Sustainable Customer Value

Using Credit Card at Register

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


[1] Relationship Selling by Mark Johnston and Greg Marshall

[2] Marketing Management by Phillip Kotler and Kevin Keller

[3] Marketing Management by Phillip Kotler and Kevin Keller

[4] “Customer expectation vs. customer need” by Ray Miller

Locking on the Value Proposition for Customers

bazaar-selling

In my office, I hung a newspaper article prominently on my wall.  This 2010 article showcases the top 100 government officials in my area.  Surprisingly, the university basketball coach was the top official, at over $2 million.  Following suit was a short list of athletic coaches followed by highly noted professors and administrators.

This amazing list furthered stimulated my interest in determining the value of individual skill sets.  In some other areas of the country, region, or state, someone would probably determine that these same jobs did not warrant the same financial worth.  In fact, individuals within the same organization with the same title and similar professional backgrounds can be found making significant differences in salary.   Given these realities, it is easy to see that customer value propositions differ.

Today’s companies must become adapted at determining customer value. However, all customers are not the same.   In fact, globalization has created all types of problems for businesses.  One of the issues is how to stay ahead of the competition by exploring new markets while keeping the same customer base.  This action is not easy.

Many businesses build their profitability on this simple equation. Companies seek to reduce their inputs (outsourcing labor, better technologies) to obtain greater profitability. Yet, the process is often pretty self-serving with little regard to the customer and lesser value on employees.

Therefore, many people might insist that some business simply stumble on what customer value actually is and how it affects their business.  For this discussion, value is defined as the net bundle of benefits the customer derives from a product of service.

Mark Johnston and Greg Marshall, authors of Relationship Selling, state that the starting point for learning about relationship selling is to understand the customer. A value lesson is learning that the customer is the center point for creating value.

Paul Peter and James Donnelly, authors of Marketing Management, suggest that the starting point in the buying process is the consumer’s recognition of an unsatisfied need. Therefore, the focus must go back to the customer for any sustainable business success.  They must be deliberate with their connections with customers and value.

Being strategic conscious about these business relationships is not simple.  Ken Favaro, author of Put Value Creation First, further maintains that putting value creation consistently first requires leadership skills, discipline, and perseverance.

He further challenges organizations to demand higher standards from managers who would jeopardize these business relationships. When organizations place value creation as a high priority, organizations will beat their competition.

Given the complexity of customer value, how do businesses stay connected with customers and their ever changing wants and needs?

© 2013 by Daryl D. Green

New Value Creation Model

value-smart-shopping

I received an email from Dr. Marcus Blakemore about a very fascinating website called Fiverr.com. At first, I was very skeptical because freelancers like technical writers and web designers were offering their services for $5. In fact, these services were listed well below market prices.

Yet, the site also offers bizarre services like someone writing something on his or her lips to a person dressed in a clown suit willing to send greetings to anyone. Loaded with my conventional wisdom of ‘you get what you pay for,’ I gave the website a chance. Through this effort, I found some vendors were outstanding while others were mediocre.

Amazingly, the owners of Fiverr.com had created a niche for themselves with freelance websites, such as Elance.com or Guru.com. However, a new value proposition was also developed.

For experienced sellers, Fiverr.com provides a promotional venue where they can sell more expensive services down the product line, newbie sellers can turn their hobbies into financial gains, and value-seeking buyers can secure some quality services well below market value.

With the pressures of globalization all around, organizations are finding that creating value becomes a necessity. This article examines the concepts of value creation in today’s competitive environment. 

Twenty-first-century organizations can no longer implement value creation in a vacuum. Ken Favaro, author of Put Value Creation First, further suggests that placing a priority on value creation gives businesses two advantages over their competition: The first is capital and the second is talent. Favaro argues that successful value creators never suffer from capital shortage.  

Value focuses on the relationship between the customer’s expectations of a product or service and the amount paid for it. C.K. Prahalad and Vemkatram Ramaswamy, authors of The Future of Competition, further reasoned that twenty-first-century corporations must adapt their value creation system to fit the global scale.

They noted the new system is an individual-centered, co-creation of worth between consumers and organizations.  Few executives take the time to explain their values, but this will be increasingly important if companies hope to expand success in their global market. 

For many people, the concept of value creation is vague. An exact definition of value depends on the individual, but it could be defined as the net bundle of benefits the customer derives from a product or service.

According to Businessdictionary.com, value creation denotes ‘the performance of actions that increase the worth of goods, service or even a business.’  Consequently, value creation for customers encompasses developing products and services that customers find consistently useful.  

Mark Johnston and Greg Marshall, authors of Relationship Selling, argue that an individual must understand the customer to establish value.  Furthermore, Paul Peter and James Donnelly, authors of Marketing Management, argue that the starting point in the buying process is the consumer’s recognition of an unsatisfied need. The customer must remain the focus for any sustainable business success. 

Value creation must also be a strategic and deliberate concept for professionals. Mark Johnston and Greg Marshall maintain that perceived value is in the eyes of the customer. Therefore, perceived value will vary. A professional’s biggest challenge is in selling this value with consistency. Being strategic about these business relationships is not simple. Organizations must clearly understand the external motivation within their market in order to create lasting customer value. The external environment is considered anything outside of the organization’s control. External environment factors include economic stability, legal-political shifts, technological growth, social-cultural norms, and natural changes.

With businesses losing market sharing to companies abroad, organizations must establish clear value propositions to their customers. Paul O’ Malley, the principal of Paul O’Malley Associates (Newton, MA), argues the crucial need of value creation for companies: “The most successful organizations understand that the purpose of any business is to create value for customers, employees, and investors, and that the interests of these three groups are inextricably linked. Therefore, sustainable value cannot be created for one group unless it is created for all of them.”

Furthermore, today’s professionals always need to provide value for their employers and customers. In tough times, organizations want to keep their best people. In order to sustain lasting success, value creation must be an important ingredient of corporate business strategies during economic turbulence.

Describe an opportunity or problem in an industry where a new product or service would be benefical to customers because it would provide new value for them.

© 2013 by Daryl D. Green