Archive for the ‘Value’ Category

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Peeling The CVP Onion

This week Dan Attivissimo argues that understanding your customers’ needs – vital as that is – may not always be enough.

In a Market Research World article written by Mauricio Adade, CMO of DSM, the author talks about the importance of market research as a tool to enhance a company’s customer value proposition (CVP). Not only does he feel that utilizing market research can uncover insights into direct customers’ needs, but also serves as a great way to position your value to your clients by better understanding the customers of your customers. He goes on to say:

“In business-to-business companies research normally stops at the customer, but in my opinion it should go all the way to the customer of your customer, because only if you understand them can you have the right conversation, speak the same language and add value.”

A company operating within any business-to-business industry may see many different layers and moving parts where their products are used. Businesses that cater to multiple sectors should heed the above stated advice even more so. With a variety of end-users and applications in their value chain, each value proposition will resonate differently with every “piece” down the chain. To that end, understanding what your customers’ customer values most will help you communicate and provide that extra piece of value added service.

Take, for example, a materials supplier – a company that may simply produce a strong material that can be used for many different applications, like protective gloves, fishing lines, or even rope. Purchasers of this material are likely to be the manufacturers of those types of products just mentioned. Their customers will either be distributors, retailers, or even end-users. As we move further down the supply chain, each “piece” or business interacting with the material will have a different reason for purchasing that material. For the materials supplier to best understand how they can position their value proposition to their customers (manufacturers of the different products), they’ll need to uncover the different reasons why their material is valued for each of the different applications. After all, someone who is purchasing gloves will have a different set of what’s important to them than someone who is purchasing rope.

As a market research supplier it’s our goal to not only obtain but translate insights to our clients so they can then be used in a strategic manner. Helping our clients align themselves with their own customers’ needs takes more effort than simply developing a customer satisfaction survey. Sometimes we, as market researchers, must “peel the onion” and probe into the different points of a value chain to fill in the gaps. This means talking with both end-users and distributors of that material for each application so that we can help our client maintain a line of communication and offer a more clear customer value proposition through each channel.

Posted in Customer Retention, Dan Attivissimo, The Business Surgery, Value |
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The Net Promoter Score is Rubbish

Paul Hague this week advocates a simple, new metric to measure value.

In less than 10 years, the NPS or Net Promoter Score has become familiar jargon in business boardrooms. It is a single metric, a golf handicap score, that leaders can easily understand and which they can use to ruthlessly drive their businesses.

The Net Promoter Score is a measure of customer satisfaction and loyalty and who can deny that these two factors are crucial to the success of any business. It is easy to understand and the fact that it requires a simple calculation gives it a sort of scientific kudos.

Let us remind ourselves what the Net Promoter Score is. We ask customers one simple question – “How likely is it that you would recommend COMPANY X to a friend or colleague?” The response is recorded on a scale from 0 to 10 and the percentage of companies giving a score of 6 or less is subtracted from the percentage of companies giving a score of 9 or 10. Those in the middle ground giving scores of 7 or 8are ignored.

However, the NPS is not without its deficiencies.

We think that the NPS is a good metric but we also recognise that it is dangerous to drive a company on this number alone. The NPS does not measure the value that people attribute to a brand and this must be one of the most important metrics of all.

Towards this end we have developed a measure which is fast gaining ground. It is called the Net Value Score or NVS and it measures the value that people attach to a brand or a supplier.  Pat Kenny, Vice President Of Corporate Marketing at PPG Industries, said the following about the NVS:

“PPG Industries is fully committed to providing our customers with compelling value and so the NVS is a new metric that provides an ideal way to measure customer-experienced value. It is an excellent, adjacent metric to other popular customer advocacy scores that companies should embrace.”

To arrive at the Net Value Score, one simple question needs to be asked:

“How would you rate COMPANY X on the total value the company offers, compared to the total value offered by other suppliers of similar products/services?”

• Significantly better 
• Somewhat better
• Neither better nor worse
• Somewhat worse
• Significantly worse

Using answers to the question, the following steps result in the computation of the NVS:

1. Double the percentage of people that stated “significantly better”.
2. Double the percentage of people that stated “significantly worse”.
3. Add the adjusted “significantly better” figure (from step 1) to the percentage of people that stated “somewhat better”.
4. Add the adjusted “significantly worse” figure (from step 2) to the percentage of people that stated “somewhat worse”.
5. Subtract the total “worse” calculation (from step 4) from the total “better” calculation (from step 3) to arrive at the Net Value Score.

Calculating The Net Value Score

The Net Value Score is a composite measure of the brand value. The maximum possible score is 200. Excellent scores are above 60, good scores are between 40 and 60. Scores below 40 indicate a relative indifference to the brand and require urgent attention. The question can be asked of all companies known to a buyer or specifier (customers or potential customers) and it measures perceptions.  These perceptions drive customer choice. The NVS has the added advantage over the NPS of providing a simple tool for tracking the value of a brand over time and providing a very strong indicator of likelihood to purchase.

For more information on the Net Value Score, visit http://www.netvaluescore.com/

Posted in Customer Insight, Customer Retention, Customer Satisfaction Research, Loyalty, Net Promoter, Net Value Score, Paul Hague, The Business Surgery, Value |
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Capturing True Value

 
We at B2B International are fanatical about capturing value. Too often business to business companies are guilty of commoditising their markets. In this article in the Financial Times by Luke Johnson he talks about the opportunities for capturing value beyond the product itself. However, there are dangers. There is a fine line between capturing true value and ripping people off.

Beware the cost of hidden extras

By Luke Johnson
Financial Times

A central belief of modern business theory is the necessity to focus on a core activity – sticking to the knitting, as it were. But in the 21st century, an era of globalisation and digital transparency, I am not sure this maxim strictly applies.

For very many industries, ferocious competition and perpetual pricing comparisons mean an organisation’s main products are sold at little better than break-even. The internet encourages purchasing decisions based only on price. Qualitative issues are harder to discern on a computer screen – but price is plain (in theory). Hence gross and net margins have been relentlessly squeezed across everything from cars to cameras to home furnishings, as everyone tries to match the cheapest vendor.

In business-to-business transactions, procurement departments and online auctions have led to similar cut-throat pricing. Many suppliers now rely upon the “variation” principle that drives most profit for construction firms – a tendered contract will yield minimal margin, but any deviation by the client leads to supplemental work, priced at lucrative rates.

All sort of companies have adopted the approach of capital goods manufacturers. These producers sell their core range at cost and hope to make up profits through the add-ons. For example, engine maker Rolls-Royce essentially generates its profit from spares, service and maintenance once it has sold its aviation turbines for little return.

Consumer industries are not that different. The carpet trade is an example. After discounts, many traders sell basic floor coverings for a negligible contribution. But they then push add-ons at the point of sale, such as protection treatments at super-high margins. Similarly, electronics retailers sell brown goods at derisory margins, but obtain juicy profits from expensive insurance policies they sell on top. Car rental companies do the same, making the bulk of their profits from items such as fuel surcharges and collision damage waivers. The core activity is almost a loss-leader to attract customers.

The hospitality industry follows this trend. Diners focus on the cost of a main course, so restaurants try to keep these low – perhaps £10. On that the gross margin might be only 50 per cent. They then charge a massive £3 or more for a side order of beans or chips, where the gross margin will be 85 per cent or more. And, of course, restaurants add a service charge, which customers may forget to factor in when deciding how much they can spend. Meanwhile, the live performance sector is notorious for “booking fees” that add 10 per cent or more to the cost of a seat.

The arch exponent of this system is the no-frills airline industry. Airlines purport to sell flights for as little as 50p, but then charge for everything from credit card use to priority boarding.

In a way, even Britain’s Labour government adopted the same philosophy. It kept income tax unchanged for years, but introduced dozens of “stealth” taxes and gradually increased many other “minor” taxes to boost the overall tax burden significantly. Business and government both work to confuse and mislead the citizen, understating the true price (or taxes) to win customers (or votes).

The danger is that these tactics undermine trust in business (and indeed politics) among the public. The vast majority of consumers want to know the true, underlying cost of a product or service before they buy. They feel they are being ripped off if incremental costs are added that were not disclosed at the outset.

Yet commercial concerns must make a return, or they cannot reinvest and reward capital providers, and will eventually go bankrupt. That outcome reduces choice and allows the remaining players to price-gouge. Since there remains vast overcapacity in many industries, there is a tendency to over-produce, meaning goods will be sold at marginal cost. The irony is that the really expensive “core” items – an incredibly complex machine such as a car, for example – might make a paltry profit. The simple “ancillary” thing like finance is the method by which the industry makes much of its profits. As ever, capitalism defies logic but somehow still seems to work.

Posted in Product Development, Value |
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Beware all premium brands!

Received wisdom has always suggested that strong brands will withstand a recession. The argument goes that in a recession there is a flight to safety and strong brands represent safety.

An interesting study carried out amongst consumers in the US suggests exactly the opposite. A half of all the people who had previously been loyal to a brand appear to have reduced their loyalty or defected during 2008. They are switching to the value brands offered by major supermarkets.

This raises the question, “will the same thing happen in business to business markets?”.

There is a possibility that it will not – at least not in quite the same way. Supermarket brands have now become some of the most trusted in their own right.  For a number of years there has been a general migration to supermarket brands as people have recognised that the products in the supermarket packaging are quite probably made by the same companies that make premium brand products that cost 30% more.

Things are slightly different in industrial markets. The closest you get to the “supermarket brand” in industrial markets is usually referred to as a generic brand, a Chinese brand, an Eastern European brand etc. In fact, the word “reputation” is used just as often as brand.

However, it would be foolish and naive to think that business to business buyers and specifiers are slavishly buying products from their favoured suppliers at any price, without looking around. In the heady days before the recession it was not untypical to research a market and find that only 20% of companies were “price buyers”.  Today it would be unusual to find less than 30% price buyers in any business to business market. The shift to value is occurring everywhere.

Brands left to ponder price of loyalty

By Andrew Edgecliffe-Johnson in New York
Published: June 22 2009 03:00

Big brands’ best customers have been defecting in droves since the beginning of the US recession, according to a study. By this year, more than half of a typical US brand’s most loyal shoppers in 2007 had switched to rival products.

A two-year analysis of 685 grocery and pharmacy-stocked brands, using data from 32m consumers’ supermarket loyalty cards, found that in 2008 the average brand lost a third of its formerly highly loyal customers.

The study will alarm packaged goods groups, as the most loyal customers – those choosing one brand for more than 70 per cent of their purchases in a category – should also be their most lucrative.

"Defection is top of mind for brand managers now because they’re the most profitable customers," said Eric Anderson, associate professor of marketing at Kellogg School of Management, Northwestern University.

"Price and promotion have become so salient at retail, that what we thought was the loyal customer can be moved with discounts," he added.

Past recessions have seen similar defections from top-tier national brands to stores’ private-label goods, Mr Anderson said. Academic research showed that customers could be quickly persuaded to switch by a cheaper price but took far longer to switch back.

The study was conducted by the CMO Council, which represents chief marketing officers, and Catalina Marketing’s Pointer Media Network, which has equipment in 25,000 stores analysing buying behaviour.

Catalina can provide a two-year anonymous purchasing history on individual customers. Brand managers and retailers who had seen the data had been startled by it, said Todd Morris, senior vice-president at Catalina.

"They’ve always known there was churn but could never put their finger on how big the issue is."

The study comes as marketers are leaning more heavily on research and on targeted advertising, as they seek to improve on the "spray and pray" approach of mass media marketing formats, such as 30-second television advertisements.

The Financial Times Limited 2009

Posted in B2B Marketing, Branding, Business To Business, Customer Retention, Economic Downturn, Value |
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The True Value of Value

A fair number of articles that have been published lately slam the current over-use by marketers of the word ‘value’.  Critics claim that ‘value’ is at risk of becoming synonymous with ‘reduced’, ‘cut-price’ and plain old ‘cheap’.  Value should also be associated with quality.  A product that offers true value is more than just an attractive price; it should meet a customer’s real needs, and go that extra mile.

Customers are tending to watch what they spend at present, but if all companies are offering ‘value’ by simply reducing their prices, they will all end up competing on a level playing field.

Look to differentiate your product or service in some way.  Offer some evidence and reassurance to your customers that they are buying something that really does offer value for money.

For example, auto manufacturer Hyundai is winning plaudits at the moment for its Hyundai Assurance program.  With this program, anyone that buys a new car is guaranteed that if they lose their job, Hyundai will make their payments for 3 months.  If they are still facing financial difficulties after that 3-month period, they can return the car (*subject to various conditions, of course – but you get the idea).  In this way, the company is acknowledging the current economic climate and the fears of some of its potential customers, and offering them greater benefits and extra value.

Posted in Customer Value Proposition, Differentiation, Quality, Service, Value |
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