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Customer Lifecycle and The Service-Profit Chain Walter Adamson June, 2003 Version C Contact: [email_address] Tel: +61 403 345 632
Introduction ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Service Profit Chain 1 Focus of This Presentation Connected through Value Employee Productivity Internal Performance Employee Loyalty When we have this ..... Employee Satisfaction Profit & Growth 1 Customer Loyalty Customer Satisfaction 1 Customer Value 1 Service Value 1 External Performance
Customer Lifecycle ,[object Object],The Customer Lifecycle Phase 1  Pre-sale Phase 5  Value Creation Phase 9 Disposing & Upgrading Phase 2  Value Identification Phase 7 Customer Value Gain Phase 8  Value Improvement Phase 3  Meeting Needs Phase 4  Obtaining Commitment Phase 6  Customer Learning
Profitably Serving Customers ,[object Object],[object Object],[object Object],Customer Value Model Customer Value Package Whole Product Business Logic Customer Lifecycle Service-Profit Chain Profit & Growth Value Chain When we have this ..... $$
The Customer  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Understanding the Customer Value Model drives the development of the Customer Value Packages Customer Value Model Customer Value Package
The Service Product  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Understanding the Whole Product concept allows business to be captured and value created through the full Customer Lifecycle Whole Product Customer Lifecycle
The Delivery  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Understanding the Whole Product concept allows business to be captured and value created through the full Customer Lifecycle Value Chain Business Logic
The Lifecycle Link to Profit  Understanding the complete Customer Lifecycle is essential in order to the satisfaction required in the Service-Profit Chain Customer Lifecycle Service-Profit Chain ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Profitability and Sustainability  Successfully delivering service profits requires an understanding and enablement of the linkages across the complete system Profitability Sustainability ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Lifecycle Sales Approach - 1 ,[object Object],Solution (Why) Product (What) Advantages Promoter Transaction, Product Pusher Salesperson Needs Relationship, Value Provider Problem Solver Customer Needs (Who) Stages of Sales Maturity focus process 4 3 2 1
The Lifecycle Sales Approach - 2 ,[object Object],[object Object],[object Object],[object Object],[object Object],Solution (Why) Product (What) Advantages Promoter Transaction, Product Pusher Salesperson Needs Relationship, Value Provider Problem Solver Customer Needs (Who) focus process 4 3 2 1
The Service Profit Chain 1 Focus of This Presentation Connected through Value Employee Productivity Internal Performance Employee Loyalty When we have this ..... Employee Satisfaction Profit & Growth 1 Customer Loyalty Customer Satisfaction 1 Customer Value 1 Service Value 1 External Performance
The Service-Profit Model ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],1
Customer Lifecycle ,[object Object],The Customer Lifecycle Phase 1  Pre-sale Phase 5  Value Creation Phase 9 Disposing & Upgrading Phase 2  Value Identification Phase 7 Customer Value Gain Phase 8  Value Improvement Phase 3  Meeting Needs Phase 4  Obtaining Commitment Phase 6  Customer Learning
Business Logic ,[object Object],[object Object],Revenue Model Marketing & Sales Logic Service Product Design Delivery & Customer Support Business Strategy Customer Value Package Resources Customer’s Needs Customer Value Model Profit Targets Competition
Lifecycle and Business Logic ,[object Object],[object Object],Business Logic
Business Logic Basics ,[object Object],Business Logic Value Creation Value Capture Value Chain Customer Value The Value Proposition Marketing Model Revenue Model Core Competencies Funds and Investment People Management Operations Model Systems Management
Business Logic and Strategy ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Business Logic and Strategy ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Strategic Model ,[object Object],Vision Customer Value Model Mission Business Logic and Strategy Business Targets Customer Value Package Core Values and Philosophy Operating Environment Key Result Areas
Customer Value Customer Value Model Customer Value Package Business Logic and Strategy Customer Value   has three major components
Customer Value Model ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Tells us what value we have to provide in order to win, and keep, the customer’s business over the complete lifecycle.
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Building the Customer Value Model The customer value model is an ‘invisible truth’ used by the customer to evaluate the quality of outcomes you provide.
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Hierarchy of Customer Value You must have mastered the first two levels in order to satisfy the customer on the higher levels.  Failings in the first two levels will waste the effort and investment in the higher levels.
Customer Value Package ,[object Object],[object Object],Enterprise Components 1. Marketing & Sales Logic 2. Service Product Design 3. Delivery & Customer Support 4. Revenue Model 5. Branding & Reputation 6. Informational 7. Interpersonal
Customer Value Package ,[object Object],The Whole Product plus Enterprise Capabilities Post-Sales Support Life-Cycle Support Pre-Sales Support Integration Services Software Consulting Hardware The Product 1. Marketing & Sales Logic 2. Service Product Design 3. Delivery & Customer Support 4. Revenue Model 5. Branding & Reputation 6. Informational 7. Interpersonal
Customer Value Package ,[object Object],[object Object],[object Object]
Customer Value Expectations ,[object Object],Customer Value Criteria ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Customer Value Audit ,[object Object],[object Object],[object Object],CVM4 CVM3 CVM2 CVM1 Interpersonal Informational Branding & Reputation Revenue Model Delivery & Support Service Prod Design Marketing & Sales Logic Customer Value Factors Customer Value Package
Customer Value Audit ,[object Object],[object Object],CVM4 CVM3 CVM2 CVM1 Life-cycle Support Post-Sales Support Integration Services Consulting Hardware Software Pre-Sales Support Customer Value Factors Customer Value Package
Market Value Audit ,[object Object],[object Object],[object Object],[object Object],Customer Value Packages 5 4 3 2 1 Look for Niches     1  2  3  4  5 Customer Types
The Service-Profit Model ,[object Object],[object Object],[object Object],[object Object],1 2
Understanding Value ,[object Object],[object Object],eMotion-Value End Condition Approval Emotional Reaction Value Package Customer’s Perception
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Understanding Value - 2 Advantages Lead To Features Benefits Lead To
Understanding Value - 3 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Developing a VP - Asking Questions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Developing - Discovering Needs 1 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Developing – Discovering Needs 2 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Developing – Generating the VP ,[object Object],When we have this ..... We will be able to do these things ... Which means this in business terms ...... And we’ll be able to measure the benefits this way .....
Testing the Value Proposition ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Integrating the VP into a CVP ,[object Object],The Whole Product plus Enterprise Capabilities Value Proposition Post-Sales Support Life-Cycle Support Pre-Sales Support Integration Services Software Consulting Hardware The Product 1. Marketing & Sales Logic 2. Service Product Design 3. Delivery & Customer Support 4. Revenue Model 5. Branding & Reputation 6. Informational 7. Interpersonal
Integrating the VP into a CVP ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
IT Support of the CVP ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Service-Profit Model ,[object Object],[object Object],[object Object],[object Object],[object Object],1 3
Service-Product Development ,[object Object],Customer Service Product Design Service Delivery Value Proposition Activity Costing/Profit Go to Market
Which Customer? ,[object Object],[object Object],Integration Logic Customer? Service Product Design Service Delivery Value Proposition Activity Costing/Profit Go to Market
Service Product Design Audit ,[object Object],[object Object],CVM4 CVM3 CVM2 CVM1 Integration Logic Activity Costing/Profit Go To Market Service Delivery Value Proposition Customer Value Factors Lifecycle Adoption Phase
Whole Product Definition ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Whole Product Concept ,[object Object],[object Object],Generic Product Expected Product Augmented Product Potential Product Value
The Expected Product ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Augmented Product ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Potential Product ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Product Lifecycle ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Whole Product Value ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Technology Adoption Lifecycle ,[object Object],[object Object],Time 2.5 % Innovators 13.5% Early adopters 34% Early majority 34% Late majority 16% Laggards
Technology Lifecycle Value Audit ,[object Object],[object Object],CVP4 CVP3 CVP2 CVP1 Laggards Late Majority Early Majority Early Adopters Innovators Customer Value Factors Lifecycle Adoption Phase
Customer and Technology Lifecycle ,[object Object],These buyers 1  need less selling and more confidence that you will support the product they are willing to try These buyers 2  need more selling and confidence that others have bought the product and are satisfied Customer Lifecycle 2 1 1 2 1 1 2 2 1 Early adopters Early majority Late majority Laggards
The Service-Profit Model ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],1 3 4
Pricing Strategies Begin with costs and work towards selling price Begin with selling price and work towards costs Cost factors Price Customer Value Competition Cost-based Pricing Demand-based Pricing Combination Pricing Competition-based Pricing Begin with Competitors’ Pricing Above The Market Below The Market At The Market
General Pricing Challenges ,[object Object],Demand-Based Cost-Based Competition- Based Cost-based problems: 1.  Costs difficult to trace 2.  Labor more difficult to price than materials 3.  Costs may not equal value ,[object Object],[object Object],[object Object],[object Object],Demand-based problems: 1.  Monetary price must be adjusted to reflect the value of non-monetary costs  2.  Information on service costs is less available to  customers, hence price may not be a central factor
Service Pricing Strategies ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Pricing Strategies ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Incorporating Value into Pricing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Price-Value Perceptions ,[object Object],Value is low price. Value is everything I want in a service. Value is the quality I get for  the price I pay. Value is all that I get for all  that I give.
Value Strategies for Service Pricing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Pricing Questions - Services ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Service Costing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Strategic Cost Analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Strategic Cost Analysis Benefits ,[object Object],Management can identify and evaluate new service-products to improve performance by evaluating how service and process designs affect activities and costs. Companies can work with their customers to evaluate the costs and prices of alternative value packages.
For Service Firms ,[object Object],[object Object],[object Object],[object Object],Resources CVP 1 CVP 2 CVP 3 Activities Activities Activities
Service Costing - 1 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Service Costing - 2 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Logic of Activity Costing ,[object Object],[object Object],[object Object],It is the  Customers That buy our  Services Which makes us conduct  Activities That consume our Resources
Basic Activity Cost Allocation ,[object Object],Fundamental Cost Objects Activities Costs of Activities Assignment to Other Cost Objects Product Lines Individual Products Customers Distribution Channels
Implementing Activity Costing ,[object Object],[object Object],[object Object],Identify and classify cost objects (activities). Customer Value Package 1 Customer Value Package 2 Identify cost drivers relevant to each  activity  in a whole product value package: Marketing & Sales Corporate Services Lifecycle Support Step 1 Step 2
Activity-Based Costing ,[object Object],[object Object],[object Object],[object Object]
Cost Drivers ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Activity–Based Costing - 1 ,[object Object],[object Object],[object Object],[object Object],[object Object],Managers need to see “whole product” costs as an integral part of the firm’s effort to create value for customers.
Activity-Based Costing - 2 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Activity-Based Costing - 3 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
When to Use ABC - 1 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
When to Use ABC - 2 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Strategic Cost Analysis Benefits ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Typical Revelations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Limitations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Service-Profit Model ,[object Object],[object Object],[object Object],[object Object],1 3 4 5
Customer Lifecycle Costs ,[object Object],The Customer Lifecycle Phase 1  Pre-sale Phase 5  Value Creation Phase 9 Disposing & Upgrading Phase 2  Value Identification Phase 7 Customer Value Gain Phase 8  Value Improvement Phase 3  Meeting Needs Phase 4  Obtaining Commitment Phase 6  Customer Learning
Whole Product Value Chain ,[object Object],[object Object],[object Object],[object Object],[object Object],Value/Cost D Value/Cost C Value/Cost B Generic Product Value/Cost A Expected Product Total Solution
Value Chain Analysis ,[object Object],[object Object],[object Object],[object Object],[object Object]
Value Chain ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Value Chain Analysis - 1 ,[object Object],[object Object],[object Object],[object Object],[object Object]
Value Chain Analysis - 2 ,[object Object],[object Object],[object Object],[object Object],[object Object]
Growing the Bottom Line ,[object Object],Activities Costs of Activities Product Lines Individual Products Customers Distribution Channels Value/Cost D Value/Cost C Value/Cost B Generic Product Value/Cost A Expected Product
Increasing Net Value ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Value/Cost D Value/Cost C Value/Cost B Generic Product Value/Cost A Expected Product Total Solution
Margin Improvement ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Service Process Chain - 1 ,[object Object],xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx Service Product Marketing & Sales Support Customer Value & Your Profit xxxxx Process Activity A Customer Value Package Determining Service-Product Mix Determining Marketing & Sales Effort Support & Lifecycle Effort
Service Process Chain - 2 ,[object Object],xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx Service Product Marketing & Sales Support 1 5 9 2 7 8 3 4 6
What To Measure ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Service Process Improvement - 1 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Service Process Improvement - 2 ,[object Object],The Whole Product plus Enterprise Capabilities Value Chain - Processes Post-Sales Support Life-Cycle Support Pre-Sales Support Integration Services Software Consulting Hardware The Product 1. Marketing & Sales Logic 2. Service Product Design 3. Delivery & Customer Support 4. Revenue Model 5. Branding & Reputation 6. Informational 7. Interpersonal
Customer Profitability - 1 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Customer Profitability - 2 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Customer Profitability - 3 ,[object Object],[object Object],[object Object],[object Object],Sensitive Price-sensitive and few special demands Impressive Costly to service, but pay top dollar ,[object Object],[object Object],[object Object],Net Margin Realized Low High Low High Cost to Serve
Gaining Internal Balance ,[object Object],1 3 2 4 1 1 1 1 2 2 2 3 3 3 4 4 4 4 3 2 Profit Top-line Quality Technology CEO & Finance Sales Consulting Delivery Products & R&D
Summary – Improving Margins ,[object Object],[object Object],[object Object],[object Object],[object Object]
Profitably Serving Customers ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],1 2 3 4 5

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Service Product Profit Model - FULL

  • 1. Customer Lifecycle and The Service-Profit Chain Walter Adamson June, 2003 Version C Contact: [email_address] Tel: +61 403 345 632
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  • 3. The Service Profit Chain 1 Focus of This Presentation Connected through Value Employee Productivity Internal Performance Employee Loyalty When we have this ..... Employee Satisfaction Profit & Growth 1 Customer Loyalty Customer Satisfaction 1 Customer Value 1 Service Value 1 External Performance
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  • 13. The Service Profit Chain 1 Focus of This Presentation Connected through Value Employee Productivity Internal Performance Employee Loyalty When we have this ..... Employee Satisfaction Profit & Growth 1 Customer Loyalty Customer Satisfaction 1 Customer Value 1 Service Value 1 External Performance
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  • 22. Customer Value Customer Value Model Customer Value Package Business Logic and Strategy Customer Value has three major components
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  • 60. Pricing Strategies Begin with costs and work towards selling price Begin with selling price and work towards costs Cost factors Price Customer Value Competition Cost-based Pricing Demand-based Pricing Combination Pricing Competition-based Pricing Begin with Competitors’ Pricing Above The Market Below The Market At The Market
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