The Interrelationship Between Customer and Consumer Value

ABSTRACT - In this paper some aspects of customer value which hopefully are useful for marketing managers trying to achieve sustainable competitive advantages in consumer markets are explored in further detail. This is done by first characterizing the interrelationship between customer value and sustainable competitive advantage. Then some salient antecedents and consequences of customer value are examined by highlighting the importance of postpurchase experience or expectations of consumer value for prepurchase judgements of customer value. Finally an interpretation of competitive advantage which is based on the firm’s ability and willingness to make superior contributions to the consumers’ value-producing behaviours will be outlined.



Citation:

Hans Rask Jensen (1996) ,"The Interrelationship Between Customer and Consumer Value", in AP - Asia Pacific Advances in Consumer Research Volume 2, eds. Russel Belk and Ronald Groves, Provo, UT : Association for Consumer Research, Pages: 60-63.

Asia Pacific Advances in Consumer Research Volume 2, 1996      Pages 60-63

THE INTERRELATIONSHIP BETWEEN CUSTOMER AND CONSUMER VALUE

Hans Rask Jensen, Southern Denmark Business School

ABSTRACT -

In this paper some aspects of customer value which hopefully are useful for marketing managers trying to achieve sustainable competitive advantages in consumer markets are explored in further detail. This is done by first characterizing the interrelationship between customer value and sustainable competitive advantage. Then some salient antecedents and consequences of customer value are examined by highlighting the importance of postpurchase experience or expectations of consumer value for prepurchase judgements of customer value. Finally an interpretation of competitive advantage which is based on the firm’s ability and willingness to make superior contributions to the consumers’ value-producing behaviours will be outlined.

INTRODUCTION

The marketing concept which emphasizes the importance of satisfying customer needs and wants as the key to long term profitability has returned to the agenda of management now expressed in new terms such as being customer-oriented or market-driven (Shapiro, 1988). Focus on the customer is once again regarded as a fundamental requirement for company survival and competitiveness (Webster, 1988). Among other things this means that knowledge of consumer behaviour is becoming increasingly important as an input to marketing decision-making in consumer markets.

Many authors have suggested that superior customer value should be considered as the most fundamental challenge for marketing strategy (Webster,1988; Day & Wensley,1988; DeshpandT, Farley & Webster,1993; Jaworsky & Kohli,1993; Day, 1994; Slater & Narver,1995). If such a challenge is taken seriously competitive advantage has to be achieved through a kind of superiority which consumers are both able and willing to demand. Seen from a marketing management point of view buyers should therefore always preferably perceive that the expected value of the firm’s offerings exceeds the expected value of any alternative supplied by a competitor.

It is therefore hardly surprising that some of the more recent contributions originating from consumer research reflect a growing interest in examining different aspects of customer value, but these studies have not yet resulted in unambiguos interpretations neither of what these aspects in fact represent, nor of their normative implications for marketing strategy.

It has therefore been considered as worthwhile to explore in further detail some dimensions of customer value which hopefully are useful for marketing managers trying to achieve sustainable competitive advantage in consumer markets. This will be done by first characterizing the interrelationship between customer value and sustainable competitive advantage. Then some salient antecedents and consequences of customer value are examined by highlighting the importance of post- purchase experience or expectations of consumer value for prepurchase judgements of customer value. Finally an interpretation of competitive advantage will be outlined which is based on the firm’s ability and willingness to make superior contributions to the consumers’ value-producing behaviours.

THE INTERRELATIONSHIP BETWEEN CUSTOMER VALUE AND SUSTAINABLE COMPETITIVE ADVANTAGE

The essence of strategic management is an integrated organizational focus on securing and sustaining a competitive advantage within the markets served by individual business units (Day & Wensley, 1983). Although advantages reside in superior skills and resources, they are revealed through positioning in competitive product markets. A point of advantage can be exploited profitably only if it represents significant benefits that are perceived and valued by customers and are difficult for competitors to imitate.

Businesses seeking advantage do not necessarily have to manage for lowest costs or differentiation through superior customer value (Day & Wensley, 1988). In consumer markets it is only possible to seek competitiveness through superior customer value, because cost leadership does not represent a positional advantage. Firms are therefore not necessarily "stuck in the middle" (Porter, 1980, p. 43) when they combine low-cost strategies with other kinds of differentiation.

Sustainable competitive advantage requires that this advantage represents superior value to customers in the long run. The marketing function can therefore only initiate, negotiate, and manage acceptable exchange relations with key interest groups or constituencies in the pursuit of sustainable competitive advantage within specific markets (Day & Wensley, 1983), if marketing strategy continuously makes superior contributions to the consumers’ value-producing behaviours. The customer can hardly be won as the so-called ultimate prize in consumer marketing (Day & Wensley, 1983), if he or she has not been convinced through knowledge or experience of superior consumer value that it is desirable to stay customer. The consumers’ postpurchase judgements of value based on the results of their value-producing behaviours are decisive for this outcome.

THE CONSUMERS’ PREPURCHASE VALUE JUDGEMENTS

Drucker (1954) once emphasized that what the consumer buys and considers value is never a product but always utility. This characterization is still valid, and Levitt (1983) is therefore right when he says that consumers attach value to products in proportion to the perceived ability of those products to help solving their problems. According to Levitt (1983) only consumers can assign value, because value can reside only in the benefits they want or perceive.

Zeithaml (1988) can probably be considered as the most comprehensive characterization of the consumers¦ value judgements which has been published so far. Based on some results from an explorative, empirical study and other findings she concludes that perceived value is the consumers¦ overall assessment of the utility of a product based on perceptions of what is received and what is given. According to Zeithaml (1988) pereived value represents a trade-off between salient give and get components.

The get components include salient intrinsic attributes, extrinsic attributes, perceived quality, and other high level abstractions. The give components include both monetary and non-monetary sacrifices, because consumers have to give up both money and other resources such as, e.g., time, energy, and effort to obtain goods and services.

According to Zeithaml(1988) extrinsic attributes may serve as value signals which can substitute for an active weighing of benefits and costs. In her explorative, empirical study most respondents in fact depended on cues, often extrinsic cues, in forming impressions of value. They did not to the same extent calculate prices and benefits. This seems to suggest that cognitive assessment of value is often limited, even if one would expect to find a more rational evaluation in situations characterized by high information availability, processing ability, time availability, and involvement in the purchase.

By focusing on product and brand choice Zeithaml (1988) highlights the consumers¦ value judgements in the prepurchase stage of decision-making. This approach is very consistent with the mainstream orientation of marketing and consumer research which still reflects a bias towards studying primarily those aspects of consumer behaviour which are related most closely to purchase activity. Zeithaml (1988) is therefore highlighting customer value which is the consumers¦ overall prepurchase assessment of offerings based on perceptions of what has to be sacrificed and what can be received through buying behaviour. The intentions which are based on this overall assessment of customer value can probably be considered as the best single predictor of purchase activity.

VALUE PRODUCTION AND THE CONSUMERS’ POSTPURCHASE VALUE JUDGEMENTS

Seen from the consumers¦ point of view a purchase is hardly essential in itself. Customer offerings have to be transformed more or less in order to be useful, and this process can be carried out only by the consumers themselves (Holt, 1995). Firms can only help them to accomplish this task in a satisfactory way.

Consumers therefore also form impressions of value after a purchase has been made and a store frequented. If product or store choice has been a trial, the postpurchase judgements of value can even be said to be the primary purpose of purchase activity.

Purchased goods are transformed into value by the consumers themselves through value-producing behaviours which can be more or less self-relevant, real, symbolic, and combined with more or less considerations.

McCracken (1986) has identified four types of rituals. They can be considered as learned skills that can be used by the consumers for value-producing purposes which only involve a symbolic transformation of acquired customer offerings.

An actual transformation of acquired customer offerings implies the use of more or less complex value-producing skills. These skills represent stored scripts or script sequences for value-producing behaviours which may be applied as they are or improved before application. This kind of transformation also implies more or less extensive utilization of a production capacity available inside or outside the household. Such a capacity which includes capital equipment, time and manpower (Bonke, 1992), can also be purchased, borrowed or hired for specific value-producing purposes.

An actual transformation of acquired customer offerings can be routinized, simple, or complex which among other things reflect different levels of behavioural and cognitive effort associated with this kind of value-production.

A routinized transformation implies an activation of satisfactory value-producing skills which are applied automatically without any considerations. The level of involvement in the otcome of such a transformation process is probably rather low. The value-producing behaviours are based on the same inputs of capital equipment, time and manpower as usual, and the use of this production capacity will be very simple, automatic, and habitual. The consumers are not seeking any kind of new experience through this kind of value-producing behaviour, because it is not needed, and the production activities will probably not require neither much time, nor much cognitive or behavioural effort. As examples of a routinized transformation could be mentioned the opening of the usual pack of cigarettes, decanting the daily bottle of wine, preparing everyday breakfast, or making a cup of instant coffee at the usual time of the day.

A simple transformation implies an activation of some value-producing skills which are not applied automatically. Different procedures are possible which may all be associated with few undesirable consequences. This kind of value-production requires some plain calculations of the desired use of capital equipment, time and manpower. The level of involvement in transforming the purchased items will probably be neither very low nor very high. If felt involvement implies considerations because of perceived risk combined with a rather low threshold of risk tolerance, information-processing will take place. However, information-processing will never be very extensive, because experience-seeking probably is the most important aspect of this kind of behaviour. As examples of a simple transformation could be mentioned the preparation of a new kind of sauce, the utilization of a new brand of detergent, or the production of an omelette by means of new ingredients or new techniques.

A complex transformation implies new and unknown value-producing behaviours which will be perceived as rather self-relevant and risky. These behaviours involve new scripts or script sequences, because stored procedural knowledge will be perceived as unsatisfactory or inappropriate. The rather intensive use of capital equipment, time and manpower, and the needed development of new skills for value-production will probably require many considerations. If the production capacity has to be extended, which may be possible, this will imply risky and rather self-relevant buying behaviours before value-production can take place. As this kind of transformation is based on intensive problem solving, there will probably not be much room for experience-seeking. The value-producing behaviour will typically require both much time and considerable cognitive and behavioural effort. As examples of a complex transformation of acquired customer offerings could be mentioned the renovation of a bathroom, the creation of a Japanese garden, insulation of the house by means of new materials or techniques, or preparing special diets for a child who has got diabetes.

Because consumers transform products through more or less complex, routinized, risky, time-consuming, cost-demanding, or involving behaviours, the overall assessment of the outcome, which represents consumer value, will always depend on perceptions of what has been obtained and what has been sacrificed through the whole process. This trade-off between experienced, salient get and give components of value production does not necessarily imply conscious, detailed, compensatory calculations. Often it is based on rather automatic, affective responses to so-called value signals.

When customer offerings have been transformed into consumer value the outcome is compared to prior expectations. This comparison can result in positive, simple, or negative disconfirmation (Oliver & DeSarbo, 1988), combined with internal, situational, or external attribution. If positive disconfirmation is attributed to customer offerings and/or the behaviour of sellers, it will probably reinforce buyer and store loyalty.

Negative disconfirmation can result in different decisions and behaviours. Future judgements of customer value will probably be adjusted to the experienced level of consumer value. These adjustments can involve changes in future buying decisions and behaviours, especially when they have been motivated by attributios to the purchased goods or frequented stores. However, consumer value judgements can also imply adjustments of the consumers¦ value-producing skills and/or the use of other resources with perceived salient consequences for value production. Such adjustments are most likely, when a dissatisfactory value judgement has been attributed to the way purchased goods have been transformed by the consumers themselves. Such adjustments can cause changes in future value- producing behaviours without necessarily causing any changes in the input of purchased goods. Consumer value judgements can finally cause reinterpretations of the salient get and give components or the possible consumer value signals. A given value judgement can for example be rationalized as wise, even if it has not been wise at all.

COMPETITIVE ADVANTAGE THROUGH SUPERIOR CONTRIBUTIONS TO THE CONSUMERS’ PRODUCTION AND VALUE

Superior profit performance requires that the firm is perceived as offering superior value to its target markets while holding a cost advantage over competitors. A business can therefore differentiate itself more or less on either the get or give component of value, but both components have to be taken into account simultaneously. Superior value to customers is only possible, if the benefits that these customers derive from superior performance are worth more than the perceived sacrifice they have to give up.

As offering superior contributions to the consumers’ production of value in the long run is the only way to superior performance in consumer markets, superior skills in understanding the salient antecedents and consequences of consumer value can probably be considered as the most fundamental prerequisite for sustainable competitive advantage. It takes a long time to put such skills in place, and they are rather difficult to imitate.

However, sustainable competitive advantages in consumer markets will hardly be possible, if such skills are not utilized both effectively and efficiently within a business culture which emphasizes innovativeness, consumer-orientation, marketing imagination, team-work, decentralized decision-making, visionary leadership, and a long-term perspective on profitability. Such a business culture apparently is still more the exception than the principal rule.

Given the increased importance of long-term, strategic relationships with customers and vendors, organizations place increased emphasis on developing skills of interactive management. Such skills should reflect the competence of organizations collaborating for making superior contributions to the consumers’ production of value. It should be the responsibility of the marketing function for such networks to make sure that every aspect of the business is focused on achieving such goals, and marketing should as a management function be responsible for keeping all collaborating firms informed of salient antecedents and consequences of consumer value in the target markets. An organization culture which highlights the importance of making superior contributions to the consumers’ value-production should be seen as a key strategic resource which can define the network members’ uniqueness, and this resource should be used as a basic instrument for coordinating the endeavours of the single network participants towards common missions and goals.

However, has the perspective on competitiveness outlined in this paper emphasizing the importance of making superior contributions to the consumers’ production of value in fact anything new to offer firms or networks operating in consumer markets? Is it not just old wine served in new bottles?

Even if the market concept of competition is taken for granted, competitive strategy is often outlined by marketing managers based more on knowledge of some salient attributes or strengths of specific customer offerings than on knowledge of the relative importance of such attributes r strengths for the consumers’ production of value. A customer offering can thus be assessed as having a significant competitive advantage compared with some alternative inputs to the consumers’ value-producing activities. Yet consumer value as it is expected or experienced by the customers of such offerings may depend more on certain skills or an effective and efficient use of other resources.The approach outlined in this paper makes it possible for firms to assess their competitiveness in a context where the consumers’ postpurchase activities in their entirety are more salient than some more or less important aspects of the customers’ acquisition of inputs to value-production. Following this approach it will be possible for marketing managers to understand that competitiveness in fact can depend also on the firm’s ability and willingness to develop the consumers’ value-producing skills and/or to provide them with resources which are decisive for their production of value by means of customer offerings which may have more or less relative consumer value potential. Such an insight is probably rather useful for firms seeking competitive advantage by marketing different kinds of input to a complex transformation of customer offerings.

The approach outlined in this paper implies that the cunsumers’ product knowledge can be characterized and competitiveness assessed in a suitable way by means of perceived linkages between salient attributes, consequences, and values. Gibbins & Walker (1993) have demonstrated that an individual’s ranking of the Rokeach value items reveal little about the value system being used by that individual and probably even less about differences among individuals. This evidence does not question the relevance of using means-end chains to characterize the consumers’ product knowledge and involvement. However, stored knowledge of consumer value implies the existence of means-end chains of both the get and give components which have to be integrated in order to be useful. The approach outlined in this paper makes it possible for marketing managers to seek this kind of knowledge and to work out more realistic assessments of their competitiveness. It also makes it possible for them to understand that they should never outline strategies which affect either the get or the give component of prepurchase or postpurchase value judgements. Sustainable competitive advantage implies strategies which continuously affect both components at the same time.

CONCLUSION

Customer offerings are purchased because consumers can produce value by means of them. The act of transformation which requires both skills and the use of other resources is not necessarily actual or real. It can also be symbolic or ritual.

An actual transformation of purchased consumer goods can be routinized, simple, or complex. This is due to different levels of behavioural and cognitive effort which to a large extent reflect different priorities between experience-seeking and information-processing.

A prepurchase assessment of value is always based on more or less personal experience combined with communications of the consumer value potential of customer offerings. As Superior customer value hangs on expectations of the outcome of the consumers’ value-producing behaviours, competitiveness fundamentally is a question of firms’ ability and willingness to make superior contributions to the consumers’ transformation of customer offerings.

If a competitive advantage is going to remain in the longer run, the experience of the consumers’ value-producing behaviours has to make it desirable for them to stay customers. Sustainable competitive advantage is only possible, if this advantage reflects a positive disconfirmation of consumer value which is attributed to the firm.

However, competitiveness does not depend only on the consumer value potential of customer offerings. Also the firm’s ability and willingness to dvelop the consumers’ value-producing skills and/or to provide them with other useful resources is decisive for this outcome. This is probably not at least a challenge for firms seeking competitive advantage by marketing different kinds of output to a complex transformation of customer offerings.

Superior profit performance requires that firms continuously provide their markets with superior contributions to the production of consumer value while holding a cost advantage over competitors. Even if firms in the long run can differentiate themselves more or less on either the get or the give components of consumer value, both components have to be taken into account simultaneously. Superior skills in understanding the salient antecedents and consequences of consumer value can therefore be considered as the most fundamental prerequisite for sustainable competitive advantage and profit performance in firms operating in consumer markets.

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Authors

Hans Rask Jensen, Southern Denmark Business School



Volume

AP - Asia Pacific Advances in Consumer Research Volume 2 | 1996



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