Elements of the Customer perceived value
This page aims at having a transcript of the reflections I had and used while studying at IE Business School International MBA. Having used on several occasions similar approaches for different company cases, I will attempt at presenting a generalization about my different learnings from these companies while applying the framed approached I developed.
In this moment of economy down time (2010) one can notice many companies are trying to gain differentiation by increasing the value their customer perceive for their products or services.
Many of these improvement in value perceived by the customer can be supported by cost savings initiatives or processes amelioration in servicing a customer or both at the same time.
Let’s look at definitions about value and what is the perception for a customer.
Value:
In general, the value of something is how much a product bundle is worth to someone relative to other things.
- often measured in money
- it can either be an evaluation of what it could or should be worth
- or an explanation of its actual market value (price)
There are various ways to give valuations
Often value is equated to the price of the product.
Economists would say that it is the price that a product would bring in an open and competitive market.
Some would say that value of a product is what it cost to produce it or its current replacement value.
Webster defines it as the fair return or equivalent in goods, services, or money for something exchanged.
This is the measure of worth that is based purely on the utility derived from the consumption of a product bundle.
Utility derived value allows product bundles to be measured on outcome instead of demand or supply theories that are subject to manipulation.
Perception:
The perception of a customer is linked to its expectations, The SERVQUAL model describes by Zeithaml, Parasuraman & Berry in 1990 explains why there are gaps between the delivery of a service and the customer expectations.
Gap 1 Customer expectations versus Company perception
Gap 2 Company Perception versus Service Specification
Gap 3 Service Specification versus customer perception
Gap 4 Service Delivery versus External Marketing
Gap 5 Customer perception versus Customer expectation
The main idea for improving the customer perceived value is to provide to its customer more for less, with a price remaining unchanged. In other words it is about providing customer additional services (or providing them with self service capability) and at the same time reducing the hassle of dealing with customers face to face.
As we will see below it can be done through various changes and amendments in the organization through four main pillars for managing innovation.
The framework below represents the one I used on several occasion to develop a marketing strategy timed with tactical to mid-long term initiatives. Based on the different cases my teams and I worked on, I describe here under a generalization of the levers that should be looked at.
TOP ARROWS
Partnerships: While providing the same service to your customer when you manage to seize deals with other partners that would offer complementary products, it will provide your customers, under the same umbrella, additional services and foster its perception of added value from your service
Foster recognition and symbolism: with the increasing need of recognition as per the web2.0 is showing us, customers need to feel special for being part of a group. Not only it provides them with a sense of recognition but also a way of being different by feeling better serviced.
Increase cross selling & up selling: It is too frequently left aside but when a customer is already buying a service it will require very little effort for him to make the buying decision for another service product of yours. This can also be made through bundling and packaging. Offering a wider set of product bundle will increase your sales revenue while at the same time give the company an opportunity to discount some products that may not be well known or priced.
DOWN ARROWS
License and deploy further brand name and recognition through licensing: company need to delegate activities that are not necessarily in their core business where other will do better at a lower cost for you. By licensing you share the know how under certain circumstances and receive in exchange a share of the revenue made by using your name.
Manage and better forecast demands: use web communities or more powerful CRM system. These, more or less difficult to implement, IT systems will allow your organization to interact with the customers and their needs. It provides you with significant insight on the forthcoming demands and potential changing needs. It should also be integrated with your design with supply chain activities.
Some examples used in the marketing strategy cases I worked on:
Red Electrica (energy transport network in Spain)
It looked at launching initially a Partnership with third parties to communicate and make customers more sensible on the effects of electricity consumption during peak hours.
Launch via a club a new billing system giving incentives to customer to transform their consumption habits
Launch the sales of a monitoring product allowing the end customer to monitor instantly its energy consumption
The margin increased will be seen though the peaks reductions and on the longer term the new way of charging / using electricity.
SMP a healthcare services company in Lisboa, they were looking for advises on a Short Medium term
Increase Customer added value: establish a partnership to have a Media Platform increasing a customer interactive marketing to foster the communication and needs of the patients.
Nepresso a Nestlé brand
We demonstrated how Nestlé transformed commodity to luxury and a symbol of belonging
To increase the customer perceived value, they initially partnered with high end coffee machine brands to outsource the coffee machine manufacturing. By developing the Nespresso Club they further develop the symbolism and belonging to a club, providing customers with a sens of exclusivism and top services. Through the launch of their monthly magazine and weekly emailing they tend to increase cross selling
On the margin improvement side they license the patent of machine manufacturing but also through the club and the better knowledge of customer habits they manage to better anticipate customer needs and tastes.
Additional food for thoughts and examples on how increasing the customer perceived value is done using the CSR as an excuse.
You will remark a change in the bottle water manufacturer who changed the labeling on their bottles. Making smaller labels allow them to use through a CSR initiatives improving their image with their customer and at the same time reducing their costs (Cristaline).
Other tried to change the bottle size in order to incentive customers in buying in larger quantity while claiming the CSR initiative as a method of bringing more value to the customer (Evian).
In other industries like commercial banks we have all seen the rise of the online access and the declining use of the paper for your monthly statements.
It would be interesting to study now into further details how to measure this customer perceived value is increased quantitatively. Even though I tried to demonstrate it can be increased it would deserve further study in quantification through customer surveys about their loyalty to the brand.
It would be interesting to study now into further details how to measure this customer perceived value is increased quantitatively. Even though I tried to demonstrate it can be increased it would deserve further study in quantification through customer surveys about their loyalty to the brand.
