CHAPTER 6: VALUE AND VALUE CREATION
6.1 Customer value
Woodruff’s (1997) much cited definition of customer value illustrates the complexity of customer value:
“Customer value is a customer’s perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use that facilitate (or block) achieving the customer’s goals and purposes in use situations” ( p. 142)
Defined this way, customer value includes elements of perceived value (the trade-off between price and quality), as well as desired values (related to attributes, use consequences and possession value). At the same time, it refers to values through the concept of evaluation. It embraces the full spectre of an individual’s value system from the centrally held values to the peripheral dimension of product attribute evaluation (Vinson, Scott & Lamont 1977). The purpose of the chapter is to make a distinction between these elements and relate them to customer value. Figure 6.1 below presents an overview of the section.
Section 6.1.4 Value assessment
Anderson, Jain, Chintagunta 1993 Anderson and Narus
1998 Bowman and Ambrosini
2007 Hogan 2001 Kliniotou 2004 Kortge and Okonkwo
1993 Ulaga and Eggert 2005
Walter, Ritter and Gemunden 2001
Section 6.1 Customer value
Woodruff 1997
Section 6.1.1 Personal values &
value systems Andersen and Kumar
2006 Dolfsma 1997 Hitlin and Piliavin 2004
Jackendoff 2006 Kluckhohn et al 1951
Marini 2000 Melin 1989 Rokeach 1973 Schwartz 1993 Vinson, Scott & Lamont
1977 Welch and Wilkinson
2002
Section 6.1.3 Customer desired
values Dwyer, Schurr and Oh
1987 Flint and Woodruff
2001 Flint, Woodruff and
Gardial 2002 Flint, Woodruff and
Gardial 1997 Slater 1997 Slater and Narver 1997
Woodruff 1997
Section 6.1.2 Perceived value Anderson and Narus
1998 Flint and Woodruff
2001 Hogan 2001 Homburg and Rudolph
2001 Parasuraman 2000
Perkins 1993 Qualls and Rosa 1995 Sharma and Mehrotra
2007 Vandenbosch and
Dawar 2002 Zeitlhaml 1988
Figure 6.1: The relations between the concept of customer value and other value conceptualizations
6.1.1 Personal values and value systems
Value is conceptualized differently in anthropology, sociology and psychology. These disciplines centre respectively on life styles and culture, ideologies and customs, and attitudes and personal motives. These dimensions can all be categorized as personal values (Vinson, Scott & Lamont 1977). A starting point for a study of B2B value creation is to distinguish between personal values and business related conceptualizations of value.
In their review of research on values Hitlin and Piliavin (2004) map out various
conceptualizations of values originating in culture studies, sociology and psychology and point to two different approaches to personal values. One emphasizes action (Kluckhohn, et al 1951), the other focuses on meaning (Rokeach 1973). Moreover, personal values include both cognitive and affective elements (Marini 2000). Personal values are relatively stable across the life course after being shaped through late adolescence, but they are not static. They may change gradually over time, under the influence of life conditions, education and experience (Hitlin, Piliavin 2004).
Personal values constitute the basis of the value system which is applied for evaluation.
Evaluation operates as an abstract internal calculation system; the process by which value is attributed to objects, persons and actions (Jackendoff 2006). Values form the foundation of the value system. They are socially instituted, and under influence of normative pressure from the social environment. This has two consequences: 1) Evaluation is a relative mental and social construct (Dolfsma 1997). 2) It is difficult to dismantle personal values from marketing conceptualizations of value. Evaluation in a business setting is affected by personal values as evaluation at all levels is done by individuals. This evaluation is neither absolute nor objective.
At the organizational level, the personal value system of individuals is not the only foundation for evaluation, however. Organizations have schemas; systems of ideas and values which guide action on the basis of sense-making. Organizational schemas are coupled through interaction to a configuration of schema which is an expression of the logics prevailing in a network or industry (Welch, Wilkinson 2002). These patterns, logics or cultures which guide sense-making and behaviour are built in a bottom-up process of communication among the individuals in an organization. At the inter-organizational level this sense-making is enacted in terms of behaviour, actions and decisions (Melin 1989).
The important implications for this study are that:
evaluation operates at the level of individuals, institutions and entire societies (Schwartz 1993)
evaluation is guided by value systems founded on values (Jackendoff 2006)
values have both cognitive and affective dimensions (Marini 2000) of importance for understanding value in a business context (Andersen, Kumar 2006)
6.1.2 Perceived value
Customer value is closely linked to the concept of perceived value. Perceived value is more than just a matter of extrinsic, physical and measurable attributes, it also refers to abstract intrinsic attributes. It is defined as a trade-off between give and get components; price and quality (Zeithaml 1988)
Studies of customer satisfaction which are closely linked to perceived value through the common concept of quality illustrate the multi-dimensionality of quality as an aggregate of product and service-related factors (e.g. Homburg, Rudolph 2001, Perkins 1993, Qualls, Rosa 1995).
In addition perceived value is influenced by
expectations (Flint, Woodruff 2001)
comparison with alternatives (Sharma, Mehrotra 2007)
the life-cycle net benefits (Parasuraman 2000)
the customer evaluation of the supplier’s offering in terms of cost versus risk (Vandenbosch, Dawar 2002)
This implies that value is a perceived future and therefore insecure outcome, but the insecurity is reduced if the actors have experience with each other and the assignment (Hogan 2001). Being so, customer perceived value can include not only the transactional aspects of product and service, but also the relational elements of exchange. But it demands that the definition of give and get components is conceptualized to support the inclusion of relational elements as part of the quality received.
6.1.3 Customer desired values
The concept of desired values is not as abstract or centrally held as personal values, but it is more than just attributes. It also includes ‘the consequences, positive and negative, monetary and non-monetary that the customer wants to have happen’ (Flint, Woodruff 2001 p. 323). In research on customer desired value changes, desired values and perceived value successfully have been separated without getting entangled with the difficulties of exploring the field of personal values (Flint, Woodruff 2001, Flint, Woodruff & Gardial 2002, Flint, Woodruff & Gardial 1997, Woodruff 1997).
These studies focus on the difference between:
customer perceived value as a trade-off between all relevant benefits and sacrifices not only price and quality
desired values as the accomplishment of a desired purpose in a specific use situation with the help of a product or service
Desired values are under influence of the customer’s internal and external context, and therefore include an affective dimension, too. Changes in customer desired value can be a result of emotional tension. This tension can be offset by changing the offering in a way which solves the problem that causes the feeling of tension. This is achieved by changing the constellation of benefits and sacrifices (Flint, Woodruff & Gardial 2002). The essential contribution from the studies of customer desired value changes is twofold. They illustrate that personal values, desired values and perceived value are part of an overall individual value system and they designate ways to counter changes in customer desired value.
The ability to fulfil customer desired values demands that the supplier is in dialogue with and knows the customer; otherwise such changes are difficult to register. To be market orientation a firm must be able to deliver superior customer value, and in order to be able to do so, it is necessary to know what the customer desires, and this requires dialogue.
This is how strategic advantage is created. (Slater 1997, Slater, Narver 1994, Woodruff 1997). But in these studies the dialogue tends to be conceived of as a necessary tool to diagnose desired values. It does not include the personal, non-economic satisfaction derived by the participants from social exchange (Dwyer, Schurr & Oh 1987).
6.1.4 Value assessment
One of the challenges related to the concept of value is how to assess value in a business context. There are two ways to counter this challenge:
1. To attempt a recalculation of a mental, abstract and relative construct in monetary units. This is the daily challenge faced by business practitioners, and the subject of scholarly analysis, too (Anderson, Jain & Chintagunta 1993, Anderson, Narus 1998, Hogan 2001)
2. To apply a non-monetary classification
The non-monetary approach is applicable for theoretical analysis of value and value creation. But a non-monetary approach depends on a conceptualization of value which facilitates this approach. This is evident when comparing two different definitions of value applied in scholarly studies of value assessment:
1. Value as a trade-off between benefits and sacrifices on the one hand and price on the other hand;
Value=net benefits-price (Anderson,Jain, Chintagunta 1993) 2. Value as one of two separate elements of a market offering
Market offering=value-price (Anderson, Narus 1998)
Definitions which conceptualize value as a trade-off between net benefits and price are difficult to apply for non-monetary value assessment, because value is a composite of two elements, of which one is expressed in monetary terms, and the other needs recalculation for the equation to be applicable. Moreover, this definition does not reflect the full potential of a product or service, but the differential between the monetary worth and the price, which is an expression of the incentive to buy (Anderson, Jain & Chintagunta 1993).
These problems are overcome when value is defined as one of two separate elements in a market offering. This definition of value offers several insights:
Value can refer to the total potential of the offering, not only the differential value in monetary terms
It is not possible to increase the value by lowering the price, as these two elements are separate dimensions of the market offering
The monetary value/price ratio is the incentive of the offering
Comparison with competitors is not just a matter of price, but a matter of the value/ price ratio.
Thus Anderson and Narus’ (1998) definition of market offerings, developed for the monetary assessment of market offerings, facilitates a non-monetary approach to value.
The definition of the market offering as a trade-off between value and price transforms value from a composite construct to a basic construct. Value can be recalculated in monetary terms, but does not demand such recalculation. And this is how value is approached in many studies of value which apply various relative non-monetary scales to assess value (e.g. Kliniotou 2004, Ulaga, Eggert 2005, Walter, Ritter & Gemünden 2001).
The definition of value as part of a market offering simplifies scholarly studies, as the monetary recalculation is optional, but not necessary. In contrast, it adds complexity to managerial value assessment. In order to be able to calculate the market offering in monetary terms, a supplier has to be able to explicate not only the cost he incurs, but also the potential of his offering in monetary terms for a specific customer. This precondition points toward the importance of relationships; in this case as a basis for achieving access to information, which allows such calculations. Under the right circumstances such calculations may result in the inclusion of the monetary value of the supplier’s intangible resource input which is otherwise difficult to assess (Bowman, Ambrosini 2007). Such calculations can support the pricing of offerings. If a price is to be perceived as fair by both parties to an exchange, it has to reflect not only the cost incurred by the supplier, but also the potential value of the offering for a specific customer, and balance these two
dimensions of price (Kortge, Okonkwo 1993).
Summing up, customer value is a complex construct which:
Is guided by value systems founded on values which include cognitive and affective dimensions
Includes elements which are difficult to recalculate in monetary terms
Depends on the customer’s perception and evaluation
Relates the attributes of an offering to the consequences in use situations as element of customer desired values
The review of the literature related to the construct offers a number of insights of relevance for a study of B2B value. Value refers to the total potential of an offering, not to the differential between a calculated monetary worth and the price. Evaluation is the process which attributes value to objects, persons and actions. In business this process is not based on personal values alone, but on organizational ideas and values, too. But evaluation is an abstract internal calculation system which is difficult to access and study
directly. Therefore, a study of business value must seek other indirect ways to access information on value.
One way is to focus on the product and services included in the offering, and the activities performed as indicators of value. They are performed because they are attributed some sort of value. Activities are performed as part of the interaction process, and therefore have the potential to inform our understanding of the value of interaction. And as interaction and interconnection mutually constitute each other, focus on activities may have a spill-over effect which can support the conceptualization of the value function related to intermediation patterns.
Studies of perceived value indicate another or supplementary solution. Perceived value is a trade-off between the give and get constellations related to all intrinsic and extrinsic benefits and sacrifices. But as pointed out in the definition of customer desired value the evaluation also depends on the extent to which the trade-off results in the
accomplishment of a desired purpose. This result is not necessarily a matter of instant gratification alone, but may materialize over time. Therefore, value is an insecure, future outcome, of which the uncertainty is reduced if the parties to the exchange know each other: In other words, if they have established a relationship. The existence of relationships matters for the value which a customer perceives. Relationships are an integrated part of the interaction and therefore can inform the value of interaction. And once again there may be a spill-over effect to the conception of a value function of interconnection.
In a MAN perspective relationships result from repeated episodic exchanges over time. As this study is not longitudinal there is no way to study relationships as continuous
processes. However, it is possible to ask respondents to describe and asses their relationships with the other parties to the triadic relationship. In this way it is possible to get data approximations on the value attributed to relationships. When information of activities (behaviour) and descriptions and assessments of relationship are combined they support the understanding of how the actors perceive the value of the triadic constellation of relationships. The significance of activities and relationships for the understanding of value is also an issue in the following sections, which unfold these subjects further.