Preview, Table of Contents and Sample Page
CUSTOMER VALUE
MBM Handbook
OVERVIEW
“The most important single thing is to focus obsessively on the customer,” according to Jeff Bezos, the CEO and architect of Amazon. To excel, business-school students, executives, and managers must learn to create, measure and manage customer value. This is the central focus of most successful companies today. Recognizing this, many business schools seek to offer a focused course teaching students about customer value from a marketing, strategy, and finance perspective.
The MBM handbook on “Customer Focus” fulfills this need. It starts with the premise that successful companies anchor their strategy on customer value, measured as customer satisfaction. Students and managers learn that creating customer value increases financial returns by measuring different components of a customer-value map and implementing them.
MBM Handbook Overview
This MBM Handbook includes three chapters that provides a strategic overview of customer focus and take readers into the depth of “how to” accomplish the strategic task of creating, measuring and managing customer value.
Chapter 1 shows how measuring customer value enables firms to manage customer retention, customer lifetime value, and customer loyalty.
Chapter 2 shows different qualitative-research methods to surface and understand the different drivers of customer value. This information is key to developing the customer value equation as shown in the next module.
Chapter 3 provides detailed and worked out examples of companies that used customer value strategically. It shows how companies can measure and weight the different components of customer value, create a value map, and decide on their overall strategy.
Customer Value – Handbook Features
Each chapter provides a systematic way for learning the core tenets of customer value, how it is created, measured, and managed. Key features of the handbook include:
- Incorporates the latest peer-reviewed research published in top journals
- Interactive MBM/APPS enable students to experiment with key concepts
- Mini cases and exercises to engage students – Home Depot, Peet’s Coffee, HP PhotoSmart Printer, Drill Press, Almetta Snacks and FedEx
- Video-based, self-paced exercises that can be used as async assignments
- A blend of quantitative and qualitative concepts
i
Copyright 2024 Market-Based Management
Handbook & Course Formats: Suitable for many different courses and teaching formats.
College Courses
- Introduction to marketing
- Capstone marketing or strategy
- Online marketing course (videos, interactive apps, and async assignments)
Executive Education:
- 2-day intense course on marketing strategy
- Non-degree executive-education engagements
- Off-site, customer courses for companies
Copyright 2024 Market-Based Management
ii
TABLE OF CONTENTS
Customer Satisfaction and Profitability
Customer Satisfaction—A Key Marketing Performance Metric
Customer Satisfaction and Customer Profitability
Customer Satisfaction and Performance
Industry Differences in Customer and Financial Outcomes
Estimating Customer Retention
Estimating Customer Attraction
Customer Lifetime Value
Net Promoter Score
Home Depot: Case Study
Building a Customer-Focused Organization
Chapter 2: Customer Experience, VOC and Value Drivers
Understanding the Voice of the Customer (VOC)
Gathering VOC
Focus Group
In-depth Interviews
Ethnography & Observation
Empathic Envisioning
User Experience Labs
Crowdsourcing
Online Reviews
Social Media Listening
VOC Sources
Customer Experience Milestones
Putting VOC into Practice
Chapter 3: Customer Value: Create, Measure & Manage
Customer Value
Customer Value, Customer Satisfaction, and Firm Outcomes
Customer Value
Economics Value
Ownership Value
Customer Value Equation
Relative Performance
Relative Price
Relative Value Map
Measuring Customer Value Using Market Data
Economic Value Using Fair Price Line
Customer Value and Economic Value
Ownership Value
3
6
6
11
12
12
13
16
19
20
22
29
29
33
34
35
36
37
38
39
39
40
41
44
50
57
57
58
59
59
59
61
63
65
65
67
68
69
70
iii
Copyright 2024 Market-Based Management
CHAPTER 1:
Customer Focus, Customer Satisfaction, and Profit Impact
CUSTOMER SATISFACTION AND PROFITABILITY
Customers who say they are Extremely/Very Satisfied with a company have the greatest impact on company profitability. Though results vary by industry, Extremely/Very Satisfied customers typically account for a large portion of company profits.1 Managing dissatisfied customers is also important, as they are often unprofitable and likely to share their dissatisfaction.2
Social media makes it easier than ever for dissatisfied customers to share their experi-ences with others.
To understand this dynamic, we have created an MBM/APP in Figure 1.1 that displays how a company’s customer change with customer satisfaction.
Figure 1.1: Customer Satisfaction and Profitability
| CUSTOMER SATISFACTION | Extremely Dissatisfied | Very Dissatisfied | Somewhat Dissatisfied | Neither Satisfied nor Dissatisfied | Somewhat Satisfied | Very Satisfied | Extremely Satisfied | TOTAL |
|---|---|---|---|---|---|---|---|---|
| Scale Score | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 3.6 |
| Sample Percent | 5% | 10% | 35% | 35% | 5% | 5% | 5% | 100% |
| Customer Profit | ($1,563) | ($2,800) | ($8,750) | ($3,150) | $750 | $5,000 | $5,850 | ($4,662.50) |
Instruction: Click on Customer Satisfaction Index in the yell ex and observe changes in the distribution of customer satisfaction and customer profit.
Copyright 2025 Market-Based Management
3
CHAPTER 2:
Customer Experience, VOC, and Value Drivers
Raevyn Rogers is a five-time NCAA champion and Nike-sponsored professional runner. To understand her needs, product developers observed her preparing and performing, conducted in-depth interviews about her experiences and goals, and monitored and learned from her social media posts.1 What they discovered went beyond their expectations. Rogers needs broke
into three categories: (1) function and fit; (2) comfort, feel, and look; and (3) performance reliability. Only when all three needs were met could customer value be created and the professional athlete gets into “the flow”, where performance becomes effortless (Figure 2.1). It is then that professional athletes like Rogers can trust their products will perform reliably and enhance their performance.
FIGURE 2.1: RAEVYN ROGERS
UNDERSTANDING THE VOICE OF THE CUSTOMER
The process of understanding consumer experience goes well beyond athletes. It can deliver valuable insights for businesses serving all types of consumers. Capturing the voice of the customer (VOC) is a systematic process of understanding needs and takes many forms such as in-depth interviews, focus groups, and customer observation.
The first and most critical step in value creation for customers is to gather their voices. VOC is initially gathered in the form of long transcripts running many pages. These transcripts can be organized in the form of a word cloud. A word cloud displays the words based on how often they are mentioned and if they are mentioned together. Larger words are more frequently mentioned, and words shown more closely in the word cloud are more likely to be mentioned together. A word cloud is a simple tool to visualize the voice of a company’s customers.
Figure 2.2 shows an MBM/APP that, displays the word clouds for three distinct segments—sports, athleisure, and streetwear. Shown in Figure 2.2 is the word cloud for the athleisure segment. For the segment, “footwear” is more salient than “clothing”
Copyright 2025 Market-Based Management
29
CHAPTER 3:
Customer Value
The Lexus F1 Project developed the first Lexus in 1990. A team of Toyota engineers and marketing professionals wanted to understand the desired customer experience for luxury car owners. They wanted to create a high-quality car with a price that created an attractive value based on Lexus’s overall performance, as depicted in Figure 3.1.
When costs increased due to customer needs, the Lexus engineers had to find ways to reduce costs to maintain a price that delivered an easily recognized customer value. This took three years, 450 prototypes, and $1 billion. We know the rest of this story. Lexus built a strong brand recognized worldwide, with high customer satisfaction and loyalty.
FIGURE 3.1: LEXUS F1 PROJECT (1986 – 1989) – CREATING CUSTOMER VALUE
CUSTOMER VALUE
Customer value is the foundation of a market-based strategy. And the best measure of customer value is customer satisfaction, as it indicates the extent to which a product or service fulfills a firm’s promise to customers.1 A firm’s promise is fulfilled when its products or services, given their purchase cost, perform to meet or exceed customer experience expectations. In other words, customers are satisfied when a product or service’s expected promise is fulfilled during consumption.2 As customers are more satisfied, they perceive higher value from the purchased product or service.