Value funnel

Appendix

Customer Value Funnel *

To compete successfully, organizations must evaluate all pertinent actors and factors in a market. This briefing develops a marketing analytical approach based a four-stage customer value funnel (CVF) framework. The CVF is a valuable tool for understanding and assessing business dynamics, situations and opportunities. You are encouraged to utilize the questions at the end of this section when analyzing case studies.

Management's objective is to maximize value over time realizing that customer values have a major impact on both business processes and performance. Hence, the enhanced customer value approach offers management an alternative view of how to compete effectively in changing and volatile markets. This value maximization premise means that corporate success should be evaluated in a new light. It is proposed that business performance should be built on a dual foundation of paramount value concepts: 1) anticipating and responding to the relevant values of all constituencies (e.g., customers; stakeholders; employees; collaborators, competitors, suppliers and regulators; and society) and 2) value maximization -- how economic value and knowledge is created and applied throughout an organization to best serve its target customers.

While the former element is largely qualitative in nature, the latter is mostly a quantitative dimension. This approach provides an insightful basis for designing a value-based model for managers to assess business situations in the Now Economy. The conceptualization of the value-driven model is developed in the subsequent section.

* This section builds on ideas in the article by Weinstein, A. & Pohlman, R.A. (1998). Customer value: a new paradigm for marketing management, Advances in Business Studies, 6 (10), 89-97.

Appendix – Page 1

The CVF captures and summarizes the salient attributes of customer value concepts in action (Figure A.1). As the framework illustrates, organizations must deal with a set of macro issues as well as customer-specific concerns to excel in business. Viewing the four levels of the model -- global business community, market, organization and customers -- through a broad to narrow lens, ultimately, impacts the performance of a business unit.

The values of the major "players" in the model must be carefully scrutinized as to value identification and congruency and value delivery options (these are the relevant values). From the top-down, the value drivers are what: 1) society values [level I]; 2) suppliers, partners, competitors and regulators value [level II]; 3) owners and employees value [level III]; and 4) customers value [level IV].

A realistic assessment of value creation opportunities (value maximization) throughout the funnel is the next step. Organizations consist of value providers. If the delivered value by employees/ other value providers exceed the expectations of customers (perceived value), positive net transaction experiences result. This leads to ongoing satisfaction and increased customer loyalty and retention. In these cases, organizations are faring well in their moments of truth (points where value transfer occurs). Hence, isolated favorable transactions evolve into continued, long-term relationships.

The value over time (lifetime value) of a customer is measurable, and in many cases, substantial. For example, leading supermarkets typically generate about $50,000 from households ($100 per week for 50 weeks for 10 years) and Ford Motor Company estimates the lifetime value of an average customer at more than $300,000. And, let’s not forget referral business.

For the most part, the funnel model represents a downward flow with each successive level being a component of the level above (e.g., markets are part of the global business community, organizations are part of markets, etc.). However, the feedback loops evidenced in levels I, II, and III demonstrate that market intelligence and knowledge is an ongoing, iterative, interactive and integrated process. If business performance does not meet corporate objectives, strategic or tactical changes are mandated. The organization (level III) can adjust internally via rethinking its overall direction, implementing training and development initiatives, revising business plans, etc. Often, however, external adaptations are required due to changes taking place in the macro/ global or micro/ market environments.

In sum, the Customer Value Funnel offers executives and "students of the market" a tool to help achieve a competitive business edge. The long-term value of the organization is maximized by being in harmony with the relevant values in the marketplace and the energy of value providers is harnessed to deliver excellence in all endeavors.

Realize that the value paradigm is still in the developmental stage and its acceptance by business is not yet widespread. Major strengths of the customer value approach are that it is pragmatic and consistent with the managerial need for integrating business functional areas. The information presented in this book provides a springboard for the creation and refinement of marketing/ customer value management strategies for your organization,

Finally, think about how your organization uses competitive differentiation to take maximum advantage of market opportunities. As a framework for analysis, five guiding CVF questions are listed below to help you assess the relevant customer value issues.

Customer Value Funnel Questions

1. Identify the relevant macroenvironmental factors (level 1). What impact do these issues have on the focal organization?

2. Discuss the market factors (level 2). How do collaboration, competition, suppliers and regulators affect the performance of the focal organization?

3. Explain how the focal organization (level 3) creates value for its customers. What strategic changes are required to deliver outstanding value to its customers?

4. Do customers (level 4) perceive value as unsatisfactory, satisfactory or superior? Why? Which attributes do customers value that are not receiving adequate attention by the organization?

5. Critique the organization’s business performance based on traditional financial criteria (e.g., sales, profits, market share, net present value, etc.) and value-based performance criteria (e.g., customer retention measures, customer lifetime value, customer engagement, satisfaction scores, process metrics, image perception, etc.). What can the organization do to improve its performance?