Three main types of customer value are discussed.
Performance value is having the best product or service offering.
Price value is having the lowest price over the life cycle of the product.
Relational value is being able to offer a customised offering or solution.
Creating Customer Value
To achieve customer value leadership, companies should strive to excel at one type of value (performance, price, or relational) and at parity for the other two.
Companies should not try to be all things to all customers, and instead should focus on a clear and specific value proposition. The business model, or how the firm creates and captures value from the target segment, should be aligned to meet this value proposition.
Discussion / Group Activity – Customer Value
Identify some gyms or fitness companies (e.g., Cross fit, Planet Fitness, or Equinox). For each example, generate a list of positive and negative features. What are the strengths and weaknesses of these different brands?
Categorise the positive and negative features according to their alignment with the three types of customer value. Which ones provide (or undermine) performance value? Price value? Relational value?
Building & Managing Customer Relationships
The modified Customer Decision Journey is discussed. This model accounts for the complex, non-linear process that customers go through as they are triggered to make a purchase, gather information, form a consideration set, develop preferences, make a purchase, and evaluate their choice post-purchase.
Customer experience is discussed as a multi-dimensional concept that captures a customer’s experience with all aspects of the firm.
Long-term customer relationships and loyalty are discussed, including both behavioural loyalty and attitudinal loyalty.
Ways to build attitudinal loyalty and defend a customer relationship are discussed, including differentiating value, rebuffing competitor challenges, raising customer switching costs, increasing investments in customers, fostering customer co-creation, resolving the need for variety, refreshing the relationship, making multiple relationships, and granting exclusivity.
Discussion / Group Activity – Path to Purchase
Trace the Customer Decision Journey for a customer buying a new mobile phone.
Creating Valuable Customers
Customers are valuable assets that should be actively managed to enhance profitability. Star customers both bring high value to and derive high value from the firm.
The purchase funnel is introduced as a tool to help managers sort customers into different stages in the purchase process and monitor their success at moving customers through that process. This approach helps firms to see when in the process they are losing customers, which can be used to improve customer progress.
Tools for addressing common funnel management problems are discussed. Coordination between marketing and sales is important to address problems stemming from poor quality leads. Aligning funnel steps with observable customer actions is important to address problems stemming from slow movement of fine-grained data.
Creating Valuable Customers
Customer Lifetime Value (CLV) is introduced as an approach for calculating the long-term value of individual customers or segments of customers. Skilful use of CLV can guide customer management, predict and mitigate churn, account for and facilitate customer transitions, and lower acquisition costs.
Prospect Lifetime Value (PLV) is introduced as an adaptation of CLV to identify the potential value of future customers. Firms can use PLV to determine how much to invest in acquiring new customers by segment, as well as which new customers to prioritise when allocating firm resources.
What actions to you recommend Netflix take to increase its Customer Lifetime Value?
How can Netflix improve its Prospect Lifetime Value?
What is Netflix’s biggest competitive vulnerability?