Chapter 1

Customers Want Top Value

What is CV? Managerial Implications Value-Creating organizations
Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY
SEL:#4

Why Superior Customer Value?

Designing and delivering superior customer value

propels organizations to market leadership positions in highly competitive global markets

Customer Value (CV) eliminates tradeoffs

customers face in the new economy

Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

The Importance of
Superior Customer Value
Continual creation of business experiences to exceed customer expectations

Value is a strategic driver Global and domestic businesses utilize value for differentiation Outstanding value: continued business success (lifetime customers)
Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

Companies Practicing CV

Focus on 9 Key Criteria

Innovation Social Responsibility Quality Management Quality of Products and Services Long-term Investment Value Financial Soundness Effective/Efficient use of Corporate Resources Employees Skills/Abilities The Constant Creation/Addition of Value
Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

Value-Driven Marketing Strategies

Assist in 10 Areas
Understanding customer choices Identifying customer segments Increasing their competitive options Avoiding price wars Improving services quality Strengthening communications Focusing on what is meaningful to customers Building customer loyalty Improving brand success Developing strong customer brand success and relationships

Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

Customers Seek..
fair prices acceptable/good value valued business transactions/relationships innovativeness image status value-added services convenience in goods and outlets
Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

The Meaning of Value (Customer Value)

Customer Value: long-existing concept, emerged from ancient trade practices Value: satisfaction of customer requirements at the lowest total cost of ownership, acquisition and use Relative worth or importance
Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

The Meaning of Value (Customer Value)

contd.

Value: excellence based on desirability or usefulness Value: represented as magnitude or quantity (how much, how many, how good? etc.) Value as in customer value is influenced by managements values (the abstract concepts of what is right, worthwhile, or desirable)
Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

Customers Perception of Value

Tradeoff between benefits

received from offer versus sacrifices to obtain goods/services offer

Value creation occurs

when product/service and user interact in particular use situation

Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

Perceived Value
Customers evaluate experiences as: Dis-satisfaction Satisfaction 0 High satisfaction + Such assessments impact future purchase decisions and ongoing relationships with organizations
Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

The S-Q-I-P Approach

Value is a combination of:
->
The

Service , Quality , Image, Price

service factor must reign supreme in valuecreating organization.

The S-Q-I-P elements do not exist independently; they involve tradeoffs considering the costs of developing and sustaining a leadership position
Johnson/Weinstein 2004
- NOVA SOUTHEASTERN UNIVERSITY

The SQIP Diamond

Service

Image

VALUE

Price

Quality
Johnson/Weinstein 2004

- NOVA SOUTHEASTERN UNIVERSITY

Customer Value:
Marketing Management Implications
Maximizing customer value is an evolving

challenge for service marketers: Reasons: New breed of smarter more demanding customers Increased competition resulting from technology Decreasing quality gaps and globalization
Johnson/Weinstein 2004
- NOVA SOUTHEASTERN UNIVERSITY

Marketing Management Implications (contd)

Solutions: Management must now focus on: Using customer value-based decision-making Stressing customer retention strategies Finding a need to adapt more effectively and efficiently to customers by adding new types of value providers (adders) Developing sound strategic responses to changing business environment Delivering superior value to customers!
Johnson/Weinstein 2004

- NOVA SOUTHEASTERN UNIVERSITY

The Value Matrix

Purpose

High

Well- Intentioned

Value-Creating

Low

Adversarial Low

Bureaucratic High

Process
Adapted from Capowski, G. (1995)

The Value Matrix

A useful management tool for value creation Organizations should view themselves relative to their competitors position on the matrix

Consists of 4 quadrants Well-intentioned, Valuecreating, Adversarial and Bureaucratic There is only one ideal for success value-creating
Johnson/Weinstein 2004
- NOVA SOUTHEASTERN UNIVERSITY

The value matrix maps an organizations purpose and process orientation

CV = Purpose + Process
High in purpose - understanding business and customers desires High in process - knowing how to utilize internal procedures to respond to customers effectively and efficiently Many organizations fail to master both purpose (customer focus) and process (customer support) activities -> Why is this the case?
Johnson/Weinstein 2004
- NOVA SOUTHEASTERN UNIVERSITY

The Value-Creating Organization

Organizations (along with individual employees) should be seen as value-creating entities Value-creating organizations solve individual customer problems A strong competitive edge can be gained by consistently providing superior customer value In order to create and deliver superior customer value organizations must be strong in both purpose and process.
Johnson/Weinstein 2004

- NOVA SOUTHEASTERN UNIVERSITY

Value Calculus
Perceived product or service attributes Perceived substitute product or service attributes Value = Perceived product or service price

Perceived benefits Perceived price

Perceived substitute product or service price

Value Creation Index

Innovation Quality Customer Relations Management Capabilities Alliances Technology Brand Value Employee Relations Environmental & Community Issues
Source: Kalafut, P. and Low, J. (2001) The Value Creation Index, Strategy and Leadership, Vol. 20, No. 5, 9-15.
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How Southwest Airlines Creates Superior Value

Clear Service Focus Process Process Mastery Mastery Treat Employees Treat Employees as Customers as Customers Teamwork Maverick Maverick Culture Culture Recruitment Recruitment and Training and Training

How Starbucks Creates Superior Value

Service Consistency Roasting Roasting Technology Technology Recruitment Recruitment and Training and Training

Create the right Create the right Store Atmosphere Store Atmosphere Brand Consistency Treat Employees Treat Employees as Partners as Partners

Value Development Exercise

Select one of the following businesses:

- Auto dealership - Gas station/minimart - Airline - Mid-priced hotel chain (business travelers) - Quick service restaurant (i.e., Wendys) Prepare a 2-column chart with GOTS on the left side and COSTS on the right side Brainstorm ways to increase GOTS and reduce COSTS