Meaning & Introduction

Value in marketing, also known as customer-perceived value, is the difference between a prospective customerʼs evaluation of the benefits and costs of one product when compared with others.

Value may also be expressed as a straightforward relationship between perceived benefits and perceived costs:

Value = Benefits – Cost

The basic underlying concept of value in marketing is human needs. The basic human needs may include food, shelter, belonging, love, and self expression. Both culture and individual personality shape human needs in what is known as wants. When wants are backed by buying power, they become demands.

With a consumersʼ wants and resources (financial ability), they demand products and services with benefits that add up to the most value and satisfaction.

The four types of value include: functional value, monetary value, social value, and psychological value. The sources of value are not equally important to all consumers. How important a value is, depends on the consumer and the purchase. Values should always be defined through the “eyes” of the consumer.

• Functional Value: This type of value is what an offer does, itʼs the solution an offer provides to the customer.

• Monetary Value: This is where the function of the price paid is relative to an offering perceived worth. This value invites a trade-off between other values and monetary costs.

• Social Value: The extent to which owning a product or engaging in a service allows the consumer to connect with others.

• Psychological Value: The extent to which a product allows consumers to express themselves or feel better.

For a firm to deliver value to its customers, they must consider what is known as the “total market offering.” This includes the reputation of the organization, staff representation, product benefits, and technological characteristics as compared to competitorsʼ market offerings and prices. Value can thus be defined as the relationship of a firmʼs market offerings to those of its competitors.

Value in marketing can be defined by both qualitative and quantitative measures. On the qualitative side, value is the perceived gain composed of individualʼs emotional, mental and physical condition plus various social, economic, cultural and environmental factors. On the quantitative side, value is the actual gain measured in terms of financial numbers, percentages, and dollars.

For an organization to deliver value, it has to improve its value: Cost ratio. When an organization delivers high value at high price, the perceived value may be low. When it delivers high value at low price, the perceived value may be high. The key to deliver high perceived value is attaching value to each of the individuals or organizations making them believe that what you are offering is beyond expectation helping them to solve a problem, offering a solution, giving results, and making them happy.

Value changes based on time, place and people in relation to changing environmental factors. It is a creative energy exchange between people and organizations in our marketplace.

Very often managers conduct customer value analysis to reveal the companyʼs strengths and weaknesses compared to other competitors. The steps include:

• Identifying the major attributes and benefits that customers value for choosing a product and vendor.

• Assessment of the quantitative importance of the different attributes and benefits.

• Assessment of the companyʼs and competitorsʼ performance on each attribute and benefits.

• Examining how customer in the particular segment rated company against major competitor on each attribute.

• Monitoring customer perceived value over time.

Value Creation and Delivery

Value-creation and value-delivery is the main task of marketing. Marketing in its entirety is a value “Creating and value-delivering process. The whole bunch of tasks involved in marketing, serve the purpose of value delivery. They actually form a sequence leading to value delivery.

Marketing planning, buyer analysis, market segmentation and targeting are concerned with value selection. Product development, manufacturing, service planning, pricing, distribution and servicing, are concerned with value creation & value delivery. Personal selling, advertising, publicity and sales promotion are concerned with value communication. Activities like market research and market control assess the effectiveness of the value delivery process, the level of satisfaction the customer has actually received and how it compares with the firms intention as well as with other competing offers for the purpose of enhancing value.

Ingraining an ʻOrganizational Capabilityʼ for innovation in creation of value is indispensable while competing in global markets. The basic questions underlying value creation are: who, which segments to serve (or not serve); what product or service to globalise; how to serve them through appropriate supply chains, channels and market-based assets, or organisational capabilities; and finally where (which geographical markets) to serve. Once firms are clear on the value proposition, they may delve on any of the below suitable strategies in isolation of other strategies or a combination thereof. These strategies are generic and not prescriptive. They are, however, routinely observed and often implemented by resource-endowed firms. Taking the automobile industry as an example, Henry Fordʼs focus on productivity led to a business model where the competitive advantage of lower costs and prices resulted in greater market share and, subsequently, even greater economies of scale.

But, these advantages dissipated over time as other manufacturers adopted assembly lines and like Alfred Sloan, the founder of General Motors, the automotive market competition from cost/price minimisation to differentiation and branding. It was no longer enough to have any car as long as it was a black Model T Ford. Customers could start with a Chevrolet, get an Oldsmobile as families grew and income increased, migrate further to a stylish Buick, and finally to a Cadillac when one foot was in the grave. This use of differentiation and branding allowed GM to capture higher prices and margins as customers moved through their lifecycle but collapsed decades later when in the name of efficiency and cost management GM used the same chassis (platform) across Chevy, Olds and Buicks. In effect their new business model failed to understand what made GM great in the first place. European companies such as BMW and Daimler-Benz, not having the same scale as the US market, relied on product performance and premium pricing. The Japanese, who were late entrants in the global market, focused on longevity (reliability and quality) to deliver value and eventually solutions such as service guarantees and extended warranties to enhance customer switching costs and loyalty. These business model innovations evolved over decades in the automotive market. But they now occur over but a few months in consumer electronics sectors such as the smartphone market. Failure to innovate to do things better is a free gate pass to exit.

In any marketing situation, one can discern four distinct steps in the value providing process:

• Value selection.

• Value creation/value delivery

• Value communication (making a value proposition and communicating it.)

• Value enhancement.

1. Value Selection

It is obvious that selecting the value to be offered is the first step in the value delivering process. Everything else follows. Only after selecting the value to be offered, can the firm proceed with production, sales and promotion. What needs to be specifically understood here is that the firm finds out what constitutes value in the estimation of the customer and accepts it as the value to be offered. Value selection is thus not only the first step in the sequence but also the most crucial one.

2. Value Creation / Value Delivery

This constitutes the bulk of the marketing job. What the firm has promised to provide the customer has to be actually provided. The product offering must actually carry the benefits the firm has promised and it must be reached to the customer in the most satisfying manner. Value creation/value delivery signifies the successful execution of the firms promise. Most firms fumble here because they promise to provide all sorts of things, but they fail deliver; their products fail to carry the value they were supposed to carry. The entire firm with all the functions and activities is involved in this step. In creating and delivering the product with all the associated benefits, which the firm has decided to offer, there is a role for technology, design and engineering finance management and the organizational set-up

On Marketing Concept, in this article we outlined up on the idea of integrated management action. What is required in value creation and delivery is integrated management action with marketing taking center stage.

3. Value Communication

After selecting the value to be offered and deciding how the value has to be created /delivered, the firm tries to communicate the value to the customer. In this step, there are actually two components. The firm works out a value proposition and then communicates it to the customer.

a. Making a Value Proposition

In a marketing endeavour, what the firm offers to the customer is not a mere physical product; it offers a value proposition. The product offer consisting of the best possible benefits/value is put forward as a value proposition, explaining how the offer matches the customers requirement s and how it works out to be the best among all the competing offers.

b. Communicating the Value Proposition

The firm then, communicates the value proposition to the customer. It explains the uniqueness of its offer through a well-formulated marketing communication mix. The customers exercise of assessing the value of the offer actually starts from this stage.

4. Value Enhancement

The firm also continuously and proactively enhances the value. It collects feedback from the consumer about his level of satisfaction with the product and upgrades the value. It actually is a non-stop job for the firm to search for the customers satisfaction level and augment the offer. Competing products, including substitute products, keep attacking the value proposition of the firm.

Expectations of customers to keep changing. The firm has to search for the new expectations of the customers, locate product gaps/ benefits gaps and keep making new and better offers to the customer to stay ahead of the competition in value rankings.

Sales promotion gimmicks do not normally serve the purpose of sustained value addition. Sales promotion measures like consumer deals and trade deals result in just a temporary shift in the value-cost equation in favor of the consumer. When the deals are withdrawn, consumers turn away from the product.

What is needed is a sustained and ongoing effort, not short-lived big bangs. The effort must be lasting value addition, which normally accrues only though factors like enhancement of the functional utility/ convenience of the product.