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April 1997 Volume 1.8
The Value levers?
In the March issue we looked at the development and
evolution of the new CVA metric. In itself this metric would have
little use. It would be like the bottom line of a financial income
and expenditure statement, merely showing the overall current performance.
Like a financial statement, Customer Value Added only becomes useful
when the line items are available, and managers know what levers
to pull to make their businesses work better.
With a financial statement income and expenditure
determine the profit of a company. In a similar way, the Relative
Overall Product & Service performance of a company combines
with the Relative Overall Price & Cost performance as the key
drivers of the Customer Value Added (CVA) that a company delivers
to its customers.
The Internet Drivers
Let's see how this model applies to each of our Internet
providers. We have the four Internet Service providers (W, X, Y,
and Z), operating in the home market. We'll map the relative performance
information assessed in newsletters 1.2 and 1.7 for companies W
and X onto the model, and relook at how each company provides service.
Company W only provides its services to the home market
from 5pm overnight to 8am and all day at the weekends. It has set
charges at a total cost of $30 per month. Service is quite poor
and it is hard to get access from 7.30pm to 10.30pm every weeknight.
A Help Desk operates during business hours and on Saturday mornings.
The people are helpful and fairly friendly.
Although below parity on Product & Service with
a result of 98, this is more than made up with by Price & Cost
performance coming in at 108, to give an overall CVA of 107. This
is a good level of performance that will attract and retain customers.
Company X is the subsidiary of a larger company with
deep pockets. It has installed an "industrial strength"
computer, and promoted itself with television, and large colour
newspaper advertisements. This probably drives up perception of
price. A Help Desk operates 7 days a week. An efficient but impersonal
service is provided. Users are charged $2.50 per hour. It is usually
easy to get access at any time.
Although X is ahead with its Products & Services,
its poor performance on Price & Cost drags its CVA below parity.
This is likely to signal high customer churn with a very high cost
associated with replacing the customers who have defected. In a
rapidly growing market like the Internet access, this effect is
likely to be masked by the overall growth in customers. But it will
have a major impact on the cost structure of company X.
While it is good to know the drivers of Customer Value
Added it would be even better if we knew the impact that each driver
had on overall performance. Not only is this possible as we shall
find in the next newsletter, it is possible to build models that
allow what if scenarios to be tested.
The Science and the Art
Hello Rodger,
Thanks for sending me your newsletters, I enjoy reading them, and
they provide me with some useful insight into viewing business objectives
of customer service from a different angle.
I too have marveled at the Termometrolento, but
never knew its name! It has similar fascination to me as a wonderful
coffee-making machine that Robert Harris in Hamilton had about 8
years ago, I think it was called the Cafe Royale, and based on an
old French design. It sat on the customer's table, and had a flame
that boiled water in a vessel, that transferred into another vessel.
When all the water was gone, the empty vessel would
rise (through gravity) and this would flip a cover onto the flame,
extinguishing it. Then, as the vessel cooled, the vacuum would draw
the water back, via the ground coffee beans. The flavour was wonderful,
but of course the appeal was watching this thing bubble away and
the wonderful coffee aroma build on your table as you watch!
Geoff Pooch
Hill Laboratories
Doesn't the Coffee Royale sound wonderful? Alas, Robert
Harris in Hamilton now provides the generic franchise formulae,
and the Coffee Royale is no more.
Regards,
Rodger Gallagher
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