Developing Value Proposition in Customer Relationship Management |
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Keywords: Value, value proposition, CRM Just check out the following questions and then judge about the value propositions involved in it. We are
No.1 Printer Ink Seller (Inksell.com) Now just do your own analysis:- "No.1 Printer Ink Seller" Why should I believe you? No.1 for what? Volume of sales? Customer service rating? Largest
distribution or something else? What is customer value proposition? Customer value proposition is the part of strategic CRM. Many companies think CRM is only about technology, and they look for a software
quick fix without examining the key elements of successful CRM. This is why there are so many failures in the field of CRM. Too many projects have been abandoned and investments have been written off. Just as building a house first
requires an architectural plan, successfully implementing CRM must be preceded by a sound CRM strategy. The value position is the multifaceted package of product, service, process, price, communication, and
interaction, which customers experience in their relationships with a company. It is the soul of the company's business because it differentiates the company from others. If the value proposition is not affected by an investment in
CRM, then the company is either as customer-centric as it needs to be or lacks a basic understanding of what its customers value. Developing CVP (Customer Value Proposition) For identifying competitive
customer value propositions (CVPs), four hierarchical key dimensions of customer value – economic, functional, emotional, and symbolic – are most important. For calculation of CVP, in first stage they are identified. In the second
stage, a CVP is developed on the basis of these value dimensions. In the third stage, the CVP is evaluated for competitive advantage. Developing Value Proposition in Customer Relationship Management
Just check out the following questions and then judge about the value propositions involved in it. a. No.1 Printer Ink Seller (Inksell.com)
Now just do your own analysis:- So, one question should always imbibe in your mind that Why should your ideal customer purchase from you
rather than from anybody else? I would even go so far as to ask yourself, what one thing about your company, your product selection, your customer service or your customer loyalty is so compelling, that even if a
product was out of stock, or some functionality were broken on your site, a customer would stick around and buy something? What is customer value proposition? Customer value proposition is the part of
strategic CRM. Many companies think CRM is only about technology, and they look for a software quick fix without examining the key elements of successful CRM. This is why there are so many failures in the field of CRM. Too many
projects have been abandoned and investments have been written off. Just as building a house first requires an architectural plan, successfully implementing CRM must be preceded by a sound CRM strategy. But defining
a would be successful CRM strategy is not a easy task. Once the business needs analysis is completed ( which means sufficient information has been gathered for the CRM strategy development), it is time to define the CRM strategy
that can be implemented in the future. A good CRM strategy should address the following five areas, although they are not necessarily treated as five separate areas in the subsequent implementation.
A defined CRM strategy must address these five important and valuable issues:- 1. The value proposition 2. Business case 3. Customer strategy
4. Enterprise transformation plan 5. Other stakeholders The Customer Value Proposition is the most valuable issue regarding the successful implementation of CRM strategy. The main goal of a CRM
strategy is to retain strategically important customers, and the objective of customer retention is to develop, communicate, and deliver value propositions which meet or exceed customer expectation. The value position
is the multifaceted package of product, service, process, price, communication, and interaction, which customers experience in their relationships with a company. It is the soul of the company's business because it differentiates
the company from others. If the value proposition is not affected by an investment in CRM, then the company is either as customer-centric as it needs to be or lacks a basic understanding of what its customers value.
Today customers are becoming more demanding. Their expectations for reliable products and responsive services are becoming more extreme. They continuously demand more and are much less tolerant of failures. Customers compare their experiences against best-in-class expectations. As consumers become more educated about the available options in the market, as they try new products and services, and as they develop new needs, their expectation level rises. The customer will raise their bar each time their expectations are met. What used to delight customers a year ago is likely to only satisfy them today. Development of a clear customer value proposition is now an integral part of customer-centric marketing, customer-relationship management and branding.
Important views given by different authors:- A conventional view of the value proposition is provided by Knox et al. (2003) in their review of
approaches to customer relationship management. They say a value proposition is: "an offer defined in terms of the target customers, the benefits offered to these customers, and the price charged relative to the competition."
Second important view given by Rayport and Jaworski (2004) suggest that construction of a value proposition requires consideration of (1) Target segments, (2) Focal customer benefits, (3) Resources to
deliver the benefits package in a superior manner to competitors. However, branding advocates believe that the value proposition is more than the sum of product features, prices and benefits. They argue that
it also encompasses the totality of the experience that the customer has when selecting, purchasing and using the product. According to Molineux (2002) : "
the value proposition describes the total customer experience with the firm and in its alliance partners over time, rather than [being limited to] that communicated at the point of sale". Similarly,
Smith and Wheeler (2002) consider that designing what they refer to as a 'branded customer experience' is vital to delivering an effective value proposition. They also stress the importance of
"developing a profound understanding of the customer's experience". The watch word here, is profound – they suggest that detailed research must determine the nature of value which drive buying and loyalty behaviour.
Customer Value Proposition in Retail Sector:- Many organized retailers have seen their growth drop significantly. Some of them have shut shop.
Prevailing wisdom is that the economic downturn has affected retailers severely, and there is little they can do to grow rapidly and profitably in today's environment. "We have to virtually write off 2009, tighten
our belts, wait for consumer confidence to return" is a common refrain. Retailers need to offer strong, well-articulated benefits to consumers to drive sales growth in this
downturn. The economic downturn has affected retailers severely and they are adopting all measures to boost the growth.
While there is surely some impact because of lower consumer spending, the need of the hour is for retailers to develop sharp consumer value propositions, because this is what brings consumers into retail stores. If
some retailers are seeing significantly fewer visitors today, it is because consumers don't see distinctive value in shopping at these stores. On the other hand, stores which stand for a compelling idea or relevant
consumer benefit will best weather the storm. Take the case of Wal-Mart, which has a sharp consumer value proposition. Despite the sharp US recession,
it recorded the strongest sales result in its history during the last quarter of 2008, beating market expectations.
Or consider McDonald's, again a sharp value proposition, though not necessarily the cheapest, family meal outlet in many countries. On the back of strong consistent sales growth in 2008, it has announced a
remarkable 7.1% sales growth in an otherwise bleak January. Back in India, retail stores with relevant value propositions are full of consumers. Typical examples outside
our industry are Bata, which offers the largest range of footwear, Raymonds, which offers the finest quality in suitings, or Cafe Coffee Day, which offers great cafe experience to the youth. Retail stores and
malls with diffused value propositions are stark in their emptiness. These are not necessarily the "cheapest price" or "discount" retailers. What they share in common,
however, is that each offers a strong, well-articulated consumer benefit—in the case of Wal-Mart, the benefit is the least price; in the case of Bata, the largest range; and in the case of Cafe Coffee Day, a
great "youth cafe" experience. So, it would be erroneous to assume that the only proposition which can win in today's economic climate is lower prices and a constant slew of discounts. Indeed, such an
assumption may lead retailers to making wrong choices, eroding value and damaging themselves. The real problem is that many Indian retailers have not searched their souls to come up with distinctive
value propositions. Retailers have focused on many operational issues such as locating optimal properties, configuring efficient supply chains, developing right assortments, designing beautiful stores and running
store operations brilliantly. Contrast this with successful durables or FMCG brands, from soaps to air conditioners. They first and
foremost build their unique selling proposition. A soap brand, for instance, may base its proposition on freshness (e.g., Liril), skincare (e.g., Dove), or safety (e.g., Dettol). These brands also focus on the right
fragrance sourcing, the right packaging laminate, shape of the bar and so on—operational parameters analogous to retail properties, front-end salespeople and interior store design. But each of these building
blocks flows from a core brand proposition, which has been well defined. This is precisely what retailers should focus on. Every retail format—Food World, Reliance Fresh, Westside,
Pantaloon, Globus, Barista, PVR Cinemas, Forum mall—is a brand, and must stand for a compelling idea or value in consumers' minds.
There are a number of winning retail propositions which every retailer can choose from—such as location, shopping convenience, product range, consumer experience, differentiated merchandise, trust and price.
Many retailers, with good intentions but poorly conceived strategy, attempt to offer many or all of these benefits at the same time, thereby immediately diffusing any sharp proposition in consumers' minds.
The main purpose of value proposition is to identify and satisfy an unmet need that your target market possesses. Your value proposition can equip you with the following benefits to your business: How to develop customer Value proposition?
A Value Proposition is the Value Change that a client receives when a product and/or service is acquired. For example: When a client acquires a network product from a service company, and is able to lower its
operating costs, that change in cost is the value proposition. A proposition is what you hear in your head, a value is the value in the customer's head. In today's challenging market environment, it is imperative to
provide the customer with superior value. Providing more for less is what today's customers expect, if not demand. Companies are aware of the importance of delivering customer value, but come unstuck when
deciding what value is and whether it is being delivered to the customer. When developing a Customer Value Proposition, keep in mind the following:
Just creating a great value proposition will not win and retain business. You must deliver real value! Failing to deliver on the value the customer thought they were purchasing will destroy a relationship over time.
Your value proposition must be reflected in product and service definition and development. Getting marketing, sales, manufacturing, research and development, and customer service departments to align
their activities to the Customer value proposition can be challenging. Measuring and reporting customer value is essential for customer value proposition. Conducting a periodic
Voice of the Customer Survey is one such approach. This involves the following: 1. Establish which customers to survey and individuals within the customer organisation to participate
(noting the distinction between key decision makers and influencers / users). 2. Establish the best survey approach - face to face, self completion, telephone, web based.
3. Establish to what to measure - purchasing criteria, performance, share of wallet, loyalty and advocacy, competitive positioning. Identifying performance gaps highlighting positive or negative variances between
intended versus actual customer value is imperative to establish. 4. Agree on survey timing - that is to conduct the initial survey and subsequent surveys.
5. Internally report customer feedback - ensure company wide take-up of the findings. For identifying competitive customer value propositions (CVPs), four hierarchical key dimensions of
customer value – economic, functional, emotional, and symbolic – are most important. For calculation of CVP, in first stage they are identified. In the second stage, a CVP is developed on the basis of these value
dimensions. In the third stage, the CVP is evaluated for competitive advantage. It is proposed that economic and also functional CVPs are more likely to represent points of parity, whereas emotional and
social CVPs represent points of difference for retail companies seeking differentiation from their competition and gaining of competitive advantage. 1. Customer economic value-
In some product categories, value can be expressed as monetized costs and benefits, and calibrated in purely economic terms. The underlying concept is Economic Value to the
Customer or EVC (sometimes called "value in use" or end -benefit value"). In essence, rational buyers add
up the anticipated benefits, relate them to the associated costs, and buy the product if it offers enough benefits for justify the price (absolute EVC), and the most favorable economics relative to other spending
options (relative EVC). The economic value to customer is important in establishing a viable and justifiable market price range for
the product. The above approach to benefit measurement establishes the value of both tangible and intangible benefits. For many products it is, however, only the tangible benefits that should be considered
in deriving an economic value to the customer. Typically the economic value to the customer will vary significantly from customer to customer and from
product feature to product feature. It is therefore important to understand clearly what customers the product is targeted at and how variants of the product can be priced to take advantage of generic economic value indicators. The economic value of a product to a customer is also usually related to time. For example, a business will relate the economic value of a product purchased as an asset to the time period over which the asset can
be depreciated for tax purposes. This may bear no relation to the actual productive life of the asset. The economic value of a product to a customer is seldom assessed over a period greater than 12 months.
The market price range will normally be set at a level well below the economic value to the customer. Although it is dangerous to generalise, market price ranges are typically less than a third of the economic
value to the customer. 2. Customer functional value- The purpose of the functional value analysis is twofold: to identify and
develop a firm's value chain capabilities in order to open up new market opportunities; and to optimally calibrate a firm's functional activities to better fulfill the needs and objectives of its customers. Functional
value is based on the buyer's perceptions of the utility to be derived from the functional specifications associated with a product or a service. This value driver is associated with Sheth's functional value.
The mission of a firm is to produce and distribute valuable products and services to its respective customer segments. Its vision addresses the effectiveness and efficiency with which the firm executes that
mission. A competitive firm maximizes the value creating abilities of the functions, activities and processes within its value chains for the lowest total cost. We examine the functional areas in terms of customer
value objectives. We map the processes by which the value is created and delivered, and quantify the costs.
This provides us with a basis for benchmarking our clients' business models and operations in terms of value objectives, performance achievement, and cost efficiency, and determine:
1. Strengths and weaknesses of business model and value creating abilities. 3. Customer emotional value:- Our society is rapidly moving from a service economy to an experience
economy. As a result, today's more sophisticated consumers not only demand services and products that are of the highest quality; they also want positive, emotionally sensitive, and memorable experiences. The
organizations that learn how to add emotional value to their customers' experiences will leapfrog their competitors.
Emotional value is the economic value or monetary worth of feelings when customers positively experience products and services. Emotional value, as much as quality or any other dimension of an organization's
worth, can make or break a business. In today's experience economy (an economy in which customers expect every level of their commercial existence to have positive, emotional, and memorable impact),
service providers can no longer merely perform functions for consumers but need to produce a distinctive personal and emotional experience for each customer. As a result, staff members need to know how to
interact in an emotionally intelligent manner and be competent in listening, showing empathy, and "owning" the customer's problem. The conclusion builds on the work of Jeffrey Pfeffer in The Human Equation.
There are six important consequences to that observation. First, it costs a lot of money to get customers. It's much more profitable to keep the ones you have than to get new ones (see The Loyalty Effect). Second, if you can deal with the same customers and employees, the results usually are better.
Third, with lower staff turnover, costs of hiring and training are lower . . . and operating costs are lower, too.
Fourth, bonding can be created among customers and employees that will allow them to derive more value from being involved with the company.
Fifth, these improvements are critical in many industries. Most people shift from one supplier to another because dissatisfaction with service, not price or produce offerings. (See The Customer-Driven Company).
Sixth, in this stock-market-driven economy, the economic advantages will translate into a higher stock price which can be used to add more and lower-cost resources for the company. 4. Customer symbolic value
:- symbolic value is a form of value that is produced by immaterial labour and not measured in forms of money, but can be appropriated and capitalized as well. Symbolic value
follows the same pattern as material value. It can be subject to collective control or to privatisation, it can be exchanged, appropriated, it can be subject to exploitation and capitalisation. It can even be traded into
material value. This is the most visible aspect of symbolic value. For example, someone who ran an important website, represented an interesting group or field of activity, got identified with the skills
demonstrated by this network, may trade this into a well-payed, regular job or contract within the commercial sector. A person or group may also use the symbolic capital that is owned by it to apply for
fundings, to get payed lectures or invitations, etc. Symbols become important in India given that we are a high context culture and we read a lot more into
context than into the spoken or written word. Indian employees will read a lot into actions like reducing bus routes or switching off air-conditioners or cancelling a training programme.
Symbols serve four functions in organisations: 1. They generate emotional responses from organisational members in line with organisational values and assumptions.
2. They elicit internalised norms of behaviour, linking members' emotional responses to organisational action. 3. They frame experience, allowing organisation members to communicate about vague, controversial or
uncomfortable organisational issues. 4. They integrate the entire organisation in one system of significance.
So, effective development of value proposition is the need of today. For a CEO, being able to explain a value proposition to customers, employees, and shareholders is the most important part of his or her job.
Many times, a company will start out with a very clear, strong value proposition, only to have it gradually become diluted as the company matures. New products or services are often developed based on cash
needs, new major partnerships, or at the request of large customers. As companies expand, value propositions become a murky affair. When evaluating whether a business will grow, we use the following formula:
S = 2V + C + P Where: S is the probability that the business will Succeed. V is the Value proposition.
C is the marketing Channel and the amount of cost-effective traffic that is available from this Channel. P is the Presentation of your offer and website, and your ability to optimize this Presentation. As marketers, we have complete control over "P" and some control over "C." We typically have no control
over "V," at least once the business has reached the level of being marketed. However, "V" is always the
most important. This is reflected in the above equation by giving it twice the weight of both "C" and "P" individually.
So, stick with the following points, when developing and measuring the customer value proposition:-
Thus the value proposition must address the following three areas:-
1. What the customer value 2. what the company says it offers the customers 3. what the company actually offers the customers
The company should strive to offer what the customers value. However, if all three elements of value proposition are not aligned, the company is not likely to become customer-centric because the company is
not delivering what the customers value. Value Propositions can be modified or changed more easily, than products and/or services, to meet changes in market or client demands. Within certain limits, market
values can create or modify value propositions. Value Propositions can be created from an array of products and/or services or even from a part of a product or service. References:- www.google.com
CRM – essential customer strategies for the 21
st century by Paul Greenberg CRM- A strategic perspective by G Shainesh & J. N. Sheth CRM – An Indian perspective by chaturvedi & chaturvedi |
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Source: E-mail November 17, 2009 |
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