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Thursday, September 16, 2021

Know Your Customer to Bulletproof Your Marketing Strategy by Fernanda Almada * [122]


Working in today’s digital marketing landscape has become increasingly challenging. The markets are crowded, and changes are happening in an extremely fast pace. As marketers, we know that it is necessary to find a way to learn and adapt quickly. Otherwise, we will fail as professionals or as businesses. However, there is one key component of any marketing strategy that is bulletproof: your customer.

It may seem obvious, but the truth is that the current times require a much higher-level understanding of who your customers are, and what are their needs, wants, and desires. And this goes way beyond demographics. It is essential to dive deep into their biggest dreams and fears so you can develop an effective marketing strategy that speaks to these very specific pain points and transformation goals.

When you have this level of comprehension around your customers, you will be able to craft the best offers that will turn them into raving fans and will make them stick around for much longer. That is when the magic happens: highly satisfied customers who are willing to buy repeatedly from you and advocate for your brand and business. This is when you will see an increase in your customer lifetime value and will be able to accomplish continued revenue growth.

Targeting Strategy

Before you start working on the real understanding of your customers, it is essential to take a step back and define who these dream customers are, which target markets you should go after, and assess this decision before moving forward. Some of the key factors to consider are the size of the segment (is it large enough to be profitable?), the competition it faces (how strong are your competitors?), and its alignment with your business’ overall goals (is targeting this segment compatible with your long-term goals?).

When you analyze different marketing campaigns from companies such as LinkedIn, Hulu, and Clorox, it is clear that they target different market segments and may have various lines of businesses to cater to them. LinkedIn, for instance, the world’s largest professional network, runs ads directed both at job seekers and advertisers.

Hulu also targets advertisers in addition to subscribers. And if you are wondering if Clorox only targets women in their marketing campaigns, that is not the case. Headlines such as “Cleans & kills germs: Helps build business” show that their strategy and creativity go further than traditional segments and that they also cater to business owners.

Booking.com is another great example of company with unique ad campaigns running simultaneously but targeting distinct audiences. Besides travelers (“Book the perfect stay with peace of mind”), they also promote their services to hotel professionals (“Attract summer bookings”) and business professionals (“All your company’s travel in one place”).

Standing Out from Competitors

The origin of these powerful headlines is in the company’s value proposition. Many marketers underestimate the importance of crafting a well-written value proposition, skipping this important step that dictates the entire marketing strategy. The combination of what your customer wants and what you are able to offer like no other business is what will help you create outstanding marketing strategies to propel your growth.

Strong taglines such as Amazon’s “Spend less. Smile more.” or Gillette’s “The best a man can get.” translate these companies’ value proposition in an attractive way and reinforce the reason why their dream customers should buy from them, and not from the competition.  

The same happens with the creation of marketing campaigns. The high-level understanding of your customer will come into play at the execution phase as well, with the development of variations of ad creative and copy that translate both the company’s positioning and the fulfilment of the client’s desires.

By highlighting benefits (instead of features), showing the removal of problems, elevating power-status, or providing sensory gratification, marketers create opportunities to continuously drive customers that are interested in each offer.

As Philip Kotler says, “Good marketing is no accident. It is both an art and a science”. And it does take a lot of testing and optimizing to create winning strategies. And if something doesn’t seem right, it is probably time to revisit the initial definition of what your company is and who your dream clients really are before going back to the drawing board of your ad campaigns.

Sources:

- Consumer Behavior, Leon Schiffman & Joe Wisenblit, 12th edition, 2019.

- A Framework for Marketing Management, Philip Kotler & Kevin Lane Keller, 6th edition, 2016.

-  Facebook Ad Library

* Fernanda Almada is a digital marketing strategist with 15 years of professional experience. She currently works as a marketing project manager at a digital marketing agency in South Florida in addition to managing her own online business. Fernanda has an MBA with a concentration in Marketing from Nova Southeastern University and can be found on Instagram @fernanda.almada.

Friday, August 27, 2021

Can Non-Owner Stakeholders Select CEOs to Create Value? by Gautam Mahajan * [121]

I was in a conversation with an executive who had been head of Business Excellence and Chief Culture Officer and Chief Sustainability Officer in a large company. He reminded me of the importance of sustainability for our happiness and good health, and for creating a planet that could continue to sustain human beings. He said that he did not think that any CEO would drive his business strategy through sustainability. After all they are appointed by shareholders and their eye is on quarterly profits and profits. So, what the Business Roundtable is saying and what Davos has stated that the purpose of a company is to create value for all stakeholders is a far cry from ground reality. He also suggested that maybe a non-shareholder selected CEO could work better at making the stakeholder role more cogent.

It is the norm that the CEO is chosen by the shareholders and remains at their pleasure.

Should this really be the case?

If both Davos and the Business Roundtable have suggested that the purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large. The best way to understand and harmonize the divergent interests of all stakeholders is through a shared commitment to policies and decisions that strengthen the long-term prosperity of a company.

So, what is the role of sustainability leaders or customer leaders? Customer leaders have typically belonged to marketing and do become CEOs, but do sustainability leaders or community development leaders in a company or outside become CEOs. Why? And why not?

For that matter, few HR people become CEOs. Why?

Probably because they are functional in style and thinking and do not really create value.

Employees, of course become CEOs, but those who do from within the company, do they represent employees?

I think it is going to take time and serious thinking before any of the other stakeholders can become CEOs or select CEOs. This will require a serious effort to have a proper Purpose of the company.

Bold thinking purpose to improve the quality of life and happiness can bring great dividends. These improve the values of our company. We know from past work with power companies that over 60% of doing business with a company was their image and values. Values, we learnt from studies such as with Tata Power create value.

Since leaders can also be shareholders, should they look at creating happiness?

93% of 2000 leaders surveyed could not state why their company is in business. This means that many purpose statements do not have a proper sense of purpose. Are yours one of them?

As a leader you must have a purpose. What is a meaningful purpose you can express in terms of values, meaning ethics and morals etc. and in terms of what you want to achieve in life for yourself and your family? What will inspire those around you. Is it clean air, a happier environment, or a product with lowest costs and highest quality? The last is practical but it is your job to do so. Value Creation is going beyond your job and should be your purpose.

Do you know what your customers value, what your stakeholders value? How does your purpose reflect some of these aspirations and goals?

How can you inspire your people and family to create value and for whom and how? Granted it goes beyond the purpose but it can help you formulate and articulate purpose better.

At the very least your purpose should go beyond making money and increasing shareholder wealth.

This purpose will help you revise your vision and then your mission. Working on a strategy for each of your stakeholders will get you to a great business strategy, and re-inforce your purpose.

The purpose to create value for stakeholders makes you ally with employees, customers, society, environment and partners in learning from them and co-creating value with them. They become part of your succeeding.

Many of your employees prefer meaning to money. Should you too? Purpose improves employee participation and buy in. It creates value for employees by improving their well-being.

Helping employees with creating value for themselves and having a purpose engenders thinking about themselves and deciding what matters in life. It builds on the self, a sense of freedom and thinking about others.

Perhaps the selection process can be from a team consisting of all stakeholders, community leaders, suppliers/partners, employees, outside customers and environmentalists. This may help a polluting company change, or a company do more for the community and imbibe values in a better way, or become more customer and employee focused. Today it may not seem practical but it could become a norm in the future.

This selection process will lead to greater stakeholder participation in decision making and in choosing CEOs. This will make stakeholder strategy a reality, and change the business face around us from only making money to thinking of the future and creating happiness and a better place to live. This is Creating Value at its best.

* Gautam Mahajan is the President of the Customer Value Foundation and the Founder Editor of the Journal of Creating Value, jcv.sagepub.com. He may be reached at: mahajan@customervaluefoundation.com .  Article reprinted with permission of the author.




Thursday, August 26, 2021

The Joint Value Proposition as a Differentiator by Huba Rostonics * [120]



                                                     Photo by Suzy Hazelwood from Pexels

In today's complex business environment, there is almost no product or service that is made, or delivered, end-to-end by one single company. There is almost always an intricate network of supply chain elements and partnerships involved. With the exception of the few of us who are deeply wading in the waters of partner ecosystems, these complexities tend to be ignored.

Not even in some partner-friendly company settings is everyone adequately acquainted with their own delivery models. More than a few times, I have found myself briefing an executive about the differences between  their own Value Added Resellers and Agents.

Very often, these relationships are also  simplified, mentally classifying them like a "supplier" or even worse, "the middle man", as if for some inherited privilege they have earned the right to collect some type of tax that they don't really deserve.

The truth is that many companies rely on partnerships to deliver their products to the market, and their partners are an integral part of their Go-To-Market strategy. In today's world, it is a rare find a company that is capable to deliver their product or service all the way from the source, to the hands of the customer. Along this journey, several companies -or "partners"- may perform services, attach other products, etc. adding value to the final product that lands at the customer.  It is from this journey and the several steps of value-add that the concept of the value chain stems from, and the product or service that is delivered to the customer is experienced through its Joint Value Proposition.

While these concepts are omnipresent in the tech industry, they are all over our economy as well. Two of the most noticeable ones are the Distribution Channel, and the Service Delivery Partners. As for the first one, we see it everywhere, from the grocery store, the car dealership, or our trusted IT guy. For example, it is impossible -and not cost-effective- for car manufacturers to set up dealerships in every town, so they rely on entrepreneurs who are willing to enter in this business. In a similar way, growers and other foodstuff manufacturers cannot afford to go to every town to sell their goods, so they engage in the distribution network (channel!) that brings those goods to your local grocery store.

It is very important to recognize the value that each of these partners offers for the consumer. Yes, they take a piece of the profits to pay for their services, but they also add value to the product or service. For example, the local dealership makes it easy to get there, they offer financing (they basically bring together the automobile, and a financial product, the loan), and they can also service your car.

In the case of the grocery store, besides making it really convenient to buy, with extended business hours, refrigeration, and now even home delivery, they are also an "aggregator", allowing us to buy apples, milk and honey, without having to visit the orchard, the dairy farmer, and the beekeeper.

A Service Delivery Partner can be a key player in the value chain, especially if the product or service requires installation, servicing, or any form of customization. They can be as simple as the independent contractor that may install the carpets that you bought at the big home-improvement store, or as complex as Microsoft's partner network, where partners specialize in specific technologies. Think about the difference in value of the carpet just delivered to your house in a roll, vs. actually being able to step on it. How much more value does that have in terms of your ability to enjoy the product?

The way we experience a product or service is the result of all the value transactions that occur throughout the value chain, before they reach us. Some of these value transactions and the players involved, have evolved over time, filling a need. Others have been created intentionally, by design. This is where some companies have the opportunity to differentiate themselves from others by designing value chains that complement each other, delivering value to their customers.

In your journey, What would you build if you could do it all? What are you missing? What kind of partner do you need that complements the value that you create? What would be the differentiated joint value proposition?


* Huba Rostonics is a go to market, marketing and channel strategist that has helped companies in the cloud, virtualization, networking, IT security, and telecom verticals to build strong and resilient partner ecosystems, and attain ambitious sales objectives. Visit his website at http://www.channelmeister.com





 


Saturday, May 1, 2021

How a Small Colombian Language Training Institute is Reshaping its Marketing Strategy by Esteban Ochoa * [119]

Established in 1978, A.V.C is a premium language institute in Medellin, Colombia. The firm utilizes a customer intimacy strategy. The Institute developed strong relationships with  students by having an open-door policy about personal/life issues, granting scholarships based on program excellence, regular communication with family members, and an end-of-year award ceremony.

A.V.C. offers programs in English, French, German, and Italian to a Spanish-speaking market. Although the Institute has been in business for more than 40 years, only 600 students achieved full proficiency in their chosen languages and graduated. Given the difficulty of the program, nearly half of the students were unable to complete the coursework. The Institute has always focused on offering small classes, custom-tailored learning programs, and tutoring sessions with an emphasis on building lifelong customer relationships. Graduates still visit the school and often send their own children there.

Although A.V.C reached a high level of customer intimacy with students and alumni, due to lack of technological preparation, the Institute had to close at the beginning of the COVID-19 pandemic and lay off 85% of its employees. Service firms have had to look for ways to operate remotely to survive. VOC Digital was retained to re-imagine A.V.C.’s business model. The project started with identifying the right target market. Additionally, new sources of income were required to fund the virtualization of the different courses and re-hire of teachers.

Instead of looking to compete in the crowded city, VOC targeted rural residents, ages 15 through 45 in the outskirts of Medellin, Colombia. Using a geodemographic segmentation approach, there were two reasons that rural Colombian towns were selected as the target market: 

1) Service availability: Typically, formal foreign language lessons in Colombia are limited to middle and upper-class families in the city and those studying in citadel universities. Rural residents generally leave their towns for opportunities that only the big cities can offer, education being one of them. The service itself is almost non-existent in rural communities. VOC Digital and A.V.C. recognize this untapped market opportunity.

2) Number of rural towns in Antioquia and throughout Colombia: In the west region of Antioquia alone (Antioquia is the equivalent of a state in the United States), there are approximately 23 rural towns with an average population of more than 25,000 residents. In all of rural Antioquia, which is only one state in Colombia, there are over 8.5 million inhabitants. Furthermore, Colombia has 32 departments or states (User, S. n.d.).

The solution for the an alternative income generation source will be supplied by renting out a large portion (75%) of the school (a land asset) as office spaces. The two-story building is located in a prime central location in the heart of downtown Medellin which adds value and demand due to heavy foot traffic. Creating a new revenue stream combined with the proposed segmentation strategy and digital technology (adding virtual courses) will reinvigorate the educational services offered.

VOC Digital is currently creating all of the online programs that combine small (in student count) recorded virtual classes, custom-tailored learning programs, and online tutoring all under one centralized portal designed for cell phones which is funded by the rental spaces. All of the guides, course materials, and tests given will be compatible and optimized as well for mobile devices. Such a seamless integration is not only to make the program more user-friendly and accessible to its future student body but to be able to do it at a cost low enough to establish an ongoing relationship with consumers in rural Colombia. 

The hiring process for teachers begins in June 2021 and will be finalized by November 2021. A pilot course is set to launch at the end of the second quarter of 2022 to collect real time user data and will be offered free of charge to 15 individuals. During the remainder of 2022, three more free courses will be opened to further improve user experience and build customer intimacy with the first set of students taking language classes via the new approach. The launch of all the courses is planned for the start of 2023. Data will be collected monthly to continue to improve user experience. A.V.C is excited about the new strategy and creating long-term value for its clients.

Reference

User, S. (n.d.). 3.2.1-Proyecciones de población según ÁREA GEOGRÁFICA en Los municipios DE antioquia. Años 2015 - 2017. Retrieved March 21, 2021, from http://www.antioquiadatos.gov.co/index.php/3-2-1-proyecciones-de-poblacion-segun-area-geografica-en-los-municipios-de-antioquia-anos-2015-2016

* Esteban Ochoa is the owner of VOC Digital, a marketing agency. He may be reached at: vocdigitalco@gmail.com  

 

 

 

 

 

 

 

 

 

  

 


Tuesday, March 2, 2021

Nobody Does it Better - How an Australian Denim Brand Wins Globally through Supply Chain Transparency by Kanika Meshram * [118]

Denims are a fundamental part of modern fashion. Everyone seems to own a pair. The massive popularity of denim product has a lot to do with its symbolic value the notion of cowboys, American Wild West, rock ‘n’ roll, punk rebellion (think Mick Jagger, Blondie, and John Lydon aka Johnny Rotten); the hippie movement in the ‘70s; grunge of the ‘90s; and the supermodel brigade. Titans of denim industry sustained competition using linear business models that massively reduced their production costs. But, at the cost of opaque supply chains with questionable working condition of factory workers and environmental damage (Ethical Fashion Report., 2019).

What if we tell consumers who made their clothes?

This is the question Nobody Denim’s CEOs John and Nick Condilis asked each other when they decided to create supply chain transparency as their competency. Born in 1992, Nobody Denim is a Melbourne, Australian based denim company. This legacy brand was initially a denim laundry which gives a denim its ‘distress look’ and ultimately its price value. In mid 90s the Condilis brothers decided to expand their denim laundry into denim manufacturing. In this blog I unpack the business model of Nobody using the dynamic capabilities perspective to demonstrate how this brand competes in the premium denim market (see Figure). A business model is the architecture of an organization that is enabled by its dynamic capabilities (Wirtz, Pistoia, Ullrich, & Göttel, 2016). According to Teece (2018), a dynamically capable organization will rapidly capture, create, and deliver customer value through sensing, seizing and transforming capabilities.

Sensing a value opportunity: Sensing is inherently involved with scanning the business ecosystem to identify and propose new customer values (Teece, 2011). For Nobody, the sensing activity was about educating customers on the value of ethical manufacturing in the fashion industry. To achieve this Nobody, opened their factories for customers to experience denim making from cut to finish and importantly interact with their garment workers. To assure customers about their brand integrity in fair work practices they also obtained Ethical Supply Chain accreditation. The rationale for this approach according to John was, ‘we are nobody, we don’t make a lot of noise, but those who wear us, do’.

Seizing the value opportunity: The seizing activity involves designing a value chain to satisfy customers and capture value (Teece, 2011). This activity also includes securing access to capital and the necessary human resources. Similarly, for Nobody, the seizing activity involved building competency in eco-centric denim production in Australia. For this, Nobody invested in ‘cut and sew operations’, ‘trained workers’ and ‘innovative techniques’ that consume less water during denim washing. To minimize their carbon footprint, Nobody also emphasized a shorter supply chain — their head office, factory, laundry, and retail store are all within a 6-km radius in Melbourne.

Transforming the value opportunity: Transforming capabilities involves shifting firm emphases to radical new opportunities. This activity is also needed periodically to soften rigidities developed over time from standard operating procedures (Teece, 2011). For Nobody Denim, the transformation process took place during the COVID-19 pandemic when the global fashion industry faced a massive drop in sales (Walk Free Foundation, 2020). However, Nobody survived the pandemic by capitalizing on their worker capabilities in stitching, sewing, and designing to make medical protective clothing for health care workers. This transition is not a short-term fix but a long-term strategy for Nobody. According to John, the pandemic has exposed the fragility of Australian supply chains and our heavy reliance on other countries for medical supplies. As part of the solution, Nobody invested in infrastructure that will enable it to make up to four million masks, 300,000 gowns, and 170,000 scrubs per year.

  • Thus, the key takeaways from Nobody’s business model is how this brand kept customers and their workers central to all their value creation activities. Second, how Nobody built consumer trust by caring for their workers, paying fair wages and being transparent about their production process. Nobody also entices customers with lifetime free repair on their denim. 
  • Value added: For readers of this blog, John shares some great advice on the perfect way to wash your jeans, “All jeans should be washed as little as possible, turned inside out and washed on a cold cycle and line dried for the longest life. No dryers please!

                                      Figure - The Business Model of Nobody Denim

VP: What is offered to customers? Sensing opportunities in ethical supply chains that are of value to customers.

VC: How is the value proposition created? Building eco-centric capabilities to seize new customers, business clients and resources

RM: How is revenue created? Using worker capabilities to transform the revenue to a changing environment.


* Dr. Kanika Meshram is a Lecturer in Management and Marketing at the University of Melbourne. She may be reached at kanika.meshram@unimelb.edu.au. This blog is based on the author’s forthcoming paper and interview with John Condillis from Nobody Denim for their research project on modern slavery in fashion industry.

Key Reference:  Meshram, K., Bhakoo, V. & Bove, L. (forthcoming) Building and Sustaining an Anti-Slavery Business Model: A Tale of Two Fashion Brands. Journal of Strategic Marketing.

Additional References

Ethical Fashion Report. (2019). The Truth Behind the Barcode. Retrieved from https://baptistworldaid.org.au/resources/2019-ethical-fashion-report/

Teece, D. J. (2011). Dynamic capabilities: A guide for managers. Ivey Business Journal, 75(2), 29-32.

Teece, D. J. (2018). Business models and dynamic capabilities. Long Range Planning, 51(1), 40-49.

Walk Free Foundation. (2020). Protecting People in a Pandemic: Urgent collaboration is needed to protect vulnerable workers and prevent exploitation. Retrieved from https://cdn.minderoo.org/content/uploads/2020/04/30211819/Walk-Free-Foundation-COVID-19-Report.pdf

Wirtz, B. W., Pistoia, A., Ullrich, S., & Göttel, V. (2016). Business models: Origin, development and future research perspectives. Long Range Planning, 49(1), 36-54.

 

 

Friday, February 26, 2021

The 7 Foundational Characteristics of Customer Value by Sara Leroi-Werelds * [117]

 


“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” Sam Walton, founder of Walmart

This quote nicely shows the link between value for the customer and value for the firm. Put simply, if there is no value for the customer, there is no value for the firm. For this reason, customer value has been recognized as one of the most fundamental concepts in marketing. Based on recent work (Leroi-Werelds 2019), we can discern seven key characteristics of customer value:

1. Customer value implies an interaction between a subject and an object

Customer value involves a customer (i.e. the subject) interacting with an object. The object can be a product, a service, a technology, an activity, a store, …

2. Customer value involves a trade-off between the benefits and costs of an object

One of the most often cited definitions of customer value is the one offered by Zeithaml (1988, p. 14) defining it as “the consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given.” This means that customer value involves a cost-benefit analysis made by the customer. The benefits are the positive consequences of using a product, encountering a service, visiting a store, using a technology, performing an activity, … The costs are the negative consequences.

3. Customer value is not inherent in an object, but in the customer’s experiences derived from the object

Customer value is experiential and is thus not embedded in the object. This is in line with the notion of ‘value-in-use’: “value is not created and delivered by the supplier but emerges during usage in the customer’s process of value creation” (Grönroos and Ravald 2011, p. 8).

4. Customer value is personal since it is subjectively determined by the customer

It is the customer and not the supplier who determines if an object is valuable. This implies that customer value is subjective and personal. Each customer has his/her own value perceptions based on personal characteristics such as knowledge, needs, skills, previous experience and financial resources.

5. Customer value is situation-specific

Customer value depends on the situation and is thus context-specific. For instance, if you are in a hurry, the efficiency of a store visit will be more valuable than when you are ‘fun shopping’.

6. Customer value is multi-dimensional

Considerable agreement exists on the multi-dimensional nature of customer value given that the concept is too complex to be conceptualized and operationalized in a one-dimensional way. Hence, customer value consists of multiple value types. A recent update on customer value (Leroi-Werelds 2019) proposed 24 potential value types (see below). However, it is important to note that not all value types are relevant for each object.

 BENEFITS +

COSTS -

Convenience

Price

Excellence

Time

Status

Effort

Self-esteem

Privacy risk

Enjoyment

Security risk

Aesthetics

Performance risk

Escapism

Financial risk

Personalization

Physical risk

Control

Ecological costs

Novelty                

Societal costs

Relational benefits

 

Social benefits

 

Ecological benefits

 

Societal benefits

 

 

7. Customer value is created by the customer by means of resource integration

By means of resource integration, the customer transforms the potential value of the object into real value. The customer thus integrates the resources provided by the firm (e.g. products, services, information) with other resources and skills to create real value. For instance, the value of a car is created by the customer when he/she integrates and combines this car with other resources (such as fuel, public roads, car insurance, maintenance/repair service), but also his/her own driving skills. Without these other resources and the needed skills, the customer cannot create value.

References 

Key Reading: Leroi-Werelds, S. (2019), "An Update on Customer Value: State of the Art, Revised Typology, and Research Agenda," Journal of Service Management, Vol. 30, No. 5, 650-680.

Gronroos, C. and Ravald, A. (2011), "Service as Business Logic: Implications for Value Creation and Marketing," Journal of Service Management, Vol. 22, No. 1, 5-22.

Zeithaml, Z. (1988), "Consumer Perceptions of  Price, Quality, and Value:  A Means-End Model and Synthesis of Evidence, Journal of Marketing, Vol. 52, July, 2-22.

* Dr. Sara Leroi-Werelds is an Assistant Professor of Marketing at Hasselt University, Belgium. She may be reached at sara.leroiwerelds@uhasselt.be 

 


Monday, February 8, 2021

Perceived Value in Business Relationships - It's Not Always Rational by Maja Arslanagic-Kalajdzic * [116]


When we think about the perception of value in business relationships, we usually regard business customers as rational entities that are driven by functional motives. Namely, as the main mantra of  businesses is usually to increase profit, either by increasing the sales or by lowering the costs, we often believe that this is the case with business customers, too. Hence, value propositions in B2B markets are functional in their essence, meaning that they aim at demonstrating benefits (e.g., quality) and/or sacrifices (e.g., costs). However, is this always the case? Is there anything more to the functional value dimension in B2B relationships?

Research findings indicate that perceived value complements business customers’ satisfaction and plays a vital role in various behavioral outcomes. However, most evidence are still made on the functional value dimension only. By focusing on the professional services industry, it can be shown that other dimensions of perceived value exist in business relationships and that they are indeed relevant for relationship outcomes.

Relying on the theory of consumption values that is predominantly used in B2C research, functional, emotional, and social value are defined. The functional value dimension assumes rational, economic and monetary benefits and costs. Utility of choice (taken from the field of economics) and means-end theory serve as justifications for this dimension. Two of the most prominent components of functional value are quality and price of goods/services. Functional value is the utility derived from perceived quality, a perceived reduction in short-and long-term costs, and the expected performance of service offers and processes.

Emotional value is often neglected in business research due to the underlying notion that organizations are rational formations that can only assess functional value elements. When talking about business services, purchase units are operated by people, and service providers need to work with people from client firms. In the context of professional services, people are the key element on both sides. On the side of the provider, they are the key “ingredient” of the services provided. On the side of the client, without expressing needs and conceptions, and without close cooperation with people, the provider will hardly understand the client’s expectations. Emotional value in business relationships is the utility derived from the feelings or affective states that the service generated for the buying-center participants of the client firm.

The third dimension, social value is explained through social self-concept in the theory of consumption values. It has already been researched in the business relationship context, mostly pertaining to the social bonds between a provider and a client. The assessment of the social value of a provider’s services may differ in terms of its relevance to either the client’s products/services or the client’s firm. In terms of professional business services, a client’s product/service may be socially perceived in a certain way since a specific service provider is engaged (e.g., if an advertising agency is known in the market for  highly rated video production, a client’s products/services can be more highly valued if they are using that agency’s services in their new ad campaign). Yet, professional business services may also have a social value in terms of business references for the client’s firm in general, so that a firm is valued more highly (e.g. working with a specific provider may boost the credibility of the client itself). Social value is the utility derived from the acceptance, positive impression and social approval of the business client firm and its products/services that the service relationship generated. Social approval encompasses the approval of different stakeholders (e.g., owners, clients, industry partners).

Research results of the study with ad agencies and their clients show that all three dimensions of value indeed exist and that they have differential effects on relevant outcomes – satisfaction and loyalty. A strong link between perceived functional value and satisfaction is confirmed. However, it is also shown that satisfaction is further explained by perceived social value. Surprisingly, emotional value does not have a direct effect on satisfaction, but it directly influences loyalty. On the one hand, this finding can be interpreted through the view that emotional value has a particular role for loyalty, which is defined as deeply held long-term commitment, and that for that reason, emotional value serves as an argument for continuance or termination of a relationship with a provider. On the other hand, functional and social values primarily elicit satisfaction as an immediate outcome, and influence loyalty only indirectly.

These findings show that service providers cannot solely rely on functional value, and that developing  positive emotional and social value notions in their value proposition should also be considered. By building and sustaining a good corporate reputation, making investments to improve credibility and by ensuring high relationship quality, service providers could improve different facets of perceived value and through them positively impact their clients’ attitudinal and behavioral outcomes. We start with perception of ad agencies as providers of professional services. However, probably similar conclusions could be derived for other professional services industries (e.g., IT services, consultancy services, accounting services, banking and insurance services) and they should also yield consistent results. When it comes to other industries, especially if we talk about manufacturing industries or supply chain relationships, we are of the opinion evidence for emotional and social value existence could be found, too. However, their relevance would probably depend upon various factors, such as the level of knowledge/expertise the provider offers, the length of the purchase phase, the general intensity of the relationship with the provider and the role of the decision-making unit in more complex purchase situations.

* Maja Arslanagić-Kalajdžić, Ph.D. is an Associate Professor of Marketing at the University of Sarajevo. She can be reached on maja.arslanagic@efsa.unsa.ba.

This blog is based on an article:

Arslanagic-Kalajdzic, M., & Zabkar, V. (2017). Is perceived value more than value for money in professional business services? Industrial Marketing Management, 65, 47–58. doi:10.1016/j.indmarman.2017.05.005  

  

Monday, February 1, 2021

Value Creation and Value Capture by Shekhar Misra * [115]


Value creation and value capture have been extensively studied in both management and marketing. Yet, as recent work in this area has grown, their meaning has become ambiguous. I believe that value creation and value capture are distinct yet interlinked constructs. Value creation is determined by customers’ subjective evaluations of a firm’s offerings while value capture is determined by the profits a firm is able to generate.

Value creation is a central concept in marketing as customer perceptions of value are pivotal determinants of product choice and buying behavior. Customer value is based on the principle of utility maximization and is summarized as the customer’s overall assessment of the utility from a product based on her perceptions of what she “gets” in-return for what she must “give” up. The “get” aspect concerns the overall benefits customers derive (or expect to derive) from a product while the “give” aspect pertains to the overall costs customers incur (or expect to incur) to enjoy the product’s expected benefits. From this perspective, customer value can be defined as the “customers’ net valuation of the perceived benefits accrued from an offering that is based on the costs they are willing to give up for the needs they are seeking to satisfy”.

The “give” aspect of value creation is comprised of all the costs incurred by customers to obtain the benefits of product consumption. Customers sacrifice money and other resources such as time, energy, effort, etc. to find, buy and use products. These costs include those related to finding, acquiring, consuming, maintaining, and if necessary disposing of the product.

The “get” dimension of value creation includes the benefits customers derive from a product, which may be functional, experiential, and/or symbolic. Functional benefits are the intrinsic benefit customers derive from a product and are primarily based on its objective and perceived quality. Objective quality is the aggregate performance of all product attributes, while perceived quality is a customer’s subjective evaluation of the product’s overall superiority compared to other products in the customer’s evoked set. Experiential benefits capture customers’ personal experience using a product corresponding to product-related attributes, such as sensory pleasure, stimulation, variety, etc. For example, color is an important product attribute on which customers have varying preferences. Finally, symbolic benefits concern the extrinsic advantages of using the product. These benefits are generally linked to non-product related attribute benefits such as self-expression and social approval. Therefore, 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. This assessment is based on consumers’ idiosyncratic preferences and choices and as a result, varies from one consumer to another.

However, value creation for customers is only one element of the overall economic value process. The second critical element is the value captured by the firm in return—not least because in the absence of value capture a firm has limited incentives to create customer value. The concept of firm value capture is rooted in the economic principle of profit maximization, and similar to customer value creation, it implies a tradeoff between “give” and “get” elements from firm’s perspective.

The “give” aspect of value capture is the firm’s offering to the marketplace that creates customer value. To deliver a product to the market the firm has to incur various costs related to conceiving, creating, delivering, and communicating the benefits of the product to the market. Broadly, these costs can be broken down into R&D costs, manufacturing costs, distribution costs, and marketing and sales costs. R&D expenses are those operating expenses incurred in the process of searching for new solutions and products or seeking to update and improve existing products and services. Manufacturing costs cover materials, and labor and factory overhead expenses incurred in converting raw materials into finished products. Distribution costs are those incurred to transport and deliver the product from the producer to the end user. Marketing expenses include costs associated with advertising, promotion (such as on-shelf advertisements, floor ads, etc.), public relations, package design, and market research. Finally, selling expenditures includes sales force compensation (such as benefits, profit sharing, etc.), travel costs, consulting fees, etc.

The “get” aspect of firm value capture is the revenue the firm’s offerings generate in the marketplace. Revenues from the firm’s offerings are a function of the number of product units sold and the realized price of each unit. A firm therefore has only two primary mechanisms to increase its revenues—either by selling more units of the product or by selling them at a higher price. A firm can sell higher numbers of units by either attracting more customers to the product or by increasing the usage of the product by existing customers. Alternatively, firms can increase the revenue from a product by achieving a higher realized price for the product. Based on the above, firm value capture is the firm’s appropriation of financial resources based on the difference between the revenues and the total costs of delivering the firm’s offerings to the marketplace. Therefore, value capture can be defined as the firm’s ability to appropriate financial resources from the marketplace, i.e., how effectively a firm can convert the value present in the marketplace into profits.

The central premise is that value creation and value capture are distinct from each other but still interlinked. Value creation is the perceived value in customers’ minds resulting from the firms’ actions; and, value capture is the economic benefits a firm derives. This conceptualization of value creation and value capture enables us to independently look at the impact of firms’ resources and capabilities. Importantly, this view also demonstrates that value creation and value capture are not necessarily a zero-sum game. Both customers’ utility (value creation) and a firm’s profits from providing customer utility (value capture) can be simultaneously increased. Hence, a win-win results for the customer and the company.

* Shekhar Misra, Ph.D., is an Assistant Professor of Marketing at Grenoble Ecole de Management, France. He can be reached at: Shekhar.MISRA@grenoble-em.com


Wednesday, January 27, 2021

The Customer Value Proposition as a Basis for Business Strategy by Ravi Chinta * [114]


Customer Value Proposition (CVP) has become one of the most widely used terms in business in recent years. A CVP is the value perceived by customers in the product mix that your business is offering, in light of competitive options. Most businesses will conduct marketing research to identify benefits and cost savings to customers to induce purchases. Such research focuses on understanding customer needs by asking potential buyers what they want with respect to goods and services.

Product enhancement and new product introductions are often based on a process of continuously “productizing” the needs and wants explicated by customers via research studies. These are in essence market-based innovations driven by addressing the desires explicated by the customer. However, in the pre-automobile era if you asked customers about what they wanted in transportation vehicles; they would have said they would like to have faster horses. And we know how automobiles made their debut and made horses obsolete as transportation vehicles. Thus, technology-based innovations often come in and transform the mindsets of customers in how they assess perceived value. Simply stated, the primary difference between market-based innovations and technology-based innovations is that the former is driven by explicit needs and the latter is driven by both explicit and implicit needs of the customers. Thus, the customer-centric view should be expanded to include both explicit needs (expressed by the customer) and the implicit needs (elicited by a deeper and unobtrusive observations of customer behaviors).

Shadowing the customer and evaluating daily behaviors can help understand the implicit needs of consumers and businesses. For example, in a research project at Hill-Rom company, a hospital beds manufacturer based in Batesville, Indiana, hospital nurses were observed as to how they spend their 8-hour work shifts. And, that analysis led to electronically adding vital signs data entries at the bedside instead of taking notes and then typing in the data at the nursing stations. Addressing the implicit needs of customers also gives businesses a pioneering advantage because these initiatives are more difficult to imitate than product modifications based solely on explicit needs.

I contend that customer value propositions that are properly constructed and delivered make a significant contribution to business strategy and overall performance. To ensure market leadership, I recommend that a firm continuously adds new features to their product/service offerings based on newly uncovered implicit needs of customers. Apple’s market dominance is easy to understand when viewed in this way. That is what sustainable competitive advantage is all about. Thus, customer value propositions must be viewed as a dynamic concept that enables a firm to self-cannibalize its own product lines and keep up its lead in the market. It should be noted that customer intimacy is a prerequisite to product excellence, and it is the responsibility of senior management not just marketing management, to ensure that their customer value propositions reflect both the explicit and implicit needs of the customer. 

* Ravi Chinta, Ph.D., is a Professor of Management at Nova Southeastern University. He can be reached at: rchinta@nova.edu

See "The Value of a Value Proposition" (Post 11) for additional insights on the CVP.

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