Trends in Customer-Perceived Satisfaction, Loyalty, and Value Bradley T. Gale Customer Value, Inc. Professional Marketing Research Society Meeting Montreal, 7 October 2003 © Customer Value, Inc. 2003 1
Outline 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? 2
Different business concepts abbreviated as “Customer Value” Key Account Selling Customer-Perceived Value relative to competing offerings Appraising Value Propositions Economic Value of your offering to the customer Lifetime Value of a customer to you Targeting Customers & Segments 3
“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? 4
Trends in Customer-Perceived Satisfaction, Loyalty, and Value 1 Minimum requirements 2 Customer focus 3 Customer attitudes 4 Competitive focus on targeted markets Customer Value Customer Satisfaction Conformance Quality - Delivering what we promise - Meeting standards - Providing what customers want - Responding to customer complaints Customer Loyalty - Retaining our customers - Getting them to recommend us Source: Adapted from Managing Customer Value by Bradley T. Gale, (New York, The Free Press) - Meeting critical needs of targeted customers - Outperforming competitors - Creating new, unique benefits 21 st century growth company 5
Linking Customer Satisfaction Tactics to Customer Value Strategy What we ask: Rate our Rate us and key performance competitors Who we ask: Our customers & competitors’ customers Market satisfaction Relative perceived Customer Value Our customers only Customer Satisfaction tactics [ Biased view ] 6
Contrasting Customer Satisfaction and Customer-Perceived Value Customer Satisfaction Relative Customer-Perceived Value 1 Who we ask Our own customers, end users Customers (ours and competitors’), end users and decision makers 2 What we ask Rate our performance Rate us and our key competitors 3 Respondent perspective Experiential, am I satisfied, backward looking Perception of differences, which supplier will I choose, current and forward looking 4 Taking action Customer service Competitive marketing strategy 5 Type of action Tactical Continuously improve customer service, correct defects & errors Strategic Clarify/evolve our CV proposition, create a differentiated, superior offering 6 Data changes Static, reflects mainly our initiatives Dynamic, reflects all competitive initiatives Source: Bradley T. Gale, “Satisfaction is not enough, ” Marketing News, 27 October 1997 7
Customer Value Drives Profitability 40 31 30 ROI (%) 12 x Profitability (%) 20 ROS (%) x x 12 10 x x 4 x x x 0 0. 94 0. 98 1. 02 1. 06 Customer Value Ratio Source: Keith Roberts, MD PIMS Europe, presentation at Customer Value Network meeting hosted by Unilever, Kingston, UK, June 1997 Information: PIMS database 8
Objectives • 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 9
Tools for analyzing Customer-Perceived Value 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 10
Tools for analyzing Customer-Perceived Value 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? 11
Competitive cases using CV Analysis Industry Category Company Competitors Textiles Telecom services Pharmaceuticals Financial services Medical devices Packaging Medical supplies Chemicals Consumer package Equipment Soft Drinks Equipment Package delivery Equipment Office equipment Telecom services Carpets Long dist. Cholesterol Credit cards Endoscopy Grocery bag Containers Ag Chocolate Soap Elevators Cola Telecom One/Two day Ag & Indust. Computers Printers DSL Milliken AT&T Parke-Davis AT&T Univ. J&J Ethicon Sonoco Prod. Baxter Du. Pont Mars Unilever Schindler Coke bottler Nortel Fed. Ex John Deere Dell HP Bell Canada Interface, Shaw MCI, Sprint Merck Am. Ex US Surgical Paper bag Mc. Gaw, Abbott Many others Hershey P&G, Bristol Kone, Otis Pepsi, local Lucent, Cisco UPS, USPS CNH, Cat Gateway, HP Epson, Lexmark Cable operators --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 12
Honda Odyssey Much bigger and much better the second time around. Source: Consumer Reports, June 1999 13
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? 14
Integrating and Synthesizing Typical Sources of Data for a Price-Performance Profile Internal Data Attribute Importance (Direct, Constant Sum, Conjoint, Regression) √ √ Satisfaction/ Performance Ratings √ √ √ In-depth Interviews √ √ √ Focus Groups √ √ Won/Lost Analyses √ Proprietary Market Research Competitive Assessments Market Intelligence 1 Competing Vendors √ 2 Benefit Attributes √ 3 Performance Scores √ 4 Attribute Weights (%) 5 Selling Prices* √ 6 Market Share (+, 0, -) * And/or Relative Price Ratings Industry Analysts Six sets of data about a category Product Evaluators Published Data √ √ √ √ 15
Benefit Attributes Acceleration Transmission Routine handling Emergency handling Braking Ride comfort Seating comfort Convenience Fuel economy Reliability Selling Price ($) Market Share 6. 0 10. 0 8. 0 6. 0 8. 0 7. 3 8. 5 8. 0 4. 0 6. 0 10. 0 8. 0 6. 0 8. 0 7. 5 6. 9 4. 0 8. 0 6. 0 8. 1 7. 5 8. 0 2. 0 6. 0 8. 1 6. 9 7. 1 4. 0 8. 0 6. 0 10. 0 6. 0 8. 0 7. 5 6. 5 8. 0 4. 0 8. 0 6. 0 4. 0 8. 0 7. 9 6. 9 8. 0 2. 0 6. 0 8. 0 6. 0 4. 0 6. 8 6. 5 6. 9 4. 0 6. 3 8. 9 6. 9 5. 4 7. 7 7. 2 7. 6 3. 4 5. 7 28, 840 28, 084 29, 560 25, 900 28, 500 29, 610 25, 530 Weights (%) Average Mercury Villager Ford Windstar Chevrolet Venture Mazda MPV Dodge Grand Caravan Toyota Sienna Honda Odyssey Price-Performance Profile: Minivans 28, 003 5 11 10 12 6 15 19 11 3 8 100% 16
Examples of general choice criteria Brand Affinity Relative Benefits Relationship Innovativeness, Acceptability Trust, Partnership Product Offering Relative Costs Service to Customers On-time delivery, Responsiveness Durability, Connectivity Other Costs Operating costs, Maintenance costs Selling Price CV Dimensions Choice Criteria 17
Prices and Overall Performance Scores: Minivans Price ($) Performance (1 -10) Honda Odyssey 28, 840 7. 60 Toyota Sienna 28, 084 7. 54 Dodge Grand Caravan 29, 560 7. 24 Mazda MPV 25, 900 7. 06 Chevrolet Venture 28, 500 6. 88 Ford Windstar 29, 610 6. 44 Mercury Villager 25, 530 6. 24 28, 003 7. 00 Make/Model* Average Model *Ordered by overall performance score. Data Source: Consumer Reports, January 2001 18
Value Map: Minivans 30, 000 Ford Windstar High Dodge Grand Caravan 29, 000 Honda Odyssey Chevrolet Venture 28, 000 Toyota Sienna Fair-value line Price 27, 000 Frontier Line Low 26, 000 Mazda MPV Mercury Villager 25, 000 6. 2 6. 4 Worse Slope of FV Line = $3, 000 per benefit point 6. 6 6. 8 7. 0 7. 2 Performance score 7. 4 7. 6 7. 8 Better 19
Value Metrics: Minivans Worth Difference Fair. Price Selling Price Relative Value ($) ($) Honda Odyssey 1, 800 29, 803 28, 840 963 Toyota Sienna 1, 620 29, 623 28, 084 1, 539 Dodge Grand Caravan 720 28, 723 29, 560 -837 Mazda MPV 180 28, 183 25, 900 2, 283 -360 27, 643 28, 500 -857 Ford Windstar -1, 680 26, 323 29, 610 -3, 287 Mercury Villager -2, 280 25, 723 25, 530 193 0 28, 003 0 Make/Model Chevrolet Venture Average Model 20
The Digital War Room for analyzing customer-perceived value 21
Mercury Villager -43 -283 -257 206 51 206 -146 -154 51 549 180 2, 103 2, 283 28, 183 25, 900 2, 283 -43 377 -257 206 51 -94 -386 146 51 -411 -360 -497 -857 27, 643 28, 500 -857 257 -283 -257 -514 51 86 -146 -129 -891 -1, 680 -1, 607 -3, 287 26, 323 29, 610 -3, 287 -43 -283 -257 -514 -309 -394 -386 -214 51 69 -2, 280 2, 473 193 25, 723 25, 530 193 Average Ford Windstar Dodge Grand Caravan -43 -283 343 206 51 206 154 146 -129 69 720 -1, 557 -837 28, 723 29, 560 -837 Chevrolet Venture -43 377 343 206 51 146 154 -214 51 549 1, 620 -81 1, 539 29, 623 28, 084 1, 539 Mazda MPV Benefit Attributes Acceleration -43 Transmission 377 Routine handling 343 Emergency handling 206 Braking 51 Ride comfort -154 Seating comfort 754 Convenience 146 Fuel economy 51 Reliability 69 Worth Difference 1, 800 Price Advantage -837 Total Value Advantage 963 Fair-Price ($) 29, 803 Selling Price ($) 28, 840 Total Value Advantage 963 Toyota Sienna Worth difference of each model versus the average model ($) Honda Odyssey Value Scorecard: Minivans 0 0 0 0 28, 003 22 0
Head-to-Head Value Comparison Acceleration Transmission Routine handling Emergency handling Braking Ride comfort Seating comfort Convenience Fuel economy Reliability Selling Price -600 -400 -200 0 200 400 600 800 Relative value impacts - Honda Odyssey vs. Dodge Grand Caravan 23
Head-to-Head Value Comparison Acceleration Transmission Routine handling Emergency handling Braking Ride comfort Seating comfort Convenience Fuel economy Reliability Selling Price -1000 -500 0 500 1000 Relative value impacts - Honda Odyssey vs. Toyota Sienna 24
Average Return on Sales Depends on Value-Map Position 1. 25 Fair-Value Line ROS < 0 0<ROS<2 2<ROS<4 Relative Price Worse value Better value 4 < ROS < 6 1. 00 6 < ROS < 8 8 < ROS < 10 ROS > 10 Worse value Better value ROS < 0 0. 75 0. 7 1. 0 Relative Quality 1. 3 Source: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Network meeting, London, October 2000 Information: PIMS database 25
Call to Action 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. 26
Marketing Strategy Business Excellence Bradley T. Gale Strategic Management Customer Value, Inc. www. cval. com 217 Lewis Wharf Boston, MA 02110 USA Tel: 617 -227 -8191 Fax: 617 -227 -8287 Email: BGale@cval. com 27
Appendix 28
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 29
Outline 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? 30
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 31
The Implementation Process a quick and effective way to significant growth Identify Business Objective Construct Internal Market Analysis Repeat as appropriate Test with Customers Build Value Proposition that Wins Customers Integrate Value Proposition in Business Plans & Measures Review with CVA Team 32
Quality Profile: Chicken Business -- the old days -NO REAL DIFFERENCES AMONG PRODUCERS Importance weights: Quality attributes: Performance scores: Perdue Others Ratio Yellow bird Meat-to-bone No pinfeathers Fresh . 05. 10. 15 7 6 5 7 1. 0 Availability Brand affinity . 55 0 1. 00 8 6 1. 0 7. 15 Performance score: Market-perceived quality ratio: 1. 0 33
Alignment Matrix What do customers want? Who is responsible -- for our performance versus competitors? --- Function Heads or Process Owners ----Feeding & Logistics Torching breeding Selection criteria Processing Packaging Marketing Yellow bird 7 Meat-to-bone 9 7 5 No pinfeathers 5 Fresh 5 Availability 5 Brand affinity 9 7 7 9 5 9 34
Action Steps -- Who, does what, by when, with what impact? Who What Impact Mgr, feed recipe Mgr, packaging Mgr, procurement Mgr, processing Add marigold seeds Switch to yellow base Longer grow period Blow dry before torching Yellow color Yellow image Plump No pinfeathers Mgr, shipping Mgr, delivery Mgr, retail relations Mgr, advertising Better icing and insulating Proper handling/scheduling Right customers & ECR Frank & Jim Perdue TV ads Fresh Available Brand affinity 35
Quality profile: Chicken business after Frank Perdue --Performance scores-Quality attributes 1 Avg. Weight Perdue vendor 2 Ratio Weighted ratio 3 4 5=3/4 6=2 x 5 Yellow bird Meat-to-bone No pinfeathers Fresh . 10. 20. 15 8. 1 9. 0 9. 2 8. 0 7. 2 7. 3 6. 5 8. 0 1. 13 1. 23 1. 42 1. 00 0. 11 0. 25 0. 28 0. 15 Availability Brand affinity . 10. 25 1. 00 8. 0 9. 4 8. 0 6. 4 1. 00 1. 47 0. 10 0. 37 8. 8 7. 1 Market-perceived quality ratio: 1. 26 Performance score: 36
Customer-Perceived Value Map: Chicken Business 1. 15 Perdue Fair-value line Relative price Inferior value 1. 00 . 85 0. 7 Others Superior value 1. 0 1. 3 Relative perceived quality 37
The Competitive Strategy Paradigm Building on the GE/Mc. Kinsey/PIMS Framework of Market Attractiveness & Competitive Position to Build a Strategic Navigation System Market Attractiveness 18 Market growth 19 Differentiation 20 Entry conditions 21 Capital intensity 22 Purchase amount Competitive Position Relative to competitors 12 Customer value 13 Perceived benefits 14 Perceived price 15 Market share 16 Capital intensity 17 Cost Strategy and Tactics 6 R&D activity 7 New products 8 Change in quality, variety of offering 9 Marketing mix, brand image 10 Distribution channels 11 Pricing Financial Performance 1 Stock price 2 Value enhancement, IRR, Spread 3 Cash flow 4 Growth 5 Profitability (ROI, ROS, RONA) Unit of analysis = business unit and its served market Source: Bradley T. Gale keynote at IQPC’s “Using the Balanced Scorecard as a Strategic Management System” conference, Dallas, March 1999 38
How did the Competitive Strategy Paradigm evolve? Mc. Kinsey Business System (Value Chain) Harvard Business School > Marketing > Business policy Public policy perspective Industrial Organization Economics Dick Caves Ed Mason -> Joe Bain -> Mike Scherer Harvard Stanford Harvard Competitive Strategy, 1980 Competitive Advantage, 1985 Michael Porter Dynamic Competition from Substitutes Joseph Schumpeter Harvard Ed Mansfield Penn Microeconomic Theory General Electric > Measurement task force, 1950 s > Profit optimization model, 1960 s Bob Buzzell Brad Gale Sid Schoeffler Ralph Sultan Strategic Planning Institute 1975 Market models Game theory & Market Structure John Von Neuman ---> Martin Shubik Oskar Morgenstern Princeton PIMS -- 1972 Profit Impact of Market Strategy The PIMS Principles: Linking Strategy to Performance Bob Buzzell Bradley Gale Managing Customer Value Bradley Gale 1994 1987 Mc. Kinsey Business Unit, Stoplight matrix Competitive strategy perspective Unit of analysis = business unit and its served market Source: Bradley T. Gale keynote at IQPC’s “Using the Balanced Scorecard as a Strategic Management System” conference, Dallas, March 1999. 39
How did Customer Value Accounting evolve? Unit of analysis = business unit and its served market General Electric > Measurement task force, 1950 s > Profit optimization model, 1960 s PIMS, 1972 SPI, 1975 “Formulating a Quality Improvement Strategy” Bradley Gale 1985 “Market Share and Rate of Return” Bradley Gale, 1972 “Market Share -- A Key to Profitability” Buzzell, Gale, and Sultan 1975 “Quality Is King” Chapter 6 of The PIMS Principles Bob Buzzell Bradley Gale 1987 Managing Customer Value How Much Is Your Product Really Worth? Bradley Gale 1994 Bradley Gale 2002 Next Book Bradley Gale 2004 Unit of analysis = products competing in a market category Source: Bradley T. Gale seminar at IBM, White Plains, NY, 30 April 2003. 40
Change in Relative Customer Perceived Value drives Market Share Growth +6 +4. 9 +4 Change in Relative +2 Market Share (% per year) 0 -2 +1. 7 -1. 0 Down Steady Up Change in Customer Value Source: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Network meeting, London, October 2000 Information: PIMS database 41
Relative Customer Perceived Value Drives Profitability 40 30 ROI (%) 20 10 0 0. 94 0. 98 1. 02 1. 06 Customer-Perceived Value Ratio Source: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Network meeting London, October 2000 Information: PIMS Data Base 42
3 Value Pricing Toolkit 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 43
4 Attribute Analyses for Improving Your Performance 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 44
Marketing Strategy Business Excellence Bradley T. Gale Strategic Management Customer Value, Inc. www. cval. com 217 Lewis Wharf Boston, MA 02110 USA Tel: 617 -227 -8191 Fax: 617 -227 -8287 Email: BGale@cval. com 45
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