Customer value management

Customer Value Management
November, 2002
From anywhere… to anyone

Introduction to Customer Value Management
Presentation Objectives
•Define customer value management
(CVM),
•Understand the difference between
customer value and customer
satisfaction,
•describe key CVM concepts and tools,
and
•communicate the importance of
measuring quality in the eyes of your
clients.

Introduction to Customer Value ManagementWHY invest in CVM?
To become a world leader in providing
innovative delivery solutions, creating
value for our customers, employees
and all customers

What is Customer Value?
Quality Price
VALUE
Source: Adapted from Customer Satisfaction in Practice by the American Productivity & Quality Center, 1998

Sub-attributes
Sub-attributes
Product
Quality
Customer
Service
Marketing
Sales
Order Fulfillment
Overall
Quality
Relative Price
Competitiveness
Overall Value
Satisfaction
Customer Value Defined

Quality
Attributes
Performance Rating
Importance
Weight
ABC XYZ
Product Information 50 6 8
Advertising and Promotion 20 6 7
Customer & Consultation 20 9 6
Customized Solutions 10 8 7
100

Stage One Stage Two Stage Three Stage Four
Minimum
Requirements
Customer
Focus
Customer
Attitudes
Competitive Focus on
Targeted Markets
Conformance Quality
• Delivering what we
promise
• Meeting standards
Customer
Satisfaction
• Providing what
customers want
• Responding to
customer complaints
Customer
Loyalty
• Retaining our
customers
• Getting them to
recommend us
Customer
Value
• Meeting critical
needs of targeted
customers
• Outperforming
competitors
• Creating new, unique
benefits
21st Century
Growth
Company
Source: Adapted from Managing Customer Value by Bradley T. Gale, (New York, The Free Press, 1994)

I can’t get no (customer) satisfaction…
•Satisfaction in itself does not lead to customer loyalty
•Positive empirical relationship between value focus and
link to market share
Where are leading-edge companies headed?
Satisfaction
=
Satisfy Existing
Customers Better
Value
=
•Improve Your
Competitive Position
•Attract and Retain
Targeted Customers

Satisfaction
Current
Service
The Entire
Customer
Relationship
Lag Indicator
Lead
Indicator
Company
Performance
Company Vs.
Competition
Tenuous Link
to Business
Performance
Proven
Relationship to
Business
Performance
Value

INPUTS
•Customer Value Management Council
•External/Internal Data Sources
OUTPUTS
• Customer Value Tools and Data
• Competitive Value Proposition
• Customer Loyalty and Market Share
Analysis
GOAL
To establish CVM as a core competence for the
Canada Post Group of Companies.
KEY MEASUREMENTS
Customer Loyalty Market Share Profitability Customer Retention
DEFINITION
Customer Value Management is a process designed to develop and execute
value-based strategies which impact marketing, strategic planning, competitive
positioning, branding, pricing, and selling.

Ideal
Customer
Value
Process
Capabilities
Performance
Improvement
CUSTOMER-CENTRIC

1. Assess Market
Opportunity
2. Conduct
Analysis
3. Commit to a
Value Proposition
4. Measure and
Reward
Performance

Value Analysis Tools
Value Scorecard
Performance Scores Weights for:
Dimension Attribute
Filto
Walter
Envir
Brite
Clarion
Average
Attrib. Value
Benefits Product Chloroform Removal 10.0 10.0 2.0 10.0 2.0 6.8 12.0
Lead Removal 10.0 10.0 10.0 8.0 10.0 9.6 10.0
Taste 8.0 10.0 8.0 6.0 6.0 7.6 9.0
Clogging 8.0 2.0 10.0 4.0 8.0 6.4 25.0
Service Reliable supply 5.0 5.0 7.0 9.0 9.0 7.0 16.0
Technical spport 2.0 1.0 3.0 1.0 7.0 2.8 14.0
RelationshipRelationship 7.0 9.0 5.0 5.0 9.0 7.0 14.0
Weighted benefit scores 7.0 5.8 6.7 5.8 7.5 6.6 98.3
Costs Selling priceCapital cost 17 40 30 37 25 30 100.0
Other costs Disposibles cost 120 160 54 85 130 110 100.0
Weighted cost scores 137 200 84 122 155 140 -1.7
Value Map for Commercial Filtration -- Base
Envir
Walter
Filto
Brite
Clarion
60
80
100
120
140
160
180
200
220
5.6 6.0 6.4 6.8 7.2 7.6
Performance
Price
($)
High
Cost
Filto Value Relative to Average
-25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0
Chloroform Removal
Lead Removal
Taste
Clogging
Reliable supply
Technical spport
Relationship
Capital cost
Disposibles cost
Relative value impacts - Filto vs. Average
Differential worth of performance advantages and disadvantages
Dimension Attribute
Filto
Walter
Envir
Brite
Clarion
Average
Benefits Product Chloroform Removal 22 22 -34 22 -34 0
Lead Removal 2 2 2 -9 2 0
Taste 2 13 2 -8 -8 0
Clogging 23 -64 53 -35 23 0
Service Reliable supply -19 -19 0 19 19 0
Technical spport -7 -15 2 -15 34 0
Relationship Relationship 0 16 -16 -16 16 0
(a) Total differential worth of benefits 25 -44 9 -43 53 0
Costs Selling price Capital cost 13 -10 0 -7 5 0
Other costs Disposibles cost -10 -50 56 25 -20 0
(b) Total cost advantage 3 -60 56 18 -15 0
Price Performance Profile
Value Map
Head-to-Head Comparisons

Price Performance Profile
Performance Scores Weights for:
Dimension Attribute
Filtro
Walter
Envir
Brite
Clarion
Average
Attrib. Value
Benefits Product Chloroform Removal 10.0 10.0 2.0 10.0 2.0 6.8 12.0
Lead Removal 10.0 10.0 10.0 8.0 10.0 9.6 10.0
Taste 8.0 10.0 8.0 6.0 6.0 7.6 9.0
Clogging 8.0 2.0 10.0 4.0 8.0 6.4 25.0
Service Reliable supply 5.0 5.0 7.0 9.0 9.0 7.0 16.0
Technical support 2.0 1.0 3.0 1.0 7.0 2.8 14.0
Relationship Relationship 7.0 9.0 5.0 5.0 9.0 7.0 14.0
Weighted benefit scores 7.0 5.8 6.7 5.8 7.5 6.6 98.3
Costs Selling price Capital cost 17 40 30 37 25 30 100.0
Other costs Disposibles cost 120 160 54 85 130 110 100.0
Weighted cost scores 137 200 84 122 155 140 -1.7
Slope of fair value line 58.5032

Value Map Value Map for Commercial Filtration -- Base
Envir
Walter
Filtro
Brite
Clarion
60
80
100
120
140
160
180
200
220
5.6 6.0 6.4 6.8 7.2 7.6
Performance
Price
($)
High
Cost

Value Scorecard
Differential worth of performance advantages and disadvantages
Dimension Attribute
Filtro
Walter
Envir
Brite
Clarion
Average
Benefits Product Chloroform Removal 22 22 -34 22 -34 0
Lead Removal 2 2 2 -9 2 0
Taste 2 13 2 -8 -8 0
Clogging 23 -64 53 -35 23 0
Service Reliable supply -19 -19 0 19 19 0
Technical support -7 -15 2 -15 34 0
Relationship Relationship 0 16 -16 -16 16 0
(a) Total differential worth of benefits 25 -44 9 -43 53 0
Costs Selling price Capital cost 13 -10 0 -7 5 0
Other costs Disposibles cost -10 -50 56 25 -20 0
(b) Total cost advantage 3 -60 56 18 -15 0
(c) Total value advantage = (a)+(b) 28 -104 64 -25 38 0
(d) Actual price (or cost) 137 200 84 122 155 140
(e) Fair Value Price = (a) + (average price, 140 ) 165 96 148 97 193 140
(f) Total value advantage = (e)-(d) 28 -104 64 -25 38 0

Head-to-Head Comparisons (Average)
Filtro Value Relative to Average
-25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0
Chloroform Removal
Lead Removal
Taste
Clogging
Reliable supply
Technical support
Relationship
Capital cost
Disposibles cost
Relative value impacts - Filto vs. Average

Identify
Value
Drivers
Measure
Value Creation
After
Transaction
Business
Process
Improvement
Conduct
Baseline
Study
On-going
Transactional
Surveys
Develop
Action
Plans
Measure
Market
Perception
On-going
Market
Surveys
feedback

The Value Proposition
Deployment Process
Define/
Refine
Value
Proposition
Build
Commitment
To
Value
Proposition
Process &
Organization
Gap
Analysis
Changes
To Deliver
Value
Proposition
Internal
Tracking
&
Measurement
Tracking
Market
Impact
Plan/Do/Check/Act
Plan/Do/Check/Act
Internal
Management/
Staff
Group of
Companies

Customer Value Yields Big Dividends
• Doubled profits in a
single year
• Moved from being a
market “nicher” to the
market leader
Wireless Telecom
Company
Heavy Equipment
Dealership
Underground Mining
Equipment
Manufacturer /
Distributor
International Health
and Leisure Firm
• 50% reduction in
customer churn
• Improved equipment
delivery time from 10
days to 2 days
• Total estimated bottom
line contribution = $4.5M
• Doubled sales revenue –
from $250M to $500M+
• Tripled market share in a
strategically important
market: 4% - 12%
• Increased employees from
600 to 1000+
• Achieved record
profitability last year
• Reclaimed more
than $8mm in lost
sales
• 30% improvement
in on-time
deliveries
• Improved margins
on equipment
repairs from 11%
to 28%
Source: Adapted from Customer Satisfaction in Practice by the American Productivity & Quality Center, 1998

MODELING
EMPLOYEE VALUE
The Right
Workforce”
Positive
Turnover
AcquisitionRetention
Employee
Value
Relative
Compensation
Relative Job
Quality
Base
Salary
Work
Life Balance
Brand
Equity
Manager
Quality
BenefitsBonusPay
Equity

The “Value” of Customer Value
• Strengthen value propositions – value is
the basis for customer decisions
• Identify responses with the greatest
impact on customers’ future purchase
behaviour
• Hone in on winning client strategies
• Discipline and focus—across all functions
• Dramatic impacts and performance gains
The key to attracting,
satisfying, and retaining
customers.

November, 2002

Customer value management

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