Trends in Customer-Perceived
Satisfaction, Loyalty, and Value
Bradley T. Gale
Customer Value, Inc.
Professional Marketing Research Society Meeting
Montreal, 7 October 2003
© Customer Value, Inc. 2003
1
Outline
1 What is customer-perceived value?
2 How do you measure and analyze the value
you deliver to customers -- relative to rival offers?
Appendix
3 How can you align your people and processes
to deliver superior customer-perceived value?
4 How did the competitive strategy framework and
customer value accounting evolve?
2
Different business concepts abbreviated as
“Customer Value”
Key Account Selling
Economic Value of your
offering to the customer
Customer-Perceived
Value relative to
competing offerings
Appraising
Value Propositions
Lifetime Value of
a customer to you
Targeting Customers
& Segments
3
“Will your satisfied customers be loyal
if a competitor provides
better customer-perceived value?”
What, exactly, do we mean by Customer-Perceived Value?
How can you measure your Customer-Perceived Value
relative to competing products or brands?
4
Trends in Customer-Perceived
Satisfaction, Loyalty, and Value
1 Minimum
requirements
2 Customer
focus
3 Customer
attitudes
4 Competitive focus
on targeted markets
Customer
Value
Customer
Satisfaction
Conformance
Quality
- Delivering what
we promise
- Meeting standards
- Providing what
customers want
- Responding to
customer
complaints
Customer
Loyalty
- Retaining our
customers
- Getting them to
recommend us
Source: Adapted from Managing Customer Value
by Bradley T. Gale, (New York, The Free Press)
- Meeting critical
needs of targeted
customers
- Outperforming
competitors
- Creating new,
unique benefits
21st century
growth company
5
Linking Customer Satisfaction Tactics
to Customer Value Strategy
What we ask:
Rate our Rate us and key
performance competitors
Who we
ask:
Our customers
& competitors’
customers
Market
satisfaction
Relative
perceived
Customer
Value
Our
customers
only
Customer
Satisfaction
tactics
[ Biased
view ]
6
Contrasting Customer Satisfaction and Customer-Perceived Value
Customer Satisfaction
Relative Customer-Perceived Value
1 Who we ask
Our own customers,
end users
Customers (ours and competitors’),
end users and decision makers
2 What we ask
Rate our performance
Rate us and our key competitors
3 Respondent
perspective
Experiential,
am I satisfied,
backward looking
Perception of differences,
which supplier will I choose,
current and forward looking
4 Taking action Customer service
Competitive marketing strategy
5 Type of action Tactical
Continuously improve
customer service,
correct defects & errors
Strategic
Clarify/evolve our CV proposition,
create a differentiated, superior
offering
6 Data changes Static, reflects mainly
our initiatives
Dynamic, reflects all competitive
initiatives
Source: Bradley T. Gale, “Satisfaction is not enough,” Marketing News, 27 October 1997
7
Customer Value Drives Profitability
40
30
x
Profitability
(%) 20
x
ROI (%)
12
ROS (%)
x
x
12
10
31
x
x
x
4
x
x
x
0
0.94
0.98
1.02
1.06
Customer Value Ratio
Source: Keith Roberts, MD PIMS Europe, presentation at Customer Value Network
meeting hosted by Unilever, Kingston, UK, June 1997 Information: PIMS database
8
Objectives
• Install a Customer Value Management System
• Develop and Execute Value-Based Strategies for
> Marketing > Segmenting > Positioning
> Branding > Pricing
> Selling
• Engage Your Whole Organization to
> Create customer-perceived value
> Earn market share and price premiums
9
Tools for analyzing Customer-Perceived Value
1 Price-Performance Profile -for synthesizing data on what customers value
2 Value Map -- for assessing each product’s
performance, price, and value
3 Value Pricing Toolkit -- for pricing on value,
knowing your cost
4 Attribute Analyses -- for prioritizing
performance improvements
10
Tools for analyzing Customer-Perceived Value
5 Value Scorecard -- for reality testing your value
proposition and comparing it to rival offerings
6 Head-to-head Value Comparisons -- for value selling
---------------------------------------------------------------------7 Value-Strategy Simulator -- to test alternative ways
to improve your performance versus competitors
8 What / Who Alignment Matrix -- which function head
is responsible for your performance, by attribute?
11
Competitive cases using CV Analysis
Industry
Category
Company
Competitors
Textiles
Telecom services
Pharmaceuticals
Financial services
Medical devices
Packaging
Medical supplies
Chemicals
Consumer package
Consumer package
Equipment
Soft Drinks
Equipment
Package delivery
Equipment
Office equipment
Office equipment
Telecom services
Carpets
Long dist.
Cholesterol
Credit cards
Endoscopy
Grocery bag
Containers
Ag
Chocolate
Soap
Elevators
Cola
Telecom
One/Two day
Ag & Indust.
Computers
Printers
DSL
Milliken
AT&T
Parke-Davis
AT&T Univ.
J&J Ethicon
Sonoco Prod.
Baxter
DuPont
Mars
Unilever
Schindler
Coke bottler
Nortel
FedEx
John Deere
Dell
HP
Bell Canada
Interface, Shaw
MCI, Sprint
Merck
AmEx
US Surgical
Paper bag
McGaw, Abbott
Many others
Hershey
P&G, Bristol
Kone, Otis
Pepsi, local
Lucent, Cisco
UPS, USPS
CNH, Cat
Gateway, HP
Epson, Lexmark
Cable operators
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
12
Honda Odyssey
Much bigger and
much better the
second time around.
Source: Consumer Reports, June 1999
13
Minivan Quiz
Who invented the minivan?
Who made a lot of money from minivans?
When did they make these profits?
Who makes minivans now?
What are the minivan attributes that customers value?
How do minivan models perform on these attributes?
What is the relative importance of these attributes?
How much economic value does each minivan deliver to customers?
How do minivan models compare on prices?
How do minivans compare on price relative to economic value?
How should a sales person’s pitch differ by competing model?
14
Integrating and Synthesizing
Typical Sources of Data for a Price-Performance Profile
Internal
Data
√
√
Attribute Importance
(Direct, Constant Sum,
Conjoint, Regression)
√
√
Satisfaction/
Performance Ratings
√
√
√
In-depth Interviews
√
√
√
Focus Groups
√
√
Won/Lost Analyses
√
Proprietary Market
Research
Competitive Assessments
Market Intelligence
1 Competing Vendors
√
2 Benefit Attributes
√
3 Performance Scores
√
4 Attribute Weights (%)
5 Selling Prices*
√
6 D Market Share (+, 0, -)
* And/or Relative Price Ratings
Industry Analysts
Six sets of data
about a category
Product Evaluators
Published
Data
√
√
√
√
√
√
15
Benefit Attributes
Acceleration
Transmission
Routine handling
Emergency handling
Braking
Ride comfort
Seating comfort
Convenience
Fuel economy
Reliability
Selling Price ($)
D Market Share
6.0
10.0
8.0
6.0
8.0
7.3
8.5
8.0
4.0
6.0
6.0
10.0
8.0
6.0
8.0
8.0
7.5
6.9
4.0
8.0
6.0
8.0
8.0
6.0
8.0
8.1
7.5
8.0
2.0
6.0
6.0
8.0
6.0
6.0
8.0
8.1
6.9
7.1
4.0
8.0
6.0
10.0
6.0
6.0
8.0
7.5
6.5
8.0
4.0
4.0
8.0
8.0
6.0
4.0
8.0
7.9
6.9
8.0
2.0
2.0
6.0
8.0
6.0
4.0
6.0
6.8
6.5
6.9
4.0
6.0
6.3
8.9
6.9
5.4
7.7
7.7
7.2
7.6
3.4
5.7
28,840
28,084
29,560
25,900
28,500
29,610
25,530
28,003
Weights (%)
Average
Mercury Villager
Ford Windstar
Chevrolet Venture
Mazda MPV
Dodge Grand Caravan
Toyota Sienna
Honda Odyssey
Price-Performance Profile: Minivans
5
11
10
12
6
15
19
11
3
8
100%
16
Examples of general choice criteria
Brand Affinity
Relative
Benefits
Relative
Costs
Relationship
Innovativeness,
Acceptability
Trust,
Partnership
Service to Customers
On-time delivery,
Responsiveness
Product Offering
Durability,
Connectivity
Other Costs
Operating costs,
Maintenance costs
Selling Price
CV Dimensions
Choice Criteria
17
Prices and Overall Performance Scores: Minivans
Price
($)
Performance
(1-10)
Honda Odyssey
28,840
7.60
Toyota Sienna
28,084
7.54
Dodge Grand Caravan
29,560
7.24
Mazda MPV
25,900
7.06
Chevrolet Venture
28,500
6.88
Ford Windstar
29,610
6.44
Mercury Villager
25,530
6.24
28,003
7.00
Make/Model*
Average Model
*Ordered by overall performance score.
Data Source: Consumer Reports, January 2001
18
Value Map: Minivans
30,000
Ford Windstar
High
Dodge Grand Caravan
29,000
Honda Odyssey
Chevrolet Venture
28,000
Toyota Sienna
Fair-value line
Price
27,000
Frontier Line
Low
26,000
Mazda MPV
Mercury Villager
25,000
6.0
6.2
6.4
Worse
Slope of FV Line = $3,000 per benefit point
6.6
6.8
7.0
7.2
Performance score
7.4
7.6
7.8
Better
19
Value Metrics: Minivans
Worth
Difference
FairPrice
Selling
Price
Relative
Value
($)
($)
($)
($)
Honda Odyssey
1,800
29,803
28,840
963
Toyota Sienna
1,620
29,623
28,084
1,539
Dodge Grand Caravan
720
28,723
29,560
-837
Mazda MPV
180
28,183
25,900
2,283
-360
27,643
28,500
-857
Ford Windstar
-1,680
26,323
29,610
-3,287
Mercury Villager
-2,280
25,723
25,530
193
0
28,003
28,003
0
Make/Model
Chevrolet Venture
Average Model
20
The Digital War Room
for analyzing customer-perceived value
Market
Analysis
Key Events
Time Line
New
Input
Form
Won/Lost
Analysis
Input
Forms
Business
Definition
Databases
Value Simulator
Profile
Value
Map
Value
Scorecard
Headto-Head
Pricing
Attributes
Strategies,Plans,
Programs, &
Responsibilities
Load
Profile
Load
Profile
Us vs.
Them
Make
What/Who
What/Who
Radar
Chart
Store
Profile
Load
Profile
Take
Snapshot
Product/
Market
Stored
Profiles
User
Worksheets
Suppliers
(Glossary)
Snapshots
© Customer Value, Inc. 2003
21
-43
-283
-257
206
51
206
-146
-154
51
549
180
2,103
2,283
28,183
25,900
2,283
-43
377
-257
206
51
-94
-386
146
51
-411
-360
-497
-857
27,643
28,500
-857
257
-283
-257
-514
51
86
-146
146
-129
-891
-1,680
-1,607
-3,287
26,323
29,610
-3,287
-43
-283
-257
-514
-309
-394
-386
-214
51
69
-2,280
2,473
193
25,723
25,530
193
Average
Mercury Villager
Dodge Grand Caravan
-43
-283
343
206
51
206
154
146
-129
69
720
-1,557
-837
28,723
29,560
-837
Ford Windstar
-43
377
343
206
51
146
154
-214
51
549
1,620
-81
1,539
29,623
28,084
1,539
Chevrolet Venture
-43
377
343
206
51
-154
754
146
51
69
1,800
-837
963
29,803
28,840
963
Mazda MPV
Benefit Attributes
Acceleration
Transmission
Routine handling
Emergency handling
Braking
Ride comfort
Seating comfort
Convenience
Fuel economy
Reliability
Worth Difference
Price Advantage
Total Value Advantage
Fair-Price ($)
Selling Price ($)
Total Value Advantage
Toyota Sienna
Worth difference of
each model versus the
average model ($)
Honda Odyssey
Value Scorecard: Minivans
0
0
0
0
0
0
0
0
0
0
0
0
0
28,003
28,003
022
Head-to-Head Value Comparison
Acceleration
Transmission
Routine handling
Emergency handling
Braking
Ride comfort
Seating comfort
Convenience
Fuel economy
Reliability
Selling Price
-600
-400
-200
0
200
400
600
800
Relative value impacts - Honda Odyssey vs. Dodge Grand Caravan
23
Head-to-Head Value Comparison
Acceleration
Transmission
Routine handling
Emergency handling
Braking
Ride comfort
Seating comfort
Convenience
Fuel economy
Reliability
Selling Price
-1000
-500
0
500
1000
Relative value impacts - Honda Odyssey vs. Toyota Sienna
24
Average Return on Sales Depends on Value-Map Position
1.25
ROS < 0
Fair-Value
Line
0<ROS<2
2<ROS<4
Relative
Price
Worse value
Better value
4 < ROS < 6
1.00
6 < ROS < 8
8 < ROS < 10
ROS > 10
Worse value
Better value
ROS < 0
0.75
0.7
1.0
Relative Quality
1.3
Source: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Network
meeting, London, October 2000
Information: PIMS database
25
Call to Action
1 Develop a digital war room and a physical war room
for customer-focused competitive strategy.
2 Measure customer-perceived benefits, price, and value
-- relative to competitors.
3 Target profitable-to-serve customers and segments.
4 Quantify and validate our customer value proposition.
5 Align our people and processes to deliver superior
customer-perceived value and shareholder value.
6 Customize our pricing structure to capture our share
of economic value created.
7 Train our sales force to communicate our added value
to customers in monetary terms.
8 Track the links from customer-perceived value
to profitability, growth, and shareholder value.
26
Marketing
Strategy
Business
Excellence
Bradley T. Gale
Strategic
Management
Customer Value, Inc.
www.cval.com
217 Lewis Wharf Boston, MA 02110 USA
Tel: 617-227-8191 Fax: 617-227-8287 Email: BGale@cval.com
27
Appendix
28
What CVI offers -- to help your LOB teams
earn market share and price premiums
1 Integrated CPV services -- combining consulting, market research,
software tools for practitioners, action-learning technology transfer, and
data synthesis -- to facilitate practitioner-identified performance
improvement steps and a commitment to implementing them
2 Interactive seminars for business leaders, cross-functional LOB teams, and
marketing practitioners
3 Action-learning data-review workshops for appraising and improving your
CPV versus competitors
4 Digital War Room software tools for analyzing CPV and technology
transfer sessions on how to use the tools
5 Customer value audits and subject matter expert reviews of your
organization’s approach to customer-focused competitive strategy
6 A comprehensive approach to value-based marketing: segmenting,
positioning, branding, pricing, and selling
29
Outline
1 What is customer-perceived value?
2 How do you measure and analyze the value
you deliver to customers -- relative to rival offers?
3 How can you align your people and processes
to deliver superior customer-perceived value?
(Perdue Farms case illustration)
4 How did the competitive strategy framework and
customer value accounting evolve?
30
Options for Improving Our
Customer-Perceived Value Position
• Improve our perceived functional performance
- Change performance of our product/service
- Change perception of performance
• Enhance our brand affinity with targeted customers
• Introduce a new benefit
• Increase weight on criteria where we are ahead
- Change perception of individuals
- Increase role of people that weight our top-rated
attributes more heavily
• Reduce relative selling price
• Differentiate our offerings to meet the diverse needs
of targeted customers and market segments
31
The Implementation Process
a quick and effective way to significant growth
Identify
Business
Objective
Repeat as appropriate
Construct
Internal
Market
Analysis
Build Value
Proposition
that Wins
Customers
Test with
Customers
Integrate Value
Proposition in
Business Plans
& Measures
Review with
CVA Team
32
Quality Profile: Chicken Business -- the old days -NO REAL DIFFERENCES AMONG PRODUCERS
Importance
weights:
Quality
attributes:
Performance scores:
Perdue Others Ratio
Yellow bird
Meat-to-bone
No pinfeathers
Fresh
.05
.10
.15
.15
7
6
5
7
7
6
5
7
1.0
1.0
1.0
1.0
Availability
Brand affinity
.55
0
1.00
8
6
8
6
1.0
1.0
7.15
7.15
Performance score:
Market-perceived quality ratio:
1.0
33
Alignment Matrix
What do customers want? Who is responsible
-- for our performance versus competitors?
--- Function Heads or Process Owners ----Feeding &
Logistics
Torching
breeding
Selection criteria
Processing
Packaging
Marketing
Yellow bird
7
Meat-to-bone
9
7
5
No pinfeathers
5
Fresh
5
Availability
5
Brand affinity
9
7
7
9
5
9
34
Action Steps -- Who, does what, by when,
with what impact?
Who
What
Impact
Mgr, feed recipe
Mgr, packaging
Mgr, procurement
Mgr, processing
Add marigold seeds
Switch to yellow base
Longer grow period
Blow dry before torching
Yellow color
Yellow image
Plump
No pinfeathers
Mgr, shipping
Mgr, delivery
Mgr, retail relations
Mgr, advertising
Better icing and insulating
Proper handling/scheduling
Right customers & ECR
Frank & Jim Perdue TV ads
Fresh
Fresh
Available
Brand affinity
35
Quality profile: Chicken business after Frank Perdue
--Performance scores-Quality
attributes
1
Avg.
Weight Perdue vendor
2
Ratio
Weighted
ratio
3
4
5=3/4
6=2x5
Yellow bird
Meat-to-bone
No pinfeathers
Fresh
.10
.20
.20
.15
8.1
9.0
9.2
8.0
7.2
7.3
6.5
8.0
1.13
1.23
1.42
1.00
0.11
0.25
0.28
0.15
Availability
Brand affinity
.10
.25
1.00
8.0
9.4
8.0
6.4
1.00
1.47
0.10
0.37
8.8
7.1
Market-perceived quality ratio:
1.26
Performance score:
36
Customer-Perceived Value Map: Chicken Business
1.15
Perdue
Fair-value line
Inferior value
Relative
price
1.00
Others
.85
0.7
Superior value
1.0
1.3
Relative perceived quality
37
The Competitive Strategy Paradigm
Building on the GE/McKinsey/PIMS Framework of
Market Attractiveness & Competitive Position
to Build a Strategic Navigation System
Market Attractiveness
18 Market growth
19 Differentiation
20 Entry conditions
21 Capital intensity
22 Purchase amount
Competitive Position
Relative to competitors
12 Customer value
13 Perceived benefits
14 Perceived price
15 Market share
16 Capital intensity
17 Cost
Strategy and Tactics
6 R&D activity
7 New products
8 Change in quality,
variety of offering
9 Marketing mix,
brand image
10 Distribution channels
11 Pricing
Financial Performance
1 Stock price
2 Value enhancement,
IRR, Spread
3 Cash flow
4 Growth
5 Profitability
(ROI, ROS, RONA)
Unit of analysis = business unit and its served market
Source: Bradley T. Gale keynote at IQPC’s “Using the Balanced Scorecard
as a Strategic Management System” conference, Dallas, March 1999
38
How did the Competitive Strategy Paradigm evolve?
McKinsey
Business System
(Value Chain)
Harvard Business School
> Marketing
> Business policy
Public policy perspective
Industrial Organization Economics
Dick Caves
Ed Mason -> Joe Bain -> Mike Scherer
Harvard
Stanford
Harvard
Competitive Strategy, 1980
Competitive Advantage, 1985
Michael Porter
Dynamic Competition
from Substitutes
Joseph Schumpeter
Harvard
Ed Mansfield
Penn
Microeconomic Theory
General Electric
> Measurement task
force, 1950s
> Profit optimization
model, 1960s
Bob Buzzell
Brad Gale
Sid Schoeffler
Ralph Sultan
Strategic Planning
Institute
1975
Market models
Game theory & Market Structure
John Von Neuman ---> Martin Shubik
Oskar Morgenstern
Princeton
PIMS -- 1972
Profit Impact of
Market Strategy
The PIMS
Principles:
Linking
Strategy to
Performance
Bob Buzzell
Bradley Gale
Managing
Customer
Value
Bradley Gale
1994
1987
McKinsey
Business Unit,
Stoplight matrix
Competitive strategy perspective
Unit of analysis = business unit and its served market
Source: Bradley T. Gale keynote at IQPC’s “Using the Balanced Scorecard
as a Strategic Management System” conference, Dallas, March 1999.
39
How did Customer Value Accounting evolve?
Unit of analysis = business unit and its served market
General Electric
> Measurement task
force, 1950s
> Profit optimization
model, 1960s
PIMS, 1972
SPI, 1975
“Formulating a
Quality Improvement
Strategy”
Bradley Gale
1985
“Market Share and Rate of Return”
Bradley Gale,
1972
“Market Share -- A Key to Profitability”
Buzzell, Gale, and Sultan
1975
“Quality Is King”
Chapter 6 of
The PIMS
Principles
Bob Buzzell
Bradley Gale
1987
Managing
Customer
Value
How Much Is
Your Product
Really Worth?
Bradley Gale
1994
Bradley Gale
2002
Next Book
Bradley Gale
2004
Unit of analysis = products competing in a market category
Source: Bradley T. Gale seminar at IBM,
White Plains, NY, 30 April 2003.
40
Change in Relative Customer Perceived Value
drives Market Share Growth
+6
+4.9
+4
Change in
Relative
+2
Market Share
(% per year) 0
-2
+1.7
-1.0
Down
Steady
Up
Change in Customer Value
Source: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Network
meeting, London, October 2000
Information: PIMS database
41
Relative Customer Perceived Value
Drives Profitability
40
30
ROI
(%)
20
10
0
0.94
0.98
1.02
1.06
Customer-Perceived Value Ratio
Source: Keith Roberts, MD PIMS Europe, at Bradley Gale’s Customer Value Network
meeting London, October 2000
Information: PIMS Data Base
42
3 Value Pricing Toolkit
3.1 Value Map for Setting Prices -for pricing on value, knowing your cost
3.2 Pricing Strategy Dial -- indicates the inferred
pricing strategy (share vs. margin) for each brand
3.3 Pricing Scorecard -- shows pricing metrics and the
customer and vendor perspectives on prices
3.4 Selling Price vs. Fair Price Plot -- a stepping-stone
toward analyzing the pricing of your portfolio of
products, brands, or regions
43
4 Attribute Analyses for Improving Your Performance
4.1 Performance and Differentiation Assessment, -a plot of each vendor’s performance, by attribute
4.2 Importance and Performance Analysis -- a scatter plot
of attribute importance versus your performance score
4.3 Importance versus Performance-Advantage -- a scatter plot
of attribute importance and your performance-difference
versus competitors
4.4 Value of Performance-Differences -- an appraisal of the
monetary worth to the customer of your performance
advantages and disadvantages
4.5 Value of Making “Catch-up” and “Pull-ahead” moves
4.6 Value of Making a 1-point-improvement vs. competitors
44
Marketing
Strategy
Business
Excellence
Bradley T. Gale
Strategic
Management
Customer Value, Inc.
www.cval.com
217 Lewis Wharf Boston, MA 02110 USA
Tel: 617-227-8191 Fax: 617-227-8287 Email: BGale@cval.com
45