Lecture 1
Customer Value and Value Propositions – fundamentals
A.Introduction
Customer value (CV) is the value as perceived by customers. Business customers choose for a
product, service or supplier because they believe that they get a better value than they could
expect from an alternative.
Customer Value (CV)
In almost all definitions and descriptions of CV four recurring characteristics of CV can be
identified:
1. It is a trade-off between benefits and sacrifices;
2. Benefits and sacrifices are multi-facetted;
i 3 concepts: value-in-exchange, value-in-use and value-in-relationships
3. It is a subjective concept (based on customer perception)
4. Value perceptions are relative to alternatives
Point of parity elements with essentially the same performance or functionality as those of the
next best alternative
Points of difference elements that make the suppliers’ offering either superior or inferior to the
next best alternative
Points of contention elements about which the supplier and its customers disagree regarding
how their performance or functionality compares with those of the next best alternative
Customer value has two sides:
• Value for the customer
• Value of the customer.
Customer value segments – avg customer does not exist
• Intrinsic value customers: They are typical transaction buyers- focus on price.
• Extrinsic value customers: are interested in solutions and applications (beyond the product
value). They put a premium on advice and service. Price less important
• Strategic value customers: these customers want to leverage the supplier’s core competences
– Getting the most out of the relationship
3 Customer value concepts
Value-in-Exchange : quality of the product or service compared with the price at the moment of
purchase (exchange).
- Used by intrinsic value customers. Value is only created by the supplier, customers have no
role in it.
Value-in-Use: focus on the value of a product/service when using it.
Value through co-creation - -functional benefits of use compared with the price & other sacrifices of
using the product (extrinsic value customer)
- Value in use concerns all the parties involved and the customer itself
Value-in-Relationship: functional, emotional & social benefits of the relationship compared with the
functional, emotional & social sacrifices of this relationship.
,Difference in benefits between Value-in-Use and Value-in-Exchange’
• Desired product attributes and attribute performance. This can be defined in terms of value-
in-exchange. Are these desired fulfilled then this leads to attribute specific satisfaction
• Value-in-use focuses on the value perceived through the consequences in use situation and
eventually fulfilling customers goals and purposes.
- consequence-based and goal-based satisfaction.
sacrifice differences:
value-in-exchange = acquisition price
value-in-use = total cost of ownership. Sum of purchase price + expenses incurred during the
productive lifetime of a product or service - its salvage or resale price.
Company and employee level
B2B-relationships are more ‘people business’ than acknowledged for a long time.
Humans do not only use functional, but also emotional and social attributes to evaluate the value of
an offering. The combination of these attributes explains customers’ behaviour.
- Rational, but also perceived emotional and social value have a direct or indirect effect on
customer satisfaction and loyalty.
Customers link their solution quality perceptions to individual as well as collective attributes. This is in
line with goal theory that suggested that people have both their own individual goals and shared,
collective goals.
- Collective attributes: improving operational performance, value through solutions
- Individual attributes: related job ease, individual social context
customers judge the value and resource quality of supplier at three levels, that of the:
• Employee
• The organization
• Network of sourcing that the supplier is using,
So, in B2b-relationship, it is not only the supplier but also its network that is being evaluated.
CV and causal effects
Customer satisfaction mediates the relationship between CV and loyalty.
Customer satisfaction is a good operational measure, but not a good indicator to predict customer
behaviour.
• People might be satisfied and still leave (the high quality does not always justify the price)
Value propositions
The essence of customer value management is to deliver superior value and get an equitable return
for it. A value proposition describes this value for the customer.
Three types of value propositions: all benefits, favorable points of difference and resonating focus.
Managing Value
,2 sides of the coin on customer value:
• Value as perceived by business customers.
• actual value companies are communicating and offering.
The treat of commoditization in business markets
According to Grove et al (2018) four factors have disrupted the dynamics in most B2B-markets:
1. The quality of products and services has been commoditized.
a Commoditized: when products are not unique anymore and become standard.
2. New technologies like cloud computing, mobile applications an artificial intelligence.
3. Easy access to online information leads to an abundance of product information.
4. Customers shift from negotiating for the lowest price (value-inexchange) to selecting suppliers
based on added business value (value-in-use/value-inrelationship)
Commodity trap: the offers of competing supplier are virtually interchangeable. Customers
perceive the offers as substitutes. Gaining competitive advantages by product differentiation is
virtually impossible.
- Commodization = more competition = plc shorter= pressure on margins
What do companies do- plan of action:
- Some stay in the commodity business: opt for a cost leadership strategy.
o Type of products: low tech products, without a scope for product improvement
- Others push back by increasing the value of their offerings for customers.
o Servitization (services to the product) or even offer complete solutions that solve their
customers’ problems and challenges (PSS).
A reaction to the dangers of commoditization trap is extending the value a company offers by offering
services or solutions. Doyle value ladder
• Services can however be value drains = cost more to supply than they are worth to the
customer
The power of solutions
Why do firms offer solutions in B2B-relationships:
- Commoditization - In order to get a strategic position and to differentiate from competition.
- Movement from producing in house to suppliers (lower costs) combined with supplier scarcity
o Think of markets like the luxury care industry, the biotech field, software production
and the railway industry.
. A solution could have five specific characteristics:
1. It creates value for the customer by helping to solve a problem or challenge.
2. It integrates and customizes value elements (e.g. products & services)
3. It requires co-production and affects both customers and suppliers operations
4. It often demands for a network of suppliers and acting as a system integrator
5. It’s success is formulated in terms of solutions (not activities)
Value pricing
Three types of pricing:
, • Cost-plus pricing the price set by adding a percentage on the total cost.
• Competition-based pricing the price is set in relation to the competition’s prices
• Value-based pricing the price is set in relation to the value for the customer
Depending on the value concept used the content of these equations differ.
• Value-in-exchange: benefits of acquiring the product; sacrifices = price
• Value-in-use: benefits of using the product; sacrifices = price and cost of using the product
• Value-in-relationship: function, emotional and social benefits of the relationship and all
episodes of all products; sacrifices consist of all functional, emotional and social costs (not only
the price
A value-in-use price : ‘the monetary amount at which the customer has no preference between the
supplier’s offering and the next best alternative supplier’s offering.
• Maximum price a customer should pay for the product/service or solution
Value assessment: the work process of obtaining an estimate of the worth in monetary terms of
some present or proposed market offering or element of it.
Customer Value and Value Propositions – fundamentals
A.Introduction
Customer value (CV) is the value as perceived by customers. Business customers choose for a
product, service or supplier because they believe that they get a better value than they could
expect from an alternative.
Customer Value (CV)
In almost all definitions and descriptions of CV four recurring characteristics of CV can be
identified:
1. It is a trade-off between benefits and sacrifices;
2. Benefits and sacrifices are multi-facetted;
i 3 concepts: value-in-exchange, value-in-use and value-in-relationships
3. It is a subjective concept (based on customer perception)
4. Value perceptions are relative to alternatives
Point of parity elements with essentially the same performance or functionality as those of the
next best alternative
Points of difference elements that make the suppliers’ offering either superior or inferior to the
next best alternative
Points of contention elements about which the supplier and its customers disagree regarding
how their performance or functionality compares with those of the next best alternative
Customer value has two sides:
• Value for the customer
• Value of the customer.
Customer value segments – avg customer does not exist
• Intrinsic value customers: They are typical transaction buyers- focus on price.
• Extrinsic value customers: are interested in solutions and applications (beyond the product
value). They put a premium on advice and service. Price less important
• Strategic value customers: these customers want to leverage the supplier’s core competences
– Getting the most out of the relationship
3 Customer value concepts
Value-in-Exchange : quality of the product or service compared with the price at the moment of
purchase (exchange).
- Used by intrinsic value customers. Value is only created by the supplier, customers have no
role in it.
Value-in-Use: focus on the value of a product/service when using it.
Value through co-creation - -functional benefits of use compared with the price & other sacrifices of
using the product (extrinsic value customer)
- Value in use concerns all the parties involved and the customer itself
Value-in-Relationship: functional, emotional & social benefits of the relationship compared with the
functional, emotional & social sacrifices of this relationship.
,Difference in benefits between Value-in-Use and Value-in-Exchange’
• Desired product attributes and attribute performance. This can be defined in terms of value-
in-exchange. Are these desired fulfilled then this leads to attribute specific satisfaction
• Value-in-use focuses on the value perceived through the consequences in use situation and
eventually fulfilling customers goals and purposes.
- consequence-based and goal-based satisfaction.
sacrifice differences:
value-in-exchange = acquisition price
value-in-use = total cost of ownership. Sum of purchase price + expenses incurred during the
productive lifetime of a product or service - its salvage or resale price.
Company and employee level
B2B-relationships are more ‘people business’ than acknowledged for a long time.
Humans do not only use functional, but also emotional and social attributes to evaluate the value of
an offering. The combination of these attributes explains customers’ behaviour.
- Rational, but also perceived emotional and social value have a direct or indirect effect on
customer satisfaction and loyalty.
Customers link their solution quality perceptions to individual as well as collective attributes. This is in
line with goal theory that suggested that people have both their own individual goals and shared,
collective goals.
- Collective attributes: improving operational performance, value through solutions
- Individual attributes: related job ease, individual social context
customers judge the value and resource quality of supplier at three levels, that of the:
• Employee
• The organization
• Network of sourcing that the supplier is using,
So, in B2b-relationship, it is not only the supplier but also its network that is being evaluated.
CV and causal effects
Customer satisfaction mediates the relationship between CV and loyalty.
Customer satisfaction is a good operational measure, but not a good indicator to predict customer
behaviour.
• People might be satisfied and still leave (the high quality does not always justify the price)
Value propositions
The essence of customer value management is to deliver superior value and get an equitable return
for it. A value proposition describes this value for the customer.
Three types of value propositions: all benefits, favorable points of difference and resonating focus.
Managing Value
,2 sides of the coin on customer value:
• Value as perceived by business customers.
• actual value companies are communicating and offering.
The treat of commoditization in business markets
According to Grove et al (2018) four factors have disrupted the dynamics in most B2B-markets:
1. The quality of products and services has been commoditized.
a Commoditized: when products are not unique anymore and become standard.
2. New technologies like cloud computing, mobile applications an artificial intelligence.
3. Easy access to online information leads to an abundance of product information.
4. Customers shift from negotiating for the lowest price (value-inexchange) to selecting suppliers
based on added business value (value-in-use/value-inrelationship)
Commodity trap: the offers of competing supplier are virtually interchangeable. Customers
perceive the offers as substitutes. Gaining competitive advantages by product differentiation is
virtually impossible.
- Commodization = more competition = plc shorter= pressure on margins
What do companies do- plan of action:
- Some stay in the commodity business: opt for a cost leadership strategy.
o Type of products: low tech products, without a scope for product improvement
- Others push back by increasing the value of their offerings for customers.
o Servitization (services to the product) or even offer complete solutions that solve their
customers’ problems and challenges (PSS).
A reaction to the dangers of commoditization trap is extending the value a company offers by offering
services or solutions. Doyle value ladder
• Services can however be value drains = cost more to supply than they are worth to the
customer
The power of solutions
Why do firms offer solutions in B2B-relationships:
- Commoditization - In order to get a strategic position and to differentiate from competition.
- Movement from producing in house to suppliers (lower costs) combined with supplier scarcity
o Think of markets like the luxury care industry, the biotech field, software production
and the railway industry.
. A solution could have five specific characteristics:
1. It creates value for the customer by helping to solve a problem or challenge.
2. It integrates and customizes value elements (e.g. products & services)
3. It requires co-production and affects both customers and suppliers operations
4. It often demands for a network of suppliers and acting as a system integrator
5. It’s success is formulated in terms of solutions (not activities)
Value pricing
Three types of pricing:
, • Cost-plus pricing the price set by adding a percentage on the total cost.
• Competition-based pricing the price is set in relation to the competition’s prices
• Value-based pricing the price is set in relation to the value for the customer
Depending on the value concept used the content of these equations differ.
• Value-in-exchange: benefits of acquiring the product; sacrifices = price
• Value-in-use: benefits of using the product; sacrifices = price and cost of using the product
• Value-in-relationship: function, emotional and social benefits of the relationship and all
episodes of all products; sacrifices consist of all functional, emotional and social costs (not only
the price
A value-in-use price : ‘the monetary amount at which the customer has no preference between the
supplier’s offering and the next best alternative supplier’s offering.
• Maximum price a customer should pay for the product/service or solution
Value assessment: the work process of obtaining an estimate of the worth in monetary terms of
some present or proposed market offering or element of it.
