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Customer Value Management Concepts and Case Study

by Sunil Thawani

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

Desired Required Benefits- Functions- (Value) Increasing Performance

100 0 1st Qtr 3rd Qtr

East West 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.
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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)
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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
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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 Did not answer why we win/ loose customers ? Often non customers not included Failed to measure performance relative to competition.

Effectiveness

Time
Conformance Quality Stage2
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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

Stage2

Conformance Qlty.

Customer satisfaction

Time
Stage 3
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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 ?
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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
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Making Quality a Strategic Weapon


Customer Value Management Total Quality Management Stage 4 Effectiveness

Stage 3
Stage 1

Stage2

Conformance Qlty.

Time
Customer satisfaction

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.

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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
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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 ?
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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
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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+.

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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.
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Customer Value is a Leading Indicator of Market Share

WWPF -

AT & T market share

1987

1988

Adapted from speech given by Raymond E. Kordupleski at the American Marketing Associations Customer Satisfaction Congress, 1991.

1989

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
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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
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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
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Step # 3 Selecting Competitors

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

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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

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Step # 4 Value Profile - Car Co.


Category/ Factor Style
- Shape -Colour -Glass Area

Weightage

Performance (1-10) A B C 5 7.5 6

Value Score (WxP) A B C 100 150 120

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Engineering -Power
- Maintenance - Safety

30

240 240

180

Comfort -Legroom
-Driving - Options

30

180 240

210

Spares & Services Total

20 100

8.5

160 170

100
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680 800 610

Step # 4 Inhouse Value Profile


Co. A
Value Score Price $ Value-Price Value-Price Profile Cost Value Cost

Co. B 800 11,000 0.073 1.141 8100 0.099 1.523

Co. C 610 9,500 0.064 1 7500 0.065 1


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680 10,000 0.068 1.063 8000 0.085

Value-Cost Profile 1.308

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
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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


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Step # 7 Prioritise to Improve


Car Cs Competitive Strategy
Category Max C's Poss Score Score 200 120 A's Score 100 B's Score 150 C vs. A C Vs B

Style

+20

-30

Engg.

300

180

240

240

-60

-60

Comfort

300

210

180

240

+30

-30

Spares & Service

200

80

160

170

-60

-70

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Customer Value Map

Higher Price

Worse Value
DD

Price Index

1.0

AA BB CC

Lower Price

Better Value
Inferior 1.0 Superior
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Value Index

Step # 7 - Value Factor Process Matrix


Process Design Manufacturing QA Purchase Value Factor

After Sales Service

Low Power Leg Room Shape Costly Spares Poor Servicing

**

**

**

**

**

** ** **

**

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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.
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Sample Customer Value Structure


Supplier : Pharmacy
Quality Attributes Weight

Customer : Patient/ Relative


Perf 1-10 6
7 6 2

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 Provide empty bottles 05 Total 100

Wx P Max. Poss. Gap Score 90 150 60


210 90 20 300 150 100 90 60 80

8 7 0

120 70 00

150 100 50

30 30 50
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Sample Customer Value Structure


Supplier : Radiology
Quality Attributes No/ Min. Waiting Time Reports delivered promptly to ward Accuracy Courtesy to patient Total Weight 25 30 30 15 100

Customer : Ward Patients


Perf Wx P Max. Poss. Gap ( 1- 10) Score 4 100 250 150 7 9 7 210 270 105 300 300 150 90 30 45

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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
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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
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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.


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Thank you Questions & Answers Session

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