Understanding the process of transitioning to customer value management

Abstract

Customer Value Management (CVM) has emerged as an important vehicle for customer retention in business markets. Supplier firms under increasing pressure from relentless competitive forces are seeking to retain and grow the share of business from profitable existing customers as a means of finding a way out of downward spiralling price pressures. While a lot has been written in academics about the importance of CVM, several gaps remain on understanding how a large company actually undertakes this journey.

Crafting competitive value chains and focusing on streams of competition are also emerging as important agenda for supplier firms since, increasingly, the end customer is no longer willing to pay for inefficiencies in the value chains. In this context, the challenge for a supplier firm in business markets is no longer restricted to getting its own operations in order, but, additionally, it must ensure that multiple interfaces that exist across the entire value chain all the way until the end customer are streamlined so that the value chain is free of value drains and every meaningful opportunity to create value is exploited.

In this paper, the authors present the experiences of the India-based Tata Steel in implementing CVM across 25 select customers. This has enabled it to successfully come out of the commodity trap that it found itself some four years ago. The paper begins with an overview of existing research in the area of CVM covering the important aspects of customer loyalty, customer relationships, trust as an antecedent for relationships, value as a cornerstone of business markets, and importance of the supplier firm focusing on the efficacy of the value chain of which it is a part. While one part of the challenge for a supplier firm is to find avenues to create and deliver unique value to its customer firms, an equally formidable challenge is to obtain equitable return for value delivered. This is where value sharing through integrative negotiations between the supplier and customer firms becomes central. The authors conclude that current understanding on value creation and value sharing is at a preliminary stage. This is the gap that the paper seeks to address based on the actual experience of the company in implementing CVM.

This paper presents a framework for mapping the various ideas generated in the CVM implementation process and attempts to build a value sharing methodology based on the CVM journey of the company. It concludes with several challenges that the company has to grapple with for continued progress on its CVM journey. One of the important challenges is addressing value drains and discovering new value creation avenues along all the interfaces between the various firms constituting the value chain all the way until the end customer. The key learnings can be summarized as follows:

Success of CVM has to start from the top management of both supplier and customer firms. The focal responsibility cannot be delegated.

Firms planning to embark on the CVM journey must adapt the CVM process to their own specific situations while general lessons can be drawn from Tata Steel?s CVM implementation experience.

Meaningful roles must be found for all key managers in both supplier and customer firms for success of CVM implementation.

It is necessary to take stretch targets for the process to be attractive and worth the while for both the firms. At the same time, it is essential to manage the expectations of both firms: CVM is not a panacea or a magic bullet to solve all the problems of both the firms.

The overall philosophy of both firms must be to seek to expand the ‘value pie,’ thus coming up with integrative decisions based on aligned data where both the firms ‘read off the same page’ of data.