UNIT – V

CUSTOMER VALUE DIMENSIONS

In the context of supply chain management we need to look more specifically at what we
understand by value and how the management of services can be configured to generate value to
the maximum level possible. Customer service is undoubtedly one of the major elements which
determine the value of a product. It is therefore necessary to look at the customer service
dimensions. The widely accepted trend is to view customer service in the marketing context
under three different headings

 pre transaction elements

 transaction elements
 post transaction elements

These three elements are further expanded below to identify the relevant customer service
dimensions in the context of supply chain and logistics management.

Pre transaction elements:

Written customer service policy: documented and well articulated policy.

 Accessibility: easy to reach and easy to communicate.

 Organizational culture: management focus on customer service and organizational
structure.
 System flexibility: adaptability to meet customer requirement.

Transaction elements

Order cycle time: elapsed time between order and delivery.

 Inventory availability: percentage of demand met from stock in hand

 Order fill rate: proportion of order filled within the stated lead time
 Order status information: query response time and exception advise
Post- transaction elements

 Availability of spares: in stock level of service parts

 Warranty and product tracing: warranty handling and product tracing capability
 Customer complaint handling: dealing with complaints and returns

The Dimensions of Customer Value

 Conformance to requirements.
 Product selection.
 Price and brand.
 Value-added services.
 Relationships and experiences.

Conformance to Requirements

 Market Mediation:
 Ability to offer what the customer wants and needs
 Costs associated with the market mediation occur when there are differences between
Supply and demand.
 Supply>demand => inventory costs throughout the supply chain
 Demand>Supply=> lost sales and possibly market share.
 Functional Items
 Product demand is predictable
 Market mediation not a major issue.
 Fashion items or other high-variability items
 Nature of demand can create large costs due to lost sales or excess inventory.
 Requires responsive supply chains.
Conformance to Requirements Built on Three Principles

Closing the communication loop

  Supply chain is organized so it can track material and product in real time but also close
the information loop both for hard data and anecdotal.
 Sticking to a rhythm across the supply chain
 Company is willing to spend money on anything that will make its supply chain fast and
responsive.
 Leveraging capital assets to increase supply chain flexibility
 Company uses the investment in production and distribution facilities to make the supply
chain responsive to new and changing demand patterns.
Conformance to Requirements

 Market Mediation:
 Ability to offer what the customer wants and needs
 Costs associated with the market mediation occur when there are differences between
supply and demand.
 Supply>demand => inventory costs throughout the supply chain
 Demand>Supply=> lost sales and possibly market share.
 Functional Items
 Product demand is predictable
 Market mediation not a major issue.
 Fashion items or other high-variability items
 Nature of demand can create large costs due to lost sales or excess inventory.
 Requires responsive supply chains.

Conformance to Requirements Built on Three Principles

Closing the communication loop

 Supply chain is organized so it can track material and product in real time but also close
the information loop both for hard data and anecdotal.
Sticking to a rhythm across the supply chain
  Company is willing to spend money on anything that will make its supply chain fast and
responsive.
Leveraging capital assets to increase supply chain flexibility

 Company uses the investment in production and distribution facilities to make the supply
chain responsive to new and changing demand patterns.
Product Selection

 Proliferation of product options

 Larger variety means greater problems with:
 Managing supplies
 Predicting demand
 Three successful trends:
 Specializing in offering one type of product
 Mega-stores that allow one-stop shopping for a large variety of products
 Mega-stores that specialize in one product area.
Price and Brand

 Price cannot be a differential in many industries

 Companies like Dell and Wal-Mart use cost reduction strategies to improve profit
 Brand names become a guarantee for quality
 Premium brands can ask for premium prices
 Supply chain has to be more responsive
 May increase costs which may be offset by higher prices
 Pricing in services more difficult
 Opportunities for companies that can offer new services
 Not easily transformed to commodities.
Value-Added Services

 Additional services to improve profits

 Differentiate from competition
 More important now than before because:
 Increased commoditization of products
  Need to get closer to the customer.
 Increase in information technology capabilities that make this offering possible.
Examples:

 B2B services offer additional services to increase revenue.

Customer Experiences:

 Beyond relationships
 Designing, promoting, and selling unique experiences to customers
 Offering distinct from customer service:
 An experience occurs when a company intentionally uses services as the stage, and goods
as props, to engage individual customers in a way that creates memorable events
Examples:

Airline frequent flyer programs, theme parks, Saturn owner gatherings, Lexus weekend
brunch and car wash events.

Steps to Customer Experience:

1. Create a compelling brand/distinct offering that customers can identify with.

2. Deliver a seamless experience across channels and touch points.
3. Care about customers and their outcomes.
4. Measure what matters most to customers
5. Hone operational excellence.
6. Value customers’ time.
7. Place customer’s information requirements and needs at the core.
8. Design to morph i.e. the ability to change practices based on customer requirements.
Strategic Pricing
Strategic Pricing clarifies the relationship between market segmentation and price, and
delivers the tools your organization needs to stay focused on value as you determine break-even,
define price elasticity, and analyze tradeoffs between features and price points. Using strategic
pricing tools yields a better positioning approach.
Strategic Pricing will help you determine the appropriate price to capture the value you provide to
your customers:

 Understand how costs, competition, and customer values influence the price you choose
 Determine how customer values drive segmentation decisions, which in turn affect the
benefits customers seek and the price they are willing to pay
 Use tools to conduct break-even analysis, measure price elasticity, and evaluate
features/price trade-offs through relationship analysis
 Identify lifecycles to establish prices for current and future market conditions
 Decide when and how to raise prices
 Address price erosion situations

Strategic Pricing: The Importance of a Value-Based Approach

 Linking pricing to strategy and the significance of segmentation

 The 3C’s of pricing—customer value, competitors’ prices, and your costs
 Creating a framework to evaluate where to set price: based on customer value, costs,
the differential advantage (competitors), and the company’s strategic objectives

Improving Pricing Decisions: Why You Must Relate Benefits and Customer Value to Price

 Measuring customer value—tools that rely on managerial judgment and formal market
research
 Distinguishing between attributes, benefits, and values for effective pricing
 Segmenting based on customer dimension—the foundation for effective pricing

Using Tools to Measure Value

 Conducting a perceived value analysis

 Evaluating the perceived value map to develop strategic pricing options
 Measuring price elasticity
 Conducting a break-even analysis
  Performing trade-off analysis
 Conducting a pricing study with market research tools

Pricing Through the Product or Service Life Cycle

 Determining your position on the product or technology life cycle

 Pricing new technologies and new product introductions
 Pricing during competitive turbulence
 Pricing for mature markets.

Increasing Prices

 Assessing your leadership in the market

 Understanding the link between pricing, strategy, and segmentation
 Determining pricing latitude relative to elasticity
 Evaluating other pricing influences

Stemming Price Erosion: How to Evaluate a Pricing Problem

 Evaluating your differentiation

 Assessing the impact of branding and loyalty
 Identifying switching costs
 Determining if you have a pricing problem

Integrating Strategic Pricing into Your Corporate Environment

 Creating a culture for effective pricing

 Linking pricing to your corporate objectives.

Smart Pricing:

Smart Pricing introduces to marketing and product executives, along with corporate
strategists, many innovative approaches to pricing, as well as the research and insights that went
into their creation. Filled with illustrative examples from the business world, readers will
discover restaurants where customers set the price

Smart Pricing goes well beyond familiar approaches like cost-plus, buyer-based pricing,
or competition-based pricing, and puts a wide variety of pricing mechanisms at your disposal.
This book helps you understand them, choose them, and use them to win.

Customer Value Measures:

 Measures that start with the customer.

 Typical measures include service level and customer satisfaction.
 What are the basic measures of customer value?
 What are the supply chain performance measures?
Service Level

 Typical measure used to quantify a company’s market conformance.

 Usually related to the ability to satisfy a customer’s delivery date
 Direct relationship between the ability to achieve a certain level of service and supply
chain cost and performance.
 Demand variability and manufacturing and information lead times determine the amount
of inventory that needs to be kept in the supply chain.
Customer Defections

 Identifying such customers not an easy task

o Dissatisfied customers seldom cancel an account completely
o Gradually shift their spending, making a partial defection.
 Customer Benefits
 Opening of corporate, government, and educational databases to the customer.
 Availability of uniform data access tools of the Internet.
 Innovations have had the effect of increasing customer value while reducing costs for the
supplier of the information.
o Automated teller machines (ATMs)
o Voice mail
o Internet
  Opening of the information boundaries between customer and company
o Part of the new customer value equation
o Information is part of the product.
 Creating customer value is the driving force behind a company’s goals
 Supply chain management is one of the important means.
 Customer access to information about the availability of products and the status of orders
and deliveries is becoming an essential capability.
 Adding services, relationships, and experiences differentiates company offerings in the
market
 Identifying the appropriate customer value measure not an easy task.
 Ability to provide sophisticated customer interactions very different from the ability to
manufacture and distribute products.
 No real customer value without a close relationship with customers.
The most important element of an effective market strategy is the ability to maximize and
protect the price of the product. Price is the final measure of customer value and competitive
advantage.