Chapter 2 Types of Customers and Customer Value: Values Drive Value

Universal Truth…. “CUSTOMERS ARE VALUE MAXIMIZERS AND RISK MINIMISERS”

Types of Customers Customers behave in four different ways:  Apostles: Completely satisfied Share the feelings  Terrorists / Defectors:Merely satisfied Most of them can be converted into highly satisfied customer (Concepts developed through Service Recovery Paradox)  Mercenaries: Completely satisfied, but exhibits no loyalty. Expensive to acquire the customer, but depart quickly. Chase low price, buy on impulse, pursue fashion trends…  Hostages: Belongs with monopolistic environment.

Relationship among different types of customers

Relationship among different types of customers contd. Price-centered relationships: always concerned of the ‘best deal’ in the market. Ex. Mercenaries Need-centered relationships: offer personalization of channels, interfaces and service processes. Engage customers on interactive conversation and enable them to co-design. Ex. Apostles in favorable circumstances and Defectors in case of service failure

Relationship among different types of customers Value-centered relationships: depend on intensive and extensive collaboration. This relationship is a series of conversations between an enterprise and a customer that occurs over an extended period of time. Ex. Apostles. Product-centered relationships: focus on delivery of customized products, services and solutions. The companies achieve solid profit margins by segmenting customers precisely, observing their behavior or involving them in the product design process. Ex. Apostles with a strong value proposition or for Hostages.

Linking Profitability and Loyalty contd.

Linking Profitability and Loyalty Butterflies: Good fit between customer’s offerings and customer’s needs High profit potential Strangers: Little fit between company’s offerings and customer’s needs Lowest profit potential Barnacles: Limited fit between company’s offerings and customer’s needs Low profit potential True friends: Good fit between customer’s offerings and customer’s needs Highest profit potential

Customer Value: Concept and Characteristics Contd. Five new approaches to customer value: The total value of a customer’s relationship with the company The potential value of the relationship The profitability of the relationship The insights a customer can provide to the company The influence a customer can wield over other customer

Customer Value: Concept and Characteristics Contd. Eight Fundamental lessons on customer value: Value is customer defined Customers differ in who they are, what outcomes (value-in-use) they seek, and therefore what value they place on different benefits of an offering Value is Opaque Value is contextual Context has three important dimensions: - the end user - the end-use situation and - the environment

Customer Value: Concept and Characteristics Eight Fundamental lessons on customer value: Value is Multidimensional Value is a trade-off (Cost-benefit analysis) Value is Relative (Best Available Substitute or Equivalent – BASE) BASE depends on competitor’s offerings. “Doing nothing is an option, too” Value is a mindset [See page 52]

ACURA Model

Types of Customer Value Customers derive value from THREE sources: 1. Economic Value: Monetary advantage 2. Functional Value: Features, Benefits and Performance 3. Psychological Value: Brand Image Value defined by customers: Low price, expectation from a product / service, quality comparing the price, What receive against the exchange. According to Kotler, Value has four categories: Product, Services, Personnel and Image Value

Types of Customer Value: Economic Value FIVE factors should be considered under Economic Value: 1. Compatibility: Does the product work with the customer’s existing systems? 2. Complexity: Is the product perceived as complex by the customers? 3. Observability: Can the customers observe the tangible benefits of the product or do they have to take someone’s word for it? 4. Risk: What are the financial and social risks of using this new product? 5. Divisibility: Can the customers try a small portion of this product before investing a big sum of money?

Types of Customer Value: According to Barnes Contd. 1. Choice based value: Choices created in how customers - deal with the company - how they can pay for their purchases - how they want them shipped or - how they receive information Gap Analysis: Gap1: How do my customers wish to contact my organization Gap2: Which interaction channels will be most appropriate for which type of customer and for which type of interaction Gap3: A lack of accurate understanding by the company about the customers expectation of frequency and nature of organizational communication

GAP Model (GAP Analysis)

Types of Customer Value: According to Barnes Contd. 2. Employee based value: Providing customers with value through their people element. Ex. Max Health care Program 3. Information value: Providing customers with more information 4. Association value: Customers derive value from being associated with a certain service providers with whom they associate positive attributes or values. 5. Relationship value: Value created when a firm makes its customers feel better about dealing with it. In act, relationship marketing advocates supplier-customer interaction and contends maintaining long term relationships with a focus on customer retention. “Creating value through building supplier relationship” Ex. HDFC Bank, ICICI Bank and Citibank offers “ONE VIEW” service

Types of Customer Value: According to Barnes 6. Customer unique value: Created for customers when firms treat them as individuals. The aim of Customer Lifetime Value (CLTV) is personalization not customization. 7. Experience value: Exchange of stimuli, information and emotions between the company and the customer. Experiences are built around feelings, emotions, smells, colors, spaces, sounds, human contact and branding. Ex. Using touchpoints 8. Product-for-price value: This is characterized by customers who equate value with price and will switch to the competition for a lower price. 9. Access or convenience value: Value is created when firms make it easy for customers to access their products and services as also to deal with them generally.

Customer Value Management Contd. THREE Systematic approaches: 1. Understand what causes customer purchase and repurchase behavior 2. Predict the future purchase of customers and potential customers 3. Maximize future purchase behavior by managing the predictors

Customer Value Management Contd.

Customer Value Management Management Phases: 1. Needs and value based segmentation 2. Value proposition development 3. Product and service delivery 4. Business operations metrics 5. Integrated channel strategy 6. Customer service 7. Expanding customer relationship and 8. Migrating customers to new channels / segments