1)customer Value Creation 97

•Different

Customer Roles •How to Create Value for all these Roles

The purpose of a business is to create a customer. Peter Drucker

The purpose of business is to create and keep a customer. Peter Drucker

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the factory we make cosmetics; in the drugstore we sell hope. - Charles Revson

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theater could sanely flourish until there was an umbilical connection between what was happening on the stage and what was happening in the world. - Kenneth Tynan

On a broader perspective, customer and consumer are the same.  In reality, person who purchases need not be the consumer. 

A customer is a person or an organizational unit that plays a role in the consummation of transaction with a marketer.  A customer can play three different role in transaction (Seth & Mittal) 

Businesses Households Consumers

Mental Activities Physical activities Behavior

Customer types

Users

Buyer s

Payer s Roles

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Three Roles of the Customer

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The User – the person who actually use the product or receive benefits of the service.

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The Payer – the one who finances the purchase.

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The Buyer- the person who procure the product from the market place.

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Five roles people play in consumer buying decision (Philip Kotler) Initiator – first suggest the idea of buying the product or service Influencer – Whose view or advice influences the decision Decider – decides on whether / what / how / where to buy. Buyer – makes the actual purchase. User – Consumes or uses the product or receives the benefit of the service. Participants in the business buying process Initiators: requests for the purchase of product/service Users: who will use the product. (In many cases users are initiators.) Influencers: define specifications & provide info for evaluation Deciders: decides on product requirements and/or suppliers. Approvers: authorize proposed actions of deciders or buyers. Buyers: have formal authority to select supplier and initiate buying. Gate Keepers: have power to prevent sellers or info reaching

Role Specialization – dividing the role between the above three.  User is neither payer Nor buyer – Baby food, Pet foods, gift items etc.  User is payer but not buyer – Shares, Travel services, Institutional buying  User is buyer but not payer- Sponsorships, Insurance reimbursements  User is buyer and payer- small business, restaurants & pubs, FMCG (bought for own use) 

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Customer Delivered Value = Total customer benefits – Total customer costs. Customer will buy a product that he perceives to be providing highest value. Derived from comparing a product’s perceived performance vis-à-vis the expectations. When the performance fall below expectations, the customer gets dissatisfied.

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Customer = User

+ Buyer

+ Payer

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1. User --- Performance/Quality,

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2. Buyer --- Service & Convenience

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3. Payer --- Price discounts / payment terms

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Total Customer Benefits:

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Performance + Benefits Benefits

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Buyer Benefits (Service, Convenience & Personalization) Payer Benefits (Price, Credit & financing)

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Social

+ Emotional Benefits

Total Customer Cost : Price + procurement costs (time & efforts) + Use related costs + Disposal costs

Tools for Creating Market Values Performance Social User •Price Exclusivity Values •Quality improvements •Innovations •Mass customizations •Warranties/guarantees

•Limited availability •Social Image ads •Exclusive offerings

Payer Price Values •Low price from low

Credit

Buyer Service Values Product Display & Demo

Convenience

•Acceptance of margins credit cards •Low price from increased •Own credit card •Deferred productivity Payment

Knowledgeable Sales staff Responsiveness

•Point of access •Automated transaction recording

Emotional •Emotional Symbols •Brand that meets your selfconcept

Financing •Leasing •Customized Financing

Personalization •Personal attention •Interpersonal relationships

Universal Value - Performance Value:  Physical performance better than competing alternatives.  Product performs that way consistently. 

1. Quality Improvements  2. Innovation  3. Mass Customization  4. Warranties & Guarantees 

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Quality Improvement Better performance value by building quality into the products. Zero defects – by eliminating product failures completely. Innovation Increasing performance value by designing new features to products (Automobiles with navigation devices, computers with voice conversion to written text etc.)

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Companies – should build a culture of innovation (3M of US) Mass Customization Offer customized products to individuals at “same price”. Warranties & Guarantees Helps to alleviate fears on product failure (Sears – satisfaction guarantee; LL Bean - Life time warranty)

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Personal Values: Social & Emotional

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Personal values that satisfy customers ‘wants’ are the social & emotional values. Social values are derived from the association of a product with one or more social groups in society. Prestige Pricing: Product will be sold in limited target markets, leading to ‘Exclusivity”. Leads to Irrational buying & conspicuous consumption. Children get driven by peer group and poor use it insurance against product failure. Limited Availability: Sold in limited quantity/edition to provide social value for their owners. Sale basis Possession value ( not real value ). Van Gogh, Rolls Royce.

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New Exclusive offerings :  something which competition do not offer (Jaguars -Budget car rentals)  Social Image Based Marketing Communication:  Stem not just from advertising - product design, price, Place etc.  Draw back – it leads to consumerism & materialism.  Emotional Communications:  Communications that evoke some emotional experience valentine day gifts as symbols of Love.  Ads which transmit -- hope, wish, longing etc 

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UNIVERSAL VALUE - PRICE

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Represents the relative affordability of the product. Degree of economic sacrifice that the customer has to make for the purchase. Price means both initial purchase price and the cost of maintaining the product. Low Price from Lower margins Cutting prices below competitors prices to attract their customers. Outcome of a strategic insight – some companies figure out the formula to offer the required price value. Low price from increased productivity The firm strives for lowest cost of production Economies of scale Modernized Plant – outdated plants bring in inefficiencies. Automation- Technology and machines to substitute human labor. Business Process Reengineering – redesigns the process from a blank slate

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Personal Values - Credit & Financing

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Credit: Payers seek credit and financing values because they improve affordability by creating deferred payments or providing credit. Sellers may allow credit cards by third parties Sellers will issue their own credit cards Sellers may allow delayed or deferred payment. Sears had credit cards reaching 40 m households, before other retailers. Financing goes beyond credit. Involves specific payment schedules designed for a customer. Leasing helps customers to defer large cash outlay but also offer tax benefits. Ideal for heavy machinery. Installment payment (EMI) Financing possible for both services and products, for consumables and durables Ethical Issue in credit card and financing -- huge interest rates.

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UNIVERSAL VALUE - SERVICE

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Performance value (utility) is built into the system by the manufacturer or service designer. Service Value is created by the distribution system. Pre-purchase Service Product on Display or Demonstration Retail stores appeal is basically due to merchandise-on-display. Provides edge to retailing over telemarketing or E-com marketing Product availability in trial sizes; food etc available for sampling/ taste, Free samples or trial memberships /ownerships. Knowledgeable Salespersons: Sales person at a discount /retail store will have less product knowledge than those in specialty store. Professional Sales person provides information and also help in choosing the right product. Computer sales, Selling suits, sports items to athletes

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SERVICE VALUE (contd)

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Post-Purchase Phase Service Generally known as after-sales service or after-sales-product support.

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Product-Use Advice and Support Assistance in using the product. Way to differentiate from competition. 1993 GE commissioned customer answer facility; answers customer questions on toll-free-lines with on-line product information and instant display of customer records. Quality of advice is a user value, but ease of obtaining is buyer value. Product maintenance Significant value accrues from the product maintenance service. Toyota-Lexus gives the customer a loaner car. Product down time can be of immense consequence in Indl. Products.

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Personal Values – Convenience Value & Personalization

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Convenient Point of access Locate the distribution and retail facilities conveniently and keep them open 24 hours (Domino’s convenience value by delivery-at-home). McDonald---- into the business of real estate Smaller service centers at diverse locations. Automated Transaction Recording Automation is a significant means of offering convenience. ATM’s for Banking; Telephone based automated response system used by banks, Document companies (FedEx) Credit card reader providing for pay-at-the-pump convenience. Personalization / Interpersonal relationship Accrues from personnel treating customers with personal attention and courtesy. Especially important in service industry. Showing courtesy is providing value and can build differential advantage in service business. (Jet Airways, Marriot) To deliver personalization value, co.’s need to engage in frequent, personalized communications.

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