Posted by: nuleadership | February 10, 2014

Value Creation for Customers

haggling-buying

Customers determine the value of a product or service.  In today’s competitive environment, value creation is a corporate advantage.  However, building this value is often difficult.  People have different ways to assess value.  Some folks use traditional ways based on some established reference point, such as a company’s price guide. 

Yet, some ways are informal.  In many countries, haggling is an acceptable practice of transactional selling.  Philip Kotler and Kevin Keller, authors of Marketing Management, explain how businesses must understand customer decision making processes for purchases. They note, “They [customers] tend to be value maximizers, within the bounds of search costs and limited knowledge, mobility, and income.” 

Here’s a personal example. My family visited Mexico and began the great American tradition of haggling sellers to get the price of merchandise down. Radio host Dave Ramsey believes everything is negotiable. Anything that is worth the effort of negotiation must have passed the value threshold to the consumer. Paul Peter and James Donnelly, authors of Marketing Management, note that culture, social class, and reference group influences play an important role in consumer behavior. 

Some risks are involved with purchasing.  This reality has a bearing on value for customers. If decisions involve low risk, they are often done quickly with little thought.  Yet, major purchases normally require more risks, like buying a house. Therefore, having a good relationship with the seller is important.

The buying decision stages are (1) recognition of need or problem, (2) determination and description of the traits and quality of the needed items, (3) research for qualified buyers, (4) acquisition and analysis of proposals or bids, (5) evaluation of proposals and selection of suppliers, (6) selection of an order routine, and (7) performance evaluation and feedback.

Mark Johnston and Greg Marshall, authors of Relationship Selling, maintain that many organizational purchases are motivated by the requirements of the firm’s production processes, merchandise inventory, or day-to-day operations. Therefore, customers are very value conscious on high priced items, such as cars. 

Customers use varying methods to reduce their buying risks. Negotiation expert Carleen Hawn recommends five common sense approaches for effective negotiations, which are: (a) don’t bargain over positions, (b) separate the people from the problem, (c) focus on interests, (d) invent options for mutual gain, and (e) insist on using objective criteria. In most cases, haggling at a specific retailer involves a one-time transaction. Johnston and Marshall further suggest that value creation is what ultimately gets customers to come back.  Therefore, businesses that allow haggling must build relationship selling components for repeat value to customers. 

Discuss your professional experience with value creation in your industry or organization.

© 2014 by Daryl D. Green

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Responses

  1. It is understandable that haggling may lead to a one-time purchase between buyer and seller. In my experience in past years working as a sales representative, customers whom were able to receive any discount or something as small as a free sample item that was given along with their past purchase will continue to expect the same deal; as if they had forgotten that their deal was a charitable gift. When customer expectations are not met, often times those customers will become heated or dissatisfied with the current service being offered. In these scenario, the goodwill a company might have been attempting to create, inevitably will backlash and; in effect, be far more harmful to the company than i no deal was originally offered. If haggling and allowing customers to define promotional strategies is so dangerous, then why do companies funnel excess cash flows into generating new deals and offers into their marketing strategies? Paige (1996) states, “few executives realize that the loss of a customer can cost a company substantially greater than the opportunity cost of new marketing strategies.” Realizing the detrimental effects of lost customers, It is important for an organization to realize they must also retain their customers value once it has been created.

    Page, M., Pitt, L., Berthon, P., & Money, A. (1996). Analyzing Customer Defections and their Effects on Corporate Performance: The Case of Indco. Journal Of Marketing Management, 12(7), 617-627.

    • David,

      An outstanding example of how value creation connects with customer service!

      Professor Green

    • David,

      I like your point; most businesses do not realize the impact of losing loyal customers. For one they take their business elsewhere, effecting competition; and for two they are spreading the word of their dissatisfaction with the company. I spoke of my experience with a Knoxville car dealership this summer in my response to the posting. The automobile industry is a market which is vital for dealerships to drive in new customers and retain loyalty from previous customers, as well as other “big purchase” businesses. Leah Nurik offers advice on this topic from a company’s own perspective. Mike Colesante, president of Terian Solutions, speaks on how to create effective and long-term reseller relationships. One key point he makes is how crucial two selling aspects are: offer competitive pricing and respect existing customers. Companies need to find the one detail that keeps customers coming back, and continually improve that point.

      Nurik, L. (2010). Finding the right fit: Managing the reseller relationship. Channel Insider, 1

  2. At a prior employer I was a commercial insurance underwriter. As mentioned in prior posts, it was not the best atmosphere, and the reputation of the company in regards to customer service was not that great.

    I created value for my clients by doing simple things that many did not do. Answering phone calls, returning voicemails and emails within the hour if possible, giving status updates, not leading customers on if I would likely not be able to help them, and assisting with problems and finding solutions even if I had nothing to do with the issue.

    Instead of complaining about the extra work, I did the best I could given the resources available. I developed some job aides for myself and my assistants to help the work flow move easier so we could focus on more customer service related issues. While my market niche was not an extremely high volume niche like some of the others in the company, I increased my portfolio and loyal customer base annually, while many others in the company were in decline.

    While not surprising really, an article by Dotzel and Berry shows that being responsive to customer needs and finding innovative ways to assist them are keys to increasing firm value (2013).

    Dotzel, T., Shankar, V., & Berry, L. L. (2013). Service innovativeness and firm value. Journal of Marketing Research (JMR), 50(2), 259-276.

    • Greg, I like what you said about creating value for your customers by doing the little things.

      The little things add up in good ways and in bad ways. I think people are often distracted by the big things but only for a short time. Eventually we wake up and realize that our everyday (little) needs are not being taken care of. That is when we really start to appreciate the few vendors in our lives who do recognize the worth of the small details.

      As I was writing this response I thought about the 10xers of Jim Collins book Great By Choice and what he calls “Productive Paranoia” a seriously great person is always thinking about what can go wrong and preparing ahead of time for it. (Collins and Hansen, 2011) They prepare by fanatically taking care of all the little things.

      Collins, J., & Hansen, M. T. (2011) Great by choice. New York, NY: HarperCollins.

    • Greg,

      Excellent! You provide a great example of adding personal value!

      Professor Green

  3. As a result of my work experience at Papa John’s I have noticed several ways in which Papa John’s add value to their customers on a daily basis. One of the many ways in which they achieve this is by adding free plates, napkins, cups, and cutlery to large orders. Customers normally appreciate this complimentary add-on, as most people, when they plan an event they usually forget to about these little but necessary things. A part of Papa John’s mission statement is to create superior brand loyalty through providing legendary customer service (Papa John’s, 2014).

    Papa John’s (2014) Retrieved from http://www.papajohns.com/about/pj_mission.shtm on February 11, 2014.

    • Jenelle,

      Thanks for sharing!

      Professor Green

    • Jenelle,

      I liked that you identified that Papa John’s company has a mission statement and that it was intended to create value via customer services. When many people think of the food service industry they do not always realize that there is a very strong commitment to customer service. It is easy to see that Papa John’s sells a product (pizza), but some people overlook that ordering over the internet, ordering over the phone, catering assistance, and food deliveries are services that create value for Papa John’s. The Business Dictionary defines value creation as “The performance of actions that increase the worth of goods, services or even a business.” Clearly, by adding these services and having an awareness of customer needs, (adding plates, cups, napkins and cutlery) Papa John’s is practicing positive value creation.

      Business dictionary. (n.d.). Retrieved from http://www.businessdictionary.com/definition/value-creation.html

    • Jenelle, thank you for sharing. I, too, think it’s great that Papa John’s would provide a necessity (but not often thought of during the planning phase) to its customers. Sure, it is an additional expense to the company since the customers are not paying for the plates, napkins, and cutlery directly; but, how much is a customer worth? Once customers, especially business clients (those placing large orders), see the value, they are more likely to be repeat customers whereas they might have ordered somewhere else if Papa John’s had not went the “extra mile.”

  4. The role I currently fill did not exist when I joined my organization. I worked with my leadership team to develop my job description and have spent the past 4 years showing the company the value the role provides to the company. Bringing a new idea to a mature company can be a challenge and takes time. I spent a lot of time studying the basics of what I do, Knowledge Management, as well as studying other related fields like change management, process management, content management and many others. I think my study of change management has been my biggest asset in helping me show the value created by managing our knowledge. I learned about Proscii’s ADKAR model, which encourages the practitioner to follow the ADKAR model:
    • Awareness – build awareness of the need for change
    • Desire – create desire to play a part in the change
    • Knowledge – provide knowledge about how to change
    • Ability – help people develop the abilities required to change
    • Reinforcement – to sustain the change
    (“A model for”, 2014)
    By following this model through any change, including changing someone’s mind about the value you bring, you can be successful.

    A model for individual change. (2014). ADKAR Model. Retrieved from http://www.prosci.com/adkar-model/overview-3/

    • Georgette,
      I commend you on being a self-starter and taking control of your career.
      Many don’t!

      Professor Green

  5. I think of all the recommendations for the common sense approaches to negotiation by Carleen Hawn suggestion (d) invent options for mutual gain, is a suggestion that mentions the primary focus of effective negotiations. The only way a deal can be made with any type of purchase is if both parties believe they have obtained some type of benefit out of the deal. The question becomes if each party is willing to accept not obtaining the potential maximum benefit of the deal. With this, negotiation becomes a matter of whether or not either party believes they are receiving the maximum gain or the best deal. From what I have seen, good salesman of all types have mastered the art of making the consumer believe they are receiving the best deal, when the truth of the matter is the consumer is probably receiving the most typical deal offered by the salesman if the initial sticker price is challenged. It is up to the consumer to decide if the potential benefit of challenging the typical deal offered by the salesman is worth the risk of not being able to make a deal at all.

  6. I work in the healthcare industry, so haggling is not common place. It is a service, therefore, value creation comes in an entirely different mannor. There are many outpatient Physical therapy centers in this area, thus a lot of competition. What separates one clinic from another is customer service and going the extra mile to take care of patient needs. Not only is it important to start appointment times on time and deliver quality treatments, but also being personable as well as professional. It is the intangible things that make the difference…asking about their kids, sharing pictures of pets, listening when they have other issues going on. A smile and kind words go a long way when people are hurting, physically and otherwise. In today’s healthcare environment, with so many regulatory and reimbursement changes taking effect, the “personal side” of delivering care is getting lost in the foray. Times may be changing, but the basic human need of wanting to feel secure, and that somemone truly cares about them, when things are uncertain will always remain. Knowing that and putting it into action will most certainly give you a competitive advantage.

    • Clay, I like how you mention quality care is how the healthcare industry often has to make itself stand out above competition. I would like to add off of that and say that it works in every industry to add quality service. I will buy from a guy I like with a similar product before I will from an asshole who I don’t like if I’m buying on a personal level. The sales people where I work have to be knowledgeable about the industry and the product and be able to relate and empathize with customer situations. This is what ads our ‘personal side’ of delivering our product. On top of that we have competitors who have better product and sales guys, but their shipping dept. sucks. The orders are always screwed up and it agitates customers and the sales people. If a company has a good working relationship, where everything works as it should, customers are happy and, unfortunately, often surprised.

  7. The way you create value is dependent on your industry. In my own experience at the company I work at we sell to contractors. For us to create value we have to have very knowledgeable staff who can help them with questions they may run into on the job site. the biggest issue with our sales people is if they don’t adequately understand the industry and the process for the equipment we service. If they don’t know this they can’t help the customer, can’t make the sale, and will ultimately stand the risk of losing their job. For us the product is important, but our service is more important. Competition is fierce, but the relationships with contractors is what makes us a leader in the industry. However, this does not hold true for all companies.
    In the technology world, a customer may not need the relationship, but instead just the best possible performing item for the price. In that case, the value is in the product and not the relationship. In another industry, it may depend on time, it may depend on style, it may depend on any number of things. To truly establish value as H. Whitlock says in his article ” How to Create Customer Value” (2007), “It is important to have something unique that is not readily available anywhere else.” so what you have to do is look at your competitors and really determine what they do and what they should so you can do it before they do!

    Whitlock, H. (2007) How to create customer value. E-zine Articles. Retreived from http://ezinearticles.com/?How-to-Create-Customer-Value&id=491697

    • Rhett, on you stating, “For us the product is important, but our service is more important,” I totally agree. A lot of times, especially in terms of value creation, service is of more importance to consumers when compared to the product. There are many people that have a great product that many consumers could/would use and buy, but their service is terrible, and, for that reason, most consumers don’t. In some industries, there isn’t a whole lot of room for competition between products. In those situations, service is what makes one company stand out from another.

  8. I want to focus on what was stated about how customers are value conscious when purchasing cars. I completely agree, and I believe it is the responsibility of the salesman to aid the process by informing, relaxing, and reassuring the customer in the best possible manner. This past summer I purchased my first new car, and had a terrible buyer experience. Instead of helping me understand the options available to me and showering me with attention as an important customer, I was degraded and told what I could and could NOT afford. To say the least, I took my business elsewhere.

    In a study done by Electrical Wholesaling, an article states how vital it is for businesses to “keep their costumers king”. The text makes key points about how selling is done right by letting the customer do most of the talking on their needs and desires, respecting the customer’s time, and closing through a sales call with purpose and style. If the dealership would have conducted these simple aspects of selling I would have kept my business with them. However, now they are one car sale less.

    Keeping your customer king. (2011). Electrical Wholesaling, 92(3), 42-41.

  9. I have worked in heath care for the duration of my career. Since hospitals and clinics do not provide “goods” in the same manner in which other industries do, value is measured differently than it would be for an item purchased in a store or other company. However, it is critical that employees understand that our clients (or patients) have the ability to make choices in where they receive their health care. Value can be determined not only by how much the care costs, but more importantly by outcomes and how an organization has performed. According to Feeley, Fly, Albright, Walters and Burke (2010, pg. 410), “Value in healthcare can be described as the balance between outcomes and costs”. Furthermore, patients make decisions based on personal experiences (or those of friends and family). The feeling that the staff truly cares about the patient, and provides that personal touch will often hold as much weight with the patient as a consumer as does any other factor.

    Feeley, T. W., Fly, H., Albright, H., Walters, R., & Burke, T.W. (2010). A Method for Defining Value in Healthcare Using Cancer Care as a Model. Journal Of Healthcare Management, 55(6), 399-411.

  10. I have worked in customer service in the past and from my experience, value creation is necessary for companies that have a customer service element. An article from the Economist reads that, “value creation is a corporation’s raison d’être, the ultimate measure by which it is judged” (“Idea: Value Creation,” 2009). This is especially important in companies within the service industry. Perceived value of a product or service is what customers use to determine whether or not they will make a purchase. Value creation is crucial in increasing a particular service’s or product’s perceived value from a customer’s point of view. Without the perceived value created via value creation a company’s sales would indubitably suffer.

    “Idea: Value creation” (2009). Retrieved from http://www.economist.com/node/14301714

  11. I can see why haggling could be an acceptable practice in other countries. It is also practiced here in the United States. There are telemarketers that call my house multiple times a day trying to sell something and if I don’t answer that does not stop them. They continue to call every day. I remember I actually answered once and the person on the phone wanted me to take a survey. The survey then led to someone wanting to sell some type of glue that was stronger than any other glue. The glue was originally $25 dollars but I persisted to tell them I didn’t need the glue and that $25 was too much. After a couple minutes the price of the glue was $9.99. I still did not buy the glue but I was haggled just because they were trying to make a sale.

  12. When I think of value, I think of worth. And, when referring to a product’s value, it can be compared to its worth. If I, as a consumer, do not see the value or worth of a product, I am not likely to purchase it. However, if a product is presented to me with its value shown to me, I am more likely to purchase the product. Even if I do not purchase the product, I am likely to become a potential customer and maybe a customer for something else. A lot of times, there are products that I am not looking for and someone shows me the value of a new product that I have not thought about or do not think I need, and I end up purchasing it simply because of the value that has been created by someone else, whether it be a friend, co-worker, or an employee of the store I purchased the good from.

  13. “In general, value creation is the process companies use to make their Web sites destinations of choice, distinguished from and with advantages over other Web sites or retail channels. A company’s ability to create value increases as its Web site evolves from static, advertising-focused Web pages to a site with more interactive capabilities, including online customer support or the ability to accept electronic orders for products and services.” The article referenced went hand-in-hand with the post for this week. It explains the opportunities for creating value from the standpoint of how companies interact with their consumers. Companies make attempts to create value by focusing on certain kinds of interaction: buyer interaction and user interaction. Each of which are beneficial to the company.

    “Value Creation.” Gale Encyclopedia of E-Commerce. 2002. Retrieved February 24, 2014 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3405300450.html

  14. Value Creation is essential in today’s corporate environment. With capitalism at an all time high building value and retaining customers has to remain in the front of a businesses’ mind. Companies that aren’t willing to build value will ultimately not survive in today’s competitive environment.

    I work in the banking industry and they call it “differentiated customer service”. This is an extremely competitive field and value creating is what separates banks. While the banking industry is constantly evolving with the development of online that makes the value creating that more important with less and less interaction. Couple this with the fact that customer will not do business with you if they do not trust you, and you have one of the more value-driven industries.

  15. “Generally it is agreed that new value is created when companies develop new ways of doing things using new methods, new technologies, and/or new forms of raw materials” (Juscius & Jonikas, 2013, p. 63). I frequently make purchases in my line of work and have a working rapport with several vendors. As a result, it is common practice for me to haggle with prices amongst them all. Due to my rapport, continued price request, and frequent buying; I have been able to get many of my products at a price that is cutting into the vendors profits. Thereby, benefitting both parties and creating a mutual gain.

    Juscius, V., & Jonikas, D. (2013). Integration of CSR into Value Creation Chain: Conceptual Framework. Engineering Economics, 24(1), 63-70.


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