The Power of Customer Value Analysis - Management
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SECTION: Management

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The Power of Customer Value Analysis

By Walter J. McDonald

Article Date: 01-01-2005
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.


Dealers succeed by providing superior customer value.

To compete today, you need to know more than you've ever known before. To win, your entire equipment dealer management team needs to know more than your competitors about your customers, markets, competitors, technologies, and business processes. And, your team needs to use that knowledge better.

"Information management" is the key to gaining competitive advantage. Yet, many dealers cannot really manage by fact. Managers from different parts of the business speak different languages. The result: the team fails to achieve a fact-based consensus, and "the boss" ultimately makes decisions based on his or her own subjective criteria. Often, some team members don't even understand a decision well enough to implement their part of it.

Why do most dealerships fail to use information well? Look at the chart on the facing page that displays the two key dimensions of the problem. The first, shown on the bottom axis, is the independent functional "fiefdoms" into which most dealerships are divided. The people working in sales, parts, service, accounting or rentals pass ideas up and down hierarchically without communicating to the other parts of the organization.

What traps companies in this mode? Why don't they turn themselves into teams that unite to think through the problems of servicing customers? Key difficulties include:

  • Managers' lack of training outside their functional area.
  • The lack of any common language, metrics or strategy. 
  • The lack of connection between the management systems used in the different parts of the dealership. (The evaluation measures of sales, e.g., deal visibility, mean nothing to the service manager and vice versa.
The second dimension of the failure to use information is that business teams, as a whole, usually receive only financial data. They don't receive information about customers, markets, technologies and competitors. This is illustrated on the vertical axis.

Managers introduce additional data at team meetings, of course. But the team rarely sees crucial non-financial information in a form that associates can understand and digest. If a manager wants data produced by a non-financial department, he or she probably has to send someone to the office that produced the data. Usually, no one bothers.

No one agrees on what the key non-financial measures are: customer satisfaction, market-perceived quality, productivity, service or parts performance, sales or rental performance. Some dealerships invest large amounts in market research. But few pull together their market research and other non-financial data (such as performance vs. benchmarks) in ways that enable them to act on them effectively.

Where is your dealership on the path to competitiveness?
Stage 1: Achieving Quality Performance Standards - Using Chart 1, many dealers today are still at Stage 1. They are focused on quality as the achievement of industry benchmark performance standards. (Sadly, we are finding that some dealers are not yet even at Stage 1.)


However, achievement of quality benchmark performance standards in Stage 1 won't by itself lead to business success. A dealership with "zero defects" in delivery of service won't necessarily make customers happy. What if the performance goals are wrong? What if they don't represent what the customer wants?

Stage 2: Attaining Customer Satisfaction - As dealerships move to Stage 2, they realize the purpose of quality benchmark performance standards is to create happy customers. So, they began talking to customers and asking them if they are satisfied on a range of issues.

Many dealerships spend a good deal of money on research about their customers and their markets. But mostly this research fails to tell them why they win or lose customers. For example, typical "customer satisfaction measurement" programs ask questions like:

  • What are the attributes that count in your purchase decision?
  • What is the relative importance of each attribute?
  • How would you rank us on each attribute?
Unfortunately, it isn't unusual for a customer to say performance is "good" or "excellent"- and then stop buying machinery, parts or service from you.

Two key issues are often missing from these surveys. First, they fail to obtain data from non-customers who are buying the competition's equipment or aftermarket services Thus, they don't track the opinions of the market as a whole.

Second, customer satisfaction surveys usually don't measure machinery performance relative to competitors' equipment. If your performance is improving, your customers will probably say they are satisfied. But if your competitors are improving faster, customers will soon realize they could be even more satisfied if they bought from your rival.

For example, Cadillac's customer-satisfaction score remained high with an aging, loyal customer base during the 1980's. But in the marketplace as a whole, Lexus, Mercedes, BMW and Infiniti were eroding Cadillac's relative perceived quality.

Stage 3: Market-Perceived Quality Versus Competitors - Today, a few dealerships understand the defects in their customer-satisfaction tracking processes and are starting to enter Stage 3. This has been the big gap in measuring competitiveness. Where dealerships have truly entered Stage 3, they've adopted a new, more careful approach to measuring their performance in the marketplace.

First, they set out to learn how the whole of the market they seek to serve feels about their products. Cadillac, for example, now asks not just its customers, but all luxury car buyers, what they want in a luxury car.

Second, dealers ask people what they think of their machinery, and how their products and aftermarket service compares with the competition in each of the quality attributes. With this data, they construct a clear, reliable picture of just what causes customers to make their decisions.

This kind of understanding finally makes "quality performance" a clearly understood strategic weapon. In Stage 3, the dealership organization is armed with the tools to thoroughly analyze how the buyer makes the purchase decision.
Then, the business team can accurately understand why orders are won or lost. It can clarify which competitors are winning or losing orders in each market segment and why. And, it can determine what strategic moves might change that situation.


The advance from Stage 2 to Stage 3 has involved a dramatic shift in focus - from satisfying current customers to beating competitors by attracting both customers and prospects in the targeted market.

Stage 4: Customer Value Management - Why do customers choose one product or service over another? They believe they will get better value than they can expect from the alternative supplier. Unfortunately, most efforts to build a business strategy neglect this truth. They do not ensure the dealership will be the value leader. Thus, they set themselves up for defeat.

Successful dealerships, on the other hand, have tended to employ simple strategies. They identify real customers and give those customers what they want to buy. Value is simply quality, however the customer defines it, offered at the right price.

Superior customer value is the best leading indicator of market share and competitiveness. And, market share and competitiveness, in turn, drive the achievement of long-term financial goals such as profitability, growth and shareholder value.

In the 1990's, many dealerships needed Stage 1 (Achieving Quality Performance Standards) to focus on achievement of benchmark performance standards, because most didn't know how to control business processes well enough to guarantee they would achieve what they set out to achieve for their customers. "Doing things right the first time" helped create that ability.

Stage 2 of the quality performance movement adopted the slogan "customer satisfaction." This helped companies move toward an understanding of customer value. But no one could define "customer satisfaction" clearly.
In Stage 3, the goal is superior perceived quality and value versus competition. To do this, the dealer needs to perform Customer Value Analysis.


Your business needs to know how to achieve market-perceived quality and value leadership before you can meaningfully attack Stage 4. Stage 4 involves using the tools of customer value analysis not only to run the business but to make crucial long-term strategic decisions.

Why Customer Value Analysis?
To break away from the use of financial data alone and to provide the information necessary for institutional learning to take place, dealers need to help business teams apply the tools of Customer Value Analysis. They need to adopt a war room approach to meetings that will ensure the best available data is widely understood and utilized.


And, dealers need a comprehensive strategic positioning or navigation system to make all crucial competitive data widely available. If they take these steps, the dealership can navigate strategically and be the customer's best servant.
In Customer Value Analysis, a dealer conducts sample surveys of its customers and competitor's customers. The survey determines the relative performance of the dealership on many attributes ranging from product performance to pricing and aftermarket product support.


Customer Value Analysis helps a dealer understand how its customers experience value, and gain insight from its customers' decision-making criteria and purchase processes. It maps customer needs and objectives in terms of the customer's value chain, and looks beyond end-user needs to reveal the net total effect of the customer-dealer relationship on all of the customer's processes, costs and benefits.

This enhanced approach to needs analysis is key to establishing a dealer's competitive positioning and segmentation strategies.

Of the elements of Customer Value Analysis, the single most important is the market-perceived quality profile. This profile of hard data:

  • Identifies what quality is to customers in your market area.
  • Tells which competitors are performing best on each aspect of quality.
  • Gives you overall quality performance measures based on the definition of quality customers actually use in making their purchase decisions.
The market-perceived quality profile is the most important part of Customer Value Analysis because it summarizes the aspects of the marketplace that are usually easiest to change to improve your business.

The best illustration of how data from a market-perceived quality profile can be used is the Customer Value Map (See Chart 2). Running from the upper right of the customer value map to the lower lift is the "fair-value line," which indicates where quality is balanced against price.

The fair-value line should be the line of points at which a competitor would neither gain nor lose market share. This is determined by asking customers how much weight they put on quality and price, and plotting the line. Anyone below and to the right of the line is in a strong share-gaining position. Anyone above and to the left of the line is in a share-losing position.

To do Customer Value Analysis right, you must include all the most important competitors. It is especially powerful if you conduct separate Customer Value Analysis for various customer industry segments of your markets. Thus, a properly calculated market-perceived quality profile provides an objective, impersonal measure of how the customers in any given marketplace judge products.

An excellent example of Customer Value Analysis can be drawn from the luxury car market. Overall, Lexus has achieved the position furthest below the fair value line. It offers quality perceived superior to any competitor, with a market-perceived price that is only slightly above the other models other than Mercedes. It is not surprising Lexus soon began running away with this segment of the luxury car market.

A well-run dealership uses the market-perceived quality profile and the customer-value map in several ways:

  • To understand how customers score dealer performance on the most important quality attributes.
  • To explain that information throughout the organization, using it to focus on improving customer satisfaction.
  • To develop strategies for improving on the quality attributes and help everyone in the dealership understand why those strategies are important.
  • To identify and manage key business processes that must work well for the most important customer needs to be met.
By accomplishing these things, the dealership achieves cost-effective improvement in market-perceived quality and competitiveness. The customer value map tells as much about a business as a one-page financial statement and balance sheet. Most competent market research firms can prepare these analytical tools for your dealership.

This Stage 4 Customer Value Management analysis gives you a clear, simple, and deadly accurate picture of your marketplace. You'll almost always find that companies with a strong position on the customer value map are earning superior returns and gaining market share, while dealerships with a weak position are withering and dying.
Moreover, this analysis will point to the most effective strategic moves you need to make to improve your own position. The good news is the Value Map is only one of seven powerful tools you can utilize in Stage 4 Customer Value Management.


The benefits of determining Market Perceived Value and Market Perceived Price as illustrated in the Customer Value Map are significant in the overall strategy building process. The Customer Value Map is also an ideal framework to help key account managers understand and communicate the value your dealership can bring to a customer.

The contents of a single customer value map can tell your key account team what is most important to that customer. It will also illustrate how your dealership is performing relative to those needs, who among your competitors is setting the standard for performance and how much money the customer must spend to get different levels of performance.
Armed with this information, a key account team can confidently structure an attractive deal, identify key selling points, price the product in line with its value to the customer, develop a product support plan, and communicate to the dealership what customers want and need.



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