Customer value model

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Within customer relationship management, a customer value model (CVM) is a data-driven representation of the worth, in monetary terms, of what a company is doing or could do for its customers. [1] [2] [ self-published source? ] Customer value models are tools used primarily in B2B markets where the choice of a given product, service, or offering is based primarily upon the amount of customer value created. Customer value is defined as value = benefits minus price. Thus, customer benefits are quantified in a CVM; product features and capabilities are translated into dollars. Customer value models are different from customer lifetime value models, which seek to quantify the value of a customer to its suppliers.[ citation needed ]

Contents

Firms using customer value models

Many firms have been reported to use customer value models, [3] including General Electric, Alcoa, W.W. Grainger, Qualcomm, Sonoco, BT Industries Group, Rockwell Automation, and Akzo Nobel.

Uses of customer value models

  1. New product and service development and refinement: The dialog and customer immersion that is part of a CVM is used to discover and determine which potential product features and functionality would create the most value for customers. This on-site interaction can be used to frame and define those features and functionality. Often a key is to focus on product or service capabilities rather than on features. Successful CVM efforts change the basis of the customer-supplier product conversation away from features and functions and toward problems, benefits, and value. [4] [5]
  2. Sales tools: CVMs can serve as a quantified statement of value and benefits for a customer that is used by the vendor sales staff to both sell into a new account, as well as to reaffirm and validate value created for current customers as a means to retain and grow current customer. CVMs also can help firms to determine the more rational promotion cost. [4]

Customer value model methods

There are several methods and approaches used to create customer value models. All of these approaches appear to depend on substantial customer interaction and on-site interviews and observations of customers' challenges related to the product or service being valued. The CVMs are of varying complexity. One consulting firm has found it useful to reverse-engineer customer P&Ls (profit and loss statements) to establish a clear connection between the product benefits and the customer bottom-line. [4]

Related Research Articles

Customer relationship management (CRM) is a process in which a business or other organization administers its interactions with customers, typically using data analysis to study large amounts of information.

<span class="mw-page-title-main">Marketing</span> Study and process of exploring, creating, and delivering value to customers

Marketing is the process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to emphasize in advertising; operation of advertising campaigns; attendance at trade shows and public events; design of products and packaging attractive to buyers; defining the terms of sale, such as price, discounts, warranty, and return policy; product placement in media or with people believed to influence the buying habits of others; agreements with retailers, wholesale distributors, or resellers; and attempts to create awareness of, loyalty to, and positive feelings about a brand. Marketing is typically done by the seller, typically a retailer or manufacturer. Sometimes tasks are contracted to a dedicated marketing firm or advertising agency. More rarely, a trade association or government agency advertises on behalf of an entire industry or locality, often a specific type of food, food from a specific area, or a city or region as a tourism destination.

<span class="mw-page-title-main">Business model</span> Rationale of how an organization operates

A business model describes how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.

<span class="mw-page-title-main">Sales</span> Activities related to the exchange of goods

Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. A period during which goods are sold for a reduced price may also be referred to as a "sale".

In business, a competitive advantage is an attribute that allows an organization to outperform its competitors.

<span class="mw-page-title-main">Service economy</span> Economy mainly driven by sales of services

Service economy can refer to one or both of two recent economic developments:

Marketing strategy is an organization's promotional efforts to allocate its resources across a wide range of platforms, channels to increase its sales and achieve sustainable competitive advantage within its corresponding market.

A value chain is a progression of activities that a firm operating in a specific industry performs in order to deliver a valuable product to the end customer. The concept comes through business management and was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.

Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers' strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of supplier relationship management is the development of two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement. Underpinning disciplines which support effective SRM include supplier information management, compliance, risk management and performance management.

Open innovation is a term used to promote an information age mindset toward innovation that runs counter to the secrecy and silo mentality of traditional corporate research labs. The benefits and driving forces behind increased openness have been noted and discussed as far back as the 1960s, especially as it pertains to interfirm cooperation in R&D. Use of the term 'open innovation' in reference to the increasing embrace of external cooperation in a complex world has been promoted in particular by Henry Chesbrough, adjunct professor and faculty director of the Center for Open Innovation of the Haas School of Business at the University of California, and Maire Tecnimont Chair of Open Innovation at Luiss.

Business marketing is a marketing practice of individuals or organizations. It allows them to sell products or services to other companies or organizations that resell them, use them in their products or services, or use them to support their works. It is a way to promote business and improve profit too.

Configurators, also known as choice boards, design systems, toolkits, or co-design platforms, are responsible for guiding the user through the configuration process. Different variations are represented, visualized, assessed and priced which starts a learning-by-doing process for the user. While the term “configurator” or “configuration system” is quoted rather often in literature, it is used for the most part in a technical sense, addressing a software tool. The success of such an interaction system is, however, not only defined by its technological capabilities, but also by its integration in the whole sale environment, its ability to allow for learning by doing, to provide experience and process satisfaction, and its integration into the brand concept.

Co-creation, in the context of a business, refers to a product or service design process in which input from consumers plays a central role from beginning to end. Less specifically, the term is also used for any way in which a business allows consumers to submit ideas, designs or content. This way, the firm will not run out of ideas regarding the design to be created and at the same time, it will further strengthen the business relationship between the firm and its customers. Another meaning is the creation of value by ordinary people, whether for a company or not.

In marketing, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment.

Value-based price is a market-driven pricing strategy which sets the price of a good or service according to its perceived or estimated value. The value that a consumer gives to a good or service, can then be defined as their willingness to pay for it or the amount of time and resources they would be willing to give up for it. For example, a painting may be priced at a higher cost than the price of a canvas and paints. If set using the value-based approach, its price will reflect factors such as age, cultural significance, and, most importantly, how much benefit the buyer is deriving. Owning an original Dalí or Picasso painting elevates the self-esteem of the buyer and hence elevates the perceived benefits of ownership.

An operating model is both an abstract and visual representation (model) of how an organization delivers value to its customers or beneficiaries as well as how an organization actually runs itself.

In marketing, a company’s value proposition is the full mix of benefits or economic value which it promises to deliver to the current and future customers who will buy their products and/or services. It is part of a company's overall marketing strategy which differentiates its brand and fully positions it in the market. A value proposition can apply to an entire organization, parts thereof, customer accounts, or products and services.

Capability management is the approach to the management of an organization, typically a business organization or firm, based on the "theory of the firm" as a collection of capabilities that may be exercised to earn revenues in the marketplace and compete with other firms in the industry. Capability management seeks to manage the stock of capabilities within the firm to ensure its position in the industry and its ongoing profitability and survival.

Customer value maximization (CVM) is a real-time service model that, proponents say, goes beyond basic customer relationship management (CRM) capabilities, identifying and capturing maximum potential from prospects and existing customers.

Cloud-based integration is a form of systems integration business delivered as a cloud computing service that addresses data, process, service-oriented architecture (SOA) and application integration.

References

  1. Anderson, James C; and Narus, James A, (1998), "Business Marketing: Understanding What Customers Value", Harvard Business Review, March, p 53-65
  2. Dupuie, Jeff: Using Customer Value Models to Improve B2B New Product Development Archived 2015-11-23 at the Wayback Machine , OakStone Partners
  3. Anderson, James C; Narus, James A; and van Rossum, Wouter, (2006), "Customer Value Propositions in Business Markets", Harvard Business Review , March, p 91-99
  4. 1 2 3 Dupuie, Jeff: Using Customer Value Models to Improve B2B New Product Development Archived 2015-11-23 at the Wayback Machine , OakStone Partners
  5. Lindstedt, Per and Berenius, Jan, (2003), "The Value Model: How to Master Product Development and Create Unrivaled Customer Value", Nimba Publishers