Measuring Customer Performance – The Value Co-Creation Way

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I found a new Dutch initiative to measure a Company’s Customer Performance: The Dutch Customer Performance Index (DCPI) (Dutch only) – a new objective and validated index for measurement of Customer performance – . I thought it worthwhile sharing with you.

The Dutch Customer Performance Index is an initiative of the Customer Insights Center of the University of Groningen (Dutch only), intelligence bureau MIcompany and market researcher MetrixLab. The University of Groningen is responsible for the scientific bases of the research. MIcompany determines wich value companies create for themselves from their Customers and MetricLab is repsonsible for data collection and building the benchmark database.

The DCPI conducts their research on a regular basis for 80 of the largest service providers in The Netherlands, which is based on a research base of 4.000 Dutch consumers.

The DCPI measures and compares these 80 companies based on two perspectives of a company’s Customer performance:

  • The value a company creates FOR their Customers: Value to the Customer (V2C)
  • The value a company creates for themeselves WITH their Customers: Value to the Firm (V2F)

The Value to Customer Dimension

The V2C dimension is based on articles by Rust, Lemon and Zeithaml and Verhoef, Langerak and Donkers and is based on four components, all equal in weight to the total score:

  1. Relationship Equity: Valuation by Customers of the relationship with the company.
  2. Value Equity: Valuation by Customers of the price-to-value relationship.
  3. Brand Equity: Valuation by Customers of the brand
  4. Emotions: Valuation by Customers of both positive and negative emotions that can be associated with a company

The Value to Firm Dimension

The V2F dimension is based on articles by Gupta and Zeithaml, Reichheld and Gupta, Lehmann and Stuart and also has 4, equally weighted components:

  1. Revenue: Customer spend on a company’s service(s)
  2. NPS: Net Promotor Score
  3. Retention: The likelihood of Customer retention
  4. Risk: The risk of future revenue. This one is based on the variation between the three previous components. In short: the higher the variation between the three individual scores, the higher the risk.

My take on this

I like this research for a few reasons:

  • It’s Dutch.. but that doesn’t mean anything to most of you probably 😉
  • It has a scientific/academic foundation and the research is conducted under the responsibility of a respected Dutch University.
  • The two dimensions fit into my “value co-creation” thinking.
  • The fact that the Value to Firm dimension does not talk only of financial value and it’s not based on one number.
  • I particularly like the way the research approaches the Risk of future earnings by bringing it into the equation for starters, but mainly by it being a component based on the variation between the three other components. This makes a whole lot of sense to me.

Additionally I would like to add that I’m not a fan of NPS as an indicator. Most certainly not when it’s presented as a “silver bullit”. I would choose to add at least one more question to the NPS question:

– Did you recommend company x/y/z over the past three months.

Unfortunately I do not have insight in the questionnaire itself. Hopefully I will obtain this. If I do, and get permission, I will put it up here too.

Curious as to what you all think. Is there something similar to this somewhere else in the world? If so, how’s that working? Is this the closest we get to measurement of value co-creation on a company to company comparable level? If not, what are your suggestions for improvement?

3 COMMENTS

  1. Yesterday I witnessed a short exchange over Twitter between Steve Vargo (@SteveVargo) and Graham Hill (@GrahamHill) on this post.

    Steve Vargo (who is the founding father of Service Dominant Logic, which theory is a solid bases for lots of my thinking and exploration) mentioned to Graham Hill that the V2C scale was probably not capturing actual Value to the Customer, but that it consists mainly of Value to the Firm metrics too.

    Graham Hill agreed with Steve Vargo stating that the V2C scale was founded in rather old research and not on the current views on Customers’ value perception.

    I actually agree with both gentlemen, but I experience a lack of alternatives.

    Of course I engaged in the conversation, but considering the late time (at least for Graham, who is in my timezone), I’m not surprised not to have an answer to my question already: What is current understanding exactly on Customers’ perception of value? (and made an attempt to spark discussion by adding: Jobs & outcomes? – but I will not go into the detail of that here..)

    I also did not finish my question to the two gentlemen. I will do it here, hoping for good feedback, for all of us to enjoy and learn from.

    How should that be measured? What questions could one ask Customers to understand the Customers perception of value (co-)created with the company best?

    For those interested in some of the latest musings by another Marketing Scholar on Value, I suggest you read Irene NG’s blog.

    Last but not least: if you have (parts) of the answer to my question, don’t be shy and let me know in a comment. Any thoughts are welcome too.

  2. My quick response is that the problem with the V2C scale is in its composition. Brand equity, value equity, and relationship equality (though not all measured quite as indicated for this scale) are the drivers of customer equity in Rust, Zeithaml, and Lemon’s model. Customer equity is a measure of the value of the firm, measured by the activities of its customers, not value for the customer (though clearly related to it). Emotions, as captured, also refer back to the firm and might be a reflection of customer value but likely capture something closer to brand association. Value to the customer is (should be) a measure of the degree to which the customer perceives their well-being to be increased, given that it accepted the firm’s value proposition(s).

    Unfortunately, I do not know of a scale for this but you might be looking in the right direction with Irene Ng and her blog (above). She recently took on a rather heady (i.e., “wicked”) problem of assessing value in multiple-stakeholder systems –arguably, all are). My guess is that, following her current musings, she will drill down and find reasonable metrics. She is doing some of the best work of any scholar I know in bridging service-dominant logic theory and practice.

  3. What a coincidence! I’ve just blogged on value co-creation. I thought I needed to get all the value dimensions out of the way first before I get there.

    http://value-basedservicesystem.blogspot.com/

    as you both already know.

    I think we need to understand that the old world of exchange value is quite different from value-in-use. The two are related, but not the same. If you read my blog entry on value co-creation (VCC for short), you will realise that exchange value implicitly assumes all parties accessible resources to achieve outcomes. Simple example. I go to Marks and Spencer to buy 3 bottles of juice. The price is £1 each. If I remembered (accessed my resources) to bring a plastic bag, the juice would cost me £3. If I did not, it would be £3.30 30p extra for the plastic bag. That exchange value captures the total resources both parties brought to bear on achieving an outcome. This goes for all goods and services – we pay more because sometimes we lack the resources and pay more for them to be provided (e.g. we lack time, so we are willing to pay not to wait).

    The idea of customer equity, brand equity still draw on goods-based logic boundaries. The notion of a static ‘valuation’ is very much a GDL word because it implicitly assumes the customer is passively ‘value-ing’ and not engaging his resources in co-creating. In SDL world, valuation is dynamic because the degree in which the customer engages his resources will determine his ‘valuation’ of the firm’s value proposition.

    Hope this helps (although I think I might have confused things!). Maybe Steve can explain it better.

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