Chapter 1 Customers Want Top Value What is CV ? Managerial Implications Value-Creating organizations Johnson/Weinstein NOVA SOUTHEASTERN UNIVERSITY SEL:#4

Why Superior Customer Value?  Designing and delivering superior customer value propels organizations to market propels organizations to market leadership positions in highly competitive global markets  Customer Value (CV) eliminates tradeoffs customers face in the new economy Johnson/Weinstein NOVA SOUTHEASTERN UNIVERSITY

T he 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 utilize value for differentiation Outstanding value: continued business success (lifetime customers) Johnson/Weinstein NOVA SOUTHEASTERN UNIVERSITY

Companies Practicing CV F ocus 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 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 NOVA SOUTHEASTERN UNIVERSITY

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

The Meaning of Value ( C ustomer V alue) 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 NOVA SOUTHEASTERN UNIVERSITY

The Meaning of Value (Customer Value) cont’d. The Meaning of Value (Customer Value) cont’d. 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 management’s values (the abstract concepts of what is right, worthwhile, or desirable) Johnson/Weinstein 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 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 Such assessments impact future purchase decisions and ongoing relationships with organizations Johnson/Weinstein NOVA SOUTHEASTERN UNIVERSITY

The S-Q-I-P Approach Value is a combination of: -> S ervice, Q uality, I mage, P rice -> S ervice, Q uality, I mage, P rice ■ The service factor must reign supreme in value- creating 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 NOVA SOUTHEASTERN UNIVERSITY

The SQIP Diamond VALUE Service Price Image Quality Johnson/Weinstein 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 NOVA SOUTHEASTERN UNIVERSITY

Marketing Management Implications (cont’d) 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 NOVA SOUTHEASTERN UNIVERSITY

The Value Matrix Well- Intentioned Bureaucratic Value-Creating Adversarial Process Purpose High Low High Adapted from Capowski, G. (1995)

The Value Matrix Consists of 4 quadrants Well-intentioned, Value- creating, Adversarial and Bureaucratic There is only one ideal for success value-creating value-creating Johnson/Weinstein NOVA SOUTHEASTERN UNIVERSITY A useful management tool for value creation Organizations should view themselves relative to their competitors’ position on the matrix Organizations should view themselves relative to their competitors’ position on the matrix The value matrix maps an organization’s purpose and process orientation The value matrix maps an organization’s 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? -> Why is this the case? Johnson/Weinstein 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 NOVA SOUTHEASTERN UNIVERSITY

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

90 Value Creation Index InnovationQuality Customer Relations Management Capabilities AlliancesTechnology 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.

How Southwest Airlines Creates Superior Value Process Mastery Process Mastery Treat Employees as Customers Treat Employees as Customers Recruitment and Training Recruitment and Training Maverick Culture Maverick Culture Teamwork Clear Service Focus

How Starbucks Creates Superior Value Roasting Technology Roasting Technology Create the right Store Atmosphere Create the right Store Atmosphere Recruitment and Training Recruitment and Training Treat Employees as Partners Treat Employees as Partners Brand Consistency Service Consistency

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., Wendy’s)  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