to
competition (1990s)
Entire market included
How our products compare with competition
Requirement of MBNQA
Effectiveness

TQM

Stage 1

Conformance
Qlty.

Stage2

Customer
satisfaction

Time
Stage 3

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 ?
10

Making Quality a Strategic Weapon

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
CVM
Effectiveness

TQM

Conformance
Qlty.

Time

Customer
satisfaction Mkt-perceived Qlty & value
relative to competitors

Stage 4

11

Making Quality a Strategic Weapon

Customer Value Management
Total Quality Management
Stage 4
Effectiveness
Stage 3
Stage 1

Conformance
Qlty.

Stage2

Customer
satisfaction

Time

Quality key to
Mkt-perceived Qlty & value
CVM
relative to competitors

12

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.

13

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
14

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 ?
15

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 program
Shortcomings :
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
16

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+.

17

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.
18

Customer Value is a Leading Indicator of Market Share

WWPF
-

AT & T market share

1987

1988

1989

Adapted from speech given by Raymond E. Kordupleski at the American Marketing

Associations Customer Satisfaction Congress, 1991.

CVM DQG

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

20

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
21

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
22

Step # 3 Selecting Competitors

Must include all important customers
2 to 3 largest competitors
Fastest growing competitor
Any competitor with latest/ unusual
technology
Imports

23

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

24

Step # 4 Value Profile - Car Co.

Category/ Weightage
Factor
A
B
Style

20

Performance (1-10) Value Score (WxP)

A
B
C

7.5

100

150

120

240

240

180

180

240

210

- Shape
-Colour
-Glass Area

Engineering
-Power

30

- Maintenance
- Safety

Comfort
-Legroom

30

20

8.5

100 680 800

610

-Driving
- Options

Spares &
Services
Total

160

170

100

25

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
Cost

1.063

1.141

8000

8100

7500

Value Cost

0.085

0.099

0.065

Value-Cost Profile 1.308

1.523

26

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
27

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
28

Step # 7 Prioritise to Improve

Car Cs Competitive Strategy
Category

Style

Max C's
Poss Score
Score
200
120

A's
Score

B's
Score

C vs. A C Vs B

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

29

Customer Value Map

Higher
Price

Worse Value
DD

Price
Index

AA

1.0

BB
CC

Lower
Price

Better Value
Inferior

1.0

Value Index

Superior

30

Step # 7 - Value Factor Process Matrix

Process Design Manufacturing QA Purchase
Value
Factor

Low
Power
Leg
Room
Shape
Costly
Spares
Poor
Servicing

**

After
Sales
Service

**

**

**

**

**
**

**

**

31

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.
32

Sample Customer Value Structure

Supplier : Pharmacy
Quality Attributes
Weight
1-10
Score
Minimum Waiting
15
Time
Availability of prescribed 30
Medicines
Explain doses details
15
Timings - open after
10
OPD closes
Properly packed medicine 15
Courtesy
10
7
Provide empty bottles
05
Total
100

Customer : Patient/ Relative

Perf

Wx P Max. Poss.

Gap

90

150

60

210

300

90

6
2

90
20

150
100

60
80

8
70
0

120
100
00

150
30
50

30
50

33

Sample Customer Value Structure

Supplier : Radiology
Quality Attributes
No/ Min. Waiting
Time
Reports delivered
promptly to ward
Accuracy
Courtesy to patient
Total

Customer : Ward Patients

Weight
25

Perf Wx P Max. Poss. Gap

( 1- 10)
Score
4
100
250
150

30

210

300

90

30
15
100

9
7

270
105

300
150

30
45

34

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
35

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
36

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.

37

Thank you
Questions & Answers Session

38