MODEL COMPARISON
4.2 CUSTOMER VALUE ANALYSIS
(iii) incorporating improvements in all parts of the organisation while continuously striving for additional improvement opportunities.
Therefore, it becomes obvious that with the implementation of an effective TQM system the organisation gains a distinct benefit by developing the flexibility required to spot opportunities which will simultaneously increase differentiation and/or reduce company costs.
The essence of the implementation would be to focus on their core customers and this is of critical importance to the management of Olivier & O'Connor Incorporated. The expectation is that current core customers may not remain so in the future, if legislative changes do come about, but this does not mean that detailed analysis of their customers should be abandoned. In actual fact the analysis becomes critical because their future focus must remain on their perceived and proven future customer base.
departmental functions must be integrated and deliver a combined solution and not be seen as independent contractors who are each fighting for survival.
The management of Olivier & O'Connor Incorporated should strive to deliver a service that their customers perceive as being of good quality, what they want, expect and finally receive.
4.2.1 Rationale and Implication of Customer Value Analysis
The strategic importance of CVA is very straightforward, in its simplest form; customer value is the most important source of strategic value.
A firm has the benefit of guaranteed profitability when it aligns its resources to provide superior customer value. This strategic decision provides the organisation with four sources of profitability.
(i) Customers will pay premium prices for superior customer value.
(ii) Leveraging the firms existing strengths offers a cost effective route to providing customer value,
(iii) Word of mouth is the cheapest advertising, yet the most valuable method to growing market share,
(iv) Superior customer value will protect the firm from losing its most valuable asset through customer defection.
Therefore, it becomes evident that by properly executing the delivery of superior service the organisation will gain the benefit of continuous financial performance.
The strongest argument for the implementation of CVA is the fact that customer retention is far more profitable than the marketing costs that will be incurred to attract new customers. In addition to this there is the fact of customer loyalty that must also be questioned. Certainly, the newly attracted customers may not share the
organisation's opinion of value and this may result in a short-lived increase in the customer base.
When this is compared to the cost of attracting those new customers, it is evident that they will not deliver the same profit margins as the existing and current loyal customer base. This, to a certain extent, results in a situation of profitless growth.
It is necessary to clarify the difference between customer satisfaction and value. The satisfaction is gained by the customer when the internal process delivers the service as expected, but the value to the customer is the result of the organisation's resources performing the right things well. Therefore, the customer value can be defined as the total benefits of ownership of the service less the total cost of the ownership.
4.2.2 Application
There are three processes that the management of Olivier & O'Connor Incorporated has to apply in order to determine their customer value.
(i) Determine customer intimacy by making use of the following tools:
Customer surveys Focus Panel Groups
Conjoint and Price Sensibility Analysis Motivation Analysis
Unmet needs analysis,
(ii) Conduct a formal customer value analysis by making use of the above tools as well as by determining the market perceived quality and price profile,
(ii) Determine the strategic management of customer value.
Once the customer value analysis has been completed, the management of Olivier &
O' Connor Incorporated will be in a position where they are aware of precisely which services provide superior customer value.
The third stage of the process is the factor upon which all success will hinge and that is the correct strategic management of the realised customer value. In this situation management needs to protect those activities, resources and processes that provide this value and seek ways to safeguard and strengthen them in the future.
The management of Olivier & O'Connor Incorporated is in the privileged position of knowing who their customer base is, as well as enjoying the loyalty of many years of support. Thus the application of a Customer Value Analysis may not be as time and cost consuming as is generally the case.
CUSTOMER VALUE
II
Satisfied Goals and Motivations
I
Desired Consequence in Usage
1
Service Attributes
i
Processes
I
Capabilities
Core Competencies
I
RESOURCES
Figure 4.1 Strategic Management of Customer Value (Lynch,2000)
From the above depiction of the process of the management of customer value, the essence of customer value is obvious. The organisation should strive to match customer value with the firm's resources by providing a superior combination of product quality, service quality and price.
This can only be achieved once the organisation as a whole agree to the selected strategic option and then compete as a united front to implement their core competencies.