Adding Customer Value to Your Financial Prganisation for Competitive Advantage - Essay Example

?Purpose The overall purpose of this paper is to inform the Board about adding value to our bank in order to achieve the competitive advantage. Through this Board Paper, worthy members of Commonwealth Bank’s Board will contemplate upon the creation of competitive advantage for the bank by adding customer value. Background Financial institutions are increasingly facing a complex environment which directly relates with the competitive environment in the industry. The current financial crisis has relatively shaken the confidence of many in the viability of financial institutions and as such doing business in such an environment is really a challenge task. One of the most important ways through which any institution including financial institutions can compete and withstand the difficult economic situations is to develop its core competencies and create competitive advantage. One of the most important ways through which it can be achieved is the delivery of customer value to the customers of our organization. This could be helpful in order to allow the bank to actually lock in the existing base of customers while at the same time ensuring that new customers are also attracted.( Bill, 2003) To create a value for the customers, an organization however, have to incur the costs in order to ensure that the value delivered to the customers outpaces the cost incurred on generating such value. Resultantly an organization also develops its competitive advantage in order to become relatively stronger as compared to the competition. It is critical therefore that the customer value is generated to achieve the competitive advantage. This paper will therefore deliberate and discuss upon as to how the Commonwealth Bank can actually generate customer value and resultantly develop its competitive advantage to become successful in future. Discussion It has been argued that the financial organizations find themselves in a fix to reduce the costs while at the same time delivering high quality services and generate customer value. It is however, critical to note that when an organization attempts to create value for its customers, it must ensure that the same value is also translated into the overall firm level value. The global recession has forced many firms including financial institutions to actually reduce the costs while at the same time increase the revenue for their firms. In order to achieve this, there are real chances that the overall customer value may decline as the increasing cost pressures as well as liquidity crunch may force many banks and financial institutions to generate new avenues to achieve profitability. For any firm, its current base of customers is considered as one of the most valuable assets to care of and as such it is critical to understand that delivering value to the customers can be one of the key drivers of growth in an economy which is on decline. It is important therefore that strategic direction must be set to ensure that the delivering value to the customers is integrated with the generation of competitive advantage for the firm.( Shirley, 2000) Financial organizations are also relatively more regulated as compared to other industries therefore working in an environment which is heavily regulated requires innovativeness and creativity to develop and market products and services which can cater to the different needs of the customers while at the same time generating the relative value for the firm also. It is therefore critical that when an organization delivers customer value, the same must also result into the increase for the firm value too. Translation of the customer value to the firm value therefore is critical for manages to ensure because once competitive advantage is generated, it is important that the same must also develop into the firm level value for the firm. Commonwealth Bank’s effort to generate customer value and subsequent generation of competitive advantage therefore must result into the increase in the value for its shareholders and investors. Generation of customer value is considered as one of the most important drivers of generating higher profitability for the firm. Managers must increasingly focus on developing ways through which this value can be generated and maintained in a manner so that it can also cultivate it into a definite competitive advantage for the firm. (Kowalkowski, 2011) It is important to understand that all value creation process for the firm starts with the final customer in mind. The value therefore is generated if the overall benefits generated by the customers are relatively higher than the total cost of the inputs of the company. This positive difference therefore generates the overall value for the firm’s customers and resultantly increases the firm’s value too. The customer value can be measured by the willingness of the customer to pay for the benefits generated therefore the overall customer value can be measured in dollar terms. Better the firm is able to generate the value for its customers, more it will be able to earn because more and more customers will be able and willing to pay the premium for the value they receive in return. It is therefore critically important that Commonwealth Bank must be able to consistently generate the customer value.( Evans, 2002) The overall ability of any organization to create customer value however, also depends upon the overall industry and market conditions. Thus if the overall capacity of the industry really exceeds the market demand, it may not be possible for the firms to operate profitably and generate the required customer value. In order to generate customer value and develop it into competitive advantage to earn consistent profitability, it is important that the market demand must be lower than the overall industry capacity. This can allow firms to have a level playing field to utilize their resources in most optimal manner to achieve the competitive advantage by creating customer value.( Duchessi, 2004) The competitive advantage for the firms in an environment works only where the overall industry capacity is higher than the market demand. Thus in order to typically ensure that the industry is growing and developed the capacity which is higher than the market demand, bank can go for effective utilization of its resources and develop competitive advantage. However, competitive advantage can only be possible to generate if the firm is able to increase the benefits delivered to the customers, achieve cost reduction and discover the innovative ways to achieve the business targets.( Williams,& Naumann,2011) As a result of this, the Bank can be able to generate the competitive advantage through cost efficiencies, product differentiation as well as the transaction innovation. All three combine to achieve the competitive advantage through generating customer value. The creation of customer value can only translate into the solid competitive advantage for any firm if is it combined with supplier value and the value of the firm.( Bradley,1994) Since the suppliers for a bank are mostly its depositors, it is therefore relatively critical for a bank to ensure that it is successful in generating value for its suppliers also. By offering them value added services such as free cheque books, free debit and cash cards, better saving plans etc, a bank can ensure to Recommendations In order to develop the customer value, Commonwealth Bank may need to accomplish following: 1. Further strengthen its relationship marketing by exclusively focusing on the retention and satisfaction of the customers. Bank need to extend the domain of its relationship marketing to increase the types of clients to be served through the relationship marketing. In order to achieve this objective, it is important that the Bank must develop and improve upon its training and development practices to further strengthen the communication and client handling skills of the employees. Customer value can only be possible to be generated once the Bank excel at the relationship marketing model and improve the skills and capabilities of the staff to deliver better customer satisfaction. 2. Strong focus should be developed to reduce the costs and Bank must focus on procurement of low or no cost deposits. Product development in assets as well as liabilities needs to be carried out extensively to develop different market niches to serve their needs in more appropriate manner. Operational procedures need to be reengineered in order to ensure that the revised processes result into lower costs to the company and higher benefits for the customers. 3. It is also important to develop the marketing accountability scorecards so that those responsible for managing the existing customer base of the bank should be accountable for their business and marketing targets. This will ensure that the firm’s resources are optimally used while at the same time high quality of customer value is provided to the customers. 4. Bank shall also focus on the procurement of the no cost deposits in order to offer low cost credit facilities to its customers. This however, needs to be leveraged through effective and efficient quality service delivery and better product offering. Bank therefore needs to ensure that it develops and continue to innovate for new products and services so that it can continue to offer more value to the customers over the period of time. References 1. Bill, D, 2003. Managing customer value: essentials of product quality, customer service, and price decisions. 1st ed. New York: University Press of America. 2. Bradley, G, 1994. Managing Customer Value: Creating Quality and Service That Customers Can See. 1st ed. New York: Free Press 3. Duchessi, P, 2004. Crafting Customer Value: The Art and Science. 1st ed. New York: Purdue University Press. 4. Evans, G, 2002. Measuring and managing customer value. Work Study, 51(3), 134 - 139. 5. Kowalkowski, C 2011. Dynamics of value propositions: insights from service-dominant logic. European Journal of Marketing, 45(1), 277 - 294. 6. Martin, C, 1996. From brand values to customer value. Journal of Marketing Practice: Applied Marketing Science, 2(1), 55-56. 7. Shirley, D, 2000. Customer value management. Work Study, 49(2), 67 - 70. 8. Williams, P,& Naumann, E 2011. Customer satisfaction and business performance: a firm-level analysis. Journal of Services Marketing, 25(1), 20 - 32. Read More