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Value Above Cost: Driving Superior Financial Performance with CVA, the Most Impo |  |
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Value Above Cost: Driving Superior Financial Performance with CVA, the Most Impo | |
Donald E. Sexton, Ph.D., is Professor of Business at Columbia University, where for more than forty years he has taught marketing and quantitative methods and earned the Business School’s Distinguished Teaching Award. His numerous articles on marketing return, marketing, and branding strategy have appeared in publications such as the Harvard Business Review, Journal of Marketing Research, and Management Science. He is often quoted in media such as The New York Times, BusinessWeek, and WCBS. Dr. Sexton is the principal of The Arrow Group, Ltd.® which has provided consulting and training to companies such as GE, IBM, Pfizer, Unilever, Citigroup, DuPont, and Verizon. He has taught at the China Europe International Business School, UC-Berkeley, INSEAD, the Indian School of Business, the Australian Graduate School of Management, Skolkovo, and the U.S. Business School in Prague. Sexton holds an M.B.A. and Ph.D. from the University of Chicago in business economics, statistics, and mathematical methods and a B.A. from Wesleyan University in mathematics and economics. His books include Marketing 101, Branding 101, and Marketing and Management Science.
Whether you’re a C-level executive, a line-of-business leader, or a mid-level manager, one job ultimately matters most: achieving superior financial performance.
In Value Above Cost, Columbia University’s Donald E. Sexton systematically explains how to do it. Sexton identifies the real drivers of financial performance and introduces a powerful new metric for managing and building it: Customer Value Added (CVA®). Sexton demonstrates CVA® at work, presents research and case studies that prove its value, and shows how to use it to consistently measure, manage, and optimize contribution, profit, cash flow, and ultimately, shareholder value. You’ll learn why CVA® works...how changes in CVA® correlate to changes in profits and cash flow...and how to use CVA® to steer both enterprise strategy and specific marketing initiatives. Sexton illuminates CVA®’s crucial implications for managers, revealing why you must focus attention simultaneously on both customers and costs and why widely hyped strategies such as “net recommend” offer only part of the solution. Finally, drawing on his own extensive experience as a consultant, Sexton presents easy-to-use tools and worksheets for translating CVA® concepts into profitable reality in your own business. Successful senior executives from more than twenty leading organizations including IBM, Pfizer, Citibank, Sony, and 3M, have contributed real-world examples of the importance of Customer Value Added to this book.
Foreword xviii
Acknowledgments xx
About the Author xxi
Chapter 1: Marketing and Financial Performance 1
Chapter 2: How CVA® Affects Financial Performance 33
Chapter 3: CVA® over Time 65
Chapter 4: Perceived Value 89
Chapter 5: Costs 127
Chapter 6: Managing CVA® 151
Chapter 7: Managing CVA® over Time 181
Chapter 8: Utilizing CVA® for Strategic Decisions 211
Chapter 9: Utilizing CVA® for Marketing Program Decisions 247
Chapter 10: Building the Marketing Accountability Scorecard 275
Chapter 11: Organizing to Manage CVA® 293
Endnotes 311
Index 329
Customer Value Added is the most critical concept for the business community to understand, embrace, and practice. The greater the value added, the greater the opportunity to drive profitability and, therefore, increase shareholder value—which is the primary objective of the CEO.
As business people, our primary responsibilities are to drive shareholder value by selling sufficient quantities of preferred and profitable products and services to consumers and customers. The key word in that sentence for marketers is preferred. Preference by consumers and customers may be real or it may be perceived—but it is a preference nonetheless.
Our job as marketers is to create preference via distinctive and differentiated communications. Not only must marketers create preference, but we must also try and grow it over time to ensure that the product or service can contribute positive cash flow to the business enterprise over the longer term. Preference equals perceived value. The more preference that marketers can drive, the more perceived value can be delivered to customers—thereby driving increasing levels of cash flow and shareholder value.
Professor Sexton can certainly explain these business dynamics far better than I—and he does—in this eloquent masterpiece of business marketing and economics. What is magnificent in Professor Sexton’s work is that he provides the fundamentals of how this business model effectively operates. By paying attention to these core fundamentals, marketers will improve their odds for delivering upon the CEO’s ultimate objective—driving shareholder value.
Many successful marketers have paid attention to the fundamentals—and have succeeded as a result. Let’s take a look at a few recent examples:
Apple’s iPod was brilliant—not in its technology—but in its marketing. Apple didn’t invent MP3 players or flash technology or recorded music. But what it did so well was it marketed the perceived benefits of portable and customized music. Apple’s technology was easily replicated—but not its leadership position. Consumers perceived that Apple was the preferred device for personal, customized music management. Customer value added could not have been higher as it reflected substantial marketplace preference.Procter & Gamble’s Pampers brand is reinventing how parents choose diapers. Pampers created enormous equity and customer value by changing the conversation with consumers. While parents care about keeping their babies dry, Pampers went one step further and expanded the focus on total baby care. By doing so, Pampers tapped into the reservoir of parental goodwill, which was rapidly transferred to Pampers in terms of trust and preference. That meant marketplace leadership and growing profits. Was Pampers necessarily a better diaper? Probably not, but in the minds of parents it certainly was.Does a lot of this sound familiar? Well it should—because this is the essence of building a successful brand. There is no greater responsibility for a marketer than to preserve, if not build, brand value. Building strong brands creates the core customer loyalty and longterm demand that gives marketers great latitude for creating price premiums among a sea of commodity-like products. What kind of price premium can marketers charge? Quite simply, it’s the perceived value that consumers ascribe to the product and service. The greater the perceived value, the greater opportunity to build margins via price, thereby increasing positive cash flows and brand profitability.
Professor Sexton’s book wonderfully and easily navigates the marketplace strategies and theories that serve as beacons for successful brand management. As you leap into the contours of this outstanding brand management perspective, know that there are many pitfalls lurking that can undercut a marketer’s ability to deliver the goods. Good marketers must follow core brand management practices that can often escape even the most savvy of marketers, for example:
Strong marketing accountability practices. Insufficient metrics and measurements can derail any good brand building management. In fact, it’s an old axiom, “You can’t manage what you can’t measure.” Marketers must continue to work to link marketing, finance, and a solid analytics to create targeted metrics that provide quick and compelling feedback on the impact of brand management programs.Effective integrated marketing communications. As marketers have an expanding array of media to pursue their customer and consumer targets, they need to have a good foothold as to how they select the most effective media and decide on the levels of financial resources to devote to the use of various marketing approaches.Outstanding marketing and media talent. The field of marketing has received increasing criticism for failing to keep the marketing management pipeline full of holistic business thinkers that can blend great creativity with dynamic leadership potential and superb business savvy. Those needs are critical, not only at the brand management level, but also in terms of the support resources at advertising and media agencies.It’s certainly not easy being a marketer. But Professor Sexton makes it a lot easier by providing guidance on how to think about managing the significant challenges marketers face each and every day. And, now, it’s time for you to move from my take on Professor Sexton’s work and to create your own perspective. Enjoy the good reading. You probably won’t come across this wonderful path again. Many thanks Professor Sexton—not many could have said it as well as you.
Bob Liodice
President & CEO
ANA—The Association of National Advertisers
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