Smith

Customer Value Creation: A Practical Framework

Introduction

• Importance of Customer Value: Creation of value for customers is crucial for marketers in developing products and services.

• Framework Purpose: Provides marketers with a conceptual framework to distinguish themselves in the marketplace.

• Applications: Useful for marketing strategy design, recognizing product opportunities, and enhancing product concept specifications.

• Authors: J. Brock Smith and Mark Colgate, both from the University of Victoria.

Conceptual Foundations

• Customer Value Definition: Customer value is the perceived benefits relative to the costs incurred (Zeithaml 1988).

• Historical Acknowledgment: Recognized as a central concept in marketing and tied to customer satisfaction and brand loyalty (Woodall 2003).

• Opportunity Recognition: Addressed the need for frameworks to understand customer value better and enhance marketing strategies.

Customer Value Research

• Nascent Stage: Customer value research is still developing, particularly regarding frameworks and typologies that inform marketing strategy.

• Value Creation Importance: Strong emphasis on understanding what value to create, how to recognize opportunities, and how these contribute to organizational goals.

Definition of Customer Value

• Multiple Meanings: Customer value includes perceived value for the customer and value for the firm (lifetime value).

• Broad Context: Customer value is defined as "a customer's perceived preference for and evaluation of product attributes" (Woodruff 1997).

• Measurement Issues: Challenges exist in operationalizing and measuring customer value due to its complexity and the contextual nature of assessments.

Customer Value Frameworks

• No Common Framework: Various frameworks exist but none adequately address marketing strategy or value measurement.

• Types of Consumer Needs: Three basic consumer needs reflecting value dimensions - functional, symbolic, and experiential (Park, Jawarski, and MacInnis 1986).

• Five Types of Value (Sheth et al. 1991):

  • Functional Value: Utility based on attributes.

  • Social Value: Image associated with products.

  • Emotional Value: Feelings evoked by a product.

  • Epistemic Value: Curiosity and desire for knowledge.

  • Conditional Value: Situational relevance of products.

• Comprehensive Frameworks: Woodall (2003) identifies different forms of customer value, though limitations exist.

Types of Value in the Proposed Framework

• Four Major Types:

  • Functional/Instrumental Value: Extent to which a product has the desired characteristics and performs a function.

  • Experiential/Hedonic Value: The extent to which products create experiences and emotions.

  • Symbolic/Expressive Value: Psychological meaning and self-identity associated with a product.

  • Cost/Sacrifice Value: Transaction costs and sacrifices incurred by the customer.

Sources of Value

• Five Key Sources:

  • Information: Educates and informs customers, integral in all types of value.

  • Products: Directly linked with functional, experiential, and symbolic value creation.

  • Interactions: Customer and organizational interactions provide valuable experiences.

  • Environment: Physical setting enhances user experience.

  • Ownership/Possession: Transfer processes also create value.

Framework Applications

• Strategic Tool: Useful for mapping marketing strategies, enhancing product specifications, recognizing opportunities, and developing value measures.

• Market Positioning: Framework aids organizations in defining and distinguishing their value creation strategies across consumer contexts.

• Competitive Advantage: Organizations can identify what processes to focus on within their value strategies for competitive positioning.

• Research Direction: Future research directions suggest examining varying conditions under which value strategies are appropriate.

Conclusion

• The proposed customer value creation framework aims to integrate previous theories and enhance understanding of value in marketing, offering a structured approach for marketers to strategize and execute value-driven activities effectively.