Market-Based Management Chapter 4: The Customer Experience and Value Creation

Prosumer

A consumer that takes product usage beyond its intended capability by modifying a product in a way that improves performance or serves an altogether new purpose. They are also advanced users who may not represent the needs of an overall target market.

Customer Value Index

A measure that uses performance and importance scores for the various performance dimensions for a product or a service to calculate a score that indicates the overall value of an item or service to a customer.

NaturalBeauty Inc. is a firm that manufactures a range of herbal cosmetic products under the brand name NaturalBeauty. To improve its odds of developing successful disruptive innovations, the firm listens to its lead customers and identifies product benefits that are not met by the existing cosmetic products in the market. After careful analysis, the firm chooses the most lucrative opportunity and uses an "invent to order" process to develop a new product. In this example, NatureFresh Inc. is using which of the following methods? A) horizontal integration B) diversification C) vertical integration D) market penetration E) reverse innovation

E) reverse innovation

Lead users are users who purchase a product only after it has been used by the majority of mainstream users.

False

List and briefly discuss the fours steps in developing new customer solutions with the help of a product's lead users.

Lead Users - Identify lead users who have extended the use of the product Customer experience - Study how lead users have extended product usage New benefits - Discover how the product could be modified to improve usage Product development - Develop a more complete customer solution or new product

Three Key Sources of Customer-Perceived Performance

Perceived Product Performance Perceived Service Quality Perceived Company or Brand Reputation

A product that will eliminate or significantly reduce the usage costs that customers presently incur offers a substantial economic value.

True

During the ________ stage of reverse innovation, a firm must communicate and deliver a value proposition that is built around the unique customer benefits of the product. a) identifying b) launching c) developing d)listening e) choosing

b) launching

Amtech Inc., an American firm that manufactures inkjet cartridges, also provides inkjet refill services at all its stores. The firm manufactures and sells "do it yourself" kits that allows customers to do their own inkjet refills. Amtech Inc. lowers the total cost of the product by solving its customers' problem of throwing away empty cartridges, and also enables customers to save money. In this example, Amtech Inc. reduces which of the following costs for their customers? A) disposal costs B) repair costs C) resale costs D) acquisition costs E) insurance costs

A) disposal costs

Moreno Motors Inc. identifies that bikers are usually the first users of their newly launched products. The firm sends consultants to biker rallies to discover how bikers who use Moreno motorcycles modify them to extend their usage, as well as the desired benefits. Recent visits revealed that bikers were seeking items, such as bolt-on chrome products, horsepower performance enhancers, and improved braking systems in Moreno motorcycles. In this example, Moreno Motors Inc. is studying which of the following groups of customers? A) lead users B) spinners C) laggards D) mainstream customers E) captive customers

A) lead users

McCann Chemicals is a multinational pharmaceutical company with headquarters in New York. The firm invites all the research scientists at McCann Chemicals, as well as clinicians and academicians to work on open-source projects funded by the firm. McCann Chemicals has a special web site that is used to create an open-ended group of prosumers, professionals, specialists, and employees, who can share information and help each other. In this example, McCann Chemicals is using which of the following methods? A) mass collaboration B) emphatic method C) vertical integration D) horizontal integration E) reverse innovation

A) mass collaboration

Perceived customer value is determined by ________. A) subtracting relative cost of purchase from relative performance B) dividing product performance by average performance C) adding performance to enhancement value D) comparing the price-performance matrix entries E) dividing product performance by the number of customers

A) subtracting relative cost of purchase from relative performance

The process of taking a closer look at the customer ordering process from the customer's viewpoint, with the objective of uncovering any potential problems or sources of frustration in the purchasing process is called ________. A) acquisition analysis B) "staple yourself to an order" C) the Kano method D) conjoint analysis E) lead user analysis

B) "staple yourself to an order"

Which of the following is a potential problem that a customer can face at the order entry stage of the customer order cycle? A) The order is in process but the customer is not aware of order status. B) The order is priced incorrectly. C) The product's user manual is inadequate. D) The wrong product is delivered. E) The product is delivered late or damaged.

B) The order is priced incorrectly.

Customers can create a set of preference curve, by examining how customers make trade-offs when choosing among various combinations of price and benefits, using ________. A) a focus group B) conjoint analysis C) regression analysis D) the relative performance index E) an empathic design

B) conjoint analysis

If a company's product has an overall perceived performance score of 125, it means that ________. A) the company is showing a 25% increase in profits in the annual report B) the business is 25 percent ahead of its competition C) the relative cost of purchase index for the product is equal to 125 D) the company is showing a 25% increase in sales in the annual report E) the product has a product performance advantage of 125%

B) the business is 25 percent ahead of its competition

Which of the following is a form of the emphatic design? A) Conducting an online survey of customers' preferences B) Creating a database of customer buying habits C) Filming customer product use D) Using social media to interact with customers E) Creating a database of customer demographics

C) Filming customer product use

Which of the following statements is true about reverse innovation? A) it refers to a new product that fails to address customer needs B) it refers to gradual product improvements that come from technological developments C) It involves learning what customers want but cannot get from existing products D) It starts by encouraging intrapreneurs E) It refers to innovative ideas generated by employees within an organization

C) It involves learning what customers want but can't get from existing products

The fair price for the Merrill Microwaves, manufactured by Merrill Inc., is considerably higher than its actual price of $140. Merrill Microwaves have a relative performance rating of 125. According to this data, Merrill Microwaves provides ________. A) products with very high life-cycle cost B) relatively lower value to the customers when compared to an average relative performance rating C) a very good value for customers, but it may be underpricing the product D) lower-quality products at higher prices E) superior-quality products at higher prices

C) a very good value for customers, but it may be underpricing the product

Maher and Russell Inc. is a firm that manufactures home alarm systems Maher and Russell Inc. has an overall perceived performance score of 85. This indicates that Maher and Russell home alarm systems ________. A) have a relative cost of purchase index of 85 B) have a relative advantage of 85% due to the brand reputation C) are 15 percent behind the competition D) have a relative market share of 15% E) are 85% above the average relative performance

C) are 15 percent behind the competition

Which of the following refers to using collective intelligence to solve specific problems or solicit ideas—often as part of a competition or for a reward? A) mass collaboration B) benchmarking C) crowdsourcing D) outsourcing E) onboarding

C) crowdsourcing

Which of the following is calculated using the formula: Labor Savings +Warranty+ Price +Callbacks? A) overall performance index B) life-cycle cost C) customer value index D) overall performance factor E) perceived customer value

C) customer value index

Crowdsourcing differs from mass collaboration in that crowdsourcing initiatives ________. A)use collaborative web sites and wikis B) yield results very slowly C) have a specific purpose or problem to solve D) are open-source projects E) facilitate an information-sharing environment

C) have a specific purpose or problem to solve

Customers in which of the following subsets of consumers take product usage beyond its intended capability, and act as co-inventors? A) mainstream customers B) spinners C) prosumers D) captive customers E) laggards

C) prosumers

Consumers can purchase inkjet printers for as little as $30. However, the price of replacement ink cartridges can be as much or more than the purchase price of the printer. This is part of the ________ of an inkjet printer. A) ownership costs B) disposal costs C) usage costs D) acquisition costs E) repair costs

C) usage costs

Economic Value (Product)

Competing Product's Life-Cycle Cost - Our Product's Life-Cycle Cost

Market-based businesses differ from product-focused businesses in that market-based businesses ________. A) focus on products and services B) lack a strong customer focus C) have a narrow view of customers' underlying problems D) are providers of solutions E) lack knowledge of customer usage

D) are providers of solutions

The relative performance metric can be created by ________. A) dividing the overall rating of a product's performance by the average price for products in that product category B) dividing the overall rating of a product's performance by the cost of manufacturing the product C) dividing the overall rating of a product's performance by its price D) dividing the performance rating of a product by the average performance rating of all products in the market E) dividing the overall rating of a product's performance by the rating of the top-performing brand

D) dividing the performance rating of a product by the average performance rating of all products in the market

Stephen bought a new Chevrolet Suburban vehicle by putting $10,000 down and arranging to make monthly payments of $599 for six years. These payments represent the ________ of the vehicle for Stephen. A) repair costs B) acquisition costs C) disposal costs D) ownership costs E) maintenance costs

D) ownership costs

Which of the following addresses emotional benefits tied to the customer's personal psychological needs? A) cost of purchase B) maintenance cost C) product availability D) disposal cost E) brand personality

E) brand personality

Which of the following is a part of the second stage of reverse innovation? A) building a value proposition around the competitive advantages of the product B) verifying the size of the opportunities C) probing for new insights D) "inventing to order" with continuous customer involvement and feedback E) determining new product benefits that address unmet customer needs

E) determining new product benefits that address unmet customer needs

Which of the following is used to determine a product's life-cycle cost? A) direct labor cost B) cost of satisfaction C) distribution cost D) direct materials cost E) disposal cost

E) disposal cost

The perceived customer value is the sum of the relative performance and the relative cost of purchase.

False

Reverse innovation begins by identifying new product benefits.

False Listen - Gather lead users and probe for new insights Identify - Determine new product benefits that address unmet needs Choose - Verify size of opportunity and select the most lucrative opportunities Develop - "Invent to Order" with continuous customer feedback Launch - Value proposition built around competitive advantage

A product-based business can use its order cycle to create important sources of customer value that the business's consumer-focused competitors will never see.

False Market-based business -- not product-based

Empathic design uses statistical surveys to collect quantitative information about customer needs.

False User-centered design approach that observes customers in their normal environment in order to see how they use products and better identify their needs.

Crowdsourcing

Focused problem-solving and product idea generation

Lead Users

Highly knowledgeable and skilled users who often extend the boundaries of a product's application to achieve a more desired customer solution.

Name and discuss the six sources of economic benefit and value creation.

Price Paid - Impact of product pricing relative to its benefits Acquisition Costs - Costs of purchasing process and inventory Usage Costs - Costs of actually using the product. Ex. packaging material that reduces freight & labor costs, costs of color & black ink for printing company Financing & Insurance (ownership) costs - Expensive items that buyers finance and insure. GE developed GE Capital to create affordable ownership through financing Maintenance Costs - Repair etc Disposal Costs - Cost of disposing of waste packaging for example

Product Life-Cycle Cost

Sum of the purchase price and the costs of acquiring, using, owning, maintaining, and disposing of the product.

Relative Performance Formula

Product Performance Rating / Average Performance Rating of All Products in Market

Perceived Customer Value

Relative Performance - Relative Cost of Purchase

Conjoint Analysis

Research technique that examines how customers make trade-offs between various combinations of price and benefits by building preference curves

Companies seeking discontinuous innovations need more than incremental product improvements that come from lead user analysis.

True

Formula for calculating the customer value index is Brand Image + Warranty + Price + Callbacks

True

Studying the experience of lead users provides insights for improving a product by adding new features or modifying it in other ways.

True

The main difference between crowdsourcing and mass collaboration is the level of multidirectional interaction.

True

We can create a set of preference curves by examining how customers make trade-offs when choosing among various combinations of price and benefits, using conjoint analysis.

True

For products that project a "brand personality," there is an opportunity to create customer value through the delivery of emotional benefits.

True Example: Chevy advertises trucks as 'like a rock'. Individuals with a need to be seen as rugged and self-sufficient might be attracted

The "day-in-the-life-of-a-customer" approach may be described as "stapling yourself to an order."

True Looking at customer ordering process from customer's viewpoint to uncover potential problems or sources of frustration in purchasing process.

mass collaboration

open-ended group collaboration and information exchange