Tesina CARDONA

POLITECNICO DI MILANO
Facoltà di Ingegneria
Corso di Laurea in Ingegneria Gestionale
METHODS TO MEASURE CUSTOMER

VALUE FOR THE NEW PRODUCT
DEVELOPMENT PROCESS
Relatore: Prof. Ing. Marco TAISCH
Correlatore: Dott. Sergio TERZI
Julien CARDONA matr. 734335
Anno Accademico 2009-2010

TABLE OF CO
TE
TS
TABLE OF CONTENTS ................................................................................................................... 2

TABLE OF FIGURES ...................................................................................................................... 4
INTRODUCTION ........................................................................................................................... 5
1. THEORETICAL MODELS OF CUSTOMER VALUE ................................................................... 12
1.1. A HIGH DIVERSITY OF DEFINITIONS ........................................................................................... 13
1.2. A CATEGORIZATION OF CUSTOMER VALUE MODELS...................................................................... 16
1.2.1. Value components models ...................................................................................... 16
1.2.2. Utilitarian models .................................................................................................... 19
1.2.3. Means-ends models................................................................................................. 23
1.3. TWO “OUT-OF-CATEGORY” MODELS ........................................................................................ 27
1.3.1. Relationship value and a model of “total episode value”........................................ 27
1.3.2. A model oriented towards lean product development processes............................ 30
1.4. WHAT CUSTOMER VALUE IS NOT ............................................................................................ 34
1.4.1. About value in general ............................................................................................ 34
1.4.2. Quality, satisfaction and value ................................................................................ 35
2. OVERVIEW OF THE DIFFERENT METHODS OF CUSTOMER VALUE ASSESSMENT................. 38
2.1. A CONCEPTUAL FRAMEWORK OF CUSTOMER VALUE ASSESSMENT ................................................... 39
2.1.1. Customer identification ........................................................................................... 39
2.1.2. Planning Data Collection ......................................................................................... 40
2.1.3. Collecting the Data .................................................................................................. 43
2.2. HOW TO GET DATA ON CUSTOMER VALUE: A STATE-OF-PRACTICE OVERVIEW .................................... 44
2.2.1. Description of different methods ............................................................................. 44
2.2.2. Usage of the different methods ............................................................................... 50
2.2.3. Success of the different methods............................................................................. 52
2.3. HOW TO TRANSFORM CUSTOMER VALUE DATA INTO INFORMATION ................................................ 56
2.3.1. Gap analysis ............................................................................................................ 56
2.3.2. The value map ......................................................................................................... 58
2.3.3. Importance-Performance analysis........................................................................... 61
2.4. TOWARDS AN INTEGRATED INFORMATION SYSTEM ...................................................................... 64
2.4.1. General considerations about customer value oriented marketing information
systems 64
2.4.2. Example of an integrated information system : the “Marketing War Room™” ...... 66
3. TOOLS TO INCORPORATE CUSTOMER VALUE INFORMATION INTO PRODUCT
DEVELOPMENT.......................................................................................................................... 71
3.1. DIFFERENT METHODOLOGIES TO USE CUSTOMER VALUE IN PRODUCT DEVELOPMENT .......................... 72
3.1.1. Quality Function Deployment (QFD) ........................................................................ 72
3.1.2. Value Engineering (VE) ............................................................................................ 76
3.2. A LEAN APPROACH TO PRODUCT DEVELOPMENT ......................................................................... 80
3.2.1. Overview of lean management ............................................................................... 81
3.2.2. Lean product development at Toyota ..................................................................... 82
3.2.3. Some principles of Lean product development according to Pure Insight ............... 84
3.2.4. The value creation model and value activity map of the LAI. .................................. 87
4. FROM THEORETICAL PROPOSALS TO REALITY: AN EMPIRICAL STUDY ................................... 92
4.1. SCOPE OF THE STUDY AND METHODOLOGY ..................................................................................... 93
4.1.1. The LeanPPD project...................................................................................................... 93
4.1.2. Our questionnaire .......................................................................................................... 95
4.2.FIRST CASE STUDY: AN INTERNAL COMPARISON AT THE INDESIT COMPANY ............................................. 97
4.2.1.Indesit’s markets ............................................................................................................ 98
4.2.2.Product Lines ................................................................................................................ 101
4.3.SECOND CASE STUDY: A CONFRONTATION BETWEEN THREE BIG ITALIAN COMPANIES .............................. 103
4.3.1.ABB SACE division ......................................................................................................... 103
4.3.2. Carel Industries SRL ..................................................................................................... 104
4.3.3.Dell’Orto SpA ................................................................................................................ 104
5 - RESULTS OF THE EMPIRICAL STUDY .................................................................................... 106
5.1.RESULTS OF THE INDESIT CASE STUDY ........................................................................................... 107
5.1.1.About customer value perceptions ............................................................................... 107
5.1.2.About the customer value definition process ............................................................... 108
5.1.3.About the customer value orientation ......................................................................... 111
5.1.4.About improvements and performances ...................................................................... 113
5.2.RESULTS OF THE SECOND CASE STUDY ........................................................................................... 114
5.2.1.About customer value perceptions ............................................................................... 114
5.2.2.About the customer value definition process ............................................................... 115
5.2.3.About the customer value orientation ......................................................................... 116
BIBLIOGRAPHY ........................................................................................................................ 117
APPENDIX ............................................................................................................................... 123
TABLE OF FIGURES
FIGURE 1: A THEORETICAL FRAMEWORK ABOUT THE LINK BETWEEN CUSTOMER VALUE AND PROFITS ...................... 8
FIGURE 2: STRUCTURE OF THE PAPER ....................................................................................................... 11
FIGURE 3: KANO’S MODEL OF CUSTOMER PERCEPTION (KHALIFA, 2004) ........................................................ 17
FIGURE 4: REPRESENTATION OF NET CUSTOMER VALUE IN UTILITARIAN MODELS (BUTZ AND GOODSTEIN, 1996) .... 20
FIGURE 5: WOODRUFF’S MEANS-ENDS MODEL OF CUSTOMER VALUE (WOODRUFF 1997) ................................. 25
FIGURE 6: CONCEPTUALIZATIONS OF RELATIONSHIP VALUE (ULAGA, 2003)..................................................... 28
FIGURE 7: RELATIONSHIP BETWEEN CUSTOMER VALUE AND CUSTOMER SATISFACTION (WOODRUFF, 1997) .......... 36
FIGURE 8: CONCEPTUAL DIFFERENCES BETWEEN SATISFACTION AND VALUE (EGGERT AND ULAGA, 2002) ............. 37
FIGURE 9: A SAMPLE CHECKLIST FOR THE CUSTOMER UNDERSTANDING PROCESS (BUTZ AND GOODSTEIN, 1996) .. 42
FIGURE 10: PROP CARDS OF SERVICES THAT A CREDIT CARD COULD OFFER (GREEN, KRIEGER AND WIND, 2001) .... 47
FIGURE 11: USAGE OF THE DIFFERENT METHODS (ANDERSON, JAIN AND CHINTAGUNTA, 1993) ......................... 51
FIGURE 12: JUDGED SUCCESS OF THE DIFFERENT METHODS (ANDERSON, JAIN AND CHINTAGUNTA, 1993)............ 53
FIGURE 13: GAPS BETWEEN THE PRODUCER AND THE CUSTOMER INTERVIEWED ABOUT THE CONTRIBUTION OF
ATTRIBUTES TO OVERALL PRODUCT VALUE (IDASSI, YOUNG, WINISTORFER, OSTERMEIER AND WOODRUFF,
1994) ....................................................................................................................................... 57
FIGURE 14: GAPS IN SATISFACTION BETWEEN THE PRODUCER AND CUSTOMERS’OTHER BEST SUPPLIER, AS RELATED TO
PRODUCT ATTRIBUTES (IDASSI, YOUNG, WINISTORFER, OSTERMEIER AND WOODRUFF, 1994) ................... 58
FIGURE 15: CUSTOMER VALUE MAP (SETIJONO AND DAHLGAARD, 2007) ..................................................... 59
FIGURE 16: THE FOUR QUADRANTS OF THE IMPORTANCE-PERFORMANCE ANALYSIS (GARVER AND COOK, 2001) ... 62
FIGURE 17: THE SATISFACTION INTERVAL IN THE I-P MATRIX (SETIJONO AND DAHLGAARD, 2007) ...................... 63
FIGURE 18: INTEGRATING CUSTOMER VALUE DATA (WOODRUFF, 1997) ........................................................ 65
FIGURE 19: A VALUE MAP GENERATED BY THE MARKETING WAR ROOM™ (HTTP://CVAL.COM/INDEX.HTM)........ 67
TM
FIGURE 20: SIMULATION OF TWO ALTERNATIVE CONCEPTS AND POSITIONING IN THE MARKETING WAR ROOM
VALUE MAP (HTTP://CVAL.COM/INDEX.HTM) .................................................................................... 68
TM
FIGURE 21: THE ATTRIBUTE PLOTS OF THE MARKETING WAR ROOM (HTTP://CVAL.COM/INDEX.HTM) .............. 69
FIGURE 22: THE HOUSE OF QUALITY (ULAGA, 2003) ................................................................................. 73
FIGURE 23: A GOOD EXAMPLE OF A HOUSE OF QUALITY (HAUSER AND CLAUSING, 1988) ................................. 76
FIGURE 24: A PROCESS IMPROVEMENT SCORECARD (PURE INSIGHT, 2009) .................................................... 86
FIGURE 25: THE VALUE CREATION PROCESS (CHASE, 2000) ......................................................................... 88
FIGURE 26: VALUE ATTRIBUTES FOR PRODUCT DEVELOPMENT (CHASE, 2000) ................................................. 89
FIGURE 27: THE VALUE-ACTIVITY MAP (CHASE, 2000) .............................................................................. 90
FIGURE 28: RESULTS OF INDESIT FOR THE LAST THREE YEARS (WWW.INDESITCOMPANY.COM) ............................. 97
FIGURE 29: INDESIT’S MARKETS (WWW.INDESITCOMPANY.COM) .................................................................. 98
FIGURE 30: INDESIT’S RESULTS BY OPERATING SEGMENT, 2009 (WWW.INDESITCOMPANY.COM) ...................... 101
FIGURE 31: TOOLS TO CAPTURE CUSTOMER VALUE AT INDESIT. ................................................................... 109
FIGURE 32: TOOLS TO REPRESENT THE CAPTURED CUSTOMER VALUE IN PRODUCT DESIGN AND DEVELOPMENT AT
INDESIT. ................................................................................................................................... 110
FIGURE 33: IMPLICATION OF DIFFERENT CATEGORIES OF EMPLOYEES AT INDESIT ............................................. 112
I
TRODUCTIO
“Everything is worth what its purchaser will pay for it” (quoted by Anderson and
Narus, 1998) was one of the first conceptualizations of customer value importance and
was stated by Publilius Syrus... in the first century B.C.. Thus, customer value is not a
new concept to the marketing discipline or to the industrial world in general, and although
it did not attract much explicit attention for many decades, as early as 1991, a popular
business magazine -BusinessWeek -described customer value as the “new marketing
mania”. It then started to become a watchword for all marketing activity and, in recent
years, there has been an increasing interest in the value construct among both
practitioners and marketing researchers. As an example, the mission statement of Exxon
Chemical is a proof of how customer value is today placed at the core of marketing
strategies: “Our mission is to provide quality petrochemical products and services in the
most efficient and responsible manner to generate outstanding shareholder and customer
value”. On a more theoretical point of view, marketing academics have also placed
customer value on top of their research agendas. As a matter of fact, over the past twelve
years, the Marketing Science Institute has consistently included customer value in the list
of its research priorities. In the area of business marketing, both the Institute for the Study
of Business Markets (ISBM) at the Pennsylvania State University, and the Center for
Business and Industrial Marketing (CBIM) at Georgia State University— two major US
institutions giving special attention to business-to-business marketing—have integrated
customer value research in their research programs. Finally, several international
conferences and seminars have given broader attention to this area of research.
Introduction
But how and why did customer value gain so much importance throughout the
years?
To understand why creating customer value is becoming the centre of business
strategy, a quick glance at the evolution of global competitive advantages since the birth
of the industrial area can be useful.
More than two decades ago, in the 1980s, U.S. businesses were confronted to the threat
posed by the superior quality of many foreign-made goods and numerous studies
supported the existence of a relationship between product quality and performance. As a
consequence, quality management became popular and managers learnt how to improve
the quality of both their organization’s products and internal operations processes. These
efforts brought important performance improvements but ironically, too often they
reinforced an internal orientation. Managers were consequently asked to take their
customers into account when determining which improvements were needed, and
customer satisfaction measurement emerged to bring the “voice of the customer” into
quality efforts, which was a first step towards customer value orientation.
The 1990s was then the “product development decade”: fast-followers became more and
more efficient, reverse engineering and making an equivalent and less expensive version
of many products in less than a year became possible. Product life cycles were no longer
measured in years, but in months, and innovation became a key factor of success.
Thereby, during both the 1980s and the 1990s, the changes in competitive advantages
were due to contextual and environmental changes. Today, organizations are confronted
to new context mutations: more demanding customers, global competition, and slow-
growth economies and industries; in this more and more complex context, managers
lament that product quality and innovation no longer provide the basis for a competitive
edge, at least if they do not bring their products and processes into line with customers’
Introduction
requirements. Consequently, the search for advantage goes on, and instead of the same
focus on internal processes and structure, it is widely agreed that a major management
transformation should be a better attention to markets and customers.
Many organizations already reoriented their strategy towards superior customer
value delivery and there are many cases of success stories of companies that manage this
way. Some might say that the correlation between customer value orientation and
performance is nothing obvious, but empirical studies and theoretical frameworks that
confirm this positive link are convincing the last refractories.
For example, assuming that a high customer value is inextricably linked to loyalty -which
sounds quite reasonable: if the clients come back for more, that means the product or
service they bought met their needs or, so to say, that the customer value of this product
or service was satisfying enough -, it was empirically proved that seemingly insignificant
changes in customer retention rates often result in impressive improvements in profits.
More precisely, Reichheld, Markey and Hopton (2000), studying a wide array of
industries, found that an increase of 5% in customer retention could result in 25% to
100% profit swings, depending on the industries. Today, the companies with the highest
retention rates (evidence of superior customer value) also earn the best profits.
The same authors created a theoretical framework attesting the positive effects of
focusing on customer value. According to this framework, described in Figure 1, the
value creation process is at the core of any successful enterprise; value creation generates
the energy which holds the business together, and the correlation between customer value
and profits is clearly underlined. In short:
1. Revenues and market share grow as the best customers are swept into the
company’s book of business, building repeat sales and referrals.

Introduction
2. Costs shrink as the expense of acquiring and serving new customers and
replacing new ones declines.
3. Employee retention increases because job pride and job satisfaction increase, in
turn creating a loop that reinforces customer retention through familiarity and
better service to the customers.
↑ Customer
Value
↑ Customer retention +
efficient system of
referrals
↓ Cost of acquiring
↑ Revenues new customers +
↑ Market share losing customers
becomes less common
↑ Familiarity and
better service for
customer ↑ Profits
Development of
new activities and
new features
↑ Employee
retention
↑ Remuneration
and incentives for
employees
Figure 1: A theoretical framework about the link between customer value and
profits
As costs go down and revenues go up, profits increase. This provides the resources to
invest in superior employee compensation (further reinforcing retention) and in new
activities or features that enhance customer value, thus further increasing both customer
and employee retention.

Introduction
However, the problem is that even if there are plenty of theoretical frameworks
confirming the necessity to focus on customer value as a competitive advantage, there is a
big gap between philosophy and practice, and the issue does not seem to be whether an
organization should compete on customer value delivery but rather how it should do it.
If organizations want to become better at competing on superior customer value delivery,
they need a corresponding set of “tools of customer value”, they need to learn extensively
about their markets and target customers. Deciding how to compete on superior customer
value delivery raises difficult questions such as what exactly do customers value, how
well do customers think a company delivers that value, or how will customers value
change in the future. And this is not the easiest thing on earth. In most organizations, the
producers assume that they know what the consumer will value and therefore buy.
Unfortunately, the past provides too many examples in which those assumptions were far
from valid. The Ford Edsel and McDonald’s McLean Burger are notorious cases in point
(Butz and Goodstein, 1996). More powerful tools are needed to really understand what
the customer is looking and waiting for.
Moreover, even if customer value is correctly captured by a firm, managers must then
translate customer learning into superior performance with customers or, so to say, an
organization’s internal process for delivering value must be brought in line with what
customer value, increasing once again the difficulty of the task. Many are the business
areas where customer value information should be integrated: new product development,
product modification, design of marketing communication and sales tools, pricing,
competitive analysis, demand forecasting, new investments etc. and the challenge is to
integrate properly the customer value information that was collected into each of these
business areas.
Introduction
This work is an overview of how companies manage today to capture customer
value and represent it in product design and development, through appropriate techniques,
tools or technologies.
A first part, from chapter 1 to chapter 3, is a summary of what can be found in literature
about the different theories around the notion of customer value (chapter 1), about the
different means to measure customer value (chapter 2), and finally, chapter 3 is a
presentation of the most important techniques, especially the ones related to lean
manufacturing, used to incorporate the information on customer value into efficient
product development processes. These first three chapters are mainly based on a literature
review and a description of the state-of-the-art. The Excel table of Appendix 1
summarises the principal ideas of each document that was consulted and served as the
basis for organising the different contributions and writing a synthesis of all the ideas
they held.
In the second part, we present the empirical study that we led to get a general idea of the
customer value orientation of different Italian companies. In particular, two case studies
were conducted: a first one to understand how different people perceive the customer
value orientation inside a given company, and a second one to compare the customer
value orientation of different companies. Chapter 4 is a description of the questionnaire
that was created (the survey can be consulted in Appendix 2) and of the different
companies that responded to the survey, whereas the results of our two case studies are
gathered in Chapter 5.
The figure on the following page is a synthetic way of presenting the structure of
our work.
Introduction
2- Overview of the 3- Tools to incorporate

1- Theoretical models different methods of customer value
of customer value customer value information into product
assessment development
4- From theoretical
proposals to reality:
an empirical study
5- Results of the
empirical study
Figure 2: Structure of the paper

1. THEORETICAL MODELS OF CUSTOMER
VALUE
ABSTRACT
The introduction underlined how taking customer value into account became a necessity
and why developing customer value strategies is not a choice any more if companies want
to survive. However, making customer value strategies work begins with a good
understanding of the concept itself, and despite the many articles, there is still relatively
little knowledge about what value is and what its characteristics are or, so to say, about
the way to define it. This first chapter gives an overview of the most significant models
about customer value and tries to clarify this concept. After a presentation of the most
significant definitions of customer value and their common threads, a categorization of
the different models will be proposed. Two interesting models -one taking into account
“relationship value”, and the other one easily applicable to lean product development
processes -will then be introduced. Finally, the relationships between customer value and
other similar concepts will be clarified.

Theoretical models of customer value
1.1.A high diversity of definitions
A review of the literature on value reveals a wide diversity of opinions and no
accepted definition of value exists. This variety of opinions comes from the fact that
everyone who has written about value seems compelled to create a unique definition of
the concept. Nonetheless, most of the definitions have things in common, that we will try
to summarize in this part of the work. But first of all, the most quoted definitions of
customer value are presented hereunder.
Chronologically, customer value has been defined as:
- “The consumer’s overall assessment of the utility of a product based on
perceptions of what is received and what is given” (Zeithaml, 1988)
- “The trade-off between the quality or benefits they perceive in the product
relative to the sacrifice they perceive by paying the price’ (Monroe, 1990)
- “The perceived worth in monetary units of the set of economic, technical, service
and social benefits received by a customer in exchange for the price paid for a
product, taking into consideration the available suppliers’ offerings and prices”
(Anderson, Jain and Chintagunta, 1993)
- “The market-perceived quality adjusted to the relative price” (Gale, 1994)
- “The emotional bond established between a customer and a producer after the
customer has used a salient product or service produced by that supplier and
found the product to provide an added value” (Butz and Goodstein, 1996)
- “A perceived trade-off between the positive and negative consequences of
product use” (Woodruff and Gardial, 1996)

- “A customer’s perceived preference for and evaluation of those product
attributes, attribute performances, and consequences arising from use that
facilitate (or block) achieving the customer’s goals and purposes in use
situations” (Woodruff, 1997)
The existence of so many definitions makes a scientific discourse on customer
value difficult because one may be discussing a completely different construct than his
interlocutor’s. Furthermore, many of these definitions rely on other subjective terms such
as consequences, market-perceived quality, utility, emotional bond, perceived worth and
perceived benefits, and two people using the same definition might still be considering
value differently, depending on how they define these other terms.
However, these many definitions have common components, that we will call
“common threads,” and that we present here in order to get a first global idea of the value
concept.
First of all, value is perceptual and this is probably the most universally accepted aspect
of the concept. Indeed, some authors even use the terms “perceived value” or “value
judgments” to refer to customer value. That means the consumer’s evaluation of the value
of a product or a service is not an objective process but is influenced by a perceptual
distortion of reality, and that might be the main reason why, after all, it is so hard to find a
universal definition to this concept.
Then, another widely shared opinion is that value is situationally and temporally
determined. Thus, the perceived value of a product can be expected to vary across
different types of purchase situations. Moreover, even for the same type of purchase
situation, the value of a product can change over time based upon the customer’s past
experiences or satisfaction. It was agreed that a reduction in perceived value over time is
the most common outcome of multiple experiences, leading to brand or supplier
switching.
Other areas of consensus are the following ones: customer value is linked to the use of a
product, making it different from personal or organizational values, which are more
enduring values (see §1.4.1.); also, customer value is something perceived by customers
rather than objectively determined by a seller; as Doyle (1989) said, value is “not what
the producer puts in, but what the customer gets out.”. Finally, it is generally a trade-off
between what the customer receives (e.g. quality, benefits, worth, utilities) and what he or
she gives up to acquire and use a product (e.g. price, sacrifices) - however, we will see in
the following section that some theoretical models of customer value are not based upon
this trade-off.
On the other hand, we can also identify some areas where the concept diverges.
For example, the definitions differ as to the circumstances within which customers think
about value; they may consider value at different times, such as when making a purchase
decision or when experiencing product performance during or after use, which
correspond to different judgement tasks.
Thus, many authors have acknowledged the difficulties involved in defining
customer value, but they all made a contribution to the development of the customer
value concept. These difficulties, as we underlined it before, stem from the subjectivity
and ambiguity of value which come from the fact that customer value is a dynamic
concept that evolves over time. Next section goes beyond the definitions, into more
details, and present a categorization of the different theoretical models of customer value.
1.2. A categorization of customer value models
Khalifa (2004) built a categorization of the customer value concepts, making it
clear that although these models were (to some extent) different, they were not mutually
exclusive but overlapped with each other. Taken separately, each model is incomplete in
itself and its usefulness is limited, because each category emphasizes certain dimensions
of the concept and pays little attention to others.
According to him, the definitions of customer value can be grouped into three categories,
with some variations within each category:
- value components models,
- utilitarian or benefits/costs ratio models,
- and means-ends models.
In the following sections, a brief explanation of each category of value models is
presented.
1.2.1. Value components models
In the value components models, categories are created that gather the
performances or physical characteristics of a product according to the different
relevancies and influences they have in the customer’s mind. The different classifications
-or categories - of these features and functions depend on the models.
For example, according to Kaufman (1998), the principal value elements can be classified
as: esteem value or “want,” exchange value or “worth,” and utility value or “need.”
Kaufman defines these elements as follows: esteem value or “want” invokes the buyer’s
desire to own for the sake of ownership; exchange value or “worth” explains why the
product interests the buyer and how and when the buyer will use the product. Finally,
utility value or “need” is the primary value element which describes the performance and
physical characteristics of the product.
Another model belonging to this category of value components model -and certainly the
most famous one -is the Kano’s model of customer perception of value. It includes three
components of value: dissatisfiers (must be), satisfiers (more is better), and delighters
(exciters). Figure 3 is a representation of the effects of each of these components on
customer satisfaction. A quick description of the notions of dissatisfiers, satisfiers and
delighters then follows the figure.
Figure 3: Kano’s model of customer perception (Khalifa, 2004)
(1) Dissatisfiers are characteristics or features that are normal to a certain business
industry, that are generally taken for granted, and that the customers have come to expect.
Since they are expected to be there, their “presence” only brings customers up to neutral
but their absence annoys them. They are sometimes called basic or must-have needs.
These needs drive customer defection and attrition if they are not met.
(2) Satisfiers are expected features and they are explicitly requested by customers. They
typically meet performance related needs and they add value for the customer. Customers
are disappointed if these needs are poorly met but have increasing satisfaction (and
perhaps even delight) the better these needs are met. These features are often considered
the minimum standards to stay in business. However, it is important to note that very
often, what is originally a satisfier then becomes a dissatisfier. Customer expectations
generally rise and once an organization establishes a desired level of customer value,
failure to maintain that level can be dangerous.
(3) Delighters are new or innovative features or characteristics that customers do not
expect and they surprise them in a good way. They innovatively solve a latent need of the
customer and add value that is beyond the customer’s expectations or desires, at least on a
conscious level. For example, offering a babysitting service by a cinema operator will
delight movie-loving parents with small children. Since they are unexpected, there is no
negative effect if they are absent; but when present they have a positive effect.
These value components models are especially useful when thinking about
product features in the process of developing new products and/or services. However,
since they mostly focus on product features, they pay modest attention to the interaction
and relationship between customers and suppliers in product/service delivery, which can
be another aspect of customer value. Moreover, they pay much less attention to the full
customer activity cycle that goes from need identification through purchase to use and
disposal of the product. Finally, they are also incomplete in that they focus on customer’s
benefits and demote the customer’s sacrifice side of the value equation… what utilitarian
models do take into account.

1.2.2. Utilitarian models
With utilitarian models, the problem of not considering the customer’s sacrifice
side of the equation is resolved, and value is defined in relation to pricing as the
difference (or ratio) between customers perceptions of benefits received and sacrifices
incurred. For this particular reason, utilitarian models are also called benefits/sacrifices
ratio models.
These models are probably the most popular ones and the literature is full of
utilitarian definitions of customer value.
For example, Woodruff and Gardial (1996) assert that the judgment of value results from
a “trade-off in positive consequences (benefits) or desired outcomes and negative
consequences (sacrifice) or costs”.
Treacy and Wiersima (1995) see customer value as “the sum of benefits received minus
the costs incurred by the customer in acquiring a product or service”. For them, costs
include both the money spent on the purchase and maintenance, and the time spent on
delays, errors, and effort. Both tangible and intangible costs reduce value.
Huber, Herrmann and Hennerberg (2007) suggest that the costs of obtaining the perceived
benefits are usually the major concern of buyers. In his model they propose that the
relevant costs of a purchase considered by consumers include the following: monetary
costs, time costs, search costs, learning costs, emotional costs, and cognitive and physical
effort coupled with financial, social, and psychological risks.
Monroe (1990) defines customer-perceived value as “the ratio between perceived
benefits and perceived sacrifice”:

=

In this formula, the perceived sacrifice includes all the costs the buyer faces when making
a purchase: purchase price, acquisition costs, transportation, installation, order handling,
repairs and maintenance, risk of failure or poor performance. The perceived benefits are
some combination of physical attributes, service attributes and technical support available
in relation to the particular use of the product, as well as the purchase price and other
indicators of perceived quality.
Finally, Zeithaml (1988) defines customer-perceived value accordingly: “Perceived value
is the consumer’s overall assessment of the utility of a product based on a perception of
what is received and what is given”. This definition is almost identical to the one of
Monroe, but Zeithaml also points out that perceived value is subjective and individual,
and therefore varies among consumers.
The common point of all these models is that consumers assess value by
weighing the benefits received against the costs incurred. Figure 4 is a representation of
this concept. However, in any case, multiple benefits and multiple costs have to be
considered, and these multiple benefits and costs might vary according to the models.
Figure 4: Representation of net customer value in utilitarian models (Butz and

Goodstein, 1996)
Generally, when developing a utilitarian definition of customer value, authors
specify which costs (monetary and non monetary factors) have to be taken into account
(see the examples of definitions on the previous pages). However, even if it is commonly
agreed that benefits include tangible and intangible attributes of the product/service
offering, there is very rarely a clear explanation of what is intended by those “benefits”.
To fill in this gap, other authors tried to develop categorizations of benefits.
Palmroth (1991) suggests that consumers seek the following in the objects they acquire:
- Safety: protection from physical danger, financial loss, mental discomfort, or
emotional anguish;
- Performance: how well the object does what is intended to do;
- Appearance: how the product looks to the buyer and how it will make the buyer
look to others:
- Comfort: physical and mental comfort, ease and convenience;
- Economy: value for money; and
- Durability: how long the object will continue to provide the desired benefits
Examination of these benefits and their definitions reveals that they are consistent with
the tangible/intangible dichotomy. Some benefits, such as performance and durability,
derive directly from the attributes of the object while other benefits, such as comfort and
safety, are aspects attributed to the object.
Sheth, Newman and Gross (1991) identified five benefits that they call consumption
values. These are:
- Functional value: the perceived utility acquired by an alternative due to its ability
to perform its functional, utilitarian or physical purposes;
- Social value: linked to the association with one or more specific social groups;
- Emotional value: linked to the ability to arouse feelings or affective states;
- Epistemic value: linked to the ability to arouse curiosity, provide novelty, and/or
satisfy a desire for knowledge;
- Conditional value: linked to the specific situation or context faced by the choice
maker.
This typology not only fits the tangible/tangible dichotomy but also adds some aspects
that are consistent with the common threads we suggested in §1.1. For instance, the
conditional value specifically addresses the situational nature of value.
Finally, Holbrook (1994) described eight types of customer benefits or value:
- Efficiency: value resulting from manipulating something as a means to a self-
oriented end;
- Excellence: personal satisfaction associated with the admiration of the
characteristics of an object because they provide a means to an end;
- Politics: value resulting from manipulating something as a means to the other-
oriented end of achieving a favourable response from someone else
- Esteem: value arising from the contemplation of one’s own status or prestige as
reflected in the opinion of others;
- Play: value derived from the pleasure of engaging in some activity;
- Aesthetic: value achieved by admiring something not as a means to an end but
because it provides value in itself;
- Morality: value achieved by doing things because they are the “right” things to
do, not because they gain us favour with others;
- Spirituality: doing things because of the value of faith or religious ecstasy.
Holbrook’s typology is interesting because it allows an easier adaptation to a broader
range of consumption experiences, such as religion, arts, and leisure activities. However,
by expanding to this more abstract level, it is more difficult to compare it directly to other
benefit typologies.
As a conclusion to the utilitarian models, it can easily be argued that they are
broader than the value components models and more complete. They consider customer
value in a longer time horizon perspective and include almost all elements of customer
activity cycle. However, they do not pay much attention to the dynamics of value
building and destruction; they seem to be static rather than dynamic. They do not link
benefits and sacrifices with customer ends, values and purposes. They also do not offer
much on the importance of different benefits to customers or the significance of
sacrifices, nor do they consider explicitly the consequence of all these on customer
behaviour. The models from the last category, the means-ends models, do take some of
these aspects into consideration.
1.2.3. Means-ends models
Means-ends models are based on the assumption that customers acquire and use
products or services to accomplish favourable ends: means are products or services, and
ends are personal values considered important to consumers. The means-ends theory, in
other words, postulates that linkages between product attributes, consequences produced
through consumption, and personal values of consumers underlie their decision-making
processes.
Lanning (1998) is one of the authors who made an important contribution to the
means-ends theory. He insists on the fact that the value that matters is the value in the
customer’s experience not the value in the product, and thus gives the customer value
concept a totally different perspective. He argues that the customer’s resulting experience
includes one or a series of related physical or mental events leading to an end-result or a
consequence that is measurably specific. Learning to discover resulting experience to
customers is often hard work but once discovered and articulated clearly, they are easy
enough to understand. The question to ask, in order to understand the customer’s resulting
experience, is: “what would the customer perceive as the value of the end-result
consequence of this event, compared to alternatives, if they could experience it?”
In an attempt to consolidate the diverse means-ends oriented definitions, Woodruff
(1997) proposed: “Customer value is a customer’s perceived preference for and
evaluation of those product attributes, attribute performances, and consequences arising
from use that facilitate (or block) achieving the customer’s goals and purposes in use
situations”. Woodruff emphasizes that value stems from customers’ learned perceptions,
preferences, and evaluations.
His model in Figure 5 demonstrates that moving up and down the customer value
hierarchy explains both desired and received value and suggests that customers conceive
desired value in a means-end way. Starting at the bottom of the hierarchy, customers
learn to think about products as bundles of specific attributes and attribute performances.
When purchasing and using a product, they form desires or preferences for certain
attributes based on their ability to facilitate achieving desired consequence experiences,
reflected in value in use and possession value, in the next level up in the hierarchy.
Customers also learn to desire certain consequences according to their ability to help
them achieve their goals and purposes (i.e., the highest level). Looking down the
hierarchy from the top, customers use goals and purposes to attach importance to
consequences. Similarly, important consequences guide customers when attaching
importance to attributes and attribute performances. The customer value hierarchy

describes received value equally well. Customers evaluate products using the same
desired attribute, consequence, and goal structure that they have in mind at that time.
Further the customer’s use situation plays a critical role in evaluation as well as in
desires. If the use situation changes, the linkages between product attributes,
consequences and goals and purposes change as well. For example, a customer’s value
hierarchy for Internet services used at work may look quite different than the hierarchy
for those services used at home for entertainment.
Figure 5: Woodruff’s means-ends model of customer value (Woodruff 1997)
Parasuraman (1997) observes that Woodruff’s discussion captures the dynamic and
context-dependent nature of how customers judge value, the criteria they use to do so,
and the relative importance they place on such criteria.
The means-ends models of customer value fill a gap in the literature by being
able to explain why customers attach different weights to various benefits in evaluating
alternative products/services. They also take into account the negative consequences of
certain product/service attributes but fail to pay sufficient attention to the sacrifices a
customer is likely to bear in acquiring, using, or disposing of the product/service (whereas
utilitarian models pay more attention to these elements). They also do not elaborate on the
trade-offs customers are expected to make between benefits and sacrifices.

1.3.Two “out-of-category” models
The third section of this first chapter presents two interesting models of customer
value that cannot really be associated to any of the categories that were previously
exposed. The first one is actually an evolution of the utilitarian models, and takes into
account the value of the relationship customer-producer during the whole life of their
interaction. The second one is a more practical model, developed to help designers in the
product development process.
1.3.1. Relationship value and a model of “total episode value”
Ulaga (2003) underlines that most research on customer value adopts a
transactional approach focusing on product-related issues and neglecting relational
dimensions of customer-perceived value. However, the value of having a relationship, for
example the value of commitment from both parties, also needs to be taken into account
when analysing the offering provided and the manner in which it influences the
customer’s perception of the value; the relationship itself might have a major effect on the
total value perceived. The reason for purchasing may be simply because the customer has
a relationship with this supplier and even though the offering is not exactly the one
sought, the parties involved try to come to an agreement where the objectives of both
parties can be met. In this situation the point of the discussion is changed. The issue is not
what kind of an offering the company provides – rather it is what kind of relationship the
company is capable of maintaining.

Since going into the details of all the relationship oriented customer value works
would be too complicated, we decided to provide only a summary of these works in
Figure 6. A careful review of these conceptualizations raises three important issues. First,
although some common dimensions emerge, the proposed constituents of relationship
value vary considerably among these definitions (“social benefits”, “behavioural
benefits”, “relationship benefits”, “network function”...). Second, most dimensions are
only described in very broad terms and do not provide a clear understanding of their
underlying facets (“strategic benefits” or “relationship costs”). Finally, no guidelines are
provided as to how these dimensions could be combined to form an overall measure of
relationship value.
Figure 6: Conceptualizations of relationship value (Ulaga, 2003)

We chose to develop herein only the applicable framework of Grönroos (1997),
which might be the most concrete and understandable work on relationship value. This
model is a particular evolution of the utilitarian models. Grönroos points out that the
trade-off between benefits and sacrifices in long-term-oriented exchange processes is not
restricted to the single episode level. Rather, value assessments should take into account
both episode and relationship benefits and sacrifices. More concretely, in a customer-
supplier relationship, Grönroos uses the term “total episode value”, which then could be
described as a function of both episode value and relationship value:

+ ℎ

=

+ ℎ

Grönroos defines supplier relationship costs (relationship sacrifice) as direct costs (e.g.
insurance premiums, subscription fees etc.), indirect costs (e.g. delayed delivery,
incorrect invoices etc.) and psychological relationship costs (e.g. cognitive effort needed
to worry about whether the supplier will fulfil his commitment or not etc.).
As we can see with the formula above, a poor episode value can be balanced by a positive
perception of the relationship as a whole. If the value of having a relationship with a
certain supplier is perceived high by the customer, then a not so positive perceived value
on an episode basis can be balanced and the total episode value kept on a satisfactory
level. Moreover, according to Grönroos, the episode value and the relationship value exist
in a mutually dependent relationship; positive episode value enhances the relationship
value and a positive relationship value increases the total episode value.
Finally, according to Grönroos, the first equation is equivalent to the following ones:
+

=
+ ℎ

= + −
They describe the same value concept from varying angles. The core value means the
benefits of a core solution compared with the price paid for that solution. The added value
is created by additional services in the relationship compared with the relationship costs
that occur over time. This added value can be both positive and negative: if it is positive,
for example because of quick delivery, attentive and supportive service employees or
smoothly handled service recovery, it contributes favourably to total perceived value;
however, if additional services cause unnecessary or unexpected relationship costs, the
effect of the added value component is negative. Negative added value is created by
complicated systems, non-user friendly technology, unfriendly or unskilful employees,
late deliveries, incorrect invoices, badly handled complaints, delayed maintenance of
equipment, complicated equipment documentation, long queues to get served, etc. Even
an excellent core value is quickly destroyed by late deliveries, lack of proper support and
delayed maintenance, or unfriendly and untrustworthy personnel and a lack of interest in
service recovery.
1.3.2. A model oriented towards lean product development processes
The second model that we chose to present in this paragraph is a model from
Robert A. Slack (1999) from the Massachusetts Institute of Technology. The main
interest of this framework is that it is far less theoretical than the other ones, and it is
focused on the way to consider customer value in a product development process, which
is particularly relevant for our work.

Robert Slack gives the following definition of value:
“Value is a measurement of the worth of a specific product or service by a customer, and
is a function of (1) the product’s usefulness in satisfying a customer need, (2) the relative
importance of the need being satisfied, (3) the availability of the product relative to when
it is needed and (4) the cost of ownership to the customer.”
This model is thus part of the utilitarian models, and, according to Slack’s work, value is
defined as being directly proportional to the product of the need for an object (or service)
and the ability of this object to satisfy this need, and it is inversely proportional to the cost
of the product or service. He gives the following equation:
∗ ∗ !
=

Where:
- 2 = the importance of the need of the product or service. The value of 2 is fully
determined by the customer.
- A = the ability of the product or service to satisfy the customer need. The value of
A is determined by how well the product development process is executed.
- f(t) = the availability of the product or service to the customer, relative to the
customer need date.
- C = the cost of ownership, is a function of product and service attributes as well
as the efficiency of the product development process.

The above formulation is very similar to the one used in traditional Value
Engineering where value is defined as the ratio of essential function over cost, which
helps identify lower cost approaches to provide a given function (see §3.1.2.).
The quantity 2 represents the importance for a given product. In the context of complex
systems development, a given product may have a multitude of needs or requirements
with specific individual importance. The above equation therefore could be used to
evaluate value for a given requirement or function, or it could be used to evaluate the
aggregate value of the product. The generalized aggregate value equation takes the form:
∑ ∗ ! ∗ !
=

A, the ability of the product to satisfy the customer need, can be viewed in terms of
probability: it increases as the product progresses through the product development
process until the verification that the requirement has been accomplished, at which point
it would be a maximum (1). A product which has demonstrated by test the ability to meet
a requirement has eliminated the risk associated with this requirement and is of greater
value to the customer than a product which has an element of risk associated with
meeting this same requirement. The ability of the product to satisfy a customer need can
be related to risk by the following simple relationship:
=1−
Where:
- A = the probability for a specific product to meet a specific customer requirement
- R = risk, the probability that a specific product does not meet a specific customer
requirement.
With the above, a relationship between this definition of value and risk in the product
development process is given by:
∑[ ∗ 1 − !] ∗ !
=

The denominator of this equation, C, cost of ownership, is equivalent to the total life
cycle cost of the product and includes acquisition costs and support, operations and
retirement costs. This implies that to maximize customer value in the product
development domain all of these costs have to be considered during development
decision-making processes.
1.4.What customer value is

OT
Customer value is often mistaken with other concepts, and without knowing what
value is, we cannot know what it is not. However, now that we had an overview of the
main theories about customer value, it is important to understand what this concept is not.
This conclusive part of the first chapter presents the conceptual differences between
customer value and related terms.
1.4.1. About value in general
The term “value” shows up in several different contexts. For example, an
increasingly common perspective on managing organizations argues that creating and
delivering superior customer value to high-value customers will increase the value of an
organization. High-value customers and the value of organization consider value from the
perspective of an organization: high-value quantifies the monetary worth of individual
customers to the organization, whereas the value of an organization quantifies an
organization’s worth to owners. Customer value, on the other hand, takes the perspective
of an organization’s customers, considering what they want.
Moreover, customer value is also different from personal or organizational
values: it is inherent to the use of the product, whereas personal or organizational values
are long-term, anchored values. Value refers to a preference judgements; values refer to
the “criteria” by which such judgements are made. The value a consumer perceives in an
item is driven by the values held by that consumer.

1.4.2. Quality, satisfaction and value
We herein delineate the interrelationships between quality and value, and
between satisfaction and value.
First of all, perceived value and quality are a “higher level” and a “lower level”
constructs. As a general rule, value is conceptualized on the basis of quality (i.e. the
benefits of an offering) and price of the service (comprising all related sacrifices in order
to gain access to the offering). More specifically, in the utilitarian models, value is
understood as a cognitive trade-off of some kind between the benefits of an offering and
the total cost the consumer has to invest in order to receive this offering (see §1.2.2.).
These conceptualizations of customer value clearly demonstrate the relationships between
quality and value. Since quality is, by definition, an input to the offering benefits and
therefore value judgments of the consumer, it is reasonable to assume that value is a
higher-order concept than that of quality; it is a richer and more comprehensive measure
of customers’ overall evaluation of a product/service than its quality. Quality, in
conclusion is only one of the determinants of value, it can lead to value, but is not
equivalent to it.
The difference between satisfaction and customer value might be a bit more
subtle. They are related, but distinct concepts. Many different models attempt to describe
the link between customer value and customer satisfaction, but the most famous one may
be the disconfirmation paradigm. The disconfirmation paradigm states that the customer’s
feeling of satisfaction is a result of a comparison process between perceived performance
and one or more comparison standards, such as expectations (Woodruff, 1997). Prior to
purchase and use of a product, customers form expectations of product performance in a

particular use situation. These expectations are predictions of the nature and level of
performance the user will receive. After using the product, the consumer compares
perceived actual performance with expected performance. The customer is satisfied
when he feels that the product’s performance is equal to what was expected. If the
product’s performance exceeds expectations, the customer is very satisfied, if it remains
below expectations, the customer will be dissatisfied. Figure 7 represents this
relationship between customer value and customer satisfaction.
Figure 7: Relationship between customer value and customer satisfaction

(Woodruff, 1997)
Consequently, the feeling of satisfaction essentially represents an affective state of mind
whereas value is the result of a cognitive comparison process. Moreover, satisfaction
must be considered a post-purchase construct and customer value, in turn, is independent
of the timing of the use of an offering and can be considered as a pre- or post-purchase
construct.
Thus, given that satisfaction is an inherently emotional and temporary mental state, and
that it is only a post-purchase reaction, it is likely that instruments measuring customer
satisfaction provide poor approximations of customer value. Actually, a research showed

that in business after business, 60-80% of customers who defect to a competitor said they
were satisfied or very satisfied on the survey just prior to their defection.
To conclude this section, we can summarize the biggest differences between the two
concepts in Figure 8.
Figure 8: Conceptual differences between satisfaction and value (Eggert and Ulaga,
2002)
2. OVERVIEW OF THE DIFFERE
T METHODS OF
CUSTOMER VALUE ASSESSME
T
ABSTRACT
Now that the value concept has been clarified, and with the definition of customer value
clearly in mind, we can turn our attention to its measurement. Since a number of methods
for customer value assessment exist but little is known about the usage of these methods
in practice, the objective is to identify the set of methods used in assessing customer
value and to determine the extent of their usage by industrial firms, through
understanding of present practice. More precisely, this second chapter will first introduce
a conceptual framework of customer value assessment, to make it clear how to proceed
when one wants to capture customer value. A state-of-practice of the different methods to
get data on customer value first, and to transform this data into information then, will be
presented in the second and third sections of the chapter. The tendency towards the usage
of integrated information systems to work on customer value will finally be referred to in
the last part, with an example of a marketing software.

Overview of the different methods of customer value assessment
2.1.A conceptual framework of customer value assessment
The conceptual framework that is presented here is largely inspired from the
“Customer Understanding Process” proposed by Butz and Goodstein (1996). Some of
Woodruff’s ideas (1997) were then added to make this framework more complete.
We therefore present here the first three steps of the customer understanding process
proposed by Butz and Goodstein, which correspond to the process of customer value
assessment:
- customer identification,
- planning the data collection,
- collecting the data.
2.1.1. Customer identification
The starting point is to clearly identify the customer, including everyone who
affects the “buy decision”: to fully understand how to increase customer value, it is
essential to include each as a source of data. This is not always so easy, because today,
decisions made by only one individual are quite rare and anyone who can exert positive
or negative influence on the decision to buy must be included as a customer. This is
particularly true if the customers are other businesses, because in such cases, the decision-
making process is typically complex (different categories of people can be involved:
procurement agents, contracting officers, multiple layers of management, boards of
directors, etc.). The list of customers can then be put in priority order based on the degree
of influence each has on the “buy decision.” Developing that priority list requires input
from all those in the business who regularly deal with the customers. At the very least,
one needs to identify the key decision makers, those who can derail any decision, and
makes certain that their needs are met.
Since it is hardly possible to test customer value with all the current customers, targeting
high-value customers -if they are recognizable - should be more efficient. A study
showed that the top 10% of the customers of a firm were worth five to ten times as much
in potential lifetime profits as the bottom 10% (Reichheld, 1996).
Finally, Woodruff underlines that this targeting process may include current customers,
lost customers, and potential customers. Clearly, current “bonded” customers will provide
important information. But so will former customers-those that have been lost over the
years for one reason or another. These former customers can provide additional data that
gives several different perspectives. Also important are competitors’ customers-those
who are implicitly stating that they do not think that one can meet their needs. Listening
to them makes it possible to understand the substantive reasons of their choice and learn a
good bit about the reasons why one have failed to meet the needs of certain elements of
the marketplace.
2.1.2. Planning Data Collection
Conducting a complete customer understanding process is both time-consuming
and expensive and consequently needs to be planned correctly. It can also disrupt the
often fragile relationship between the customer and the supplier: indeed, by inquiring
about how well we are serving our customer, we are implicitly raising his expectations
about our service; having him express some of his needs makes him expect a positive
response to this expression. Consequently, there must be explicit support for this process
in the highest levels of the organization, and this support requires an understanding of the
process: its costs, including the risks, on the one hand, and its benefits, on the other.
Moreover, there must be a commitment to using the results of this analysis. The customer
understanding process should not be put in place unless a clear program of result analysis
is defined.
Butz and Goodstein, focusing on the business-to-business aspect, argue that it is
not possible to develop an adequate understanding of the customers and their needs
without visiting them in their usual place of business, and that careful planning must
precede any visit. One question that frequently arises in planning customer visits is at
what level the visit should be conducted. Though there clearly needs to be dialogue at the
most senior levels of management, there are significant advantages to broader interactions
as well. Another planning question is whether the customer will even want to participate
in such a process (and this is true even if no visit is planned, if the interaction is only
“virtual”, or if the client is not another business). Consequently, one has to make it clear
how and why participation will benefit the customer, for example explaining that the
customer will be helping the supplier position itself to meet both present and emerging
customer needs, or that there will be fewer problems during the course of ordinary
business between customers and suppliers. In any case, it is important to have ready
answers for customers when they ask why they should participate in a process that
initially appears to have advantages only for the supplier.
More concretely, the planning process is made up of mostly two phases. The first
one is about collecting and analyzing whatever data is available about the customer. In a
business-to-business perspective, this may mean studying the customer’s annual reports
and other relevant documents, to understand the customer’s corporate goals, culture, and
“driving forces”. Next, a list of what questions to ask has to be drawn; a data collection
checklist should be prepared. A sample checklist is provided in Figure 9 hereafter. About

the questions to ask, Woodruff underlines that typical practice involves identifying the
preferred or desired attributes. Organizations tend to learn most about the attributes that
its customers value. Consequently, they may be missing an in-depth understanding of the
specific use consequences, which would limit their ability to create and implement
superior customer value strategies. Woodruff thus recommends using techniques that
provide a more complete picture of customers’ entire desired value hierarchy (see §1.2.3.)
or, so to say, that makes it possible to explore a broader, more complete range of desired
value dimensions, particularly with regards to consequences.
Figure 9: A sample checklist for the Customer Understanding Process (Butz and
Goodstein, 1996)
2.1.3. Collecting the Data
The data-collection checklist serves to steer the data collection. If the checklist
has been carefully and thoughtfully prepared beforehand, the actual collection process
should be straightforward. However, a checklist is only a guide to keep the discussion
focused on the customer’s fundamental needs. The customers’ responses require follow-
up questions and interpretation to develop a full understanding of customer value.
To do so, data collection requires skills and sophistication in interviewing, skills
that many persons do not have. Selecting the right people to conduct this task is critical to
its success. For this particular reason, Butz and Goodstein recommend to use senior level
people, perhaps accompanied by a consultant who is familiar with the company and who
possesses outstanding listening and interpretative skills.
Moreover, in asking the questions, one must be aware that customers tend to give
socially acceptable answers to many questions. For example, McDonald’s developed the
McLean Burger because its market research reported that customers wanted a “healthy”
food -the socially acceptable response. When confronted by the choice between the new
healthy product and the traditional Big Mac, however, the customers’ true preference
quickly emerged. One way to avoid such false leads is by asking customers comparative
questions. For example, under what circumstances would they would choose Product A
over Product B or Product C.
The next paragraph provides an overview of the most common techniques to
collect data.
2.2.How to get data on customer value: a state-of-practice overview
2.2.1. Description of different methods
In this section, the most usual methods that are used to assess customer value
(according to a study by Anderson, Jain and Chintagunta, 1993) are presented. The first
three ones are part of a larger category called “industrial engineering estimates of
customer value”.
Internal engineering assessment
The first method requires little or no direct customer input, and is called internal
engineering assessment. With this technique, an estimate of the value of a product is
obtained by laboratory tests conducted by scientists/engineers within the supplier’s own
firm. Application of this method depends upon detailed knowledge of the usage of the
product by the customer (as well as the usage in the customer’s production process in the
business-to-business case). Assumptions are typically made about the way in which
results from lab tests will generalize to the customer’s actual usage of the product.
Field value-in-use assessments
They are interviews conducted with the customers to determine a comprehensive listing
of cost elements associated with the usage of a product. All relevant costs associated with
the product offering and its usage need to be considered. Making then explicit
assumptions, values are assigned to these cost elements to estimate the overall value-in-
use of the product offering in that application. By contrast with the first method, value-in-
use assessments require considerable customer cooperation and active input to arrive at
an estimate of customer value.
Gemba research can be considered an evolution of value-in-use assessment. Gemba is a
Japanese word which means ‘‘the true source of information’’. It is the place where the
product or service acquires value for the customer; where it is actually used. During a
Gemba research, customers are not only asked about the different costs elements
associated with the usage of a product, but they are observed while using this product.
These observations then make it possible for the “observer” to determine the different
costs incurred by the usage of the product, the problems or the opportunities it creates.
Indirect survey questions
This method is intermediate to the previous two methods in the extent of customer
cooperation or active input that is required to provide an estimate of value. Respondents
are asked what the effects of one or more changes in the present product offering would
be for them. From these answers, typically combined in some way with other known
information, estimates of the value or worth of each product offering change can be
obtained. Hence, this method can be used to fill in critical gaps in the supplier firm’s
knowledge of the customer’s usage of its product offering, or to test whether assumptions
made about this usage are reasonable.
The next method provides overall estimates of customer value.
Focus group value assessment or direct survey questions
In some cases, field value assessment is not possible and the only way to obtain
information for a value model is to rely on customer perceptions. Within a focus group
setting or through direct survey questions, participants are exposed to potential product
offerings or product concepts, and are then asked what their value or worth would be for
them. The goal is to gain a better understanding of the perceptions and reactions of
participants to actual or potential product offerings. In doing so, the researcher attempts to
generate estimates of value. A series of follow-up questions would be needed to gain an
understanding of how the component parts of an offering contribute to its overall
estimated value.
Two methods of customer value assessment can be grouped together as being
“decompositional”; that is, they enable a researcher to break down a respondent’s overall
perception of the value of a product offering into the elemental values contributed by its
component parts. They are the conjoint analysis and the benchmarks.
Conjoint analysis
Respondents are asked to evaluate a set of potential product offerings in terms of their
purchase preference for each of the offerings (through a specific rating or ranking). Each
offering consists of an array of attributes or features, and the levels of these attributes are
systematically varied within the set of offerings. Statistical analysis is then used to
“decompose” these ratings into the value that the respondent places on each level of each
attribute. The range of these values for the levels of each attribute determines the relative
value of attributes themselves. Green, Krieger and Wind (2001) precise that for such
studies, researchers may prepare prop cards like the ones in Figure 10. After the
respondents sort the prop cards in terms of preference, they might be asked to rate them
on a 0 to 100 likelihood-of-acquisition scale. This method has received the most research
by marketing academics of any value assessment method. Thousands of applications of
conjoint analysis have been carried out over the past three decades.
Figure 10: Prop cards of services that a credit card could offer (Green, Krieger and
Wind, 2001)
Benchmarks
With this second decompositional method, respondents are given a description of a
product offering, typically representing the present industry standard, which serves as a
“benchmark” offering. They are then asked how much more they would be willing to pay
for selected additions in product attributes or features to this “benchmark” offering.
Likewise, they might be asked how much less they would expect to pay for selected
reductions in attributes or features from the “benchmark” offering.
An opposite methodology is taken with the compositional approach, also referred to as
the self-explicated approach.

Compositional approach
With this approach, an overall value estimate for an offering is built up from separate
value estimates given by respondents for each of its elements: respondents are asked to
directly give the value of selected levels of a set of attributes or features; the values given
for the attribute levels can then be added to give estimates of the overall value of various
product offerings to the respondent. Although the compositional approach has the
strength of being relatively easy to use, particularly when the number of attributes studied
is large, it does have some potential shortcomings, such as respondent unwillingness to
reveal the true values for attribute levels.
Importance ratings
Respondents are given a set of attributes or features of a product offering and are then
asked to rate (or rank) theses attributes on importance to them. For the attributes or
features that were rated, respondents are also asked to rate (or rank) the supplier firms
with respect to their performance on them, thereby providing a competitor analysis of the
value provided by each supplier’s product offering. A shortcoming of importance ratings
as a method of customer value assessment is that they do not provide an estimate of the
perceived worth in monetary units of the product offering or its elements.
Apart from these eight methods described by Anderson, Jain and Chintagunta in
their study, we find it important to underline that most companies willing to measure the
customer value of their products organize satisfaction studies. In those studies, clients are
asked what they think about particular features of a product or service they bought.
However, the section about the efficiency of the different methods (see §2.2.3.) provides
some arguments against such techniques, and we already mentioned in §1.4.2. that
satisfaction generally provides poor approximation of customer value.

Other techniques also include field-depth interviews and field tests. Field-depth
interviews, conducted at the customer firm, trade shows or industry meetings, make it
possible for the supplier firm, who has less information, to learn more about very
technical products. Field tests of sample or prototype product offerings can help assessing
whether a higher performance product also meets customers requirements.
Finally, some researchers argue that studying customer defections can also be a good way
to do it (see §2.2.3.).
To conclude about the different methods to measure the customer value of a
product, it might be interesting to briefly describe how Toyota, following its Lean
philosophy (see §3.2.1. for a quick description of Lean) manages to assess customer
value. As a matter of fact, Toyota goes beyond the techniques that were previously
described, selecting program leaders with the background and the experience to establish
an emotional connection with the target customer (Morgan and Liker, 2006). Morgan and
Liker precise that the program leader at Toyota is the Chief Engineer (CE). In addition to
being a super engineer, he or she must understand what customers value and how these
value characteristics fit to the new vehicle performance characteristics. Toyota’s chief
engineers and their staffs go to great lengths to achieve this understanding. One anecdotal
example illustrates this fact: a chief engineer did not hesitate to move in with a young
target family in Southern California to enhance his understanding of the generation
lifestyle associated with the customers of a new vehicle. Moreover, to assure that the
driving experience achieves maximum benefit, CE team members receive advanced
driving training as well as vehicle evaluation-skill training to identify problems and
recognize improvement opportunities.

2.2.2. Usage of the different methods
Figure 11 on the next page presents the results of the study by Anderson, Jain
and Chintagunta (1993) about the usage of the different methods. After a definition was
given for each method, informants were asked “Are you familiar with this method?”. The
percentage of informants answering “yes” is presented. Then, they were asked “Have you
used this method in the past two years”, and the results are presented in the last column
(“usage”).
A general finding is that industrial firms rely upon methods that have less complexity or
cost associated with them. For example, focus group value assessments and importance
ratings are the only methods that have 90% or greater familiarity and 60% or greater
usage. Direct survey questions and internal engineering assessments are also quite
common methods. Compositional approach, on the opposite, is much less familiar, maybe
because of its greater complexity. The same remark can be done for conjoint analysis.
No general figure is available about satisfaction surveys, but they are likely to be
the most common method. Defection analysis, on the opposite, is used by very few
companies. Reichheld (1996) uncovers seven principal reasons for this underutilisation:
- Many companies don't understand the intimate, causal relationship between
customer loyalty on the one hand and cash flow and profits on the other.
- It is unpleasant to study failure too closely, and in some companies trying to
analyze failure can even be hazardous to careers.
- Customer defection is often hard to define.
- Sometimes customer itself is a hard thing to define.
- It is extremely hard to uncover the real root causes of a customer defection and
extract the appropriate lessons.

- Getting the right people in an organization to learn those lessons and then commit
to acting on them is a challenge.
- It is difficult to turn the analysis of customer defections into an ongoing strategic
system, closely supervised by top managers and quickly responsive to changing
circumstances.
Figure 11: Usage of the different methods (Anderson, Jain and Chintagunta, 1993)
2.2.3. Success of the different methods
Again, the results about the judged success of the methods from the study by.
Anderson, Jain and Chintagunta (1993) are presented in Figure 12. It appears from this
table that even allowing for the subjective nature of judging success, applications of these
methods are almost never “not successful.” Further, all the applications of these methods
are judged to be successful, rather than partly successful.
Considering specific results, conjoint analysis has the highest percentage of judged
successful applications (85.3%). So, when firms use conjoint analysis, it successfully
provides the answers to the value-related questions that they wanted to address. However,
in some specific cases, conjoint analysis might not be the best method to capture
customer value, for example for complicated or abstract product concepts.
On the contrary, internal engineering assessment has the lowest percentage (55.9%) of
judged success, perhaps because of the difficulties of internally having sufficient
knowledge of the customer firm’s actual usage of the product offering.
The most-widely-used methods, importance ratings, focus group value assessments and
direct survey questions, are judged to be successful in 75.8%, 70.0% and 66.7% of their
applications, respectively. However, these methods should not be used alone. Generally,
focus group value assessments are perceived to be most useful as a preliminary value
assessment method, particularly at the concept stage of product development, rather than
as a method that can be used to conclusively determine value. Importance ratings can be
used to identify key attributes of a product offering, but additional ratings of the relative
performance of suppliers on the attributes of the product offering would be needed to
obtain a ranking of the value provided by the alternate suppliers’ offerings. Finally, direct
survey questions should be used when quick, quantitative information is needed and for
familiar, simple, non-technical products; otherwise, it should be used in conjunction with
other methods.
Figure 12: Judged success of the different methods (Anderson, Jain and
Chintagunta, 1993)
Specific comments then have to be made about the efficiency of satisfaction
surveys, which are widely used by the biggest industrial companies. Some academics
refer to this phenomenon as the “satisfaction trap”. In the first chapter, the conceptual
distinction between satisfaction and customer value was underlined (see §1.4.2.), and
according to these academics, as tools for measuring the value a company delivers to its
customers, satisfaction surveys are imperfect. They argue that satisfaction surveys have
two principal problems (Reichheld, Markey and Hopton, 2000).
The first one is that satisfaction scores have become an end in themselves for many
companies -in many organizations, they are considered a higher goal than profits,
whereas satisfaction is not directly related to market share and profits. Today, as a result,
more than 90% of industry customers report that they are satisfied or very satisfied, but
repurchase rates remain in the 30% to 40% range. Even more striking, in business after
business, 60% to 80% of lost customers reported on a survey just prior to defecting that
they were satisfied or very satisfied.
The second problem is that satisfaction surveys are often poorly conceived and
conducted: they measure the wrong activity or the wrong customers; they are easy to
manipulate; they encourage companies and employees to invest time and money
unproductively. For example, whenever rewards are based on satisfaction scores, the
result is unproductive behaviour. Employees naturally seek the easiest ways to improve
scores, not necessarily the most profitable ways. To illustrate this fact, calling customers
immediately after they have bought a car and asking about the experience is one way to
keep scores high but probably won't lead to increased loyalty. Another drawback is that
surveys ignore critical distinctions among customer segments (in the first phase of the
framework presented in §2.1.1., one advice was to focus on high-value customers).
Satisfaction research conducted broadly across the entire customer base will necessarily
show the influence of unprofitable customers: companies should channel their consumer-
satisfaction investments toward customers with the highest potential value. Finally,
another weakness of satisfaction surveys is that an increasing number of customers are

tired of being surveyed. Some companies contact their customers up to six times in a
year, for six different surveys.
On the opposite side, despite being scarcely used, defection analysis is gaining
increasing support amongst academics, for two main reasons. First of all, and contrarily
to satisfaction, defections are strongly linked to customer value and are even the clearest
possible sign that customers see a deteriorating stream of value from the company.
Second, a climbing defection rate is a sure predictor of a diminishing flow of cash from
customers to the company, and is consequently closely related to profits (see
Introduction).
Finally, Gemba research is also seen as a very powerful tool to measure customer
value and its efficiency is highly recognized. An explanation for this high success is that
only by meeting customers and by seeing how they use products and services can
manufacturers understand what customers consider to be important, what difficulties they
have to deal with, or what their wishes and opportunities are. Many of these problems are
invisible to outside observers, and given that customers may not express these needs
verbally, observing customers ‘‘at work’’ is an excellent way of learning more. However,
customers’ words or phrases are usually too general and detailed to be directly used as
customer needs and therefore they need to be ‘‘translated’’ into more suitable terms.
2.3.How to transform customer value data into information
Very often, the methods that were previously presented provide data such as the
importance of different product attributes or the performance of a given firm on these
attributes. However, this data is sometimes not enough to implement an efficient value-
oriented strategy. This section is a presentation of the most famous tools used to
transform customer data into real information.
2.3.1. Gap analysis
Most of the time, techniques to transform data into information are based on a
gap analysis. However, many different kinds of gap analyses can be conducted.
For example, the method of gap analysis proposed by Parasuraman (1997) can be
used to test for gaps between producers’ perceptions and customers’ expectations about
attributes. A negative (positive) gap occurs for contribution to product value when the
customer’s mean response is greater (less) than the producer’s mean response for
attributes. In this case, identifying and correcting the gaps can help the producer prioritize
resources and avoid loss of revenue. Removing gaps can also help ensure the delivery of
value to the customer. Figure 13 shows the results of a gap analysis about the
contribution to product value. Negative gaps are considered more important because such
gaps may result in a loss of customers. Positive gaps are not necessarily good because
they can indicate an over-commitment of resources in one or more areas.

Figure 13: Gaps between the producer and the customer interviewed about the
contribution of attributes to overall product value (Idassi, Young,
Winistorfer, Ostermeier and Woodruff, 1994)
In this figure, the product attribute X contributed less to the overall product value of the
customers than perceived by the producer, whereas the management underestimated the
contribution of attribute Z.
Another kind of gap analysis can be down considering the satisfaction between
the producer and the customers’ other best supplier, as shown in Figure 14. In this
particular case, customers are globally pleased with attribute Y whereas attribute Z2 has
one of the lowest levels of satisfaction. However, there is a positive gap for this attribute
Z2: the producer performs better than its competitors on this attribute. A negative gap
occurrs for the service attribute U: the customers are less satisfied with this attribute for
the producer than for their other best supplier. This type of gaps may be critical to a
company for maintaining its present level of cutomers and designing proactive strategies
for improving customer relations.
Figure 14: Gaps in satisfaction between the producer and customers’other best
supplier, as related to product attributes (Idassi, Young, Winistorfer,
Ostermeier and Woodruff, 1994)
The Importance-Performance analysis can be considered another kind of gap
analysis. The last paragraph of this section goes into more details and explains how this
particular gap analysis can be used to identify value.
2.3.2. The value map
The customer value map, introduced by Gale (1994), is a tool to analyse whether
a product has provided superior customer value by plotting market perceived quality
(MPQ) against market perceived price (MPP) on a two-dimensional chart (see Figure
15). MPQ is the sum of multiplications between performance scores ratio (R) and
importance weight (W) on each quality attribute (for example aesthetics, environmental
impact, ease of maintenance…). MPP is calculated as MPQ; the only difference is that
MPP is applicable on price attributes such as purchase price, resale price, or interest rates.
Figure 15: Customer Value Map (Setijono and Dahlgaard, 2007)
Performance and importance scores data are usually collected using one or more of the
methods previously presented (see §2.2.). Performance scores represent customers’
cognitive judgment on product attributes, for example measured on a 1-7 scale, while the
importance weight usually is measured using a 0-100 scale, which represents how the
various product attributes are weighted in the customer’s decision.

Hence, we have:
*
&' = ( ∗ )
+,-
& = ( . ∗ ).
0,-
where:
- i = 1, 2, 3, . . . n, represent the quality attributes,
- Ri: ratio between the performance score of a product and the performance score
of the competing product(s), on the quality attribute i,
- Wi: the weight (importance) of quality attribute i,
- j = 1, 2, 3, . . . m, represent the price attributes,
- Rj: ratio between the performance score of a product and the performance score
of the competing product(s), on the price attribute j,
- Wj: the weight (importance) of price attribute j.
The “fair value zone” is the area where the ratio between MPQ and MPP is
approximately 1. Within this zone, products or firms provide ‘‘fair’’ customer value,
meaning that customers perceive a product with a certain quality level worth to be bought
at its current price level. Outside this zone, a product or a firm provides more or less
customer value (depending on the location of the point). A product or firm that provides
better customer value is more competitive in the market compared to its competitors.
However, Gale does not further discuss the way to determine the zone of fairness.
Therefore, the fair value zone must first be determined, and no objective method has been
created so far to do so.
Additionally, the value map mainly highlights customer value as a factor that influences
purchasing decisions and not customer value in a use-context. However, by extending the
term “price” to “life cycle cost”, and thus considering the cost of ownership during the
lifetime of a product, it can be argued that the customer value map is also applicable in a
use-context.
As a conclusion about this tool, the value map is useful to indicate whether the
value of a product is perceived as ‘‘superior’’ or ‘‘inferior’’ compared to other competing
products, and if the value of an individual product is perceived as fair, low value, or high
value.
However, the value map is inadequate to indicate what product attributes must be
improved to enhance the value provided to the customers. Therefore, the value map
should be combined with a Performance-Importance matrix to identify improvement
opportunities, so that the product attributes that cause the ‘‘inferiority’’ on customer value
can be identified.
2.3.3. Importance-Performance analysis
The last tool that we want to introduce and that can be used to understand
customer data is the Importance-Performance matrix (I-P matrix), considered as a
particular gap analysis. The I-P matrix can be used as a tool to evaluate a firm’s
competitive position in the market, to identify improvement opportunities, and to guide
strategic planning. It utilizes customer satisfaction data, where for each product (or
service) attribute, the average score of performance is plotted against the average
importance score using a 2x2 matrix; these attributes are then positioned in a grid with
four quadrants, as represented on the next page (see Figure 16).

Figure 16: The four quadrants of the Importance-Performance analysis (Garver and
Cook, 2001)
The area where the difference between the importance score and performance one
is close to 0 is called the “satisfaction interval”, as represented in Figure 17. This area is
analogue to the zone of fairness in the value map, if we define ‘‘fairness’’ as the absence
of gap between performance and importance. Hence, satisfaction is here defined as a
condition where the difference between P and I is equal or near to 0, which is coherent
with the arguments of §1.4.2.. Outside this zone of satisfaction, product attributes are
categorized as delighters if their performance is larger than their importance, while these
attributes are dissatisfiers for the customers if the performance is lower than the
importance.
Figure 17: The satisfaction interval in the I-P matrix (Setijono and Dahlgaard, 2007)
However, numerous studies reveal a big limitation of the Importance-
Performance Analysis (IPA), as there is growing evidence that the relationship between
attribute-level performance and overall satisfaction with a service can be asymmetric and
nonlinear (see the Kano’s model §1.2.1.). In other words, the “importance” of attributes in
the creation of the customer’s overall satisfaction may vary, depending on the current
level of attribute-performance. Neglecting these asymmetric effects has implications for
IPA and can be misleading, because the technique assumes linear and symmetric
relationships that do not allow for the possible existence of satisfiers and dissatisfiers.
2.4.Towards an integrated information system
Finally, the last part of this second chapter introduces some aspects about
information systems aimed at capturing and analysing customer value. After some
general considerations about such systems, the example of a specific software,
“Marketing War Room™”, is given, and its functionalities are presented, as well as some
snapshots of its interface.
2.4.1. General considerations about customer value oriented marketing
information systems
Organizations are moving forward in developing information systems to create
and implement superior customer value delivery strategy. Such systems help managers
learn about both performance outcomes of customer value delivery (they can have access
to sales, purchase intentions, customer retention, satisfaction…) and the causes of that
performance (these systems contain data about product offer components, customer
evaluations of received value on important value dimensions…). Analysing current
performance, managers can monitor the need for improvement; analyzing the
determinants of performance, they can focus on how to achieve that improvement.
A good customer value oriented marketing information system should provide
information both about customers’ current preferences, evaluations and behaviour, so that
managers know where immediate action is needed, but also about patterns of change, to
help them understand, predict and respond to future change.

One main advantage of such information systems is that they enable companies to
integrate their customer value information, that can be extracted from different sources
(see §2.2.). Figure 18 illustrates this opportunity to gather various kinds of data.
Figure 18: Integrating customer value data (Woodruff, 1997)
Thus, it allows an organization to match different types of data, organize this data, or look
for complementary relationships between data from specific steps in the customer value
determination process, from satisfaction surveys, or macroenvironmental data (especially
to uncover determinants of changes in customer value in the future).
However, information integration raises several problems for an organization to resolve.
One is about the form of customer data. A significant portion of that data is qualitative:
customer interview transcripts, salesperson call reports or complaints data, for example,
are generally textual data. Few managers will take the time to read such data in their
original form, so ways must be developed to draw out key findings and present them in
condensed form. Moreover, information integration should consider how to combine

quantitative and qualitative data. For example, complaints data could be coded and
categorized based on the same customer value dimensions measured by customer
satisfaction measurement.
The other main functionality of customer value oriented marketing information
systems is that analytical models can assist in the integration of customer value data. For
example, they can identify the strategically most important customer value dimensions
that influence customers’ behaviour thanks to regression and conjoint analysis techniques.
They can also analyse the impact of customer value decisions on customer behaviour
before implementing such decisions, which can be useful for example to assess the effects
on market performance of new product designs.
Since these systems contain the critical information for learning about customer
value, Woodruff (1997) argues that all the managers across an organization should have
access to it. Integrating customer value information should facilitate the sharing of
customer value learning and eliminate the gaps between the different views, across
various departments, about what value customers desire.
2.4.2. Example of an integrated information system : the “Marketing War
Room™”
Although customer value oriented information systems are becoming more and
more numerous, we chose to present the functionalities of one of them, called “Marketing
War Room™” (see http://cval.com/index.htm), since it is quite representative of what is
currently done in terms of information systems. According to the software brochure,

“Inc.’s Marketing War Room™ is a personal-computer software for helping a
productmarket team develop strategies to increase the value of their offering to their
customers.” It was developed by Dr. Bradley Gale and inspired from his book,
“Managing Customer Value”. The software uses data from many sources (market
research, competitive intelligence, customer satisfaction surveys, expert evaluators,
business plans and management judgment) and guides the management in finding and
organizing data on transaction prices and product performance.
More precisely, the Marketing War Room™ has eight main features:
- Customer-value accounting: it compares competitors on price and performance
scores; analyzes importance to customers of price and performance differences
among potential suppliers; positions products on a Value Map (see §2.3.2. and
Figure 19); calculates a fair price for each offering and compares to actual prices;
performs Head-to-Head Value comparison versus any competitor, and calculates
the economic worth to customers of your performance advantages and
disadvantages.
Figure 19: A Value Map generated by the Marketing War Room™

(http://cval.com/index.htm)
Concerning the value map, the software can show average price and average
performance in the market category, relative size of different suppliers in the market
thanks to bubbles; it can draw the fair-value zone, or identify the best prices available to
the customer at different performance levels.
- Support for Value-Based Pricing: Product Appraisal Table; Value Pricing Chart;
“slider controls” for simulating pricing strategy and flexible logic for isolating
costs of use and ownership.
- Simulating value propositions: it simulates how changes to benefit scores, prices,
or importance weights would affect customer-perceived relative value; analyzes
“what-if” scenarios using value map (see Figure 20), head-to-head, and other
tools; helps set realistic targets and scenarios can be stored and retrieved for
further refinement.
Figure 20: Simulation of two alternative concepts and positioning in the Marketing
War RoomTM value map (http://cval.com/index.htm)
- Defining the business and market: it places current and potential competitors on a
chart to help define a business and its competitive space and Product/Market
matrix clarifies how to segment a market for competitive analysis.

- Tools for crafting a value proposition: attribute score comparison (see Figure
21); attribute positioning chart showing importance vs. performance gap;
opportunities-for-improvement chart and comparative advantages table.
Figure 21: The attribute plots of the Marketing War RoomTM

(http://cval.com/index.htm)
- Tools for analyzing market position: Key-Events time line tracks how key events
have affected business trends; custom competitive-market data base design and
analysis.
- Tools for aligning people, programs and strategy: What/Who Matrix shows
which functions are responsible for maintaining customer-valued performance;
Program/Objectives matrix documents the performance-enhancement objectives
of major strategic programs; Program/Responsibilities Matrix documents who
is responsible for managing strategic programs.

The program is built on Microsoft Excel, which allows easy interface with other files and
adds flexibility for users familiar with spreadsheets. Moreover, it is quite easy to transfer
displays to Word or Powerpoint.

3. TOOLS TO I
CORPORATE CUSTOMER VALUE
I
FORMATIO
I
TO PRODUCT DEVELOPME
T
ABSTRACT
Chapter 2 presented some methods to assess a product’s competitiveness and to identify
which product attributes need to be improved. However, that is far from being enough to
increase the customer value of a product and gain a competitive advantage. As a matter of
fact, once the customer value of a product has been assessed, one has to trace to the
processes that are “responsible” for the quality attributes, and incorporate the information
about customer value into product development. This chapter is a presentation of some
tools that might help product developers integrate the information from the customer
value assessment into the product development process. A first section will present the
most “usual” tools such as Quality Function Deployment or Value Engineering, while a
second part will explain how lean product development can lead to a better utilization of
customer value information. More particularly, this second part will explain how one can
know how much value is added by product development activities.

Tools to incorporate customer value information into product development
3.1.Different methodologies to use customer value in product development
In this first section, the most famous methodologies used to take customer value
into consideration in the product development process are briefly presented: we will first
describe Quality Function Development, and then provide an overview of Value
Engineering characteristics. Many companies are trying to implement these two
techniques, but not always with great success since both methodologies need people with
very different functional roles to be highly involved in the process. However, when
successfully implemented, they prove to be of very high interest.
3.1.1. Quality Function Deployment (QFD)
Quality Function Deployment (QFD) was conceived in Japan in the late 1960s
and early 1970s, at Mitsubishi’s Kobe shipyard site. Hauser and Clausing (1988) define it
as a planning and communication framework that helps design, produce and market the
goods/services that customers wish to purchase, using information about customer value.
Over the years, QFD has been enhanced with new tools and mechanisms (many of them
developed by Toyota), but the cornerstone of the entire theory is the “House of Quality”,
which is illustrated in Figure 22 (the figure is commented hereunder). The foundation of
the House of Quality is the belief that products should be designed to reflect customers’
desires and tastes; marketing people, design engineers and manufacturing staff must work
on it together from the time a product is first conceived. Top executives know that the use
of interfunctional teams benefits design, and that coordinating design and production
decisions to focus on customers’ wants became absolutely necessary, and the House of
Quality appears to be the tool that makes it possible.
Figure 22: The House of Quality (Ulaga, 2003)
The first step in building a House of Quality is to identify customer needs or ‘‘customer
attributes’’ (CAs): phrases customers use to describe products and products
characteristics. CAs can be gathered using one of the techniques described in Chapter II.
A typical application would have 30 to 100 CAs, which are generally reproduced in the
customers’ own words.
Not all the needs, however, carry the same importance. Consequently each one is given a
weighting, which is usually established by market research and interviews (this is the part
called “needs weight” in Figure 22). Weightings are displaced in the house next to each
CA, usually in terms of percentage (a complete list totaling 100%).
On the right side of the map, opposite the CAs, stands the perception (or perceptual) map,
which is a customer’s overall assessment of the firm’s current product/service in
comparison to its competitors’ product/service. That is a way for companies that want to
match or exceed their competition to first know where they stand relative to it, and to
identify opportunities for improvement. Ideally, these evaluations are based on scientific
surveys of customers.
Once defined, the CAs must be converted into product/service features or the so-called
engineering characteristics (ECs): we need to describe the product in the language of the
engineer. These ECs become the design objectives, and are usually located in the top part
of the House of Quality. Each EC is likely to affect one or more CA(s). If a standard
engineering characteristic affects no CA, it may be redundant to the EC list on the house,
or the team may have missed a CA. On the other hand, a CA unaffected by any EC
presents opportunities to expand the product’s properties. As a rule, an engineering
characteristic should describe the product in measurable terms and should directly affect
customer perceptions.
The next step is to complete the main part of the house, the relational matrix, which
illustrates the effect that each technical characteristic has on each customer attribute. This
relational matrix is actually the intersection between the CAs (they are the rows of the
matrix) and the ECs (they are its columns). The team seeks consensus on these
evaluations, and uses numbers or symbols to establish the strength of these relationships.
Building this matrix enables each of the ECs to be assigned a weight.
Once the team has identified the voice of the customer and linked it to engineering
characteristics through the relational matrix, it adds objective measures at the bottom of
the house beneath the ECs. When objective measures are known, the team can eventually
establish target values, which are ideal new measures for each EC.
Another part of the house is its “roof”: on the “roof” of the House of Quality, the
correlation matrix is drawn. In this matrix, the relationships between the different ECs are
illustrated through an appropriate scale (for example, from -9 to 9), or through symbols.
That helps the engineers specify the various engineering features that have to be
improved collaterally and facilitates necessary engineering trade-offs. In many ways, this
roof contains the most critical information for engineers because they use it to balance the
trade-offs when addressing customer benefits.
These are the basics of the House of Quality, but design teams often custom-build
their houses. Some add another row that indicates the degree of technical difficulty for
each EC, showing how hard or easy it is to make a change. Others input relative weights
to the EC. There are no hard-and-fast rules: the aim is to help the teams to set targets
which are, in fact, entered on the bottom line of the house. For engineers, it is a way to
summarize basic data in usable form; for marketing executives, it represents the
customer’s voice; and general managers use it to discover strategic opportunities. A good
example of a House of Quality is presented in Figure 23. This example is taken from the
car manufacturing industry and was created by Hauser and Clausing (1988).
Figure 23: A good example of a House of Quality (Hauser and Clausing, 1988)
3.1.2. Value Engineering (VE)
Value Engineering is a systematic method to improve the value of goods by using
an examination of functions, i.e. what something "does" (not what it is), and was created
at General Electric Co. during World War II. Cell and Arratia (2003) argue that VE
analytic approaches and methods have quietly been saving millions of dollars a year, in
companies and countries around the world, and use of the VE approach has been steadily
growing for over 50 years. VE has no great corporate proponent, or hot best-selling book,
to promote its use. Nevertheless, it continues to grow and evolve as a discipline for the
simple reason that it works - it will reduce cost and increase value of items, systems, and
processes, and it offers great flexibility.
VE is based on the assumption that value can be defined as the ratio of function to cost,
and can therefore be increased by either improving the function or reducing the cost.
Function analysis is consequently the heart of VE. More concretely, when a team
successfully undertakes the process of identifying a system’s component functions, it is
then prepared to conduct a range of analytic and creative actions, the most important of
which is creating alternatives for each function. In addition, a good function analysis will
help a team identify value mismatches, which are instances where a disproportionate
amount of cost is allocated to an area of low customer interest. On the other hand, one of
the goals of VE, as a consequence of pursuing value improvements, is to ensure that basic
functions are preserved and not reduced.
In VE, functions are always described in a two-word statement consisting of an active
verb and measurable noun (what is being done - the verb - and what it is being done to -
the noun), and that has to be done in the most non-prescriptive way possible. Value
engineering uses rational logic (a unique "how" - "why" questioning technique) to
identify relationships that increase value.
VE is often done by systematically following a multi-stage Job Plan. There are
many versions of the Job Plan, but one widely-used version has six steps (Cell and
Arratia, 2003):
1. Information gathering
2. Analysis
3. Creation/speculation
4. Evaluation
5. Development
6. Presentation
Four basic steps in the job plan are:
- Information gathering: in this step, we try to identify what the requirements for
the object are. Function analysis is usually done in this initial stage, to determine
which functions or performance characteristics are important. Questions such as:
What does the object do? What must it do? What should it do? What could it do?
What must it not do? are asked.
- Alternative generation (creation): in this stage value engineers try to find answers
to the following questions: What are the various alternative ways of meeting
requirements? What else will perform the desired function?
- Evaluation: all the alternatives are assessed by evaluating how well they meet the
required functions and how great the cost savings will be.
- Presentation: in this final step, the best alternative will be chosen and presented
to the client for final decision.
In a nutshell, VE offers analysts an effective analytic method for developing
design changes to reduce cost and increase value: developing value increasing design
changes is VE’s bread and butter. Few approaches or methodologies can match VE’s
ability to increase value in product design or attributes, but some researchers argue that
Lean and VE complement each other because they share many important attributes (both
approaches, for example, first focus on what the customer wants). According to them, VE
can leverage, accelerate, and amplify efforts to implement Lean principles and practices
in an organization and in turn, Lean can enhance the effectiveness of VE efforts. The
second section of this chapter rapidly presents the attributes and some frameworks of
Lean methods in the new product development process.

3.2. A lean approach to product development
Development of Lean was led by Toyota and later adapted by American
companies, most notably car and truck manufacturers. Lean then spread to the aerospace
industry, which now uses Lean extensively but use of Lean principles and practices
continues to grow in other industries. For those organizations that take the Lean approach
seriously, Lean produces excellent results: Cell and Arratia (2003) argue that steady
improvements in productivity of 40%-60% are common. Lean reduces cost, improves the
efficiency of production, and focuses on customer wants and needs which is, as we
underlined it in the global introduction of this work, a key factor to gain competitive
advantage.
However, most of the companies that adopt the Lean approach use Lean Manufacturing,
and companies are finding that this is not enough to stay competitive. To approach
Toyota-like levels of performance and survive the current global challenges companies
must take Lean and other strategic concepts upstream into new product development.
Products that do not reach out to customers in terms of price, performance, and benefits
do not sell well. In short, designs that arrive at the factory late, with poor production
yields, major manufacturing problems, and unresolved engineering problems, undermine
the benefits of Lean Manufacturing. Moreover, applying standard Lean tools to the new
product development process will certainly reduce development lead-time. The key is
then to understand how to adapt the Lean principles to product development.
After a quick overview of what Lean management is and how Toyota implements its
Lean philosophy into its new product development process, two different frameworks of
Lean product development will be presented.

3.2.1. Overview of lean management
Lean thinking provides a way to specify value (from the customer’s perspective),
lineup value creating actions in the best sequence, conduct these activities without
interruption whenever someone requests them, and perform them more and more
effectively. However, to do so, Lean requires a long-term, enterprise-wide cultural
change.
Lean’s roots, as precised in the introduction, are in the Toyota Production System. Taiichi
Ohno (1912-1990), the Toyota executive credited with developing the Toyota Production
System, evolved the Lean concept through his frustration with waste – (muda in
Japanese). He defined muda as any human activity which absorbs resources but creates
no value for the customer.
Lean’s power lies in its ability to view a “Value Stream” from the customer’s perspective.
Lean then improves processes to optimize the value stream by removing non-value added
work. At the heart of this continuous improvement approach is the Kaizen event. This is
typically a week-long event, and targets a specific area within the Value Stream. Kaizen
events are repeated on a regular basis, and involve teams composed of employees from all
parts of the organization, including top management. Waste-eliminating actions which
may have been missed in one event, future events will eventually address, in addition to
addressing changing work conditions, customer requirements, or adjusting to impacts
from other Kaizen events.
Lean employs a systematic approach based on these 5 principles:
1. VALUE: specify what the value is and what one is trying to do; this element can
be described only by the customer.

2. IDENTIFY THE VALUE STREAM: determine the core set of actions required
to produce a product or, so to say, the individual steps that one has to do to
deliver the identified value.
3. FLOW: make these actions or steps flow.
4. PULL: let the customer pull; he should begin to pull the product on an “as-
needed basis”. One should never simply turn the process on and begin to “pile
up” products.
5. PURSUE PERFECTION: develop and amend the process continuously to pursue
perfection; one can always make things better.
3.2.2. Lean product development at Toyota
Even if Lean was first applied to manufacturing systems, Toyota also adapted his
Lean approach to the new product development process. Morgan and Liker (2006)
describe the different steps that Toyota follows in its product development process to
deliver value to the customer.
As we mentioned it before (see §2.2.1.), at Toyota, it is the chief engineer’s (CE)
responsibility to deliver value to the customer. First, he communicates customer-defined
value, vehicle-level performance objectives, and aligns the vehicle-level performance
goals of the entire program team. This step begins with the “Chief Engineer’s Concept
Paper”, which outlines the CE’s vision for the new vehicle. The concept paper, a
document that rarely exceeds 25 pages, usually takes several months to complete. It
includes both quantitative and qualitative objectives for vehicle characteristics,
performance, cost and quality. Many people provide input for the concept paper but it is
written and issued by the CE and finally presented in a large auditorium as the marching
order for all participants.
Once the concept is approved, the next step in the customer-defined value process is to
develop specific objectives that support the chief engineer’s vision for all functional
program teams. The vehicle-level performance goals set by the CE must be translated into
specific, measurable objectives for the stylists, packaging engineers, body engineers,
stamping engineers, etc. that make up the program team. Putting into operation customer-
defined value at a vehicle level creates a value hierarchy. As the CE team moves down
this value hierarchy, it decomposes the high-level vehicle-level performance targets and
aligns them at each level into a set of specific actions. This process gives Toyota an
internal customer perspective for each functional team
Next, “module development teams” (MDT), responsible for each vehicle subsystem, meet
to develop specific, measurable goals for each subsystem and communicate it to the CE
team. Using a customer-first attitude and the CE as the primary voice of the customer, the
various MDTs go through fairly intense negotiations and ultimately commit to specific
objectives designed to support the vehicle-level performance characteristics. This process
drives everyone to focus all efforts and energy toward delivering value to the customer.
The final version of these objectives is posted and tracked throughout the program. Team
members’ performance is judged, in part, by their ability to hit these targets. This results
in each member of the program contributing directly to delivering customer-defined
value.
The next step in the process requires intensive cross-functional participation among the
MDTs to develop specific strategies and value targets to deliver the value-driven
commitments each team made. Equipped with predetermined value targets, the various
MDTs work together by studying field quality data, tearing down competitor products,
and visiting dealerships to document direct customer feedback. They also visit their own
and competitor’s manufacturing quality and efficiency.
Finally, Morgan and Liker precise that it is important to understand that as the cross-
functional MDTs go to the source, they are going with a common set of objectives and
goals based on vehicle-level performance objectives set by the chief engineer. Because
the MDTs begin their quest for delivering value early in the process, while the vehicle
concept is most fluid, they are able to communicate and integrate their value-driven
commitments with the design, engineering, processing, and manufacturing departments,
which presents many opportunities to discover potential improvements to their
development ideas.
This Toyota-inspired Lean product development process, however, is only one of
the many possibilities to adapt Lean principles to product development. Many other
researchers proposed their own vision of Lean product development. Our intention here is
not to present all of them, but we chose to mention two interesting proposals: one from
PureInsight, which is an independent source of business management information for
experienced managers of design, innovation, product development and technology, and
another one from the Lean Aerospace Initiative.
3.2.3. Some principles of Lean product development according to Pure Insight
In its report of May 2009, Pure Insight proposes actions for each of the five Lean
principles when trying to apply them to the product development process. It presents an
assessment of the five key concepts underpinning Lean product development describing
each concept and how it plays its part in maximizing the efficiency of the new product
development process. We will not go into the details of this assessment, but we find it
interesting to briefly present the actions proposed to focus on customer value during
product development. These actions are mainly related to the first two Lean principles:
understanding customer value and mapping the value stream. Some comments about the
fourth principle (pull the customer) will also be made.
As far as the “understanding customer value” principle is concerned, the authors
of the report argue that customers should be engaged in prototyping: this way, companies
bring customers’ views on value into product development. A number of recognized
voice-of-the-customer techniques and disciplines with prototyping and usability testing
already exist. Pure Insight argues that there is no reason to implement 100% of the
product functionality in the first prototype that gets built, that “rapid prototyping”
increases capability and reduces costs, and that the key is testing with prototypes on
customers in the product development process as early as possible. Involving then the
customer into the regular testing of design prototypes makes it possible to uncover
difficulties and provide feedback that will enable a development team to make informed
decisions on how designs can be changed to eliminate user frustrations.
More precisely, models of rapid prototyping can be used:
- during the initial design stages to quickly check the end effect of what the team is
trying to do for the customer,
- for customer assessment to get quick feedback from potential customers on new
designs,
- for customer panel appraisals for trade shows and exhibitions and to generate
promotional material prior to production.
Globally, building something that people can react to -through usability testing for
example -leads to much richer voice-of-the-customer information. For example, Nokia

uses prototypes throughout the product development process in the development of its
mobile phones to allow better collection of customer requirements, and sees prototyping
as a key to getting user driven products right.
Pure Insight also provides its readers with a practical tool to map the value
stream. This tool is a table that traces the efficiency of the new product development
process and the value of the product under consideration. Figure 24 is a sample of this
tool. The scorecard should be used during Kaisen workshops (see §3.2.1.), and these
workshops should include not only the manager responsible for the process being
improved or people who actually do the work within the process, but also customers,
because the most important phase of the workshop is the identification of their needs.
Figure 24: A process improvement scorecard (Pure Insight, 2009)
Last but not least, the report clarifies what “pull” in product development means.
According to the researchers, “pull” means responding to the articulated and unarticulated
needs of the customer (both external paying customers and internal process customers)
rather than guessing what is needed and pushing it out. Consequently, the “pull” concept
is especially important during the design phase because it ensures that all activities in the
development program are in sync with end-customer requirements. “Pull” techniques help
translate customer requirements accurately into product design, functional engineering,

and process design. These techniques also ensure that critical requirements are transferred
consistently between the different main-line stations.
The last section of this chapter is a presentation of a framework proposed by the
Lean Aerospace Initiative (LAI) to take customer value into consideration during the
product development process, in a Lean optic. This framework is made up of both
theoretical and practical tools.
3.2.4. The value creation model and value activity map of the LAI.
The Lean Aerospace Initiative (LAI), considering and going by past work by
other researchers, proposes a framework for defining and measuring value within product
development or, to be more precise, to determine the amount of value that product
development activities add and their sensitivity with respect to performance, cost, time,
and risk. In particular, the researchers from LAI propose two conceptual tools to allow a
better understanding of the development of value in product development. The first one is
a conceptual framework for value creation in product development, referred to as the
“Value Creation Model”. The second tool is the “Value-Activity Map”, which shows the
relationships between specific activities and value attributes. We find it interesting to
present both these tools here.
Actually, the Value-Activity Map is a practical application of the Value Creation
Model. This Value Creation Model was created after the LAI product development team,
in the summer 1999 workshop, concluded that data based metrics must be used to drive
activities, and that the value associated with a task must be addressed at each step of the
process. One of the models that can be used to identify value in the product development
process is the one by Robert A. Slack that was presented in § I.3.2. However, researchers
from LAI propose another conceptual framework about how value is created in product
development, and how it can be measured. Figure 25 is the representation of this Value
Creation Model.
Figure 25: The value creation process (Chase, 2000)
Product development activities are shown creating information and reducing the risk and
uncertainty of the project. To proceed, these activities need both internal inputs (from
previous activities) and external inputs (knowledge and resources). The activity passes
information to the following activities, hopefully in a form useful to them. Just as
information is collected to produce the final product, one can imagine value
accumulating. There is also a final metric of the end value of the final product, expressed
in terms of final value to the customer.

The challenge lies in determining the relationship between the product development
entities and the accumulating value (represented by the horizontal arrows feeding value in
Figure 25). A method is proposed by the LAI for capturing this relationship by
decomposing it into specific associations between activities, information and value added.
At each step, the activity and the information created by it (including information about
risk) is mapped into locally available attributes and/or metrics of value. A list of value
attributes is shown in Figure 26.
Figure 26: Value attributes for product development (Chase, 2000)
Completing the value attributes of Figure 26 for a given activity makes it possible to
capture a measure of value for that activity. If all activities in a product development
process are mapped against all available value attributes and metrics, the result would be
a value mapping tool.

This proposed tool is the Value-Activity Map we introduced at the beginning of this
section. A Value-Activity Map, as intended by the LAI, is a matrix that relates product
development activities and information to specific value metrics (see Figure 27). The
rows of the matrix list alternating activities and information ordered as sequentially as
possible. The columns contain the value attributes with their associated metrics. The size
of the map will depend on the level of detail to which the product development process is
decomposed. Researchers of the LAI argue that a balance has to be struck between the
desire to model in detail and the obvious possibility of the map becoming intractably
large.
Figure 27: The Value-Activity Map (Chase, 2000)
This approach presents many benefits. Simply comparing the boxes where a relationship
exists to the "white space" in the matrix will graphically illustrate how value evolves
throughout a product development process. If several projects are analyzed, then a global
look will capture best practices. Another benefit is the possibility to integrate the matrix
into a systems dynamics model. The matrix would directly correlate with the relationships
used in the model, and the system dynamics model could then contain an accurate
portrayal of the product development process. The model could then be analyzed for
optimization and sensitivity. Finally, a simple modification would combine the value
attributes into a single value metric. This would produce a chart that shows the increase
of value with time, as proposed in the Value Creation Model.

4. FROM THEORETICAL PROPOSALS TO
REALITY: A
EMPIRICAL STUDY
From theoretical proposals to reality: an empirical study
4.1. Scope of the study and methodology
In order to give a concrete dimension to our work and to understand more deeply
what is effectively done in big companies in terms of measuring customer value, we
decided to lead an empirical study with some Italian companies. Actually, the difference
is often huge between what academics recommend and how people in the field work, and
the scope was to get a general idea of the importance given to customer value orientation
inside some companies, and of the usage of different customer value oriented tools in
practice.
To do so, a questionnaire focused on customer value and its influences on the product
development process was redacted. This questionnaire was partly based on a work done
by some team members of the LeanPPD project (see §4.1.1 for further explanation about
this project.) but was then modified to better match our goals (see §4.1.2.). It was sent to
different people, with different functional roles in different companies. Actually, two
different case studies were conducted in parallel: a first one to understand how customer
value was perceived inside a given company (see §4.2.), and a second one to compare the
perceptions and the customer oriented tools of different companies (see §4.3.).
This first subsection of the chapter will describe how the questionnaire was built, whereas
the last two ones are a presentation of our two case studies.
4.1.1. The LeanPPD project
As specified on its website, the LeanPPD project is composed of 12 leading
industrial and research European partners, and is addressing the need of European
manufacturing companies for a new model that goes beyond lean manufacturing to ensure
the transformation of the enterprise into lean environment. This is to respond
to customers and market demands for value creation incorporating sustainability, culture
and customisation. More concretely, the aim of LeanPPD is to develop a new model
based on lean thinking that will consider entire product life cycle, providing a knowledge
based environment to support value creation to the customers through innovation and
customisation, and delivering high quality, more sustainable and affordable products.
To do so, the project is developing a comprehensive set of lean methods, design
techniques, and tools. Specifically the model has four tools to provide as an outcome of
the research project, and one of them is called “The LeanPPD Product Development
Value Mapping Tool (PD-VMT)”. This tool will be used to take a snapshot of a
development process to identify value adding and non value adding activities and a
subsequent help to stream line the process.
In particular, the Task 230 “Measuring Product Value from the Customer perspective”
within WP 200 “Product Development Value Mapping Tool” led one of the teams of the
project to the elaboration of a “Customer Value Questionnaire”. The scopes of this
questionnaire were to help to build a set of values that customers require in products and
to review methods for assessing customer value. The survey was organized in three
sections, respectively called “Value”, “Waste” and “Product Development Process”,
which represented a total of 33 pages and 48 questions.
That was far too long for the questionnaire we wanted to send to the companies,
but still it contained some interesting elements: the LeanPPD survey was modified to
better fit our specific goals. The questions of the last two parts, in particular, were not
always of high relevance for our work, and were not re-used -except for two of them
which seemed more coherent with our own objectives -. However, the first part on value,
since it was more related to what we wanted to do on the one side, and because we
thought that its questions were more “understandable” and pertinent on the other side,
gave us some elements for our own survey. Some of the questions from this first part -as
well as their answers -were reformulated, others were added, and we got a first version of
our questionnaire.
4.1.2. Our questionnaire
That first version was reviewed by two specialists of the new product
development process: Vincenzo Pagliarulo, mechanical engineer with experience in the
new product development process in the automotive industry, and Michele Riccioni,
consultant at JMAC Europe Milano S.P.A., a management consulting company focused
on the logistic and production processes and on the technology and product innovation
fields. Their advice helped us improve the survey, which was finally made up of three
main parts:
- a first general part -but maybe the most important one- to understand what
definition the respondents gave to “customer value”, what their customers would
consider as value in their product(s), and how the company captured customer
value (who is in charge of it, which tools are used to do so, which are the clients
involved in the process, and how do they translate customer information for their
product development process);
- in the second part, we focused on their customer value orientation going into
more details about benchmarking with competitors, specific training on customer

value analysis, reporting about customer value, or IT tools to track customer
information for example;
- finally, the questions of the last part of the survey were about improvements and
performances and referred to the position of the company about waste, the
initiatives to reduce costs and lead times in new product development, and the
KPIs used to assess the performance of this process; the purpose of this final part
was to get a better understanding of how people in the product development
process of the company worked.
The final survey, made up of 19 questions and 7 pages, was created on surveymonkey.com
(a website to create professional surveys, get responses and analyse the results with ease)
and sent to potential respondents through a web link. See Appendix 2 for the
questionnaire.
4.2.First case study: an internal comparison at the Indesit company
As mentioned at the beginning of this chapter, the purpose of our first case study
was to analyse the points of view of different people with different functional roles inside
a given company, to understand whether there was a shared knowledge on customer value
or not. The company that was chosen participates in the LeanPPD project and is Indesit.
Indesit Company is one of the European leading manufacturers and distributors of
major domestic appliances (washing machines, dryers, dishwashers, fridges, freezers,
cookers, hoods, ovens and hobs). It is the undisputed leader in major markets such as
Italy, the UK and Russia. Founded in 1975 and listed on the Milan stock exchange since
1987, the Group posted sales of € 2.6 billion in 2009 (see Figure 28). Indesit Company
has 16 production facilities (in Italy, Poland, the UK, Russia and Turkey) and 16,000
employees. The Group's main brands are Indesit, Hotpoint-Ariston and Scholtès.
Figure 28: Results of Indesit for the last three years (www.indesitcompany.com)
On the next pages, more information about the different markets of the company
and its product lines is given. All this information was taken from the website of the
company. The results of the case study are gathered in §5.1.

4.2.1.Indesit’s markets
Indesit Company has its roots in Fabriano, a town in Le Marche where it has its
headquarters, innovation centre and a number of production facilities. Internationalization
and unification of European markets hasn't blurred the Italian identity of Indesit
Company, and its values enabled it to successfully replicate its model of an industrial
district in other countries. The company has eight production plants in Italy (in Le
Marche, Campania, Piemonte, Veneto and Lombardia) serving local and European
markets, but is now looking towards increasingly competitive emerging markets, as
shown in Figure 29.
Figure 29: Indesit’s markets (www.indesitcompany.com)
A brief description of each of these markets is given in the following.

UK and Ireland
With the Hotpoint brand and over three million new customers every year, Indesit
Company is the market leader in the UK and Ireland. The Group has also consolidated its
leadership in the Service business, with After-Sales Service Centres throughout the
region. The service is run from a single unit, in Peterborough, which has a Contact
Centre, a spare parts warehouse and a team of specialists guaranteeing after-sales service
for a platform of over 24 million products. In recent years, Indesit Company has won
various major awards which have helped consolidate its position even further. In 2008,
for example, it was given two important awards at the Motor Transport Awards, in the
“Customer Care” and “Network of the Year” categories, in recognition of its logistics
organization.
Western Europe
Western Europe is a vast commercial area with mature and highly competitive markets.
Over the years, Indesit Company has succeeded in its policy of maintaining its financial
solidity and, thanks to a strong, consolidated commercial network (24 commercial offices
worldwide), has continued to strengthen and consolidate its position by exploiting the
proximity of major markets like France and Spain. The Group’s approach in these
markets is based on strong technological innovation, products that are increasingly
advanced and tailored to consumers’ needs, re-positioning of the three main brands and a
strong focus on quality.
Eastern Europe
Indesit Company has long believed in the capacity for development of central and Eastern
European countries and over the years there has been considerable overall growth in the
region, thanks also to foreign investment. The Company can now boast leadership
positions in Romania, Bulgaria and Ukraine and a significant industrial presence in
Poland and Turkey. In particular, the Group has concentrated its fridge and cooker
production in the Łódz Special Economic Zone. In 2008, it opened two new plants in
Radomsko to make washing products, thus completing the range and creating the biggest
white goods centre in the country. High growth rates, competitive production costs and an
optimum geographical position have made Turkey too an attractive industrial base.
Russia
Indesit Company has been in Russia and the CIS since 1974 and was one of the first
European companies to invest in the country’s economic development. The Group now
has ten commercial offices and over 300 after-sales centres in 150 cities in the region.
Its production capacity in Russia, based on know-how and technology supplied by
headquarters in Fabriano, is concentrated in a fast developing industrial area, Lipetzk,
some 400 km south of Moscow. The Lipetzk industrial district has two plants (one
making fridges, the other washing machines) and, since 2005, the biggest white goods
logistics centre in the Russian Federation and the biggest in Europe in the industry.
Overseas
Outside Europe, Indesit Company operates in the Middle East, Far East, Argentina, South
& North America, Africa & Israel through three commercial branches in Dubai,
Singapore and Buenos Aires.
Figure 30 on the next page summarizes the company’s results by operating segment for
year 2009.
Figure 30: Indesit’s results by operating segment, 2009 (www.indesitcompany.com)
4.2.2.Product Lines
As far as the product lines are concerned, Indesit mainly operates in three
different fields, that we describe here below:
Cooling
The cooling products sector is strategically located over a vast area, from West to East,
and accounts for around a third of the Group’s total production. In particular, the Łódz
plant puts in excellent results thanks to a new platform that makes it possible to develop
and efficiently produce different types of fridge for different markets.
Washing & Drying
Indesit Company makes around five million washing machines a year. Production is
geared to consumers’ needs, environmental protection and compliance with user safety
regulations. The development of appliances that can guarantee top performance with
minimum consumption of energy, water and time and with scrupulous attention to the
needs of the laundry too, is priority for around 4,000 people in the various production
units. Indesit Company’s production of dishwashers is concentrated in None (Turin) and
Radomsko (Poland). The None and Radomsko plants produce free-standing and built-in
dishwashers for all the Group’s brands. All Indesit Company’s dryer production is at Yate
(UK), the biggest dryer production facility in Europe with 700 employees.
Cooking
Indesit Company produces over 3.5 million ovens, hobs and cookers, all with Class A
certification. Recent innovations have further improved the ergonomic aspects and ease
of use thanks to special studies of consumers’ needs.

4.3.Second case study: a confrontation between three big Italian

companies
The purpose of this second case study was different from the Indesit one. Here,
we contacted a unique person from the new product development process of different
companies, and the goal was to compare the differences in the companies’ approaches to
customer value. In particular, we were interested in knowing the kind of tools the
companies used to measure customer value and to integrate it into the new product
development process, and in the customer value orientation of these companies.
This section is a presentation of the three companies that accepted to collaborate on this
work (ABB -SACE division, Carel Industries SRL and Dell’Orto S.P.A.), and the results
are gathered in §5.2.
4.3.1.ABB SACE division
ABB is a Swiss-Swedish multinational corporation headquartered in Zürich,
Switzerland, operating mainly in the power and automation technology areas. ABB has
operations in around 100 countries, with approximately 117,000 employees, and reported
global revenue of $31.8 billion for 2009. ABB is traded on the SIX Swiss Exchange in
Zürich and the Stockholm Stock Exchange in Sweden since 1999, and the New York
Stock Exchange in the United States since 2001
ABB is the world's largest builder of electricity grids and is active in many sectors, its
core businesses being in power and automation technologies. The company has one
corporate division and five production divisions since reorganisation in January 2010:
- Power Products
- Power Systems
- Discrete Automation and Motion
- Low Voltage Products
- Process Automation
4.3.2. Carel Industries SRL
Carel SpA is an Italian society working in the HVAC/R market, established in
1973 and located in Brugine (Padua - Italy), specialized in the manufacturing of
humidification systems and electronic controls for refrigeration and air-conditioning. The
company is consolidated internationally (70% of sales are made outside of Italy), and
operates both directly through subsidiaries and an organisation that is present in around
eighty countries. Indeed, since the early nineties, CAREL has been operating abroad
through a number of subsidiaries. 850 employees work for the company, and the annual
sales amount 110M€.
4.3.3.Dell’Orto SpA
Dell'Orto is an Italian company, headquartered in Cabiate, specialized in the
construction of carburetors and electronic injection systems. The company was founded
in 1933 as "Società anonima Gaetano Dell'Orto e figli" (Gaetano Dell’Orto and Sons).
Their first products were carburetors that came fitted as standard to new vehicles. Shortly
before World War II they began producing carburetors with aluminum bodies for use in
motorcycle racing.
At the beginning of the 1960s Dell'Orto was producing OEM carburetors for
the Fiat group, as well as other Italian and foreign constructors. At the end of 1980s,
under the supervision of Luigi Dell'Orto (son of Gaetano), the company's first injection
systems were released.
The company is today one of the worldwide leaders in the field of carburetion, with
annual sales of 40M€, and is present in the sport field as partner of Gilera that participates
in the Road Racing World Championship.

5 - RESULTS OF THE EMPIRICAL STUDY
Results of the empirical study
5.1.Results of the Indesit case study
12 participants from Indesit filled in the survey, most of them between 30 and 40
years old (only three participants were a bit younger) and with 1 or 2 years of experience
in the current position (only two people claimed a longer experience : 4 and 5 years).
Different profiles were targeted. For example: project managers (3), Interaction Design &
Ergonomics specialists (2), a quality manager, a marketing analyst, an innovation
manager, a R&D manager.
On top of the survey, a visit to the Fabriano production site was organized at the
beginning of June, to expose the results to Renato Aiello, who gave us further
information about the company’s orientation towards customer value and organized a
visit of the company.
The next paragraphs are a summary of the results extracted from the questionnaire.
5.1.1.About customer value perceptions
Although most of the respondents (more than 90%) agreed on the fact that the
company follows a market pull strategy to develop new products, they seem to have very
different outlooks on what customer value means and on what their customers really
value.
First of all, there is not a shared definition of customer value inside the company. Even if
all the participants agree or strongly agree on the definition from the value components
models (“the features that a customer would like or need to be considered in the
development of a new product”) -which is the poorest one, they have different opinions
on the definitions that also consider the costs or sacrifices incurred in acquiring and using
a product. As a matter of fact, the last two definitions that were proposed, and that are
supposed to be more complete than the value components definition, split the participants
into 2 groups: 50% globally or strongly agreed on these definitions, 50% hold a different
view. Two people proposed their own definitions of customer value; the first one only
considers benefits, the other one also mentions costs: “the benefits that the end user
would like to have and the values in which the customer believes”, “a sum of benefits
which manufacturers promise customers receive in return for the customer's payment”.
Regarding the different components that their customers value, once again the
participants from Indesit provided different responses. Some elements such as brand,
reliability, efficiency, quality or product cost were predominantly categorized as
“demanded elements” (or must-have). Others, however, were positioned in different
categories depending on the respondents; materials used, ease of disposal, accessibility or
shape, for example, were classified in three or four different categories (unwanted/nice to
have/must have/exciter), with sometimes a total score of 25% in each category, showing
that the participants did not share the same point of view on the value of these elements.
5.1.2.About the customer value definition process
According to the different answers that we got, the sales department is in charge
of capturing the customer value, the product and requirements engineers analyze it, and
the marketers do both. Apparently, no mixed team of both sales managers and engineers
has been created so far to work on customer value, and some respondents did not include
engineers in the process of analyzing customer value.
About the tools they use to capture customer value, the results are on Figure 31. Focus
groups and satisfaction surveys, which are the easiest tools to put in place, seem to be
Results of the empirical studyy
used since a high percentage of respondents chose them. No certain conclusion can be
drawn regarding the other tools (except maybe for value-in-use

value use assessments which got
63,6% of positive response), since respondents

res gave different answers.
81.8%
72.7%
63.6%
54.5%
45.5%
36.4%
27.3% 27.3%
9.1%
Figure 311: Tools to capture customer value at Indesit.
About the tools to represent the captured customer value in product design and
development, results
esults are shown in Figure 32.. No structured tool seems to be used since
only brainstorming got more than 50% of positive response. But once again, the weak
coherence in the answers that were given might mean a scarce awareness of the way the
responsible entities inside the company deal with customer value, more than a lack of
tools to do so.
80.0%
50.0%
40.0%
30.0%
10.0% 10.0%
Figure 32:: Tools to represent the captured customer

customer value in product design and
development at Indesit.
Finally, when asked about which kind of clients were involved in the value determination
process:
- 90% of respondents underlined the participation of potential customers,
- 80% the involvement of current

cu customers,
- and only 20% said that lost customers were also involved.
40% of the respondents stated that competitors’ customers also participated in the
process, but more than 90% responded yes to the question “does the company benchmark
the customer value against its competitors”. 80% of the people declared that the
customers were also involved during the different phases of the product development
process to feedback the company about the value

valu seen in the product.
5.1.3.About
About the customer value orientation
The results about the customer value orientation part of the survey kind of
confirm the sensation that Indesit employees can gain a better awareness of what is done
in the company to capture and

a analyze customer value.
The three graphs of Figure

igure 33 show the results about the implication of different
categories of employees in the customer value determination process. Shop-floor

Shop floor workers
and engineers seem not to be involved in the customer value determination and
integration process, whereas some managers might get a specific training on value
analysis methods, even if only 50% of respondents (and all of them were managers…)
affirmed so.
Do shop-floor workers participate in the

process of integrating customer value
information?
Yes
38%
No
63%
Do your managers get a specific

training on value analysis
methods?
No Yes
50% 50%
What about your engineers?
Yes
22%
No
78%
Figure 33:: Implication of different categories of employees at Indesit
Five respondents declared that the product development team received
information about customer value through product specification and requirement
documents. Two of them underlined that the marketing department was in charge of
communicating
municating internally and follow-up
follow up the customer value information, but, according
to more than 60% of the participants, this process is not known by all the employees
participating in the development process.
Moreover, a majority of respondents declared that:
- the achievement of the captured customer values after the product has been
designed is not measured,
- the company does not reward employees that contribute to achieve the customer
value expectations,
- the company does not have any IT tool to document and track the information
about the customer values during the product lifecycle.

5.1.4.About improvements and performances
About waste, a wide majority of participants (more than 70%) declared that
“There is interest to improve the product development process by eliminating waste, but
there is no clear plan”
Finally, about defining and carrying out improvement initiatives to reduce cost
and lead times in the new product development, opinions were more divided but nearly
40% of respondents said that “Improvement efforts are periodically undertaken using an
unstructured improvement process”.

5.2.Results of the second case study
For this second case study, we got four respondents: two from ABB SACE
division (a project manager and a design engineer), the product development director of
Carel Industries SRL, and a product development and planning manager from Dell’Orto
SpA. Here again, the results are presented in the next paragraphs.
5.2.1.About customer value perceptions
The three companies said that they followed a market pull strategy to develop
new products, showing their involvement in focusing on their customers’ wants. That was
a necessary condition to carry out our survey, since it would have made no sense to ask
the companies about customer value if they were only technology oriented.
Regarding the meaning they give to customer value, respondents agreed or strongly
agreed on two out of the three definitions of customer value that were proposed. More
precisely, they all agreed on the definition from the value components models (see
§1.2.1.) and on the one from the means-ends models, whereas the opinions about the
definition from the utilitarian models were more contrasted. That was the first surprising
result of this second case study: whereas in the Indesit company, the utilitarian definition
of customer value got the highest number of positive responses, the respondents of the
second case study gave more importance to the other definitions and only partly agreed
on the utilitarian one. This is all the more surprising since the means-end definition is
supposed to be an evolution of the utilitarian one.
However, we might have got different results if we had asked other people in the three
companies –and that is what happened with the Indesit case. Then, the “safest”
conclusion that we should draw since, moreover, all respondents agreed on at least two
definitions, is that there might not be a unique and well-defined position on customer
value.
Finally, even if the companies operate in different sectors and it might make little sense to
compare the opinions of the respondents about the features that bring value to their
products, some common results emerged. For example, reliability, efficiency, ease of
maintenance and quality were categorised as must-have by all respondents, whereas they
agreed on the fact that creativity, brand, aesthetics, shape and colour could be considered
as nice to have.
5.2.2.About the customer value definition process
Regarding the way the companies capture and analyse customer value, and
according to the results that we got, the same functional groups in the different companies
are involved. Actually, for all of them, the marketing department is in charge of capturing
and analysing information from customers, and product engineers, even if they are not
responsible for capturing customer value information, support the marketing department
in analysing it. Project managers also play their part in the process in the three
companies: they analyse customer value information at Carel Industries SRL, whereas
they also capture it in the other companies. Finally, an interesting outcome of the survey
is that, except for marketers, all the people implied in the customer value definition
process have significant experience in the company (at least 6 years), which is coherent
with the conceptual framework we presented in §2.1.
About the tools they use in this process, however, the results are more heterogeneous.
Both ABB and Dell’Orto Spa use complaint or failure analysis, satisfaction surveys, press
referrals and analysis of sales, whereas people at Carel Industries SRL use value in use
assessments and talk with customers and competitors to get more information about
value. In the three companies, present and potential customers are part of the process, but
Dell’Orto Spa also interacts with lost customers.
Finally, the techniques used to represent the captured customer values in product design
and development vary amongst the companies. All of them use brainstorming as a mean
to translate and integrate customer value information into their product development
process, but this process comes with other specific methodologies. For example, Carel
Industries SRL uses Quality Function Development, whereas ABB and Dell’Orto Spa use
Design For Manufacturing and Assembly and lean tools. In any case, shopfloor workers
are not involved in the process.
5.2.3.About the customer value orientation
The results of this part of the survey, once again, were globally quite similar for the
different participants. In particular, in the three companies, neither the managers nor the
engineers get a specific training on value analysis methods, and there is not any kind of
motivational techniques linked to market orientation. Only Dell’Orto Spa measures the
achievement of the captured customer values after the product has been designed and has
an IT tool to document and track the information about the customer value during the
product lifecycle. Both ABB and Dell’Orto Spa have a formal process to gather,
communicate internally and follow up the customer value information; this process is
known by all the employees. Finally, in these two companies, the customer is involved in
the different phases of the product development process to feedback the company about
the value seen in the product.

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APPE
DIX
Appendix 1: Excel table, synthesis of the papers
Appendix 2: Questionnaire on customer value and its

influences on the product development process
Reference Categories
Theoretical conceptions of Customer
Authors Date Practical studies, study cases Operational tools to measure CV Operational tools to integrate CV
Value (CV)
Different paths of a field value assessment:

Different situations to use CVA : managing
Anderson J.C., Def of CV. Focus on "total cost models" putting together the right people, generate
1998 offerings, product development, gaining
Narus J.A. and lifecycle cost. list of value elements, gather data, validate
customers, sustaining relationships
the model, create value based sales tool.
Existing methods of customer value

assessment (9). Results about usage of the
Anderson J.C., methods (most used = focus group value
Definition of the concept of customer
Jain D.C., assessment + importance ratings), their
1993 value; business decisions areas where
Chintagunta success (most successful = conjoint
knowledge of value is critical.
P.K. analysis), the methods used for each
business decision. Implications for
research: comparisons among methods
Study in the health care sector in UK.
Particular status of the client/patient: not
About how lean management can be
Angelis J. 2008 really able to dictate his wants ... Doctors
applied in health care centers.
are in the best position to know what
patients need! Market freedom limited
Summary of a benchmarking study of 30 organizations. Identification of 4 areas for
APQC 1999 research, and then 15 key findings in these 4 areas --> conclusions of the study about
the best practices.
Overview of 6 sigma and of lean

management. Misconceptions regarding
Arnheiter E. D.,
2006 both methodologies. Reasons why firms
Maleyeff J.
should intergrate lean management and 6
sigma --> "lean six sigma".
Def of CV as "emotional bond". Customer 5 steps in customer understanding:

Butz H.E. , bonding is more about how customers customer identification, planning data
1996
Goodstein L.D. behave than about what they say. 3 levels collection, collecting the data,
of CV (expected, desired, unanticipated). measurement of CV and implementation.
Presentation of lean requirements,

characteristics and of the reasons why VE
and lean should be leveraged: address
Cell C. L.,
2003 different areas, one is a strategic decision
Arratia B.
while the other provide practical tools.
Shared attributes of the 2 philosophies.
What VE can bring to lean and vice versa.
Methods and tools to measure value in

product development: economic value
added functions, PDCV model, design
Theories about value creation in product structure matrix (DSM), risk value method.
Chase J. 2000
development. Framework to measure value locally in the
product development process and link PD
entities and accumulating value --> VALUE-
ACTIVITY MAP (matrix)
Dissertation about satisfaction in taiwan

hotels. Presentation of the most famous
national customer satisfaction index
(swedish/american/european ones).
Presentation of a new model with 4
Chen C.H. 2009 dimensions: image, service quality,
perceived value and customer satisfaction.
Survey to establish relationships between
these dimensions : techniques used = SEM,
AMOS, factor analysis, content analysis for
open ended questions ...
Brochure of a software that helps develop

value-based strategies. Features: assesses
a product's competitive strengths and
weaknesses and hones a value proposition.
Customer Based on different tools : value map,
N.A.
Value, Inc attributes plot, improvement opportunities
... Useful to account CV, to simulate a
value proposition, to analyze a market
position, to align people/program/strategy
...
Common threads about the def of value

(7). Presentation of the different
categorization of perceived benefits (at
Day E., Crask
2000 least the 3 most famous). New concept of
M.R.
value : the customer decision making
process is a risk assessment process; value
increases when risk decreases.
Study in the food service arena. Conjoint

analysis to determine the relative powers
Dube L., of different attributes simultaneously,
Renaghan L.M., 1994 thanks to the presentation of 16 scenarios
Miller J.M. to the customers of a restaurant (scale 0-
100). 2 situations taken into account
(business and pleasure)
Study of the interaction between

satisfaction and CPV. Satisfaction is driven
by affective variables, CPV by cognitive
variables. Study : CPV impacts on
Eggert A., Ulaga
2002 satisfaction that impacts on
W.
repurchase/word-of-mouth/loyalty -->
satisfaction is a better predictor for
behavioral outcomes but the 2 concepts
are complementary (and not substitutes!)
Lean production method of ETI Group. 7

steps : define product, establish product
line optimization team (PLOT), determine
ETI Group 2005 target costs, translate requirements into
specifications, design at system level,
design at detailed level, production
preparation process (3P)
Advices to do it well: 3 key questions (key

buying factors? Our performance? Relative
importance of factors?) + necessity to set
an organizational strategy. Importance to
persuade all the employees of its
Evans G. 2002 Explanation of the evolution of CVM. usefulness, education of managers.
Regularity of reports. Which customers
should we work with? Data mining: can
help analyze the survey + choose the
correct customers we should send the
survey to.
Fandos Roig
Aim of the research: to establish a scale of measurement of the overall perceived value
J.C., Sanchez
(like GLOVAL in the tourism sector) in the bank sector. Use of a specific sample,
Garcia J.,
2006 questionnaire, factor analysis ... Results : 6 dimensions of perceived value (hypothesis of
Moliner Tena
multidimensionality confirmed), and then attribution of weights to obtain the overall
M.A., Llorens
perceived value
Manzonis J.
New theory about how CV changes.
Differentiation between perceived and
desired value. A number of forces (5
categories of environmental factors + 3
categories of perceived current
Flint D. J.,
2001 capabilities) create customer tension,
Woodruff R. B.
characterized by its affective strength,
perceived extensiveness and temporal
dynamism. Then, perception that the
suppliers are needed to reduce the tension
--> changes in desired value.
How to adapt 6 sigmas (statistical device to

Fontenot G., measure the number of defects) to
Gresham A., 2004 customer satisfaction. Applicable on high
Behara R. expectation attributes or on defection
rate. Need for simplified processes
Study of the best practices regarding customer oriented firms. 4 dimensions of a CVS culture (employees must realize the importance
Garver M.S.,
2001 of CVS data, desire to listen to the customers, be capable to understand the data and use it for decision making). Evidence of the
Cook R.L.
successful strategies: customer champions and executive support, intensity and persistence.
Conjoint Analysis = favorite methodology

to find out how buyers make trade-offs.
Explanation of the basic ideas (measure of
Green P.E.,
trade offs analyzing surveys, use of "prop
Krieger A.M., 2001
cards", of ranked response data...). Types
Wind Y.
of conjoint data collection. Conjoint
models. Evolution of this methodology.
Illustrative application and future prospect.
Describes the ways to use CV-oriented

marketing. Description of the 5 values that
drive customer's choice, of the 5 major CV
Harmon R. R., driver classes and of the key areas linked
1997
Laird G. to CV. CV should be used to select the
target market, to integrate CV knowledge
with value creating and delivery activities
and to measure customer satisfaction.
Need for a tool to design new products:

Hauser J.R., explains how to build the House of Quality,
1998
Clausing D. and how to go beyond the tools. + example
that illustrates the methodology
Study of CV and satisfaction in the after-

sales automobile service transaction. Link
about quality CV and satisfaction. Results :
Huber F., value has a positive influence on
Herrmann A., satisfaction, each of the service transaction
2007
Hennerberg episodes influence transaction satisfaction
S.C. to a different degree, and each of them is
represented by the value dimensions
(emotional, practical, logical and risk) to a
different degree.
Huber F., Model of CV integrrating psychological Implications on marketing (segmentation),

Herrmann A., 2001 notions (means-end theory). Cf graph of on advertising, distribution; importance of
Morgan R.E. the model pp 6. interfunctional teams.
Idassi J.O., Interviews, then mal questionnaire for

Young T.M., Product attributes are not sufficient to both a group of suppliers and a group of
Winistorfer explain CV --> benefits from use are to be customers. Then gap analysis to identify
P.M., 1994 taken into account too. And then CV discrepancies between producers'
Ostermeier measurement is not sufficient --> include perceptions and customers' expectations.
D.M., Woodruff measurement of satisfaction too Ex of results : graphs customers
R.B. response/management response.
Summary of the 3 different models of CV :
value components models, benefits/costs
ratio models and means-ends models.
Presentation of an integrative
Khalifa A. S. 2004
configuration, with 3 complementary
viewpoints: the value exchange model, the
value buildup model and the value
dynamics model.
Proposition of a model of value-creating
networks: core capabilities necessary to
deliver superior CV but very rare -->
Kothandaraman
2000 deintegration, + relationships to assemble
P., Wilson D. T.
the core capabilities = value-creating
networks. Tool to analyze value-creating
networks. Impact of electronic commerce.
Positive relationship between CV and
Scale for each item (each item belongs to a
Lassar W., brand equity --> necessity to measure
particular dimension of brand equity), then
Mittal B., 1995 brand equity. 5 dimensions of brand equity
the sum of scale ratings for a brand gives
Sharma A. : performance, social image, identification
its 'average brand equity rating'
trustworthiness and perceived value.
Presentation of "IPA" = importance-
performance analysis, that scores the
importance and performance of attributes
depicting them on a 2D grid --> used to set
priorities based on the voice of the
Mikulic J.,
2008 customer. Contentious about the method.
Prebezac D.
Proposition of a new framework (measures
of attributes performance, importance and
asymmetric effects on customers'
satisfaction, implication for IPA). Empirical
study.
Best way to capture the voice of the customer = meet him and see how he uses the
product --> GEMBA. General methodology followed: QFD, house of quality. Customers
attributes were attributed a degree of importance and a benchmarking index (both
Panizzolo R. 2008
thanks to surveys) + a strategic index (voice of the firm). Then weight = DI*BI*SI. Then
weights assigned to services (central matrix of the House of Quality). Then matrix with
weight of services and their diffusion in the market. Total Customer Satisfaction Index.
Woodruff's def of CV and CV hierarchy.

Additional questions: difference between
measuring satisfaction and measuring CV?
Which framework can contribute to
Parasuraman A. 1997 organizational learning about CV?
Presentation of such a framework, based
on the division of clients in 4 categories.
Each category focuses on a particular level
of the CV hierarchy.
Pureinsight 2009
About lean product development process
Pureinsight 2007
Previous def of customer perceive value +

new one, taking into account the
relationship dimension: (episode benefice
+ relationship benefice) / (episode sacrifice
+ relationship sacrifice). Importantt to
Ravald A.,
1996 understand the needs and to consider the
Grönroos C.
relational aspect. Alternatives for creating
value : increase benefits or decrease
sacrifice understanding the customer's
value chain (2 dimensions : cost efficiency
and market efficiency)
Evidence of the link between loyalty and

profits. Positive effects of loyalty (increase Satisfaction trap and necessity to monitor
Reichheld F. F.,
in revenues, in employment retention, defections: cf source 7. Necessity to focus
Markey R.G., 2000
decrease in costs) --> increase in profits. on the high potential value clients, not all
Hopton C.
And retention is directly linked to CV --> so of them.
direct positive link between CV and profits.
Reasons why defections measures are not

really used: difficult to link loyalty/profits,
to look at failure, to define defection, to
identify core customers BUT essential to
Reichheld F.F. 1996 do it. Explanation of how to conduct a root
cause analysis, of which people should do
it, and how to do it permanently.
Satisfaction trap: problems of satisfaction
surveys
Def of customer value proposition, 3 kinds
(all benefits, favorable points of difference
Rintamaki T.,
and resonating focus). Framework for
Kuusela H., 2007
identifying CVP based on a matrix with a
Mitronen L.
hierarchy of the value dimensions (eco,
functional, emotional and symbolic).
Explanation of what data mining
techniques are, of their categories
(discovery, predictive modeling and
Rygielski C., forensic analysis), and of their models
Wang J.C., Yen 2002 (classification, regression, time series,
D.C. clustering, association analysis and
sequence discovery). Link with CRM;
marketing has to focus on the depth of
each customer's needs.
About Value Engineering. Defines the steps
of a value study, Proposes a generic
SAVE
methodology, common terminology and
International 2007
standard practice. Provides guides to
Value Standard
know at what point to apply value
methodology to a project.
Report about a conjoint analysis study.
Explanation of the method and its different
steps (selection of a model, data collection
Schaupp L. C., method, stimulus set construction,
2005
Bélanger F. stimulus presentation, measurement scale
for the dependent variable, estimation
methods). Presentation of results and
limitations.
Synthesis of the different def of value.

Presentation of the value map and the
Presentation of the 'ValMEA' = value
performance-importance matrix, with
Setijono D., modes effects and analysis : added value,
2007 propositions to improve those tools : Mentions the QFD and the lean six sigma.
Dahlgaard J.J. perceived value, received value and
determination of the zone of CV fairness,
satisfaction correspond to different
LCC and CCJ, value-driven P-I matrix.
moments
Proposition of a framework to create

value: management decision process
(selectivity of customers cause high
Sharma A.,
diversity and better info), then description
Krishnan R., 2001
of the technology delivery process, the
Grewal D.
product delivery process and the customer
delivery process. Fig 1 p 4 = summary of
the model
Presentation of a model of CV taking into

account quality, total cost of ownership
and time. Value = need * ability to satisfy
About how to consider customer value
the need * f(t) / total cost. Other value
Slack R. A. 1999 (and other values) while mapping a
perspectives to take into account while
process in a lean organization
mapping the process: employee value (job
quality + compensation) and shareholder
value (EVA); linkages between them.
Study about the link between intelligence

generation and superior CV. 4 types of
intelligence generation, each one of them
Slater S.F.,
2000 is correlated to specific components of CV.
Narver J.C.
Conclusion = a well developed intelligence
generation capability is positively
associated with superior CV
New approach to the concept of value: CV

is a dynamic concept ("continuous
interaction between firm and customers")
and cannot be measured once + it is CO-
created by the firm and the customers (not
only by the firm!). Anthropological and
Tzokas N., social approach; consumption decisions
1999
Saren M. are value creative (construction of one's
identity, beginning of a competition
against one another). Criticism of usual
tools to collect data --> only relationship
marketing can be efficient, everything is
about dialogue (it "shapes needs and
behaviors to develop mutual advantage")
Importance of relationship value, study about the costs and benefits of the relationship
Ulaga W. 2003 supplier-customer. Grounded theory: theory is derived from the analysis of data; data
collected through interviews. Then assessments of trustworthiness, and results.
Presents the different articles of the

special edition of 'industrial marketing
management' about CV in business
Ulaga W. 2005
markets. 3 different perspectives of CV:
buyer's perspective, seller's perspective,
and buyer-seller perspective.
Software to collect, manage, analyze and

act on data from customers (=manage
customer value creation). 3 data types:
W.E. RAMAGE,
differential value proposition, demand
Commerce
2010 influence and opportunities. Tool to
Center Suite
understand the impact of different
1000
products on customers' profitability and to
better know where to invest to create a
competitive advantage.
Presentation of a real study and its results

in a particular field. Use of different items
and a Likert-type scale for each of them.
Wang Y.S., Tang
2001 Then, data collection, and treatment with
T.I., Tang J.E.
factor analysis. Conclusions about possible
extended works and limitations of the
model.
Website of
"Customer
Value map, benefit attributes, head-to-
Value, Inc",
head value comparison, importance-
competitive
performance analysis...
marketing
strategy.
Introduction of lean consumption to

provide the full value the customer
desires, because expanding array of
choices but decreasing time and energy. 6
Womack J. P.,
2005 principles : solve the customer's problem
Jones D. T.
completely, don't waste his time, provide
exactly WHAT he wants, WHERE and
WHEN it wants it, continually aggregate
solutions to reduce his time and hassle
New definition of customer value (mixing Customer Value Determination to replace

received and desired value). Implications: CSM and to take into account not only the
Explanation of how to translate learning
Woodruff R.B. 1997 richer theory of CV, more CV method tools, attributes but also the consequences and
into customer value delivery.
evidence impact of the tools on the goals. CVOMIS (information system to
performance. consider many info sources - cf fig 6).
Appendix 2: Questionnaire on customer value and its influences on the product development process
QUESTIONNAIRE ON CUSTOMER VALUE AND ITS

INFLUENCES ON THE PRODUCT DEVELOPMENT
PROCESS
DATE:
COMPANY:
Annual sales:
Number of employees:
Sector:
Product line under consideration:
Direct customers of the product (end user, internal organisation, external
organisation, government ...):
NAME (optional):
Age:
Position:
Years in this position:
This questionnaire is part of a study about customer value and the different ways you deal with
customer value information inside your company. After a first introduction part, you will be asked
general questions about the meaning you give to customer value, the people involved in the
customer value assessment process, and the various tools you use to capture and then integrate
customer value information into product design. In a second part, you will be able to answer around
ten more specific questions about your customer value orientation (e.g. about how customer value
information is communicated internally). Finally, a few questions related to your product
development process, its performances and its improvements, will conclude this survey.
1. Which business strategy does your company follow to develop new products?
Technology push Market pull
2. What do you think about the following definitions of customer value?

I agree with I hold a very
I strongly I completely
the general different
agree disagree
meaning view
(1) The features that a customer would like or need to be
considered in the development of a new product.
(2) The difference between the utility of a product for consumers
and the costs incurred in acquiring it.
(3) A summation of benefits minus the sacrifices that result as
consequence of a customer using a product to achieve his goals and
purposes.
If you have your own definition of customer value, please write it below:
3. Which of the following would your customer consider as value in a product?

Irrelevant Desired Demanded Exciter
(unwanted) (nice to have) (must have) (not expected but
highly appreciated)
Creativity/originality/innovation
Brand
Aesthetics/general look
Shape
Weight
Colour
Materials used
Environmental impact
Extended product lifetime/durability
Reliability
Efficiency
Ease of maintenance
Quality
Accessibility
Ease of disposal
User friendliness/operability
Flexibility/modularity
Product cost
Service cost
Emotional aspects
Others:
4. Who is responsible for CAPTURING and ANALYSING customer value in your company (you may
wish to select multiple options)? If possible, precise the average number of years of experience inside
the company of those people.
Capture Analyse Experience
Marketing
Sales
Product engineers
Requirement engineers
A team of sales personnel and engineers
Project Manager
Other (please specify)
I don’t know
5. How does your company capture customer value?

Satisfaction surveys
Complaint or failure analysis
Press references (positive and negative)
Analysis on sales and retention
Value-in-use assessment (interviews and observation of the customers to determine a
comprehensive listing of cost elements associated with the usage of a product)
Focus groups (participants are exposed to potential product offerings, express their feelings and are
asked what the value of these offerings would be for them)
Importance-performance analysis (technique to measure attribute importance and performance)
Conjoint analysis or other statistical methods (content analysis, factor analysis...)
Others (please specify):
I don’t know
6. When trying to capture customer value, which of these categories of people do you usually contact?
Present customers
In this case, please precise :
New buyers or Any buyer
Most valuable buyers or Any buyer
Potential customers
Lost customers
No one
Do you use data mining techniques to target these contacts?

Yes No
7. How do you represent the captured customer values in product design and development
(techniques, tools, technologies)? You may wish to select multiple options.
QFD (Quality Function Development)
DFMA (Design For Manufacturing and Assembly)
Six sigma
Lean manufacturing
Value analysis/value engineering
Brainstorming
Other (please specify):
Do shop-floor workers participate in this process?
Yes No
The following questions are more specific questions about Customer Value and the New Product
Development Process
About Customer Value orientation
8. Does the company benchmark the customer value against its competitors? Is the company aware of
which of its product attributes/values are better compared to its competitors and which of them are not?
Yes No
9. Do your managers get a specific training on value analysis methods?

Yes No
If yes, which managers?
What about your engineers?

Yes No
If yes, which engineers?
10. Do you assess/measure the achievement of the captured customer values after the product has been
designed?
Yes No
11. Does the company reward employees that contribute to achieve the customer value expectations or
do you have any kind of motivational technique linked to market orientation?
Yes No
12. Has the company defined a “formal” process established to gather, communicate
internally, and follow-up the customer value information?
Yes No
If yes, how do you report about customer value: how often, who is responsible for it and who gets the
information?
13. Is this process known by all the employees participating in the product development process?
Yes No
If yes, in what form does your product development team receive information about customer value?
Product specification and requirement document

Business understanding document
Experience from previous programs (i.e. things the customer expects but does not specifically ask
for.)
Other (please specify):
14. Does the company have an IT tool to document and track the information about the customer
values during the product lifecycle?
Yes No
If yes, what kind of tool is it and what are its functionalities?
15. Is the customer involved during the different phases of the product development process to
feedback the company about the value seen in the product?
Yes No
Comments/details related to questions 8 to 15:

________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
About improvements and performances
16. What are the short-term and medium-term goals in terms of product development? Please select the
first three goals for 2010 and the first three goals for the 2010-2013 period.
2010 2010-2013
Product cost reduction
New product development efficiency
New technologies introduction
New market penetration
A shorter time-to-market
Other:
Other:
Other:
Other:
Other:
17. Which of the following statements best matches your company’s position about waste (=anything
that does not add value to your product, that your customer would be unwilling to pay you to do):
There is no roadmap to eliminate waste in the New Product Development Process considering
customers' inputs
There is interest to improve the product development process by eliminating waste, but there is no
clear plan
Some product development teams use value stream mapping to identify value-added activities and
waste
All product developments teams use value stream mapping tools and focus on eliminating waste in
all their projects
Initiatives focus on eliminating waste not only within the company, but also at the suppliers'
product development process
None of the previous answers
18. Do you continuously define and carry out improvement initiatives to reduce cost and lead times in
the new product development
Continuous improvement projects in the product development are encouraged to reduce cost and
time, but there is resistance to change and there is neither clear plan nor long term roadmap
Improvement efforts are periodically undertaken using an unstructured improvement process.
Some improvement initiatives use a structured methodology that is well known by all product
development teams (e.g. Plan - Do - Check - Act Cycle or Six Sigma)
Most of the employees actively carry out product improvement projects using a structured
methodology to optimise new product development projects, focusing to reduce cost and lead
times
All new product development teams participate in improvement projects integrating suppliers and
customers to optimize the complete value chain
None of the previous answers
19. What are the different KPIs you use to assess your Product Development Process?
Thank you for completing this questionnaire.

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POLITECNICO DI MILANO

METHODS TO MEASURE CUSTOMER

Relatore: Prof. Ing. Marco TAISCH

Correlatore: Dott. Sergio TERZI

Julien CARDONA matr. 734335

Anno Accademico 2009-2010

TABLE OF CONTENTS ................................................................................................................... 2

business magazine -BusinessWeek -described customer value as the “new marketing

practitioners and marketing researchers. As an example, the mission statement of Exxon

institutions giving special attention to business-to-business marketing—have integrated

customer value research in their research programs. Finally, several international

To understand why creating customer value is becoming the centre of business

of the industrial area can be useful.

supported the existence of a relationship between product quality and performance. As a

reinforced an internal orientation. Managers were consequently asked to take their

transformation should be a better attention to markets and customers.

Many organizations already reoriented their strategy towards superior customer

confirm this positive link are convincing the last refractories.

changes in customer retention rates often result in impressive improvements in profits.

industries, found that an increase of 5% in customer retention could result in 25% to

focusing on customer value. According to this framework, described in Figure 1, the

and profits is clearly underlined. In short:

company’s book of business, building repeat sales and referrals.

replacing new ones declines.

better service to the customers.

invest in superior employee compensation (further reinforcing retention) and in new

and employee retention.

confirming the necessity to focus on customer value as a competitive advantage, there is a

If organizations want to become better at competing on superior customer value delivery,

the customer is looking and waiting for.

product modification, design of marketing communication and sales tools, pricing,

This work is an overview of how companies manage today to capture customer

manufacturing, used to incorporate the information on customer value into efficient

review and a description of the state-of-the-art. The Excel table of Appendix 1

value orientation of different companies. Chapter 4 is a description of the questionnaire

2- Overview of the 3- Tools to incorporate

Figure 2: Structure of the paper

significant definitions of customer value and their common threads, a categorization of

other similar concepts will be clarified.

1.1.A high diversity of definitions

A review of the literature on value reveals a wide diversity of opinions and no

customer value are presented hereunder.

Chronologically, customer value has been defined as:

- “The consumer’s overall assessment of the utility of a product based on

perceptions of what is received and what is given” (Zeithaml, 1988)

(Anderson, Jain and Chintagunta, 1993)

- “The market-perceived quality adjusted to the relative price” (Gale, 1994)

- “A perceived trade-off between the positive and negative consequences of

product use” (Woodruff and Gardial, 1996)

- “A customer’s perceived preference for and evaluation of those product

attributes, attribute performances, and consequences arising from use that

situations” (Woodruff, 1997)

The existence of so many definitions makes a scientific discourse on customer

as consequences, market-perceived quality, utility, emotional bond, perceived worth and

value differently, depending on how they define these other terms.

of a product or a service is not an objective process but is influenced by a perceptual

universal definition to this concept.

the most common outcome of multiple experiences, leading to brand or supplier

decision or when experiencing product performance during or after use, which

correspond to different judgement tasks.