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CUSTOMER VALUE AUDIT IN BUSINESS MARKETS:
THE CASE OF A CHEMICALS SUPPLIER IN INTERNATIONAL
MARKETS
Chacour, Samir
ISOGROUP
Ulaga, Wolfgang 1
EDHEC Graduate School of Management
ABSTRACT
Implementing the customer driven firm is a going concern of management
in many business markets of today. Knowing where value lies for the
customer has become critical for a supplier. In this article, we first will
assess the complex value construct through a literature review. We then
develop a multiple-item measure of customer value and illustrate our
approach by the marketing strategy development project of a major
chemicals manufacturer in international markets. We finally discuss how
the Customer Value Audit can be linked to marketing strategy development
and implementation.
1 Wolfgang Ulaga, EDHEC Graduate School of Management, 58, rue du Port, 59046
Lille Cedex, France (Phone: 03.20.15.45.38, Fax: 03.20.15.44.64 E-mail:
[email protected]).
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1. INTRODUCTION
Implementing the customer driven firm is a going concern of management
in many business markets of today. Knowing where value lies for the
customer has become critical for a supplier, as satisfied customers lead to
more customer loyalty and retention, positive word-of-mouth, a stronger
competitive position and, ultimately, higher market share (Fornell, 1992;
Bearden and Teel, 1983; Fornell et al.1996). In this article, we develop a
method of measuring customer value in industrial markets for marketing
strategy development and illustrate our approach with an example drawn
from a major chemicals manufacturer.
Grounded on the positive effects associated with customer value
assessment, many researchers have investigated the construct, focusing in
the past mainly on consumer products and services (Oliver, 1996).
Research on Business-to-Business markets, however, has been limited and
remains far behind consumer markets (Homburg and Rudolph, 1997),
although the construct is of particular interest to industrial marketers.
In the late 1970s and early 1980s, European researchers came together in
the Industrial Marketing and Purchasing group (IMP). They developed an
interactive approach to industrial marketing investigating the nature of
customer-buyer relationships (Ford, 1980; Hakanson, 1982; Turnbull and
Wilson, 1989). In this framework, customers play an active role, they
establish solid and long-term relationships with their suppliers who often
develop tailor-made products and services for them.
In such a context, the construct of customer value can help a supplier
better understand how to create, develop, and sustain successful customer
relationships in business markets.
In the past, researchers in industrial marketing have neglected the value
construct, leaving it to other disciplines, such as engineering, production
management, or strategic management. Textbooks on business-to-business
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marketing often still limit the concept to the pricing chapter when
comparing value pricing to other, more traditional pricing methods like
cost-plus pricing or probability pricing.
In the present article, however, we argue that customer value analysis is
more than just a pricing technique or a market research method. It is a
strategic marketing tool that audits the customer's needs, helps to position
the company versus its competitors and measures perception gaps in the
buyer's and vendor's organizations.
We first will assess the complex value construct through a literature
review. Special interest is given to the marketing literature and a distiction
is made between customer value and customer satisfaction. We then
develop a multiple-item measure of customer value and illustrate our
approach by the marketing strategy development project of a major
chemicals manufacturer in international markets. We finally discuss how
the Customer Value Audit can be linked to marketing strategy development
and implementation.
2. LITERATURE REVIEW
What exactly is value ? The value concept has been widely used in various
disciplines (Wilson and Jantrania, 1997). In the field of marketing,
researchers sometimes refer to different terminologies when using the
construct, i.e. 'customer focus', 'customer satisfaction', 'customer loyalty',
or 'customer value' (Gale, 1997). We therefore need to understand the
construct's origins and to agree upon a definition of customer value before
developing an operational measure of the concept in business markets.
Table 1 provides a non exhaustive overview of selected approaches to
value. Adopting a chronological approach, one might first turn towards the
construct's role in economic science. But value can also be considered in
terms of asset valuation in accounting and finance, as an attempt to
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TABLE 1: The Concept of Value Across Disciplines (Adapted from
Wilson and Jantrania, 1997)
Economics
Accounting,
Finance,
and Real Estate
Production/
Materials
Management
Marketing
Use Value
(Adam Smith,
1776)
Recorded Value
(Helfert 1966)
Use Value
Esteem Value
(Miles, 1961)
Value in Consumer Markets:
(Zeithaml, 1988)
(Monroe and Chapman,
1987)
(Doddetal., 1991)
(Monroe and Krishnan,
1985)
(Holbrook and Corfman,
1985)
Mattson(1990)
Exchange Value
(Adam Smith,
1776)
Cost Value
(Marx, 1912)
(Ricardo, 1817)
Market Value
(Helfert 1966)
Replacement Value
(Tosh, 1990)
Assessed Value
(Tosh, 1990)
Appraised Value
(Tosh, 1990)
Total Quality
Management
Oualitv Definitions :
(Juran, 1974)
(Crosby, 1979)
(Deming, 1982)
(Oakland, 1989)
Earning Potential
(Hendriksen, 1970)
(Brigham and
Gapenski, 1990)
Liqudation Value
(Helfert 1966)
Value in Business Markets:
Economic Value To
Customer (EVC)
(Forbis and Mehta, 1981)
Value in Use (VIU)
(Lee, 1978)
Perceived Worth In
Monetary Units
(Andersonetal., 1993)
Value Based Pricing
(Wind, 1989)
(Wilson et al., 1990)
integrate the customer's view in total quality management in the areas of
production and materials management, or as a deliberate focus on customer
perceptions in marketing.
2.1 The Value Construct in Economics
Value can be considered as one of the most fundamental concepts in
economic science. When analyzing the function of a good, already Adam
Smith (1776) stated that products we possess help us to accomplish tasks
(use value) or to obtain other goods (exchange value). Other approaches
have insisted on the effort deployed to possess the product, i.e. Marx's
value expressed by cost of labor (Marx, 1912) or Ricardo's cost of
production (Ricardo, 1817).
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2.2 Asset Valuation in Accounting and Finance
Accounting and finance take another look at value. These approaches are
concerned with informing a company's management or other stakeholders
about the 'fair' value of an asset. In accounting, a major principle is to state
the value of a product in terms of its original cost of acquisition (recorded
value). This value is changing over time as buyers and vendors meet in the
market place (market value). It may even be necessary to replace an asset
by a more recent one which represents a fairer value than just original cost
less depreciation (replacement value). The concept of 'assessed value'
takes into account government regulations on taxation of real property.
Furthermore, wherever a market value of an asset does not exist
beforehand, an 'appraised value' must be established to sell an asset, i.e. a
customized factory building of a company that seeks to sell its factory to a
take-over candidate.
In finance, maximizing shareholder's value is a primary goal. The value
of an investment project or a financial asset is expressed by the expected
cash flow streams (earning potential). Finally, 'liquidation value' is a
marginal case of asset valuation when a company ceases an activity. This
value often remains far below the asset's market value.
Economics, accounting, or finance are not concerned with the active role
played by a customer in determining the value of a product. Adding the
customer's perception to the construct leads us to consider production
management's and marketing's view of value.
2.3 The Production Approach to Value
The value concept has a long history in most industrial organizations. For
example, in the 1950s, even before the marketing concept made its way,
L.D. Miles at General Electric Corporation developed a set of techniques
that he called value analysis. These techniques aimed at identifying and
removing unnecessary costs by still accomplishing the functions that the
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customer needed and wanted (Miles, 1961). Miles stated that orientation
towards customer needs and wants should be an integral part of product
development. His approach to value can therefore be regarded as pathbreaking for industrial marketers.
Subsequent approaches to value, however, adopted a narrower view,
reducing the concept to 'internal', e.g. technical, product quality delivered
by a supplier. Quality control concepts were introduced in the 1950s and
1960s followed by quality assurance programs in the 1960s and 1970s.
During the 1980s, the quality revolution made Total Quality Management
(TQM) a buzzword (Morgan and Piercy, 1992; Donaldson, 1995).
From the initial focus on value delivery as internal quality management,
the orientation then moved to a broader view integrating the client's view of
quality. Today, quality schemes such as the European Quality Award or the
Malcom Baldridge Award are heavily based on customer measurement of
quality (Donaldson,
1995; Perkins,
1993). The rationale behind
management's focusing on product quality as a key issue is the close
relationship between quality and performance of the firm (Morgan and
Piercy, 1992; Donaldson, 1995; Quails and Rosa, 1995; Anderson, Fornell
and Lehmann, 1994). Increasing technical product quality of a company's
market offering leads to a decrease in overall manufacturing cost through
'zero defect' and an increase in productivity (Morgan and Piercy, 1992).
Increased quality leads to a sustainable competitive advantage. The
empirical work grounded on the PIMS database has shown this strong link
between improved quality and gains in market share (Buzzel and Gale,
1987).
What exactly is quality ? There have been numerous attempts to address
the issue, resulting in different perspectives (Morgan and Piercy, 1992).
Most operational definitions stem from quality experts and consultants, i.e.
Crosby's 'conformance to requirements' (Crosby,
1979) Deming's
'predictable degree of conformity and dependability at low cost and suited
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to market' (Deming, 1982), Juran's 'fitness for purpose' (Juran, 1974)
or Oakland's 'meeting the customer requirements' (Oakland, 1989).
Production management's contribution to understanding customer value
should not be underestimated. As we will see, product quality is an
important component of value. However, further criteria must also be
considered when analyzing the construct, such as the services associated
with the product or the way it is promoted to the clients. These dimensions
are taken into account by the marketing approach to value that defines
value from the customer's point of view.
2.4 The Marketing Approach to Value
Researchers in marketing have extensively assessed the construct of value
in consumer products and services. (Zeithaml, 1988; Monroe and
Chapman, 1987; Dodd et al., 1991; Monroe and Krishnan, 1985;
Hoolbrock and Corfman, 1985; Matson, 1990).
In the field of business markets, researchers developed the concept of
Economic Value to Customer (Forbis and Mehta, 1981) and the similar
notion of Value-In-Use (Lee, 1978; Uradnisheck, 1978).
When analyzing the construct of value in marketing, four key issues can
be derived from our literature review : (i) the components of value, (ii) the
impact of roles and perceptions, (iii) the role of price, and (iv) the
importance of competition.
2.4.1 The Components of Value
Researchers in the IMP group have stressed that customers and suppliers
develop and maintain long-term relationships in industrial markets rather
than simply exchange products in transactions. Hence, customer value is
relationship-specific rather than transaction-specific. Customer-vendor
relationships are multi-dimensional and a client gets many benefits from a
supplier in turn of monetary units. Customer value must therefore be
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analyzed as a multi-attribute construct (Keeney and Lilien, 1987; Homburg
and Rudolph, 1997). As an example, Reddy (1991) distinguishes between
intrinsic and extrinsic, economic and non-economic components of product
value. A combination of these dimensions leads to the matrix shown in
Figure 1.
Economic Components
Non-Economic Components
Intrinsic Components
(Product Related)
Performance
Reliability
Technology
Price
Etc.
Brand Name
Styling
Packaging
Appearance
Etc.
Extrinsic Components
(Vendor Related)
Operator Training
Maintenance
Warranty
Spare Parts
Etc.
Reputation
Responsiveness
Reliability
Etc.
FIGURE 1: Components of Product Value (Reddy, 1991, adapted in:
Wilson and Jantrania, 1997)
Intrinsic components are directly related to the product, i.e. technical
performance or the brand name of the product. Extrinsic attributes are
linked to the vendor's organization, such as maintenance or warranty
issues. Redding also distinguishes between economic value components,
i.e. price, and non-economic attributes, such as the reputation of a supplier
in the marketplace.
The industrial marketer must identifying all of these sources of value
delivery perceived by a customer. Understanding what the client perceives
to 'get' for what he 'pays' helps the company to measure customer value.
Asking for overall product value in general terms would simply not be
operational.
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2.4.2 The Impact of Roles and Perceptions
Implementing the concept of a customer driven firm means that customers
must be the ultimate focus of the firm. Thus, customer perception becomes
the only "reality" that counts. But client perceptions are dynamic and
volatile, and, most of all, they are not objective.
Value is subjectively perceived by customers (Kortge and Okonkwo,
1993). With customers not being homogenous, different customer segments
perceive different values within the same product. Such differences in
perception provide the economic rationale for price differentials (Morris,
1987).
Previous research on organizational buying behavior has shown that
many people are involved when purchasing industrial products and services
(Robinson, Paris and Wind, 1967; Sheth, 1973, Webster and Wind, 1972a).
Several roles can be identified in organizational buying centers
corresponding to different organizational functions (Webster and Wind,
1972a, b). Among these functions, purchasing, engineering,
and
manufacturing are considered as most prominent in a buying center (Brand,
1972, Johnston and Bonoma ,198la; Lilien and Wong, 1984; McQuiston,
1989; Moriarty and Bateson, 1982; Wilson and Woodside, 1995). Each of
these functions has specific expectations towards a supplier (Sheth, 1973).
Therefore, different perceptions of supplier's value delivery coexist
(Perkins, 1993). Hence, it is necessary to assess the value perception of an
entire buying group, instead of single customer representatives (Quails and
Rosa, 1995). Such a multiple-informant approach is considered to be by far
more reliable than single-informant studies (Phillips, 1981; Baggozi and
Phillips, 1991; Silk and Kalwani, 1982; Kumar, Stern and Anderson, 1993;
Seidler, 1974, Wilson and Lilien, 1992).
But also within the supplier's organization, opinions of how customers
view the company's products differ among functional areas, i.e. general
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management, sales management, salesmen or customer service personnel
(Sharma and Lambert, 1994, Homburg and Rudolph, 1997).
With value perceptions differing between customers and suppliers and
even within these organizations, identifying and bridging perceptual gaps
become a most critical step in value delivery (Perkins, 1993; Zeithaml,
Parasuraman and Berry, 1990).
2.4.3 The Role of Price
Value cannot be considered without price. Price is an expression of the
value of a product or service in dollar terms perceived by a customer at a
particular time period (Kortge and Okonkwo, 1993). It comprises not only
purchase price, but also maintenance and usage costs, discounts, premiums,
promotions etc.
A product or service is generally considered to have good value if it has
an appropriate performance and price (Miles, 1961). Hence, customer value
can be increased by either increasing performance or decreasing price. On
the one hand, value is always increased by decreasing price and
maintaining performance. On the other hand, value also is increased by
increasing performance, if the customer needs, wants, and is willing to pay
for more performance.
2.4.4 The Importance of Competition
Value is relative to competition. Delivering a better combination of
product's intrinsic quality attributes and related services, i.e. better value,
than competition will help a company to create sustainable competitive
advantage.
What is the difference between customer satisfaction measurement
(CSM) and customer value auditing (CVA). Measuring customer
satisfaction has become very popular in consumer goods and services and
today represents an important source of revenue for market research firms
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(Perkins, 1993; Coleman, 1992). CSM rates a company's performance
as perceived by existing customers. Its aim is to continuously improve
products and services and correct defects and errors. CSM thus provides
tactical tools used by customer service departments.
Customer value analysis, however, goes beyond this approach by
integrating competition in the set of analysis. This is what distinguishes
customer value measurement from customer satisfaction studies (Gale,
1994). We will see that customer value measurement is a strategic
marketing tool to clarify and evolve a company's proposition to its
customers, thus creating a differential superior offering compared to
competition. The tool assesses a company's performance in comparison
with its main competitors as perceived by former, present, and potential
customers.
Against the background of the four key issues discussed above,
Anderson, Jain and Chintagunta (1993) provide a comprehensive definition
of value as 'perceived worth in monetary units of the set of economic,
technical, service, and social benefits received by a customer firm in
exchange for the price paid for a product offering, taking into consideration
the available alternative suppliers' offerings and price'.
3. THE CUSTOMER VALUE MEASUREMENT PROCESS
Previous research suggested the development of a multiple-item scale for
measuring customer value. We therefore developed a multi-attribute
measure as described in Figure 2.
We derived from our literature review that value is closely related to
price and quality. We therefore distinguished between overall product
quality and price. Quality was then further broken down into three
categories. A first group of attributes is directly linked to the product's
intrinsic characteristics (product-related components). A second group of
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items refers to all service aspects associated with the product (servicerelated components).
Product
Related
Components
Service
Related
Components
Promotion
Related
Components
FIGURE 2: Components of Product Value
Finally, a third category of criteria groups all items concerned with the way
the product is promoted to the customer (promotion-related components).
In the customer value auditing process both the supplier and customers
are asked to assess their perception of product value. Thus perception gaps
can be identified and corrective action plans can be developed to reduce
these gaps. Figure 3 describes the process which essentially follows three
major phases.
Phase 1: Start-Up
Internal CVA
1 Questionnaire
Preparation
Segmentation
Sampling
Phase 2: Survey
L Face-to-face
k»
W Interviews
| I^H^H
f Analyses and Maps
Presentation of
Results
Phase 3: Strategy
Formulation
Strategic Options
Simulation and
Mapping
Action Plan
FIGURE 3: Phases and Steps of the CVA Process
3.1 Phase 1: Start-up
The objective of the start-up phase is to assess the supplier's view of
customer perceptions of product value. Therefore, a group session is set up
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with the supplier's sales personnel to generate a list of purchasing
criteria using the multiple-item measure of Figure 2. The group is asked to
rank the criteria by relative importance, altogether summing up to 100%.
On the basis of this internal value audit, a customer questionnaire is
developed. Additionally, the market is segmented and a customer sample is
established. Given the exploratory character of the approach, a small
sample of present, former and potential customers are selected.
3.2 Phase 2: Survey
In the second step, interviews are conducted with representatives of client
companies in different functional areas involved in the purchasing process,
e.g. purchasing, R&D and production management.
As the objective of the customer value audit is to measure customer
value based on the difference between the client's expectations and
perceptions of performance, a double-scale approach is used as
Parasuraman, Zeithaml and Berry (1988) did in developing the
SERVQUAL scale for measuring service quality.
Customers are first asked to assess their purchasing criteria in the same
sequence and manner as for the internal customer value measurement
process, not taking into account any specific supplier. In a second step they
are then asked to evaluate the performance of main suppliers against their
expectations. To avoid any bias, the name of the supplier mandating the
study is not revealed until the end of the assessment session. Finally, the
interviews are analyzed and value maps are computed.
3.3 Phase 3: Strategy Formulation
The value maps computed in the second step of the process represent the
customer's perception of a 'fair' price-quality relationship expressed in
terms of a value slope. The maps position various suppliers against this
'fair' level of expectations and visualize gaps in perception.
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The value maps can then be used by a supplier to assess strategic options
and to develop action plans to change his position on the value map by
simulating the potential impact of alternative courses of action on the
supplier's overall positioning.
4. IMPLEMENTING THE CUSTOMER VALUE AUDIT
4.1 Supplier Background
Our study focused on the Food Ingredients division of a major chemical
multinational. This division markets four product groups in several key
countries as shown in Figure 4.
Product Groups
• Hydrocolloids
• Cultures & Dairy
Ingredients
• Brewery Ingedients
• Phosphates
Key Countries
USA
• UK
• Germany
• France
FIGURE 4: The Supplier's Key Product Groups and Markets
The complexity of the supplier's operations, brought about by the number
of marketed products and the different countries served, can be best
described by using Figure 5, which shows four different levels of
businesses.
A first group of food ingredient manufacturers focuses on a single
product category selling the products only in the home country (e.g. the
single A in the black box of Figure 5 representing Hydrocolloids in
Germany). A second group of manufacturers sticks to a specific product
category which they sell in different countries (e.g. the first line marked B
in Figure 5 representing Cultures and Dairy Ingredients in all four
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countries). A third group of suppliers sells different product categories
in their home market only (e.g. the first column marked C in Figure 5
representing all four product categories in the USA).
FOOD INGREDIENT
GROUP
COUNTRIES
USA
UK
Germany
France
Cultures and Dairy
Ingredients
Hydrocolloids
Brewery Ingredients
Phosphates
D
FIGURE 5: The Supplier's Levels of Business
Finally, a fourth group of companies can be identified as multi-product,
multi-country suppliers which is the case of the supplier that mandated the
study (marked D in Figure 5).
The overall objective of the supplier was to determine its competitive
position and define its strategy as a global supplier of food ingredients (D),
including specific strategies by product category (B) and by country (C).
In order to develop competitive strategies, the company needed to have
an in-depth understanding of customer value perceived for each product
group in each country, individual customer information being very valuable
to develop micro-marketing plans.
4.2 The Example of the Hydrocolloid Business in Germany
Our literature review revealed that customer perceptions vary by client
segment. Each of the businesses shown in Figure 5 has its own context
which can be defined in terms of customer types, market characteristics and
specific competitors. For example, if we take the black box in Figure 5,
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which represents the hydrocolloid food ingredients in Germany, customer
types include three segments : convenience food manufacturers, ice cream
producers, and dairy product manufacturers. Customer needs vary
considerably across
segments
from
single
ingredients,
premixed
compounds to complex taylor-made ingredients combined into systems. To
reduce complexity, our present article focuses on one customer segment :
the demand for hydrocolloids by convenience food manufacturers in
Germany.
4.2.1 Project Start-Up
The customer value audit for hydrocolloids in Germany followed the three
steps described in Figure 3. In the first phase, an internal CVA was
undertaken with sales management and sales people from the vendor's
organization. In a group session, the multiple-item measure of value
(Figure 2) was presented to the group and the participants were asked to
estimate how customers perceive their products. The evaluation was
conducted separately for each market segment. Figure 6 shows the results
of the internal customer value audit for hydrocolloids in the German
convenience food segment.
The supplier's personnel was first asked to estimate how customers view
the relative importance of price versus overall product quality. Both
categories were ranked by the participants as equally important in the
customer's purchasing decision (50 % for quality and 50 % for price).
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Hydrocolloids in Germany (Convenience Food)
Price 50% - Quality 50%
Percentage of Total
Quality Attributes
n
-i * n i * j «-i !•*
Product
Related Quality
^
J
ci
51
Service Related Quality
34
^
TOTAL
20
14
6
4. Natural (E No.)
5
1. Technical support/Application
13
2. Quick service/response
10
. .,
.
*. ,
4. Ease of use
6. Other
J
Promotion Related Quality
^
J
1. Product characteristics
2. Range of products (breath)
3. Consistency of products
15
100%
,
5
1
3. Reliability and speed of supply
4. Other
8
3
1. Image, Corporate identity
6
^e ^°"f relaftions
3. Reliability of company
*3
4. Other
2
TOTAL
100%
FIGURE 6: Weighted Quality Attributes Resulting from 'Internal' CVA
They were then asked to assess the relative importance of the different
quality categories. Product-related aspects were perceived as most
important (51%), followed by service-related criteria (34%) and promotionrelated quality aspects (15%). For each of the sub-groups, items were then
generated. The group members were asked to weigh the criteria relative to
each other. The product's technical characteristics (20%), breath of product
range (14%), technical support (13%), quick service and response (10%)
and reliability and speed of supply (8%) were considered by the
participants as predominant in the customers decision-making process.
4.2.2 Phase 2: Customer Survey
Key customers were identified in the three major market segments together
with the supplier's sales management and asked whether they were
prepared to participate in a customer value assessment project.
In this step of the CVA process, in-depth interviews were conducted
with 36 informants of 12 companies in the convenience food segment. In
each company, interviews of two to two and a half hours were conducted
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with the representatives of the purchasing department, the R&D/Quality
Control department and the production department. Figure 7 illustrates the
number of companies retained and the number of informants interviewed.
Market Segment
Companies
Number of Informants
Convenience Food
12
36
Dairy Products
3
9
Ice Cream
3
9
FIGURE 7: CVA Customer Sample
Figure 8 shows the results of the assessment of product value perceived by
German clients of hydrocolloids in the convenience food business. The first
column represents the relative importance of product quality attributes as
perceived by the customers independantly of any specific supplier. They
were then asked to evaluate the chemicals supplier and its main competitors
against these purchasing criteria (column 2 to column 6). A 10-point scale
with anchors Very Low Performance (1) to High Performance (10) and no
verbal statements between points 2 to 9 was used. Column 7 computes an
average competitor's position (average of column 2 to column 6). Finally,
the client-company's relative position versus this average is calculated
(difference beween column 2 and column 7).
The comparison of the actual customer results with the internal CVA
results, i.e. Figure 6 versus Figure 8, indicates the perceptual gaps between
customer reality and internal perceptions of the supplier. For example, the
supplier believed that price was as important as quality in the customer's
purcasing decision. However, customers were significantly less price
sensitive and weighted quality much higher than price (63,3% for quality
versus 36,7% for price).
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FOOD INGREDIENTS
CVA Analysis
Market: Germany
Application: Convenience Foods
Product Group: Hydrocolloids
Importance Client
Company
%
Product Related Attributes
1 . Consistency of Product
2. Product Characteristics
3. Natural (E number)
4, Ease of Use
5. Range of Products
6. Non-Dusting
A
Decision maker: All
Competitors
Average Relative
B
C
Other Position Position
35.5
32.9
14.2
8.8
5.4
3.8
8.1
8.1
8.0
8.8
81
8.2
9.0
9.0
8.3
8.1
8.8
8.3
6.3
6.3
6.3
8.3
7.4
8.5
8.7
8.7
8.0
7.0
6.3
9.0
6.6
6.6
7.5
8.3
7.4
8.3
7.6
7.6
7.5
7.9
7.5
8.5
0.5
0.5
0.5
0.2
0.6
-0,3
SUB-TOTAL
Service Related Attributes
1. Reliability and Speed of Supply
2. Technical Support/Application
3. Quick Service/Response
4. Product innovation
5. Technical Information/literature
6. Training/Seminar
7. Global Source of Supply
8. Others
100.0
8.1
8.8
6.5
8.4
7.0
7.7
0.5
26.7
23.3
22.1
12.5
7.9
4.2
0.8
2.5
9.0
5.7
3.9
7.7
6.0
4.8
7.8
1.0
9.8
8.8
10.
8.5
7.0
5.7
8.0
1.0
7.3
5.8
5.7
4.3
5.3
6.3
8.7
7.7
5.7
7.5
7.3
5.7
8.0
8.5
8.3
5.1
5.6
6.9
4A
2.9
6.5
10.0
8.3
6.3
7.2
6.8
6.6
5.7
7.9
5.5
0.7
-0,7
-3,3
0.9
0.4
-0.9
-0,2
-4,5
SUB-TOTAL,
Promotion Related Attributes
1 . Image/Corporate identity
2. Personal Relations
3. Reliability of Company
4. Public Relations
5. Upstream Integration
6. ISO 9001 Certification
SUB-TOTAL
100.0
6.3
8.8
6.0
7.0
6.3
7.0
-0.7
5.8
27.5
45.8
0.8
0.8
19.2
100.0
7.4
4.8
6.6
2.6
3.3
2.0
5.2
9.6
9.4
9.8
2.5
1.0
9.5
9.5
5.5
6.8
53
15
8.3
5.7
8.0
8.0
1.8
5.2
33
6.5
5.7
5.4
5.3
2.8
3.3
2.9
4.9
7.3
6.8
7.2
33
2.2
4A
6.5
0.1
-2.0
-0.6
1,1
1.2
-2.4
-1,3
7.2
8.9
6.1
7.7
6.5
7.3
0.1
105.0 87.5 97.5
91.7
95.4
4.6
TOTAL QUALITY POSITION
PROPOSITION
100.0
Quality + Price63.33 Product Related Attributes 55.8 Average Quality Position(Do) 7.3
36.7 Service Related Attributes 29.2 Average Price Position (Po) 96.3
Promotion Related Attributes 15.0
FIGURE 8: Evaluation of Hydrocolloid Suppliers by German Convenience
Food Manufacturers
Similarity, at the single attribute level, customers considered product
consistencey as key (35% of product-related attributes or 19,8% of total
quality attributes) while the client-company weighted it only as 6% of total
quality attributes. In addition, new items were generated by customer
interviews which the supplier was not aware of (i.e. the role of ISO
certification).
The identification of these gaps was considered of great importance by
the client company since it allowed it to reallocate its resources to what was
key to the customer. Based on the survey results, value maps were then
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prepared indicating the price/quality line representing fair value positions
as perceived by customers. The supplier and its competitors were then
positioned on the map according to how customers rated them on the
price/quality scale.
FOOD INGREDIENTS
MARKET : Germany
PRODUCT GROUP :
Hydrocolloids
APPLICATION : Convenience Foods
DECISION MAKER: All
LEGEND:
HIGH VALUE
+
X (-to' company
-}- Conpelilor A
O Coii|»ii«f B
QuaK,
^^
A
*^**>
^^^
^^ o
^^
^^^
A Coii(«ilor C
^^ Other Convenor!
\.
ZZL»«
MARKKT POSITION
0
go-7.3
Pb-%.3
LOW VALUE
Price
FIGURE 9: CVA Map - Hydrocolloid Suppliers in Germany
Figure 9 presents the value map corresponding to the results shown in
Figure 8. The dark line in the CVA map represents the price/quality slope.
Companies positioned below the line were perceived as offering value
lower than expected by the customers while those above the line were
perceived as offering a higher value. The reasons for the overall positive or
negative position of a company could be easily explained by analyzing the
corresonding consolidated results.
For example, the negative position of the client-company (X on the value
map) can be partly explained by its perceived significant disadvantage (3,3), relative to its competitors, on the Quick Service/Response attribute,
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197
which was rated at 6,5% of total quality. This was due to the absence
of a technical service office in Germany.
5. MARKETING STRATEGY FORMULATION
The importance of the value tables and maps, in developing marketing
strategies, resides in that they identify the specific attributes, as perceived
by the customers, which position a company against its competitors,
thereby indicating the strategies to be implemented in order to improve the
current competitive position.
For a company that is positioned in the 'low value' portion of the map,
its objective is to reach the price/quality slope through a combination of
price reduction and improved quality. This, however, still needs to be
perceived by the customer.
Companies perceived as offering 'high value' have essentially three
choices. Firstly, they can consolidate or improve their high value position,
thereby expecting to gain market share over time. Secondly, they can
increase their price, while still remaining in the 'high value' portion of the
map, since they are currently perceived by their customers to be a bargain.
Finally, they can reduce the level of quality which they are currently
offering to decrease their costs and improve their margins. This strategy is
considered the most risky because creating a perceived positive value takes
time and represents a key asset to a company. These strategic options are
represented graphically in Figure 10.
For example, the supplier in our study can improve its perceived value
by selecting important attributes where it believes it can improve its rating.
It can improve the consistency of its products. This attribute was not highly
rated in the 'internal' CVA and ranked positive for the company against its
competitors on average. However, it is considered by customers as the most
important quality attribute and this probably indicates that not much
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attention is currently given to it and that improvements can still be
achieved if more resources are directed to it.
HIGH VALUE
Quality
LOW VALUE
FIGURE 10: Strategic Marketing Options
Additionally, the company can address the attributes where it compares
negatively with its competitors, such as Quick Service/Response or
Personal Relations of the Commercial Representative. It also can also
direct its interest to items given few or no attention at all in the past, i.e.
ISO 9001 Certification.
Strategic options can be simulated on a CVA map and compared to
determine those giving the best value increase for the least cost. Action
plans by product and country can then be developed to implement the
desired changes and achieve the required value rating improvement.
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199
6. DISCUSSION
In the present article, we have seen that understanding how customers
perceive product value can help suppliers to develop long-term
relationships. However, the construct is difficult to measure. We therefore
developed an operational tool of customer value audit which assists the
supplier in developing and implementing marketing strategies. The model's
main advantage resides in its highly operational character leading the
business marketer to relevant managerial implications.
We have seen that value must be measured as a multi-attribute construct.
Price must be considered versus quality, which can then be further
analyzed in terms of product-related, service-related and promotion-related
quality components.
Perceptual gaps do exist between the supplier's and the customer's view
of value delivery. The understanding of these gaps helps the supplier to
improve existing marketing activities, to allocate marketing resources
where they are needed, and to train sales personnel to reduce these gaps.
Given the small size of our sample and the exploratory character of our
analysis, the multiple-item scale we developed can not be scientifically
validated at this stage. Other studies have been directed towards this
objective using large samples to apply statistical methods of analysis (see
for example Homburg and Rudolph, 1997). The underlying hypothesis of
such approaches is a strong homogeneity of the companies studied.
Although this holds true for many commodity products the homogeneity of
customer expectations towards a product is often difficult to assume in the
area of complex industrial products. By aiming at generalizing the validity
of their results, such studies often lose part of their managerial character.
Is it therefore necessary to abandon a systematic approach to measuring
customer value for complex industrial products ? The objective of our
present study was to develop an assessment tool adaptable to many
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situations in industrial contexts. Our approach allows the manager to assess
gaps in perception and to elaborate corrective actions to reduce these gaps.
However, the validation of our approach and the improvement of the
measurement tool both require replication in other markets.
Customer value analysis is of increasing importance in industrial
marketing. Yet, few researchers have investigated the construct in businessto-business relationships. We hope that this study will contribute to further
empirical research on customer value and its relation to other areas in
industrial marketing.
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