Senior executives should build value creation in their business strategies. To act otherwise is only asking for trouble. In the infancy of a business’ existence, a good value proposition for customers is essential.
Mark Johnston and Greg Marshall, authors of Relationship Selling, argue that value-added selling changes much of the sales process.[1] Value is defined as “the perceived experience and worth gained from a product or service.”
Phillip Kotler and Kevin Keller, authors of Marketing Management, maintain that it is important for businesses to understand customer perceived value: “Buyers operate under various constraints and occasionally make choices that give more weight to their personal benefit than to the company’s benefit….Consumers have varying degrees of loyalty to specific brands, stores, and companies.”[2]
Customer-perceived value is related to the difference between benefits the customer gets and costs the customer assumes for different choices. Yet, customer-perceived value often is a graded approach.
For example, if an individual wants a cheap, fast-food option, he or she may select McDonald’s. In this case, the buyer’s expectation for quality food is lower than eating at a five star restaurant. Customers are very understanding when the seller’s value proposition is clear.
Given that market framework, perceived value is in the eyes of the customer and varies from business to business. Kotler and Keller further note, “The marketer can increase the value of the customer offering by raising the economic, functional, or emotional benefits and/or reducing one or more costs.” [3]
Therefore, organizations are challenged by selling value. Consequently, managers must better align themselves strategically to provide long- term value for customers, rather than focusing only on short-term profitability.
Being strategic conscious about these business relationships is not simple. Ken Favaro, author of Put Value First, further explains that putting value creation consistently first requires leadership skills, discipline, and perseverance.
He further challenged organizations to demand higher standards from managers who could jeopardize these business relationships. Favaro further adds that sharing information widely within the management team builds a shared sense of commitment toward building value for customers and shareholders. Customers and all members of the supply chain should provide input so that the expectations are clear.
Businesses that pay more would get more benefits (i.e. certain perks, discounts, etc.). Therefore, the value proposition would be enhanced. Yet, all good business transactions start with trust.
Johnston and Marshall argue that customers expect and deserve consistency in the way an organization’s value-added message is put forth. When a customer begins a relationship with you, he or she already has a specific set of expectations.[4]
Sadly, unproductive firms put little strategic thought in the matter of value creation. Nat Martin, III, Director of Purchasing and Concept Support, Darden Restaurants, Inc. notes: “If the value exceeds expectation, the customer is highly satisfied. If the value falls short of expectation, the customer is dissatisfied.”
Value creation can be considered the powerful engine that energizes sustainable growth. Therefore, value creation for businesses must be strategic and deliberate for any sustainable growth.
Please discuss your professional experience with company’s value creation initiatives.
© 2013 by Daryl D. Green
Nu Leadership Revolution Blog 
When you think of value creation, marketing managers need to be aware of the costs associated with offering a marketing mix and try to reduce or eliminate costs that do not add value for the customer. In the end, if a strategy’s cost is more than what customers are willing to pay for the benefits, the strategy will not be profitable. (Perreault, 2011).
A customer has to feel like that the value of the product or service outweighs the value of the money in your pocket. Good examples are you students going to college. Students pay thousands of dollars for their education. They could own an expensive sport car instead but the value of their education outweighs the sport car.
Another way to add value creation to a product or service is to introduce a resource enriching process. Resource enriching is the process of extending and enhancing one or more of the firm’s current capabilities. This can involve learning new skills to enhance the role of existing capabilities or adding a complementary resource from the firm’s stock of resources. Resource enrichment is necessary because the value of a firm’s resource stock may erode over time (Sirmon and Hitt, 2003). (Sirmon et al., 2007) argue that enriching capabilities enables a firm to create greater value than its competitors. Resource pioneering involves creating new capabilities by integrating recently acquired resources into existing capability configurations.
Derrick Proffitt, MBA
Basic Marketing: A Marketing Strategy Planning Approach
William D. Perreault-Joseph P. Cannon-E. Jerome McCarthy- McGraw-Hill/Irwin-2011
Sirmon, D.G. and Hitt, M.A. (2003), “Managing resources: linking unique resources, management, and wealth creation in family firms”, Entrepreneurship Theory and Practice, Vol. 27 No. 4, pp. 339-58.
Sirmon, D.G., Hitt, M.A. and Ireland, R.D. (2007), “Managing firm resources in dynamic environments to create value: looking inside the black box”, Academy of Management Review, Vol. 32, pp. 273-92.
Professor Proffitt,
Thanks for your contribution on the discussion of value creation!
Students,
Please comment on Professor Proffitt’s thoughts!
Professor Green
Dr. Proffitt,
It’s hard to disagree with your points on just how important the resource enriching process has become to companies looking to not only create value for their consumers, but to also extend this value for future transactions. A good example of a company that utilizes the resource enrichment process is Apple. When Apple entered the music and phone market, they were both crowded with many other big name brands. But Apple tried their hand at a little innovation and has since sold millions of their products worldwide.
According to the consulting firm, Products Arts, to sustain their success, Apple “continued to pound away with wave after wave of performance enhancements that overwhelmed other market players,” which, in turn, allowed them to achieve market leadership. The interesting thing to note, however, concerns Apple’s long-standing business strategy in offering their products at what could be considered an expensive price. But why are Apple costumers willing to pay more money than what is considered the market value for a certain product? Well, as Dr. Proffit suggests, consumers of Apple products believe that the value of the product they are purchasing – regardless of price – outweighs the value of the their hard-earned cash.
Source:
(2012). “Innovation Lessons from Apple – Competing with Yourself.” Product Arts. Accessed from: http://www.product-arts.com/resourcemain/articlemenu/387-innovation-lessons-from-apple-part-3. (Blog posted on 09-05-2013).
Dr. Green,
In the video above, the Product & Marketing Director of Barclays Bank, Travers Clarke-Walker, articulates that, “Value is not the price. It’s understanding the end customer of the things that you’re supplying to” when relating to how a hotel implemented a more environmentally-friendly lodging experience, and, as a result, was perceived by the customer of being more valuable than their rivals. In other words, the customer now felt that regardless of price, the lodging experience would be safe, comforting, and, ultimately, more enjoyable because the hotel cared enough to “go green.”
In an article published by “The System Thinker” Newsletter, the author writes that, “the first focus on creating value should be for the customer, but that this cannot be achieved unless the right employees are selected, developed, and rewarded.” I can’t tell you how many times I’ve dined at Outback Steakhouse and had a pleasant experience, and even though my waiter was always different, both the product and the service were always exceptional. It was obvious, therefore, that when Outback adequately trained and rewarded their employees, they were able to attract and satisfy customers through their mission of providing the highest quality of food and service.
Source:
O’Malley, Paul. (1998). “Value Creation and Business Success.” The Systems Thinker. Vol. 9, No. 2. Accessed from: http://www.pegasuscom.com/levpoints/valuecreate.html. (Blog posted on 09-05-2013).