Mastering Customer Value AnalysisEnsure your business strategy is robust and underpinned by a clear understanding of the Customer’s Value PropositionPrice is what you pay. Value is what you get.”“ Warren BuffettObjectives of this Expert Toolkit GuideMastering Customer Value Analysis v1.0© 2017 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED ASPER USER AGREEMENTPage 31.Explain the fundamental purpose and principles behind customer value analysis and how it can add value in a business context2.Walkthrough the proven 5 step process for conducting a customer value analysis exercise3.Describe the specific calculations used in customer value analysis4.Outline how customer value analysis can be used to determine the best price for a new product or service5.Describe how customer value analysis can be used to inform the development of a marketing planIntroductiontocustomer value analysis•The customer value proposition represents the benefits gained from the purchase of a product (or service) minus the price, acquisition costs and usage costs. Logically: •The following definitions are used:–Features include tangible, intangible, perceived and usage benefits of the product or service–Importanceis the value placed on the features by the customer–Priceis the monetary purchase price paid by the customer for the product or service–AcquisitionCostsare those to do with the customer obtaining the product or service such as search, transport and install–UsageCostsare post-purchase costs associated with up-keep including repairs, maintenance, licence fees, power, contractsMastering Customer Value Analysis v1.0© 2017 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED ASPER USER AGREEMENTPage 4Customer Value Analysis Helps Define the Customer Value PropositionCustomer Value Proposition= Benefitsminus CostswhereBenefits= Featurestimes ImportanceCosts= Priceplus AcquisitionCostsplus UsageCostsCVA allows development of a clear customer value proposition•Understanding the customer value proposition for key market segments is a critical step in developing and executing a sound business and marketing strategy•Through customer value analysis, a clear and compelling “4P” marketing strategy can be developed:–Product (or Service) –what are we selling?–Pricing –for what price?–Promotion –how will we market it?–Placement –how will we get it to customers?•Customer value analysis is also a good first step when building a customer-centric organization: –Analysis results can be used to develop the best operating model for executing against a defined business strategy–The organization may require structural redesign to serve target customers and specific segments–Performance measures may need revision to enable customer-focused execution–Other organizational constructs may need to be revisited to execute the strategyMastering Customer Value Analysis v1.0© 2017 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED ASPER USER AGREEMENTPage 5For each segment, customer value analysis informs: •Product Variations•Pricing•Promotions•Incentives•Distribution ChannelsThe customer value proposition is also called the consumer surplusMastering Customer Value Analysis v1.0© 2017 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED ASPER USER AGREEMENTPage 6The customer value proposition is the difference between a customer’s willingness to pay for the benefits gained from the product or service and the actual product or service price.–If the benefits are greater than the purchase price, then surplus value is obtained by the customer–Customers within different segments will perceive varying degrees of surplus which will adjust their value proposition, demand and willingness to pay–Increasing demand, consumer surplus, product price and perception of benefits gained are all correlative. –The producer surplus is the difference between the cost to make or produce the product (or deliver the service) and the price able to be charged to customersDemand and customers’ willingness to pay for a product or service varies by segment•The demand curve represents customers’ willingness-to-pay:–Each customer segment places a different level of importance on the features of the product and therefore will have a different willingness-to-pay–When performing customer value analysis it is essential to identify the relative importance placed on each feature by each of the various customer segments–This insight can be used to select segments for targeting based on customers’ willingness-to-pay for specific features•To perform reliable and useful customer value analysis reasonably, accurate customer segments need to be identified:–Without clear customer segments, customer value analysis would be largely unreliable and ineffective–Customer value analysis can assist in identifying the product features most valued by each customer segment*–This information can then be used to select target market segments and develop pricing and marketing strategiesMastering Customer Value Analysis v1.0© 2017 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED ASPER USER AGREEMENTPage 7* Be sure to look at Expert Toolkit’s guides, tools and templates for identifying and prioritizing customer needs including Voice of the Customer, Kano Analysis, Customer Requirements Engineering and House of Quality. Also refer to Expert Toolkit’s Mastering Market Segmentation Analysis.How to perform Customer Value AnalysisCustomer value analysis involves a 5 step processMastering Customer Value Analysis v1.0© 2017 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED ASPER USER AGREEMENTPage 9Steps Involved in Customer Value Analysis1. ReferenceIdentify a suitable reference product or service2. Cost AnalysisEstimate product or service lifecycle costs for each customer segment3. Benefit AnalysisEstimate the incremental perceived benefits of the product or service4. Value PropositionCalculate the value proposition for each customer segment5. StrategyDevelop a customer value strategyNext >