2 Creating and defining customer value

You will find many versions and definitions of value. The most relevant one is your prospect´s definition. This will always be an individual one and, thus, you need to understand the value perceptions from your conversational partners and the value derived from companys' KPIs and strategic objectives. Therefore, value creation should be led by the perceived value-add of the buyer. In general, internationalization, differentiation, cost leadership or diversification can achieve a company's competitive advantage. Keep this in mind when you want to link your solution`s value to the client`s strategic objectives.

According to Webster`s Dictionary, value is: "The monetary worth of something marketable; relative worth, a quantitative determination of usefulness ." Others define value as "the added competitive advantage you bring to your customer" (Hanan and Karp, 1991). Consequently, the selling company who delivers the highest value, not the highest quality product, will win the race. Mittal and Sheth (2001) concluded that value, not money, is the basic currency of all human interaction. This can be emotional or rational value. Lindgreen and Wynstra (2005) stated that "the supplier-perceived value is the sum of the direct functions of a customer relationship i.e. profit function, volume function, safeguard function and the indirect functions of a customer relationship i.e. innovation function, market function, scout function, access function".

Customers and stakeholders of a buying center weigh benefits differently. As an example, economic, relationship, quality or safeguard value are not equally the same for individuals involved in the buying process because of different personality styles e.g. dominant, initiative, relationship of rational behavioral styles. Also, different objectives as defined by their roles and responsibilities and even disadvantages need to be handled proactively as complex or delaying decisions, risk assessments, scenario calculation of business cases, vendor lock-in or loss of control should be weighted and addressed to the client.

It is important to mention that relationship benefits have a stronger potential for differentiation than cost considerations do. Ulaga and Eggert (2006) found in their research that price accounts for approx. 20% of the variance and relationship benefits account for four times as much. In more detail, service support and personal interaction have been reported in their studies as core differentiators followed by the knowledge of the selling company e.g. the account manager or pre-sales engineer and finally the ability to improve the time-to-market (speed). On the other side, product quality and delivery performance, along with acquisition costs and operational costs only showed moderate potential to get and maintain a preferred supplier status. The price shows the weakest potential for differentiation.

Customer benefits

In this chapter we will see different models of customer benefit and value and how these can be measured, i.e. by the value quotient (VQ). In general, benefits such as image, relationship, safety, quality, innovation rate, time, agility, flexibility, control or economic advantages have different objectives to convince the customer and require diverse management techniques to establish and improve them, e.g. branding management, communications, innovation management, quality and cost management. Since a couple of years ago, social responsibility and sustainability have become important values for the buyer and the society. Sustainability will be influenced by image, communication, innovation, economic feasibility and environmental safety. Sustainability needs to be part of the sales conversation and enables the seller to position brands, products and services in the market with a unique selling proposition (USP). The positive image of sustainability could be a door opener to raise a prospect´s interests. Beside this, cost savings still have the highest value for buyers, especially in times where industries like the utility and energy sector have announced significant billion $ saving programs. Belz et. al. (2016) reported from a study of 278 companies that customer value is a key in the sales process and value selling drives the focus to a value-orientated approach.

Three benefits were found in their research: Relationship, economic feasibility and image.

Relationship as the highest ranked perceived benefit implies the interconnectedness between the seller and the buyer, as well as personal relationships, credibility and reliability. 91% of the interviewees defined relationship as very important to win customers and maintain them. Something that is hard to be substituted by chat robots.

Economic feasibility means the seller´s contribution to improve the client´s profitability to allow higher competitive advantage by lowering their costs, optimize total cost of ownership, revenue growth and profit improvements, e.g. EBITDA, margin. 82% reported this as important. Image refers to the brand image, positioning and leadership, e.g. market, quality or innovation leader.

2.1 Concept of Customer Value

The total customer value and customer's perception is affected by four factors, namely: functionality, solution, experience and meaning, as Horovitz articulated (Horovitz, 2000). He defines functionality as the outcome that the customer obtains from basic product features whereas a solution obtained by extending the offering is to include support services such as installation and maintenance. Experience includes the rational experience as well as emotional elements derived by the total experience. Meaning, as the fourth factor, takes the experience to the next level of self-actualization (Khalifa, 2004).

Woodruff differentiated other categories of product value: functional, social, emotional, epistemic and conditional value, which might be intrinsic or extrinsic. In his classification of customer value concepts, he suggests that customers also consider value at different times, such as the time of making the purchase decision, experiencing its performance, or after use (Woodruff, 1997). He defines purchasing as 'choosing', which requires customers to distinguish between product offer alternatives and evaluate preferred product needs.

Woodruff provides a definition of customer value, which adopts a customer perspective derived from empirical research:

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 (Woodruff, 1997).

Woodruff also elaborates on how to close the gap in an organization to deliver value to their customers, i.e. a customer learning process, where managers can understand what the customer really values versus what they think they may value. Woodruff suggests a customer value determination process as a tool to bring the voice of the customer into a selling company by identifying target customers; identifying their key buying criteria and analyzing the broader, complex range of desired value dimensions (see figure 3). A continuous learning cycle, which consists of learning, creating the value delivery strategy, translation, implementation and performance tracking supports the success to increase the effectiveness of value creation and learning within the value-selling concept.

Figure 3: Translating Customer Value Learning into Action

Source: Woodruff, 1997

Woodruff presents a customer value hierarchy model (see Table 2 below) to capture the essence of customer value which suggests that customers conceive of desired value in means-end way.

Table 2: Customer Value Determination Process

Step

Key question

Next step

1

What do target customers value?

2

Of all value dimensions that target customers want, which are most important?

3

How well (poorly) are we doing in delivering the value that target customers want?

4

Why are we doing poorly (well) on important value dimensions?

1

5

What are target customers likely to value in the future?

2,3,4

Source: Woodruff, 1997

Starting at the lower level of the hierarchy, customers learn to think about products as bundles of specific attributes before they use goals and purposes to attach importance and consequences.

He draws more attention to the process of understanding...