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VIEWPOINT

Planning for competitive customer value

Tito Conti
Organizational Fitness, Ivrea, Italy
Abstract
Purpose Good quality planning methodologies were developed in the last decades of the twentieth century that are still widely used. But competition is getting harsher and harsher and the search for more effective approaches to planning for competitive customer value can never stop. The purpose of this paper is to offer an alternative method for planning for customer value that is the result of his long experience with large organizations, both in manufacturing and service. Design/methodology/approach The paper summarizes the approaches followed and the results reached. It also rationalizes such experience with the support of figures. Such process may require mental efforts to overcome conventional thinking in managing for quality, which should be accepted. A preliminary condition is understanding the authors quality vision, which quite often is at odds with traditional visions. For that reason the first part of the paper is dedicated to the illustration of the qualityrelated concepts that are at the basis of the following discussions. Such concepts are based on the systems view of the organization, on a definition of quality as both doing the right things and doing things right, on accepting that the word quality is neutral and acquires a positive or negative meaning only when associated with the concept of value. The above concepts are not accepted by all quality experts today. Findings The following are the most significant conclusions: the customer-perceived value vs, performance curves look rather different from those that are mostly used today; consequently, the quality life-cycle presents some significant differences if compared with the Kano Model; extensive use should be made of time-related curves, which happen to be the most significant in relation to planning; proximity to users (not just own customers) is more important than questionnaires in relation to critical planning decision; both satisfiers and dissatisfiers are important to understand customer/stakeholder perception; the proposed combination algorithm for the two may look conceptually difficult to those who look for simple solutions; but sometimes difficulties look unavoidable. Originality/value The paper is original inasmuch as it challenges conventional wisdom in this area. But, if the experience of the author finds confirmation in a wider context, it can be of significant value for those companies that operate in high competitive sectors. It can also stimulate organizational innovation in the fundamental area of value creation. Keywords Customer proximity, Customer satisfaction, Customer value, Fitness for purpose, Planning, Product qualities, Innovation, Business planning Paper type Viewpoint

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The TQM Journal Vol. 25 No. 3, 2013 pp. 224-243 r Emerald Group Publishing Limited 1754-2731 DOI 10.1108/17542731311307429

Introduction Planning for customer value cannot be done in global, generic terms. Whatever the product[1] offered to the market, value planning should be done in specific, analytical terms. Customer value perception is in fact a complex construct of the specific satisfactions and dissatisfactions, related to the different qualities exhibited by the product, each of them associated with different levels of importance and value expectation. Rarely users[2] consumers in particular follow rational, rigorous and conscious processes to combine the different elementary satisfaction and dissatisfaction perceptions into a global value judgment. Only the most careful customers the B2B in particular manage to resolve the products fitness for use into its components, to make more rational purchasing choices. But, even if the user does not, the producer is bound to do that. The more the producer is able to unfold those

product qualities the target users are interested in and the values expectations associated with them the more it will be able to satisfy users (even latent) expectations. The aim of this paper is to illustrate an approach to planning for competitive customer value that in the authors long experience has proved to be effective. Some of the assumptions and conclusions that will be presented in the following may sound somehow at odd with methodologies that are widely diffused and have shown their long time validity. But they are not intended to contradict any other theory; their intent is trying to look at the reality from different perspectives and to complement some existing well-known approaches, such as quality function deployment (Akao, 2004; Hauser and Clausing, 1988) and the Kano customer satisfaction model (Kano et al., 1984; Walden, 2003; Shen et al., 2000; Shain and Zairi, 2009; Chen and Lee, 2009). These methodologies have been widely used by the author and from their use came the main stimuli to further research and experimentation in this area. The paper focusses on concrete planning strategies, where striving to know the relations between changes in performance and the corresponding changes in customer value perceptions for each product quality is fundamental. But such relations depend on time, on user inurement to the offered value, on scarcity or plenty of it. To describe the complexity of the relations, multidimensional diagrams, including the time dimension, should be used; to simplify the process a number of bi-dimensional diagrams are used. Particularly important in planning are historical diagrams that plot competitors trends in time. Such trends are also helpful to suggest choices between incremental and quantum leap improvement. The cost and price aspects too are important variables to consider in planning for customer value. But, before starting our discussion that is centered on value, customer perceived value in particular, and takes for quality the broad definition of doing the right things and doing them right a digression to illustrate the authors quality vision is necessary. The reader is invited to carefully read it, to avoid misunderstandings. Quality and customer perceived value The concepts that lie behind the quality-related vocabulary are not the same for all those who, as practitioners or academicians, are involved in managing for quality. It is then opportune to preface the discussion by specifying the authors view and definitions (Conti, 2004). The word quality has different etymological roots in different languages, which sometimes create concept-tuning problems in the dialogue between experts belonging to different cultural/linguistic stocks. Historically, Aristotle was the first to face the problem of a formal definition of the concept of quality (Aristotle, 350 B.C.E.a, b). Thanks to the diffusion of the Greek and Latin cultures such concept rapidly spread in the western world. Other thinkers further elaborated it (Locke, 1690; Hobbes, 1651) from the philosophic, philological, esthetic, ethic perspectives. Its penetration into the modern industrial culture was the latest step, which entailed a de facto reduction in scope of the concept, accompanied by a concomitant increase in depth. The deepening was not related to the concept of quality itself but to the ways the planned quality could be generated. That created a new discipline: managing for quality. Aristotle defined quality as a family of concepts that have the common property of answering the following question (related to a person, an object, a situation: all entities that display a plurality of characteristics): Which characteristic(s), or property, or attribute, or nature, are we considering? Such question starts with which qualis in Latin the adjective that in all Latin-derived languages is at the

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root of the word quality (in Greek, the Aristotles language, the corresponding words are: poios and poiotes, which remained, however, confined to Greece). Historically, it was then the Latin language that, thanks to the diffusion of the Roman Empire and its culture throughout Europe, allowed the transmission of the concept and its etymology to our days[3]. The word quality is then, by itself, neutral. It does not imply any value judgment about the quality (i.e. the characteristic) that is the object of our attention. The value judgment (always expressed by people) derives by the association of an attribute (high, low, mediocre, excellent) to the word quality. Such attribute qualifies such word in positive or negative terms, in relation to the perceived value[4]. In time, in the common language, quality has become a synonymous of good quality. But that is a synecdoche, or a verbal short cut; dangerous, because it generates ambiguities. What qualifies in positive or negative terms a quality judgment is the value associated with it. More precisely, the value that is perceived by the person who is qualified to express the judgment: for example, the potential buyer in a commercial transaction; or the user, in the post-purchasing phases. In the first case, the value for money perception is a decisive factor for the purchasing decision. In the second case the value for money judgment based on experience and intended as the ratio of the experimented use value to the cost of ownership (or better: price of acquisition plus postpurchasing ownership/use costs) will be the main customer satisfaction determinant[5]. In modern times the industrial revolution with the associated mass production strongly influenced the quality concept, often reducing its reach. Role distinction between planning and execution, that characterized management sciences early development, led to a separation between those who define the product specifications and those who make the product. In defining the product characteristics, the former did not talk of qualities but of features and performance. Quality management intended in the restricted sense of meeting specifications was seen as a manufacturers responsibility. The quality crisis that hit many western industry sectors in the 1970s led to a rediscovery of the full, original meaning of quality. The first consequence was extending quality management back (along the product lifecycle) to product design; then, albeit more reluctantly, to product planning (defining product specifications). In the golden age of quality (the last twenty years of the twentieth century) the revolutionary concept of TQM emerged. It was focussed on the customer (and then on customer value) and intended to cover all the organizational/managerial factors (the enablers) that, also indirectly, contribute to generate competitive customer value. That meant in fact not only involving the whole organization, but also extending the scope to its transactional environment, that is, its stakeholders and customers. Unfortunately, decline followed success and the scope of the quality management concept suffered from it, missing much of its strategic content. Today, many quality practitioners as well as students tend to identify quality management with defect reduction (doing things right). The increasing emphasis on statistics, variation, Six Sigma, accompanied by a lowering emphasis on the organizational and management system and its fitness for purpose, is a proof of that. The author sees that as a quality suicide. Unless it wants to harm itself, managing for quality should cover the difficult chapter of doing the right things too; that is, the whole cycle of conceiving, planning, producing and delivering competitive customer/ stakeholder value. Conceiving has much to do with innovation: only by making customer value the focal point of all company activities the quality mission will be complete. And it will be consistent with the organizations fitness for purpose.

By doing that, if ever possible, quality will regain the relevance it enjoyed a few decades ago and now has lost. The subject of this paper is planning for quality, that is, how to get to competitive value propositions. The key concept for that process is user value or better user value for money. In the case of commercial transactions the expression value for money covers, as noticed above, both the purchasing disposition (determined by how the product looks attractive to the potential customers) and the customer satisfaction with the purchased product. The concept of user value for money should be the beacon that guides those suppliers who look for mutually profitable, long-term business relations (in the case of non-commercial relations as well as in bartering the more general expression value received for the value given should be used). Incidentally, we may note that a conception of the managing for qualitys mission as individuation, generation and delivery of competitive customer value not just defect reduction would eliminate misunderstandings like those emerged a few years ago in the discussions aroused by the paper Too much of a good thing? Quality as an impediment to innovation (Cole and Matsumiya, 2007). Cole analyzed the causes of market share losses by high-tech Japanese companies. From that paper emerges that Japanese companies had been damaged by the priority given to defect reduction with respect to innovation and time to market. If quality is identified with defect reduction to the minimum levels allowed by technology, then it is right to conclude that the pursuit of quality may stand in the way of innovation. But that is a narrow view of quality (which unfortunately is still widely diffused). If quality is intended as customer value such misunderstanding may be avoided. In the specific Japanese circumstance, talking with customers would have made the supplier aware that early product availability was deemed more valuable (at least by the more advanced users) than waiting for lower defect rates. If at product level such view can manifest itself in the priority given to defect reduction with respect to time to market, at the company level it normally appears as rigidity, subjection to standards, lack of innovation. Such attitude can make the company unable to timely understand and adapt to market changes. In conclusion, the popular concept of quality management as pursuit of minimum defects may negatively affect the products fitness for use. But, even worse, it surely may negatively affect the organizations fitness for purpose and as a consequence, everything it does. Changing from an organization whose purpose is minimizing defects (doing things right) to an organization whose purpose is delivering competitive customer/stakeholder value in a changing environment (doing the right things and doing them right), is a discontinuous, radical, difficult transformation. The profile of the organizations critical for success qualities is bound to be identified and cared about. A right balance between innovation, incremental improvement and stabilization capabilities should be dynamically achieved depending on the nature of the organization and the market/social environment it operates in. Proximity to users increases the capability to understand product fitness for purpose In a time characterized by increasing acceleration of change, keeping the organization fit for purpose requires full immersion in the environment where the receivers of the organizations products operate. Customer proximity to understand what is valuable for customers becomes a fundamental organizational quality. Among the steps forward that Dr Juran contributed to make, interpretation of quality as fitness for use was certainly one of the most important. By seeing and

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understanding the use that customers make of own products, the supplier can in fact discover ways to increase its offers value. Should fitness for use be intended in literal terms, some important customer values could be missed, like those pertaining to the spiritual, emotional, symbolic realms (see the cases of works of art, naturalistic or cultural tourism, rare books, jewels). It seems that the expression fitness for purpose is more comprehensive. However, also the former may be used, if the word use is intended in a wider sense. What is important is not confusing use value, with exchange value. Economists are more focussed on exchange value, practically identifying it with price. They consider use value too, but in strictly economic term ( Jevons, 1871; OHara, 2008). From the quality perspective the focus is bound to be on use value. That in relation to the product; but customer perceived value goes beyond the product. The soft dimensions of the supplier-customer relations are important. We can call such dimensions metaeconomic (beyond the economic dimension). Value dimensions that pertain to the human and social sphere strongly influence business relations and then economic results. If we move inward from the supplier-customer relations to the internal relations between the suppliers active stakeholders (those who generate customer value: employees and partners), human and social values become predominant. That because they strongly impact stakeholder motivation and satisfaction, finally affecting the organizations fitness for purpose (Orestano, 1942; Lazslo and Wilbur, 1973; Herzberg et al., 1959; Herzberg, 1966; Hirshman, 1982; Maslow, 1987, 1998). Any relation can be fully understood and properly managed only by considering people and the organizations that they create in their wholeness, not just as economic entities (Conti, 2003a, b). The habit of considering the whole spectrum of values (not just the economic and within them those related to use) becomes also a precondition to successfully extend quality management concepts and methods to non-business organizations. In commercial transactions, buyers have value expectations in relation to those product qualities, material or immaterial, they are sensible to. To satisfy them, they are ready to give value in exchange: value appreciated by the supplier, who too has value expectations (money, normally). Buyer satisfaction depends on value for money, seller satisfaction on money for value. In non-commercial relations satisfaction can be measured in terms of value for value (i.e. the value received for the value given). What the author since long has proposed is to call a commercial transaction (or more generally a relation) a quality transaction (or a quality relation) only if it aims at a fair satisfaction of both parties expectations. That is not an ethical dream: it is meaningful as well as practically possible because the values expected by the two parties are normally different. In the case of commercial relations the buyer is normally concerned with use value, the seller with exchange value. In the case of non-commercial relations (as well as in the case of barter) both partners are concerned with use value, but one partys use is generally different from the other partys and not conflicting. We maintain, then, that among the different kinds of relations, only the win-win relations deserve the quality attribute. No doubt that win-lose relations seem to prevail in the real world; sometimes even lose-lose (typical is the case of wars). But such relations do not deserve the word quality, even if they use the most sophisticated quality tools (to improve their value destruction capability). The win-win approach should particularly be pursued in social and political relations, from the local community to the international level. In such relations, predatory, win-lose relations negatively impact the quality of life. Quality of social life can be reached in fact when laws and behaviors impose duties

(where each one loses something) to allow wide freedom spaces, self-fulfillment opportunities and peace flourish (where everybodys gains largely compensate losses). At this point we have reached the link between the general considerations and the specific theme of this paper. The producer, who, in competition with others, pursues customer satisfaction and loyalty, is bound to identify, trough proximity and dialogue, those qualities (i.e. features) that are critical for the target users (particularly those the users themselves are unaware of, or give for granted) and decipher what kinds of customer appreciated values could be associated with them. Here the authors experience suggests to use the method of the face to face dialogue with significant users, instead of the questionnaires that risk ambiguity and incompleteness (Walden, 2003). Direct dialogue is irreplaceable to detect the unaware, latent expectations, which often hide themselves behind inconveniences, difficulties, resignation, high costs. Getting to pondered evaluations of the relative importance of the different qualities too is something irreplaceable. Getting deeper understanding to decide if incremental added value or innovative solutions should be pursued is also important. Questionnaires are useful in a subsequent phase, to test the reached value proposition hypotheses. Such questionnaires should be extended to a larger user population to test the hypotheses and get to meaningful statistical data. By elaborating and discussing the interview and questionnaire results, more solid hypotheses can be drawn on the relative importance of the different qualities, on the customer appreciated values associated to them, on their interdependences, on their links with costs and with prices, since customer judgments and choices are mostly based on the perceived value for money[6]. Ambiguous results should be re-discussed with appropriate reference customer. A simple representation of value-adding and value-subtracting qualities and their evolution in time Figure 1 is a simple representation of how a products value adding and value subtracting qualities evolve in time under competitive pressure. It was used for the first time by the author in 1992, in the already mentioned book Building Total Quality (Conti, 1993). Later on, the representation was improved and used as an elementary introduction to the concepts of positive and negative quality, satisfiers and dissatisfiers. It can also help in introducing the discussion on planning for competitive value, and more generally in managing for customer satisfaction. The upper part of the figure represents the positive quality (or satisfaction) area, where the product qualities which users are interested in are associated with positive user value; that is, they generate satisfaction. The lower part is the negative quality area, where those qualities the users are sensitive to are associated with negative customer value; that is, they generate dissatisfaction. The arrows in the figure represent improvement paths. Most users sensitive qualities are present both in the upper and lower parts of the figures: that is, with reference to the Kano diagrams, their performance/satisfaction curve develops from the negative satisfaction area (below the horizontal axis) to the positive (above that axis). The zero level is, for them, just a transit point, since entering the positive, competitive area, is the target. But there are also qualities that are present in the lower part of the figure only: they can carry negative or zero perceived value only. We will deal with them in the following; they are mainly or only dissatisfiers. The arrows for them terminate at the zero level: bringing the negative value as close as possible to zero is in fact the target (not an absolute target, however, since, we will see, identifying the right trade-off between satisfiers and dissatisfiers, when in conflict, is a strategic issue in planning).

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Progress in positive customer value augmentation

Issue: increasing customer value through continuous improvement and innovation

Shift in time

Best in class level Minimum acceptance level for each value carrying quality

0 0 Progress in negative customer value reduction Issue: reduce negative value for each quality as close as possible to zero Different value subtracting qualities (area of dissatisfaction)

Figure 1. Reducing dissatisfiers and increasing satisfiers

Qualites that carry negative value only Qualities that extend from the negative to the positive value areas

For those qualities that span from negative to positive, the zero level could be taken, in the first instance, as coincident with the lower limit of acceptance by users. However such limit is somehow undefined, so we do not represent it by a line, but by a strip. In this lower part of the competitive area we find, for example, consumers who are more concerned with price than with value; and suppliers who, being not competitive on value, choose or are bound to compete on price. The competitive area, in the figure, extends upwards to the present best in class level. Defining ones own position in planning obviously depends on the companys mission (to be among the leaders or among the followers) and by realistically considering ones own technological and innovation capabilities. For each specific quality own position will then be defined based on its importance to the customer, the reference competitors position and the relevant costs. The extension of the competitive area will obviously be wider for the secondary qualities, narrower for the primary ones; for the latter in fact the need to get as close as possible to the best in class is generally felt by most competitors. Figure 1 also tells that those suppliers who want to keep leadership positions will aim at overcoming the present best in class level by entering the upper space, which has no limits, and where the imperative is to excel through competitive differentiation, both incremental and innovative. A last comment about Figure 1: the horizontal lines delimiting the competitive area are bound to shift upward continually, thanks to competition. Whatever the position

reached, through incremental improvement or innovation, it is destined to be sooner or later exceeded. The relations between changes in performance and the corresponding changes in customer value perceptions While Figure 1 represented all the product qualities, the following Figures 2 and 5 aim at representing in more detail the relations between changes in performance and the corresponding changes in customer value perception for each type of product quality. Figure 2 represents the first type, obviously the most common and important: the positive quality, or the quality that is intended to bring positive value to the user, where competitors strive to be chosen by offering users more value for money than the competitors. Competition takes place in the upper right quadrant of the figure. The present competition range is between the threshold level (TR) and the best in class level (BIC). The lower tail of the curve, which extends into the negative area, is clearly outside the range of competition and should be considered in planning only to prescribe urgent recovery actions. The positive part of the curve below the TR relates to those suppliers who choose or are obliged to compete on price, compromising on quality. The curve in Figure 2 may be compared to the Kanos one-dimensional diagram. It differs, however, in the following: instead of a straight line, a curve is taken, as a more general case[7]; the same type of curve will be used for any competitive quality; that is, to represent both the incremental improvement and the innovation based (leading, the latter, to quantum leap increase in customer-perceived value); the point of crossing of the curve with the functionality axis is not fixed at the zero customer satisfaction (or value for money) level, but moves rightwards, as the curve moves
Customer perceived value vs functionality. The case of positive qualities or satisfiers destined to bring value to the user
Customer perceived value

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Present competition area

BIC TR

V =0 F =F 0 Fc

+ Degree of functionality F

Notes: The figure relates to a specific quality that brings value to customers and is then subject to competition. The cross-point between the two axes is not taken as the 0/0 point as usual, but as the 0 point for value and F0 point for functionality. F0 becomes then a defined, measurable level of performance, not linked to perceived value, which does not depend on functionality only, but also on customer inurement. F0 is the present level of F that leads to 0 perceived value. The present competition area is between TR (threshold) and BIC (best in class) levels

Figure 2. Customer perceived value vs degree of functionality

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downwards, with the increase in customer expectations. The downward shift is a necessary consequence of customer inurement on one side and competition vivacity on the other side. The choice of not tying the curve to the crossing point of the axes makes the degree of functionality expression more meaningful, since it refers to a well defined, measurable degree, that we call Fo (e.g. the initial functionality level, when the current type of technical response to the customer expectations was first introduced, or, even better, the minimum degree of functionality that we conventionally agree to consider). Notice that by doing that, the curve never reaches the bottom-left quadrant; so that we can reserve it to pure dissatisfiers. Figure 3 describes the evolution of the curve of Figure 2 in time: what Kano called the lifecycle of quality. Yesterdays curves competitive range spans from TRy to BICy and todays curve, from TRt to BICt. A higher customer satisfaction level is reached (BICt) in time, despite the downwards drift of the curve. The competitive range normally shrinks, due to users increased value demand and a consequent competitors cramming at the top. Continuing such trend, some qualities may reach the level described in Figure 4, where customers give it for granted that getting top functionality is just normal. We have reached the situation that Kano calls must be quality (see also Figure 5). But, before discussing Figure 4, let us complete our analysis of Figure 3. What happens when a competitor finds a new solution that significantly increases user value in relation to a quality that up to now followed the trend described in Figure 2? In competitive environments, that often happens. In fact, when the competitive curve sinks down and flattens, the opportunity to innovate occurs and innovative competitors may catch it. In the figure, such discontinuity in value offer is represented as a lonely star on the vertical axis. The innovator is in fact alone with the new solution; there is no competition curve yet. A period of instability appears where
The quality life-cycle: the competition curve moves downward in time. New innovative solutions may start a new cycle
Customer perceived value

A competitor makes a quantum leap jump in customer perceived value

Tomo rrow

V*

Ye
BICY Competitive range yesterday

ste

rda

y
BICT
Today

Competitive range today TRT +

TRY Fo Fy Ft

Degree of functionality

Figure 3. The continuous line represents todays situation, the dashed line, yesterdays (meaning a defined time ago, e.g. last year)

Costomer perceived nagative-value

Notes: The star indicates the irruption of an innovation that brings in a quantum leap in customer value (V*). Being new, it is alone; there is no curve at the moment. The curve (indicated by the dotted line), will start to show up soon, as the response of the competitors

Must be quality: a positive quality becomes a quality that hardly contributes to customer satisfaction
Customer perceived value +

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Vo Fo Customer perceived negative-value Ft Degree of functionality +

Notes: That is an example of must be quality. Another example is mandatory quality, like in the case of safety standards. Even if intrinsically a positive quality, then, value is prevalently in the lower right dissatisfaction quadrant

Figure 4. Migration of the customer perceived value vs functionality curve downwards due to customer inurnment and/or the marginal utility law may make customers indifferent to a value (that they in fact do appreciate) until such value is lacking

Customer perceived value

New attractive solution exceeds present customer value expectations Others follow More mature competition. In cremental improvements. No more - or marginal-competition.

Competition range:

Threshold Must-be quality

Degree of functionality

Figure 5. Life cycle of those qualities which are intended to carry positive customer value, from the stage of attractive to the stage of must be

customer expectations grow to the new level. The growth rate and the diffusion depend clearly on the importance of the relevant quality in the context of all the other product qualities. Some players will look for opportunities to add improvements to the competitors innovation and often the opportunity exists, when the innovator rests on its laurels and neglects the necessary product stabilization and improvement. The curve start to take shape, as indicated in Figure 3 (dotted line, tomorrow). It develops mainly on the right side, because the most significant competitors will follow the new approach to value generation and will add some improvement. Coming now to Figure 4, which may be compared with Kanos representations of the must be qualities the difference with Kanos representation is that some positive value differential can show up beyond the threshold point. We consider the must be

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quality concept extremely important, but we also believe that under Kano definition (the quality element which is taken for granted when fulfilled but results in dissatisfaction when not fulfilled), different situations are (or can be) in fact grouped. The classic situation is the terminal stage of the quality lifecycle (see Figure 5). As the author pointed out in the already mentioned paper on quality and value (Conti, 2004), such cycle is conceptually related to the issue of relativity of values, which in turn leads to a very interesting and authoritative confirmation from the realm of economics. The quality lifecycle says that the same level of performance (i.e. delivered value) leads to different and decreasing levels of perceived value in time. Factors that influence perception are the continuous increase in the offered value due to competition and user inurement (human beings are sensitive to value variations, less to absolute values). Value is then a relative concept. In the field of economics, relativity of values was first advocated (in the ninetieth century) by the Austrian School of Economics (Menger, 1874) and by the British economist and logician W.S. Jevons. They defined the so called Marginal utility law, based on the concept of final degree of utility. The marginal utility law states that value of a thing varies according to scarcity or plenty of it in relation to needs; that the marginal value of each new unit depends on the number of units already existing in relation to demand. Then value decreases for each additional unit, reaching zero when it becomes superfluous. A classic example is water, highly valuable when scarce, barely appreciated when abundant. A more actual example is the rapid fall in price of successful high-tech consumer products due to oversupply by a multitude of competitors. Looking to the problem from our quality perspective we can say that the perceived value of a product with certain levels of functionalities varies accordingly to scarcity or plenty of such functionality levels in the suppliers offers; and we can add that the marginal utility law applies not just to the whole product but also to each of its qualities. If one quality cycle terminates, a new one can be started, thanks to competition (see Figure 3 above). It happens in fact that a particularly attentive supplier conceives a new more comprehensive and resolving way to respond to the users needs and a new wave of customer value can revamp the quality that seemed to be asleep in relation to competition. Another type of must be quality is that derived from mandatory product standards, typically those related to safety. From a quality/value perspective, they are certainly defined according to the state of the art of the time they are issued, but their evolution in time is necessarily discontinuous; attentive suppliers can find it convenient to anticipate the standards evolution and publicize that as a positive differential (typical is the case of the European standards for car exhaust emission in relation to air pollution, where the producer is bound to respect them, but it can give more than requested and publicize it to get an image advantage). That is the reason for the emergence, in Figure 4, of the must be quality curve above the horizontal axis into the positive area. Figure 5 represents a complete quality lifecycle. The dissatisfiers The whole area below the horizontal axis relates to dissatisfaction. However, those dissatisfactions that we have examined till now relate to inadequacy in generating the positive value that users expect today in relation to the different value-adding product qualities. But, as we have seen in Figures 3 and 5, what was considered adequate yesterday may be inadequate today and the curve progressively moves into the lowerright dissatisfaction area (as we noticed above, the lower-left area may be disregarded in the cases presented in the previous section, due to our definition of Fo). In case of inadequacy of his own value proposition, the issue for the supplier is either to improve

his present approach to escalate the curve and reach the competitive area, or to innovate, that is conceive a new approach that leads to a higher value generating curve. There are, however, some qualities that are negative by nature, that are not intended to carry positive value, but emerge despite the suppliers efforts to curb them. Typical are failures and errors, which may cause the loss of significant parts or the totality of the products performance. Such regrettable events look as pure dissatisfiers. Quite often they are not associated to a specific quality but affect a number of qualities or the totality of them. Certainly, we can talk of them in positive terms, like increasing reliability and dependability; and we can treat them as must be qualities. But apart from the fact that they do not fit the Kanos must be quality definition, since on them competition is strong that is the supplier perspective and language. From the user perspective they can never be positive. The issue for the supplier is bringing them as close as possible to zero. Failures and random errors, as noted above, often impact a plurality of functional areas (if not the totality of the product functionalities) because of the architecture of modern systems, were many functions share the same processor and/or memory. If the latter units fail, the whole system, or important parts of it, can be affected. That is why failures and errors are the users be #te noir; they are intrinsic dissatisfiers, they are not perceived as inadequacy of value but as purely negative value. They cause disturbance and additional costs and make the organization that proposes positive values without first eliminating them not trustworthy. That is why we recommend making a specific analysis to identify the possible dissatisfiers and their impact on customers. The impact frequently depends on the combined effect of satisfaction and dissatisfaction factors. We use for intrinsic dissatisfiers also a definition that may look quite odd but is full of meaning: must-not-be negative-qualities. In fact, as the definition must be qualities identifies those positive qualities that must be present at full performance, our definition identifies those negative-value carrying qualities that ideally should disappear; that is, they must not be there. In Figure 6 they are positioned in the bottom-left quadrant.
Must-not-be negative qualities (intrinsic dissatisfiers)

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+
Vp
P

Vx

Vr
Degree of dis-functionality

Dx Vx

Vo Vo Fo

Must-not-be negative-quality

Customer perceived negative-value

_
Figure 6. Example of must-not-be negative quality in the bottom-left quadrant

Notes: The must-not-be negative quality curve is derived indirectly starting from Vp (perceived value in absence of dissatisfiers); then estimating the reduction Vx due to dis-functionality Dx. The resultant perceived value is Vr. Moving to the lower quadrant, Vx is the ordinate of the must-not-be negative quality curve that corresponds to disfunctionality Dx

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In Figure 6 the bottom-left quadrant is represented as slightly separated from the bottom-right one, for the following reason: the degree of dis-functionality of the leftward-pointing horizontal axis is, according to our definition, conceptually different from the degree of functionality of the rightward-pointing horizontal axis. It relates to dissatisfiers, as failures and random errors, which have their own measurement parameters, different from those which measure functionality. Can we build the bottom-right quadrant curve directly, by measuring customer dissatisfaction as a function of dis-functionality? We believe that it would make little sense. Dissatisfaction, in fact, is not independent from satisfaction. Dissatisfaction, as we define it, is always a negative side of a positive thing a subtractive element of a positive whole. For that reason we start from customer perceived value in absence of dissatisfiers (VP in Figure 6). Then, together with the reference customers, we estimate the reduction in such perceived value (DVx) caused by dis-functionality Fx. The resultant customer perceived value is Vr, while the indirectly measured dissatisfactions (like DVx) allow to build the must-not-be negative quality curve. What we have done till now leads in reality to the division of the perceived value vs performance space into two parts: not horizontally, as it is traditionally done, but vertically. The right-hand part is dedicated to the value-adding qualities (with their negative tails that must be minimized), while the left-hand part hosts the value subtracting qualities (lower quadrant) and can host their combination with the value adding ones (upper quadrant). Combining satisfiers and dissatisfiers Following the introduction made above with the help of Figure 6, we will discuss here in more detail how to combine the effects of the planned satisfiers and the unwanted but to some extent predictable dissatisfiers. The problem is particularly relevant for companies who are leaders in innovation, since reliability problems may emerge from it. Innovations in fact may de-stabilize the system and it takes time to bring it back under control. The question then often arises: shall we wait for product stabilization before starting commercialization, or can we anticipate delivery, to fully benefit by the innovation? Ultimately, the issue is: finding the right balance between time to market and residual defectiveness. We maintain that only open dialogue with lead and significant users can conduct to reliable evaluations and decisions. Figure 7, that expands and completes what was introduced in Figure 6, is conceived to facilitate such dialogue. A warning is opportune before entering the satisfier/dissatisfier combination theme. From Figures 2 to 6 we have represented the relationship between functionality and customer value perception for those elementary product qualities the customer is sensitive to and perceptions can be surveyed. We can and should use the same approach and representations for higher level quality aggregations; the same tree aggregations that are planned for the customer satisfaction surveys, up to the whole product level. That is particularly important for the combination process, because must-not-be negative qualities often relate to high-level aggregations; level that should be the same for satisfiers and dissatisfiers. Figure 7 illustrates the satisfier/dissatisfier combination process of in two cases: incremental (small scale) and quantum leap improvement. Important cases because, in front of a possible innovation, its benefits, costs and risks should be compared with the lower benefits, but at the same time lower costs and risks, of incremental improvements. We already said that customer perceived values reduction due to negative added value (dissatisfiers) depends on the customer satisfaction level due to

Area of emipirical combination of satisfiers and dissatisfiers

V3/2

+
V3 V3/1 V3/2 v3 v2 V2

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Satisfiers positive area

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P2 V1 V0 F0 d2 F1 F2 P1

Incremental improvement curve

Defectiveness

D3/2 V3/2

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V3/1

Dissatisfiers area

d3

Satisfiers negative area

Notes: Two cases: incremental improvement (from P1 to P2; i.e.: value from V1 to V2) and innovation (from P1 to P3; i.e.: value from V1 to V3). Curves v3 and v2 are built in dialogue with reference users. Curves d3 and d2 are obtained, respectively, as difference between the horizontal line V3 and curve v3 and the horizontal line V2 and curve v2. Curves v3 and v2 say that innovation is more tolerant to dissatisfiers than incremental improvement

Figure 7. Combination of satisfiers and dissatisfiers in the upper-left quadrant

positive added value. Let us try to understand more about such dependence. We take point P1 (perceived customer value V1) as our present position. We have to decide if aiming at point P2 (perceived customer value V2) through incremental improvements, or striving to reach point P3 (perceived customer value V3) through an innovative solution. Since the latter may imply time and significant investments, key to the decision is getting to a reliable forecast of the real competitive advantage in terms of customer perceived value that results after the combination. According to our experience, the best way to quantify and compare results for the two options is providing for open and deep discussion between internal experts and selected lead users. They should first estimate the increase in customer perceived value in both cases, ignoring dissatisfiers. They should then analyze the nature and effects of dissatisfiers, particularly in the case of innovation, where the burst in performance is supposed to generate a burst in value perception (which, however, does not last long, because competitors do not sleep). The next step is a quantitative estimate of the reduction of the customer perceived value for different levels of dis-functionality. Apart the quantitative aspects, that depend on the specific case, Figure 7 tells us that the higher the added value due to satisfiers, the higher the tolerance to dissatisfiers. In fact, the v3 curve shows a slower decline and a later fall than the v2 curve. It is then important to explore the tolerance to dissatisfiers of the pursued innovation before deciding about the tradeoff, keeping in mind that customers are ready to accept initial reliability limitations provided they are informed and confident that the supplier is ready to assist them and problems will be overcome in due time.

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In conclusion, the most productive way to combine satisfiers and dissatisfiers is not using sophisticated algorithms but putting together experts from the producer and the user sides and letting them discuss in concrete terms, considering the product, the market, the competitors[8]. The benefits of a consolidated habit of dialogue with customers extend beyond the specific issue of value planning. It may also help in demolishing consolidated certainties, linked to the company culture and traditions. If the idea that quality management coincides with defect reduction has dominated the company for a long time, close relations with customers will help to change the mindset and come to think in terms of customer value. The irreplaceable role of historical trends in planning In the authors experience, graphics that describe trends of performance and value in time are extremely useful in planning. In such graphics, positive trends reveal improvement in customer perceived value and the curve slope (DV/Dt) the corresponding improvement rate. The following figures relate to the whole product, where value for money can be taken as the most significant final indicator. But performance and perceived value for each key product quality should also be systematically monitored, through appropriate measurements for the former, through specific questions in the customer satisfaction questionnaire for the latter. Figure 8 represents, in its upper part, the history of the value for money perceived by the customers for the examined company and product, over a period of three years. Measurements were conducted every six months. The continuous line relates to the considered organization (which we call our company), while the dotted line relates to its main reference competitor. The graphic in the lower part represents the weighted combination of the internal measurements that our company regularly carries out on those product qualities that impact on the customer value for money perception. The weights are derived from the relative importance attributed by representative customer samples to the specific qualities. Internal measurements of competitor performance for benchmarking are obviously made using the same criteria. From the lower graphic of Figure 8, we see that in the first two years of the considered period our company essentially relied on incremental improvement. But customer satisfaction naturally tends to decline in time as a result of inurement and competitors alignment, unless improvement rate overcomes such decline. For the reference competitor, customer satisfaction was lower in the first two years, even if the gap with respect to our company shrank progressively. Unexpectedly, after time t2, our company realized first by word of mouth then through a targeted survey on competitors customers (at time t3) that the reference competitor had made a big leap forward, clearly fruit of innovation. Customer satisfaction for our company dramatically fell in the t2-t4 period, producing a shock and a reaction. In the t4-t5 period our company introduced the same conceptual changes of the competitor, but with significant design and production improvement. Reliability was pursued as a competitive advantage, since users, after cashing the big value wave, wanted stabilization. The competitor made the mistake of resting on its laurels, instead of reinforcing its position by working on the change induced dissatisfiers. So it found itself again in the follower role. This is a proof that, to keep leadership in customer value, both capabilities are needed: doing the right things and doing them well and understanding when it is the right time to put more emphasis on one or another. It was a lesson for both companies. Our company needed to reinforce its innovation capabilities, and the competitor needed to reinforce product stabilization capabilities following innovation. The future will tell who was a better learner.

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t0

t1

t2

t3

t4 Time

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t6

t7

Measurable performance

t0

t1

t2

t3

t4 Time

t5

t6

t7

Note: The continuous lines represent our company, the dotted line represents the reference competitor

Figure 8. Performance measurement (lower diagram) and customer satisfaction (upper diagrams) in time

Another graphic is needed when planning: the improvement associated costs in time. Figure 9 presents such diagram in its lower part (the upper part diagram is simply a repetition of the lower diagram of Figure 8, to allow easy correlations between performance improvement and cost). Notice that improvement associated costs show the typical investment trend, with a peak followed by cost reduction and then a return on investment, the duration of which can be calculated. Clearly, in the case of innovation a price increase is often feasible in the first phase, when the performance gap with competitors is high compensating for the induced costs. Awareness of innovation opportunities (favored by proximity to users but elicited by the sagacity and capacity of the producer) can emerge at any time and in any situation, but is generally stimulated by the perception of an existing important gap between expectations and offerings. Flattening of the upper curve of Figure 8 in time for all competitors can be an indicator that innovation opportunities should be explored. The attentive suppliers policy is to continuously search for innovation opportunities, stepping on the accelerator when the right time comes.

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t1

t2

t3

t4 Time

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Figure 9. Performance (top) and cost (bottom) measured or assumed trends are very useful in the planning phase

Cost associated with the performance t0

t1

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Note: For example in time t3 to decide about the convenience of pursuing a radical innovation

Classification of product qualities Figure 10 gives an example of product qualities classification and rating in accordance with the above presented concepts. In this case the product is a car; service-related satisfaction is not considered. Such classifications and comparative ratings are useful at any time of the product lifecycle but particularly in planning. The upper part of the figure is related to satisfiers, those qualities that are intended to contribute to customer satisfaction. The lower part is related to both must be qualities and dissatisfiers. Customer satisfaction data (upper part) derive from surveys made by the planning company (that we call our company in the figure) on both own customers (black dots) and the reference competitor (white dots). The qualities are represented in descending importance order, proceeding from left to right. Qualities that impact on people and environment safety are considered the most important (extreme left). We can see that our company is rather weak, particularly in crash tests (must be qualities, lower part of the figure). The reference competitor instead is well positioned in that area and can make of the

Our company CO2 and thin powders emission levels Customer satisfaction

Reference competitor Entertainment system

Braking system and road holding Crash protection systems

Speed and acceleration

Comfort

Gas mileage

Noise level

Visibility

Appearance

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Minimum acceptance level People safety and environment protection

Primary functions

Secondary functions

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Level of risk in different road conditions Non-compliance with euro NCAP crash tests Non-compliance with CO2 emission standards

Dissatisfiers and must be qualities

Customer dissatisfaction

crash-test robustness a strong point (upper part, satisfiers). Actions to improve crash protection look urgent. Moving rightwards, to the primary functions/characteristics, our company is better positioned in relation to failure rates (lower part of the figure). It should possibly capitalize more on that point, given the importance that reliability has in relation to cars. With respect to positive qualities (upper part), our company is better positioned in gas mileage and visibility, while actions to make the car more comfortable are desirable. Conclusions This paper is based on the authors personal research and practical experience in customer value planning, does not want to set up his approach against others, but to present it as a further contribution to the critical subject of planning for customer value. The dynamics of customer value is complex; understanding and mastering it is a critical factor for success in the market place and the more so in the case of highly competitive market sectors. Many ambiguities, mainly in terms of language, ought to be eliminated, as for example the improper use of the word quality when the focus is in reality on the value associated to a quality. Even the expression quality planning or planning for quality should be replaced by planning for customer value. In fact, quality planning is often intended as a corollary of product planning, aimed at curbing defectiveness and enhancing reliability. If the expression planning for customer value is used where such planning refers to all product qualities that are perceived by users as significant, it becomes clear that we are addressing the core planning issue: making winning value propositions, and then deliver the promised value through effective and efficient execution processes. The two aspects, quality of goals and quality of execution, are the two faces of quality: more innovative the first, more traditional the second.

Failure rates

Figure 10. Example of quality classification and satisfaction/ dissatisfaction rating

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Notes 1. In this paper we use the term product in the wider sense: manufactured product, service, information, etc., more generally any material or immaterial entity that a subject (individual, association of individuals, organization) generates in response to the needs/expectations of other subjects. 2. We use the term users to indicate those who use the considered type of product, independent of the supplier they are customer of. We use the term customers, in relation to a specific supplier. 3. A more complete definition of quality can be the following: a propriety that characterizes a person, an animal, an object, a situation or an organic ensemble of them as a specific way of being, mainly in relation to particular aspects, conditions, activities, functions or utilizations. 4. In the following, we will often use the synthetic expressions positive quality and negative quality to indicate that the customer perceived value associated with the examined quality is, respectively, above or below the indifference level. Such expressions were shared and appreciated by Dr Juran, in his introduction to the authors book Building Total Quality (Conti, 1993), inas much as they make the discussion on customer value and customer satisfaction more clear. 5. Keeping in mind that the value for money expression has a more general meaning than customer satisfaction, since it refers to both customer satisfaction and purchasing disposition, we will give in the following preference to the former. 6. For many products, typically cars, marketing strategies tend to incorporate only those that are considered as basic qualities in the base model. The others are treated as optional. Only for the latter the buyer can formulate precise individual value for money judgments. For the features incorporated in the base model the value for money judgment and comparisons with others are clearly rougher, since they are evaluated globally. 7. An example can explain the rationale for such choice. Human senses have response curves: beyond certain limits user sensitivity to improvement of a LCD screen diminishes, and so does the DCS/ Dperformance curve, that tends to flatten (saturation). The same applies for sound reproducers. 8. In addition to the time to market case, we can mention others where the trade-off between satisfiers and dissatisfiers is important and critical and requires full transparency toward the customer. Let us take, for example the case of customer safety in tourism, when trips are organized by tour operators. There are tourist destinations in the world that, for their naturalistic and/or cultural value are strongly attractive and promise high satisfaction levels. They are, however, often allocated in parts of the world that present risks, either because means of transport are primitive or not properly controlled, or the social environment is turbulent and unsafe. In such cases and more generally whenever personal safety is at risk the supplier should clearly present the customer the type and level of risk and the latter should formally recognize and accept it. References Akao, J. (2004), in Akao, Y. (Ed.), QFD: Integrating Customer Requirement into Product Design, Productivity Press, Portland, OR. Aristotle (350 B.C.E.a), Metaphysics, V, chapter 14, available at: http://classics.mit.edu/ Aristotle (350

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Aristotle/metaphysics.html B.C.E.b), Categories, chapters: 8, 9 to 14, 27, available at: http:// plato.stanford.edu/entries/aristotle-categories/

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Conti, T. (2003a), Extending quality management concepts to sociopolitical organizations, 3rd International Conference on Systems Thinking in Management, ICSTM, University of Pennsylvania, PA. Conti, T. (2003b), Extending quality management concepts to cope with the needs of a global world, Asian Journal on Quality, Vol. 4 No. 1, pp. 54-76. Conti, T. (2004), The dynamics of value generation and their dependence on an organizations internal and external value system, TQM & Business Excellence, Vol. 21 No. 10, pp. 885-901. Hauser, J.R. and Clausing, D. (1988), The house of quality, Harvard Business Review, Vol. 66 No. 3, pp. 63-73. Herzberg, F. (1966), Work and Nature of Man, World Publishing Company, Cleveland, OH. Herzberg, F., Mausner, B. and Snyderman, B.B. (1959), The Motivation to Work, 2nd ed., J. Wiley, New York, NY. Hirshman, A. (1982), Exit, Voice and Loyalty. Response to Decline in Firms, Organizations and States, Harvard University Press, Cambridge, MA. Hobbes, T. (1651), Leviathan, chapter X: of power, worth dignity, honour and worthiness, available at: http://oregonstate.edu/instruct/phl302/texts/hobbes/leviathan-b.html#chapterx Jevons, W.S. (1871), Brief account of a general mathematical theory of political economy, available at: http://socserv2.socsci.mcmaster.ca/Becon/ugcm/3ll3/jevons/mathem.txt Kano, N., Seraku, N., Takahashi, F. and Tsuji, S. (1984), Attractive quality and must-be quality, The Journal of the Japanese Society for Quality Control, Vol. 14 No. 2, pp. 147-56. Lazslo, E. and Wilbur, J.B. (1973), Value Theory in Philosophy and Social Sciences, Gordon and Breach Science Publishers, New York, London, Paris (see in particular the section The experience and judgement of values, by Arnold Berleant). Locke, J. (1690), An essay concerning human understanding, available at: http:// oregonstate.edu/instruct/phl302/texts/locke/locke1/contents1.html Maslow, A. (1987), Motivation and Personality, Addison-Wesley, New York, NY. Maslow, A. (1998), Maslow on Management, John Wiley & Sons, New York, NY. Menger, C. (1874), Principles of economy, chapter III, theory of value, available at: http:// mises.org/etexts/menger/principles.asp OHara, F. (2008), Introduction to Economics, First issue in 1916 by The Macmillan Company, New York, NY, Re-published in 2008 by Mahomedan Press. Orestano, F. (1942), I valori umani (Human Values), Fratelli Bocca Editori, Milano. Shain, A. and Zairi, M. (2009), Kano model: a dynamic approach for classifying and prioritizing requirements of airline travelers with three case studies on international airlines, TQM & Business Excellence, Vol. 20 Nos 9-10, pp. 1003-28. Shen, X.X., Tan, K.C. and Xie, M. (2000), An integrated approach to innovative product development using Kanos model and QFD, European Journal of Innovation Management, Vol. 3 No. 2, pp. 91-9. Walden, D. (2003), Kanos methods for understanding customer-defined quality, Center for Quality of Management Journal, Vol. 2 No. 4. Further reading Bartikowski, B. and Llosa, S. (2003), Identifying satisfiers, dissatisfiers, criticals and neutrals in customer satisfaction, Working Paper No. 05-2003, Euromed Ecole de Management, Marseille. Corresponding author Tito Conti can be contacted at: conti.tito@gmail.com

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