The concept of value is a corner stone in contemporary marketing and modern business. Yet its construct from a customer point of view, which is the marketing and psychological perspective, remains somewhat vague and shallow. Even the academic literature lacks consensus of opinions on what value is made of. Many entrepreneurs and managers also fail to understand that significant concept. For this reason we will try to cast some light on the topic.
First of all, let us point out why value is so important to understand. As it turns out, the purpose of every business is to create value for its customers. And for a business to be able to focus on creating value, it must first understand what value is.
From a marketing perspective, value is the extent to which a good or a service is perceived by its customers to meet their needs or wants, measured by customer willingness to pay for it. For a customer it is the desirability of a thing, often in respect of some property such as usefulness or ex-changeability. For the business, on the other hand, value represents an amount, especially a material or monetary one, considered to be a fair exchange in return for a thing.
So far it sounds pretty easy to grasp, doesn’t it? But let us go further and give you an example. Imagine it is Saturday morning and you are about to depart to watch your favourite football team in its first final for the domestic cup. You wake up early in the morning, get everything ready, step in the car, turn the key … and the engine doesn’t start. Frustrated as possibly one could be in a situation like this, you find two local services that could fix the problem. The first offers you to solve the problematic occurrence for 300 € in 2 hours time which is just enough to arrive 1 hour before the match. The second service offers you to amend the problem for 100 €. The drawback? The car will be ready in 5 hours and you will miss the match. The question, then, is: Which offer will you take? If you are a big football fan and have waited for that match your whole life, you will be pretty happy to pay 200 € extra, get the car fixed and hit the road to the much anticipated football game. Now imagine the same situation with a little twist. Instead of going to watch your favourite football team, you are about to visit your mother-in-law, for the regular monthly Saturday lunch they organize with all the family members in their house. Which offer will you take this time? You might just think of missing the lunch this particular Saturday and keeping that 200 € in your pocket instead.
This example comes to show us that same thing when put in different contexts has different value. Consequently, the very concept of value is unveiled as a social concept, and as such it is changeable under certain circumstances. In a different context, a good or a service is perceived to have higher or lower value, regardless the fact that it remains the same good or service. Hence, we note that the notion of value is perceptual and subjective. Furthermore, value compromises various components, so it has a multi-dimensional structure. In this particular paper we will look at the idea of value in two different ways. One is more useful to express the understanding of the creator of the value, i.e. the business, and the other one expresses the point of view of the customer. Nevertheless, both conjunct in the same principle of conceptualizing what value is.
Designing Product/Service Value
We have put a business perspective value-creation blueprint which is an adapted product/service development framework. It is applicable for designing a business value proposition. Bear in mind though that as we stated earlier, the market never sleeps so every offering should be re-engineered in relation to the changeable customer preferences, competitors’ offerings and industry structure. Hence these dimensions and attributes of the product or service, that manifest as the value of your offering and win you customers, should be regularly evaluated in regard to the turbulence of the industry you are in.
The horizontal axis at the bottom determines which of the attributes of your offering are relevant to the created value in reference to its tangible or intangible nature. Generally speaking, you should consider your offering to be a product or a service in regards to which of the tangible/intangible component is dominant. In practice very few businesses are purely service- or purely product- oriented. Usually, a business is a combination of both with one dominating the other in its different functions – manufacturing, commerce etc. Yet it is a useful guidance to help you focus on certain components you may have overlooked because precisely these components could have a significant impact on your value proposition.
The concentric circles reflect three dimensions of your product/service. There is the core benefit in the centre which is further complemented by the main attributes of the offering. These main attributes are called actual product/service. The outer circle defines the augmented attributes of the offer. All of these are examined in depth below.
The horizontal axis, which is depicted simply by two arrows, defines the attributes in terms of whether they are measurable and, therefore, comparable. Furthermore, it distinguishes them in terms of subjectivity. The lower part consists of attributes that are somewhat evident if not yet existent. The upper part characterise attributes which are dominantly perceptual and based on promises rather than facts.
At the centre of every service or product offer lies the generic value. For a product, you could think of it as the main feature, we call it core benefit. In this sense, an air-conditioner’s main feature and core benefit, respectively, is to heat-up or cool-down the temperature in the room; for a car, it is to safely transport passengers. The same is applicable for services, which could simply be regarded as intangible products: travel, repair, consulting, education, health care, banking; their core benefits will be: transport from point A to B, fixing what isn’t working, sharing or teaching information and knowledge and so on. Defining the core benefit is the first step which brings meaning, purpose and ultimately value in understanding your business. The problem is if the core benefit is not a breakthrough innovation, it is likely matched by all of your competitors. Therefore in order to create more value, hence, gain competitive advantage ahead of your competitors, your offering has to tweak few more things.
The core benefit of a product or service resides at the core of each business, but do not fool yourself that it can be easily determined. The core benefit should be examined in strong relation to customer needs and wants, which are as we clarified above, changeable, strictly subjective, context-dependent and shaped by social preferences.
We further examine this in our articles: “Defining the industry” and “Revisiting Theodore Levvit Marketing Mayopia”
These are the attributes that will have initial and significant impact on the value of your product or service. In this article we will very briefly highlight them as we will examine them in depth in specialized articles. Let us first start with the attributes applicable for both product and services and just showcase the direct link between them and the value of your offering.
- Features – these are all capabilities as well as characteristics of the product. For example: Laptop Dell, Processor: dual core @ 2,6 GHz; RAM: 8 GB; SSD: 120GB; front camera, and so on. It is pretty much the same for a service. For instance: 500 minutes to all networks, 500MB internet data. More sophisticated products will have a long list of features and characteristics.
- Price – well price speaks for itself. It is one of the main aspects of both customer value and company profit.
- Quality – the concept of quality alone is very complex. The sense of quality may derive from the utilized materials, reliability, ease of use, country of origin, practicality and so on. Therefore we prefer to look on quality like something subjective, yet strongly influenced by its physical components. Furthermore we haven’t heard someone positioning his or her offering as low quality but it always correlates with the price. Usually higher price intuitively suggests and signifies better quality.
- Brand – branding is, well to put it that way, sort of art. Although branding is not compulsory, branded products are significantly more expensive than non-branded ones. So naturally, every business at some point heads toward branding its offerings. In the past, branding of raw materials was accepted as unnecessary, but recently even at that extreme of the product/service continuum we see more companies branding themselves. The biggest benefit of branding is the perceived reduced risk for the customer. Simply, the customer feels that he is in control and if not satisfied with the received product or service he could either punish it by not purchasing more, or can produce negative worth of mouth. More sophisticated brands create immense intangible value for the customer in the form of self-esteem, power, and status. Customers, then, associate themselves with the brand values.
- Packaging – strong communicator of the offering’s value. Packing can have significant impact on the cost of product itself, as well as the cost of transportation. It influences the ease of use for some products and preserves the products at the same time.
- Design – the design of the product is strongly related to its perceived quality and usability. There are certain products that are heavily design-dependent. In addition to this, there are a lot of companies that focus on design as a unique selling proposition.
- Process – when we speak for services, the process is vitally important. Because of the intangible nature of the service, explanation of the actual process of generating and receiving the value of the service provides the customer with reassurance which ultimately generates trust. Purely intangible businesses should pay strong attention to acquainting its customers with the steps of the process that define the value of their service. Recently, some beer manufacturers reveal a romantic perspective of the manufacturing of their product in their advertising, and other companies are likely to follow. This is quite interesting and we should admit it is also influential. Hence, the process may play increasing sort of innovative role in some products promotion activities.
- Provider’s skills – a large part of you value proposition especially in the service sector – from hairdressing through restauranting to insurance and investment banking, lies in the skills of the provider. The intangible nature of the services suggests that the value which customers receive is a direct correlation to the skills of the person in charge of that service. Therefore a good restaurant is known for its chief, a good consultant for its experience,integrity, trustworthiness, expertise and so on.
The augmented offering, as the name suggests, is an expanded version of the value proposition that a business has to prepare. Do not underestimate your augmented offering as it may have profound effect on the perceived customer value.
- Warranty/Guarantee – this is an official assurance that specific conditions and quality of a product will be fulfilled. Sometimes the warranty is linked with a service contract, like for cars or home appliances. For services, some retailers give the lowest price guarantee, while a hairdresser, for instance, may give 6 months guarantee for hair extension.
- Delivery – this is the time period within which the customer will receive its product or service.
- Facility/Ambience – for goods, think of Elon Musk Battery Giga Factory. As it turns out, when it comes to manufacturing businesses, having a manufacturing facility to show is considered an advantage. For services it is even bigger as there is no tangible value attached. When thinking of facility, think of your office design, restaurant or hotel interior because every little detail matters to a great extent. Thus, a comfortable chair or pillow might be just enough to turn a business into a successful story. A customer will create a strong association for his future value based on his current experience in your premises.
- Installation – there are many products that need to be installed. The installation might be examined and designed as a completely separate service additional to your core product business. It is entirely intangible, pretty much a promise, so people, processes and skills play important role when communicating with the customer.
- After Sale Service – yet another promise, same things as above apply. Probably soon we will have colleges dedicated to after sale service. We will dig into that topic in a specialized article.
- Physical evidence – these are all folders, header printed papers, pens, brochures, talons, tickets, whatever comes to your mind, that adds some tangibility to the service. These are important value drivers which also serve pretty well as advertising materials.
- Provider’s behaviour & appearance – for the majority of the service businesses this is something that is of a vital importance. It is of course very obvious, but it doesn’t mean that it is not sometimes underestimated, or forgotten. Remind yourself to diligently check your personal, as well as your employers’ behaviour and appearance. This aspect of your proposition is strong driver of customer value and competitive advantage.
To conclude, with this framework we have tried to briefly explain the marketing aspects of developing a product with tangible or intangible dominant. Additionally, we have also outlined the main aspects that are taken into consideration in order to create value for your customer. The construct above, however, takes the whole concept of value as a static one, i.e. when constructing one dimension or another you may take into consideration your own capabilities, your competitors and a segment of your customers. And at that given period of time and only then it all will be true. It just simplifies the process. But value is not a static thing. It is not a constant. Instead it is, so to say, alive, different, dynamic, unpredictable, unsettled, and it is perceived by your customers. So we would like you to walk in your customers’ shoes, and give you the concept of customer value.
The following concept of customer value is widely accepted and there is a consensus that it pretty well and accurately represents all the processes that happen in a human’s brain. It is important to understand that the whole notion of value, perceived value, value for money and the like derive from the fact that we have to choose from many offerings. In other words, supply exceeds demand and leaves most of the people with room for choice. So this construct of costumer value borrows some of the assumptions made when evaluating human choice, expands it and adapts it for the purposes of marketing and business. Hence customer is represented in the following manner:
Customer Value = Perceived Benefit – Perceived Sacrifice
It is associated with the total benefit of using a given product. It includes the following aspects:
- Product/Service Benefits – this is the core benefit of a product which will fulfil a particular customers’ need. It also includes all the features and the perceived quality.
- Image Benefits – the customer perceives that his personal image will benefit from using a particular good or service. This aspect has a strong relation with all branded products. For example, Cambridge University has a better image than Kingston University. Same as BMW that has better image than KIA. Picking up between them will have strong effect on how others perceive the person as well. Therefore his image is affected.
- Relational Benefit – this is the associated customer value which derives from the relation the customer has with the provider of the product. It is usually a service but it could well be a delivery of a good. Most B2B businesses heavily rely on strong interconnection between their sales force and their customers.
On the opposite end of the perceived benefit is the perceived sacrifice. It is constructed in the following way:
- Monetary/Time/Energy Costs – these three are pretty straightforward to understand and reflect on the perceived money, time and energy one should put towards receiving the benefits of a particular product.
- Psychological Costs – this aspect of the customer value reflects the perceived risk, in terms of not making the right decision. When making a decision, a customer has at least two possibilities and choosing one over another always implies a sense of risking not making the best decision. This risk is mitigated by brands, good relationship with the supplier or recommendation.
Example SUBWAY vs LOCAL RESTAURANT
In this example, imagine that you are in a foreign country and want to have something to eat.
|Product/Service benefit||fast food||local food, resting in nice atmosphere, feel local culture|
|Image Benefit||familiar brand, the food is edible||trying local cuisine|
|Monetary cost||10 EURO||20 EURO|
|Time costs||15 min||45 min|
|Energy costs||around the corner||20 min walking to the nearest|
|Psychological costs||not trying local cuisine, not a healthy option||poor food and service|
As you can see in this simplified example, these are the aspects of customer value and how a customer perceives the value of your product or service.
To conclude, value is of vital importance to every business existence. The notion of value carries complex socio-psychological aspects. It is dynamic and multi-dimensional, based on tangible and intangible components. As a business, one should neglect neither the tangible nor intangible components since both of them have strong impact on the perceived value. We can claim that the tangible components are the area of pragmatic, rational thinking where engineering and finance define the value of the product. These are of course the fundamentals of each and every business. On the other hand, marketing and advertising is more concerned with the intangible aspect, the perceived aspect of the value of each business. Most of the businesses tend to accept marketing as something imaginary that has obscure impact on businesses’ profits. Well, we suggest with investing and developing the engineering and financial aspect of your businesses to simultaneously put an emphasis on marketing, perception and advertising. And when doing so, rely not only on your guts and experience but also try to understand the “psychics” behind the marketing phenomena, because only then a business is truly complete and successful.
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