Meaning of Data and How to Use It
So far, we have learned how to build attribute trees, how to design market research, and how the market research data or desk study data gives us scores. We studied the difference between satisfaction and value studies, and the limitation of satisfaction studies. Further, we know this data is shown as a ratio, and the Customer Value ratio (the ratio of the worth of your products and services or your value score divided by the worth of your competitor’s products and services) is called Customer Value Added. Likewise, each item has a relative importance, and we have shown these items on the attribute trees.
The scores tell us what we should do, improve, hold, or communicate to the Customer on how good we are. The relative importance and the scores determine the priorities. Here is a road map for follow-up work (action plans) after the value study results are in.
•Measure and diagnose the perceived value in comparison with market competitors. The metrics can be used for building Action Plans that will impact market share and profitability—where Customer Value Foundation or Customer Value experts like yourself can facilitate this process.
•A “Value Tree” is developed based on inputs from interviews with end users and stakeholders. From the Value Tree (Perceived Cost–Benefit Tree), a list of major attributes is generated in order of impact, where attributes with competitive advantage can be used for “communication” and attributes that need to be improved can be used for improvement action plans.
•With a list of perceived attributes to improve, Customer Value experts with client’s executives will study internal metrics that best correlate with the attributes and set objectives for improvement, timing, and leaders. This is the baseline for the action plan phase.
•The increase of perceived value generates improvement in market share and profitability, according to our experience with more than 3,800 cases in the last 14 years.
To understand this best, we will start again from basics:
You can see that Customer Value Management is the result of management evolution from quality control (QC) to Customer Satisfaction to Customer Value (Fig. 4.1). So becoming a Customer Value expert gets you to be on the cutting edge of management and among the select elite experts in Customer Value. Later, we will suggest to you how to use your quality resources, techniques, and processes to impact on the Customer.
Figure 4.1 Evolution of management concepts
Customer Value Added has a host of important tools to attract new Customers, increase business with existing Customers. This is shown in Figure 4.2.
Figure 4.2 How to get sustainable and profitable growth
You have already learned what Customer Value Added means (the measure of Customer Value).
CVA Calculation
Competitive position compared to competitors
CVA > 1 Better than Competition
CVA = 1 Parity to Competition
CVA < 1 Worse than Competition
We had also learned to make attribute trees in the previous chapters. In this chapter, we show how the Customer Value scores can be put on an attribute tree. The relative importance of each of the attributes are also shown on the tree. Remember, how you got the relative importance or weights of each of the attributes? We get these through statistical analysis of the data. The weights are derived through analysis (and are not stated by the Customer) (see Fig. 4.3).
Figure 4.3 CVA of attributes (Internet provider example)
So, in this example, cost is 60 percent and our company is worse on costs than competition (lower than 1). That means, the Customer thinks we are more expensive! (Note that we may not be more expensive, or we may be. But it is the Customer’s perception which is important and according to his perception we are more expensive!). We have to understand the reason. In a power company, we found that the perception of price was poor, even though the price was among the lowest in the 10 US major metros. We found that the service was poor, causing people to rate the price as high!
Your price may be perceived to be high because of some factor that Customers do not like, even though your actual price maybe lower than competitors
In the benefits, we see that Customer Service is very important at 35 percent and we are worse than competition. An obvious place to improve ourselves is in Customer Service. And we are good at connection, and therefore we should communicate this to the world.
In Figure 4.4, we show that very often a stated response may not be as good as a derived response. But when a stated and a derived response coincide, that response is very strong and important.
Figure 4.4 Impact weight: declared versus econometric
We had also discussed about the items to be communicated to the Customer and areas to work on. Wherever we are better and that item is important to the Customer, it becomes a Value Priority for Communication (VPC). Where we are worse, and that attribute is important to the Customer, it becomes a Value Priority for Improvement (VPI) (Fig. 4.5).
Figure 4.5 VPC and VPI
Once we have all this information, we can conduct a workshop on VPI and VPC and put action steps together to move forward (see Fig. 4.6).
Figure 4.6 Workshop action plan Customer Value
To put into context, what CVA scores mean in simple terms (see Fig. 4.7).
Figure 4.7 Global definition of CVA scores
Lastly, we discuss that such CVA data exists in many industries, and is very practical. You can see the relative importance of Cost and Benefit for many industries in Figure 4.8 shows results of various studies, the scores, and the relative importance of price and benefits for various segments and sectors. You will note that the price importance varies from 32 percent for oral hygiene to 76 percent for auto insurance. This means the Customers have less to differentiate in auto insurance offerings on benefits.
Figure 4.8 Value for industry econometrics impacts. Source: Database CVA solutions
Discussion
In this chapter, you have seen how the Customer Value Added data can be used.
First, we see that the Customer Value Added data is the start to Customer Value Management. The evolution from quality to Customer satisfaction to Customer Value is also explained. Customer Value Management is defined to be the route to sustainable and profitable growth. CVA and Customer Value Management (CVM) tell you why some Customers buy from you, and why others buy from your competition. This can help you attract new Customers. The study also shows you why you lose Customers and the tendency to lose Customers. If you know this, you can find ways to reduce churn of Customers.
The output of the CVA study is shown on an attribute tree, and it shows what is truly important to the Customer (Customer weighting), where you must improve, and where (if you are better) you must communicate to the world. The value you create is only worthwhile if the Customer perceives it. So, if we are good in some attribute, we must communicate it.
We then have a Value Priority for Improvement, VPI, and a Value Priority for Communications, VPC, in our plans.
Select items for Value Priority for Improvement and for Communication
Next, for improvement, you must set a priority, and for each item you want to improve on, you must have a plan. The plan should tell you how much improvement you want, in what time frame and how, and who is going to do this. Now you have a Customer Value Improvement program in place.
We have also discussed the difference between a stated and an implied Customer response, and when the two coincide, we truly have an important response.
Next we showed what the scores mean on a global scale for value, for cost, and for benefits. Note that cost and price are not the same. The total cost of a product or a service may be far greater than the price you pay. Remember that cost consists of price and non-price terms.
Finally, we exhibited some comparative data for various industries on value and the ratio of benefits and cost.
Do It Yourself
Draw an attribute tree as shown in this chapter for your company’s product or services. Add to the attribute tree, the importance or weightage of various items. See where you are better or worse than competition. Set up VPI and VPC for this.
Check if your cost–benefit ratio is in line with the one shown in Figure 4.8.
Check whether you are world class or also rans.
Build a Value Improvement plan and a Value Communication plan. Which items will you prioritize for either one of these plans? What will be your improvement plan and timetable?
___________
Many of the figures in this chapter are courtesy of CVA Solutions, Brazil