Customer Experienced Value

UNDERSTANDING VALUE

Value in terms of CRM = Value is the customer’s perception of the balance between benefits
received from a product or service and the sacrifices made to experience those benefits.

An equation:
Benefits
Value =
Sacrifices

Customers can make three types of sacrifices when purchasing a product or service:

Money: Customers may be required to pay a price for the product or service, which may or may not
be the listed price. There may also be additional costs such as credit card surcharges, interest
charges on extended payments, or warranty costs.

Transaction costs: Customers may incur transaction costs when searching for solutions, negotiating
with suppliers, and receiving and integrating the goods and services. These costs can be significant,
especially in the case of B2B purchases.

Psychic costs: Making purchasing decisions can be stressful and frustrating for customers, as they
may be worried about whether the product or service will meet their needs and expectations. This
can lead to feelings of stress and anxiety, which can be a significant sacrifice for some customers.

Perceived risk is the risk that a customer perceives they are

taking when making a purchase or engaging with a product or
service. It can take various forms, including performance risk
(concerns about whether the product will perform as expected),
physical risk (concerns about potential bodily harm from the
product), financial risk (concerns about financial losses), social
risk (concerns about social standing or reputation), and
psychological risk (concerns about self-esteem or self-image).

There are several ways that businesses can help to prevent or

reduce perceived risk for their customers:

1. Provide guarantees and assurances: By offering

performance guarantees, warranties, and other
assurances, businesses can help to reduce customers'
concerns about the performance of their products or
services.
2. Offer support and resources: Providing customers with
access to support resources, such as customer service
hotlines, online tutorials, and user manuals, can help to alleviate concerns about using the
product or service.
3. Communicate transparently: Being open and transparent about the features and limitations
of a product or service can help to build trust with customers and reduce perceived risk.
4. Foster relationships: Building relationships with customers through personalized experiences
and interactions can help to create a sense of trust and reduce perceived risk.
5. Manage customer expectations: Clearly communicating the benefits and limitations of a
product or service can help to manage customer expectations and reduce perceived risk.
WHEN DO CUSTOMERS EXPERIENCE VALUE?

Value-in-exchange

Value-in-exchange is the exchange of one form of value for another, typically involving
money and a good or service. In less developed economies, barter may be used instead of money.
Value is created by the firm and realized when products are exchanged for money. Producers and
consumers have distinct roles, and value is created through the production, marketing, distribution,
and selling processes performed by the firm.

Value-in-use

Value-in-use holds that value is realized only when customers possess, use, consume, or
interact with a good or service. This suggests that the value of a product or service is determined by
the customer and is dependent on the context in which it is used.

Value-in-experience

Value-in-experience refers to the value that customers experience as they interact with or
are exposed to any marketing, sales, or service output of a company throughout the customer
lifecycle. This can include value derived from enjoying an advertisement, learning about a product's
features from its packaging, or receiving excellent customer service. The value-in-experience
perspective suggests that value is not just derived from using a product or service, but also from the
customer's overall experience with a company and its outputs. Therefore, it is important for
managers to design and deliver customer experiences that are positive and add value throughout
the customer lifecycle, in order to improve customer value perceptions.

There are various typologies of customer-perceived value that have been proposed by
researchers. Valarie Zeithaml identified four forms of customer-perceived value, including value as
low price, value as what the customer wants in the product, value as the quality obtained for the
price paid, and value as what the customer gets for what they sacrifice.

More recently, researchers have recognized that consumers can experience both hedonic or
affective value (such as pleasure, fun, amusement, and entertainment) and functional value (such as
price-savings, service excellence, time-savings, and choice). Jag Sheth and colleagues identified five
types of value: functional, social, emotional, epistemic, and conditional value. Morris Holbrook
proposed a typology of consumer value with three dimensions: extrinsic or intrinsic, self-oriented or
other-oriented, and active or reactive, which give rise to eight types of consumer-experienced value.
 In order to create better value for customers, companies must understand their
requirements and develop and deliver solutions that offer consistently better value than
competitors. This may involve customizing solutions on a customer-by-customer basis in a B2B
context, or developing segment- or niche-specific solutions in a B2C context. To win and retain
customers, companies must continually seek to improve customer-experienced value and stay up-
to-date on customer and competitor activity.

SOURCES FO CUSTOMER VALUE

Value proposition = is the explicit or implicit promise made by a company to its customers that it
will deliver a particular bundle of value-creating benefits.

Michael Treacey and Fred Wiersema have proposed that successful companies offer one of
three value propositions to their customers: low price, innovative products and services, or
customized solutions.

• Companies offering a low price value proposition focus on operating efficiently and passing
on savings to customers.
• Companies offering product innovation aim to provide the best products, services, or
solutions through continuous innovation.
• Companies offering customized solutions are able to adapt their offerings to meet the
specific needs of individual customers.

CUSTOMIZATION

Customization is a key aspect of CRM, as it involves fitting the value proposition to the
specific needs of the customer. This can be appealing to customers and help a company gain a
competitive advantage, but it may also have costs such as a loss of economies of scale and
technology costs.

Customization has long been common in B2B markets, with suppliers often making
adaptations to meet the needs of customers. In turn, customers may also make adaptations to suit
their suppliers. These adaptations can serve as investments that strengthen the relationship

between the two parties. Customization can involve adapting any part of the offer to fit the
customer's needs.
Mass customization

Mass customization is the use of flexible processes and organizational structures to create
varied and even individually tailored value propositions to order. In most cases, this is achieved with
only a limited cost or lead-time penalty.

Mass customization is the practice of offering customized products or services on a large

scale, typically through the use of technology such as databases, internet-enabled communication,
and flexible manufacturing processes. There are various levels of mass customization, ranging from
finding a match from a range of standard products to a customer's specific needs, to co-designing a
unique solution with the customer. While mass customization has traditionally been more common
in B2B markets, it is becoming increasingly prevalent in B2C markets as well, enabled by advances in
technology and communication.

Mass customization is a technique used in industries serving end-consumers and

manufacturing companies to tailor products and services to individual customer preferences and
needs. It is made possible by technologies such as databases, the internet, modular product design,
and flexible manufacturing operations and supply chains. 3D printing is a newer technology that is
expected to revolutionize mass customization by allowing customers to co-design and print objects
at a local high-quality 3D printing shop or in their own homes.

Key issues for CRM strategists considering customization are these:

1 Do customers want customized products and services?

2 What degree of customization is desired?
3 Will customers pay a premium for customization?
VALUE THROUGH THE MARKETING MIX

The marketing mix refers to the set of tools used by marketers to create value propositions
for customers. It includes the 4Ps of product, price, promotion, and place, as well as the 3Ps specific
to services marketing: people, physical evidence, and process. By carefully managing these variables,
marketers can create value for customers through their marketing efforts. The 7Ps provide a
framework for both goods and services marketers to use in developing value propositions.

Value from products (and services)

The value of a product or service can be enhanced by focusing on the core benefit that
customers are seeking, providing necessary enabling products and services, and differentiating the
offering through additional features or characteristics. This can be achieved through careful
management of the product or service in the marketing mix.

Product-based value is experienced by customers when they benefit from product

innovation, incremental benefits, product-service bundling and branding. We explore these below.

Product innovation

Product innovation involves creating new or improved products that offer solutions to
customer problems and can increase customer value perceptions. This can be achieved through
ground-breaking inventions or by adapting old technologies to create modern solutions. Examples of
product innovation include the steam engine, silicon microchip, and wind-up radio.

Incremental benefits

Incremental benefits refer to additional features or benefits that a company adds to its
product or service in order to increase its value to the customer. This can be achieved through
product modification, such as making a product more environmentally friendly, or through product
association, by linking the brand to something of high importance to the customer. Companies can
use incremental benefits to increase customer involvement in low involvement product categories
and to differentiate their products from competitors.
Product-service bundling

Product-service bundling involves offering customers a package of goods and services at a

single price. This can increase customer-perceived value by reducing money, transaction, and
psychic costs for the customer, as well as creating economies in selling and marketing for the
company. Adjusting the composition of the bundle, such as adding or removing elements, can also
impact customer-perceived value.

Branding

A brand is any name, design, style, words, or symbols that distinguish a product from its
competitors.

Branding helps create value for companies as well. Strong brands can command higher
prices, create customer loyalty and increase the perceived value of products and services. Brands
also provide a way for companies to differentiate themselves from competitors and stand out in the
market. Companies can use branding strategies such as brand personality, brand storytelling and
brand associations to create a strong and memorable brand image in the minds of customers.

Value from service

Services are a key part of many companies' value propositions, and can be a core product for
service organizations and manufacturing firms that offer product-service systems. To enhance
customer-perceived value through service improvement, companies should focus on service
elements that are important to customers and where current service performance is poor. This
allows companies to address customers' biggest problems and provide the best possible service.

In this section we look at a number of service-related methods for enhancing customer-

perceived value – improving service quality, service guarantees, service level agreements and service
recovery programmes.

Service quality

There are two major perspectives on service quality: one is that quality is

conformance to specification, which means meeting the company's standards for performance

quality is fitness for purpose, which means meeting customer expectations. Both of these
approaches can be used together, with specifications for service performance based on customer
expectations.

Service quality theories

Two service quality theories have dominated management practice as companies try to
improve their service performance: the Nordic model and the SERVQUAL model.

The Nordic model of service quality identifies three components:

• technical quality, which refers to the performance of the service itself;

• functional quality, which refers to the way the service is delivered; and
• reputational quality, which is the overall reputation of the service provider.

This model emphasizes the importance of understanding customer expectations and developing
a service delivery system that meets those expectations in terms of both technical and functional
quality. Reputational quality also plays a role in shaping customer perceptions of the service.
 The SERVQUAL model is a framework for understanding and improving service quality by
identifying five core components: reliability, assurance, tangibles, empathy and responsiveness
(RATER). It also includes a measurement and management model that uses a questionnaire to
measure customers' expectations and perceptions of these variables, and helps managers focus on
strategies to close any gaps between expectation and perception.

The gaps are as follows:

1 Gap 1 is the gap between what the customer expects and what the company’s
management think customers expect.
2 Gap 2 occurs when management fails to design service quality specifications based on
customer expectations.
3 Gap 3 occurs when the company’s service delivery systems – people, processes and
technologies – fail to deliver to the specified standard.
4 Gap 4 occurs when the company’s communications with customers promise a level of
service performance that the service delivery system cannot deliver.
 The SERVQUAL model provides a useful framework for companies to identify and address gaps
in their service quality by understanding customer expectations, setting service quality standards,
and implementing strategies to improve service delivery.

1 To close gap 1 (between what customers expect and what managers think customers
expect): conduct primary research into customers’ service quality expectations
2 To close gap 2 (between what managers think customers expect and service quality
specifications): commit to the development of service standards
3 To close gap 3 (between service quality specifications and actual service delivery): invest in
people: recruitment, training and retention; invest in technology; redesign workflow;
encourage self-organized teams; improve internal communication;
4 To close gap 4 (between actual service delivery and the promises communicated to
customers): brief communications teams and advertising agency on customer service
expectations

Service guarantees

A service guarantee is an explicit promise to the customer that a prescribed level of service will be
delivered.

Service level agreements (SLA)

A service level agreement is a contractual commitment between a service provider and customer that
specifies the mutual responsibilities of both parties with respect to the services that will be provided
and the standards at which they will be performed.

A number of metrics are used to measure performance of the supplier and compliance with SLA
service standards. These may include:

• Availability. The percentage of time that the service is available over an agreed time period.
• Usage. The number of service users that can be served simultaneously.
• Reliability. The percentage of time that the service is withdrawn or fails in the time period.
• Responsiveness. The speed with which a demand for service is fulfilled. This can be measured
using turn-around time or cycle-time.
• User satisfaction. This can be measured at the time the service is delivered or periodically
throughout the agreed service period.

Service recovery programmes

Service recovery includes all the actions taken by a company to resolve a service failure.

Customers may choose to voice their complaints about service failures to the service
provider, their personal network, or a third party such as a consumer affairs organization or industry
ombudsman. According to equity theory, customers who complain are seeking justice and fairness,
as they compare the sacrifices they make to the benefits they experience to other customers'
sacrifices and benefits. When there is an imbalance or unfairness in their experiences, they want the
company to fix it and restore justice. Companies that respond well to complaints can improve
customer satisfaction, retention, and word-of-mouth, while those that fail to satisfactorily resolve
complaints may face negative consequences such as "terrorists" spreading bad word-of-mouth.

Value from processes

We define a business process as:

a set of activities performed by people and/or technology in order to achieve a desired outcome.

Business processes are the ways in which companies get things done, and that they can be
used to create value for both customers and the company. Process innovation can significantly
enhance customer experienced value. The complaints management process is an example of a
process that impacts the external customer's perception of value.

Complaints Management Process

The complaints management process involves receiving and responding to customer

complaints in an effective and efficient manner. This process is important for customer retention
and for identifying and correcting problems within the company. Having a documented process for
handling complaints can also be beneficial for customer retention. It is important for companies to
properly handle customer complaints, as these provide the opportunity to win back unhappy
customers and improve their future value, as well as gather information about root causes of
problems within the company.
 Many customers who are unhappy don’t
complain. Why? There are a number of possible
reasons:

• They feel the company doesn’t care.

Perhaps the company or the industry has a
reputation for treating customers poorly.
• It takes too much time and effort.
• They fear retribution. Many people are
reluctant to complain about the police, for
example.
• They don’t know how to complain.

Companies can improve their complaints

management process by making it simple and
easy for customers to access, capturing
complaints from various customer touchpoints,
and analyzing them to identify root causes. This
can lead to higher levels of first-time reliability,
reduced rework, and increased customer
satisfaction and retention. The ISO 10002
standard and specialized software can help companies implement best practices in their complaints
policy and process.
Value from people

Value from people refers to the idea that the people within a company, such as customer
service representatives or key account managers, can create value for customers through their
interactions and relationships with them. This can be achieved through their roles as boundary
spanners, collecting and managing information about customers and maintaining relationships with
them, as well as through specific skills such as selling, negotiating, communication, problem-solving,
and knowledge of the customer, market, and competitors. Key account management, which involves
managing relationships with important customers, is becoming increasingly important in the trend
towards global customers and consolidated purchasing.

Value from physical evidence

Physical evidence can be defined as follows:

Physical evidence consists of the tangible facilities, equipment and materials that companies use to
communicate value to customers.

Physical evidence is the tangible aspects of a company's business, such as its physical
locations, appearance, materials, and online presence. It includes things like the design and layout of
a company's premises, the appearance and uniforms of its employees, and the appearance and
design of its website and other materials. Physical evidence is important because it helps to
communicate a company's values, quality, and brand to customers, and can influence their
perception of the company and the value they receive from it.

In addition to company-owned online channels, many customers interact through portals

that we define as:

A web portal is a website that serves as a gateway to a range of subject-related resources.

Public portals are websites or services that provide access to a variety of resources and
services, such as email, search engines, and online shopping malls.

Enterprise portals are web-based gateways to enterprise applications, databases, and

systems that are specific to an organization and can only be accessed by authorized users. They may
be used for customer relationship management purposes, allowing business partners to access and
update information, place orders, and track progress.

Value from customer communication

Customer communication has evolved significantly in recent years with the emergence of
social media and other digital platforms. Companies are now able to facilitate multilateral
communication between themselves, their customers, and even between customers themselves.
This has given companies new opportunities to create value for their customers through improved
marketing, advertising, selling, and service efforts. However, the use of social media and other digital
platforms for customer communication also requires companies to invest in people, processes, and
technology in order to effectively manage and respond to potentially large volumes of customer
interactions in real time.
Three processes are responsible for the enhanced power of communication to create value for
customers: disintermediation, personalization and interactivity.

Disintermediation

Disintermediation refers to the process of bypassing intermediaries, such as broadcast and

print media, in communication between a company and its customers. This is made possible through
the use of new technologies, such as email, direct mail, SMS, and MMS messaging, which allow
companies to directly reach their customers and for customers to directly communicate with
companies and other customers. Disintermediation allows for more direct and efficient
communication between a company and its customers, potentially increasing the value of the
customer experience.

Personalization

Personalization refers to the ability of companies to tailor offers and communications to

individual customers through the use of customer data and CRM technologies. This enables higher
response and conversion rates for communications, as well as more personalized interactions
between customers and customer service agents. Personalization can also be achieved through
allowing customers to personalize their own corporate web pages based on their preferences.

Interactivity

Interactivity refers to the ability for customers and companies to communicate with each
other through various technologies such as email, instant messaging, and the World Wide Web
(WWW). These technologies allow for real-time communication and enable companies to offer
personalized experiences through interactive websites and configuration engines that offer the most
appropriate products based on customer needs. Web-chat windows also allow for human dialogue
over the web in cases where other methods have failed.

Value from channels

Value from channels refers to the ways in which a company gets its products or services to
its customers. This can be done through intermediaries such as wholesalers and retailers, or directly
through a company's own transactional website. In the B2B environment, channel partners may also
provide value-added services and complementary products that are not available from the
manufacturer. The use of the internet has enabled companies to replace or supplement traditional
channels through the development of transactional websites, but can also lead to conflict with
intermediaries if a company attempts to sell directly to their customers.

Additional routes to market include:

• social media platforms such as Facebook

• search engines such as Google
• public or enterprise portals such as www.eMall.sg
• virtual resellers such as Amazon.