CREATING VALUE FOR BUSINESS CUSTOMERS
The Purpose of Strategy: Value and Value Creation.
The purpose of marketing exchanges is to create value for all parties to the exchange.
Consumer surplus: amount that the buyer would be prepared to pay over and above the selling price.
Producer surplus: the difference between the actual price and the minimum price that the seller would have been prepared to accept.
It is a particular characteristic of business-to-business exchanges that the process of value creation can become complex, involving several parties and multiple interconnected exchanges. Uncertainties can arise from factors internal to a project/business as well as external. For that reason, paying explicit attention to the value created through exchange processes is often a matter of particular concern to business marketers.
Customer value: give-get definition
Zeithaml (1998) proposed this definition of customer perceived value: ‘Perceived value is the consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given … value represents a tradeoff of the salient give and get components’. Both the give and get components included a range of attributes, in particular, the give components include monetary and non-monetary elements.
She found that customers thought of value in four ways:
- Value is low price.
- Value is whatever I want in a product.
- Value is the quality I get for the price I pay.
- Value I what I get for what I give.
Customer value: means-end chain definition
Woodruff (1997) identified a number of common aspects in the definition of customer value:
- It is linked to product use.
- It is a customer perception rather than an objective phenomenon.
- It involve a tradeoff between what the customer receives and what the customer gives up.
However, he argued that customer value should be conceptualized as a means-end chain, with desired product attributes leading to the achievement of desired consequences in use situations and then to the fulfillment of customer goals and purposes. His approach suggest a longer-term perspective, in which the customer has the opportunity to evaluate the performance of the product and its impact of lifestyle. The distinction between the mean-end chain (Woodruff) and the give get (Zeithalm) approach is perhaps one of timescale!
Conclusion of give-get vs. means-end chain
- Means-end chain definition of value seems more suited to high-involvement purchases.
- Give-get definition of value seems more suited to low-involvement purchases.
Perceived customer value for an Organization
An unresolved issue in the conceptualization of value is the nature of value for an organization.
When an exchange decision affect more than one person, how can we define perceived or subjective value for the organization?
- One solution is to assert that a superordinate organizational goal is the only relevant decision criterion, for example shareholder value.
- Walter et al. (2001) proposed that value rests in the perceptions of key decision-makers in the organization, which is clearly NOT a solution.
- Blois (2003) focused on customer and supplier value in business-to-business (B2B) markets but did NOT explain how the aggregate benefits and sacrifices to the organizations involved in the exchange are calculated from the benefits and sacrifices incurred by different stakeholders.
- Woodruff and Gardial (1996-70) discussed the issue in the following terms: The desired end states of buying organizations might include longevity, a sense of unity or community, customer responsiveness, quality, or shareholder wealth. However:
- Organizations are abstractions and do not have desired end states.
- Customer responsiveness and quality are not desired end states at all.
Customer lifetime value
A straightforward use of the term ‘customer value’ is found in the context of relationship marketing strategies. Such strategies are built upon the creation of customer loyalty and, consequently, the reduction of customer defections and the retention of customer business.
It is immediately clear that ‘lifetime customer value’ is quite different from the ‘customer-perceived value’. The concept of lifetime customer values measures value to the supplier, not value to the customer. Meaning that the concept of lifetime customer value is an expression of supplier value, not of customer value.