Chapter 1 CUSTOMERS WANT TOP VALUE

1. Chapter 1CUSTOMERS WANT TOP VALUE

2. EIGHT FACETS OF THE VALUE THEORY CULTURE Organizational Culture Employee Values SUPPLIER VALUES CUSTOMER VALUES 3RD PARTY VALUES Competitor Values Owner’s Values

3. WHY VALUE? • People respond to value • Value Attracts Customers • Value Energizes an Organization • Value creates the potential for a competitive advantage

4. What is meant by customer value? How is customer value created? What is superior customer value? How is value delivered throughout the: 1) organization, 2) marketing channel? Does maximizing customer value increase: sales, profits, market share? Conquest or relationship marketing? Creating Customer Value: Key Questions

5. The Customer Value Triad Value-based Prices Customer value can be achieved only when product quality, service quality and value-based prices are in harmony and exceed customer expectations. Customer Value Product Quality Service Quality

6. The customer defines the appropriate quality, service, price and Value expectations are relative to the competition Value expectations are dynamic Quality and service delivery are the responsibility of the whole channel Maximizing customer value requires total organizational commitment Customer Value Basics Source: Naumann, E. (1995)

7. How Southwest Airlines Creates Superior Value Clear Service Focus Process Mastery Recruitment and Training Treat Employees as Customers Maverick Culture Teamwork

8. Southwest Airlines – Relational Coordination • Lead with credibility and caring. • Invest in frontline leadership. • Hire and train for relational competence. • Use conflict to build relationships. • Bridge the work/family divide. • Create boundary spanners. • Measure performance broadly. • Keep jobs flexible at the boundaries. • Make unions your partner. • Build relationships with suppliers.

9. How Starbucks Creates Superior Value Service Consistency Roasting Technology Recruitment and Training Create the right Store Atmosphere Treat Employees as Partners Brand Consistency

10. 5 Tenets of the Starbucks Experience • Make it Your Own (“5 ways of being”) • Be welcoming • Be genuine (connect, discover, respond) • Be considerate • Be knowledgeable • Be involved • Everything Matters • Surprise and Delight • Embrace Resistance • Leave Your Mark

11. Starbucks and QUALITY • Quality of its coffee being defined as fresh as possible, i.e. actively giving off 3 to 20 times its volume in aromatic gas, “quality is in the details” • Starbucks worked to develop packaging that enable them to keep the coffee fresh , not for 7 days, but for up to six weeks. • Starbucks suppliers’ dedication to quality was key! • Service Standard: ensure that Starbucks coffee can be delivered fresh anywhere in the world (utilizing design-in quality via improved packaging and a 7-cent valve that lets gases out of the bag but does not allow air to enter)

12. Christine Day Interview The following questions were posed to Christine Day, Chief Administrative Officer for Starbucks by Harvard Business School Professor John Quelch: • Who is Starbucks’ customer? • Does the Brand means the same thing it’s always meant? • How do you attract new customers? • What happened a couple of years ago, when you invested more in existing stores • What kind of effects would service slow downs have • What measures did Starbucks take to address the in-store experience • What were the results from improving the in-store experience? • Talk about the technology-based innovations to enhance the service experience • Looking back over the last 3 years….lost the plot (ground plan)….relate organizational importance to the marketing function

13. Blended Products: Goods & Services "Pure" Product " Pure" Service e.g. hardware restaurant insurance

14. Potential for Service Failure Pre-sale Services Transaction Services Post-sale Services Continuum of Services

15. Key Characteristics of Services

16. Tangible Representation of Quality

17. PROSPECT BUYER CUSTOMER ADVOCATE Building Customer Relationships

18. Well- Intentioned Value-Creating Adversarial Bureaucratic The Value Matrix High Purpose Low Low High Process Adapted from Capowski, G. (1995)

19. Pursuing Value in New Market Space Look Across the Buying Center Look Across Time Look Across Substitute Industries Look Across Type of Appeal Look Across Complements Look Across Strategic Groups BLUE OCEAN —creating products or services for which there is no direct competition—look beyond conventional industry boundaries and find unoccupied market positions. Adapted from Kim, W. and Mauborgne, R. “Creating New Market Space” Harvard Business Review, Jan-Feb., 1997

20. “Starbucks has succeeded because we’ve focused on the need states of our consumers. We knew they wanted a whole lot more than just a cup of coffee. Once we really understood the needs of our consumers, things fell into place. We figured out what our role had to be.” ---------- Howard Schultz, CEO, Starbucks

21. Value Creation Index • Innovation ** • Quality • Customer Relations • Management Capabilities ** • Alliances • Technology • Brand Value • Employee Relations ** • Environmental & Community Issues NOTE: Relatively small changes in the VCI produce significant changes in market value: a 10 per cent change in the VCI is associated with an approximate 5 per cent change in the market value Source: Kalafut, P. and Low, J. (2001) “The Value Creation Index”, Strategy and Leadership, Vol. 20, No. 5, 9-15. 90

22. Strategic Customer Focus Model • Develop PLANS to deliver customer value • Manage PEOPLE to enhance customer satisfaction • Manage PROCESSES to maximize customer value • Provide PRODUCTS and SERVICES that add value for customers • Set PRICES that reflect customer value Manage the ‘Moments of Truth’ Build On-going Relationships Measure and Improve

23. Develop Plans to Deliver Customer Value • Conduct market research and customer research to: • understand the marketplace, • identify target customers, and • define their needs and expectations. • Create a business model that produces unique customer value. • Commit to a vision, mission and values that focus on customers. • Define goals, strategies, measurement systems and controls to achieve the vision. • Define a value proposition that offers product and service benefits at fair prices that win and retain targeted customers and deliver significant profits for the business. Address the three key elements of a value proposition: • What market segments are we addressing? • Who are our targeted customers? • What benefits (functional & emotional) are we delivering to them?

24. ManagePeopleto Enhance Customer Satisfaction • Build a culture committed to delivering customer value. • Hire people with customer value in mind. • Provide training to support customer value. • Empower employees to enhance value for customers. • Recognize and reward performance that enhances customer value. • Constantly communicate the vision and values. • Align actions with the vision and values. Walk the talk!!!

25. Manage Processes to Maximize Customer Value • Define business processes and institute process improvement strategies to improve quality and reduce costs. • Use value chain analysis to insure that primary and support processes add value. • Utilize information technology to improve systems and processes and to create unique customer value. • Use quality tools to improve processes. • Empower teams to improve processes. • Focus on continuous quality improvement.

26. Provide Products and Servicesthat Add Value for Customers • Research customers’ needs, wants and even their unknown desires. • Move up the steps from Basic and Expected to Desired and Unanticipated levels of service. • Add attributes that demonstrate value. E.g.: • Superior quality • Personalized service • Customization of the product or service • Immediate availability (speed) • One-stop shopping • Ambiance • Reduced hassle • Solve a specific customer problem Faster – Better – Cheaper

27. Set Prices that Reflect Customer Value NOTE: Value is basically a tradeoff between the benefits customers receive from a product/service and the price that they must pay for it. • Set prices relative to perceived product/service benefits and competitors’ product/service benefits. • Use a price-value grid and value map to compare price and quality. • Use prices as a signal of quality. • Manage customers’ perceptions and expectations by identifying reference prices and communicating value versus competitors.

28. Manage the Moments of Truth • Moment of Truth – any interaction where the customer comes into contact with the organization and gets an impression of its service. • Manage all of the PEOPLE interactions where employees come into contact with customers. • Manage all PROCESSES and systems, policies and procedures that impact customers. • Manage the entire “service cycle” - the series of ‘moments of truth’ a customer goes through to get a service. • Remember, every employee personally controls many ‘moments of truth.’ It’s his/her job to make those moments positive and rewarding.

29. Build On-Going Relationships • Build long-term relationships with profitable customers! • Gather and maintain a customer/marketing information database to provide actionable information. E.g., conduct RFM (Recency-Frequency-Monetary Value) and other usage analysis. • Develop close on-going relationships and intimate knowledge of customers to create value by: • Better understanding their needs, wants, expectations and their problems, • Providing more opportunities to meet their needs and solve their problems, • Partnering with customers to develop mutually-beneficial projects/activities, and • Making customers feel really valued. • Insure that the value proposition rewards loyal, long-term, profitable customers. • Customer relationship management (CRM) systems and strategies enable the business to acquire and retain customers with the highest profit potential.

30. Measure and Improve • Measure customer satisfaction • Benchmark against the ‘best-in-class’ organizations. • Commit to continuous improvement: Good enough is never good enough! • Establish a performance measurement system to monitor key success factors, including customer satisfaction and customer retention.

31. Strategic Customer Focus Model PLANS Revise PEOPLE PROCESSES Improve Measure PRODUCTS & SERVICES Improve Measure PRICES Customer Value Moments of Truth Relationships Measure CUSTOMERS MOODY-09/25/06

32. Generic Strategies • Overall Cost Leadership • Differentiation • Focus

33. Differentiation QUESTIONS • Is it really different: Do any of my competitors offer this? Do any of them do it as well or better than I do? • Can it be leveraged:Is it the best relative point of strength versus my competitors? Is it proportionally the strongest driver in my value proposition? How will I use this point of difference to my advantage?

34. VALUE DISCIPLINES OPERATIONAL EXCELLENCE CUSTOMER INTIMACY PRODUCT LEADERSHIP

35. LEADER • EXPAND TOTAL MARKET • create new users • create new uses • create more usage • FLANKING • BLOCKING • PRE-EMPTIVE STRIKES • BUNDLE/UNBUNDLE

36. CHALLENGER • FRONTAL ATTACK • need 3 : 1 advantage in resources • find weakness in leader’s strength • FLANK ATTACK • BYPASS • GUERILLA • REDEFINE COMPETITIVE SCOPE

37. MARKET NICHER • BY END USE • BY CUSTOMER SIZE • BY PRODUCT LINE • BY CHANNEL OF DISTRIBUTION • BY GEOGRAPHY • BY SPECIFIC CUSTOMER

38. Value Driven Management • What makes VDM different from other management and decision-making models? • What factors lead to value “adders” and value “destroyers” in an organization?

39. The Commodity Trap • How is value “manageable”? • Why is value a “comparative” concept? • What makes value a “dynamic” concept? • What does unpacking hidden value mean? • How can companies avoid the commodity trap?

40. Value Development Exercise • Select one of the following businesses: • auto dealership • gas station/minimart • airline • mid-priced hotel chain (business travelers) • Quick Service Restaurant (i.e., KFC • ) • Prepare a 2-column chart with GOTS on the left side and COSTS on the right side • Brainstorm ways to increase GOTS and reduce COSTS

41. Chapter 2 BEING CUSTOMER ORIENTED

42. Choice-seeking Demanding Knowledgeable Less loyal Price conscious Self-seeking Time impoverished Self-configuring The "New" Value-Seeking Customer

43. CUSTOMER ORIENTATION LONG-TERM FOCUS PROFITABILITY COMPETITOR INTERFUNCTIONAL ORIENTATION COORDINATION Market Orientation Source: Narver/Slater (1990)

44. Designing a Customer-Oriented Organization Implement the marketing concept Build a customer-driven organization Establish a good marketing info system Marketing plans should be based on segmentation analysis Hire the best talent Stress operational efficiency Develop customer-centered programs Continually measure and fine-tune your customer focus

45. Market Orientation Scale The statements below describe norms that operate in business. Please indicate your extent of agreement about how well the statements describe the actual norms in your business. Please answer in the context of your strategic business units (Circle one number for each line.) STRONGLY AGREE STRONGLY DISAGREE DISAGREE NEUTRAL AGREE 1. Our business objectives are driven primarily by customer satisfaction. We constantly monitor our level of commitment and orientation to serving customer needs. We freely communicate information about our successful and unsuccessful customer experiences across all business functions Our strategy for competitive advantage is based on our understanding of customers’ needs. We measure customer satisfaction systematically and regularly. W have routine or regular measures of customer service. We are more customer-focused than our competitors. I believe this business exists primarily to serve customers. We poll end users at least once a year to assess the quality of our products and services. Data on customer satisfaction are disseminated at all levels in this business unit on a regular basis. 1 2 3 4 5 2. 1 2 3 4 5 3. 1 2 3 4 5 4. 1 2 3 4 5 5. 1 2 3 4 5 6. 1 2 3 4 5 7. 1 2 3 4 5 8. 1 2 3 4 5 9. 1 2 3 4 5 1 2 3 4 5 10. Source:Deshpande, R. and Farley, J. (1996).Understanding Market Orientation a Prospectively Designed Meta-Analysis of 3 Market Orientation Scales. Marketing Science Institute

46. Customer Orientation: 3 Types Company INTERNAL EXTERNAL Value Employees INTERACTIVE Customers Source: Kotler, P. (1997)

47. “If I asked the consumer what they wanted, they would have said a faster horse” __________ Henry Ford “Our Goal is to lead the public with new products rather than ask them what kind of product they want. The public does not know what is possible, but we do” _________ Akio Morita, former CEO, Sony ““Customers are notoriously lacking in foresight” __________ Hammer and Prahlhad

48. ANTICIPATORY PROACTIVE RESPONSIVE REACTIVE NON-RESPONSIVE The Bias for Action Continuum • invest in research, get close to the customer, innovate, accept reasonable risks

49. Chapter 3PROCESS AND CUSTOMER VALUE

50. The Link Between Process and Value GOAL: Maintain Fit Between Value and Process Process Value • Process Delivers Value through: • Quality • Cost Reduction • Flexibility