Value determination Essay
Each of the nine core value streams discussed in the literature review underpins one or more elements within the framework. Although some of the links are obvious, some are less so. In this and the next section we elaborate in greater detail on how this literature informs, supports and provides a rationale for the framework for relationship value management and the integrative aspects of the framework. The four activities of the central value process have their roots in the value literature discussed earlier in this paper.
In particular, the value process builds on the value delivery sequence of Bower and Garda (34-46) of `choose the value, provide the value and communicate the value’. We consider there are subtle, but important distinctions in the four-step process represented in our framework. First, the value-delivery sequence does not place sufficient emphasis on value from the viewpoint of the customer; it places greater emphasis on the viewpoint of the organization.
Second, we argue that value determination (compared with `choose the value’) involves a much more rigorous understanding of both what the customer values as well as the customer’s lifetime value to the firm. Third, there is no value assessment activity within the value-delivery sequence. We consider
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Finally, models such as the value delivery sequence place little emphasis on other stakeholders. In contrast, the value process in the framework emphasizes the broader perspective of relationship value which also relates to employees and to other external stakeholders, as well as to customers. The four value activities in the central value process and each of the three circular sub-processes are informed by the literature discussed earlier in the paper. A number of streams underpin value determination.
This activity can be undertaken, for example, by using a formal customer-perceived value determination approach such as those suggested by Woodruff and Gardial (56-85). In terms of determining consumer values, it will be important to identify and understand the values and beliefs that are motivating customers to buy products and services. In determining consumer value, it will be important to identify what is driving the customer when they are trading off the benefits and sacrifices, both when they are purchasing and when they are using or consuming products.
Equally, the work of Levitt (43-98) on the augmented product concept and its extension by Lovelock (180-211), provides insights into the cluster of value expectations that surround a product or service which have both a tangible and intangible component. Identifying and understanding what these value expectations are will form a critical part of value determination. Value determination is equally important for the employees and external stakeholder groups. For the employee group, value determination involves understanding what attracts, retains and satisfies employees.
Although relatively little has been written regarding the concept of employee value (exceptions are some work on labour value theories and internal service climate discussed earlier in the paper and a brief discussion by Dolmat-Connell, 57-87), much work deals with specific aspects of what employees’ value. For example, it has been shown that getting the psychological contract right with employees is important. (e. g. Rousseau, 231-265). Further empirical research highlights the importance of employee retention and the costs of employee defection (e. g Sheridan, 24-65).
Some organizations are particularly innovative in examining value determination from the perspective of understanding what prospective employees want and how they are recruited including holding focus groups with targetted groups of prospects (Peck et al. , 65-97). For external stakeholders, such as shareholders, value determination involves identifying factors such as: what will make them invest, what will make them continue to invest and what returns do they expect. Understanding the issue of what value determination means for shareholders is especially important, especially where there are low levels of shareholder retention.
Reichheld (56-85) points out that shareholder chum in the average US public company is greater than 50% per annum, and emphasizes the importance of improving shareholder retention. The value creation activity involves developing and aligning the company’s products/services (including its processes and employees) to meet the requirements identified at the value determination stage. Concepts such as the augmented product concept (Levitt, 91-104) and the various value chain models (e. g. Bower and Garda, 56-89; Porter, 112-156) underpin this stage of the value process.
The value chain stream of literature provides a structure for understanding how the company’s value-adding activities can be systematically organized to create value, with the earlier steps in the value chain concerned with configuring the organization’s offer to the customer, and the latter steps concerned with value delivery. In determining what value-creating activities should take place, it is likely that an organization will need to make an assessment of the customer’s value to the firm. This stream of literature helps understand which customers are profitable and/or have a significant CLV.
These should be the focus of bespoke value offerings. The creation of these offerings should also be designed to retain existing customers as well as attracting new ones. Value creation also needs to be considered in the context of employees and external stakeholders. Value creation for employees needs to be considered from two perspectives — the value employees create for the organization, and the value the organization creates for employees. In creating value for employees, there is evidence that supportive human resources practices have beneficial results on employee satisfaction and performance (e. g. Hallowell, Schlesinger and Zornitsky, 56-85).
Similarly, value creation for external stakeholders also needs to be considered from two perspectives — the value these stakeholders create for the organization, and the value the organization creates for stakeholders (e. g Reichheld, 53-65). For the value delivery activity, the value-chain literature also provides a framework for considering the connection between the organization and the customer. In particular, a consideration of the interaction between the organization’s value chain and the customer’s value chain helps inform decisions about the value delivery process.
The work of Normann and Ramirez (208-292) also underpins the need for value delivery with the non-customer stakeholders, such as employees and shareholders. For employees, the creating and delivering superior customer value literature stream stresses the importance of their role in value delivery, especially in the work on internal marketing (e. g. Gronroos, 58-87; Gummesson, 107-132). For external stakeholders such as shareholders, the literature on shareholder value underlines the importance of concentrating resources in order to deliver value for external stakeholders, particularly shareholders.