Declaration
This is to certify that the dissertation entitled “Gaining Strategic Advantage through Customer Value”, presented by me to the University of South Africa for the award of the degree of Master of Business Leadership is a bona fide record of research work which was carried out by me under the supervision of Dr Sidney Shipham. The contents of this dissertation in full or in parts have never been submitted to any other Institution of higher learning for the award of any degree or diploma.
Acknowledgement
I would like to express my gratitude to my study group members of the Graduate School of Business and the Leadership of the University of South Africa, for the support they accorded me during the time I was conducting my research. My deep appreciation to all those busy individuals who sacrificed some of their precious time in order to allow me to interview them and for the great insights they shared with me. I am very happy with the support I was given during this time that enabled me complete my research within the shortest time possible. I would also like to thank all those who helped both financially and with the advice that I needed during the research process.
A special thanks to my supervisor, Dr Sidney Shipham, who through his guidance, support and encouragement, not only motivated me but inspired me to enrich and complete this arduous study timeously; Doc I salute you!
I would also like to express my gratitude to my loving wife, Molly, for the emotional support and the inspiration she gave me when the journey was getting difficult during the course of this study. Again, to my daughter, Ngozi, for allowing me the quality time that I needed towards the completion of these studies. Above all, thank you Almighty God for without You it couldn’t have been possible.
Dedication
Abstract
This paper focuses on finding ways in which different business establishments can gain strategic advantages through customer value. There have been several studies conducted on the strategic advantages that business enterprises can get as a result of customer value. Customers are the most important players in any business setup; their absence can bring a business down and there is no transaction that can proceed without the presence of customers.
The value accorded by customers for any given commodity has a lot of influence in determining the product’s performance. Producers/manufacturers will therefore strive to find ways through which they can improve the value of their products in the sight of their customers, so as to gain a stronger customer base. Customers are usually regarded as the bosses in any given business setup. A business without customers is bound to fail. The management should therefore look for ways of boosting the customer base so as to ensure that they remain in business. There are several ways that business establishments can attract more customers. Business establishments therefore need to look for ways of gaining some strategic advantage over their competitors in order to ensure that they remain at the top of the business. Customer value refers to what a customer may get from a product or service and the expenses that he/she has to incur in order to get the desired products and services.
There were several methods used to gather data for the research. The research process encountered a number of obstacles but most of them were overcome due to following elaborate research methodology that helped in gathering the right information for the study.
This research paper used Tiger Brands as an example case study. The organisation is a South African based Fast Moving Consumer Goods (FMCG) company that dominates the food industry domestically. Through the research conducted on the company and its products we were able to establish how the company gained some strategic advantages as a result of customer value. Most of the respondents interviewed, recorded that the company enjoyed a larger market share due to their high quality products that consumers saw as preferential, and that they therefore assigned higher values to. This in turn led to an improvement in customer profitability for the company.
List of Acronyms
CV – customer value
CVA – customer value analysis
CVM – customer value management
Chapter 1: Orientation
1.1 Introduction
This chapter is dedicated to defining the intentions for carrying out the research. The chapter also introduces several components that are included during the research process. The study is going to consider the definition of strategic advantage and customer value and unveil the relationship between the two concepts. Customer value is a topic that has attracted a lot of interest from different sectors of the economy. This paper seeks to find out the ways in which customer value can help different organisations to gain strategic advantage.
Most business enterprises strive to achieve the best strategies to help them establish and maintain a stronger command of the customer base. In the past, business enterprises used to put much of their efforts in improving the internal structural organisations but currently there are some new trends that are emerging. In order for a business to remain successful, the company should seek ways of improving customer values and preferences.
1.2 Background to the study
There have been several instances of products and services being produced by different companies but they do not meet the customers’ needs and requirements. Customers are often not satisfied with some of the products in the market. This study was commissioned so as to determine the importance of customer value and if it can be used as a strategic advantage by different companies that seek to ensure customer satisfaction. This study was also aimed at unveiling the circumstances behind the choices made by customers on different purchasing behaviours portrayed by them during the transaction of different business activities.
In order to fully understand the concept of customer value analysis, we need to answer the following two questions. “Will customers buy from you or will they buy from your competitors?” The future performance of the business will depend on the answer that you give to the two questions (Baker, Julie, Parasuraman, Grewal, and Voss, 2002). Customers often choose suppliers who provide the best value for the cost incurred by the customers. The value should also be accompanied with the best price.
Therefore it can be realised that producers who offer superior customer perceived value with the best offer on price, will in most cases experience improved profitability and an increased market share. The customer value will show how customers select goods from a given set of competing producers. The methodology in this research will examine the relationship that exists between the perceived benefits that customers identify a product with and how much the customers are willing to offer for the given benefits (Baker, Julie, Parasuraman, Grewal, and Voss, 2002).
Customer value management identifies the customers who have the highest value in any business set up. It also identifies what needs to be done in order to extract the value from the customers. Customer value management also identifies the customers with the lowest value in a business and what needs to be done so as to create some value from these customers. Customers with low values should not be fired but they should be nurtured with an attempt to create value from their operations. This concept is therefore aimed at maximising values from different sets of customers (Berry, Leonard and Yadav, 1996).
It has also been realised that many companies do not have proper priorities as far as the business lifetime is concerned. They have been involved in several cases of misusing their resources on customers who do not add any value to the business. This research was aimed at helping the organisations to realise the importance of different customers and the improvements that can be made in order to command a bigger customer base hence more customer profitability.
1.3 Problem review
A reflective review of the background to the study suggests the following potential business issues that need further elucidation. They are:
i. Strategic advantage
ii. Customer value
iii. Maximisation of the current profits
1.3.1 Strategic Advantage
Strategic advantage involves the overall relative power relationship of opponents that enables a given business establishment to effectively control the market share. Customers are usually the bosses in any given business establishment (Sanjeev and Teas, 2001). For any business establishment to prosper, the management should ensure that the customers’ priorities are always paramount, since without the customers, the business is as good as absent. There are several strategic advantages that businesses can seek to implement so as to ensure a strong customer base (Aaker, 1995). In this study we are going to conduct a case study on Tiger Brands and establish how they have been able to gain strategic advantage through customer value, and identify the improvements that are necessary in order to ensure improved profitability for the company.
1.3.2 Customer Value
Customer value can be described as the emotional bond which is established between a customer and a producer after a customer has used a given product or service. The customers will give their comments based on whether they have found a given product useful or appropriate for its use. In essence, there are three levels of customer value: The expected level, the desired level and the anticipated level (Anderson and Narus, 1998). Customer value can also be defined as the customer’s apparent preference after a careful evaluation of the products available. During this process the customer establishes the advantages of the product over others, costs and the risks which may be associated with the product (Woodruff, 1997). Companies should always aim to fulfil the needs of the customers and during this process they should take into consideration factors such as the geographical locations, cultural backgrounds and the individual values and norms.
The value that customers place on a product determines how much the customer may be willing to pay. The value that different customers may place on your product is determined by a number of factors. Some of these factors are related directly to the product while others are related to the customers’ internal and emotional needs. Other values are attributed to market factors or some competitive products which may be available in the market (Anderson & Jacobsen, 2000). If these factors are combined together they create the complexity called the pricing strategy formulation.
However the process of customer understanding involves five different steps which include: customer identification, planning the data collection, collecting the data, measurement and the implementation process. Most business establishments will strive to ensure that the value assigned to the customers for any given product or service is always upheld. The businesses will also ensure that customers are always satisfied whenever they get service from the company (Andreassen & Lindestad, 1998a).
1.3.3 Maximisation of the current profits
When a business is setting up the prices for their products, they should devise ways of ensuring that they maximise their current profits. This can best be achieved by slotting in the costs incurred for the production of the goods and services and also giving some allowance for profits. A business should make efforts to maximise their revenues before slotting in the impact of profits to the business. This can be achieved through attracting customers to buy from the business by carrying out extensive marketing campaigns. Once there is an improvement in quality there will be a corresponding increase in the number of buyers as the customer value will also be higher. This plays a very important role towards ensuring that there is an increased profit margin for the business.
Maximisation of the profit margin can be achieved through improving quality and having a good customer relationship management system. This helps in improving the value assigned to the products. Even if the prices for the products are slightly increased, consumers will still buy from the business thus an improvement in profit margin for the company.
When a company produces superior quality products, then they are most likely going to attract a bigger customer base. Customers usually prefer quality products. This is a strategy that is often implemented by several businesses in an attempt to attract more customers and ensure that once the company acquires the customers, they are retained throughout the lifecycle of the business. If the goods being produced are of superior quality, then the customers’ needs are satisfied hence they are retained by the business.
Whenever a company is setting prices for their goods they should ensure that the direct cost of production is reflected in the price set. This will ensure that the business is able to recover all of the costs incurred during the production of the commodities. If the costs of production are not properly covered, then the profit margin may diminish which may have a negative effect on the life of the business.
Customers will value businesses that are easily predictable; places whereby they will go and get what they want at any particular time. Such businesses which have their existence guaranteed are regarded to be more valuable that the unstable businesses that sometimes exist and in some cases are nowhere within reach. Such businesses will be awarded more value by the customers than their unstable counterparts.
Some of the factors that need to be considered when handling customer value analysis include but are not limited to the following:
Cost plus profit margin formula
When determining the price for any given product, the organisation should seek ways of ensuring that the cost reflects the production cost and the profits for the organisation. If all the costs are not properly incorporated into the final cost to the consumer, then operations of the business may be jeopardized as a result of a lack of profit to sustain the business (Anton, 1996).
One price fits all
This involves price regulation whereby the price for a given product is properly managed. When the price for a given commodity remains constant at different stores, then the customers are likely to be convinced on the predictability of the product hence an improvement in customer loyalty and customer retention (Bansal & Gupta, 2001).
Match the market
The products being produced should be in a position to match the market. A company should not produce goods that are not in season or which are not preferred by people living in a given geographical area that the product is retailing at. This will also play a very important role in ensuring profitability for the given product (Bansal & Gupta, 2001).
Beat the market
The management should strive to produce goods that are always at the top of the market. This can be achieved through producing goods with superior quality at a fairly acceptable price. This will also help in increasing the value customers assign to the given product (Sheth, Parvatiyar & Shainesh, 2001).
Penetration
This involves maximising the volume of the product being produced. This will ensure product penetration and also ensure that a greater number of consumers gain access to the products being produced (Bolton, Ruth and Drew, 1991).
Skim the cream
Some producers can sell their products at a relatively higher price when selling to customers who aren’t price sensitive. It has been realised that not all customers are sensitive to price and once a given set of consumers become satisfied with some products, they are not likely to mind about the prices being offered to them (Babin, Barry and Darden, 1995). This helps different organisations to improve on their profit margin. However, it has a major disadvantage that once consumers realise that the value they get from a given set of products does not match the price they pay for it, they will definitely defect and seek satisfaction elsewhere (Bolton, Ruth and Drew, 1991). Businesses therefore need to take a lot of care when setting the price for their products so that the price matches the desired quality.
Target return
This concept involves price setting to achieve a return on investment (ROI). Whenever an organisation is setting up the prices for their commodities, they need to ensure that they factor in the cost of investment. If this is not factored in then the company is likely to operate at a lower profit margin which may later jeopardize the operations of the business thus rendering it extinct (Babin, Barry Darden and Griffin, 1994).
Psychological
This concept involves setting a price that sends out certain signals to the market regarding quality, trend, and the status of the product being produced. This also plays a very important role in determining the value assigned to a given product by a set of customers, as it predominantly deals with the customers’ perceptions (Becker, 1965).
Value
This concept is based on the effective value the customer places, based on the alternatives the customer could buy. If there is more value placed on the alternatives, then the customer is likely to shift and buy the alternatives. Businesses should therefore strive towards ensuring that that their products are always accorded the highest possible value in the market (Babin, Barry Darden and Griffin, 1994).
Pricing essentially requires understanding of the market conditions, customers’ preferences, competitive factors that may matter to the customers, cost structures and many other elements that businesses may include in their pricing strategies (Becker, 1965).
1.5 Statement of the problem
There are several benefits that a company is likely to achieve through the implementation of customer value. Customer value is a very important aspect in the lifetime of any business enterprise. It helps different business establishments to gain strategic advantages over their competitors. Business enterprises should therefore ensure that they have an elaborate customer value management system so as to ensure that there is customer satisfaction hence more profitability for the company. The problem in this context is how business corporations and companies can gain strategy through customer value and gain a competitive advantage over other companies. In this context, we shall discuss this problem basing factual foundation on Tiger Brands.
The Problem statement is:
Customer satisfaction is not aligned to strategic objectives.
1.6 Objectives of study
The main objective of this research was not just to try and establish how companies can lure customers into buying their products but how they can maintain the consistent flow of buyers. According to Best (1999), companies can only maintain good relationships with their clients if they value the trust of their clients. In most cases, customers will only buy products from the companies that they trust. Companies however should also not take advantage of such trust given to them by customers and compromise on the quality of the goods and services they deliver, since this can negatively impact the activities of the business once the customers realise that the quality of goods and services being offered to them have been compromised. According to Cagan & Vogel (2002), companies are supposed to come up with unique and new strategic methods of evaluating customer preferences and values so as to increase their efficiency and effectiveness. Although many studies and researches have been carried out in this wide field of business and management, this research was also intended to add new value and information to the already existing literature. This research is also aimed at determining the processes involved in customer value and how customer value analysis can help make a business more profitable.
The main objectives of the study are:
1. To determine the strategic advantages that a business is likely to gain through customer value
2. To determine the importance of having elaborate customer value management
3. To establish whether customer value leads to customer loyalty and customer satisfaction
Chapter 2: Foundation of Study
2.1 Introduction
The study on strategic advantage through customer value is a study that has attracted a lot of interest from different sectors of the economy. There are several studies that have been conducted about this topic but most of the studies have not come out with concrete conclusions on how strategic advantage can be attained through customer value. It is evident from the research conducted that customer value is a very important subject and has attracted a lot of interest among several entrepreneurs. This study is aimed at unravelling the truth behind customer value and the importance of customer value towards the profitability of any given business establishment.
Figure1: Strategic Advantage
The above diagram shows that when equilibrium is reached between the three aspects, then a proper value chain management implemented, then a strong shareholder value can be easily achieved.
Strategic advantage and business or financial equity, are totally different concepts (Brandsford, 1971). Business equity can be achieved when a business combines the efforts which are used to produce strategic advantage and incremental growth, with the efforts which are used to achieve the incremental savings through an effective value chain management system. In order for a business to gain strategic advantage, the marketer should properly study the industry and its market forces and factor in the needs of the target consumers. If all these factors are properly factored in, then a good brand strategy will be developed (Chang, Tung-Zong and Wildt, 1994).
Customer value analysis developed as a result of work which was done concerning economics, customer satisfaction, and business strategy and product quality, in relation to the price. It was realised that long-term profitability depends on the market share. Market share is also independent of customer satisfaction (Chang, Tung-Zong and Wildt, 1994). The research also established that there is a need to have a measure for customer satisfaction that will capture the perceptions of the customers about the value of a product that is obtained from a given supplier.
Customer value can also be defined as what a customer gets for what he/she pays (Chen, Zhan and Dubinsky, 2003). The customer value can be analysed along two dimensions which include both the quality and the price. Businesses should not only aim at reducing the prices they offer for given sets of commodities but they should also ensure that there is a high quality offered. Once there is superior quality for the products being marketed, customers may be willing to pay for any cost as long as it’s fairly manageable (Brandsford and Johnson, 1972). Customers also do not prefer going for extremely cheap products as there is a notion that cheap products always have their qualities compromised. Customer value therefore is a very critical aspect in determining the performance of a product in the market.
This research is divided into three different sections which are used to show how companies can gain strategic advantage as a result of customer value. There are several theories that have been put forth to approve this statement and find the influence which customer value can have on the overall performance of a given business enterprise. The three sections defined within this research are; a literature review on the importance of customer value and how companies can gain some strategic advantage as a result of the customer value assigned to their products, carrying out an in-depth survey on the impacts of customer value on the overall performance, and carrying out an analysis of the results obtained from the pilot studies.
2.2.1 Customer profitability
Customer profitability can be a complex concept but once it has been properly understood it drives the maximisation of corporate value. Customer profitability can be defined in simple terms as what remains once all the customer related costs have been deducted from the customer revenue. Customer profitability can be shown diagrammatically using the whale’s curve shown below in figure 2. It plots customers ranging from the most profitable to the least profitable. The curve also reflects the Pareto 80:20 rule, whereby it is believed that 20% of the organisation’s customers offer 80% of the profits.
Figure 2: Whale Curve: (source: Guy Aston, 2011)
It has been realised that many businesses do not take the concept of customer value seriously and often make assumptions on which products may be valuable to the customers. This has resulted in making wrong decisions which in turn have a negative impact on the overall performance of the business. Customer value management is a progressive and practical approach that is used to manage business markets. Customer value management basically has two goals that it aims at achieving.
They include:
i. How to deliver superior value to the targeted market segments and the customer firms
ii. How to get an equitable return on the value that is delivered to the customers
The process of carrying out customer value management relies on a customer value assessment to gain an understanding of the requirements of the customers and their preferences, and the expenses that the company should incur in order to fulfil the customers’ requirements and preferences.
Firms can easily deliver superior value without a proper analysis on customer value. However, it can be very difficult for them to achieve the second goal without carrying out a thorough analysis of customer value. In order to have adequate customer value management, the company needs to build customer value models. These are data driven estimates of what a given market offering is worth in terms of monetary terms. Customer value management essentially looks at building customer value models that are heavy on data but light in assumption. Suppliers should therefore gather as much data as possible so as to limit the assumptions being made and whenever an assumption is to be made, it should be as reasonable as possible.
The process of customer value management can be viewed in five different phases:
i. Translating business issues into projects which are manageable
ii. Conducting a workshop on customer value
iii. Conducting research on customer value
iv. Constructing a business case for change
v. Realisation of value
More knowledge on customer value would easily enable businesses to make more profitable decisions. This process will enable the business to realise which business issues are more achievable and what improvements are necessary so as to make them more profitable. In this case a project is defined for each of the business issues stated. The scope of each of the projects also needs to be sufficiently defined so that the customer value research can be adequately conducted and accurate results reported. Once the scope of each of the projects has been determined it will be easy for the project manager to determine the resources needed for the implementation of each of the projects and make the necessary adjustments.
Customer value analysis helps to empower organisations with superior business intelligence which is capable of unlocking the complex market opportunities. This tool helps in defining the actions that need to be taken in order to have a competitive advantage. Customer value analysis also helps in formulating customer retention strategies which define the strategic marketing management plan for different firms. Customer value analysis is similar to customer satisfaction and image awareness. It provides for accurate and useable information which can be used to ensure maximisation of the business revenues.
If a thorough customer value analysis is conducted the managers of the business will be able to:
i. Identify the attributes that matter to the customers of the business and those that matter to their competitors’ customers
ii. Quantify the performance of the company and that of the competitors
iii. Know which competitors have superior value proposition and the actions that can be taken in order to ensure that the company does not lose their customers to such companies with a higher value proposition
iv. Know which of the market players are able to gain or lose the market share
v. Have a data driven system which is not based on assumptions but facts
A customer value map can be used to show a picture of how customers make decisions and how the decisions can affect a given business establishment. The customer value map is a very powerful tool which helps to predict which market players are likely to gain a market share and how they can gain the market share.
The market perceived quality profile and the market perceived prices are the main considerations when conducting a customer value analysis. The information that is provided when carrying out a customer value analysis, in relation to the quality and price of commodities, helps in generating a successful customer retention strategy, which can be very valuable to a business enterprise.
Figure 3: Customer value representation
Therefore companies need to carry out a thorough market analysis so as to know which customers are profitable and which customers are less profitable.
In order to undertake a good value analysis, and efficiently deliver to the customers, the businesses need to understand that not every customer is a good customer. Good customers are always more profitable, less price sensitive, and more loyal while the bad customers lack those attributes. The managers for the company should also know that customer satisfaction is multidimensional and in some instances, customers who are very satisfied may suddenly stop doing business with a given company.
Therefore the managers should not only seek to find ways of delivering cheap products but they should also consider the quality. A customer can be satisfied with the products being offered by the company but have a very low perception of the value being provided. Therefore repeat purchase intention will be highly compromised.
It is therefore necessary for the business to calculate customer lifetime value and conduct value path tracking so as to know whether there is any improvement in the number of customers being retained. If there are no customers being retained by the organisation then there must be a problem with the products being offered by the company. The managers should therefore check on the price of their products and their quality and then determine whether the two match. Necessary adjustments therefore need to be taken so as to ensure that the company remains in business.
It is usually very difficult to establish the value that people put on their goods and services. If a business puts their price too high relative to the quality that is obtained from the goods, then they are most likely going to lose out due to competition. Similarly, if the price is too low, then the company will lose money and have a lower profit margin. Even though low prices increase demand for a given set of products thus improving on the market share, the company should ensure that they do not set their prices too low such that it will jeopardise the operation of the company. The concept of market equilibrium should therefore help in solving any pricing problems that may be out of proportion. However, the theory is often very different from practice. The supplier of goods and services may take a very long period of time to find out if their prices and quality are out of proportion.
In most business-to-business markets, customers are always loyal to their suppliers. This is because it is very hard for customers to trust some suppliers and it often takes a longer period of time for a buyer to have the full trust of a given supplier. They will tend to remain with the old supplier since they fear that moving to a new supplier due to a small price advantage may make the buyers get sub-standard goods and services. Whenever there is an increase in price, the suppliers should accompany it with an increase in benefits. If the increase in benefits does not match the increase in price, customers will simply quit transacting business with that particular kind of supplier. Customers should be constantly reminded about the benefits of a given commodity. This will result in the customers assigning higher values to those products as opposed to the products about which they are not fully aware of their benefits.
2.2.2 Customer experience optimisation
Customer experience optimisation helps different companies to maximise on long-term profitability through an analysis of the customer lifetime value. The main goal here is to maximise on customer satisfaction and customer loyalty.
Qualitative investigations are very important at this stage as they help to determine the strengths and weaknesses of corporate customer satisfaction and customer loyalty programs. It also helps in developing an integrated customer satisfaction and customer loyalty program. During the research process in-depth motivational research and interviews were conducted with both the employees and the customers of Tiger Brands so as to establish an understanding of the factors and dynamics which are involved in customer satisfaction. Hypotheses were also derived from this motivational research on how to improve customer satisfaction and customer loyalty and how they can help ensure the profitability of the business.
Several studies were also conducted at several intervals of the research so as to determine the history pertaining to customer and employee satisfaction tracking studies. These studies were very useful in determining and monitoring some variables that influence satisfaction and customer loyalty, which in turn influence company profitability. There are several methods of carrying out tracking studies which include the use of: telephone, mail, internet and the use of interactive voice response systems.
2.2.3 Exception systems
Companies can also use exception systems so as to understand the customer experience. In this method, customers are encouraged to complain if they experience a problem while using a given product or they are unhappy with some of the purported benefits of using a particular product or service. This system often ignores the happy customers. It mainly focuses on the unhappy customers and tends to find a solution that can correct their problems.
2.2.4 Marketing integration
Customer satisfaction is not only determined by the price and the quality of the products being produced. It is also determined by the positioning, branding, advertising and promotions that are offered for that particular product. All of these are put together so as to optimise customer satisfaction and loyalty and ensure that a strong customer base is maintained. During the study of customer satisfaction, employee satisfaction is also an equally important concept; dissatisfied employees often lead to dissatisfied customers.
Therefore management should ensure that their employees are satisfied so that they are willing and able to discharge their duties and responsibilities effectively. When the employees are satisfied they will tend to work to a higher quality and hence become more productive and create happy customers. Such employees are also more likely to stay with the company thus saving the company extra costs which would be incurred in recruiting new employees (Valarie, 1988).
Customer loyalty can be driven higher through improving quality, a reduction in prices and improving the quality of service being offered. This however can make a business become bankrupt. The main goal of any business should not be to improve customer satisfaction further but to improve it to a level that it optimises the firms’ long-term profitability. This can be achieved through having some understanding of how customer experience and perceptions can impact on the overall performance of the business.
Customer loyalty and customer satisfaction are independent of each other and should be treated differently. However in places where there is customer satisfaction, there are possibilities that customer loyalty will also be found.
Chapter 3: Literature Review
3.1 Introduction
There is a vast amount of literature that exists regarding the ways in which customer value can help a business enterprise gain some advantage over its competitors. There are several advantages that an elaborate customer value management system and customer value analysis can help an organisation to achieve.
This chapter will cover the academic issues opened up in chapter 2. These issues are:
i. Pricing
ii. Customer Value
iii. Gaining strategic advantage
iv.
3.2 Pricing
According to Broekhuizen (2006), pricing is by far one of the most significant signals that a business may send to the market place about the products or services offered by the business. There are several ways that business enterprises can develop their pricing strategies, these include using the principle of product-by-product basis and a company-wide strategy. The price set by a business will tell the customers and everyone in the industry the position that the business has in relation to other players and what it believes customers are thinking, feeling and how they may value the product.
A business that misses the correct pricing strategy may not have a position in the market. If a company is able to develop the right price for its products, it will then be able to maximise its profits. This will also enable it to match their price to each market segment, with the ability to attract buyers and retain them once they buy from that given business.
According to Brynjolfsson, Erik, Yu Hu, and Michael Smith (2003), once a business enterprise has set up its strategic objectives, they can then be translated into the necessary pricing objective which will then enable the business to decide on which approach to take. They also add that the right price will ensure that the business remains in existence, and overpricing will cause a business to drive away its customer. If strategic pricing is properly done, it will compel the market to buy from the company as the customers will be able to recognise the value they will receive for the price.
Strategic pricing will help in making the product more affordable to the customer and also help in driving the business toward efficiency since some form of discipline is enforced on the business. Strategic pricing also helps in ensuring that the product is delivered in the market at the price the customer places on the product. The prices placed by the customers are usually determined by the value of the product provided to the customer.
3.3 Customer Value
Butz Jr., Howard E. and Leonard D. Goodstein (1996) ascertain that customers usually have a range of alternatives in the market to meet their needs. The choice for any product will depend on the value accorded to that product by the customers. Since customers have different options, business enterprises therefore need to distinguish themselves on more than just the price. The process of businesses differentiating themselves from others and ensuring that they remain at the top of their sector involves the use of protected advantage, operational capabilities and offering after sales services to ensure customer satisfaction. The authors also address the issues on customers’ perceptions whereby they state that, the perception that customers will always have on any given product will impact the price that the customers will be willing to pay for that given product. The values that are placed on the product include the physical aspects and the intangibles.
Businesses should therefore strive to create values for the customers. The process of creating values for the customers goes beyond simply offering quality goods, it also involves lowering prices, offering money back guarantees and having an elaborate customer support system. This will help in ensuring that the customers are satisfied and in case they are not, there is a channel of communication whereby they can air their grievances for the management to make the necessary corrections. This will ensure that there are appropriate improvements that will eventually ensure that there is customer satisfaction hence giving the company some advantage over its competitors (Butz et al., 1996).
According to the research conducted by Dodds William (1999) on managing customer value, it was realised that customers’ value is usually critical and the cost for delivering the value is also very important. Every person in a business has a role to play in the determination of the price for any given product. A business should ensure that as they strive to generate profits they also ensure they have a strong customer base. Pricing is strategic therefore businesses should spend their time developing their pricing strategy as a competitive tool in order to win the war on competition.
The author also established that if a company wants to maximise on the stakeholder wealth, then the company has to devise means and ways of maximising customer value and customer satisfaction. A company should also find ways of maximising customer profitability analysis and customer lifecycle analysis so as to have a strong customer value analysis. The above techniques require that an organisation adopt some strategic management principles so as to ensure that the process goes on successfully (Dodds, 1999).
Customer value is a topic that has attracted lots of interest from managers and researchers. According to Woodruff (1997) customer value as a source of competitive advantage is thought provoking. Customer value management can be said to be majorly concerned with achieving the customers’ goals. Since there could be similar products in the market, a customer may opt to purchase a given product over another product. The choice is usually influenced by several circumstances and conditions available in the market.
3.4 Gaining Strategic Advantage
Companies can easily gain some competitive advantage through focusing on customer value and building an emotional bond with a customer (Woodruff, 1997). Butz et al., (1996) also established that the value accorded to a given product will determine who buys the product, when it is bought and how much of the product is bought
American goods are known for their value added initiatives and producing products with high values. For instance American cars are known to be of a better quality as compared to the ones manufactured in Asia. This in turn attracts more customers. The more a producer adds value to their product or service, the more distinctive the product will become to customers.
This can result in higher prices being set for the product thus higher profit margins to the producers. Some producers tend to assume that they know the value that customers may assign to given sets of products. Some of these assumptions are not accurate thus causing the organisation to make wrong judgments thus suffering from customer deficiency in the long run. Producers should ensure that they involve customers in every step of their operation and also make a point of incorporating user feedback in their subsequent product adjustments, so as to ensure customer satisfaction throughout their business transactions.
The author also adds that there should be no assumption by the producers on the value of a given product. Thorough analysis should be conducted to establish how the customers perceive a given product so as to determine its performance in the market. Essentially customers are the main determinants of whether some value has been added to the products or not. This is a concept that is also supported by Coldwell (2001) in his survey on characteristics of good customer satisfaction. He states that if there is an emotional bond existing between the producer and the consumer, then the consumer is likely to continue buying from a given manufacturer. The customer is also likely to recommend that particular brand to his/her friends and family members.
In order for an organisation to establish the bond, they should ensure that their goods and services regularly meet or exceed the customers’ expectations. The bond can only be established when customers are satisfied that the goods which are being produced constantly produce more benefits to them than the costs which are incurred to obtain the given good or service. The net customer value is usually calculated by the customer. It is also based on the customers’ values and beliefs. The author also adds that the value that is given to a product by consumers is more psychological and emotional than physical. If a customer feels and believes that a given product satisfies his/her needs then they will continue buying that product from that particular store. However, if they feel they are not getting the value for their money they will simply quit.
The business should therefore devise means and ways of ensuring that customers’ satisfaction is always given a priority so as to enable them to gain some strategic advantage as a result of customer value (Coldwel, 2001).
Zineldin (2000) introduces the concept of Total Quality Management and explains how it can influence the value accorded to different products by a consumer. He states that Total Quality Management (TQM) has greatly increased the spotlight on providing customer satisfaction. Customer satisfaction should not be pursued in isolation as it may result in a wrong depiction of customer value, since customer satisfaction is only concerned with the customers’ attitudes and customer value is concerned with customer behaviour. In order to have an elaborate customer value analysis, more attention should be focused on the customers and their needs.
Once the customers are satisfied, they will assign higher values to the products being addressed. He also adds a concept of customer bonding and how it helps in improving the relationship between the producer and the consumer. He states that customer bonding is mainly concerned with the actual behaviour of the customers. This concept is not concerned with what the customers may say regarding a given product but is concerned with what the customers do. Highly bonded customers will tend to buy repeatedly from a given supplier whereas customers who are not highly bonded will tend to buy less frequently from a given manufacturer.
According to Wahyuningsih and Nasution (2007), customer value has been regarded as a very essential element in an organisation’s competitive strategy. It is also viewed as the next source of competitive advantage. This sense involves developing a thorough understanding of all customer groups, which allows organisations to develop strategies which are tailored towards ensuring that all of the customers’ needs and requirements are properly met. This helps the organisations to gain a strong consumer base thus commanding a more stable and a larger market share. This aspect also helps companies to deliver better value and quality to their customers thus achieving better organisational performance and subsequent shareholder value.
Managers therefore need to understand how value creation can be managed in order to deliver the best value to the customers. This will help in ensuring that there is customer satisfaction. The author also adds that preserving customer value is essential in any setting of an organisation structure. Businesses are usually measured according to the values that they create for their customers.
Businesses which have low values for their customers usually record a very poor performance. When customers set high values for products in a company, the company is likely to sell its products at a relatively higher price thus resulting in an increased profit margin for the business. This helps to make a business more successful and offers a higher competitive advantage. Customer value applications must therefore be implemented in the daily business activities of the organisation.
3.5 Improving customer satisfaction
Guy Aston (2011) states that customers will in most cases buy commodities that they perceive as being of value to them. If there is a set of choices available for them, they will tend to choose products which are most valuable to them. Customer values also touch the intangibles which may include aspects like improvements in staff morale. In order for a business enterprise to remain relevant in a given market setup and perform more competitively, they need to ensure that they give value to their products thus leading to a corresponding increase in customer value and customer satisfaction. If a consumer is satisfied with a given product, he/she is not likely to change the product. They will in most cases continue buying similar products from the same manufacturer until such a time when they realise that there is a better offer or the product is no longer meeting their needs. According to Guy Aston, there are several actions that a business can take in order to improve customer value. The factors suggested by Guy Aston include:
3.5.1 Change
This is concerned with exploring the issues and the dissatisfactions that a customer is experiencing when using the product. Once the dissatisfactions have been realised the producers can then formulate ways of ensuring that they produce products that meet the users’ needs otherwise they will become very irrelevant in the market.
3.5.2 Exploring the value for change
This concept acknowledges the fact that not all customers are the same. This will essentially help in ensuring that specific product functionalities are implemented that can meet the wants of different consumers.
3.5.3 Implementing customer value
In order to successfully ensure that customer value is well implemented, the following processes need to be taken into consideration:
Successfully identify what the customers need and expect
For a business to become successful, the management should be able to identify and know what the customers need and expect. This will help them to establish which types of goods need to be produced for a given set of customers. If the right product is not produced then the business will be irrelevant thus rendering it useless.
Build service delivery models to meet each of the target segments
Different customers are different in behaviour, wants and orientation. A business enterprise should be able to offer service delivery models that take each classification of customer into consideration. This will help in attracting more customers to the business as customers will always prefer businesses that deliver goods and services as they require.
Understand the customers
There should be an elaborate system to understand the customers and provide them with goods and services that ensure customer satisfaction. The management of the business enterprise should ensure that they incorporate customers’ feedback into their system and use it to adjust their operations. This will help in ensuring that there is customer satisfaction all through the lifecycle of the business.
3.6 Commit to the organisation’s customer centred strategic marketing and communications
The current market is very competitive and for any business to be successful, they should meet or exceed the customers’ expectations at any given time. This will help in achieving customer loyalty thus improving a products’ preference in the market which in turn results in a product performing better in the given market segment.
According to Thaler (1985), customer value proposition consists of all of the benefits which a producer promises a customer in return to the associated payment made by the customer. It also describes the reason behind a customer buying a given product. It essentially convinces customers that they are likely to get more value if they buy a given product. When producers are setting values for their products they need to ensure that they do it carefully since if the value set on any given product does not meet the amount paid by customers for the product, then the customers are likely to get dissatisfied with the producers and shift from purchasing goods produced by that given manufacturer.
The author also adds that customer value proposition is very important as it helps to provide reasons why customers should buy some given products and also help in differentiating products from competitors. There is a need to create a strong customer value proposition so as to give customers good reasons for buying goods from a given manufacturer. During this process, there is a need to understand customer needs so as to help in promoting the product. Thorough market research needs to be conducted during the process so as to identify the customers’ needs and ensure that the products being produced meet all of the requirements of the users.
According to Woo (1992), products which have successful consumer value proposition are directly linked to a product’s actual performance versus competition. The main attributes which are considered during this process are value and quality. Consumers will in most cases go for high quality goods at a lower cost. Manufacturers should therefore ensure that a balance is struck between the two attributes. Producers will tend to beat their competitors through producing goods of the same quality but a relatively lower price. This will ultimately result in them having more customers.
On the other hand, if producers are able to produce superior quality products at the same price or a price that is slightly higher but acceptable, the consumer value will also be higher as compared to other products with a relatively lower quality at the same or slightly lower prices.
A product must therefore offer value through price and quality in order to be successful or to be given a higher value by the consumers using the product. Parasuraman et al., (1996) advise that any business enterprise should strive to find ways of ensuring that they retain their customers. This is because experienced customers are naturally more efficient and hence cost effective. Loyal customers are hard to get and therefore once a business gets some loyal customers it should try as much as it can in order to retain them.
The best way of retaining customers is through ensuring that their needs are properly met. According to the authors, customer value should therefore be properly managed so as to ensure that customer satisfaction is always met thus improving the profitability of the business. Customer management is aimed at increasing the aggregate value of the customer base. Apparently not all customers are profitable in an organisation, however, the management should ensure that each customer is properly managed in order to maximise the overall profit of the business even when the management is aiming at focusing on retention strategies (Kotler, 2000).
All customers should be treated with equal importance; this helps to bring about changes in the customers’ perception of the business thereby turning non-profitable customers into profitable customers. According to the authors, customer value management mainly shifts the focus of the business from managing products or the marketing campaigns used by the company to managing the profitability of each of the customers for the business over their entire life of performing transactions.
Customer value management usually leads to better product offerings and more targeted campaigns. Customer value management analysis will seek to answer several questions about the relationship existing between the customers and the business. It also seeks to answer questions about customers’ satisfaction and the report that customers may have to offer as a result of transacting business with the organisation. Customer value management essentially asks a question about whom the customer is and what the business needs to do in order to retain the customers. According to Woodruff (1997), customer value management can be properly achieved if the following points are taken into consideration:
Right Customers
The business should devise means and ways of acquiring the right types of customers. In most cases not all customers will be profitable for the business; the business therefore needs to carry out a thorough analysis so as to acquire the right types of customers who can help in ensuring that the business remains profitable. This strategy is aimed at acquiring the most valuable customers who will stick to the business even when the business is facing some of its worst times. Businesses need to examine the long-term value of the customers. Since customer management can be a very expensive undertaking, businesses need to focus on elaborate strategies to manage customers so as to ensure customer satisfaction.
Right Relationship
This involves the development of the right relationship between the customers and the business. This step essentially involves having an elaborate customer management system which helps in maintaining a good relationship between the customers and the company. When a proper relationship is established between the customer and the business then there is a likelihood that customer loyalty will be achieved and customers are likely to be retained, as opposed to a situation whereby there is a poor relationship between the customers and the business.
The management should therefore develop a close relationship with the customers so as to understand their wants. Customers’ lifetime value can be calculated using the formula:
Purchase size * frequency * duration
A business should therefore always strive to increase the size, duration and the frequency at which the customers purchase from the company. Customers tend to repeat transactions with businesses that respond to their individual needs.
Therefore for a business to properly manage customers and have a strong retention, they need to focus more on the relationship between the customers and the company. Companies can achieve this strategy through understanding the differences between their customers and by tracking how each of the customers will evolve over time. Companies which develop the capability to track changes in the value of individual customers can easily guard against competitive attacks, and respond quickly to the changing customer behaviour and thus maintain customer value.
Right retention
This strategy involves keeping valuable customers in the organisation. An effective retention strategy involves keeping the right customers and not all the customers that transact businesses with the company. Managers need to put more focus on the customers who have a bigger lifetime value and not all customers. If a business spends resources on customers who are invaluable to the business, then the business will run at losses. A business should only focus on the customers who have a higher lifetime value hence higher profitability for the business. The right retention therefore is concerned with knowing which individuals are more profitable to the organisation.
Managers can retain loyal consumers through a use of several incentives other than price alone. Some of the incentives can include special recognition and premium levels of service. The author added that in order to have elaborate customer value management, the company should implement the use of customer relationship management which helps in establishing a good relationship between the customers and the business. If there is a good relationship between the customers and the business, then it will be very easy to establish customer loyalty in that particular type of business.
Many businesses use CRM software which helps in establishing a strong and customer friendly system that attracts customers. The CRM management system should be simple and incorporate customer needs. Customers’ feedback should also be upheld so that the business can understand the needs of the customers and make any necessary adjustments in the operation of the business.
3.9 Summary
The overall aim of good customer relationship management is to reduce operational costs, improve the operational frequency and ensure customer satisfaction at all times. Zairi (2000) in his article on “Managing customer dissatisfaction”, established that customer value is usually created by the interaction between customer satisfaction and customer relationship management. In order for a business to maximize on the long-term economic returns of the company, customer value creation should also be properly managed so as to move in the same direction as customer profitability (Zairi, 2000 p.27). This mainly focuses on how the profitable customers are obtained, the strategies that are involved towards ensuring that they are satisfied and what should be done in order to ensure that they are retained, as well as what should be done in order to convert the less profitable customers and make them more profitable.
According to Rumani and Kumar (2008), the complex behaviour of interaction and orientation of the customers, is a source of strategic advantage and relies on the company’s ability to combine the customer oriented analysis and provide speedy responses to the customers’ needs. It also involves all of the aspects that contribute to ensuring that there is long-term customer value management and customer empowerment.
According to Kotler (1994), customer satisfaction is the outcome that is felt by buyers who have experienced a company’s performance that fulfilled the expectations of the buyer. When customers are satisfied with the products being delivered by a given set of producers, they will in most cases remain loyal to those producers. The satisfied customers not only remain loyal to the producers but will also buy more, become less price-sensitive and talk favourably about the company. This plays a very important role in improving the overall company image thus boosting the sales for the company.
According to Epstein and Yuthas (2007), customer value is the foundation of customer profitability. Once customers assign higher values to the products sold by a company, then there is usually a corresponding improvement in the customer profitability.
Raymond Kordupleski in the 1980s developed a system for measuring customer satisfaction. This system also helped in predicting the changes in market share. Measuring customer satisfaction can be easily achieved through carrying out a set of comparisons in the market. Customers can buy goods from a given place. If they get satisfied with the benefits offered by the products purchased, then they will in most cases go back to purchase from that particular store. However if the customers are not happy/not satisfied with the benefits offered by that particular kind of product, then they are more likely to avoid purchasing from that particular kind of store.
A comparison to determine whether a given set of customers maintain loyal to one particular kind of store can be used to determine the degree of satisfaction which is achieved by customers in a given kind of store or from a given producer. The research that has been conducted ascertains that customer value is very important and for a company to be successful, it has to carry out elaborate research on customer value and what needs to be done so as to make businesses more valuable. When a company upholds the value of its products at a fairly acceptable price, then customers will assign higher values to that particular product. This will in turn make the company more valuable and hence induce a corresponding improvement in customer base.
When customers buy a given set of products from a given store, they will always anticipate getting the best possible value from the products bought. However, if the quality of the goods purchased is low, then they are not likely to buy the same product from the same store. Managers should therefore work out ways of ensuring that they produce goods of the highest quality at a fair price thus encouraging more customers, improving customer loyalty and ensuring an increased profit margin for the company.
Chapter 4: Research Methodology
4.1 Introduction
This section will look at the various methods for carrying out research on different aspects of the business lifecycle. These methods can be broadly divided into two categories namely: qualitative and quantitative research methods. The methods chosen for carrying out the research should be as accurate as possible so as to avoid cases of acquiring false information.
This section deals with uncovering the methods used to carry out the research on gaining strategic advantage through customer value. The process of carrying out research should be as systematic and organised as possible. This helps in making the process of carrying out research easier and more accurate. This chapter is specifically dedicated to finding the various methods that were used when carrying out the research and report the ways in which customer value can be used to gain to some strategic advantage in different firms across the globe.
Several approaches were used to ensure accurate research results, applying both qualitative and quantitative methods of research analysis. The diagram shown below in figure 4 shows a research onion which can be used to show the process of carrying out the research and how each section is important in its unique way.
Figure 4 - Source: Mark Saunders, Philip Lewis and Adrian Thornhill (2006)
The above shown research onion identifies all the components and the factors which may influence the process of carrying out the research. Some of the factors identified in the research onion which affect the process of carrying out the research include:
i. Approaches
This section defines all the methods and systems used during the research process. It shows several ways and the hypothesis which are used during the research process. In the case of strategic advantages through customer value, we used several approaches so as to come up with concrete and accurate data. We had two sets of hypothesis that the research was supposed to approve or disapprove. We used both a positive and a null hypothesis for the purposes of our research.
The hypotheses were as follows:
a. Companies gain strategic advantage as a result of customer value
b. There is no relationship between customer value and a company’s profitability
The first hypothesis was the positive hypothesis and the research process was aimed at proving or disproving the concept. We managed to confirm that the statement was true and that companies that implemented customer value in their operations were able to gain some strategic advantage over their competitors. The second hypothesis was the null hypothesis which had a negative statement. We also managed to disprove the concept since there is a very strong relationship between customer value and a company’s profitability. When we conducted a test hypothesis, the first hypothesis returned a value of 1 while the second one returned a value of 0.
ii. Strategies
Research strategy involves the line of attack that can be used when carrying out the research. In our case we used case studies’ strategies and also conducted some experiments so as to be able to ascertain our facts. We analysed company data for Tiger Brands and assessed how company value helped to boost their sales. Case studies are very useful as they help to give an insight overview and an accurate account of what is really happening. The experiments that were conducted on products from Tiger brands and other local brands in the South African market helped us to realise that the quality of the products being sold played a very important role in determining the value that customers could assign to that particular brand. Most of the products that were being analysed were of a superior quality thus making consumers assign higher values to them.
iii. Pilot study
A pilot study was carried out on Tiger Brands, a South African Fast Moving Consumer Goods (FMCG) company that dominates the food industry in the country. This company was chosen since it produces a variety of products and has been able to demonstrate dominance over its competitors as a result of the strategies aimed at attracting customers and the production of quality products throughout the company’s lifecycle.
Even though their prices were slightly higher when compared to other players in the market, they still commanded a bigger share of the market. This is due to the fact that they had loyal customers and that most of their customers were satisfied with the quality of services they were receiving in relation to the price that they were paying for the goods. We also managed to carry out some review on the customers’ comments in the interactive sites of the company, and realised that most of the customers using the products from this company were satisfied with the quality they were getting and the prices they were paying for the products.
iv. Time horizon
In order to finish the research within the shortest period of time, a timetable was drafted which was aimed at ensuring that the research was completed on time and that all aspects were covered. The research was divided into different sections and each section was accorded some specific periods of time which we insisted we adhered to, in order to ensure the research was completed within the specified period of time.
4.2 Methodology
In our study we used both qualitative and quantitative research methods to gather data for analysis.
Quantitative data collection methods
This method for collecting data relies mostly on random sampling and some form of structured data collection methods. This method of data collection produces results which are very easy to analyse and summarise. This method deals mainly with testing the formulated hypotheses. There are several types of quantitative data collection tools. They include:
i. Observations
ii. Collecting information from the management of the relevant institutions being analysed
iii. Experimental trials
iv. Conducting research surveys through the use of interviews and questionnaires
When conducting the research any of the above mentioned strategies can be used. The choice on which strategy to use depends on a number of factors. The choice will depend on the type of research being conducted and the population that the research is supposed to cover. Based on the scope of study being conducted we limited the study to the use of observations and surveys which involved the use of questionnaires and interviews to the management of three companies, their employees and some selected customers so that we could adequately report on the impacts of customer value on the overall performance of a given business enterprise.
Qualitative data collection methods
This method is similar to the quantitative data collection methods but it tends to go deeper into the process of carrying out the research. This method of data collection helps the researcher to gain some understanding of the factors influencing a given scenario in the research design. This method of data collection is very important as it helps to improve on the quality of the survey conducted using the quantitative data collection methods.
The following qualitative data collection methods were used in our research process:
i. Document review – this involves reviewing the companies’ data which included the annual reports and the comments posted by different users in the companies’ websites, showing the impact that customer value can have on the purchasing behaviour and perception of the consumers.
ii. In-depth interviews – this involved carrying out a more thorough interview with the employees and the customers of different companies in the cosmetics industry in South Africa.
iii. Observation methods – this involved carrying out some observations on the purchasing trends of different customers in the companies being studied.
The above mentioned methods of data collection are less structured and have an open-ended format. This allows users to give their comments in their own words on what their feelings are based on the scenario being studied.
These methods help to give a more accurate picture on the behaviour of customers as the respondents are not limited to some given sets of answers as witnessed when using closed-ended interviews and questionnaires. Information obtained from these methods of data collection is not generalised, but instead specifically address the area of study being analysed. However, this method takes a relatively longer period of time as compared to when using the quantitative data collection methods.
Several studies were also conducted at several intervals of the research so as to determine the history pertaining to customer and employee satisfaction. Tracking studies which were conducted are very useful in determining and monitoring some variables that influence satisfaction and customer loyalty which in turn influences company profitability. There are several methods for carrying out tracking studies which include the use of: telephone, mail, internet and the use of interactive voice response systems. In this research we were limited to the use of internet and companies’ annual reports so as to establish the effects of customer value to any company and to establish how companies can gain some strategic advantage as a result of customer value analysis and management.
Chapter 5: Research Results
5.1 Introduction
The analysis of customer value and satisfaction are some of the sustainable strategic advantages which are available to firms that are operating in hypercompetitive environments. It is necessary for any business enterprise to carry out a thorough market survey and a study on its customers so as to determine the productivity of its customers. According to the research that was conducted, it was realised that customer value plays a very important role towards ensuring increased profitability of any given business enterprise.
The results will be presented per objective. For practical reference purposes the objectives from chapter 1 are presented again here. They are:
1. To determine the strategic advantages that a business is likely to gain through customer value
2. To determine the importance of having elaborate customer value management
3. To establish whether customer value leads to customer loyalty and customer satisfaction
5.2
Demographics
The participants who were interviewed during the research process help in providing very useful information that enabled us to get accurate results. We interviewed employees and customers of the Tiger brands and the information that they provided was very consistent. Out of the 20 customers interviewed who were using the product, 17 of them recorded that they have been using the product the past five years. This ensured that we got accurate results based on the experience that they have had for the last few years. The senior managers of Tiger brands who were interviewed also noted that they have been discharging their responsibilities for the company for the last 10 years. The information obtained from other staff members was also found to be useful as they had at least three years working experience with the company.
5.3
Objective 1: Determining the strategic advantages that a business is likely to gain through customer value
This attribute involves the producers setting some values for the customers depending on the amount of purchases they make, the duration they purchase and how frequently they do the purchasing. This also helps the businesses to know which customers are more profitable than others.
5.4
Objective 2: Determining the importance of having elaborate customer value management
This involves the actions taken by businesses to ensure that customers set high values for their products. In order for the customers to set higher values for the products that they buy, producers need to ensure that they also produce goods which are high in value at a manageable price. This will ensure that they retain their customers and influence the customers to continue buying from them.
Customer centric information systems and customer value and strategic management
This aspect is mainly concerned with the determination of how different aspects of the business enterprise influence the value accorded to their products and the impacts the values accorded have on the overall profitability of the firm.
The research which was conducted incorporated about ¼ of the total global CIMA 70,000 strong membership. These were weighted according to country and it attracted a response rate of about 6% which represented about 1.4% of the total CIMA membership. The respondents during the research were classified according to the industry sector, country and the sizes of the companies that they were operating in.
5.5 Objective 3: Establishing whether customer value leads to customer loyalty and customer satisfaction
This aspect is concerned with the analysis of the value that customers set for a given product depending on whether they are satisfied or not. Businesses should ensure that their customers are satisfied whenever they transact a business with the company. This will help in determining/ setting higher values for the products being produced at any given time. From the research, we established that customer value and customer satisfaction are closely related. Whenever customers are satisfied with the quality of the products they receive from a given store, they will assign higher values to those products hence an improvement in the company’s customer base which in turn leads to increased profitability for the company.
5.6 Findings
Most of the respondents who were interviewed unanimously agreed that the finance department contributed to a greater extent towards customer satisfaction. Actually about 97% of the respondents agreed that the financial department contributed towards ensuring that customers were satisfied.
About 80% of the respondents agreed that there was a need for the management of the companies to understand customer satisfaction in order to improve customer loyalty in the long-term.
About 94% of the respondents also agreed that the effectiveness of the financial department contributed towards ensuring customer profitability. Over 70% of the respondents also agreed that the data warehouses and the CRM systems used ensure that there was maximum customer satisfaction.
According to the survey conducted, a small percentage of the people interviewed agreed with the fact that independent departments resulted in improved profitability. It was therefore suggested that different departments in any business enterprise need to coordinate with each other so as to maximise their functionalities hence ensure improved profitability.
It was also realised that most organisations had a partial understanding of what actually makes a business more profitable. However, once the companies established the actions that they could take in order to influence the behaviour of the customers, most businesses were found to embrace the concept and worked out ways of ensuring that there was improved profitability through the involvement of the customers in the process.
This research also found out that marketing and accounting systems should be managed in an interrelated manner so as to maximise the sales and returns thus improving the profitability of the business enterprise. The research also established that a high level of customer satisfaction and profitability, if measured accurately, helped in gaining additional and strategic gains in the quest for sustainable competitive advantage. Customer profitability is one of the measures which are critical to the success of an organisation.
The research established that customers should never be overlooked. Some customers who may appear to be of less value to a business today may later on in the course of the business turn out to be very profitable in the future or some customers who may not appear to be profitable in the business may later on in the course of the business provide some learning opportunities thus becoming strategically important to the overall operation of the business.
If a firm realises that there is a progressive decline in the number of customers purchasing from that firm, then the company should seek to answer the following questions in an attempt to find a solution to its problem.
i. Does the firm offer superior value to its customers?
ii. What actions are necessary for the firm to offer superior value to its customers?
iii. Where is the firm’s market share headed?
iv. Does the firm provide the level of customer value which is needed in order to achieve its financial goals?
When a business enterprise is carrying out its marketing strategies, it needs to answer the above questions adequately so as to ensure that they achieve customer satisfaction and loyalty, hence customer retention. This has a very good impact in ensuring that the company’s profitability is highly improved.
When carrying out customer value analysis, the following value map may prove to be very useful during the research process.
Figure 5: market share loss and market share gain
The line of equal value shows how the market trades off quality for price. Most companies will tend to line up along the line of equal value. Other firms may tend to place themselves in the lower right diagonal. This position, according (Emery, 1968) is called grow and prosper. However, if a company is positioned on the upper left diagonal, then it is likely to go out of business; this region is referred to as wither-and-die as mentioned by Emery (1968) in the article “Psychological aspects of price.”
In order to properly understand how the performance of a business can be affected by new entrants and new forms of competition in the market, the following aspects need to be taken into consideration.
It will be realised that before the entry of the new competitors, the market will look more stable and the participants in the market will have value positions which are near the line of equal value. This type of market has been found to present more opportunities to the firms which come to the market with combinations of higher quality or lower prices.
This can be as shown in the value map below:
Figure 6: Value Map.
After the entry of a new entrant, the well positioned new entrant will attract market share from other participants in the market. The competitor who is shown as in trouble (occupying the upper left of the diagonal), is likely to get out of the business or get acquired.
The diagram below shows the position of the market after the entry of new entrants who have more customer value.
Figure 6: Value Map after entry of new entrants .
There are two main ways that a firm can improve its value position, these relate to the quality and the price being offered for the products being sold by the firm. The pricing strategy involves lowering the prices while the quality strategy involves improving the quality of the products being sold. Essentially, improving the quality is always the best way since lowering of prices results in lowering of the profitability of the business and a corresponding compromise in quality.
5.7 Value model
The value model can be used to represent the customers’ constructs. This model describes the way in which the quality attributes will drive the overall quality rating of the product and how quality and price ratings will help to drive the customers’ value perceptions of the products in question.
The following diagram shows the value model and how different attributes affect the perception of the customers, hence a corresponding influence in the behaviour of the customers as far as buying is concerned.
Figure 8: value model
In order to create superior value for buyers, sellers need to understand the entire value chain for the buyers all through the lifecycle of the business. The value that customers expect from a product usually varies across customers and also within the same customer over time.
The nature and the determinants of customer value may change over various stages of a customer’s association with a given company. There is a need for the sellers to have accurate knowledge on different aspects of customer value. This will help the businesses in establishing a strong customer base as it helps in ensuring customer satisfaction.
In order to successfully manage the process of customer value analysis, there is a need to have a systematic monitoring of four types of customers. The types of customers being discussed here include: first time customers, short-term customers, long-term customers and the defectors. The figure shown below outlines the framework which can be used for implementing such a segmented approach for monitoring customer value. The blocks which are labelled as A, B, C and D, correspond to different classes of consumers. A corresponds to first time consumers, B corresponds to short term consumers, D corresponds to long-term consumers while D corresponds to the defectors. The framework shown below also gives the longitudinal measurement at time t, t+1, t+2 … of cohorts of customers I, II, III …. Each of the horizontal layers of the rectangular segment refers to a cohort of customers who started transacting businesses with the company at the same period of time. The vertical section refers to a cross-section of customers who are studied at a given point in time. The time which elapses between adjustment measurements can be set to correspond to the average purchase interval for the product or service in question.
Figure 9: Customer groups
The figure shown above shows the short-term customer group as spanning just one time period. The time span which is used to define this given group can sometimes vary depending on specific characteristics of the product such as the frequency of purchase and the duration of purchase. Block B has a number of time periods. The number of these time periods may be greater for high frequency purchases than for the low frequency purchases. The boundaries which are separating the short-term customers from the long-term producers is arbitrary and can in some cases be shifted to the right for products which have higher purchase frequencies.
The components which are shown in the above figure invoke and adapt principles of the traditional consumer panel research, design and cohort analysis. This framework partitions the customer sample and the data collection in a way that facilitates effective organisational learning around several aspects of customer value. From the figure, it can be shown that as customers move from being first-time to short term and then to long term customers, their value assesment criteria will increasignly become global and abstract. The first time customers have the tendency to focus mainly on the attribute level criteria, while short term focus on the consequence level criteria and long term customers usually focus on the goal level criteria.
Customers are known to engage in more detailed information processing during a time of a new purchase than during the time of a repurchase. This framework also uses the notion that customers may need to accumulate considerable experience with a given product before they can fully and accurately assess the extent to which a company’s ofering helps them in realising their order and abstract goals. The research that has been conducted also show that customers attach new meanings to products and services after using them for given periods of time.
When data is throughly analysed across the different blocks from A to D, different types of insights will be achieved concerning customer value. The information obtained in block A helps in identifying attribute-level values with an assumption that the first time customers are more likely to pay attention to the product attributes than the longer-term customers. The analysis of block A may also provide some form of insight into the consequence and goal level, value drivers. It also helps to uncover some specific value attributes that are key to attracting and effectively serving the first time customers. Block B and C help in obtaining consequence level and goal level information respectively.
These blocks can help in offering rich insights for formulating the value based strategies used to enhance the experience of customers using some products. This plays a very important role in strengthening the relationship between the customers and the company.
The framework shown in the above diagram incorporates lost customers. This can be shown in Block D, and every organisation needs to take into consideration such aspects. This will help the organisation to know the factors that may be driving its customers away. The figure shows that customers who leave an organisation may come from any of the groups of customers. Therefore the information that is gained from the defectors can be used to understand and correct the company’s deficiencies and also help in curbing future customer defections and in enhancing the value perceptions of the current customers.
The longitudinal analyses of data which is obtained from each class of customer shown in the figure above, can easily reveal the changes in customer value perceptions including any change that may occur as a result of the criteria which is used by the customers to assess the value of the products being delivered. Insights which are obtained from this class of customer can be helpful in making predictions on the future performance of the customers. Predictions made on customer value changes helps in designing and implementing effective customer value based strategies.
Figure 10: Summary of customer groups : source: Guy Aston, 2011
There are five stages in the customer value management life cycle. The stages are:
Stage I – managing customer segmentation
This stage starts with the traditional segmentation and then moves later on to the behavioural segmentation of the buyers for the company.
Stage II – measuring customer margin
This stage involves incorporating more complex costing mechanisms into the calculation margins.
Stage III – measuring the customer lifetime value
This is the stage whereby the customer lifetime value profitability is calculated. It uses discounting techniques and future estimates.
Stage IV – measuring the impacts of the customers
This stage incorporates the behaviour of the customers in regard to purchasing. It also includes referrals and other forms of product enhancement techniques.
Stage V – measuring the profitability of the customers
This stage involves the planning of the firm for future management and customer profitability maximisation. It only incorporates the value adding techniques into the future offerings of the company.
5.8 Customer lifetime value
Customer lifetime value can be defined as the net present value of the cash flows that is obtained as a result of the relationship that exists between the customer and the organisation. This measuring metric is very important as it helps to determine the value that having a close relationship between a customer and the business has in the overall lifetime of the business. Customer lifetime value represents how much each customer in the business is worth in monetary terms. It also shows how much the marketing department should be willing to spend in order to acquire given sets of customers.
It is often not very easy to make accurate calculations on the customer lifetime value, however some approximations can be made on the same. Customer relationships can be divided into two categories namely contractual and retention. Customers who do not renew their relationship with the company are considered lost. The company may not be able to determine when the relationship between the company and the customer ends. However it may take the company some time to realise when the relationship is over especially when a customer stays for a very long period of time before buying from the company.
When calculating the customer lifetime value, the following steps need to be taken into consideration:
i. Forecasting the remaining customer lifetime in years
ii. Forecasting the future revenues based on the estimation of the products which are purchased and the price paid for the products
iii. Estimation of the costs for delivering the products
iv. Calculation of the Net Present Value of the forecasted amounts
It can be very hard to accurately forecast and track customers over a long period of time thus resulting in inaccurate results.
5.9 Challenges during the research process
During the period when we were carrying out research we were met with several challenges that put our research process at risk. However, we were able to overcome most of them as we had put necessary precautions in place that could guide us during the research process. Some of the challenges that we received included hostility from the expected respondents and some employees of the companies that we were conducting our research on. Most of the data for the companies, available in their websites and their annual reports were also biased, as they did not include the challenges they faced. This was an attempt by the companies to attract more customers as they wanted the customers to believe that they were always successful and always performing better than their competitors. We managed to engage some employees on the interviews who sought anonymity for the purposes of confidentiality in order to avoid being compromised.
Another challenge that we met while conducting research was laxity among several employees and senior managers of the companies who were very economical with information. We were also not able to ascertain all the facts presented by the customers of the three companies as the information seemed to be biased. We managed to overcome this by carrying out an analysis of the annual reports of the three companies and established the values that customers assigned to their products.
We analysed annual reports for five consecutive years and were also able to establish the strategies that the companies were using in order to attract more customers. Some information that was presented in the companies’ websites in the form of customer reviews was also biased but we were able to analyse a bigger percentage of the information presented and then found out the trend portrayed by different reviewers.
Chapter 6: Discussion, Conclusions and Recommendations
6.1
Introduction
6.2 Discussion
In order to successfully cover all of the objectives of the research, the study employed theoretical paradigms and models. Most of the strategies, business-customer relationships and commercial operations in general can be best explained using developed and proven hypothetical perspectives and models. The study therefore employed the use of two theories to try and define the relationship between customer value and the efficiency of business corporations, and which strategies they employed to earn more customers.
The two methodological theories used in this study were Guttman’s laddering theory (2000) and the design theory as developed by Cagan and Vogel (2002). These theories were chosen because of the pragmatic design and approach they take in defining the customer preferences and values and how companies can incorporate them into their systems of production. Design theory focuses on the physical appearance and representation of the product. Customers always develop preferential feelings towards products because of the type of material they have been made from, their colour, their metaphorical symbols and their affordability. These are some of the factors that companies need to consider when manufacturing human products.
According to laddering hypothesis, customer values are the main driving forces behind their product selection and how they use it. This theory specifically points out the influence of customer values on product selection. This hypothesis employs what Parasuraman (1997) calls “ethnographic investigation tools” to try and define the complexities of value variables. It tries to offer a way forward in regard to what steps manufacturers should take to try to tackle the subjectivity of the customers’ values and at the same time, remaining objective to the whole marketing society. According to Boztepe (2007), different customers might come up with different values depending on the usage of that particular product. What might look good to one customer might actually be the exact opposite to another customer. She highlights four major sets of values which customers would always tend to display when selecting their products.
These four are utility value, social significance, emotional values and spiritual values. As Boztepe (2007) defines it, utility value refers to the utilitarian consequences of a product and by this she means the capability of a product to satisfy fully the cognitive or physical needs. Customers would always tend to put more preference on goods or services that are convenient to their situation and environment, economically considerate and of superior quality. In this case, convenience is relative because of the different geographical locations and cultural values held by the customers.
Best (1999) tries to come up with a summation of what convenience might include: accessibility, compatibility, time saving, low costs and appropriateness. All these factors should be considered when defining convenience because what one customer might think as time saving might actually be viewed by another one in terms of compatibility. Economical consideration might be used to mean the benefits associated with that particular product. These benefits include the price, offers and other gifts that might accompany that product after purchase. A good example is where a customer might buy a television set and the purchase is then topped up with a free aerial as a form of appreciation. Customers are also attracted to products whose price is flexible and for that case, products which they can also pay using monthly instalments.
When coming up with strategies to attract customers in order to survive competitions, business corporations are supposed to consider utility values as very crucial.
The second type of customer values based on the laddering hypothesis is social significance values. Boztepe (2007) define social significance values as the socially oriented benefits attained through ownership of and experience with a product. This includes the gaining of social reputation from the kind of products bought. Woodruff (1997) further clarifies this by saying that, in the wider contextual setting of a society, people acquire identity from the kind of goods bought.
By just being in possession of something, the social status might be constructed and given a good picture in the wider society. Some customers might be obsessed with the functionality and efficiency of some products because of the image that they might paint of them.
A good example is whereby someone buys a certain type of a car because of its speed, which will always enable him to reach the workplace earlier than other people, therefore creating a good rapport with his superiors. For that case, companies and manufacturing industries should not just look at the economical considerations alone but also put into consideration the social significance values.
Thirdly, Boztepe (2007) comes up with emotional values as another type of customer value. Emotional values refer to the degree at which goods or products might excite the customer or the level of reaction expressed after using the product. Parasuraman (1997) comes up with three levels at which emotional values can be expressed.
The first level is the sensory reaction felt after the use of the product. In most cases, according to Best (1999), customers will always come up with an instinctive feeling towards a certain product immediately after their first experience. Product manufacturers or business corporations should always ensure that the products made can create a good impression to the customers.
The second level of emotional values is meaning, and by this, Boztepe (2007) wanted to bring across the different associations that customers always hold on certain goods. These associations directly affect someone’s personality or character. Some products are always preferred by customers because of the good associative status they have been branded. These associations always occur as a result of the good or risks caused by those products.
The third level is emotion, and this refers to the strong feeling felt such as anger or love, after the use of the product. Different customers are always thrilled by different designs, makes and textural qualities of products. While coming up with products, manufacturers should try to produce desirable products that touch positively on people’s emotions because people would tend to draw happiness from the association they have for products.
The last type of customer value, which business corporations desire in order to survive hot market competition from their competitors, is spiritual value. According to Cagan & Vogel (2002), any company involved in manufacturing human products should always consider all factors that touch on humanity, irrespective of their triviality. Spiritual values refer to the premonition feelings and sacredness felt over a product. Some products are associated with good events while others are associated with bad luck.
A good example is cited by Boztepe (2007) who refers to the symbols found on stickers on the refrigerators in Turkey, as a representation of a fertility god. Most Turkish women would always prefer the refrigerators with those symbols over those that don’t have them. Spiritual values also include religious affiliations and cultural backgrounds. Product manufacturers for this matter should always consider such spiritual values when designing goods for different cultural customers.
Strengths of the theories
The two theories presented above have been proven to be solid because of the wider approach they take in solving the problem at hand; in satisfying their customers, business corporations can improve their competency. This study invoked both theories in its research because of their close relationship and interdependency. The first and major strength that the laddering hypothesis has over most other theories is that, it engages deeper into the subject, looking at all possibilities and probabilities. Apart from looking at the economical values, which include the price advantages, this theory has also included spiritual, social and cultural values.
The framework it has employed gives business managers a reliable and viable platform to conduct their research while carrying out demographical studies on values and preferences. According to Best (1999), design theory has also passed the validity tests because of its double barrelled approach of measuring customer values. This theory not only looks at the physicality of products but also the price and affordability.
Weaknesses of the theories
As much as these two theories have been applauded for their success in trying to develop the relationship between business performance and customer values, they have not been successfully brought to practice due to some weaknesses. First of all, laddering theory is so expensive, tedious and taxing to be effected. Before corporations or companies come up with products that will have competitive advantage over others, they need to carry out extremely accurate fiscal studies about customer values and preferences.
For them to do this they require a lot of finances, qualified specialists, research material and a lot of time. This might be costly because the research will need to cover a large geographical location. For international companies it will require that they carry out those studies in many countries. Woodruff (1997) cites one weakness of the design theory as its inability to differentiate between customers’ preferences. Although people in different geographical locations might share the same values, their opinion towards certain products might be varying. Customer value is a very important topic in any business set up. Many marketers are often faced with a challenge of determining ways of hitting the balance between price and quality.
This leads to the concept of customer value whereby products are produced with higher quality at a fairly acceptable price. This helps in ensuring that the number of customers in any given business enterprise is maintained. If the company does not formulate strategies for retaining their customers, then the company is more likely to suffer from customer deficiency which may result in the company being closed. Companies therefore should produce goods of superior quality and charge an acceptable price. Customer value management essentially offers a way to acquire, develop and retain the most valuable customers for any given organisation; it helps in formulating strategies for improving the quality of the products being produced at a fairly acceptable price. The study on customer value management has also played a very important role in determining how price and quality can be balanced in order to achieve maximum customer satisfaction.
For a company to be successful, they need to have elaborate customer value management strategies that can help them make a manageable and realistic balance between price and quality. Customer value analysis allows firms to identify the areas which need to be strengthened in order to strengthen their value propositions. It also helps the firms to know how they can adjust their operations in order to ensure high customer profitability. Customer value analysis also helps the firm to carry out a study on the behaviour of customers whenever there is a change in price or in quality. This can help the company to maximize on its profits.
However, if an elaborate customer value analysis is not done then the company can easily lose out on its customers if there is a change in either the quality or the price of their products. If a thorough analysis is carried out then the company will know the best action to take as far as quality or price change is concerned. Customer value has been considered as an essential element in any organisation’s competitive strategy. There is a need for an organisation to develop a thorough understanding of the customer groups so as to know which class of customers needs more attention and which customers should be treated with utmost care.
There are some customers who are not profitable to the company and therefore the management should not spend resources on them as they do not bring any benefit to the company. In order for a company to deliver better value to its customers, the mangers should fully understand how value creation can be managed in order to ensure improved profitability of the company. The customer lifetime value is used for making appropriate judgments on the appropriateness of the cost of acquiring a given customer. For example, if the cost for acquiring a customer is $100 and the lifetime value of the customer is $150, then it can be said that acquiring such a customer is profitable. However if the difference between the lifetime value of a customer and the cost of acquiring that customer is negative, then such a customer is not profitable and the company should not engage in the acquisition of such a customer.
Customer lifetime value can also be used to calculate the customers’ equity.
There are several advantages that customer lifetime value brings about. They include:
Helping to manage customer relationships and ensuring the profitability of the customers
Helping to determine the optimal level of investments in marketing and sales activities
Helping to determine the optimal allocation of limited resources for different marketing activities
A company should always strive towards ensuring that they build and preserve customer value so as to help in improving their relationship with the customers. If the right relationship is developed between the company and its customers, then the company is likely to operate with a lot of ease as compared to a company with a poor relationship with its customers. In order for a business to become successful it should meet all of the expectations of the customers.
Many companies often fall short when it comes to the setting up of metrics. In most cases some companies do not measure business principles effectively or they don’t measure them at all. There are some instances when companies do not know what should be measured as they do not understand how the businesses operate. In some cases companies may be able to measure the right things but after carrying out the measurements, they do not know what to do with the results obtained. When conducting company value analysis the company should ensure that they make the necessary adjustments so as to have a good management system to take in the customers’ opinions and to improve customer satisfaction and hence bring about an improvement in the company’s profitability.
Customer value management essentially recognises that customers are not equal. This principle identifies the customers who have the highest value and the actions that need to be taken in order to extract the values from the customers. Customer value management also helps in identifying the customers who have the lowest value and tends to find a way of making the low valued customers more productive.
Therefore companies should try to carry out a thorough analysis of customer value and determine the ways in which it can be improved so as to improve on the customer base for that particular organisation. In some cases customers may shy away from buying a given set of products due to product unavailability or a high cost in the price. If such cases arise, customers will in most cases be directed to another company to have a choice. It is therefore the responsibility of any company to ensure that they acquire customers and retain them.
This can be best achieved through monitoring the costs of the products and ensuring that products are always available. If customers are not sure whether they will be able to get a given set of products whenever they visit a store, then they are likely to assign low values to that particular store and its products. This results in customers losing trust and they may stop conducting business with the affected store. If the product is not available in the store a customer will promote the products of another company. In such cases the organisation is likely to lose out on some valued customers. If products are supplied at the right time then customers are likely to stay in touch with the company.
The management of any business should always ensure product availability at the most customer friendly cost and at the right quality. This will ensure that the company’s reputation is not placed at jeopardy. Customer retention is a cost effective initiative and also a profitable initiative. In most cases, most of the sales a company makes come from their customers. When a good number of customers are retained in the organisation, then the company is most likely to save on the costs incurred trying to attract new customers. Retaining customers is much easier and less costly than attracting a new set of customers.
Experts have proved that it is five times cheaper to retain current customers than acquire a new set of customers in any given organisation. There are some sophisticated systems that companies are implementing currently, with the main aim of retaining customers through database marketing programs.
In order to achieve the stated objectives of database and customer retention programs, the marketing campaigns should be carried out with the customer in mind. This can only be successful if customers recognise and associate some value with being part of your system. If the customers do not see any value in your system then they will in most cases not be ready to transact any business with the company.
The author would recommend the use of the following value add strategies in order to ensure that customer satisfaction, loyalty and retention are achieved.
i. Using membership cards and programs that give the customers access to special offers and privileges within the organisation.
ii. Having some customer friendly form of communication like acknowledging the customers, and issuing such statements like welcome, thank you and we appreciate doing business with you. This one helps to make the customers feel like part of the system thus attracting them further.
iii. Having after sales satisfaction and complaint inquiry surveys. This will help to show whether the customers are satisfied with the services they receive or not. If they are not happy or satisfied then management should look for ways of rectifying the problem hence making them more comfortable with the organisation.
iv. Having an enhanced and an empowered customer technical support system during the transaction process or even after the transaction. Offering after sales services also helps in attracting customers and ensuring that they continue doing business with the organisation.
Customers will always buy the goods that they perceive to be of the highest value to them. If they are presented with a choice, they will definitely go for the value that they feel fits them most. Customer value can also touch on the intangibles too. A company should realise that just telling people that they can provide value is not sufficient. They also need to show that they have the value. This can easily be shown depending on the quality that they present to their customers.
The main purpose of carrying out the value management analysis is to get a product that performs better that its competitors. Since most customers value quality, they will always go for the products that provide them with the highest quality. The diagram shown below shows the attribute-weight quadrant analysis which combines information about the relative scores and the importance of having different weights assigned to different sections of the quadrant.
Figure 11: Weight performance quadrant: source: Guy Aston, 2011
Explanation of different parts of the quadrant:
i. Yellow line –marks the weighted centre of gravity for relative performance scores.
ii. Vertical scale –shows the importance of the attributes
iii. Horizontal scale – shows the performance score of a company relative to the average competitor.
In order for an organisation to maximise on their stakeholder wealth, they need to understand the importance of optimising customer value. In the study we realised that most organisations do not have the full understanding of what makes a customer profitable. Once the level of customer satisfaction has been measured, strategic gains and competitive advantage can then be easily obtained.
In order for firms to remain in business, they need to be able to compare themselves with their competitors, reduce complexity, make informed decisions and customise their products, to fit the needs of their customers. While performing these tasks, they also need to ensure that they provide quality products at the best possible price. This will help them gain a bigger command of the market share in the industry that they are operating in. There should be adequate customer relationship management tools whereby the customers can easily interact with the organisation and air their grievances or satisfaction. The company can then determine the areas that need improvements and what they can do in order to retain their already acquired customers.
A product which has successful consumer value proposition will be more successful in the market than a product lacking consumer value proposition. Consumers can easily differentiate between products through the use of price and quality. When a product is being offered to the consumers at a relatively higher price but with superior value then the consumers are most likely to go for the product. However, if the same product is being offered at an average price but with substandard quality, then consumers are not likely to buy that particular product.
Sellers and distributors therefore should ensure that whenever they are setting prices for their products they incorporate the concept of quality. The marketers should always find a balance between the two aspects so as to achieve a product that meets the user requirements at a fairly acceptable price. If a balance is hit between the two, then such a product is most likely going to perform better in the market than a product without a balance between the two. Customer satisfaction can only be achieved if superior customer value is also achieved. This helps business establishments to have a lasting business relationship with their consumers thus improved future sales.
6.3
Conclusion
In this research, all the possible and best explanations have been summed up to try and explain how companies and business corporations can employ advantageous strategies to attract customers by appreciating their values and preferences. The paper has cut across all elements that customers hold dearly while selecting their products, including economical, social, spiritual and cultural values. Tiger Brands, a successful food and cosmetics industry has been used to try and demonstrate the importance of appreciating customer values and how the general respect of humanity can bring success.
Comfortably, this paper can state that the performance and competitive level of any company, industry or business corporation, lies in the success of how it takes and appreciates customer values. If a company does not see the importance of customer value in their operations, then they are most likely going to make wrong decisions as far as their marketing strategies are concerned hence a decline in profitability for the company.
6.4 Recommendation
Most companies and business corporations strategise on how they can improve their performance and production by making adjustments from the inside. Nowadays, companies have discovered that improving their internal setting does not achieve their desired goals but only improves the management and worker-boss relationship. They have now been forced to look to the flanks and incorporate customer values and preferences as the main yardsticks in determining their growth and development.
Tiger Brands, a food and cosmetics company, has always managed to beat competition and remain at the top of the food industry in South Africa, because of the unique approach it takes in serving and treating its esteemed customers. Tiger Brands took the pains of studying and researching customer values and preferences in South Africa. The task was challenging because South Africa is a multi-racial country and coming up with products that could suit the whole population was not easy.
The following are some of the steps they have taken in ensuring that they maintain good customer contact and at the same time gain maximum returns. First of all, the company produces quality food and cosmetic products that are both affordable and desirable to nearly all people in the country.
According to Cairns (2011), another factor that has ensured the prosperity of Tiger Brands is its ability to learn and appreciate the values and cultural beliefs of its people. Although South Africa is one country it has people from a diverse range of religions; Tiger Brands has ensured that it produces food products that can be eaten by all people, irrespective of religious affiliations and beliefs.
Tiger Brands has always managed to attract many customers, ranging from retailers, wholesalers, supermarkets and individuals, because of the strict adherence it holds on ethical codes and regulations. According to Best (1999), the prosperity of a company is always supposed to come from their honesty and respect for human dignity but not greed. Some companies and industries produce cheap and less durable products just for the sake of quick sales and good profits.
Tiger Brands is a company whose reputation and credibility as a top quality producer is known not just in South Africa but the whole world. The company follows all the stipulated business ethical codes that govern production and marketing of human products. Tiger Brands recognises the importance of its people and prioritises them before other things. According to Cairns (2011), the company maintains good contact with its customers because it has learnt to appreciate the trust their customers have in them.
Tiger Brands has managed to gain strategic advantage through customer value by identifying all the economical, social, cultural, emotional and spiritual values of its customers and then ensuring that it comes up with products that meet all those demands. Since customer value is aimed at establishing the relationship between the price of products and the benefits that customers are likely to get from such products, organisations should ensure that the prices of the products that they produce are always matching the prices that they are setting for the goods.
If a match is not met then the company is likely to suffer from lack of customers thus rendering the company extinct or making the company cease to exist. A company should therefore carry out a thorough customer value analysis and thorough customer value management in order to ensure that customer satisfaction and customer loyalty is optimised.
First, the design theory needs to be enlarged to try to look at customer values and preferences not just from the physical point of view but also the quality and durability. This theory also needs to incorporate segments whereby companies and industries can carry out their fiscal studies with their products on display and not just through qualitative analysis techniques of questionnaires and interviews. In other words, the theory needs to employ more pragmatic approaches by coming up with values based on customer statistical data. Laddering theory on the other hand should be broken into sub-theories because it covers a much broader field than can be managed under a single study.
I would also recommend that future research on the topic of gaining strategic advantage through customer value uses design and laddering hypothetical frameworks as they provide a wider view of the customers’ values in relation to the performance of the company.
6.5 Summary
Customer value is a very important aspect in the field of marketing. It presents the value accorded by customers on different products or services. The values depend on the quality being presented in relation to the price. If the quality of the products matches the prices set for the products, then the customers will set a relatively higher value for such products or services. When customers set high values for the products or services, then the company producing such products will have a higher market value, more customers, improved customer loyalty and satisfaction and hence improved customer profitability. Several marketers have attempted to find ways of improving the profitability of the businesses by ensuring that they produce products with the highest possible quality. This helps them to achieve a higher customer value resulting in improved profitability for the businesses.
According to Cairns (2011), Tiger Brands is one of the biggest and most successful Fast Moving Consumer Goods companies in South Africa. The company produces a variety of food products, ranging from maize meal, sweets, peanuts and even baby and hair products. Tiger Brands has dominated the food industry in the country, making competition irrelevant to it. The company was launched in 1925 and at that time it only concentrated on manufacturing breakfast porridge. Due to its success, the company has registered a large number of people interested in investment, as Cairn (2011) reports. In this part of the report, we are going to discuss some of the major strategies that the company has been employing to attract its customers and render competition irrelevant.
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