The Customer Value Proposition
Prof. John Fahy,
University of Limerick
© John Fahy (2013)
A Cautionary Tale!
© John Fahy (2013)
The Good Days
• Began making cars in
1947 in Sweden
• Distinctive, high
performance vehicles
• Saab 900 (1m units
produced)
© John Fahy (2013)
Saab’s Declining Performance
• GM takeover in 2000
• Sales of 132,000 units in 2003 below 1987
levels
• Only two years in profit since GM takeover
• Spyker buys Saab for $74m in 2010 by
which time sales have fallen to 31,000 units
• Company goes bankrupt in 2011 and bought
by NEVS in June 2012
• Estimated 300,000 loyal Saab customers
globally!
© John Fahy (2013)
Starbucks
© John Fahy, 2012
Challenging Early Days
• Schultz sees ‘an idea’
in Milan
• He talks to 242
potential investors,
217 say ‘no’
• The ‘Third Place’ is
founded and grows
rapidly
© John Fahy (2013)
© John Fahy (2013)
Strategic Priorities
High
Survive
Thrive
Die
Quickly
Die
Slowly
Effectiveness
‘Doing the Right
Things’
Low
Low
Efficiency
High
‘Doing Things Right’
© John Fahy, 2013
Strategic Priorities
High
S
T
D
Effectiveness
‘Doing the Right
Things’
DQ
DS
Low
Low
Efficiency
High
‘Doing Things Right’
© John Fahy, 2013
What Type of Company Are You?
© John Fahy (2013)
Inside-Out v Outside-In
Inside-Out
Outside-In
We’ll sell to whoever will buy
Profits are gained through cost cutting
& efficiency improvements
Customer data are a control
mechanism and channels are conduits
If our competitors do it, it must be
good
Protect the cash flow stream
Customers buy performance features
Quality is conformance to internal
standards
Customers don’t know what they want
Expanding customer base is key
Decisions start with the market
Profits are gained through a superior
customer value proposition
Customer knowledge is valuable and
channels are value-adding partners
We know more than our competitors
No ‘sacred cows’, cannabilise yourself
Customers buy benefits
Customers define quality
Best ideas come from living with
customers
Customer loyalty is key to profitability
© John Fahy (2013)
The Challenge!
• Selective attention and selective retention
– Consumers consciously attend to between 5 & 15% of
advertising
– Consumer recall of adverts had fallen from 34% in
1965 to 8% in 1990
– 2007 study found consumers could recall 2.21 adverts
ever seen
• In 2005, 156,000 new products launched globally
• In 2007, 12 billion spend on market research in
the US
Source: Lindstrom (2009)
© John Fahy (2013)
Understanding the Customer Mind
© John Fahy (2013)
Should You Include a Photo on Your
Resume?
• 5,000 CVs in pairs to 2,500 job openings
• In each pair one CV was without a picture, one
contained either attractive/plain looking male
or female
• Employer call backs significantly higher to
attractive men than to those with no picture or
plain looking
• Women with no picture had significantly
higher call backs than plain looking or
attractive women
Source: Ruffle & Shtudiner (2011)
© John Fahy (2013)
Customer Value Leadership
Price Value
Performance
Value
Emotional
Value
Relational
Value
© John Fahy (2013)
Customer Value Leaders
© John Fahy (2013)
Price Value
© John Fahy (2013)
Cost Management (Low Fares
Airlines)
• Fleet Commonality
– Lowers maintenance costs
• Eliminate Non-Essential Services
– Multi-class seating, frequent flyer
schemes
• Contracting Out Services
– Cleaning, ticketing, baggage handling
• Use of Secondary Airports
– Lower costs, fewer delays
• Staff Productivity
• Low Marketing Costs
– Direct sales, publicity etc.
© John Fahy (2013)
Communicating the Value Proposition
Dollar Shave Club
© John Fahy (2013)
The Price Value Scorecard
Structure
•
•
•
•
Culture
Hierarchical
Structured
Tight Controls
Quantitative Targets
•
•
•
•
•
Frugal Mindset
Secretive
Directed Staff
Close Supervision
Frequent Reporting
Price Leaders
Capability
Metrics
•
•
•
•
© John Fahy (2013)
Controllable Costs
Uncontrollable Costs
Market Share
Ancillary Revenues
Strategic Clarity
Management
Understands It
Customers
Understand It
Employees
Understand It
© John Fahy (2013)
The Value Capture Problem
• Sales of flat screen TVs worth
$115bn in 2011
• $13bn = Total losses for LCD
makers between 2004-10
• Includes Samsung, Sony, LG,
Sharp
• Sony
– Losing money on TVs for 8
years
– Loses $80 on every TV
© John Fahy (2013)
The Business Model
The Business
Model
The Value
Creation System
The Value
Capture System
© John Fahy (2013)
The Rise & Fall of Groupon
• Founded in 2008
• ‘Group Coupon’
• 2010 – 51m registered
users, 565 cities, sales
revenues of $760m,
4,000 employees, 70m
daily deal emails
© John Fahy (2013)
The Daily Deal
© John Fahy (2013)
Groupon Performance
Groupon IPO on Nov 4, 2011 at $20 per share. Price rises 50% on first day of
trading
© John Fahy (2013)
The Price Value Capture System
• Price Leadership
• Price Unbundling
– E.g. – Low fares airlines charging separately for
food, baggage, insurance, fuel, taxes, check-in, etc.
• Dynamic Pricing & Yield Management
– Systems for matching prices to demand levels
© John Fahy (2013)
Defining Your Value Proposition!
Customers
The Value
Proposition
What Attributes
Matter?
Can They Match
Our Claims?
Competitors
© John Fahy (2013)
What Kind of
Company Are We?
Company
Case Workshops
• Value Propositions in Consumer Markets
– Red Bull & Emotional Value
• Value Propositions in B2B Markets
– Michelin Fleet Solutions & Performance Value
• Value Propositions in Services
– Tesco & Relational Value
© John Fahy (2013)
Lessons From Apple!
• Apple - Think Different
© John Fahy (2013)
THANK YOU
© John Fahy (2013)