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Creating Value
for Customers

DR. JAGDISH N. SHETH

Charles H. Kellstadt Professor of Marketing


Emory University
jag@jagsheth.com



… The Evolution of Business
Practice and Philosophy
CUSTOMER
CENTRIC
PRACTICE
Business Practice
& Philosophy
COMPETITION
CENTRIC
PRACTICE

PRODUCT
CENTRIC
PRACTICE

TIME

©2006 Dr. Jagdish N. Sheth. All rights reserved. 2


EIM/ Creating Value for Customers 01-31-06




The Strategic Advantage of
Customer Centric Practice
NONTRADITIONAL
UNIT/$ COMPETITION

CUSTOMER
RELATIONSHIP
MANAGEMENT
CUSTOMER
TRANSACTION CUSTOMER
MANAGEMENT OUTSOURCING
MANAGEMENT
COST

REVENUES
BIGGEST CUSTOMERS SMALLEST

©2006 Dr. Jagdish N. Sheth. All rights reserved. 3


EIM/ Creating Value for Customers 01-31-06
Alternative Methods of




Customer Service and
Selling
KEY ACCOUNT
MANAGEMENT

TEAM
SELLING
AVERAGE
ACCOUNT

ACCOUNT
COST/

COST
EXECUTIVE

TELE-
MARKETING

BROADCAST
SELLING (DM/DR)

SELF
ORDERING
(Internet)

REVENUE/ACCOUNT
©2006 Dr. Jagdish N. Sheth. All rights reserved. 4
EIM/ Creating Value for Customers 01-31-06




Who is a Customer?
• A customer is a user, a payer and a buyer
(selector). Each seeks different values.
• Users want performance value; payers want price
value; and buyers want service value.
• Therefore, if you offer a better product or service at
a lower price in a customer friendly manner, you
create sustained customer loyalty.
• The three roles are usually separate and specialized
in Fortune 500 customers but are often blurred in
small to medium enterprises (SME).
• Role separation and specialization occurs even in
SME Accounts when the user is not a payer or a
buyer.

©2006 Dr. Jagdish N. Sheth. All rights reserved. 5


EIM/ Creating Value for Customers 01-31-06
The Twin Requirements of



… Becoming the Customer’s
Choice
CUSTOMER SERVICE
(HOW)
+
CUSTOMER’S
CHOICE

PRODUCT
- + OFFERING
(WHAT)

©2006 Dr. Jagdish N. Sheth. All rights reserved.


EIM/ Creating Value for Customers 01-31-06
- 6




Customer Value Segments
PRICE
LOW HIGH

BEST PREMIUM
HIGH VALUE VALUE
(50 to (15 to 25%)
65%)
PERFORMANCE

CHEAP RIP OFF


LOW VALUE VALUE
(10 to (<5%)
15%)

©2006 Dr. Jagdish N. Sheth. All rights reserved. 7


EIM/ Creating Value for Customers 01-31-06




Becoming the Customer’s
Choice
You become the customer’s choice by
exceeding customer expectations better than
the competition.
1. Customer satisfaction is partly psychological and partly
real. Expectations are psychological and experiences
are real.
2. Expectations have larger variance (diversity) than
experiences.
3. Customer expectations rise with customer satisfaction.
4. It is equally important to manage customer
expectations as meeting or exceeding them.
5. Meeting expectations of the most demanding customers
results in exceeding expectations of other customers.

©2006 Dr. Jagdish N. Sheth. All rights reserved. 8


EIM/ Creating Value for Customers 01-31-06



… Creating Value for
Customers
VALUE ADDED QUALITY
SERVICES OBSESSION
10 1

FRONTLINE
DIFFERENTIATION
COMPETENCE
2
9
PERFORMANCE
SERVICE VALUE
VALUE (USER)
ONE STOP (BUYER) INNOVATION
ACCOUNTABILITY 3
8

PRICE
VALUE
EASY TO DO
BUSINESS WITH (PAYER) TARGET COSTING

7 4

MASS
FINANCING CUSTOMIZATION
6 5

©2006 Dr. Jagdish N. Sheth. All rights reserved. 9


EIM/ Creating Value for Customers 01-31-06




Creating Value for
Customers
PERFORMANCE VALUE (USER)
1. Quality Obsession
Examples: Six Sigma Process
Motorola, GE
Japan, Inc.
2. Differentiation
Examples: Product Differentiation
Brand Differentiation
Distribution Differentiation
3. Innovation
Examples: 3M Company
IBM (On-Demand Computing)

©2006 Dr. Jagdish N. Sheth. All rights reserved. 10


EIM/ Creating Value for Customers 01-31-06



… Creating Value for
Customers
PRICE VALUE (PAYER)
4. Target Costing
Examples: Japanese car makers
Intel
5. Mass Customization
Examples: Motorola
L’eggs
6. Financing
Examples: Airbus
Infrastructure industries
©2006 Dr. Jagdish N. Sheth. All rights reserved. 11
EIM/ Creating Value for Customers 01-31-06



… Creating Value for
Customers
SERVICE VALUE (BUYER)
7. Easy to do Business With
Examples: Federal Express
Online Access and Response
Airline Reservation Systems
8. One Stop Accountability
Examples: Prime vs. Subcontracts
System Integration Services
Key Account Managers
9. Frontline Competence
Examples: Specialty Chemicals
Sysco
American Express
10. Value Added Services
Examples: Service Contracts
Outsourcing Services
Managed Facilities
©2006 Dr. Jagdish N. Sheth. All rights reserved. 12
EIM/ Creating Value for Customers 01-31-06




Value Creation is a Process
• Value creation is process driven and not
program driven
• Value creation is a process obsession
• Value creation is a continuous process
• Value creation is a cross-functional
process
• Process driven value creation is more
difficult to imitate
• Value creation is a cross functional
collaboration with customers
©2006 Dr. Jagdish N. Sheth. All rights reserved. 13
EIM/ Creating Value for Customers 01-31-06



… Antecedents for Partnering
with Customers
CONTINUOUS
BUSINESS
PROCESSES

Customer Centric
Practice

CUSTOMER CUSTOMER
SATISFACTION COMMITMENT
(WHAT)

Product Centric
Practice
AD HOC
BUSINESS
PROGRAMS
(HOW)
©2006 Dr. Jagdish N. Sheth. All rights reserved. 14
EIM/ Creating Value for Customers 01-31-06




Customer Centric Culture
RELATIONSHIP
MANAGEMENT

Relationship Trusted Advisor


Manager

SALES SOLUTION
DRIVEN DRIVEN

Account Expert
Executive Advisor

TRANSACTION
MANAGEMENT
©2006 Dr. Jagdish N. Sheth. All rights reserved. 15
EIM/ Creating Value for Customers 01-31-06



… Customer Centric Processes

PRODUCT CENTRIC PROCESSES


SUPPLIER CUSTOMER

SALES PURCHASING
?
SERVICE USERS

CUSTOMER CENTRIC PROCESSES


SUPPLIER CUSTOMER
INFORMATION INFORMATION
SYSTEMS SYSTEMS
HUMAN RESOURCES HUMAN RESOURCES
CASH FLOW CASH FLOW
LOGISTICS LOGISTICS
CONTRACTS CONTRACTS
INVENTORY INVENTORY

SALES SALES
MARKETING MARKETING
SERVICE SERVICE
©2006 Dr. Jagdish N. Sheth. All rights reserved. 16
EIM/ Creating Value for Customers 01-31-06



… Customer Centric Systems:
Automation & Integration
ONLINE

Connected
Enterprise

FUNCTIONAL INTEGRATED
SILOS ORGANIZATION

Traditional
Enterprise

TIME SILOS

©2006 Dr. Jagdish N. Sheth. All rights reserved. 17


EIM/ Creating Value for Customers 01-31-06



Emergence of CRM and e-

Business

Externally SUPPLY CHAIN COLLABORATIV


Integrated AUTOMATION E COMMERCE
(SCM) (e-BUSINESS)

Internally BUSINESS CUSTOMER


PROCESS RELATIONSHI
Integrated
AUTOMATION P
(ERP) AUTOMATION
(CRM)
Back Office Front Line
Automation Automation
©2006 Dr. Jagdish N. Sheth. All rights reserved. 18
EIM/ Creating Value for Customers 01-31-06
Customer Centric



… Organization Requires Dual
P&L Organization
Create a Chief Customer Officer (CCO) position comparable to the
Chief Operating Officer (COO) position.

Busine Business Business Business Business Business


ss Unit Unit Unit Unit Unit
Unit 2 3 4 5 6
1

Operati Operatio Operati Operati Operati Operatio


ons ns ons ons ons ns
(COO)

Marketi Marketi Marketi Marketi Marketi Marketi


ng ng ng ng ng ng
Sales & Sales & Sales & Sales & Sales & Sales &
Service Service (CCO)Service
Service Service Service

©2006 Dr. Jagdish N. Sheth. All rights reserved. 19


EIM/ Creating Value for Customers 01-31-06
Customer Centric Organization




Becomes Supply Chain
Management

• Demand driven supply chain (Cisco,


Dell)
• Requires partnering with suppliers
• Requires partnering with channels
• Learning from services industries,
especially from airlines and
banking services

©2006 Dr. Jagdish N. Sheth. All rights reserved. 20


EIM/ Creating Value for Customers 01-31-06



… Customer Centric Organization
Encourages Service Revenues

• Value of installed base for


downstream services revenues
• Commoditization of core
products/services
– (razor vs. blades)
• Annuity model of revenues
– (IT as utility)

©2006 Dr. Jagdish N. Sheth. All rights reserved. 21


EIM/ Creating Value for Customers 01-31-06

Customer Centric Organization


… Leads to Outsourcing Non-
Profitable Customers

• Neglecting the customers (C


Accounts) is worse than
outsourcing the customers
• Outsourcing unwanted customers
is a win-win-win strategy
• Outsourcing unwanted customers
enables the company to grow the
total market

©2006 Dr. Jagdish N. Sheth. All rights reserved. 22


EIM/ Creating Value for Customers 01-31-06

Customer Centric Organization


… Discovers Business
Development

• Business Development is a very different


skill set than traditional Sales & Marketing
• It requires collaborative mindset even with
competition (co-opetition)
• It requires strong financial expertise,
especially balance sheet oriented
• It is a corporate function reporting directly
to Chief Customer Officer (CCO)

©2006 Dr. Jagdish N. Sheth. All rights reserved. 23


EIM/ Creating Value for Customers 01-31-06




Emerging Issues Confronting
Customer Centric Practice

WHO OWNS
MANAGING THE
RELATIONSHIP
PUBLIC
POLICY

GLOBAL 7 1 INTERNAL
MARKETING
ACCOUNT 2
MANAGEMENT 6
5 4 3 HARDWIRING
SUPPLIER THE
PARTNERING CUSTOMER

PERFORMANCE
METRICS
©2006 Dr. Jagdish N. Sheth. All rights reserved. 24
EIM/ Creating Value for Customers 01-31-06