Modelling in market research has become a staple in the budget allocation of many large corporations. What began with customer satisfaction modelling has been extended to customer value analysis (CVA) where satisfaction modelling is just one component.

The modelling in CVA identifies the drivers of customer value and enables their hierarchy of importance to be produced such that budget allocation priorities can be assigned. Such drivers of value in the financial markets commonly include being trustworthy, being safe and secure, having competitive interest rates, where a change in the most important of these drivers results in the greatest improvement in customer value.

But how does this improved customer value impact on the company’s performance? What is the predicted change in market share that can be reasonably expected to result from improving customer value? And most importantly, what is the financial return to the company for effecting such an improvement in customer value i.e. ROI? These sorts of questions have long been asked but the time has now arrived for the soothsayers in marketing research to get serious, for these questions must be, and more importantly, can be, answered.

The Link

By working with the results from the regression modelling used in CVA, it is possible to link changes in customer value to resulting changes in market share. This can be pictorially represented on a value map which is used to present the relative positions of say, major suppliers, on Quality and Price competitiveness dimensions. The methodology asserts that organisations perceived to be offering the best value product or service, are positioned to obtain gains in market share. See Exhibit 1. The bottom right hand portion of the map is the ‘share-gaining zone’ where suppliers are perceived to have superior quality and are price competitive. Conversely, the top left-hand corner is the ‘share-declining zone’. The size of the circles for each supplier on the value map reflects their existing market share.

Mathematically, a company’s value position can be made relative across all its competitors and then linked to their respective market shares. Then, by varying the company’s performance on one or more of the significant drivers of value (as identified through regression modelling), the resulting impact on market share can be measured. This in turn can be used to calculate a ROI for implementing such a change in performance. Exhibit 2 illustrates the result from such market simulations. If Supplier 1 improved the market performance of a value driver, then its new relative position on the value map would shift towards the share-gaining zone. The gain in market share from the relative improvements are reflected in the size change of the circle for Supplier 1, allowing management to assess the value of implementing this change in terms of market share gained. Further, a predicted return on investment for implementing the change can be provided so that management can assess the viability of this action.

For such an approach to be valid, as with all modelling, a number of assumptions would have to be made. Essentially, Ceteris paribus must be assumed where the market remains constant, no new supplier enters the market, and the other suppliers in the market make no changes other than those simulated.

Such predictions based on CVA are now possible but predicting the future
has always been fraught with anxiety and ridden with caveats and
assumptions. It is time now for businesses to venture into using
marketing research to predict the future, rather than simply explain the
past, and over time, to validate predictive models.

Friend's Email:
Your Name:
Your Email:

Submit