What is Customer Value and How Can You Create It? by Gautam Mahajan * [41]

 

Value has many different meanings. To some Value means price (what is the value of this car?) to others it means benefit (the value I got from this car). It also means the worth of something. That is why you hear some people saying “value for money” (meaning they are price sensitive); and others who prefer “money for value” (meaning they are willing to pay for what they consider as benefits, as from a brand or a better product, or more convenience etc.)

The dictionary meaning includes: The regard that something is held to deserve; the importance, worth, or usefulness of something. Synonyms are: merit, worth, usefulness, use, utility, practicality, advantage, desirability, benefit, gain, profit, good, service, help, helpfulness, assistance, effectiveness, efficacy, avail, importance, significance, point, sense.

No wonder, the reader is confused about the value word that s/he uses so often. When used in the vernacular it does not matter, but when used as a technical term, like Customer Value, the meaning of Value must be precise, so that everyone understands what it means, as shown below:

Customer Value is the perception of what a product or service is worth to a Customer versus the possible alternatives. Worth means whether the Customer feels s/he or he got benefits and services over what s/he paid.

In a simplistic equation form, Customer Value is Benefits-Cost (CV=B-C).

What the Customer pays is not only price (cash, cheque, interest, payment during use such as fuel and servicing for a car) but also non-price terms such as time, effort, energy, and inconvenience).

The benefits include the advantages or quality of the product, service, image and brand of the company or the brand of the product, values, experience, success one gets in using the product and so on.

Values are distinct from Value (the plural of value as defined above is Value). Values are what someone or a firm stands for: Honesty, morals, ethics, sustainability, integrity, trust.

Consumers are distinct from Customers. Consumers use the product or the service, but in all cases do not buy the product/service. The value the consumer perceives influences the buying evaluation and perception of the decision maker or the Customer. The Customer is someone who buys or makes the decision to buy. A Non-Customer is someone who could buy from us, but is buying from someone else.

How is Value Created and What Does It Do?

Value is created just as much by a focus on processes and systems as much as it is by mind-set and culture. Mind-set and culture are much more difficult to change, and also difficult to emulate. It is easier to copy products and systems than to change mind-sets and culture. Therefore, for long term success, mind-set and culture are important and lasting. These, along with systems create great experience and value.

Value changes during the use of a product or during the Customer Journey. Value is perceived during the purchase intent, the shopping, the actual purchase or buying, the installation or start-up, the use and even the re-sale. We sometimes call this the waterfall of needs. Needs change during the Customer Journey.

Creating Customer Value increases customer satisfaction and the customer experience. (The reverse is also true. A good customer experience will create value for a Customer). Creating Customer Value (better benefits versus price) increases loyalty, market share, price, reduces errors and increases efficiency. Higher market share and better efficiency leads to higher profits.

How to Create Real Value

You first have to understand the Customer Value concept, what a Customer perceives as value, and how a customer’s value needs change over time, and how to get Customer feedback. You must realise that people buy a product or service that creates the most value over competing options.

To create real value, you must recognize what a Customer perceives as value. You must understand how the Customer views your competition’s product. What is important to the Customer in his buying decision? Is price more important or are benefits? Are you good at delivering what the Customer believes is important? Are you able to deliver more than your competition on these factors?

I understand these are general terms, but they will help you to create value as you understand your Customer’s need and perceptions. Let us take some examples on how to create Customer Value:

1. Giving a price that makes the Customer believe he is getting more than he pays for the benefits he gets versus competitive offers

2. Reducing the price, or keeping the same price and giving something extra over competition (this could be service, better attention, an add on to the product)

3. Making it convenient for the Customer to buy, and how he wants to buy and pay.

4. For B2B getting a proper price justification, not just a price.

5. For dealers, the feeling the company will grow and offer new products for the dealers to sell. These are things that the dealer may not have an experience of, but needs to Create Value

6. The image of the company, including the brand and the trust in the company or when the Customer appreciates the Values of the company including sustainability. These create Value for the Customer

7. Giving the Customer a product that works as it is meant to (as perceived by the Customer) and easy for him/her to understand and use (so that no unnecessary time or energy has to be expended)

8. Making the Customer feel valued. For example:

·         Smiling at and being attentive to a Customer creates value for him. Ignoring him/her destroys value for the Customer

·         Making it easy for the Customer to contact the company, and an assurance that an answer will be given when and how promised (how many times do you have to wait to talk to someone and how often does s/he promises to call back and how often do you get a call)

·         Not making you repeat questions or answers, and keep relating the problem

·         Receiving a call from a service person confirming his/her visit (the Customer is not kept wondering whether the service visit will take place)

·         Not answering queries destroys Value

All readers have real life examples of Value creators and Value destroyers and can add many more examples. Do add yours. Answer the following:

·         What could I do to create Value for my Customer?

·         What can destroy Value for my Customer?

·         Does experience create Value?

·         List things that you do not experience that can create Value for you.

·         Do I look for and solve customer problems not only one by one but also systemically for all customers having same problem.

* 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 (218,740 views in Customer Think plus 27,529 downloads in 2021 at Journal of Creating Value alone). Contact Gautam.mahajan@gmail.com for comments.

The 7 Foundational Characteristics of Customer Value by Sara Leroi-Werelds * [30]

 

“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 

 

Perceived Value in Business Relationships - It's Not Always Rational by Maja Arslanagic-Kalajdzic * [29]

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