 This is a model which normally has been consciously subconsciously people follow will lead to purchase behavior. So why you will, why one customer will purchase is because of higher perceived value and value is made up of perceived benefits and sacrifices. Benefits is a subset of the tangible product quality, right. What influence a product quality is the intrinsic attributes of products and extrinsic communication. See the chain, how does a value is built in a product both tangibly and intangibly and on sacrifice side there is a objective price plus some energy and time and purchase behavior. So purchase behavior is a function of higher perceived value which is a function of benefits and sacrifices. Benefits is a function of quality you give, quality is a function of a tangible product service activities and intangible communication and hence this, here you include tangible benefits and intangible also. Now given this value there is a theory of consumption values which says that there can be 5 types of benefits or costs. One is functional cost, functional benefit or first functional value, second is social value, third is emotional value, fourth is epistemic value and fifth is conditional value. Function is a tangible benefits you get. Social and emotional are more of a intangibles and specific to a society and culture. Epistemic you know what is epistemic? Being new, newness also adds value and conditional is when nothing is available only one thing is available, only product of, one product is available. The conditional value, every consumption activity revolves around these values. Speed is it a value? Speed adds value. Can I say it is a value in itself? It adds value, see speed, why again ask why? Speeds by speed you are adding to some benefit to a customer right, so it adds, it is a feature, it is activity you do to add value in your offering. I mean can you link that to this, any of these 5? Speed means again, speed of launching a product, speeds of delivery, speed means what? Speed is launching a product. The time it takes for you to start getting the revenue in or whatever. See do not relate to the customer offering it, see there is speed of delivery for example your customer wants to deliver in 4 to 6 weeks right, you want to deliver in 2 weeks, he might not take actually. I just want to digress a little bit so that I address my point, when I am going to customer and trying to tell him lot of things. I come back to a point where he is in a maybe yes no situation, at that time I come to him and say I can do it right now, I can do right away, those terms if I use. What happens in psychologically, at that time he thinks I am an expert, he actually gives me that benefit out of doubt and he also feels that I am going to add value because whatever time others are taking, I am taking shorter time with the quality. So if that is the and I got couple of sales like that when I, now I am just trying to put that here so how does it fit in? Yes absolutely, see your speed of, see your offering added value and that was the benefit he was looking for, see with this experience what you can conclude actually that speed is a benefit to a set of customers. So this is simple valuation you know, it is a benefit, there might be customers who may not be looking for speed. So there is set that is why I will talk of segments and targeting, there are segment of customer who look for speed and you pitch for you that benefit, there is segment of customer who may not look for speed and that benefit may not work. Epistemic is something new, many of us get bored by the existing products and looks for something new on the shelves, many times for many products. So if something new comes you will just rush in by that even if it is not making much sense to you. Yes, in any category there is segment of customer, yes, yes, it is a, yes, it is a, it is a, many times for this new product we have aversion or weight and watch, new products we are seeing that a lot of aversion is the nastiest of all, you are telling that people will buy, but many times you will see aversion and weight and watch policy. Again let us see, weight and watch policy, absolutely you are right, there is a process of adoption of product, I am not discussing here, there are different categories of consumers for any product, there is a category known as innovators who will just rush in purchase, there are a category of customers who are early majority, who will see what products innovators are adopting and what is the result of that. There is a category of customers who are late majority, who keeps on looking at early majority and innovators and there are the category of customers known as legards, who will purchase at the end, season and sales. So there are four or five categories of customers, innovators form only 2 to 3% of all the customers. You might be innovative for some range of products and you might be legard for some other range of products, you might be innovative for going to a movie and you might be legard for purchasing any textiles or any sweater or anything else. That is a very strong theory of product adoption, so there are categories of customers and it is true for all the product categories, innovators, early majority, late majority, legards. So epistemic means there is some category of customers who are always looking for something new. So it is one of the values, I am not saying it is true for every thing. So you have to find out whether your product has epistemic value or not, like for children products, children products are very short shelf life, so something new has to come and in some other category of products, say any industrial purchase, every day you cannot say there is a new product and purchase, you know, it is a capital decision, capital investment, they have already invested. So it might not have any epistemic value at all, they might be looking for functional value rather than epistemic or social value. So it varies from product category to category, understanding these five values means you analyze your product falls in which category, how do you increase the value for a given set of customer. For example, selling product to SME, small and medium manufacturer or selling product to a large buyer, for some it might be a routine purchase, it might be functional purchase, it might be a new product. So your purchase or your selling techniques will vary, but we can summarize the values as these five values, good summarization of all the consumption values. Now how do we, what are the other tools which are available for customer value analysis, how do you analyze beyond this? There are many tools available, there is a tool known as value map, have you heard of this? Value mapping, very simple tool to analyze your offering, there is a value map. On X-axis you plot the perceived quality and performance, on Y-axis the price, it has been seen across the product categories, low quality, low price products are categorized as economy products, medium quality, medium price product as, medium value products, high quality, high price product as premium product. And if your product is falling on other quadrants, they are named like this, if it is a high quality or medium quality or low price product, it is a high value product. If it is a high quality, low price product, it is a high super value product. If it is a low quality, high price product, it is false economy, means some, in the recent future you will get caught and you will not be able to sell to that customer if it comes to know that. And there is a low quality, high price product, it is a rip off, you are ripping your customer off. So can you draw, so this is all perceived you know, for every customer you can draw this chart, how does he perceive your product? Marketing research is a tool which normally does this thing, researches keep on finding what are the perceived values, where in which quadrant your product is lying for a target set of customer. It is very frequently done by the consumer product. Another tool is customer lifetime value. How much value a customer gives to you, your business, how much, how valuable a customer is to you? What is the life of a customer to your business? You can estimate the life of a customer, the profits of a customer. This is a very powerful tool for relationship management. For existing customer you can do this analysis, just see how each customer is giving, what is the benefit he is giving you, how many years can be loyal years with you, what is the retention rate, you can have different scenarios, pessimistic, optimistic and realistic, what is the profit margin and what is the lifetime value. It is a very powerful tool in B2B marketing when we talk of relationship marketing. In relationship marketing we focus on maintaining relationship with the existing set of customers. So how you can use this, to make a new customer you can even start with a loss, retain for a couple of years on a loss or on a break even and then derive profits in a little longer term. So rather than focusing on just the present transaction with the customer, focus on the lifetime transaction. So 20 years is a very optimistic figure, I am not asking you to go for 20 years scenario but at least 2 to 5 years is not a very bad figure to go. So very true, this is very powerful tool and there are many models, this is one of the variants. There are many, any model can include the dropout rate also and then you can see what is the dropout rate, normal dropout rate of a customer and you can estimate what is the lifetime value of a customer, each customer and how should you serve a customer. Here I just have a question in terms of lifetime value, when you are trying to price once you know the customer lifetime value then you can decide your acquisition cost like what you can, your distribution cost and your acquisition price and you can decide that. That's great you know but when we have what is an, my first question is what is an ideal attrition rate in terms of customer retention for a product to say suppose it is falling below that mark, it is not adding value because the attrition over average customer is like you know 30% or 20%, only 20% of my customer are retaining back, can I say at that time my product is not adding value, that's my first question. In terms of increasing the attrition rates, any methods? Yeah, one way you are right, see again you have to see many things here, you can see are you working in the right segment or you need to move on to different segment for your given product, if yes probably that product is not adding that value, so that is why people are dropping down. Is there any numbers like industry average? I cannot see, that depends from industry to industry, in terms of IT and I cannot give you figures for that, see that will come with research in that industry and with the experience, you are the best judge for that, these benchmarks you know, these benchmarks are difficult for a researcher unless that research is done in that area or emerging industry like IT and with so many different products for different applications, you can look for the study, I think there should be some studies which might have done this type of analysis. So you can see like now this chart, initially you can have a negative cash flow and then you can aim for a positive cash flow, because you are ultimately looking at the lifetime value, so here in this tool, it is just opposite I discussed earlier, this is looking at the value of a customer, earlier I was talking value of a product or service, but this value concept helps us in understanding not only offering to the customer, but understanding the value of a customer to us. Another term in this region is customer equity, more research is going on these terms, how much of the customers is adding value to your business, three equities, value equity, brand equity and relationship equity, value equity means how much the functional value is being added to the customer, second is brand equity, how much the customer is influenced by the brand and third is relationship, how much the customer is influenced by the relationship with you, so value you derive out a customer, when you retain a customer, a customer is influenced by pre-dominantly business customer is influenced by three things, the functional value which he derives from you, the relationship value and third is brand value, brand is more intangible form and relationship is also, functional is more a tangible form, value analysis can also be extended to the overall business, so value is a important concept for your offering, for analyzing customer and the third is analyzing your business as the overall offering, now this is a very powerful tool, sometimes you think you have inefficiencies in your offering, in your business, so how do I analyze, value chain analysis help you in breaking your business in different components, this is a pictorial representation of the value chain of your company, of your firm or your business, then any business consists of different activities which lead to some surplus or margins for the business, the margins or surplus, different activities can be logistics, operations, marketing, sales, service and all that, the endeavour of every businessman is to increase margins and reduce the inefficiencies of these activities, now can you draw the value chain of your business, very simple exercise to do, just think the cost which a customer is paying is rupees 100, now just go back, work it out how much each activity of your business is contributing to 100 rupees, what is the operations cost, what is the marketing cost existing, what is the service cost, what is the travel cost and what are the margins, can you make your business say marketing more efficient by analyzing these costs, for example this value chain has helped many businesses because different businesses have different functions which are high cost functions in an industry like tire industry or steel industry, your logistics, productions, operations is a large chunk, in a FMCG company probably the marketing operation is a high cost area, so if I have to increase my margin, how do I increase my margin, where do I pitch for, so this value chain, value analysis you can do for your overall business also, certain activities add more value, more benefits to your business or more value to customer finally, so you have to focus on those, certain activities may not add that value and you have to reduce that, this is very powerful tool to analyze the overall business of your firm, so just see how we can use this concept of value, value mapping, analyzing your offering products to the customer, how much value they add, understanding the value of customers to your firm, the tools are customer lifetime value and customer equity, understanding the overall valuation of activities of your business is the value chain analysis of the business, so concept of value is very important in marketing, you can do thread bear analysis of your business, of your products and customers and the basic underlying fact is value is benefit by cost or benefit by sacrifice, these valuations also helps in comparison with the competitors, how much, what value my competitor is offering, for example your competitor is offering one product, what is the value chain of that product, vis-a-vis my product, simple assumption, your a company has preferred your competitors product over your product, how many times you have analyzed that, that why it happened, which part of value I failed to deliver and they delivered, what is so unique in his value chain which is not in my value chain, which activity of his value chain added more value to the product which I could not and then you will see you will get some answers for that, which will help you in for further transactions, see most of the research now is happening in the realm of value, value is abstraction of your tangible product and services to a different level, just how a customer perceives the benefits of your products and cost is value and how do you use these perceptions and use to your benefit is the value analysis, is it easy to do or difficult or do you think it is a theoretical concept, any ideas on this or do you think it is difficult to do in your product area, any responses? I think as a, even as a small business or a large business which is distributed, the data collection for doing an analysis like this is a huge task, like you need to have dedicated processes and systems in place for you to kind of go and do it, individual customer equity or individual customer lifetime value, analysis doesn't show me a path for success, I need to have a statistical model to go and look at it and say on a longer period, this is the issue as a company I am facing, without which one customer, like in the previous instance you talked about the previous presentation failed, doesn't mean it is, my presentation is always a failure, that was failure because in that circumstance, so something like this requires a huge effort which, who is ready to make an investment at that such when you are trying to chase a business, yes this is, this is of value, but it is not an easy task to do it. Data required to come to a conclusion, it's more on the gut level that as a, where we stand today, we operate on the gut level feeling, so there be super imposing these models, I find it difficult to find the value because it's coming at my gut level and there is nothing to check whether it's right or wrong. I just want to add to what they're saying, in terms of yes it's true that it's difficult to do this, it's not that easy and it's very difficult process to achieve it, but I mean slide you put about 20 years, if you're building a company for 15 years or 12 years, I think that kind of, if you're developing a product and you're looking at it like a long-term vision of 3 years or 5 years or 10 years or 15 years, that kind of effort needs to be put, I personally feel that is needed for a young entrepreneur, maybe the company which is already into large-scale products or large-scale systems may not be able to afford this kind of analysis, but they can always outsource it to consultants and they can do it. For a young startup or an entrepreneur who's looking to start up for the first year or two, I mean this kind of approach in the long term as he was also pointing to the fundamental value in the professor earlier, this will really ensure that the stability and the success of the company as such as the overall business increases the probability of it succeeding increases because it's addressing the fundamental value. If it happens after 2 years fine, there is a plenty of time, I don't know whether I'm going to survive for 2 years, that's my immediate concern where, how do I apply these concepts? I'm not challenging the concepts per se, how do I use them to make a useful decision today? The point is where data is a subjective thing and it's difficult to get that data. No, my point was actually it's like if you're already into the business, then you need to move from there, obviously you're like you know you started off, now you don't have the space and time to see that, but people who are starting, my point is people who are starting, they have the luxury actually of or the advantage of starting like this which will ensure that their probability of success increases compared to people who already started. If you already started, now you have to figure out ways and means to survive that rather than you know go back and see it is actually adding value or not. See whether you need, whether it is any big company can afford this analysis, it's a question mark and I think it's a mindset. Why I say, again second thing, you can do this analysis like you say it's a gut feeling, can you make your guts more precise with more factual data, it is not difficult I tell you. See these things if you do, okay you start with the gut feeling, can you derive some value of this analysis? Value is not disputed at all, the use of it is not disputed. What I'm saying is how do I use it at my current situation where I have to rely more on the gut level feeling, even if I have a team of four, five whatever, you know all fools are thinking in the same direction that's why they're going together. So where is the check back, like if you know if I have done something on the gut level, I'm doing something, how do I check whether it's right or not, I might find it out after two months when I have already lost those. I'll give you an example. Now again it's a big large business example but it's a very interesting lesson actually. Hindustan liver and Nirma competition you all know what happened. It's an example after that actually. After Nirma was successful, the launch is so known as Nirma bath. You remember that soap? The red soap, what was the price of that soap? No, it was at that time it was something 4 rupees some pesos and lifebuyer also was 4 rupees some pesos. That soap was around 50 pesos lower than lifebuyer and lifebuyer at that time was the largest selling soap in the world. Still today it is the largest selling soap in the world and bread and butter of Hindustan livers. So what Hindustan liver did in case of Nirma and surf was reduced the price of surf basically. So what was the first reaction of Hindustan liver marketing manager? Reduce the price of lifebuyer and compete because you have already burned your hands in detergent market and you will not like to burn your hand in detergent. The soap market simple reaction they had a marketing research agency that how much we should reduce the price. See don't think that it is a large business example we don't have that but just see the lesson actually. First reaction that how much we should reduce that was the question of the marketing manager. The research agency did a survey. They use some statistical technique and model nothing great actually simple models given in books. They concluded that perceived value of lifebuyer soap is much higher and if you convert this valuation by these only tools to price like value to price if I have to convert it is around 75 paisa. Nirma bath versus lifebuyer. The perceived value the perceived benefit the perceived brand value is the difference of Nirma and lifebuyer is 75 paisa. So it was contradictory to what marketing manager were perceiving. It meant that even if the Hindustan liver increase the price they will not lose market share and that is the precisely they did. They increase the price of lifebuyer and they did not lose the market share. They made more revenue. It did not happen in detergent industry but it happened here. I am not saying that they could afford marketing research and all that but the lesson learned is be more factual rather than as factual as you can and try to use as much as you can that is the only lesson you know. I cannot say I can give you so many budget you hire agency and do research but the lesson is be more factual and try to use as much as you can this concept that is the only lesson. See sometimes we perceive something and the reality is something different. For example sometimes we think that customer might be doing what will happen if you go meet that customer and talk more you know. I am just saying and that has happened you know. You will see that certain apprehension certain perceptions will go away. I am not saying to do research full-fledged research can you interview three customers just talking and many things you will understand. Many values you will understand. For example you think this is the model and you have to ask why on certain thing. Be more factual rather than more perceptual that is the lesson learned and these are the frameworks which are successful. So within these frameworks how you can be more factual and use it to your advantage that is the challenge. There is no simple solution. Money will not pour in from the top will never pour in. Now you understand how do I you know what need category my product is serving. Who are the competitors? It took subjective but sometime the introspection makes your efforts more focused. Not every time money will guide your decisions. But talking more to customer you know for example there is four sales people. I am just saying are they more factual or more perceptual? Can you do some analysis? Can you call or of all four discuss more on factuality? See sometimes in a day to day routine we never sit and discuss sometimes some may not and then evaluate our existing status. These things help can help. These things help actually not can help but these things help. These analysis like value mapping and all that. This is a process. What this signify? This signify process and it has been found after research. These are value which academicians have added some knowledge they have added. To your resources given your resources you can at least think more logically on this. Sometimes you are not able to do in your day to day life. So these tools help you in doing that and these tools are available in books which are not very costly and you can read more and see whether it can benefit you or not. I will give you another example you know. When I was doing my doctorate I used this tool. I spent only 10,000 rupees and gave I did a consulting project with Philips with no money I could use this tool and give such a valuable suggestion to the company. I did value mapping for the customers and distributors and retailers. How do they perceive one type of product? All three categories perceive that product on different scales. The value perception was different. Customers perceived very high value. Distribute perceived low value. Retailers perceived very high value. Same product. They wanted to reduce the price actually and the cost was less than 5 to 10,000 rupees actually doing that but the findings were very helpful. So what they want to do the suggestion was improve your value perception in the eyes of distributor and retailer rather than only going to customer. That was in their case. So similarly you know something you know talking some talking some more being more factual and using these tools you can certainly improve your business processes and be more logical in thinking. In day to day routine you know you will always be bothered about money coming, checks coming, checks going, not paying and all these things. But how many time you sit and discuss and analyze the existing product portfolio, customer portfolio be more factual and then plan out for the future. But see value is the abstraction of tangible product. So sometimes we fear whether this is we are going in the right direction or not. See for any abstraction this is in your mind you will ask many questions. So that is a danger zone which you think maybe may work may not work actually but it actually work. It has worked for many businesses. I will just show you. This is just a simple marketing model where we say there is a marketing mix, a product is a customer solution, a price is a customer cost, promotion is a communication and place is a convenience. There is a translation of a marketing mix. Marketing mix are the four P's very simply said are the tools available to a marketer for action to a market or action to a target market. Yeah. This is a typical four P framework of market or marketing mix. So marketer has these four tools, product, price, promotion and place to act on a target market and decide how much I do which P and how much I derive. This is the basic model of marketing plus the new concept of relationship marketing which is a very prominent concept nowadays. There is nothing new in it but it has become more prominent in the wake of more competition in any given area. So it says it is very easy to retain a customer and make profits than acquiring a new customer. So any customer you acquire you try to retain it for longer and use the different tools to retain it. That is a realm of relationship marketing. The underlying concept of any market offering is value, the abstraction of tangible goods and services and doing that underlying analysis. Right? We will break for any question on this? Sir, while estimating the customer values sometimes the attitude of customer that is also taken into account sir because the customer attitude is always joking. Whenever any new product come into market automatically has keeping from this product to this product. How long he has dedicated and loyal to a particular company product? Even though since some of the companies either General Motors, Ford Motors, Chrysler Motors still they are in recession. They are also having a product expert, marketing expert. Why these people facing problem? Those corporate worlds are facing the problems. See any business works in a given environment. Yes sir. There are some controls. See these tools are controllable. There are many things which are uncontrollable. For example generally session in the economy. So now this thing you do with your customers and there is a very powerful force known as competitors. Right? Who are also doing this thing you know. So one is general economy and second is your competitors action which might not help you in succeeding in certain endeavours basically. So it is not a you know zero sum game type of thing. Whatever you so your competitors are there and they are they also know this knowledge and they are also acting. So how to give more value, how to be more, how to be better than a competitor that is also a challenge basis. See marketing has two things. One is science, another is art. I am discussing the science part. Science part means the different theories and models which are here. How to implement in a given situation is an art part. Right? Yes sir. So that has to vary from context to context given the environment and given the competition. And remember this science is a social science. This science is not as precise as your physics and chemistry. So there has to be some limitation, some limitation. Not that this is not useful but there are some limitation of human behaviour. Even in hard sciences we talk of probabilities now. We do not talk of 100%. Probability of success of this project given this. So understanding these limitations is also a part of the right. So we will meet after lunch.