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This is the story of a utility company and a financial services firm that went all out to address the issue of customer satisfaction. They tried to answer the two critical questions. Where do our customers want us to be and how do we get there?
The utility company developed a menu of �Customer Needs� as a target for quality improvement. Management thought that �down time� between power failure and return to power should be reduced to improve customer satisfaction. Though this was achieved and down time was reduced from several minutes to just a few seconds per event, still the customer was not satisfied. Because customer satisfaction was possible only when the number of outages was reduced, not merely on how long the outage lasted. The lesson in that being �customer sensitive� is not enough, one has to be �customer-aware� also. Based on this the firm decided to replace the �inside-out� view of customer value with an �outside-in� view. Similarly in respect of a financial services firm also they tried to identify what customers defined as an ideal provider of financial services, rather than what management defined. Subsequently the firm developed an IT strategy that aligned and linked with the needs of customers.
The �Outside-in� approach is the nucleus of Customer Value Management (CVM). CVM enables firms to achieve the goal of putting customers at the centre of their business and increases profitability by directing resources towards high-value customers. CVM creates the kind of business that can deliver to customers what they want. CVM can be formulated to direct a firm's vision, strategy, products and services toward the customer. It is a methodical approach that aligns a firm's infrastructure and capabilities to deliver the specific needs and wants that customer's value. CVM has both a present and a future orientation. CVM addresses the customer problem facing CEOs. How to attract customers and achieve growth in an environment where products and prices are steadily moving closer together among all major competitors. Rising expectations and demands are not only triggered by direct competitors, but across the board wherever consumers or companies have a buying experience. What one industry provides, customers subsequently expect from other industries. Firms with a tunnel vision of what customers expect, fail to align the firm's actual capabilities and offerings with customer demands. Customer Value Management has demonstrated its benefits across a broad range of industries in both products and services, making a major difference in: 1) Growth 2) Differentiation and competition on value 3) Investments 4) Efficiency 5) Customer satisfaction and loyalty 6) Customer profitability management. Of these customer profitability management is the most important. This concept provides a profitable balance between the value provided to a customer and the value a company receives from a customer. It differentiates high-value from low-value customers and directs resources towards the customers who produce the most profits for the company.
Analyzing value to the customer: Customer Value analysis leverages customer needs that occur during the life cycle of a customer, purchase, delivery, invoicing, post-sales service etc. The interaction that occur during the life cycle of a customer can be defined as � moment of potential value�. These occasions constitute opportunities to influence customer behavior and loyalty by providing optimum delivery of Value from a product, service or process interaction. In mature industries in which products and prices are becoming increasingly similar, this form of customer-defined service can provide a company with a significant competitive advantage. The needs of customers can be classified under three categories:
Basic Needs:They must be met or customers will reduce their volume of business or defect to another firm. Under-performance in providing for basis needs drives dissatisfaction and defection.
Attractors/Differentiators:They make a difference that counts with customers, they differentiate vendors and they provide an incentive for customers to leave one firm and take their business to another.
Satisfiers: They improve the way customers feel about a firm. But they do not make or break relationships. They are positive add-ons that neither create loyalty nor cause attrition.
As tools of analysis, these categories enable firms to identify which combination of customer needs, basic needs, satisfiers or attractors provides the strongest competitive advantages. Customer Value Management establishes a practical framework for making critical decisions about which set of benefits to deliver, to which customers and with what reasonable expectations of significant results.
Market Segmentation: It is a technique to gather value information that helps in Customer Value Management
We must develop a customer defined company vision. For this the following questions must be answered.
Who are the customers?
What drives their behavior?
Whom do we wish to attract?
Whom do we wish to retain?
How do we appeal to them?
What is their value to the company?
The answers to these questions enable management to differentiate high -value and low-value customers and target particular niches.
Market Research: The critical focus in market research is on understanding what customers value and then securing the customer's vision of ideal delivery of that value
Bench Marks: Internally benchmarks identify �best� business units that are performing significantly better than others. Externally, they measure performance within and across industries and should take into account the fact that customer perceptions of a firm are influenced by all buying and service experiences.
Brain Storming: Brain storming by the business functions that comprise a service process can lead to major break through in the delivery of ideal value to customers. Customer value management does more than keep the customer in the picture when a firm makes a move to change, expand or meet a new competitive challenge. It converts the customer into a �partner� from the planning to the execution stage. When a firm is down sizing or making other internally driven changes, impact on the customer is crucial to the consequences. Customers do not immediately come to the fore when companies make plans to cut costs, reduce defects or reorganize IT.
When is Customer Value Management (CVM) appropriate?It is appropriate when firms
�Find that the gap in products and prices between them and their competitors is narrowing and they want to differentiate and compete on the value delivered by optimum services
�Provide commodities and set out to minimize cost and compete on price by identifying and delivering minimum needs
�Pursue growth by attracting new customers or by attracting more spending by existing customers
�Want to optimize a channel by making it �ideal� to customers to increase market share
�Seek to optimize a multi-enterprise value chain (suppliers, the firm, channels)
�Modify or redesign internal processes to meet the minimum requirements to low-value customers
�Encourage customers to use lower-cost processes, services, or channels by removing �inhibitors� and adding �attractors� thereby reducing costs and increasing revenues
�Plan improvements in the infrastructure, such as IT, and get the most out of improvements by ensuring that the changes also make the firm more attractive to customers.
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