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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  

  

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