Ch. 2 Delivering Customer Value Flashcards
Why is the importance of a ‘good brand’ detoriating?
hint: service-oriented
- trend towards commodity market
- competition has increased through globalization
- many companies make use of the same technological advantage
Service has become a major source of value for customers.
Define customer value.
The difference between the perceived benefits of a purchase/relationship and the total costs incurred.
perception of benefits ÷ total cost of ownership
Demonstrate with an equation how customer value is broader than the product.
Customer value = quality x service ÷ cost x time
What do these costs represent?
- management cost
- maintenance cost
- operating cost
- inventory cost
- technical support cost
- training cost
- disposal cost
These are the total cost of ownership. (acquisition cost was not mentioned)
What are the 3 elements of customer service
- Pre-transaction elements (policy, accessibility, structure)
- Transaction elements (order cycle time, availability, order fill rate)
- Post transaction elements (spares, call-out time, warranty, complaints)
Why is the impact of an out of stock item dramatic?
Purchase is triggered by seeing the product on the shelf. Study shows 31% would go to another store and 26% would switch to another brand.
The effectivity of service marketing doesn’t only depend on the customer but also on…
- intermediaries
- supply chain management
What are ways to augment the core product with service?
- delivery lead time & flexibility
- delivery reliability & consistency
- order fill
- ease of doing business
- after sales support
Why is it important to focus on customer retention vs. acquiring new ones?
hint: lifetime value
An existing customer has a higher profit contribution and can grow in terms of the value & frequency of purchase.
How is the customer lifetime value calculated?
average transaction value x yearly frequency of purchase x customer ‘life expectancy’.
How is managing a ‘demand chain’ different from a supply chain?
Because it starts with the customer as the point of departure and not the end point.
It is customer centric and responsive to actual demand
There will be differences in profitability between customers. How can this be indicated?
By the Pareto curve.
80% of revenue comes from 20% of customers
80% of the costs will be generated from 20% of the customers.
Increasing inventory levels can lead to greater service (but at a significant cost). What else can be done to improve service levels?
Process improvements can increase service without increasing costs.
- differentiation in service
- fast & reliable information
Explain how 20% of customers end up to provide 64% of all the profit
20% of customers provide 80% of the profits, which is 4% of all transactions. This gives 80% of 80% of total profit. Thus 4% provides 64% of all profit.
Managing product service levels has 4 quadrants, what are those?
- Seek cost reduction
- Provide high availability (key customers)
- Review
- Centralized inventory
