Author Archive

Use Customer Value to Fill in the Cracks in Customer Experience

December 10, 2017

There have been cracks in the CX story. And now there is another article by a CX proponent, Charles Bennett of the Next Ten Years, Great Customer Experience does not always mean great business performance.

He goes on to say:

“The theory says customer experience is proportional to revenue. At least that’s what “best practice” thinking has taught us. The better the customer experience the better the business result.

Really? Problem! This is not always true. There is new thinking emerging that differentiates customer outcomes from customer experience. It adds a new dimension which helps companies differentiate from their competitors.

It also explains why some great customer experience companies fall into decline and why some dreadful customer experience companies are massively profitable.”

He examples Spirit Airlines, which has terrible CX, and people say “never again” after traveling it. They rank at the bottom of the American Customer Satisfaction Index, the lowest Net Promoter Score and gain the greatest number of customer complaints, by far! And yet they are profitable, and people buy and travel them. (You could ask if NPS relates to business results!)

Spirit Airlines is amongst the most profitable airline in the world with an operating margin of 23% in 2016 . You can’t deliver that sort of business performance unless customers are buying, and buying they certainly are. There must be another customer dynamic going on.

Another example is Subway, ranked 8th in the Temkin Customer Experience Survey of 300 odd US companies. Yet their revenue figures fell 4.3% in 2015 for the second consecutive year. It opened 911 new restaurants but closed 877.

Bennett goes onto add “You would expect that great CX would mean a higher market share and a higher ROI for your company.”

Very often this is not the case. It took years before companies learnt that Customer Satisfaction did not lead to business results. Poor satisfaction did not always mean lower market share, and great satisfaction did not necessarily mean higher market share.

Customer Value Thinking

All this started at AT&T. In the mid ‘80s they got 95% CSat scores. The Board of Directors was delighted and gave out bonuses. 3 months later they lost 6 points of market share and had to fire 20000 employees. Customer Chief Ray Kordupleski was perplexed. After much analysis, he reached the conclusion that CSat did not correlate to business results, and he came up with the concept of Customer Value (Benefits – Cost), and that Customer Value was always to be measured against competition. Brad Gale, then at Strategic Planning Institute promoted the concept of Value.

Look at this yourself. You have examples of when you were upset with your airline or your favourite restaurant and even your wife. Did you leave them. It takes a lot more to do so. What are the factors that could lead to your leaving?

Continued aggravation over a period of time. Getting a better option (and you find this better option will create greater value for you).

Take my case. I owned a Honda car and liked it. Yet during re-purchase I chose the Suzuki competitor, because it gave me better value, better features at a competitive price. I bought the Suzuki because of its enhanced value over the Honda. In my next purchase, I went back to buying a Honda, even though I loved the Suzuki. At that point in time, the Honda seemed to create better value for me.

Customer Experience Replaced Customer Satisfaction

When companies started to find satisfaction was not good enough, a new term was used to replace satisfaction and it was called experience.

The experience with this transaction vs. the satisfaction with this transaction.

It allowed the industry to re-invent itself into CX. Measurement of CX is the same as with satisfaction. It is not to say that CX and CSat are not important. They are. But they form a component of the value you perceive. We do not expect great experience or emotions at a gas station as when buying a BMW.

We all have to think this through, and move ahead. Increase CX but also the value you provide. Let the cracks not break your business results and you.

So what can you do? The easy way is to do a real Customer Value creation desk analysis of yourself (your product/service) and your competitors. This forces you to look outside your company at the market, your competitors and their customers. Why do people buy from them and others buy from you.

The problem with this desk analysis is

  • It is biased by your thinking
  • You do not have real data from Customers and your competitors Customers. You may not know what Customers are saying about you and competitors’ Customers saying about them. You probably will have to guess and you could be far off from the truth.
  • You have to outside in think (rather than inside out think)

 Customer Value is Based on Competitive Reality

So this was the easy way. The more difficult way is to really hear and capture the Customer Voice in a Value study, where you measure the scores on the benefits (and the breakup of the benefits) and on the cost (which is price and non-price terms such as ease of doing business, price justification etc.). You then can measure the Value (Benefits –Cost) you are creating versus competition.

The competitions’ data is derived by asking the competitors’ customers the same questions you ask your customers (Most people do not want to do this extra step and spend the extra money. They lose out because they cannot compare themselves versus competitors). Short cuts will give you incomplete data, and you will wonder why you do not come out a winner. This is part of the problem of only relying on CX or on NPS.

attribute tree

The data you collect will tell you how important benefits are and how important costs are. You may surprise yourself by finding people consider you costlier even though you believe your price is reasonable. Or that people think price is very important and you do not think of yourself as a commodity player (which the data says you really are!)

CX is one part of the benefits, and you may find it is relatively important or not at all important in the Value study. So, if you did an analysis of budget airlines (the more finely you segment your study, the better off you are), you may find CX is not truly important, and that price and other terms, convenience and airports served, and luggage rules are more important.

Use CX Wisely

Give the experience where it is required. Reduce the need for an experience when it isn’t: I just want things to work (the flight leaves on time, there is no hassle with my carryon luggage and so on). The moment things go wrong (the airline says your luggage is too big to carry on) or flights are delayed, or you have to get a refund, you start to get poor experience; an experience you never wanted, and you will say Never Again, but you will continue to travel that airline again.

Remember your Customers’ quest for Value and a good experience as you sell to and service them, and you will be more successful.

 

Gautam Mahajan

President, Customer Value Foundation and Inter-Link India

Founding Editor of Journal of Creating Value jcv.sagepub.com

New Delhi 110065 +91 9810060368
mahajan@customervaluefoundation.com 
www.customervaluefoundation.com  

Twitter @ValueCreationJ  Blogs: https://customervaluefoundation.wordpress.com/

Author of Value CreationTotal Customer Value ManagementCustomer Value Investment

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

Here is a simple Value attribute tree:

Advertisements

Why Philip Kotler Recommended Gautam Mahajan’s New Book

November 18, 2017

Philip Kotler wrote on Gautam Mahajan’s new book, How Creating Customer Value Makes You a Great Executive:

“Gautam Mahajan is clearly a top expert on Creating Customer Value. The key to winning the customer war is to know how to create superior customer value. Mahajan shows you how to do this.” Philip Kotler, Kellogg School of Management, Northwestern University  

Read how to become a great expert and a success on being a Customer Leader!

 This is what others as saying:

“All too often we read that a such and such a book is timely and important for a given domain and indeed this has become a rather clichéd expression. However, in the case of How Creating Customer Value Makes You a Great Executive such statements are completely merited and valid. The author Gautam Mahajan, Founder Editor of the Journal of Creating Value and President of Customer Value Foundation, has produced a book which offers a potent mixture of manual and thought-provoking philosophical call-to-arms on the critical issue of creating value. The book’s arguments and presentations are filled with excellent examples and diagrams which provide executives and managers with maps to understand and explore value creation. This is a vital text for the twenty first century.” Professor Peter Stokes, Leicester Castle Business School, De Montfort University (UK)

“Value, the personal and individual perception of what a product or service is worth (rationally and emotionally) to a customer, relative to alternatives available in the marketplace, is perhaps the most challenging concept for enterprises and leaders to define and execute. In this comprehensive book, Gautam Mahajan, a world expert in customer-perceived value, the understanding of real benefit is taken well beyond merely understanding the customer experience journey and the effect of pricing. Value is built on experience memory, and the tangible and functional components of vendor-provided products and services; and the book examines the enterprise culture, processes, feedback channels, messaging and positioning which impact customer decision-making. The book offers actionable tools for calculating and strategically sustaining perceived value and customer loyalty. Finally, the author provides two important foundations for organizations to follow. The first is a Customer Bill of Rights, with examples, stating the parameters of what the vendor will provide and what the customer should expect. The second, especially important (and something very few books cover), addresses drivers of employee commitment and contribution to added value for customers. All in all, the book provides needed insights and methods for every organization and manager.” – Michael Lowenstein, PhD, CMC, Thought Leadership Principal, Beyond Philosophy (www.beyondphilosophy.com), author of Employee AmbassadorshipCustomers Inside, Customers Outside, and The Customer Advocate and The Customer Saboteur. 

“Only about 10% of firms are highly effective at creating value for, and from, customers. In this book, Gautam Mahajan pulls back the curtain to reveal why value creation is a critical discipline for every CEO and then backs it up with practice advice on how to make value creation a way of life.

With disruptive innovators attacking every industry, I can think of no greater priority.” Bob Thompson, CEO, CustomerThink Corp., Author Hooked On Customers: The Five Habits of Legendary Customer-Centric Companies

“Reading How Creating Customer Value Makes You a Great Executive showed me how someone with Gautam’s experience could write a comprehensive book on an important topic and provide a perfect level of detail in relatively few pages. Included in each chapter is not only the “technical” information but also a set of exercises to help the reader apply the reading to her own situation. The authors description of the Value Waterfalls and quantifying Value Added should provide the reader with enough motivation to take her business into the world of Value Creation leaders, with the attendant shareholder benefits.”—Sam Klaidman, Middlesex Consulting and President Customer Value Creation International

Find the book at http://www.businessexpertpress.com/books/how-creating-customer-value-makes-you-a-great-executive/

  

Narender Kumar, 

Customer Value Foundation and Inter-Link India

Journal of Creating Value jcv.sagepub.com

New Delhi 110065 +91 9971288580
narender.customervalue@customervaluefoundation.com
www.customervaluefoundation.com  

Twitter @ValueCreationJ  Blogs: https://customervaluefoundation.wordpress.com/

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

Attractology and Business

November 4, 2017

“The law of attraction is: You don’t attract what you want, you attract what you are”, according to American philosopher and author Dr Wayne Dyer.

Attractology isn’t just the science of looking good, but having personality traits that make you magnetic.

Apart from attracting people of the opposite sex, attractology for businesses means attracting Customers.

Businesses have to understand how the law of attraction applies to them;

You don’t attract Customers by telling them what you are or what you are providing.

You attract Customers by how you are perceived. You, of course,include you, your products and your services.

That brings us to Reality vs. Perception. Rory Sutherland suggests that we fail to realise the difference between what something is, what it means and how it is perceived.

“The same product can mean different things to different people, and there is no such thing as objective product value, at least when it comes to actually selling products (there are objective costs associated with making the product, of course).

Therefore, we have this huge opportunity to influence how people feel – how they perceive our product’s value – as well as the opportunity to optimize the customer”

This is based on the Ladder theory in our brain. I describe this based on the with a real life experience of being cut off by another car when you are driving https://ed.ted.com/lessons/rethinking-thinking-trevor-maber. I have added a buying example for a new male shaving solution showing a half dressed attractive woman on the cover. This is from Rethinking thinking – Trevor Maber.

The ladder Car example Business Example
1st rung: raw data and experience: note the experience of being cut off by the other driver Wonderful new male shaving item with a women’s picture on it
2nd rung: Filter specific details based on our preferences and tendencies, and ignore all other details: filter in how you feel, tightened grip on the wheel, the screeching of brakes, the blood pressure rises, and you notice the expression on the face of the driver Why use women’s picture, you react
3rd rung: Find meaning based on what we are and have learnt filters: I live by rules, I wait in line, first come first served, and the other driver has broken all these rules Shaver for males should not have a women on it
4th rung: Assumptions based on what we created previously and this blurs facts and fiction: the stupid jerk, breaking rules, why does he think he is They want me to buy and present it to him. Why should I
5th rung: develop conclusions based on our assumptions and create emotional reaction: vindictive, heartless, inconsiderate, we feel angry I am not going to be used; I get upset they use women in the picture. That is his job to buy
6th  rung: Adjust our beliefs on what is around us: Last time I will give in I am not going to be used. I will not buy this product
7thrung: we take action based on adjusted beliefs: Back up, roll up, yell Ignore it
  If then the man comes out followed by his pregnant wife, and he apologises that she has to go for a delivery, you calm down If later you find this was invented by a woman, you may calm down and buy

You notice how our beliefs and perceptions can change based on other facts.

So attractology is important, but the perception process made up of 7 ladders is useful in our finding something attractive. This process can change, and if we want to be smart, we should run through the 7 rungs of the ladder one by one, and our perception will be more realistic, and attractology will work better.

Marketers have to make attractology work at first glance and on reflection, and so they have to re-see their products/services.

  1. Get out of your company’s comfort zone of I have a great product…Don’t become comfortable
  2. Do something to get attention (in a date this is the ice-breaker time), increase awareness
  3. Understand their (the customer’s) reality
  4. What prevents them from seeing you the way you are?
  5. What is holding them back from seeing you as you are
  6. How can they be changed to perceive you the way you are

Or how do we change to be perceived in a way they will find us attractive?

Now you can answer these questions for the new men’s shaving solution. Attractology, perception and rethinking!

 

Gautam Mahajan, 

President, Customer Value Foundation and Inter-Link India

Founder Editor, Journal of Creating Value jcv.sagepub.com

New Delhi 110065 +91 98100 60368
mahajan@customervaluefoundation.com 
www.customervaluefoundation.com  

Twitter @ValueCreationJ  Blogs: https://customervaluefoundation.wordpress.com/

Author of Value CreationTotal Customer Value ManagementCustomer Value Investment

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

The Future of UnEmployment and UnEducation

November 4, 2017

Think of the future

There was a time there were humans, and then humans and machines; and humans-data informed; and humans and machine assisted; and then maybe in the future only machines. One robot called Sophie has been given Saudi Arabia citizenship! This could be a frightening scenario but also an opportunistic one.

I come away from my travels overseas wondering why we in India are thinking of what we should have done 10 years ago, whereas the Americans are thinking of what to do 30 years from now.

If we can factor some of the long term trends into our short term thinking we will become a smarter and will truly become a super power.

By just focusing on now, we will not improve our competitive power, and may even increase poverty.

Kaizen thinking of doing many small steps to improve productivity is now being modified with ideas from the Ambidextrous Organisation by Charles A. O’Reilly III, Michael L. Tushman where they talk about companies exploiting the present and exploring the future. This is creating value from now and from the future.

India needs to do just this. Our pre-occupation with catching up in education, skilling, energy, employment, education and food has to be modified with positioning ourselves for the future.

Energy: Chances are that renewable energy and better energy efficiency will result in substantially free energy

Skilling and employment: Thirty years from now, unemployment will increase as most routine jobs will be lost to robots and AI. By 2040, computers the size of a cricket ball will be smarter than human beings. And because they’re computers, they never get tired, they’re never ill-tempered, they never make mistakes, and they have instant access to all of human knowledge. In fact, Osborne in the Future of Employment feels that 47% of US jobs will be at high risk in 20 years.Fukoku Mutual Life Insurance in Japanis laying off 30 employees replacing them with an artificial intelligence system that can calculate payouts to policyholders. Productivity will improve by 30% and the investment will be paid off in two years, after which costs will reduce further. Most automobile plants have robot systems and Tesla is almost all robotics.

But what is more worrisome, that robots are not potential buyers, and so sales will go down. This with other disruptive forces could be the end of business as usual that we know!

Large scale thinking and modification of our education system to tackle the future is necessary.I will discuss this later.

Food: Chances are that better nutrients and food supply systems will change, and food requirements may also change.

Re-design of the nutrition system may not require the human digestive tract, as auto-nutrition through special clothing, and nanobots going in and out of the skin giving nutrition and removing waste. Nanobots could supply oxygen to cells, making the blood system obsolete, and no heart or lung will be required. What will be left will be the skeletal system and parts of the nervous system! Sound far-fetched?

So this brings us into education and re-employment 30 years from now. But first, let us understand the background:

Technology

Stephen Hawking said the rise of powerful AI will be either the best, or the worst thing, ever to happen to humanity. And I add that once this happens AI growth might be exponential.Stephen Hawking a few days ago stated that AI could replace human beings. He said the result will be a ‘new form’ of life. And if the goals of AI are not aligned to ours, we will be in trouble.

Robot nannies, robot pets, robot spiritual gurus are now available.

Already, AI is playing a bigger role in visual perception, speech recognition, decision-making and language translation.

It also might be this new intelligence will find unheard of solutions. After all the Wright aircraft did not emulate a flapping wing bird, and Google’s driverless car does not use brain sensing and thinking.

Narrative science will replace journalists producing news stories, headlines, information reports without humans.

Education

Eric Cooke, University of Southampton feels universities as we know them now have no future. In 15 years, we will have no students to teach (I think the time might stretch). Students want a good, professional job and degrees are evaluated against employability. But the professional jobs for which we currently prepare students will be done by intelligent machines, and no longer available to humans.

So why would students take on the debts involved in undertaking a degree course as it is conceived today, he asks.

This is not necessarily about technology but about humanity and learning. There is a school of thought that says that if you can be replaced by a robot then you probably ought to be!

Haptic screens (based on touch and vibrations), deep learning, deep qualia (of deep learning and blockchain) machines, sense-making networks, convolutional neural networks, smart network convergence, cognitive systems and cognitive computing to the future of teaching, uncollege and experience university, brain-computer interfaces, nanodegrees, micro-careers, are all reasons why our education system must change.

Experience universities, experience degrees, more hands on learning, applied sciences, intuitive way of knowing, and answering the question, and knowing what are all in the offing.Digitisation and virtualisation of education by following music, news, brain computer interface to learn or teach; Centre for the Unknown; Human centred design, community as curriculum.

Since we do not know the job market in 30 years, what are we to teach? 60% of the best jobs in 20 years have not been invented yet! Learning and working will give way to lifelong learning or learning and re-learning. More complex workplace and portfolio of micro careers will happen

Some of the new jobs created will be:

Productivity counselors, personal digital organiser, organisational disorganizer, personal life loggers, hackschool conunselors (hack rather than go to school), medical nanotechnoligists, digital history analysts, cyber securityprofessionals, medical naontechnolgists, work transformers, social media managers, sustainabilty officers, unemployment service managers, keeping unemployed people occupied managers, retirement service managers, classroom avataar managers, deep learning specialists using computers to figure out what something is, recognise how a brain recognises and machine human interaction specialists,  big data and information speciaists, cognitive using knowledge specialists, bio-ai interface/nanobot interface specialists.

Corporate CEOs should worry, too. For a while, everything will seem great for them: falling labour costs will produce heftier profits and bigger bonuses. But then it will all come crashing down… After all, robots might be able to produce goods and services, but they can’t consume them.

And eventually computers will become pretty good CEOs as well.

The lesson for India is that while focussing on here and now, start a parallel program for new universities based on technology and artificial intelligence, focusing on jobs of the future, and re-employment. We also need an university for the unknown, to bring about experts in handling and managing the unknown (the future), and making unemployables employable!

 

Gautam Mahajan, 

President, Customer Value Foundation and Inter-Link India

Founder Editor, Journal of Creating Value jcv.sagepub.com

New Delhi 110065 +91 98100 60368
mahajan@customervaluefoundation.com 
www.customervaluefoundation.com  

Twitter @ValueCreationJ  Blogs: https://customervaluefoundation.wordpress.com/

Author of Value CreationTotal Customer Value ManagementCustomer Value Investment

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

Using a Customer’s Bill of Rights to Build a Customer Culture

October 22, 2017

In my last few column articles, we discussed how to measure Customer Value and have examined the softer side of Customer Value Management. Tools of Total Customer Value Management include building a Customer Strategy and the Customer Centric Circles.

In this article, we will discuss the Customer’s Bill of Rights, and why they are important in building a Customer Culture.

Customer’s Bill of Rights

We have all seen Customer’s Bill of Rights. How often are these really honoured? More importantly, how many executives/employees know about the Bill of Rights and how to use them and uphold them?

I bet in most companies the executives and the Customers do not know the Bill of Rights. So in one Tata company, at the Customer centre, the company put the Bill of Rights on the wall behind the executive so that the Customer could see his rights. Very soon they put it on the wall behind where the Customer sits… so that the executive could also see it. And what a difference it made.

There are a number of steps in making a Customer’s Bill of Rights. Some are self-evident, like the right to get a product to work and honour the warranty. Less obvious are the rights to return a product, get it fixed, access to a knowledgeable, friendly, empathetic service person, no price gouging, no bait and sell, time bound repairs and delivery etc.

Second, how do you find out whether a particular right is upholdable? Let’s say the country you sell in insists on a maximum retail price on the package. So you put this in your Bill of Rights. How do you prevent someone from selling at a higher price during shortages?

Third, if there is a problem, how do you uphold the Bill of Rights? Let’s say the Bill of Rights says a product will be repaired in two days. The frontline person may say that to the Customer also, but does he know that this will happen? This requires all the people responsible for this to ensure this happens. This is the Circle of Promises.

This brings in everyone into focusing on the Customers, engenders team work and a Customer focus.

The Circle of Promises

The Circle of Promises is the understanding by people in the company or partners that they are part of a promise to uphold the Customer’s Bill of Rights. They have to be in the loop and understand the meaning of their promise. More importantly, they should form a Customer-Centric Circle to discuss improvements and where promises were not kept and how to solve problems. This will help change mind sets.

Bill of rights

Continuous Customer Improvement Program

A Continuous Customer Improvement Program (CCIP) is necessary to keep ahead of competition. The Customer-Centric Circles and the awareness through the Customer’s Bill of Rights and the Circle of Promises conditions the employees to seek more ways to please Customers. This becomes a Continuous Customer Improvement Program.

As the program takes root, we find that more and more ideas to improve Customer Value through Customer experience or the Customer journey surface. Ideas on Customer intimacy, Customer satisfaction, CRM, Customer delight, Customer customisation, and Customer channels can all be discussed.

Zero Complaints

As we work on the CCIP, we realise that we could actually incorporate systemic changes that could prevent a problem we have noticed from happening with other Customers. Or we could notice that Customers ask the same question…we cannot find your product in the stores. We should then correct this situation, or at least communicate with the Customer where to find the product or offer to deliver it to them.

We have to work towards reducing complaints or getting closer to Zero Complaints. Most people believe this is not possible, but we all agree we can strive towards it.

Discussion

In this article, we have taken Customer-centricity and Customer mind-set to the next level by allowing the Customer Circles to focus on the Customer’s Bill of Rights, understand its importance, and how to ensure that the promises enshrined in the Bill of Rights are upheld.

This is through the Circle of Promises and ensuring that the people involved understand this. And to build their involvement and mind-set, a special Customer Circle including the people in the Circle of Promises is a good idea.

Customer Circles then can embark on a Continuous Customer Improvement Program. This can eventually focus on all aspects of Customer Value such as the Customer Journey, the Customer Experience, CRM, customisation can be worked on.

What items require systemic and procedural changes? How can we get to Zero Complaints?

Total Customer Value Management which includes the Customer Circles and the Customer’s Bill of Rights help all departments and executives to have a Customer focus. It is the foundation of building a Customer culture. Customer strategy and Customer Centric Circles are building blocks of the Customer culture and a Customer mind-set. This gives the company a great competitive advantage.

Do it Yourself

Think of where you could set up front line Customer Centric Circles. Who should be in it? What should be the agenda? What are follow-up steps, and who has responsibility for it? Who will call the next meeting and review what was discussed and the results?

Think if how to set up Customer Circles in various departments like IT and HR. See how they become Customer centric.

What is your Customer Bill of Rights? Can you build one?

Can you embark on a Continuous Customer Improvement Program? How will you ensure ideas are cross fertilised?

How does the CCIP look at the Customer Experience, the Customer Journey, and CRM? How can you reduce the Customer Journey?

When you solve a new problem or a different problem for a Customer, do you think this is possibly important for other Customers or could cause them problems? If so, what can we do to prevent these from happening?

What can we do to move towards Zero Complaints?

 

Gautam Mahajan, 

President, Customer Value Foundation and Inter-Link India

Founder Editor, Journal of Creating Value jcv.sagepub.com

New Delhi 110065 +91 98100 60368
mahajan@customervaluefoundation.com 
www.customervaluefoundation.com  

Twitter @ValueCreationJ  Blogs: https://customervaluefoundation.wordpress.com/

Author of Value CreationTotal Customer Value ManagementCustomer Value Investment

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

How Customer Value Can Improve Your Price

October 14, 2017

If you create the value that the Customer is looking for, and if he perceives that you are creating value, what does he do? Does he choose your product first (show a preference for it) or be prepared to give you a higher price? How does it impact pricing and commoditisation?

His perception that you are creating value means he thinks you are creating a better benefits/cost ratio than competitive offers. That means he is willing to consider your product/service over competitions’. Depending on the Value you are creating, he may be willing to pay a higher price.

Let’s look at what he may be willing to pay.

We start again with the Value Map that was discussed in a previous post. The Value Map plots all competition and our company on a graph of the customer’s perception on the overall cost vs the benefits. We draw a fair value line, and then compare ourselves to competition. Those companies falling below the fair value line are adding value to customers and those above the line are depleting value.

Value Map

Let us assume we are company AA. In this example, the product is a commodity. You can see we are adding value, as we fall below the fair value line. So we can increase price to reduce the value, or reduce the benefits to decrease the value. Let’s decide to increase the price to reduce the value we are giving away.

Value Map2

How do you know how much to add to the price to the product? There are many ways. I will show you a simple way. Let us tabulate the price versus the benefit as shown in the table below (I have taken actual prices):

price vs benefits

You can calculate the fair value price for DD. Notice here we are looking at ratings in the graph. We could have plotted actual price also. (BB is missing in the graph. We did not plot it as we did not have enough data on it.)

You can see we are plotting the price for each of the competitors and their benefit as we found from the CVA study. The average of all the different prices is 27.25, and the average of the benefits is 3.90.

Thus an average product in this category will demand a price of 27.25. Our product gives a benefit of 3.98 and so deserves a price of 3.98 divided by 3.90 and multiplied by 27.25 giving us a price of 27.81, which is an improvement of 3.4% over AA’s current price.

Remember that in this you are in an almost commodity market, and a 3.4% improvement in price could improve your profits depending on your variable and fixed costs to almost 40 to 50%. Not bad! (How did I reach this conclusion?) Typically a 1% increase in price means a profit increase of 10-15%. Did you know this?

Let’s say your sales price is 100, your fixed costs are 25 and your variable cost is 67. Then your profit is 8. Now we increase price by 1% from 100 to 101. Our profit goes up from 8 to 9 or we increase the profit by1/8 or 12.5%)

In the real world, you might wish to increase your price by 1 to 1.5% initially, while working on improving benefits further.

Also look at AA members, with benefits of 4.10. You can figure out a fair price to charge them.In a non-commodity market, you might be able to get higher prices.

We can actually break down benefits into its attributes, and conduct this exercise for each benefit attribute and price that attribute based on the relative importance of the attribute and also the ratings from the Customers.

Pricing based on sub-attributes of Benefits

We can get even more granular. We know that benefits have sub attributes. Let’s assume these are the product, the service, and the image. I am noting down hypothetical importance or weights:

  • Product 20%
  • Service 45%
  • Image 35%

 

Then we can say for the average product in the example given in the previous section, the service has 45% of a bearing on the price. So the average price of 27.25 is made up the importance of the product, the service and the image.

De-commoditisation

You will note that I said the example showed above happened to be in a commodity market — it is actually for a fertiliser. Even though the competitors keep on focusing on the quality of the fertiliser, the farmer knows there is no difference in the product. If this is the case and the fertiliser is a true commodity, farmers would buy on price. However, it turns out that the farmers prefer specific companies and their fertilisers.

It turns out that such companies have a reach out program, membership programs and contact processes that align the customer to the company. Hence, even though there might be a slight price differential, they prefer to buy the company they have an association with and trust. Such a reach out program de-commoditises the fertiliser. You can see the relative importance of the image of the product.

benefits attribute1

And which attributes to work on to increase value and potential price.

benefits attribute2

Discussion

Total Customer Value Management helps all departments and executives to have a Customer focus. It is the foundation of building a Customer culture. Customer strategy and Customer Centric Circles are building blocks of the Customer culture and a Customer mind-set. This gives the company a great competitive advantage. Do you find your executives talking about how to improve Customer Value? Have you attended such meetings?

You can see from this article that price depends on the benefits you create. If you create lower benefits, you will command a lower price and vice versa. Each part of your benefits has a price associated with it based on the relative importance of that benefit. Thus price is dependent on the value you create.

Moreover, you can decommoditise products by adding value such as a brand, image, association of the product with the customer, service etc.

Do it yourself

See if you can create a Value Map for your product, and see where you stand versus competition.

Figure out the price for the benefits you create.

How much does 1% increase of price mean for your company in profit increase?

Think of value creating ideas that can de-commoditise or add more value to your customers. Try to put them into a priority based on the importance the customer gives to these items

 

Gautam Mahajan, 

President, Customer Value Foundation and Inter-Link India

Founder Editor, Journal of Creating Value jcv.sagepub.com

New Delhi 110065 +91 98100 60368
mahajan@customervaluefoundation.com 
www.customervaluefoundation.com  

Twitter @ValueCreationJ  Blogs: https://customervaluefoundation.wordpress.com/

Author of Value CreationTotal Customer Value ManagementCustomer Value Investment

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.

 

Value Creation: CEOs Must Tip the Balance Towards Retention

October 7, 2017

Curt Fowler wrote in the Moultrie Observer on Driving Growth through Customer Excellence. He quoted HBR in Zero Defections stating that a 5% increase in Customer retention can increase profits up to 75%. In retail, they find a 1% increase in retained customers can increase revenue by 10%. Gartner estimated that 80% of your future revenues will come from just 20% of your existing customers.

Below is a chart showing just this:

gm_profit

Very impressive, won’t you say? And if you were the CEO of or on the Board of companies wouldn’t you want to retain more Customers? Wouldn’t you make it your strategy? Wouldn’t you want to tip the balance in your favour?

So we should be hearing great success stories, great increase in profits. But we don’t hear these stories. Why?

Start by answering these questions:

  1. Are HBR, Customer Value Foundation and Forrester and all the experts wrong? Y/N
  2. Is this data overstated? Y/N
  3. The CEOs and others don’t believe these numbers Y/N
  4. Or they do, but their training of focusing on shareholder returns, cutting costs, increasing efficiency and traditional ways of doing the thing, prevents them from making a big change? Y/N
  5. Or they do not know how to make the change? Y/N
  6. They are happy with the status quo Y/N
  7. They are balancing the focus on various stakeholders in favour of the owners Y/N
  8. Or the change consultants are focusing on efficiency and systems while focusing on the Customer experience etc. and not the mind-set and culture that need to be changed. Or CEOs don’t think culture is their baby? Y/N

I truly would like to understand WHY? I’d like the reader to help. How many Yesses did you click? I bet there are fewer N (nay) answers.

So what really happens? In a given market, companies in the competitive mix are all losing and gaining customers. They report the customers they gain and not the customers they lose. The great balancing act: market share and retention remain static, and yet customers are gained. A wonderful game, as if all competitors are happy no one is tipping the balance.

Examples

As an example, in India prepaid cell phone Customers defect at an alarming rate of 30 to 50%. Yet market shares are static as those customers one company loses are made up as new customers coming in from competitor’s customer losses.

Another example of companies not focusing on retention is Tata AIG. I tried to re-new my home policy, but could not do so on line. I sent them an e-mail as suggested on their website. After 2 days there was a response that someone would get back to me. After another 2 days I got a message to pay within 3 hours on the payment portal they had sent in the mail with a link (this was at 6pm). I paid a week ago, but there is no response from the company. Doesn’t it appear that they are not interested in retention? (I always say retention is like farming, and acquiring new customers is akin to hunting. Hunting is more exciting, farming more boring. Learn to farm to retain customers. Make it interesting for yourself and your customers).

We need disruptors, and great CEOs to tackle this, to not only understand the opportunity but put into action the balance tipping strategies: build a customer strategy, change the mind-set, and out strip competition.

I would choose Amazon, AirBnB, Costco, WholeFoods, Zappos among others. Down the list would be United Air. You can see that some of the leaders are also disruptors and have built their businesses around the customer. United, on the other hand does not seem to want to do so.

Brand Keys’ 2015 Customer Loyalty Engagement Index® (CLEI) Ratings are based on a brand’s ability to meet customers’ ever-growing expectations better than the competition. That means a focus on the Customer by the company and the CEO. Leaders are:

Apple, AT&T, Hyundai, Ford, Avis, Domino’s, Dunkin’, Google, Konica Minolta, Discover and the NFL maintained their #1 category positions. Brands that were rated #1 in their categories for the first time included Air Canada, Facebook, Kellogg’s Nutri-Grain Breakfast Bars, Chipotle, Exxon Mobile, Nationwide, and Travelocity.

CEO Must Lead

What does this tell us? Companies, who are on the top and want to keep retaining customers, work with a strategy and a culture to achieve just this. The CEO is motivated to retain customers. The newer companies on the list were able to reach the number one loyalty slot by focusing on the customer, giving him what he wanted and making him feel cared for.

Other companies improving retention did so by better customer engagement, better communications, and include High Ridge in packaged goods, Hilton, insurance companies such as Aetna, MetLife and Cigna, and brands like Nike. They focus on what customers want, how they want to be communicated with, convenience, personalisation, a comfortable customer journey, and offering choice to customers.

So you can see that the winners learn to focus on the customer, and retain more customers and lose fewer customers. They tipped the balance in their favour.

Can you tip the balance today? Can you be the Value Creator for your Customer, and avoid value destruction. Can you make this a core task?

Come, let us win! Win the Customer and reap the benefits.

Click here to read full article….

 

Gautam Mahajan, 

President, Customer Value Foundation and Inter-Link India

Founder Editor, Journal of Creating Value jcv.sagepub.com

New Delhi 110065 +91 98100 60368
mahajan@customervaluefoundation.com 
www.customervaluefoundation.com  

Twitter @ValueCreationJ  Blogs: https://customervaluefoundation.wordpress.com/

Author of Value CreationTotal Customer Value ManagementCustomer Value Investment

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.