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MBM6Ch4SlidesD2l.pptx
The Customer Experience
and Value Creation
Chapter 4 Objectives
Life-cycle Cost and customer value creation
Performance and customer value
Measuring perceived value
MBM6
Chapter 4
1
Life-Cycle Cost and Customer Value Creation
In this section we will look at different ways companies can assess the dollar value they create in customer savings relative to competitors.
MBM6
Chapter 4
The Customer Experience
and Value Creation
Southwest Airlines
Total Cost of Purchase
MBM6
Chapter 4
3
Sources of Life-Cycle Cost
MBM6
Chapter 4
4
Life-cycle Cost & Economic Value
MBM6
Chapter 4
Economic Value = Life-cycle cost (competitor)- Life-Cycle Cost (company)
5
AirCap Total Cost per Shipment
MBM6
Chapter 4
6
Communicating Value
MBM6
Chapter 4
7
Lowering Disposal Costs as
A Source of Value Creation
MBM6
Chapter 4
8
Price-Performance and Customer Value Creation
Performance can also include product features and functions that do not save money but enhance usage and create customer value.
MBM6
Chapter 4
The Customer Experience
and Value Creation
9
Performance vs. Price and Customer Value
Customer Value = Product Price – Fair Price
Data Source: “Digital Cameras,” Consumer Reports (April 2010)
MBM6
Chapter 4
10
Customer Value and Value Map
Canon A590
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Sport Utility Vehicle Value Map
MBM6
Chapter 4
How would you evaluate the Toyota Highlander value based on these results? (Data Source: “Best and Worst New and Used Cars,” Consumer Reports (2011): 43.)
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Relative Performance and Customer Value
MBM6
Chapter 3
If the average performance rating of sixty-two printers is 61 according to Consumer Reports, and HP’s performance rating is 73, what is HP’s relative performance rating?
Relative Performance = (73/61)*100= 120.
Product Performance Rating
Average Performance Rating
X 100
Relative Performance =
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Measuring Perceived Customer Value
Customer perceptions shape assessments of customer value. In many cases, customers consider more than product performance when they assess the overall value of a product.
MBM6
Chapter 4
The Customer Experience
and Value Creation
14
Perceived Customer Value
MBM6
Chapter 4
Perceived Customer Value
= Overall Performance Index (Overall benefits) – Cost of Purchase Index (cost)
= (Perceived Product Performance + Perceived Service Performance + Perceived Brand Reputation) – Cost of Purchase
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Measuring Perceived Product Performance
MBM6
Chapter 4
1
2
3
Advantage: When the business is significantly better (>1 points) than a competitor, it gets the relative importance points.
Disadvantage: If it is significantly worse (> -1 points), it loses the relative importance points.
No advantage/disadvantage: Between -1 and +1 no points are won or lost.
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Service Quality & Brand Reputation Perceptions Are Indexed that Same Way
MBM6
Chapter 4
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Overall Performance
MBM6
Chapter 4
Because each core area of performance could have different importance to customers, these area are assigned a Relative Importance.
The overall performance is a weighted average of the relative advantage and relative importance for the three core areas of performance.
In this case the overall performance is 123.
Relative Importance x Relative Advantage= Performance score
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Cost of Purchase
MBM6
Chapter 4
The cost of purchase is rated the same way. However, a higher rating means a higher cost and a lower rating a lower cost.
For the business its purchase price is 27% higher but service and repair 10% lower than its three competitors. Overall, their cost of purchase is 3% higher than competitors.
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Customer Value Index and Value Map
Perceived Customer Value Index = Overall Performance Index- the cost of purchase index
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Customer Value and Profitability
Businesses with higher customer value indexes have been shown to general higher levels of profitability than businesses with lower customer value indexes.
MBM6
Chapter 4
21
Identifying Value Drivers and Level of Price Sensitivity Using Conjoint Analysis
MBM6
Chapter 4
The Customer Experience
and Value Creation
Conjoint analysis is a tool widely used in marketing to estimate the relative importance of different factors that influence people’s decision.
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Conjoint Analysis: Price-Performance Trade-Offs
Step 1:
Set up two performance features each with 3 levels of performance and price at 3 price levels.
Step 2:
Rank the 9 options presented from 1 (most preferred) to 9 (least preferred).
These nine options (generated by conjoint analysis software) are a representative subset of 27 (3x3x3) combinations.
Step 1 Set-Up
Step 2 Rank Preferences
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Customer Preferences & Price Sensitivity
Customer Preferences
Which factor is most important?
Across different factors, the larger the range from low score to high score, the more important that attribute is.
What is the incremental benefit of a large hamburger over an average size?
Within the same factor, the bigger the jump from a lower score to a higher score, the more incremental benefits the change will bring to the customers.
Hamburger Size
Wait Time
Hamburger Price
Small Average Large
1 min. 5min. 10 min.
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Relative Performance
MBM6
Chapter 3
Your strategy: everything in the mid range. (What would be the Value Index of a $2.50 hamburger, with average size and 5 minutes wait time)?
Customer Value Index = Hamburger Size +Wait Time + Hamburger Price
CVI= .8+.67+.67= 2.14
Strategy A: Pursue the high-end market. (high price for a small burger, short wait time)
CVI= 0 +.33 +.80= 1.13
Strategy B: Pursue the low-end market. (low price for a big burger, long wait time)
CVI= 1 +.33 +.80= 2.13
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Business Rating - Competitor Rating
RelativeComp.Comp.Comp.
Product PerformanceImportanceABC
Machine Uptime40132
Print Speed30144
Image Quality20001
Ease of Use10-2-3-2
100
Indexing Competitive Advantage
RelativeComp.Comp.Comp.Rel.
Product PerformanceImportanceABCAdv.(*)
Machine Uptime400404027
Print Speed300303020
Image Quality200000
Ease of Use10-10-10-10-10
10037
Sheet1
| Relative | Business | Competitor | Rating | ||
| Product Performance | Importance | Rating | A | Difference | |
| Machine Uptime | 40 | 8 | 7 | 1 | |
| Print Speed | 30 | 9 | 8 | 1 | |
| Image Quality | 20 | 7 | 7 | 0 | |
| Ease of Use | 10 | 4 | 6 | -2 | |
| 100 | |||||
| Business Rating - Competitor Rating | |||||
| Relative | Comp. | Comp. | Comp. | ||
| Product Performance | Importance | A | B | C | |
| Machine Uptime | 40 | 1 | 3 | 2 | |
| Print Speed | 30 | 1 | 4 | 4 | |
| Image Quality | 20 | 0 | 0 | 1 | |
| Ease of Use | 10 | -2 | -3 | -2 | |
| 100 | |||||
| Indexing Competitive Advantage | |||||
| Relative | Comp. | Comp. | Comp. | Comp. | |
| Product Performance | Importance | A | B | C | Adv.(*) |
| Machine Uptime | 40 | 0 | 40 | 40 | 27 |
| Print Speed | 30 | 1 | 4 | 4 | 20 |
| Image Quality | 20 | 0 | 0 | 1 | 0 |
| Ease of Use | 10 | -2 | -3 | -2 | -10 |
| 100 | 37 |
Sheet2
Sheet3
Sheet1
| Relative | Business | Competitor | Rating | ||
| Product Performance | Importance | Rating | A | Difference | |
| Machine Uptime | 40 | 8 | 7 | 1 | |
| Print Speed | 30 | 9 | 8 | 1 | |
| Image Quality | 20 | 7 | 7 | 0 | |
| Ease of Use | 10 | 4 | 6 | -2 | |
| 100 | |||||
| Business Rating - Competitor Rating | |||||
| Relative | Comp. | Comp. | Comp. | ||
| Product Performance | Importance | A | B | C | |
| Machine Uptime | 40 | 1 | 3 | 2 | |
| Print Speed | 30 | 1 | 4 | 4 | |
| Image Quality | 20 | 0 | 0 | 1 | |
| Ease of Use | 10 | -2 | -3 | -2 | |
| 100 | |||||
| Indexing Competitive Advantage | |||||
| Relative | Comp. | Comp. | Comp. | Rel. | |
| Product Performance | Importance | A | B | C | Adv.(*) |
| Machine Uptime | 40 | 0 | 40 | 40 | 27 |
| Print Speed | 30 | 0 | 30 | 30 | 20 |
| Image Quality | 20 | 0 | 0 | 0 | 0 |
| Ease of Use | 10 | -10 | -10 | -10 | -10 |
| 100 | 37 |
