Customer Value

Customer Values?
How Do Customers Determine
1) They review products to identify quality features
such as style and technology.
2) They select those features they feel provide
personal benefits.
3) They estimate the value of those benefits by
comparing them to the price of the product.
4) They then decide if the features are worth the
NOTE: A properly designed product will have
taken all of these into consideration when
developing the product concept.
Views of Quality
 Two views of quality exist, the customer quality view and the
manufacturing quality view.
 Customer quality view represents a group of product features
and characteristics that meet customer preferences and
 They can include a number of characteristics which contribute little
or nothing to the functionality of the product but are significant in
providing customer satisfaction, such as the appearance of an item.
 Manufacturing quality view is usually stated in terms of minimum
 BTW, I asked a physical therapist to define quality. She said
without hesitation, “expensive”. Quality versus the cost of
quality products usually influences customer purchase decisions.
Customer Quality (Value) Features
 David Garvin (Managing Quality: The Strategic and
Competitive Edge, 1988) described product quality in terms
of seven quality features that customers look for:
 Performance – primary operating characteristics
 Reliability – probability of a malfunction or failure
 Conformance – the degree established standards are met
 Durability – a measure of product life
 Serviceability – ease, speed, courtesy, and competence of
 Aesthetics – how a product looks, feels, sounds, smells,
 Perceived Quality – a person’s perception of quality
Customer Quality Features
• Note that all these customer quality features
are more a function of how a product is
designed and developed and not necessarily
on a company’s Lean capabilities.
Determining Customer Value
Desired Product:
Used Automobile
Quality Features:
Performance – primary operating characteristics
Reliability – probability of a malfunction or failure
Conformance – the degree established standards are met
Durability – a measure of product life
Serviceability – ease, speed, courtesy, of repairs
Aesthetics – how a product looks, feels, sounds, smells, etc.
Style, technology and performance (STP)
Car mileage – how many miles on the car
Miles per gallon – economy
Other “bells and whistles”
Selected Benefits:
Selected quality features
Determine Price:
Sales price of the car
Sales tax, insurance, etc.
Operating costs
Tires replacement costs
Determine Value:
Selected Benefits
Marketing’s 3 P’s Values
Versus Lean’s Values
 Marketing describes customer value
requirements by the 3 P’s:
 Price
 Product All customer desired quality
 Place
Right item, quantity, place, and time
 Lean values are described as benefits in:
 Cost
 Quality Minimum defects
 Time
Shortest process time
Another View on How Customers
Purchase Items?
 Professor Terry Hill of the London Business School
indicated that customers make purchase decisions
at two levels:
 A qualification level: Suppliers must first be qualified on
low prices and short lead times to be considered to be a
viable suppliers.
 A winner level: Customers then select a final supplier
from the qualified ones using different selection criteria,
such as specific quality features. Here they look for the
most value.
Qualification Level
 Lean’s low cost and short lead times are
classified as “Order Qualifiers” and not
“Order Winners” by Terry Hill.
Order qualifiers are product characteristics
that suppliers offer to influence customers to
initially consider their products for purchase.
 Firms must provide order qualifiers that
are competitive to stay in a market.
Considered by many to be a cost of doing
Are Order Qualifiers Sufficient to
Assure Sales?
Order qualifiers do not assure sales will
occur. What is needed in addition are
the quality features that Hill identifies
as order winners.
 An order winner is a product characteristic that
will improve the probability of a sale. It should
ideally exceed what competitors are offering.
 Order winners fall into the “customers view of
quality” used in determining customer values.
Providing Order Winners
How difficult is it for a company to provide
order winning features? It depends upon a
number of things:
 Understanding of customer’s value requirements.
 Ability to conceive and rapidly design and
develop new products.
 Ability to rapidly ramp up production.
 Ability to manage everything in a complex,
rapidly changing environment.
Identifying Customer Desired
Values Is Not Always Easy!
 Listening to the VOC’s (Voice of the Customer’s) CTQ
(critical to quality) features is a starting point, but is
that enough?
 How will you know when you are satisfying those key
customer values?
 How do you measure what customers think they
received in the way of value?
 How do you measure what customers think it cost
 If companies can answer those questions they’re
probably way ahead of they’re competitors.
To Complicate Matters, Not all Customer’s
Stated Benefits of a Product are of Equal
Importance to Them
 Customers themselves rate their selected benefits three
 Some are: Must have
 Must have a car with a GPS navigation system
 Some are: Would like to have, if they can afford it
 Would like to have a Bose sound system in the car with a 6disk changer, 12 speakers, and 500 W of audio power but
can’t afford the $3,000+ cost.
 The rest are: Nice to have if they can get them cheap
 Don’t much care for a car’s moon roof but I’ll take one if it’s
How Do You Provide Customer Desired
Values? (Where Does Lean Fit In?)
 For Garvin’s list of product quality features:
 Use Product Design & Development tools mostly to
design the values in.
 For low prices and reduced lead times:
 Design it in for new products.
 Use Lean to eliminate or reduce wastes and non-value
added activities to reduce product costs.
 For quality – minimum defects:
– Use Six Sigma’s variability reduction DMAIC process to
reduce process variability and defects.
Should Customer Requested New
Products Always be Developed?
 Because a customer says he wants a new product doesn’t mean a
company should develop it necessarily.
 The starting point for new product development is new product
position analysis which includes:
 What the estimated market demand and profitability for
the new product would be, and at what selling price?
 How well the new product fits in with the company’s
current products and can be promoted.
 How the new product can be differentiated from
competitor products, etc.
 If it’s determined that the product won’t be popular with other
customers, it should not be developed.
Understanding User’s Needs
• In order to create a breakthrough product, a company must
know who their customers are and how to place that knowledge
in the perspective of the market that the product competes in.
• Traditional methods of ergonomic research are supported by a
range of other techniques which include new product
ethnography, scenario development, and life style reference.
• The results of this research provide insights that characterize
potential customers in the target market and serve as a basis
for testing the validity of product concepts.
• Product development has moved to a period of mass customerzation, or the act of attempting to understand the needs, wants,
and desires of ever smaller and rapidly changing markets.
Mass customization is the product that results from that
Differentiate With New Products?
Will this
How Popular Was This
1957 Chevy Bel Air?
How Popular Was This
1959 Pink Cadillac?
By the 1960’s the pink color lost its popularity
although Mary Kay (Cosmetics) brought it back for
a while as a prize for its sales persons for reaching
sales goals.
What Challenges Companies Today?
 The critical success factor for a company is its
ability to detect, capture, and respond to the
best market and growth opportunities from a
variety of diverse options within a complex
internal and external environment because
things change rapidly.
 Unfortunately, the capacity of a company to take
action is often restricted by its complexity and
chaotic operational constraints.
Can unexpected changes
be anticipated?
All of us, whether or not we are
warriors, have a cubic centimeter
of chance that pops in front of our
eyes from time to time.
The difference between an
average person and a warrior is
that the warrior is aware of this,
and one of his tasks is to be alert,
deliberately waiting, so that when
the warrior’s cubic centimeter
pops out he has the necessary
prowess to pick it up.
Prof. Carlos Castaneda

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