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Beyond the Bottom Line: Building Customer Value for the Long Term

By July 4, 2001February 14th, 2019Opinion
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Published: Jul 04, 2001 in Knowledg[email protected]

Thanks to Peter Drucker and other management gurus, customer service has long been the mantra of the business world. But in today’s competitive environment, an emphasis on customer satisfaction is not enough. Partnering with customers, exceeding expectations and making customer value so important it becomes part of corporate culture are the obvious next steps, say the authors of the new book ValueSpace: Winning the Battle for Market Leadership. Yet for many companies, building customer value is easier said than done. Why? Well, for one thing, it’s a lot of work.

In their new book, marketing professors Banwari Mittal, of Northern Kentucky University and Jagdish N. Sheth of Emory’s Goizueta Business School argue that for companies that are willing to make the effort, the results are well worth it. The road map they provide for such companies is a concept called ValueSpace. This, they explain, is the space comprised of all the market values that customers seek in all their marketplace actions. Businesses that create and deliver these values win, keep, and own their customers. Others don’t.

The vision laid out by the authors describes a well-oiled machine with a broad range of shared values reaching from the most senior executive to the youngest mailroom clerk. While they admit few companies are getting everything right, they showcase 11 companies that are on the right track.
The difference, according to Mittal and Sheth, is that most companies choose to compete on values such as price or quality. In contrast, companies that are getting it right have reengineered themselves – they are no longer simply sellers of products and services but partners with their customers, looking for solutions that allow their customers to grow and prosper while simultaneously driving progress within their own industries. The necessity for this change is best relayed by Jim Kelly, chairman and chief executive of UPS, one of the companies profiled in the book. “The term ‘customer loyalty’ has been turned on its head. Today, we’re the ones with no choice. We’ve got to be loyal to our customers. The hunter has become the hunted!” Kelly says.

In ValueSpace, Mittal and Sheth examine a cross-section of corporations listed on most-admired lists—Fortune magazine’s Global Most Admired Companies or America’s Most Admired Companies (American Express, AutoNation, Caterpillar, Hilton Hotels, Sysco, 3M, Xerox, UPS, and PPG). Rosenbluth International and Fossil were not on the Fortune list, but the authors felt their reputations warranted inclusion. Praise of the companies often goes a little overboard, but Mittal and Sheth’s descriptions are packed with examples to back up their claims.

What makes these companies different is the approach to their corporate mission. The authors found, without exception, that these companies no longer tie their goals to the bottom line. The focus, again and again, is on building customer value. These companies not only learn their customers’ needs inside and out, they anticipate what those needs will be in the future, often before the customers themselves figure it out. In short, they concentrate on finding solutions for their customer’s challenges, not on making sales.

So how can other companies get their hands around this way of thinking? Mittal and Sheth created their own organizational processes to drive ValueSpace – the so-called 3 Ps. The authors argue that in every business transaction, customers seek three market values: Performance, Price and Personalization. Each of these is essential to the final equation, and all three must be present for effective organizational growth. There are no shortcuts: “Customers do not choose between performance, price, and personalization; they choose between one performance, price, and personalization package and another within the same marketplace. A business has to create the best performance, price and personalization values in its marketplace,” the authors write.

The basics of these three values are well understood. But the 3 Ps have specific quantitative goals, and each contains a set of building blocks that are integral to the overall meaning. The first of the three, Performance, involves quality, as might be expected, but it also brings into play innovation and customization. Quality usually implies that the product or service meets the customer’s requirements. At Hilton Hotels, the customer expects accommodations with specific features, such as a television set, towels, and sundries in the bathroom. But to achieve ValueSpace, Hilton goes further. Not only are its features brand-specific and dependable (there are no surprises), the company is also constantly looking for new and innovative ways to make the customer feel at home, from Sleep-Tight rooms for guests with sleeping difficulties to high-speed Internet connections.

Hilton also works to customize each guest’s visit. Repeat customers’ preferences are stored in a database and accessed so that guest don’t have to ask twice. Perks such as upgrades, flowers, or enhanced business services are offered as incentives for regular visits. Under its Hilton HHonors program, Diamond members are guaranteed 48-hour reservations, even if the hotel is sold out. Think about that the next time your reservations are cancelled.

Price is probably the most misunderstood of the three values. Mittal and Sheth are clear: It’s not about having the lowest price. What the customer really wants is a product or service that will perform as expected for an anticipated lifetime at a reasonable financial cost. That means customer service, durability, shipping, and a variety of other factors are involved in the decision. A company has to do much more than just lower the numbers on the price tag. It has to manage its own costs, for everything from product development to distribution. It has to prove to the customer that its product or service is the best value across the board, hands down. The labels Mittal and Sheth attach on these building blocks are Value Price, Target Costing, and Lean Operations.

For example, AutoNation, a nationwide chain of no-haggle used car dealerships, is transforming the auto sales industry. The concept isn’t all that radical, except that it is taking place in an industry that many customers believe is notorious for sleazy dealing and shady salespeople. At AutoNation, customers see one price. It’s fair (that is, it covers the dealer’s cost and allows for a slight profit). It provides value in that customers receive a clearly labeled menu of services as added benefits (there is no negotiating). The final price is a result of in-depth target costing, so AutoNation knows what specifics its customers want and what they are willing to sacrifice for a better deal. And finally, a system of lean operations assures that everything involved in the transaction is necessary. There is no waste, the usual culprit in raising prices.

To complete the P trilogy, the authors highlight Personalization. No, its not about monogrammed towels or labels that read “specially made for so-and-so.” It’s about the human experience. Every customer seeks an easy, reliable and pleasant exchange. Deliver products on time. Make it simple to place orders. Return phone calls. The first two building blocks, Easy Access and Rapid Response, are something everyone can relate to. The third, Relational Nurture, is perhaps the greatest challenge, and it can only be built after the first two blocks are cemented in place. Unlike the other two, Relational Nurture cannot be scripted. It is a long-term practice based on trust and mutual respect.

Rosenbluth International, a travel service provider, achieves the first of these by providing its customers with 24/7 access to reservation and customer support centers. Complaints and billing questions are answered within tightly controlled time schedules. Rosenbluth also nurtures its customers through regular e-mail and newsletter communications, keeping travelers abreast of timesaving and hassle-saving items. These include educational topics that help the customer better understand the travel industry—and make it easier on the customer and the company—as well as updates on new regulations or airport and subway construction. Finally, Rosenbluth employees embrace a philosophy of being “nice.” Every exchange with a Rosenbluth employee is meant to be a pleasant experience – or that employee won’t be around for long.

Do all 11 of the companies highlighted have control of every single building block for the 3 Ps? Not really. But Mittal and Sheth believe they are all well on their way. And it is only when the 3Ps and their respective building blocks are in place that ValueSpace Expanders, or “the icing on the cake” come into play. Many companies view value-added benefits, such as frequent flyers miles or bonus points, as a simple way to win and keep customers. But the authors again point out that these extra motivators are useless without the core values. Case in point: Sysco, the food service company, offers marketing promotion programs, such as an annual cruise, to encourage customers to increase their use of its products. It’s an added bonus that builds morale and increases sales, but would any restaurant in its right mind increase its use of those products if Sysco were unable to deliver them on time or if the products themselves were defective?

Once readers master the concepts behind ValueSpace as showcased by the 11 companies, Mittal and Sheth offer a “road map for action,” with self-audit checklists for executives to rate their own company’s application of the ValueSpace principles. But this is hardly an easy process. “Companies that invent new values such as these possess certain traits. They observe customers real close. They dig customer need to its essential core. And they keep their eyes on a singular target: creating far-reaching new ValueSpace for the customer. These traits indeed lead a business to mold its own self-concept in the customer’s image,” say Mittal and Sheth.

Not only must everyone buy into and live the approach, systems must be reorganized and employees must be trained and empowered to act on the vision. That is what it takes to win the battle for market leadership.

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