1) Introduction. Understanding Value Creation. Communicating Value: Value proposition
Anderson, James C.,and James A. Narus (1998), “Business Marketing: Understanding what Customers Value”.
Summary
Customer Value Models: are based on assessments of the costs and benefits of a given market offering in a particular customer application.
Depending on circumstances (e.g. availability of data, customer cooperation) a supplier might build a value model for an individual customer or for a
market segment, drawing on data gathered from several customers in that segment. The models are not easy to develop.
Value in business markets is the worth in monetary terms of the technical, economic, service, and social benefits a customer company receives in
exchange for the price it pays for a market offering.
Considerations of value take place within some context. Even when no comparable market offerings exist, there is always a com petitive alternative
(even: customer makes product itself rather than purchasing).
Values and Prices are the value and price of the supplier’s market offering, and Valuea and Pricea are the value and price of the NBA. The difference
between value and price equals the customer’s incentive to purchase their incentive to purchase must exceed its incentive to pursue the NBA.
Building a customer value model
1. Generate a comprehensive list of value elements. (Anything that affect the costs and benefits of the offering in the customer’s business:
technical, economic, service, or social; will vary in their tangibility).
2. Gather data: obtaining initial estimates for each element (worth in monetary terms), e.g. place a team member at the customer to gain
understanding; focus groups; independent industry consultants
Frequently, the customer doesn’t know that it has the data or information the supplier is looking for.
3. Placeholders: Value of social elements is difficult to express. Thus, put them aside and discuss them with the customer in a qualitative way and
include them in the analysis as “value placeholders” showing they’re worth something and that a monetary value might be ascertained in future.
4. Validate the model and understand variance in the estimates: After building the initial model, suppliers should validate it by conducting
additional assessments with other (potential) customers.
5. Create value-based sales tools: e.g. value case history: written accounts that document cost savings/added value that customers receive from
using a supplier’s market offering. Value assessment can also become a service that suppliers offer as part of a consultative selling approach.
Putting an Understanding of Value to Use
Managing Market Offerings: rests on understanding the cost-value-ratio of the components of an offering how customers value them enables
suppliers to identify & eliminate value drains (services that cost the supplier more than they’re worth to customers = no strategic significance).
Guiding Development of New or Improved Products/Services: Knowing that a functional improvement is important does not tell if a customer is
willing to pay for it. If the offering will introduce new technology, a value model can show how the technology can provide greater value. When
developing a new offering in response to customers’ demands, it can guide what improvements are worthwhile; which ones have highest priority.
Gaining Customers: Knowledge of how offerings specifically deliver value to customers enables suppliers to craft persuasive value propositions.
Sustaining Customer Relationships: Behind successful working relationships are: trust & commitment. To show their trustworthiness &
commitment to customers, progressive suppliers periodically provide evidence of accomplishments. (e.g. AIT’s documented value-added savings)
Delivering Superior Value & Getting an Equitable Return: When there is market pressure on price, business units need to respond by showing
they can provide superior value. Assessing & truly understanding value in business markets is the beginning of the path to profitable fun.
Anderson, James C.,and James A. Narus (1998), “Business Marketing: Understanding what Customers Value”.
Summary
Customer Value Models: are based on assessments of the costs and benefits of a given market offering in a particular customer application.
Depending on circumstances (e.g. availability of data, customer cooperation) a supplier might build a value model for an individual customer or for a
market segment, drawing on data gathered from several customers in that segment. The models are not easy to develop.
Value in business markets is the worth in monetary terms of the technical, economic, service, and social benefits a customer company receives in
exchange for the price it pays for a market offering.
Considerations of value take place within some context. Even when no comparable market offerings exist, there is always a com petitive alternative
(even: customer makes product itself rather than purchasing).
Values and Prices are the value and price of the supplier’s market offering, and Valuea and Pricea are the value and price of the NBA. The difference
between value and price equals the customer’s incentive to purchase their incentive to purchase must exceed its incentive to pursue the NBA.
Building a customer value model
1. Generate a comprehensive list of value elements. (Anything that affect the costs and benefits of the offering in the customer’s business:
technical, economic, service, or social; will vary in their tangibility).
2. Gather data: obtaining initial estimates for each element (worth in monetary terms), e.g. place a team member at the customer to gain
understanding; focus groups; independent industry consultants
Frequently, the customer doesn’t know that it has the data or information the supplier is looking for.
3. Placeholders: Value of social elements is difficult to express. Thus, put them aside and discuss them with the customer in a qualitative way and
include them in the analysis as “value placeholders” showing they’re worth something and that a monetary value might be ascertained in future.
4. Validate the model and understand variance in the estimates: After building the initial model, suppliers should validate it by conducting
additional assessments with other (potential) customers.
5. Create value-based sales tools: e.g. value case history: written accounts that document cost savings/added value that customers receive from
using a supplier’s market offering. Value assessment can also become a service that suppliers offer as part of a consultative selling approach.
Putting an Understanding of Value to Use
Managing Market Offerings: rests on understanding the cost-value-ratio of the components of an offering how customers value them enables
suppliers to identify & eliminate value drains (services that cost the supplier more than they’re worth to customers = no strategic significance).
Guiding Development of New or Improved Products/Services: Knowing that a functional improvement is important does not tell if a customer is
willing to pay for it. If the offering will introduce new technology, a value model can show how the technology can provide greater value. When
developing a new offering in response to customers’ demands, it can guide what improvements are worthwhile; which ones have highest priority.
Gaining Customers: Knowledge of how offerings specifically deliver value to customers enables suppliers to craft persuasive value propositions.
Sustaining Customer Relationships: Behind successful working relationships are: trust & commitment. To show their trustworthiness &
commitment to customers, progressive suppliers periodically provide evidence of accomplishments. (e.g. AIT’s documented value-added savings)
Delivering Superior Value & Getting an Equitable Return: When there is market pressure on price, business units need to respond by showing
they can provide superior value. Assessing & truly understanding value in business markets is the beginning of the path to profitable fun.
