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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 

 


9 comments:

  1. I completely agree that customer value is multi-dimensional and is made up of multiple value types. With different markets different value types are relevant. Effort plays a big role in marketing something like tools, but privacy risk is usually not very relevant in that market.

    ReplyDelete
  2. It is incredible how much power customers have, they determine the success of businesses. Therefore, each and every company instead of focusing as much on themselves, should focus on customers expectations and they should have the goal of getting more customers happy as possible.

    ReplyDelete
  3. I agree customers are very important and have so much power, as a business you must focus on fulfilling their needs and wants while providing them a good experience. Since not all customers don't have the same wants and needs it is important and that there are many factors to consider.

    ReplyDelete
  4. This article does a great job in explaining how important customer value is along multiple dimensions. It is very interesting to see all of the specific benefits and the costs that come with them. Those costs are important to analyze and understand because that is what the business is paying for in order to increase customer value.

    ReplyDelete
  5. I agree with the article mostly on the fact that customer value is multi-dimensional and is too complex to be one-dimensional. Also, that the customer themselves have to create value by resource integration. The firms have to appeal to the customers wants and needs but everyone's wants and needs are difficult to predict.

    ReplyDelete
  6. I think this article clearly explains the importance of customer value and how it is ultimately the customer that determines the success of the business. I also enjoyed how the article broke down several key levels of customer value with each level explaining various aspects of the obtaining and nurturing customer value.

    ReplyDelete
  7. I think this article clearly explains the importance of customer value and how it is ultimately the customer that determines the success of the business. I also enjoyed how the article broke down several key levels of customer value with each level explaining various aspects of the obtaining and nurturing customer value.

    ReplyDelete
  8. Customer value is so useful to consumers around the world. It is also probably one of the most important part to a business. A business that wants to be successful should focus on customer value because it is the consumer that determines the value of the object and not the supplier. This gives consumers a great amount of power when it comes down to how we decide the value of an object really has.

    ReplyDelete
  9. This article does a great job of explaining how powerful customers are and the reasons why. Customer value is essential and the format of the article by listing the 7 foundations was easy to follow.

    ReplyDelete

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