Creating and delivering Customer Value

Man is guided by the idea of utility in his purchase decisions. He will select a product that offers him the maximum utility for the money he parts with. More often the buyer seeks much more to utility. He seeks VALUE

 All buyers seek Value in all their purchases and they look for it in the form of benefits. Customer compares the Total Cost & Value of all Competitors offers and before he takes a decision. For customers, all Products and Services is actually a value delivery. It is out & out a value game.

Addressing the Value Concept

The Concept of Customer Value

n

Customer Value is the composite of tangible values as well as intangible values.

Initially Perceived Value and Finally Delivered Value n Initially Perceived Value

Initially perceived value, the outcome of mental evaluations

Blend of qualitative and quantitative yardsticks. n Final delivered Value Is the difference between the total value from owning & using the product and the total costs incurred in obtaining it. Challenge is to Fulfill Customers Initially Perceived Value

Am I Getting My Moneys Worth?

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Components of Customer Intangible Value Tangible Values Values

Functional value

Social value Prestige/status value Sentiment value Belief value

Economic value

Convenience value

Sensory/aesthetic value

n n
n

The two categories not mutually exclusive; they overlap and blend Intangible values are equally vital as tangible ones Service (people) value A Consumers Profile Determines How He Perceives Value

Components of Customer ValueTangible Value

Functional Value: Ability to meet the given need, or Utility. e.g Car- for transportation. Cell make a phone call. Other characteristics are quality, features, durability etc. Economic Value: Price advantage. Includes superior profit making ability. Convenience Value: Easy availability & easy to use. Aesthetic Value: Look & Feel. Service Value: Quality of service, courtesy of people.

Components of Customer ValueIntangible Value

Social Value: desirability.

Social

acceptability

or

Prestige/Status Value: Sense of self esteem. Sentimental Value: memories, Sentiments. Associated

Belief Value: Confirms some deep stated

Marketing Mix, the tool kit

The firm can enhance value by adjusting any of the elements of the marketing mix Increasing the functionality of the product Reducing the price Giving better service support Giving customer easy access to the product Offering better communication

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Nike
Critics of Nike often complain that its shoes cost almost nothing to make, yet the cost to the consumer is so much Materials, labor, shipping, equipment, import duties, suppliers cost generally total to $ 25 per pair Compensating the sales team, distributors, endorsers, advertising and factoring the retail overheads makes it as costly as $ 80 per pair But for the customer it is a brand that he is purchasing and does not mind the cost

Determinants of Customer Cost

Total customer cost

Monetary cost

Time cost

Energy cost

Psychological cost

Co-creating Value with the Customer

Value Creation process was a Exclusive Domain of the firm now it is a Joint effort. Now the market is seen as a forum of Value Creation. Product no more cerates a value. The Consumer participates actively in cocreating the value & the Product is just an outcome. The consumers Home, Sites & Kitchen have become the Labs where the products are developed and decided. Thus Value is embedded within the Products.

Example of Co Creation When Italian automaker Fiat wanted to test new design concepts for its Punto, it invited potential customers to visit the Fiat Web site and select from an array of features. More than 3,000 people participated. As a result, Fiat was able to

Customer Driving

In some product categories you need to be Customer Driving rather than Customer Driven e.g. Technology Products. Henry Ford said, if he had to listen to people he would have come out with a faster Horse instead of a car. Google no one thought it would be so handy and part of our life. Cell Phones Initially were not accepted so well. Most people may not initially understand the benefits, specially the early & late majority.

Traditional View of Marketing

Whatever the firm produces, marketing will help sell it. In this process marketing assumes the last part in the value chain. This works in the case of shortage of goods. Make the Product: Design, Procure, Manufacture Sell the Product: Price, Advertise & Promote, sell, deliver the service.

Value creation and delivery process

Choose the value segment

Provide the value segment

Communicate the value segment

Value Delivery Process

1. Choosing the Value (Strategic Marketing) (STP)

2. Provide Value (Tactical Marketing)

Customer segmentation Market selection process Value positioning

Product or Service development Pricing Sourcing

Value Chain
The value chain is a tool for identifying ways to create more customer value because every firm is a synthesis of primary and support activities performed to design, produce, market, deliver, and support its product.

Value Chain
Michael Porter of Harvard proposed the value chain as a tool for identifying ways to create more customer value. This value chain consists of 5 main activities and 4 support activities. 1. Primary Activities: Inbound activities (brining material inside) Operations (converting them into final Product) Outbound activities (shipping the final product) Marketing & Sales Servicing 2. Support Activities:

Integration of Functions
The firms task is to examine its costs and performance in each activity & compare the cost and performance of the competitor as a benchmark. Firm should compare itself against the best of the breed company as a benchmark, to achieve excellence. Strong companies integrate the business processes of various departments together to improve their core business processes. This is evident in most area, like new product introduction, customer acquisition and retention, customer relationship management. Also the firms success depends upon how well it integrates with its partners and supply chain. E.g. Wall Mart. Successful companies have strong cross functional teams to ensure greater synergy and efficient operations. E.g. the shipping, delivery, billing, installation, services and collection departments working together.

Companies reengineering their workflows and building cross functional teams At Xerox customer operations group

links sales, shipping, installation, service and billing so these activities smoothly flow into one another AT&T, Polaroid, Motorola, Siemens, Tata steel are other organizations who have re organized their employees into cross functional teams To be successful, a firm also needs to look for competitive advantages by partnering with specific suppliers and distributors to create value

Companies now focus more on Core competencies and outsource the less critical areas if they can get better quality or price. It serves as a.. A source of competitive advantage Applications in a wide variety of markets Difficult to imitate

Concentrating on core competencies to deliver value

Companies which have successfully created value

Procter and Gamble, South west Airlines, Nike, WalMart stores, Barnes and noble U.S Club Med, Nokia, Virgin Europe Sony, Toyota, Samsung, Infosys, LG, Tata - Asia

Important questions

hat are the tangible and intangible values at customers seek in a product? Explain the value delivery process? How has Tata endeavored to create value for customers through Nano? plain co-creating value with examples.