Chapter 11:
11.1 Customization
Customers base their value of a company on the personal, unique experiences with the products, services,
information and solution provided.
The pricing model should fit the added value from the supplier
For a good, close relationship with consumers offer unique experiences, where objects are personalized
supplier becomes less replaceable
No organization is capable of achieving economies of scale, expertise and efficiency while staying local,
flexible and personal. challenge = offer access to the resources necessary for satisfying customer needs
rather than owning and exploiting these oneself.
Technology is a primary factor that can play an important role in facilitating the interface between
customer and organization (iPod and iTunes)
Secondary factor: the way in which the customer is being involved in the process of value creation:
- Mass individualization
Customization takes place within the range of options provided by the manufacturer (nike shoes, dell)
manufacturer learns about preferences
- Co-creation
In creative process, multiple partners contribute to the creation of something through an innovative
platform focus is on end-user and how they experience the product
- User-generated content (UGC)
Content that has been created by end-users ‘amateurs’ (youtube, Wikipedia) social media
- Crowd sourcing
Enable customers to contribute to the innovation process by engaging the masses to get involved in
carrying out some of the company’s tasks or roles open forum discussions, vote for best option etc
- User innovation
In situations where current solutions seem unsatisfactory and customers show high commitment to a
specific solution.
- Lead users
Users who have needs or wants that are apparent years or months before they become apparent
across the board. helps to prepared for the marketplace of the future (cooking equipment)
- Open-source software
This software allows the general public to freely adapt, use and distribute a software program
improvements that will be made, benefit everyone.
11.2 Co-creation
Biggest advantage: when co-created products/services are distributed freely amongst users inventors
get recognition for their work and receive status.
Advantages:
- Save cost, reduce the time-to market, risk of failure is low, need for expensive last-minute
adaptations to customer needs is reduced.
Reality: still limited role for customer (f.i. market research)
Involving customers in service innovation is easier, since service delivery already requires direct contact
Proven is that companies who involve customers in an active role are more successful.
During co-creation, also insights that are not yet fully understood by the users themselves will be shared.
Principles of co-creation:
The success of co-creation is dependent on the DART principles:
- Dialogue
Listening, speaking INTERACTIVELY, commitment, dedication of attention, caring for each other’s
interests and having a genuine interaction. discovering hidden needs and wants
, - Access
The access to each other’s worlds is often hindered, however opening up to each other permits
faster, more efficient, and better solutions and more meaningful experiences.
- Risks
Involving customers in a co-creative process involves risks, making risk assessment an important issue
- Transparency
Even though customers are well motivated to participate, if they see the process is mutual beneficial.
Will it only benefit the company? lose motivation, feeling of being used
These principles have been used to construct rules & steps to guide the co-creation process:
- A precise question -Motivating properly
- Proper phasing -Deploying appropriate techniques
- Involving the right people -Providing feedback
- Choosing the right format
11.3 The long tail: the complete assortment
The long tail is a distribution strategy that focuses on products and services in the tail of distribution. (tail
meaning products with little sales volume due to their particular nature)
They are many in number, but small in volume online music and book sales, eBay, Google etc.
Drivers behind the long tail:
1. The democratization of production
2. Distribution
3. Filtering that enables supply and demand to dovetail (contribute the finding side of searching)
11.4 Individualization of the product offering
Our society is based on manufacturing many products by large scale production systems supplying
customization places pressure on these systems.
Mass customization according to Pine & Gilmore:
- Mass customization: each customer provides unique information so the product is tailored to their
specific needs production process must be flexible. Organization must react quickly, no stock.
- Approaches to supply customization (based on the manner in which customers are letting know their
wishes)
- Cosmetic customization
Make simple adjustments in the product’s exterior (representation) packaging, sales materials etc.
- Transparent customization
Adapting the product, but not the representation (customized products have the same appearance)
- Collaborative customization
Adapting the product AND the representation differences in external features
- Adaptive customization
Neither the product nor the representation is adapted one standard product that can be adapted
by users to fit their own needs.
- Customization is valuable when product attributes are visibly different, with for example:
Consumer durables (cars), digital products & services (music), online services (entertainment), luxury
goods that meet complex individual tasks (cosmetics) and retailing.
11.5 Individualized pricing policy
Companies that offer individualized experiences but charge the same price towards everyone don’t dare
to derive maximum profit. That’s why individualized pricing policy should be explored.
Possibilities for implementing a precision pricing policy offered by e-commerce
- E-commerce experiences with different price models: customers pay for the use of the product, not
the possession. (You only pay for the pages you read)
- A payment can be asked for complementary services (wrapping gifts at Bol.com)
- Individual pricing is possible because:
We have better means to test it, adjusting prices on internet is easy, we can create customer profiles,
we can tailor the price to the available stock.
- Risks: price sensitivity will increase because customers pay for the usage time, high prices don’t mean
high profits.
, - The price differences must be understandable and desirable from the customer’s standpoint.
Revenue management
- The skill of maximizing yield by differentiating the price and by allocating parts of the production
capacity across the various price classes.
- The principle of revenue management:
When implement an equilibrium price, companies miss out on income that people were prepared to
pay this consumer surplus can be skimmed off through the introduction of multiple price classes.
When offering discounts on the same time, the price sensitive segment of the market can be
addressed. higher turnover, capacity utilization and revenue.
- Steps for formulation a revenue policy:
1 Segment buyer groups with homogeneous preferences regarding prices and quality
2 Price strategy per segment
3 Prediction of demand per segment
4 Allocation of capacity across segment
Chapter 12: The relationship policy
12.1 Customer asset management: improvement in the size and quality of the customer database
Customer asset management is the basis of developing a relationship marketing policy.
Organizations should have an optimal customer base made up from a limited number of ideal customers
with a high lifetime value.
For organizations it is important to attract and retain ideal customers, while keeping an eye on the balance
between acquisition, development, and retention.
A policy needs to be developed that aims to increase the number of top customers non-profitable
customers should be discouraged for making purchases.
A balance needs to be found between customer acquisition and relationship development.
12.2 Acquisition policy
Improving the size and quality of the customer base starts with acquisition.
There is no individual data of potential customers yet, so for CRM it’s logical to use social networks,
internet and mass media to gain new customers.
If the company wishes to attract a certain type of customer, the choice of advertising in media is key.
The company must be open and honest if it wants to attract long-term customers.
12.3 Relationship policy by segment
The relationship policy should be developed further for each of the customer segments.
For each group, a service concept can be developed to meet their needs. It specifies the value proposition
in terms of customization and pricing and deals with the way in which companies wish to communicate.
12.4 Relationship policy and life events
By taking events in customer’s lives into account, the relationship policy can be further developed.
Not new segmentation, but how a relationship policy per customer segment can be formulated around
the customer’s life cycle.
The value of the proposition is altered by the place it takes in the lives of customers.
With relationship policy, you wish to focus on these events, as they provide unique occasions to provide
value.
The impact of life events
- It’s possible to assess which life events have the highest impacts on a customer’s life:
- The Social Readjustment Rating Scale highlights the impact life events have on the psychosocial
balance of individuals. After certain events, customers value things differently and show behaviour
different with their historical patterns.
- Many organizations focus on positive changes (marriage, promotion) however, if helping people in
rough times (ANWB, Carglass) is perceived positive strong relationship
