Business-to-Business Marketing
MKTG533
Fall, 2013
Building Customer Value Models
and Value Assessment Methods 2
Prof. Gary Lilien, Research Director, ISBM
Prof. Ralph Oliva, Executive Director, ISBM
GLilien@psu.edu
Roliva@psu.edu
814 863 2782
1
Commercializing the Kunst 1600
Dry Piston Vacuum Pump
1.
What are the major, quantifiable value and price elements
associated with the Kunst 1600?
2.
What additional value placeholders, elements not
presently quantified, merit consideration in your value
model?
3.
Construct a customer value model for the Kunst 1600 in
the residential AC, home refrigerator, and light commercial
refrigerator repair market segments.
4.
Using your value model, select a target market segment(s)
for commercialization efforts. Justify your choice.
5.
Write a value proposition for the Kunst 1600 for the target
market(s).
Mktg 533 2013- Value, Session 4
2
3M Example: Traction Wrap
•
TM
The following slides outline the thought process
3M implemented to conceptualize value and how
it is applied in a web-based environment for its
Tractionwrap product.
Tools from George Cressman – Strategic Pricing Group:
EVE® Value Analysis Template
•Competitive Alternative:
•Value
•Feature •Benefit
Driver
•Positive Differential Value
•Value
Formula
•Inputs and
Sources
•Differential
Value
•Negative Differential Value
TM
•Total Differential Value
© 2009, Strategic Pricing Group: George Cressman
4
4
TM
© E. Maier - 2000
TM
© E. Maier - 2000
TM
© E. Maier - 2000
TM
© E. Maier - 2000
TM
© E. Maier - 2000
How to Communicate Value???
TM
10
Lincoln Electric…Guaranteed Cost Reduction
Program See www.lincolnelectric.com
TM
TM
TM
Total Customer Value =
Price/Performance
Functional Value
(What does this product do for me?)
+
Supplier/Service Value
Advertising
Selling
Service Efforts
What does the product mean to me?
(What is the insurance? service?
psychological? value of the product or
supplier?)
14
Customer Needs and Customer
Value Measurement
Customer Needs and Buying Process
Behaviors
Ignore
Present
State
Postpone
Functional
Perceived
and
Economic
Needs
and
Psychological
Needs
Desired
State
Engage in
Purchase Process
•Search for options
•Evaluate options
•Choose option
 •Purchase Option
•Use Option
Motivation
Customer
Value
Measurement
Approaches
Objective
Measures
of Value
Perceptual
Measures
of Value
Behavioral
Measures
of Value
Mktg 533 2013- Value, Session 4
15
ME Tools and the STP Process
16
Choice Models
1. Observe choice
(Buy/not buy direct marketers
Brand bought  packaged goods, ABB)
2. Capture related data
• demographics
• attitudes/perceptions
• market conditions (price, promotion, etc.)
3. Link
1 to 2 via “choice model”  model reveals
importance weights of characteristics
17
Using Choice Models
 Choice
u
u
u
u
Model Inputs
Past purchases
Market conditions (prices, etc.)
Customer attitudes (surveys)
Etc.
 Choice Model Outputs
u Purchase probability BY CUSTOMER
18
Choice Modeling Saved ABB Electric
•
Issue: ABB was attempting to
penetrate a market dominated by GE,
Westinghouse and McGraw Edison
when demand was forecast to drop by
over 50%
•
Approach: Used Choice models and
targeted “switchable customers” to
reallocate marketing effort.
ABB/Choice Model Idea
Segment/Target on the basis of customer
probability of choice—
1. Loyal to us
2. Loyal to competitor
3. Switchables: loseable/winnable
customers
Switchability Segmentation
Loyal to Us
Winnable
Customers
(business to
gain)
Losable
Loyal to
Competitor
Current Product-Market by Switchability
Q: Where should your marketing efforts
be focused?
Q: How can you segment the market this
way?
Mktg 533 2013- Value, Session 4
21
Impact at
Annual Changes in Sales by District and by Customer Group
1 Year After Implementation
Customer
Group
Our brand loyal
Winnable
Loseable
Competitor’s brand loyal
Total
District
One
Two
Three
+2%
+26%
+16%
+3%
+18%
+8%
+3%
–9%
–18%
–4%
–3%
–4%
+18%
+12%
–10%
Note: District 3 did not implement the model-based
approach.
Customer Needs and Customer
Value Measurement
Customer Needs and Buying Process
Behaviors
Ignore
Present
State
Postpone
Functional
Perceived
and
Economic
Needs
and
Psychological
Needs
Desired
State
Engage in
Purchase Process
•Search for options
•Evaluate options
•Choose option
 •Purchase Option
•Use Option
Motivation
Customer
Value
Measurement
Approaches
Objective
Measures
of Value
Perceptual
Measures
of Value
Behavioral
Measures
of Value
Mktg 533 2013- Value, Session 4
23
Perceptual Value Assessment
Options
•Unconstrained Attribute Valuation “On a 1-7
scale, please rate the importance of on-time
delivery”
– Strengths??? Weaknesses???
•Constrained/Trade-Off Valuation “Allocate
100 points across these offerings in a way that
reflects your preference” “How much
more/less would you be willing to pay for offer
A vs Offer B?”
– Strengths??? Weaknesses???
24
Most Widely Used Trade-Off
Method: Conjoint Analysis
 A way to understand and evaluate how a
customer makes tradeoffs between various
product attributes.
 Yields the value (utility) provided to a
customers by each potential feature of a
product.
.
25
Mktg 533 2013- Value, Session 4
26
Summary
 Companies profit from
C’ing
Customer Value.
 Several ways to assess value.
 Make knowledge of customers an
investment, NOT an expense.
 You MUST Calculate value to
Create Value before you
Claim Value.
Mktg 533 2013- Value, Session 4
27
Amscat Corp….
1. How would you define the problem?
2. Build a Decision Process Map and a
Benefit Stack-Decision-Maker Stack for
Amscat.—include measurement for Iron,
measurement for CCE, differences in
price/risk tradeoffs.
3. If you were an outside vendor, what would
you have to do to get business at
Amscat?
4. What actions do you recommend for
Amscat's Corporate Director of
Procurement?
Insight Case: Wed Sept 11
28
Decision Process Map
Decision
Makers
Process
Stage
Decision
Makers
Decision
Makers
Process
Stage
Process
Stage
Process
Stage
Process
Stage
29
Mktg 533 2013- Value, Session 4