LECTURE 1 (PART B)

INTRODUCTION

Market offering has two elemental

characteristics: its value and its price.

Thus raising or lowering the price of a market

offering does not change the value that such
a n o f f e r i n g p r o v i d e s t o a c u s t o m e r.   R a t h e r, i t
changes the customer’s incentive to purchase
that market offering.
 WHAT IS VALUE?
Value (in business markets perspective) is the worth in monetary terms
of the technical, economic, service, and social benefits a customer
receives in exchange for the price he/she pays for a market offering.

• i. Monetary terms - such as RM or dollars per unit, per liter, or per

hour.
• ii. Benefits - means net benefits, in which any costs a customer incurs
in obtaining the desired benefits.
• iii. Value is what a customer gets in exchange for the price it pays.
 CV is made up of:

Product Value – Preference

Durability
ELEMENTS OF Reliability
CUSTOMER Service Value – Delivery
VALUE (CV) ?
Maintenance

Personal Value – Knowledge

Handling
Image Value – customers perception of
corporate image
 Pre –purchase, purchase cost, use cost and
post –purchase cost.

Costs are made up of:

CUSTOMERS • Monitory cost

COSTS • Time cost
• Economic cost
• Energy cost
• Psychic/ psychological costs
Determinants of Customer Value
Customer Delivered
value

Total Customer
Total Customer value
Cost

Product Value Monetary Cost

Service Value
Time Cost

Personel Value Energy Cost

Image Value Psychic Cost

CUSTOMER PERCEIVED VALUE
• Perception of delivered value is a function of:

– Total customer costs - the bundle of costs customers expect to

incur in evaluating, obtaining, using and disposing of the given
market offering.

– Total customer value - the bundle of costs customers expect to

incur in evaluating, obtaining, using and disposing of the given
market offering.

 Customer perceived value (CPV) =

Total Customer Value ( TCV)-Total Customer Cost (TCC)
• Based on the decision-making theory, there are
three (3) ways to making success in selling to
the buyer :

– Increasing total customer value by

improving product, services, personnel,
and/or image benefits.
– Reducing the buyer’s non-monetary cost
by reducing the time, energy, and psychic
cost.
– Reducing it’s product monetary cost to the
buyer.
 You can start by What is unique
brainstorming the about your
following ideas product or
with your team: service?

What do you do CUSTOMER VALUE

Who are your
better than anyone
competitors? PROPOSITION -
else?
EXERCISE

Why are people Would people

excited about your refer your product
product or or service to their
service? friends?
THE PROCESS OF DEVELOPING VALUE PROPOSITION
CONSISTS OF THREE STAGES:

Identifying Linking Mapping

Identifying customer Linking these benefits to Mapping the basis for

benefits mechanisms for differentiation or market
delivering value play
 i. estimating which offer (product/firm)
delivers the most value (CPV)

Maximizing ii. forming an expectation of value and

acting upon it (purchase)
Customer
iii. Evaluating their usage experience
Value against the expectations

Satisfaction results when expectations are

equaled or surpassed

©2003 Prentice Hall, Inc.

CUSTOMER SATISFACTION
• Satisfaction is defined as . . .
“a person’s feelings of pleasure or
disappointment resulting from comparing
a product’s perceived performance (or
outcome) in relation to his or her
expectations.”

14
 Customer Satisfaction
If P < E Formula :
Dissatisfied
If P = E Satisfied
If P > E Highly Satisfied/Delighted

P=Performance
E=Expectation
Customer Expectations

How do customer form their expectations?

• From past buying experience, friend’s and associates’ advice, and marketer’s
and competitor’s information and promises
• If marketers raise expectations too high, the buyer is likely to be
disappointed.
• If marketers set expectations too low, the buyer won’t attract the company’s
offering.
BUYER’S EXPECTATIONS ARE INFLUENCED BY:

Past performance

Friend’s/ associated advice

Competitor information/ Promise

Marketer’s information/ Promise

 SUCCESSFUL COMPANIES RAISE
EXPECTATIONS & DELIVER PERFORMANCES..

Aim for total • How to deliver/

customer produce customer
satisfaction value & satisfaction?
.
STRATEGIES TO INCREASE CUSTOMER SATISFACTION

1. Don’t exaggerate the product / service’s capabilities in

advertising or other communications
• Dissatisfaction will result
• Will involve law enforcement if things getting more serious

2. Don’t set expectations too low

• Market size will be limited
3. Use concept of Value Chain
 
– Proposed by Michael Porter.
– Tool to create higher customer value.
– Identifies main activities that creates (value + cost) in a business

Five – Primary Activities: Four – Secondary Activities:

– Inbound Logistics: – Procurement.

– Operations: – Technology Development
– Outbound Logistics: – HR Management
– Marketing/ Sales: – Firm Infrastructure
– After Sales Service
VALUE CHAIN MODEL
VALUE CHAIN ANALYSIS
• Value chain: a tool for identifying was to create more
customer value (Porter, M).
• Every firm is a synthesis of activities that are performed
to design, produce, market, delivery and support its
products.
• The value chains identifies nine strategically relevant
activities that create value and cost in a specific business.
• These nine value creating activities consists of five
primary activities and four support activities.
• The primary activities represent the sequence of bringing
materials into the business (inbound logistics), converting
them into final products (operations), shipping out final
products (outbound logistics), marketing , and servicing
them.
 The support activities: procurement, technology, human resource
management, and firm infrastructure are handled in certain specialized
departments, but not only there. For example: several departments may
do some procurements and hiring of people.
 The firm task is to examine its cost and performance in each value
creating activity and to look for ways to improve it.
 The firm should estimate its competitors' cost and performance as
benchmarks against which to compare its owns cost and performances.
 The firm success depends not only on how well each departments
performs its works, but also on how well the various departmental
activities are coordinated. Too often, company departments act to
maximize their interests. For example: a credit department may take a
long time to check prospective customers’ credit so as not to incur bad
debts, mean while the customer waits, and the salesperson is frustrated.
4. CREATE VALUE DELIVERY NETWORK
• To be successful a firm also needs to look for competitive advantages
beyond its own operations, into value chains of its suppliers,
distributors and customers.
• Many companies today have partnered with specific suppliers and
distributors to create a superior value delivery network (supply chain)
• For example: Levi Strauss & Company and connections with its
suppliers and distributors. One of Levi’s major retailers is Sears.
Every nights Levi’s learns the sizes and styles of its blue jeans sold
through Sears and other major outlets. Levi’s then electronically
orders more fabric for next day delivery from Miliken and Company,
its fabric supplier. Miliken, in turn , relays an order for more fiber to
Dupont, its fibre supplier. In this way, the partners in the supply chain
use the most current sales information to manufacture what is selling,
rather than for a forecast that may not match current demand. In this
system, the goods are pulled by demand rather than pushed by supply.
 Levi Strauss’s Value-Delivery
Competition is
Network DuPont
(Fibers)

Between networks,
Miliken
not Companies. (Fabric)
The winner is the
company with Levi’s
the better network. (Apparel)

Sears
(Retail)

Customer
In a hypercompetitive economy a company can only win the
competition by creating and delivering superior values.

This involves 5 capabilities :

• Understanding customer value
• Creating customer value
• Delivering customer value
• Capturing customer value
• Sustaining customer value
To succeed, a company needs to use the concepts of a value
chain and a value delivery network.
 5. Customer Retention

 Reducing customer churn (defection) is highly desirable

– Define and measure retention rate
– Identify causes of attrition
– Estimate profit lost from customer defection (customer
lifetime value)
– Estimate cost to reduce defection; take appropriate action

©2003 Prentice Hall,

Inc.
 Attracting and Retaining Customers
 Customer Relationship Management
– The process of managing detailed information about
individual customers and carefully managing all the
customer “touch points” with the aim of maximizing
customer loyalty.
– The aim of CRM : is to produce high customer equity
( value equity, brand equity and relationship equity).

©2003 Prentice Hall, Inc.

 Strong Customer Bonds

 Frequency
Keys toprograms
Success
 Club memberships
 Adding Financial
Benefits
 Adding Social
Benefits
 Adding Structural
Ties
©2003 Prentice Hall, Inc.
 Strong Customer Bonds

Keys to Success  Personalize

customer
relationships
 Adding Financial
Benefits
 Adding Social
Benefits
 Adding Structural
Ties
©2003 Prentice Hall, Inc.
 Strong Customer Bonds

Keys to Success  Create long-term

contracts
 Adding Financial  Charge less for
Benefits ongoing
 Adding Social purchases
Benefits
 Link product to
 Adding Structural
Tie
long-term service

©2003 Prentice Hall, Inc.

 20 – 80 – 30 Rule

20 20% of your customers

80 Generate 80% of your profit
30 serving the bottom 30% of
Half of your profit is lost

your customer base

©2003 Prentice Hall, Inc.
INDICATORS OF HIGHER
BUSINESS PERFORMANCE
 High Performance Business Indicators

 TheKeys
groupsto that will impact the performance of an
Success
organization or a firm
 Stakeholders
 How might the needs of these groups conflict with
each other?
 Processes
 Resources
 Organization

©2003 Prentice Hall, Inc.

 High Performance Business Indicators

Keys to Success  New product development

 Customer attraction and
retention
 Stakeholders
 Order fulfillment
 Processes  Reengineering work flows
 Resources  Building cross functional
teams
 Organization

©2003 Prentice Hall, Inc.

 High Performance Business Indicators

Keys to Success  Resources include labor,

materials, machines,
 Stakeholders energy, and information
 Processes
 Resources  Outsourcing vs.
ownership: Own and
 Organization nurture core competencies

©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition
 High Performance Business Indicators

Keys to Success  Organization refers to the

organization’s policies,
structures, and corporate
 Stakeholders culture
 Processes
 Resources  Corporate culture: shared
experiences, stories, beliefs,
 Organization and norms within an
organization
©2003 Prentice Hall, Inc.
Q/A