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ManagingCustomerValueisCriticaltoAchievingFullProfitPotential

Home(https://www.pricingsolutions.com) ManagingCustomerValueisCriticaltoAchievingFullProfit
Potential

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content/uploads/2013/04/Managing_Customer_Value.pdf)

Thevaluedecadeisuponus,statedJackWelch,CEOofGeneralElectricin1992whendescribingoneofthekey
trendsofthe1990s.Itisgenerallyacceptedtodaythatforacompanytogrowandachieveitsfullprofitpotentialit
mustmaximizecustomervalue.Eventhoughwearewellintothevaluedecade,therestillremainsmuchconfusion
asto:

Whatismeantbycustomervalue?
Howdoyoumeasurecustomervalue?
Howdoyoumanagecustomervalue?

Continuereading...(https://www.pricingsolutions.com/?page_id=1531)

DownloadthePDFVersion(https://www.pricingsolutions.com/wp
content/uploads/2013/04/Managing_Customer_Value.pdf)

Thevaluedecadeisuponus,statedJackWelch,CEOofGeneralElectricin1992whendescribingoneofthekey
trendsofthe1990s.

Itisgenerallyacceptedtodaythatforacompanytogrowandachieveitsfullprofitpotentialitmustmaximizecustomer
value.Eventhoughwearewellintothevaluedecade,therestillremainsmuchconfusionasto:

1.Whatismeantbycustomervalue?
2.Howdoyoumeasurecustomervalue?
3.Howdoyoumanagecustomervalue?

Tothefirstquestion,Whatiscustomervalue?Wehavedevelopedadefinition(seebox)whichunderliesitsworkwith
clients.UnderstandingwhatcustomervalueiswillbediscussedfurtheronPg.2ofthisnewsletter.

Instrumentalinmanagingcustomervalue,isthequestionofHowtomeasurecustomervalue?Asthesayinggoes,
Youcantmanagewhatyoudontmeasure.InthefeaturearticleonPg.23ofthisnewsletter,wehaveoutlinedthekey
elementsofvaluefromthecustomersperspective,togetherwithausefulapproachtoassistyouinbeginningto
measurethevaluedeliveredtocustomersrelativetocompetition.
FinallyastoHowyoumanagecustomervalue?thisisdependentuponwhatyouaretryingtoachieve.Itisimportantto
understandhowacompanygrowsandthedifferentrolesthatvalueplaysinthis.Forexample,therolevariesdepending
onwhether:youaretryingtoacquirenewcustomersenhancetheprofitabilityofexistingcustomersor,extendthe
durationofcustomerrelationships.(Seechartonpreviouspage.)

CUSTOMERVALUEIS

Insettingouttomanagecustomervalue,youmaygrapplefirstwiththeconceptofhowcustomersperceivevalue.The
definitionontheprecedingpageisanallencompassingstartingpointbuttoclarifyhowcustomersperceivevalue,the
diagramsummarizesthefourfoundationsofperceivedvalue:ProductQuality,ServiceQuality,BrandImageand
PersonalCost.
Companiesthataresuccessfulatdeterminingcustomervaluearegoodatproperlyweightingthefourvaluefoundations
andthendeterminingthespecificationsthatwillcreatethebenefitsthecustomerisseeking.Developingspecifications
thatlinktotheappropriatebenefitsinvolvesansweringthe
followingquestionsforeachofthefourfoundations:

1.Whatarethebenefits/consequencesthatthecustomerisseeking?
2.Whichattributeswillcreatethosebenefits/consequences?
3.Whatspecificationswillensurewedeliveronthoseattributes?

Infuturenewsletterswewillprovidefurtherinsightsintohowtoanswerthesequestions.

MEASURINGCUSTOMERVALUE

Understandingwhatismeantbycustomervalueisonlythefirststep.Thefollowingisasystematicapproachto
measuringcustomervaluereferredtoasthePerceivedValueMeasurementModel.Itisbaseduponsoundresearchand
canbeanextremelypowerfulmanagementtool.Itisafourstep
process:

Identifyingkeyvaluedrivers
2)Weightingthesekeyvaluedrivers
3)Benchmarkingyourselfagainstcompetitorsand,
4)Analyzingtheresultsandtakingaction.

Thefollowingexampleillustratesasimplifiedapproachformeasuringperceivedcustomervalue.Inrealworldsituations,
perceivedvalueshouldbemeasuredbothatthebenefits/consequencesandatattributelevels.However,inthis
example,wewilllimitmeasurementtotheattributelevel.
EXAMPLE

Company:MegaCorp
Industry:Hotels
CoreMarket:BusinessCustomers
Situation:ExecutivesofMegaCorparetryingtoimprovethecompetitivenessofoneoftheirhotelsversusanearby
competitor(HotelX)

Step1.Identifytheattributeswhichdrivevalueforbusinesscustomersandinfluencetheirbuyingdecisions.

ThecompanyundertookCustomerValueDetermination(CVD)researchwhichidentifiedthevaluedriversofthis
customersegment.Thetablebelowliststhesevaluedriversasattributesderivedfromthisresearchandthedegreeto
whichtheyinfluencethebuyingdecision.

Step2.Determinehowcustomersrateyouvs.competitorsonthesevaluedrivers.

CustomersatisfactionresearchandcompetitivebenchmarkingshowhowbusinesscustomersrateMegaCorpagainst
thecompetitiononthekeyvaluedrivers(seeStep2oftable).

Step3.Determineyourtotalperceivedvalue(PV)*relativetocompetitors.

Perceivedvalueiscalculatedforbothhotelsbydeterminingtheweightedaverageoftheimportanceweightingand
performancescore(ie.,Step1xStep2=PVmeasurement).(SeeStep3ofthetable.)

Step4.Analyzetheresultsandtakeaction.

InthiscasetheresultsindicatethatHotelXisdeliveringthemostvaluetothebusinesscustomermarketsegment(880
vs.800).Thisisthecaseeventhoughithasthehighestprice.Betterservice,morecomfortableroomsandbetter
amenitiesaregivingitavalueedge.BecauseHotelXisdeliveringmorevalueitwillgainmarketsharewhileMegaCorp
willlosemarketshare.

Tooffsetthelowervalueratingoftheirhotel,theMegaCorphotelexecutivesmustnowidentifyhowtheyaregoingtogo
aboutimprovingthepositionoftheirhotelrelativetoitscompetitor.Iftheydonotwishtolowerpriceevenfurtherthen
theymustdooneofthefollowing:

Improveitsperformanceratingontheotherattributes
Trytoaltertheattributesusedbythecustomertodeterminevalue(e.g.,introducealoyalty
program)or,
Targetsegmentsofthemarketwhicharemorepricesensitive.


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