trends in customer-perceived satisfaction, loyalty, and value
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Trends in Customer-Perceived Satisfaction, Loyalty, and Value
Bradley T. GaleCustomer Value, Inc.
Professional Marketing Research Society Meeting
Montreal, 7 October 2003
© Customer Value, Inc. 2003
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1 What is customer-perceived value?
2 How do you measure and analyze the value you deliver to customers -- relative to rival offers?
Appendix
3 How can you align your people and processes to deliver superior customer-perceived value?
4 How did the competitive strategy framework and customer value accounting evolve?
Outline
3
Customer-PerceivedValue relative to
competing offerings
Economic Value of your offering to the customer
Lifetime Value of a customer to you
Different business concepts abbreviated as “Customer Value”
AppraisingValue Propositions
Key Account Selling
Targeting Customers& Segments
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“Will your satisfied customers be loyal if a competitor provides
better customer-perceived value?”
What, exactly, do we mean by Customer-Perceived Value?
How can you measure your Customer-Perceived Value relative to competing products or brands?
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Conformance Quality- Delivering what we promise
- Meeting standards
Trends in Customer-PerceivedSatisfaction, Loyalty, and Value
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
1 Minimumrequirements
2 Customerfocus
3 Customerattitudes
4 Competitive focuson targeted markets
21st centurygrowth company
Source: Adapted from Managing Customer Value by Bradley T. Gale, (New York, The Free Press)
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Marketsatisfaction
RelativeperceivedCustomer
Value
CustomerSatisfaction
tactics
Our customers& competitors’
customers
Ourcustomers
only
Who weask:
Rate ourperformance
Rate us and keycompetitors
Linking Customer Satisfaction Tacticsto Customer Value Strategy
What we ask:
[ Biased view ]
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Contrasting Customer Satisfaction and Customer-Perceived Value
Customer Satisfaction Relative Customer-Perceived Value
1 Who we ask Our own customers, Customers (ours and competitors’),end users end users and decision makers
2 What we ask Rate our performance Rate us and our key competitors
3 Respondent Experiential, Perception of differences, perspective am I satisfied, which supplier will I choose,
backward looking current and forward looking
4 Taking action Customer service Competitive marketing strategy
5 Type of action Tactical StrategicContinuously improve Clarify/evolve our CV proposition,customer service, create a differentiated, superiorcorrect defects & errors offering
6 Data changes Static, reflects mainly Dynamic, reflects all competitiveour initiatives initiatives
Source: Bradley T. Gale, “Satisfaction is not enough,” Marketing News, 27 October 1997
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Customer Value Drives Profitability
Customer Value Ratio
Profitability(%) 20
1.02
0
10
30
40
1.060.980.94
xx
xx xx
x
x
xx
ROS (%)
ROI (%)
4
1212
31
Source: Keith Roberts, MD PIMS Europe, presentation at Customer Value Network meeting hosted by Unilever, Kingston, UK, June 1997 Information: PIMS database
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• Install a Customer Value Management System
• Develop and Execute Value-Based Strategies for
> Marketing > Segmenting > Positioning > Branding > Pricing > Selling
• Engage Your Whole Organization to > Create customer-perceived value > Earn market share and price premiums
Objectives
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1 Price-Performance Profile -- for synthesizing data on what customers value
2 Value Map -- for assessing each product’s performance, price, and value
3 Value Pricing Toolkit -- for pricing on value, knowing your cost
4 Attribute Analyses -- for prioritizing performance improvements
Tools for analyzing Customer-Perceived Value
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5 Value Scorecard -- for reality testing your value proposition and comparing it to rival offerings
6 Head-to-head Value Comparisons -- for value selling ---------------------------------------------------------------------- 7 Value-Strategy Simulator -- to test alternative ways to improve your performance versus competitors
8 What / Who Alignment Matrix -- which function head is responsible for your performance, by attribute?
Tools for analyzing Customer-Perceived Value
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Industry Category Company Competitors
Textiles Carpets Milliken Interface, Shaw Telecom services Long dist. AT&T MCI, Sprint Pharmaceuticals Cholesterol Parke-Davis Merck Financial services Credit cards AT&T Univ. AmEx ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Medical devices Endoscopy J&J Ethicon US Surgical Packaging Grocery bag Sonoco Prod. Paper bag Medical supplies Containers Baxter McGaw, Abbott Chemicals Ag DuPont Many others ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer package Chocolate Mars Hershey Consumer package Soap Unilever P&G, Bristol Equipment Elevators Schindler Kone, Otis Soft Drinks Cola Coke bottler Pepsi, local Equipment Telecom Nortel Lucent, Cisco---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Package delivery One/Two day FedEx UPS, USPS Equipment Ag & Indust. John Deere CNH, Cat Office equipment Computers Dell Gateway, HP Office equipment Printers HP Epson, Lexmark Telecom services DSL Bell Canada Cable operators
Competitive cases using CV Analysis
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Honda Odyssey
Much bigger and much better the second time around.
Source: Consumer Reports, June 1999
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Minivan Quiz
Who invented the minivan? Who made a lot of money from minivans? When did they make these profits?
Who makes minivans now? What are the minivan attributes that customers value? How do minivan models perform on these attributes? What is the relative importance of these attributes?
How much economic value does each minivan deliver to customers? How do minivan models compare on prices? How do minivans compare on price relative to economic value? How should a sales person’s pitch differ by competing model?
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1 Competing Vendors √ √ √ √ √ √ √2 Benefit Attributes √ √ √ √ √ √3 Performance Scores √ √ √ √4 Attribute Weights (%) √
5 Selling Prices* √ √ √6 Market Share (+, 0, -) √ √
Internal Data
Proprietary Market Research
Six sets of data about a category
* And/or Relative Price Ratings
Published Data
Integrating and Synthesizing Typical Sources of Data for a Price-Performance Profile
Per
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atin
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Price-Performance Profile: Minivans
5
11
10
12
6
15
19
11
3
8
100%
6.0
10.0
8.0
6.0
8.0
7.3
8.5
8.0
4.06.0
6.0
10.0
8.0
6.0
8.0
8.0
7.5
6.9
4.08.0
6.0
8.0
8.0
6.0
8.0
8.1
7.5
8.0
2.06.0
6.0
8.0
6.0
6.0
8.0
8.1
6.9
7.1
4.08.0
6.0
10.0
6.0
6.0
8.0
7.5
6.5
8.0
4.04.0
8.0
8.0
6.0
4.0
8.0
7.9
6.9
8.0
2.02.0
6.0
8.0
6.0
4.0
6.0
6.8
6.5
6.9
4.06.0
6.3
8.9
6.9
5.4
7.7
7.7
7.2
7.6
3.45.7
28,840 28,084 29,560 25,900 28,500 29,610 25,530 28,003
Hon
da
Od
ysse
y
Toy
ota
Sie
nn
a
Dod
ge G
ran
d C
arav
an
Maz
da
MP
V
Wei
ghts
(%
)
Ch
evro
let
Ven
ture
For
d W
ind
star
Mer
cury
Vil
lage
r
Ave
rage
Benefit Attributes
Acceleration
Transmission
Routine handling
Emergency handling
Braking
Ride comfort
Seating comfort
Convenience
Fuel economyReliability
Selling Price ($) Market Share
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Examples of general choice criteria
RelativeBenefits
RelativeCosts
Service to Customers
Product Offering
Relationship
Brand Affinity
Other Costs
Selling Price
Trust,Partnership
Innovativeness,Acceptability
Durability,Connectivity
On-time delivery,Responsiveness
CV Dimensions Choice Criteria
Operating costs,Maintenance costs
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*Ordered by overall performance score.Data Source: Consumer Reports, January 2001
Make/Model*
Honda Odyssey
Toyota Sienna
Dodge Grand Caravan
Mazda MPV
Chevrolet Venture
Ford Windstar
Mercury Villager
Average Model
28,840
28,084
29,560
25,900
28,500
29,610
25,530
28,003
7.60
7.54
7.24
7.06
6.88
6.44
6.24
7.00
Price ($)
Performance(1-10)
Prices and Overall Performance Scores: Minivans
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Mercury Villager
Ford Windstar
Chevrolet Venture
Mazda MPV
Honda Odyssey
Toyota Sienna
Dodge Grand Caravan
25,000
26,000
27,000
28,000
29,000
30,000
6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6 7.8
Price
High
Low
Performance score BetterWorse
Slope of FV Line = $3,000 per benefit point
Fair-value line
Frontier Line
Value Map: Minivans
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Make/Model
Honda Odyssey 1,800 29,803 28,840 963
Toyota Sienna 1,620 29,623 28,084 1,539
Dodge Grand Caravan 720 28,723 29,560 -837
Mazda MPV 180 28,183 25,900 2,283
Chevrolet Venture -360 27,643 28,500 -857
Ford Windstar -1,680 26,323 29,610 -3,287
Mercury Villager -2,280 25,723 25,530 193
Average Model 0 28,003 28,003 0
Worth Difference
($)
Fair- Price
($)
Selling Price
($)
Relative Value
($)
Value Metrics: Minivans
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The Digital War Roomfor analyzing customer-perceived value
Stored Profiles
InputForms
Suppliers(Glossary)
Snapshots
User Worksheets
ProfileValueMap
ValueScorecard
Head-to-Head
Value Simulator
Business Definition
RadarChart
Product/Market
Market Analysis
Key EventsTime Line
Won/LostAnalysis
What/Who
Strategies,Plans,Programs, &Responsibilities
NewInputForm
MakeWhat/Who
StoreProfile
LoadProfile
Take Snapshot
LoadProfile
© Customer Value, Inc. 2003
Databases
LoadProfile
Us vs. Them
Pricing Attributes
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Worth difference of each model versus the average model ($)
Benefit AttributesAcceleration -43 -43 -43 -43 -43 257 -43 0Transmission 377 377 -283 -283 377 -283 -283 0Routine handling 343 343 343 -257 -257 -257 -257 0Emergency handling 206 206 206 206 206 -514 -514 0Braking 51 51 51 51 51 51 -309 0Ride comfort -154 146 206 206 -94 86 -394 0Seating comfort 754 154 154 -146 -386 -146 -386 0Convenience 146 -214 146 -154 146 146 -214 0Fuel economy 51 51 -129 51 51 -129 51 0Reliability 69 549 69 549 -411 -891 69 0Worth Difference 1,800 1,620 720 180 -360 -1,680 -2,280 0Price Advantage -837 -81 -1,557 2,103 -497 -1,607 2,473 0Total Value Advantage 963 1,539 -837 2,283 -857 -3,287 193 0Fair-Price ($) 29,803 29,623 28,723 28,183 27,643 26,323 25,723 28,003Selling Price ($) 28,840 28,084 29,560 25,900 28,500 29,610 25,530 28,003Total Value Advantage 963 1,539 -837 2,283 -857 -3,287 193 0
Ch
evro
let
Ven
ture
For
d W
ind
star
Mer
cury
Vil
lage
r
Ave
rage
Hon
da
Od
ysse
y
Toy
ota
Sie
nn
a
Dod
ge G
ran
d C
arav
an
Maz
da
MP
V
Value Scorecard: Minivans
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-600 -400 -200 0 200 400 600 800
Acceleration
Transmission
Routine handling
Emergency handling
Braking
Ride comfort
Seating comfort
Convenience
Fuel economy
Reliability
Selling Price
Relative value impacts - Honda Odyssey vs. Dodge Grand Caravan
Head-to-Head Value Comparison
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Head-to-Head Value Comparison
Relative value impacts - Honda Odyssey vs. Toyota Sienna
-1000 -500 0 500 1000
Acceleration
Transmission
Routine handling
Emergency handling
Braking
Ride comfort
Seating comfort
Convenience
Fuel economy
Reliability
Selling Price
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Average Return on Sales Depends on Value-Map Position
ROS < 0ROS < 0
ROS < 0ROS < 0
0<ROS<20<ROS<2
2<ROS<4
4 < ROS < 6
6 < ROS < 8 8 < ROS < 10ROS > 10
1.00.7 1.3
1.25
0.75
1.00RelativePrice
Relative Quality
Worse value
Better value
Source: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Network meeting, London, October 2000 Information: PIMS database
Fair-ValueLine
Worse valueBetter value
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1 Develop a digital war room and a physical war room for customer-focused competitive strategy.
2 Measure customer-perceived benefits, price, and value -- relative to competitors.
3 Target profitable-to-serve customers and segments.
4 Quantify and validate our customer value proposition.
5 Align our people and processes to deliver superior customer-perceived value and shareholder value.
6 Customize our pricing structure to capture our share of economic value created.
7 Train our sales force to communicate our added value to customers in monetary terms.
8 Track the links from customer-perceived value to profitability, growth, and shareholder value.
Call to Action
27
Customer Value, Inc.www.cval.com
Bradley T. Gale
Marketing Strategy
Strategic Management
BusinessExcellence
217 Lewis Wharf Boston, MA 02110 USATel: 617-227-8191 Fax: 617-227-8287 Email: [email protected]
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Appendix
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What CVI offers -- to help your LOB teams
earn market share and price premiums
1 Integrated CPV services -- combining consulting, market research, software tools for practitioners, action-learning technology transfer, and data synthesis -- to facilitate practitioner-identified performance improvement steps and a commitment to implementing them
2 Interactive seminars for business leaders, cross-functional LOB teams, and marketing practitioners
3 Action-learning data-review workshops for appraising and improving your CPV versus competitors
4 Digital War Room software tools for analyzing CPV and technology transfer sessions on how to use the tools
5 Customer value audits and subject matter expert reviews of your organization’s approach to customer-focused competitive strategy
6 A comprehensive approach to value-based marketing: segmenting, positioning, branding, pricing, and selling
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1 What is customer-perceived value?
2 How do you measure and analyze the value you deliver to customers -- relative to rival offers?
3 How can you align your people and processes to deliver superior customer-perceived value? (Perdue Farms case illustration)
4 How did the competitive strategy framework and customer value accounting evolve?
Outline
31
Options for Improving Our Customer-Perceived Value Position
• Improve our perceived functional performance - Change performance of our product/service - Change perception of performance • Enhance our brand affinity with targeted customers • Introduce a new benefit • Increase weight on criteria where we are ahead - Change perception of individuals - Increase role of people that weight our top-rated attributes more heavily • Reduce relative selling price • Differentiate our offerings to meet the diverse needs of targeted customers and market segments
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Review with CVA Team
Build Value Propositionthat Wins Customers
Test with Customers
Construct InternalMarketAnalysis
IdentifyBusinessObjective
Integrate ValueProposition inBusiness Plans
& Measures
Repeat as appropriate
a quick and effective way to significant growth
The Implementation Process
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Qualityattributes:
Yellow birdMeat-to-boneNo pinfeathersFresh
AvailabilityBrand affinity
Performance score: Market-perceived quality ratio:
Importanceweights:
Performance scores: Perdue Others Ratio
.05
.10
.15
.15
.55 0
1.00
7657
86
7657
86
7.15
7.15
1.01.01.01.0
1.01.0
1.0
Quality Profile: Chicken Business -- the old days -- NO REAL DIFFERENCES AMONG PRODUCERS
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Yellow bird
Meat-to-bone
No pinfeathers
Fresh
Availability
Brand affinity
Selection criteria
Feeding &breeding
Processing
Torching
MarketingPackaging
Alignment MatrixWhat do customers want? Who is responsible-- for our performance versus competitors?
Logistics
--- Function Heads or Process Owners -----
7
9 5
5
5
5
9
7
7 7
9
95
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Who What Impact
Mgr, feed recipe Add marigold seeds Yellow color Mgr, packaging Switch to yellow base Yellow image Mgr, procurement Longer grow period Plump Mgr, processing Blow dry before torching No pinfeathers
Mgr, shipping Better icing and insulating Fresh Mgr, delivery Proper handling/scheduling Fresh Mgr, retail relations Right customers & ECR Available Mgr, advertising Frank & Jim Perdue TV ads Brand affinity
Action Steps -- Who, does what, by when, with what impact?
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--Performance scores--Quality profile: Chicken business after Frank Perdue
Yellow birdMeat-to-boneNo pinfeathersFresh
AvailabilityBrand affinity
Performance score: 8.8 7.1 Market-perceived quality ratio:
Weight 2
.10
.20
.20
.15
.10.25 1.00
8.19.09.28.0
8.09.4
7.27.36.58.0
8.06.4
1.131.231.421.00
1.001.47
0.110.250.280.15
0.100.37
1.26
Avg.vendor
4Ratio5 = 3 / 4
Weightedratio
6 = 2 x 5Perdue
3
Quality attributes 1
37
Fair-value line
1.15
1.00
.850.7 1.0 1.3
Superior value
Relative perceived quality
Relativeprice
Customer-Perceived Value Map: Chicken Business
Perdue
Others
Inferior value
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The Competitive Strategy ParadigmBuilding on the GE/McKinsey/PIMS Framework of
Market Attractiveness & Competitive Positionto Build a Strategic Navigation System
Source: Bradley T. Gale keynote at IQPC’s “Using the Balanced Scorecardas a Strategic Management System” conference, Dallas, March 1999
Competitive PositionRelative to competitors12 Customer value13 Perceived benefits14 Perceived price15 Market share16 Capital intensity17 Cost
Market Attractiveness18 Market growth19 Differentiation20 Entry conditions21 Capital intensity22 Purchase amount
Financial Performance1 Stock price 2 Value enhancement, IRR, Spread 3 Cash flow 4 Growth 5 Profitability (ROI, ROS, RONA)
Strategy and Tactics 6 R&D activity 7 New products 8 Change in quality, variety of offering 9 Marketing mix, brand image10 Distribution channels11 Pricing
Unit of analysis = business unit and its served market
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How did the Competitive Strategy Paradigm evolve?
Source: Bradley T. Gale keynote at IQPC’s “Using the Balanced Scorecardas a Strategic Management System” conference, Dallas, March 1999.
Industrial Organization EconomicsDick Caves
Ed Mason -> Joe Bain -> Mike SchererHarvard Stanford Harvard
Unit of analysis = business unit and its served market
Microeconomic Theory
Market models
Game theory & Market StructureJohn Von Neuman ---> Martin ShubikOskar Morgenstern Princeton
Dynamic Competitionfrom SubstitutesJoseph Schumpeter HarvardEd Mansfield Penn General Electric
> Measurement task force, 1950s> Profit optimization model, 1960s
Harvard Business School> Marketing> Business policy
Competitive Strategy, 1980Competitive Advantage, 1985
Michael Porter
PIMS -- 1972Profit Impact of Market Strategy
Bob BuzzellBrad Gale
Sid SchoefflerRalph Sultan
Strategic PlanningInstitute
1975
The PIMSPrinciples:Linking
Strategy toPerformance
Bob BuzzellBradley Gale
1987
ManagingCustomer
Value
Bradley Gale1994
Public policy perspective
Competitive strategy perspective
McKinseyBusiness Unit,
Stoplight matrix
McKinseyBusiness System(Value Chain)
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How did Customer Value Accounting evolve?
Source: Bradley T. Gale seminar at IBM, White Plains, NY, 30 April 2003.
Unit of analysis = business unit and its served marketGeneral Electric> Measurement task force, 1950s> Profit optimization model, 1960s
PIMS, 1972SPI, 1975
“Quality Is King”Chapter 6 ofThe PIMS Principles
Bob BuzzellBradley Gale
1987
ManagingCustomer
Value
Bradley Gale 1994
How Much Is Your ProductReally Worth?
Bradley Gale 2002
“Formulating aQuality Improvement
Strategy”
Bradley Gale1985
Next Book
Bradley Gale2004
Unit of analysis = products competing in a market category
“Market Share -- A Key to Profitability”Buzzell, Gale, and Sultan
1975
“Market Share and Rate of Return”Bradley Gale,
1972
41
-2
0
+2
+4
+6
Down Steady Up
Change in Customer Value
Change inRelative
Market Share(% per year)
Change in Relative Customer Perceived Value drives Market Share Growth
+4.9
+1.7
-1.0
Source: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Network meeting, London, October 2000 Information: PIMS database
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Relative Customer Perceived ValueDrives Profitability
0
10
20
40
ROI(%)
30
0.94 0.98 1.02 1.06
Customer-Perceived Value Ratio
Information: PIMS Data BaseSource: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Networkmeeting London, October 2000
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3.1 Value Map for Setting Prices -- for pricing on value, knowing your cost
3.2 Pricing Strategy Dial -- indicates the inferred pricing strategy (share vs. margin) for each brand
3.3 Pricing Scorecard -- shows pricing metrics and the customer and vendor perspectives on prices
3.4 Selling Price vs. Fair Price Plot -- a stepping-stone toward analyzing the pricing of your portfolio of products, brands, or regions
3 Value Pricing Toolkit
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4.1 Performance and Differentiation Assessment, -- a plot of each vendor’s performance, by attribute
4.2 Importance and Performance Analysis -- a scatter plot of attribute importance versus your performance score
4.3 Importance versus Performance-Advantage -- a scatter plot of attribute importance and your performance-difference versus competitors
4.4 Value of Performance-Differences -- an appraisal of the monetary worth to the customer of your performance advantages and disadvantages
4.5 Value of Making “Catch-up” and “Pull-ahead” moves
4.6 Value of Making a 1-point-improvement vs. competitors
4 Attribute Analyses for Improving Your Performance
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Customer Value, Inc.www.cval.com
Bradley T. Gale
Marketing Strategy
Strategic Management
BusinessExcellence
217 Lewis Wharf Boston, MA 02110 USATel: 617-227-8191 Fax: 617-227-8287 Email: [email protected]