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CONTEMPORARY CONSUMER BEHAVIOR.
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Essay Subject:
The customer as actively engaged with manufacturers of products and services.... More...
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Paper Abstract:
The customer as actively engaged with manufacturers of products and services. Changing dynamics of the marketplace. The Internet. The concept of the customer experience or competencies as an element in business activity. Total Quality Management (TMQ) and customer-value driven systems. Theory of adding value. Transformation of organizations.
Paper Introduction:
Customer Experience and Business Organizational Behavior:
An Evaluation
The era in which customers played an essentially passive role in the consumption of value in the form of business products and services is quickly coming to an end. C.K. Prahalad and Venkatram Ramaswamy (2000) have argued that the new customer is an active player engaged in an explicit dialogue with manufacturers of products and services. Equally significant is the fact that this dialogue, facilitated by the Internet, is no longer controlled exclusively by corporations. In essence, organizational theorists are coming to the conclusion that customers are engaged in fundamentally changing the dynamics of the marketplace and presenting themselves as a new source of competence for the corporation. This concept - that customer
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Net present value reflects value created when the presentvalue of the cash inflows from increased revenues exceeds the present valueof the cash outflows from the investment. Virtual communities are cost-effectivemeeting places for a firm and its customers, and also offer rapid turn-around and information exchange.Capitalizing upon state-of-the-art technologies to reach customers and drawupon their competence and experiences is a key hallmark of the new businessenterprise. This discussion has identified the key theoretical constructs, whichunderpin the movement toward integration of customer experience andcompetence into other business systems. Forexample, customers who directly experience a product or service have agreat deal of information about its inherent quality, opinions as to itscost effectiveness, and responses to the service they have received or thespeed at which their needs have been met. Multiple channels of intelligence gathering, interaction,distribution, and communication are clearly necessary if customercompetencies and experiences are to become an integral part of the processby means of which organizations create value (Prahalad & Ramaswamy, 2 ).The Internet is an excellent medium for the development of theseactivities. and Ramaswamy, V. This strategy focused onacquiring information about two critical variables: 1) customers'expressed and latent needs and 2) competitors' capabilities and strategies. Journal of the Academy of Marketing Science,28(1), 12 -128. Systematically collects information about customer needsIntelligence Generated Through Collaboration . Conducts market-focused experiments . The concept moves well beyond mere cost satisfactionand product performance indicators to provide businesses with a much moredetailed and comprehensive (i.e., "holistic") profile of what a customerliked or disliked, appreciated or rejected, expected and received. This shape of value tends to shift andwhat a company must do is tap customer experiences to create a consensusprofile of value-specificity. Seeks opportunities for cost reduction/productivity improvement (excerpted from Slater & Narver, 2 , pp. The concept of net present value (NPV) is germane tothis issue. This kind of intelligence provides a focus for product development andsales growth efforts because it enables the organization to develop strongrelationships with key customers and to draw directly upon customerexperiences with products and services in developing or modifying products. Superior customer value isachieved when the organization creates more value for the customer thandoes a competitor. Management: Total Quality In aGlobal Environment. (1994). (1998). It is clear that this approach to "customerservice" and satisfaction moves beyond the fundamental tenets of TotalQuality Management (TQM), which began some 25 years or more ago to stressthe necessity of doing more than merely meeting customer requirements andexpectations (Stahl, 1995). Building customer loyalty now requires empowerment with anentrepreneurial twist. More significantly, this theory of adding value is based upon therealization that the "product" of any organization is subordinate to the"experience" that customers acquire. Exhibit I Intelligence-Generation StylesMarket-Focused Intelligence Generation: . Total customer experience drives value.Management Review, 87(7), 62. Intelligence generation andsuperior customer value. (1998). The literature suggests that justas TQM was the managerial paradigm of the 197 s, customer experience iswell on its way to becoming the new organizational paradigm. Develops new ways of looking at customers and their needs . Uses cross-functional teams/task forcesIntelligence Generated From Experience . Where could my brand/company create a superior customerexperience?Traditional marketing research can provide only partial answers to each ofthese questions. Carbone, L.P. These strategiescoalesce to create outside-in thinking which develops value propositionsand enables a business to own highly profitable customer segments.Lewis P. Gerald Zoltman of the Harvard Business School considers the long-held belief that consumers are rational, price-conscious individuals withproduct-driven motivations to be inaccurate. In thediversified organization, managers began some time ago to regard thecompany as a collection of (possibly) interlinked competencies. Customer Experience and Business Organizational Behavior: An Evaluation The era in which customers played an essentially passive role in theconsumption of value in the form of business products and services isquickly coming to an end. (1999). Gary Ransom of London's Forum Corporation believes that it isimpossible to avoid recognition of the importance of asking customers todesign experiences for themselves, creating a truly branded customerexperience as well as customer/business loyalties. This canbe difficult for any organization but must be addressed if the firm is tocontinue to succeed in a global economic environment. and Narver, J.C. A cross-functional system, QFD integratescustomers into all aspects of product design and development or serviceselection and modification. QFDstarts with customer criteria, translates them into product or servicerequirements, and then translates them into product or service requirementmeasures. These styles are explicated in Exhibit I, below. C.K. More than ten years after the quality movementbegan to gain widespread acceptance in the United States, the concept canbe credited with having underlined the importance of customers andemployees and emphasized the primacy of the processes that link the two(Jacob, 1994). Information technology, which isdriving globalization, is also seen by Prahalad and Ramaswamy (2 ) asdriving the customer experience movement. In their view, the market-focused intelligence generationstrategy is superior in almost all cases. What is clearly needed are precisely the strategies thathave been described by Prahalad and Ramaswamy (2 ). Mariotti, J. Again, the Internet andother information technologies are ideal vehicles for gathering this kindof intelligence and creating the "customer communities" that Prahalad andRamaswamy (2 ) have described. When the market becomes a forum, newmultiple distributions channels are necessary and organizations must acceptthe reality of constant change and the necessity of flexibility. Varies competitive methods to assess relative effectiveness . Customer value is created when the benefits to the customerassociated with a product or a service are perceived to exceed theoffering's life cycle costs to the customer. Customer-value determination systems were createdin quality-driven organizations to garner input from customers that wastranslated into product or service refinement, modification and development(Stahl, 1995). Telephony, 236(2), 28. The term"holistic" has been in vogue for several decades in fields such as nursingand is now appearing with some frequency in the business literature.Generally, "holistic customer experiences" can be understood asencompassing the physical, emotional, intellectual, and attitudinalcomponents of the process by means of which a good is acquired or a serviceused by a purchaser. McMahon (1999) also notes that strong value propositions createexperiential rewards. Writing specifically of thetelecommunications industry, McMahon (1999) contends that winning in thisbusiness requires an "outside in" perspective to create unique andprofitable value propositions. Typically, intelligence generation has been treated as a generic activityof the organization but the new competitive environment necessitates thedevelopment of a more customer-focused and interactive intelligence-generation capability (Slater & Narver, 2 ). Co-opting customercompetence. Carbone (1998) says that they underscoreThe pressing need for a rigorous management discipline to manage customerexperience beyond product and service. An evaluation of theposited relationship between customer experience and idealized business ororganizational structure, as advanced by Prahalad and Ramaswamy (2 ),will be offered herein, along with a set of criteria against which such atheory can be assessed. Carbone (1998), Chief Experience Officer of ExperienceEngineering, believes that businesses must elevate consumers' experience tothe prominence that they give to products and services. . Contemporary studies ofconsumer behavior indicate that consumer motivation is much less influencedby tangible attributes of products and services than by subconscioussensory and emotional elements that derive from the total experience, whichsurrounds a transaction. This, in turn, fosters acquisition of customerloyalty and enhancement of customer satisfaction; personalization ofproducts and services also augments the overall customer experience. Carbone noted that consumerexperiences can be embedded with highly specific and detailed experienceclues, both rational and emotional, that are distinctive enough to createcustomer preference for a brand over time. The strategy reflects the recognition of the overwhelming importance ofcustomer experience in acquiring and then retaining competitive advantage. Prahalad and Venkatram Ramaswamy (2 )have argued that the new customer is an active player engaged in anexplicit dialogue with manufacturers of products and services. When we consider the theory of co-opting customer competence as a way of adding value to products andservices, these five attributes work well as evaluative criteria. Utility is determinedby the total customer experience and not by the product alone. Educates employees for innovation . Mariotti(1998) defines value with respect to five rather broad attributes: quality,service, speed, cost, and innovation. Letters to the editor: The experience economy.Harvard Business Review, 76(6), 173-177. When customers benefit from savingsgenerated in part by their willingness to share experience and competencewith a producer or service provider, their loyalty to the organization isinevitably increased. Commenting on this aspect of business operations in a quality-focusedenvironment, Stahl (1995) described what is known as Quality FunctionDeployment (QFD). Cambridge, MA: Blackwell.----------------------- 15 Rapid change and increasedresponsiveness have become the hallmarks of an organization that haselected to position customer competence and experience among its own corecompetencies. Refines procedures after careful study . What customer segments are to be targeted? This set of insights has profound implications for today's businessorganization. At issue in the new global economic order, according to Prahalad andRamaswamy (2 ), is the notion that successful companies are those whichhave moved beyond the acceptance of customers as passive recipients ofgoods and services and toward the integration of customer experience (orcompetencies) into enhanced business networks and systems. . Rahul Jacob (1994) argued that becoming a partner with one's customerhas been directly associated with the success of any number of companies.For example, Baxter International works directly with its customers, healthcare institutions, to set cost targets for supplies and to create risk-sharing partnerships in which savings as well as additional costs areregarded as a joint benefit or burden. Such a perspective capitalizes uponcustomer competence and recognizes that customers do not define products inengineering terms but in terms of their experience. Despite the enthusiasm exhibited in the literature with regard to theintegration of customer experience into the business decision-makingprocess, even its strongest advocates do not fail to recognize thatorganizations must undergo a number of difficult transformations tocapitalize upon customer experience. (1998). (1995). It assumes - correctly, in the view ofPrahalad and Ramaswamy (2 ) - that customers are not external to theorganization and brings to the development and design process expertisethat can at times be superior to that of researchers and developers. Stahl, M.J. Slater, S.F. What is needed is aseamless total experience in which products and services are elements.Carbone (1998) cites breakthrough discoveries in cognitive behavior andbrain science, which validate the wisdom of a total experience approach tobusiness. John Mariotti (1998), president of The Enterprise Group, has pointedout that continuous change is the only source of sustainable competitiveadvantage in the new economic environment. Chat rooms, newsletters, interest and newsgroups, and e-mailare all opportunities for a company determined to maximize itsunderstanding of customer experience and tap into customer competence toreach its target audience and market. Prahalad, C.K. In essence,organizational theorists are coming to the conclusion that customers areengaged in fundamentally changing the dynamics of the marketplace andpresenting themselves as a new source of competence for the corporation.This concept - that customer experience is both a necessary element inbusiness activity and a vital source of new competencies - reflects therealization that the economics of customer retention and satisfaction aremore compelling today than ever before (Jacob, 1994). Tracks and analyzes competitor actions . Slater and Narver (2 ) identify fourintelligence-generation styles and the fundamental components of eachstyle. Intelligence as to whatcustomers value is critical. Customers, says Mariotti (1998),approach the experience of acquiring a product or using a service with aspecific shape of value in mind. Equallysignificant is the fact that this dialogue, facilitated by the Internet, isno longer controlled exclusively by corporations. Shaping your business. Robert Jones, directorof a London-based consulting firm, claims that the biggest brands(regardless of the product or service) of the future will be those thatpromise and deliver the best experiences. The traditionalproduct/service value proposition is no longer adequate for reachingcustomers or creating significant differentiation. Conducts internally focused experiments . A cutting-tools manufacturer, Kennametal, has begunto manage customers' inventory and to test tools for companies like GeneralMotors' Saturn. Emphasizes standard operating processes . One way in which this shift is evident isthe new emphasis on integration of customer experience and customercompetence into the overall process of doing business. (2 ). Debra McMahon (1999) has provided support for the ideas advanced byPrahalad and Ramaswamy (2 ). Where do those customers define the opportunities? Prahalad and Ramaswamy (2 ) identify four critical tasksthat managers must perform to make use of customer competence: 1) encouraging an active, explicit and ongoing dialogue whichpositions customer and organization as equals; 2) mobilizing customer communities; 3) managing customer diversity; and, 4) cocreating personalized experiences in which customers are activeparticipants in shaping the products that they will then purchase.To achieve these goals, companies "must create opportunities for customersto experiment with and then decide the level of involvement they want increating a given experience with a company (Prahalad & Ramaswamy, 2 ). McMahon, D. Learning from experience. These four general methods of intelligence gathering and generationwere empirically analyzed by Slater and Narver (2 ), using an extensiveliterature review in conjunction with in-depth interviews and consultingprojects in low-tech and high-tech as well as consumer and industrialproducts firms. References Anonymous. What business designs can profitably deliver the most desiredvalue propositions? Harvard Business Review, 78(1), 79-88. By drawing upon the experience an competence of customers,organizations reduce costs for development, produce goods and services witha ready market, speed up the design and deployment effort, and enhanceproduct or service quality. (2 ). The creation of superior customer value is accomplished because of anorganization's ability to continually generate intelligence aboutcustomers' expressed and latent needs and about how to satisfy those needs. Allocates resources to identifying new market opportunities . Choosing the right value proposition requires that acompany answer several questions: . It is his position thatcompanies must incorporate change into strategic planning and mustconstantly evolve to provide the best value to their customers. Whatmatters to customers are experiential factors such as the benefits theyderive from emotional satisfaction, timesavings, elimination of otherservices, cost, and speed. In point of fact, the Internet seems likely to become aubiquitous medium of communication and dialogue between companies and theircustomers. Its employees often sit in on customers' manufacturingplanning sessions, thus creating precisely the kind of customer communitiesand active dialogue that Prahalad and Ramaswamy (2 ) consider necessary.Jacob (1994) believes that this kind of deep and highly personalizedresearch can be a better guide to strategic development than merely sizingup competitors or taking routine customer surveys. This is a customer-driven design system that attempts toachieve early coupling between the requirements of the customer, marketing,and design engineering. Enters into joint ventures and alliances . This in turn necessitates thecreation of a holistic customer experience which then creates customervalue that is both sustainable and difficult to replicate. 127-128). What Prahalad and Ramaswamy (2 ) propose moves dramatically beyondenhanced customer value and satisfaction via quality management. Today,customers as a group and as individuals have become another valuable sourceof competence that can be harnessed to acquire and retain competitiveadvantages. TQM in action demonstrated that "customervalue" does not consist solely of eliminating product defects; rather,customer value was recognized in the TQM organizational framework as havingmany dimensions which must be systematically determined in the firm'sproducts and services. Benchmarks key processes for improving customer satisfaction . This occurs only when companiessystematically incorporate experience dynamics into their products andservice design and into every level of the consume experience every day. Develops information-sharing relationshipsIntelligence Generated Through Experimentation . The customeris no longer external to the organization, but is increasingly a virtualemployee whose insight and experiences are essential to its functioning.It is clear that we have entered into a new economic order, which requiresany number of transformations that will have both short-range and long-range consequences for consumers and companies alike. Why some customers are more equal than others.Fortune, 13 (6), 215-221. Prahalad and Ramaswamy (2 )recognize that preparing an organization for customer competence invariablynecessitates restructuring of the traditional governance systems andinfrastructures of the organization itself. The elements of a valuable experience are alsocustomer-specific. Benchmarks key operating processes . Jeffrey Pfeffer, a professor of business at StanfordUniversity has argued that the very language of quality and the orientationof providing service to customers has shifted measurement and attention inimportant ways (Jacob, 1994). Customers arebeing repositioned as codevelopers and creators of personalizedexperiences, with companies and lead customers having joint or shared rolesin education, shaping of experiences, and cocreating market acceptance forproducts and services. . Jacob, R. Prahalad and Ramaswamy (2 ) arguethat an organization that decides to include customer competence in itsprocesses will need to recognize that customer competence is an intangiblebut nevertheless capital asset. A recent edition of the Harvard Business Review (1998) contained aseries of several letters on the experience economy, which offer insightinto the responses of cutting-edge managers and executives to this set ofconcepts. Measures performance of key business processes . Industry Week, 247(2),92.
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