customer value creation 97
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Different Customer RolesHow to Create Value for all these Roles
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Inbound
Logistics
(Raw -
Material &
Spares)
Operations
(Manufacturingor
Processing)
Outbound
Logistics
Marketing
&
Sales
(Distrbn.)
Service
(After
Sales &
Personal
Attention
During
Sale)
Technology Development
Human Resource Management
Firm Infrastructure
M
a
r
g
i
n
PRIMARY ACTIVITIES
SECONDARY ACTIVITIES
Supp
lie
rs
Co
nsu
me
rs
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Design
ProductProcure Make Price
Advertise/
PromoteDistribute Sell Service
Make The Product Sell The Product
Traditional Physical Process Sequence
Custom-
er Segm-
entation
Target
Market-
ing
Value
Positi-
oning
Mkg
Mix
Plng.
Pdt.
Dvlpt.
Serv
Dvlp
Pric
ingMfg. Distr
Pers.
Sales
Sales
PromnAdvtg
Choose / Envision Value Provide / Deliver Value Communicate- Value
Strategic Marketing Tactical Marketing
Value Creation & Delivery sequence
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Value = benefits cost or Value = benefits/costs
Customer Delivered Value = Total customer benefits Total customer
costs.
Customer will buy a product that he perceives tobe providing highest value.
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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 organizationalunit that plays a role in the consummation oftransaction with a marketer or can be theuser also.
A customer can play three different role intransaction (Seth & Mittal)
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Households
Consumers
Businesses
MentalActivities
Physicalactivities
UsersBuyers
Payers
Customertypes
Behavior
Roles
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Three Roles of the Customer
The User the person who actually use theproduct or receive benefits of the service.
The Payer the one who finances thepurchase.
The Buyer- the person who procure the
product from the market place.
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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 ownuse)
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Customer Delivered Value = Total customer benefits Total customer
costs.
Customer will buy a product that he perceives tobe providing highest value.
Derived from comparing a products perceived
performance vis--vis the expectations.
When the performance fall below expectations,the customer gets dissatisfied.
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Customer = User + Buyer + Payer
1. User --- Performance/Quality,
2. Buyer --- Service & Convenience
3. Payer --- Price discounts / payment terms
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Total Customer Benefits:
Performance + Social + EmotionalBenefits Benefits
Benefits
Buyer Benefits (Service, Convenience &Personalization)
Payer Benefits (Price, Credit & financing)
Total Customer Cost : Price + procurement costs (time & efforts) + Use
related costs + Disposal costs
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Universal Value - Performance Value:
Physical performance better than competingalternatives. 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 theproducts. Zero defects by eliminating product failurescompletely.
Innovation Increasing performance value by designing new features
to products (Automobiles with navigation devices, computers withvoice conversion to written text etc.) 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 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 insuranceagainst 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 emotionalexperience valentine day gifts as symbols of Love.
Ads which transmit -- hope, wish, longing etc
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UNIVERSAL VALUE - PRICE
Represents the relative affordability of the product. Degree ofeconomic 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 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 otherretailers. 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 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 productknowledge than those in specialty store.
Professional Sales person provides information and also help inchoosing the right product. Computer sales, Selling suits, sportsitems to athletes
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Personal Values Convenience Value &Personalization
Convenient Point of access Locate the distribution and retail facilities conveniently and keep them
open 24 hours (Dominos 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. ATMs for Banking; Telephone based automated response systemused 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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SERVICE VALUE (contd) Post-Purchase Phase Service Generally known as after-sales service or after-sales-product support.
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.