Chapter 7

Creating Value for Customers

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Chapter Objectives
 The meaning of the terms value & value
proposition
 How customers weigh up ‘ benefits ’and ‘
sacrifices ’in the value equation
 Three major forms of value delivery strategy
adopted by successful companies.
 The role of marketing mix elements 7ps & the
importance of customization in value creation
The role of Internet in changing the way that
customers receive value
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Introduction
 CRM is the core business strategy that integrates
internal processes and functions and external
networks to create and deliver value to targeted
customers at a profit.
 The centrality of value creation and delivery.
 Although the term ‘ value ’ is used in a number
of different ways, in a CRM sense it can be
thought of as follows: Value is the customer’s
perception of the balance between benefits
received from a product or service and the
sacrifices made to experience those benefits

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 It is possible to represent this definition in the
form of an equation: Value Benefits/ Sacrifices.
 Two main ways to increase the customer’s
perceived value.
 Customers make several types of sacrifice:
 Money: the price of the product or service and
additional charges (interest)
 Search costs: pre-purchase efforts in searching
for solutions and comparing alternatives (e.g.
time and traveling and accommodation costs)
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 Psychic costs : purchasing can be a very
stressful and frustrating experience- decision,
different kinds of perceived risk (performance,
physical, financial, social and psychological).
 Different ways to decrease risk - reducing the
denominator of the value equation (e.g. brands,
WoM and pre-purchase trials)
 Total cost of ownership TCO – buying, using,
disposal costs.

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How companies compete to create
value for customers
 Delivering better value than competitors.
 Companies have to reinvent the value equation-
understanding customers.
 B2B - partnership with customers on a customer-
by-customer basis.
 B2C - solutions are more often segment specific.
 Staying up to date with competitors ’ efforts
to serve these customers
 Value is contextualized rather than absolute.

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Sources of customer value
 Marketers responsibility to develop the offers that
create value for customers- called value
proposition
 A value proposition is the explicit or implicit
promise made by a company to its customers
that it will deliver a particular bundle of value-
creating benefits.
 Focus on one of three types of value
proposition / three value delivery strategies;
product leadership, customer intimacy and
operational excellence.
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 Product leadership: companies provide the best
products, services or solutions to customers-R &
D and innovation.
 Customer intimacy: companies adapt their offers
to meet the needs of individual customers-
adaptation and customization.
 Operational excellence : companies try to be
cost effective, and to pass on those savings to
customers- efficient supply chains, close
cooperation with suppliers, quality and cost
controls.
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Value through the marketing mix
 Combining together various components to
create value.
 These are sources of customer value.
 CRM aims to build mutually beneficial
relationships with customers.
 A fundamental approach to achieve CRM goal is
to customize the value proposition.

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Customization
 Customization means that companies have to be
aware of, and responsive to, customers ’ differing
requirements.
 Adaptation from the two parties in favor of
relationship.
 Customization has both cost and revenue
implications. ( competitive advantage, cost).
 Companies need to assess the worthiness of
customization.

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 A distinction can be made between ‘ craft customization ’
and ‘ mass customization ’.
 Mass customization: is the use of flexible processes and
organizational structures to create varied, and even
individually tailored, value propositions with no additional
special costs and time.
 The ability to produce a single, customized product with
the same efficiency as a mass produced product
 Can communicate with target audiences at a mass level,
but is also able to offer customized value propositions for
individual customers.

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 Spectrum of Customization presenting different
levels of customization. MINOR- MAJOR.
 Match to order----- engineer to order.
 Match-to-order or locate-to-order: selection of
existing standard products or services to match
customer requirements.
 Engineer-to-order: customer co-designs
products or services which are then made-to-
order.

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 Key issues for CRM strategists:
 Do customers want customized products and
services?
 What degree of customization is desired?
 Are customers willing to pay a premium for
customization?

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Value from Products
 Different levels of the product, sometimes known
as a customer value hierarchy.
 Core product is the basic benefit that customers
buy
 Enabling product- necessary for the core
benefit to be delivered.
 Augmented product: consists of the factors
differentiating one competitor from another.
 Competition is not in what we produce but in
what we add to our production outputs.
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Value from Products
 Product-based value- through:
 Product innovation: providing smart solutions.
 Additional benefits: attaching additional benefits to
products.
 Product–service bundling: offering customers a package
of goods and services at a single price.
 Branding: brands create value for customers in a number
of ways, on both sides of the value equation.
 Finding synergies: finding synergies between products in
the company’s product portfolio or from relationships
within a company’s network.

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Value from service
 Service is the core product / an important part of
the enabling and augmented product.
 Companies should find out what service
elements are important to customers and where
performance needs to be improved.
 Service- related methods to enhance value
improving service quality, service guarantees,
and service recovery programs.

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 Improving service quality
 Service Quality: two perspectives -
 The conformance to specification: “error-free
service, complaints handling, and delivering on time”
 Fitness for purpose: selecting customer preferred
communication channel, empathic and responsive
contact staff, customizing service delivery for
customers.
 Service Quality Theories- the SERVQUAL model:
Measurement model measuring gaps between
customers ’expectations and perceptions of the
RATER variables (reliability, assurance, tangibles,
empathy, and responsiveness)
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 Gap 1: what customers expect and what managers
think customers expect.
 Gap 2: what managers think customers expect and
service quality specifications.
 gap 3 : service quality specifications and actual
service delivery
 Gap 4 : actual service delivery and the promises
communicated to customers
 Gap 5: is the product of gaps 1, 2, 3 and 4- expected
service and the firm’s practices in creating and
delivering service.
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Service guarantees: an explicit promise to the
customer that a prescribed level of service will be
delivered- specific or general.
 Service recovery programs: all the actions
taken by a company to resolve a service failure.

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Value from processes
 a set of activities performed by people and/or
technology in order to achieve a desired outcome
(e.g. production, quality management process
and the service recovery process).
 Consider the role of successful complaints
handling process in enhancing customer
satisfaction and reducing negative WOM.

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Value from people
 A major source of customer value.
 More important in professional services.. Integral
part of the service (e.g. coaching and
consultation services).
 Service-dominant logic stresses the significant
impact of people in enhancing customer
experience.

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Value from physical evidence
 The tangible facilities, equipment and materials
that companies use to communicate value to
customers.
 Physical qualities should communicate the
values of the company (simplicity, openness,
security, cleanliness).

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Value from customer communication
 Messages and media, and techniques you utilize
to communicate with the market.
 Company-to-customer, customer-to-company and
even customer-to-customer.
 The role of communication is enhanced with the aid
IT -disintermediation (DTC) direct communication
with no intermediaries, personalization (content, the
channel) and interactivity (two-way and dialogue
communication “back & forth discussion of WWW &
e-mail).

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Value from channels
 The role of channel in enhancing customer value
can be explained by the divers kinds of utility as
well as the role of intermediaries in value
augmentation (installation services, training
services, technical advice, and repair services)

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Customizing 3ps
 Process: the order fulfilment process and the new product
development process. Manufacturers have in-house new-
product development processes and customized
processes- co-develop new products in partnership with
major retailers.
 People: manufacturers can adjust the profile and
membership of selling teams to ensure that customers
get the service they deserve.
 Physical evidence: different forms of physical evidence,
such as scale models (prototypes), cut-away models
(transparency and visualization), product samples.

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