The economic, technological and global business environment has changed dramatically in the past decade. As explained later in this chapter, the new economy has evolved into the Now Economy. To compete successfully in rapidly changing markets (permanent white water), customer value should be the overall basis for business strategy. Organizations and their people must master value creation and design winning strategies built on satisfying customer desires.
Superior customer value means to continually create business experiences that exceed customer expectations. Innovative companies such as Tesla are not content with customer satisfaction; they strive to amaze, astound, delight or wow them (at least some of the time). Tesla’s $35,000 Model 3 electric vehicle received more than 400,000 pre-orders more than a year before it went to market. Other exciting business initiatives by Tesla include its multi-billion-dollar Gigafactory (a battery production facility) and futuristic Hyperloop transportation system.
Value is the strategic driver utilized by global companies, as well as by mom-and-pop small businesses, to differentiate themselves from the pack in the minds of customers. Subway’s $4.99 foot-long sandwiches connect with hungry, budget-conscious consumers. Netflix has thrived in the video streaming business, while Redbox competes by renting low-cost DVDs and games via its automated retail kiosks at thousands of locations.
Value is defined by your customers. Companies that offer outstanding value turn buyers (“try-ers”) into lifetime customers. Case in point: Apple’s string of success with iPhones, iPads, iTunes and Apps has built market share for their Mac line of computers. Apple’s creative imagination, spearheaded by the late Steve Jobs and Jony Ive (Chief Design Officer), is all about giving customers extraordinary experiences.
So, What Does Value Really Mean?
Value is an amorphous business term like quality, service and excellence. It has many meanings to many people. In fact, the concept of customer value is as old as ancient trade (many of these practices are still evident today in Europe). In early barter transactions, buyers carefully evaluated seller’s offerings; they agreed to do business only if the benefits (received products) relative to the cost (traded items) were perceived as a fair (or better) value. Hence, value is “the satisfaction of customer requirements at the lowest total cost of acquisition, ownership and use.”3
Value means relative worth or importance. Furthermore, it implies excellence based on desirability or usefulness, and is represented as a magnitude or quantity. On the other hand, values are the abstract concepts of what is right, worthwhile or desirable.4 Management’s values impact how an organization creates value and, ultimately, its success. The legends about the Frito-Lay sales rep stocking a small grocery store’s potato chip rack in a blizzard, and Art Fry’s intrapreneurial initiative that brought Post-It Notes to 3M reinforce organizational cultures.
Value may be defined from the customer’s perspective as a tradeoff between the benefits received from the offer versus the sacrifices to obtain it (e.g. costs, stress, time, etc.). Value is created when product and user come together within a particular use situation and the customer experience meets or (preferably) exceeds the customer’s expectations. Thus, each transaction is evaluated as to a dissatisfaction, satisfaction or high satisfaction experience, in terms of the value received. These service encounters impact customer decisions whether to form long-term relationships or sever ties with organizations.
According to Woodruff and Gardial, a three-stage value hierarchy exists which consists of attributes, consequences and desired end-states. These levels of abstraction describe the product/service, the user/product interaction, and the goals of the buyer (person or organization), respectively. For example, a new car buyer may seek attributes such as comfortable seating, an easy-to-read instrumental panel, smooth shifting, a Consumer Reports endorsement, no pressure sales tactics and a good service/warranty program. At higher levels of abstraction, buyers may want driving ease, no hassles, and reliability (consequences), and ultimately peace of mind (desired end-state).5
As an area of formal marketing study, value-based thinking has evolved in its approximate 75-year life – it originated at General Electric after World War II. Value-driven marketing strategies help organizations in ten areas.6
Understanding customer choices
Identifying customer segments
Increasing their competitive options (for example, offering more products)
Avoiding price wars
Improving service quality
Strengthening communications
Focusing on what is meaningful to customers
Building customer loyalty
Improving brand success
Developing strong customer relationships
The growth of customer value thinking has impacted successful marketing practice. Kotler and colleagues explain that we have entered Marketing 3.0 – the values-driven era (Marketing 1.0 was product-centric and Marketing 2.0 was customer-centric and largely tied to information technology). The main characteristics of Marketing 3.0 are collaboration, globalization and creativity.7
Collaboration is participative marketing by channel members and/or customers leading to the co-creation of value (such as Apple’s App Store), strong supply-chain relationships and partnerships and the operationalization of social media communities such as Facebook and Harley Ownership Group (HOG). Globalization is evident in all product categories today. For example, major league baseballs are manufactured in Costa Rica, NBA basketballs are made in China and NFL footballs are produced in the United States. Creativity and innovation allow the smartest (not necessarily the biggest) companies to win in the marketplace.
The automobile market is global in scope, led by Toyota, Volkswagen, General Motors and Hyundai/Kia. While the giants battle aggressively for worldwide market share, Subaru, a Japanese niche marketer and the world’s 26th largest car company, is a rising star in the industry in the United States and abroad due to its impressive customer value strategy (see Customer Value Insight 1).
Customer Value Insight 1: They Love Their Subarus!
The automotive industry was “running on empty” in 2009 as sales plummeted. General Motors and Chrysler needed U.S. government bailouts to survive, Toyota was plag...