The Heart of Customer Value

Art & William (1999) cited that customer value can be expressed by the approach known as QSP i.e. the primary combination of product quality, services quality, and value-based price. These are the three core attributes of customer value and are know as customer value triads that provide a very basis for competitive business strategies. It has been obvious that firms today has positioned themselves in the areas of these fundamental customer value triads with the objectives of differentiating themselves from its rivals on some key value triads but must meet acceptable threshold levels with respect to the products quality, services quality and pricing attribute.

Kevin Keller (2003, p.10) related the brand image with the customer values in that branding has a very important role in signalling certain values characteristics to customers. Kevin further explained that researchers usually grouped products and their associated attributes or benefits into three major categories: search goods, experience goods and credence goods. With research goods, product attributes can be revealed by attributes can be assessed by product trial and experience over the usage (e.g. durability, service quality, safety, and ease of handling or use). With credence goods, the attributes may not be totally learned and assured (e.g. the insurance coverage). Undeniably, there are difficulties in blending these three groups of attributes in order to understand and assess the values that customers look for. Therefore, brand does play an important signal of quality and other characteristics to consumers that represent the expected customer values.

Philip Kotler (2000, p.34) expressed that the firms that are perceived to offer highest customer delivered value shall win the customer loyalty. The determinants of customer delivered value is shown in figure 2.1 In this context, total customer value is the bundle of benefits customers expect from a given products or services. Similarly, Robert and Sue (2003, p.515) looked at customer values from two dimensions i.e. effectiveness and efficiency. If the offered products or services meet the customer’s needs and wants, then the values are delivered effectively. If the customer values are delivered that caused the customers to bear minimal cost, than the greatest satisfaction is achieve in an efficient manner. The less a product or services costs, the more efficient the customer value are delivered from customer viewpoint. For example, if a firm offers the customer a high quality car (which implies higher effectiveness) at an affordable price with good after-sales services (which implies higher efficiency) the firm has created the best possible combination of value dimension. On the other hand, if the firm offers the same car but at a higher price, or if it charges at a low price but cannot offer good quality at that price, the accrued value is only partial.

2.4 Defining Value Proposition from Firm Perspective

Michael J. Lanning, the chairman, the DPV Group, LLC stated that value proposition is a decision and commitment of resulting experiences, including price, to a group of target customers, profitably and better than competitors. Frederick Webster (1994) explained that value proposition is a verbal statement that matches up the firm’s distinctive competencies with the needs and preferences of a carefully designed set of potential customers. He further explained that to be actionable, the value proposition created by the firms has to be communicated and shared between the firm and its customers. The description of value proposition must be clear, concise, credible and consistence over time.

Since the customers have a better say on the true value criteria, the value proposition must assess and take into consideration of customers’ interpretation of value. The firm must ensure that the value proposition positioned effectively. As described earlier, the value triads comprises of product quality, service, and price. Art & William (1999) explained that these value triads provide the basis of an organisation’s value proposition and also establish a solid business philosophy for the organisation, guides all strategic decisions, and ultimately affects business performance. All firms are competing based on their established own identities and their potential value proposition ingredients need to be carefully analysed. The uniqueness of articulation of core and augmented value proposition gives a memorable message to be successful.

Dave Brock, the President of Partners In EXCELLENCE relates superior customer value with value proposition in that to define and communicate value proposition, the firms must focus on the following issues.

·€ The customer must have a need and without any needs to buy a product or services, the customer values can never exist.

·€ Value is described as the difference between the perceived benefits and consequences of selecting a solution or needs.

·€ To differentiate, your value proposition must be perceived by the customer as superior to every alternative available in the market.

Thus, it is imperative to understand that the value proposition is in the “eyes” of the customers not the product. It has to be customised to the specific needs of each customer.

2.6 Quality Attributes

It is crucial to have a working definition of quality if the customer is to enjoy a consistent high standard of goods and services. The official definition of quality by American National Standards Institute and the American Society for quality Control is the “totality of features and characteristics of a product or services that bears on its ability to satisfy given needs. Quality has gradually been recognised by companies as a major ingredient in a customer’s choice of products and service.

2.61 Quality from the Consumer’s Perspectives

Customer has always the perceptions of which firms are producing better quality than others, and they choose to purchase accordingly. Obviously, it is important to understanding how the customer defines quality that delivery the best values. According to W.Edwards Deming, the customer is the most important part of the production line. Quality should be aimed at the needs of the customer, present, and future. From this perspective, product and services quality is determined by what the customer wants and is willing to pay for. Since the customers possess different quality level of product or service with different quality expectation, a commonly definition of quality is required i.e. fitness of product or services for its intended use or fitness for use.

Colin and Graham (1993) said that the attributes of product and service quality should blend together. He emphasised that a desire to purchase an attractive product will be faded by poor service and support. Sparks & Legault (1993) digested Garvin’s eight dimension of quality and apply them to the firm’ business cycle.

2.63 Dimension of Service Quality

Roberta & Bernard (2003) stated that the dimension of service quality differs from product quality. Colin & Graham (1993) mentioned that the Garvin eight dimension of product quality would not sufficiently built superior customer values. In addition, a thorough definition of service quality is needed in managing of quality. Art & William (1999) cited that generally, a user of services has a set of attributes or characteristics in mind when determining service quality. Service attributes are more directly related to time, and the interaction between employees and the customer. Evans & Lindsay (1996) identify the following dimensions of service quality.

1. Time and Timeliness. The time the customer expected to wait for his turn to receive the service. It is related to promptness of service. The firm must possesses dedicated employees to work extra mile to ensure customers’ needs are responded in time.

2. Completeness. The service provider must ensure that everything the customer requested should be provided. The firm has to distinguish and understand the customers’ true needs rather than what is stated and constrained by the system.

3. Courtesy: This refers to the politeness of service personnel and how employees treat customers.

4. Consistency. There must be a certain level of consistency in the services provided to each customer each time. A set standard of services has to be made known as the expectation of services is consistent.

5. Accessibility and convenience. The service must be easily and conveniently accessed. The conventional convenient time to receive service and location of operation has becoming increasing important.

6. Accuracy and reliability. It involves consistency of performance and dependability. The firm must perform the service right the first time and keeping to their promises. Any rescheduling of meetings with customers must be made only when absolute necessary.

Neil Botten & John (1999) have listed the following service elements in additional to the above service attributes

1. Competence. It means the product knowledge and necessary skill to perform service and support tasks. In this way, experienced and knowledgeable staff especially the operational supported personnel will enhance the customer confidence.

2. Credibility. It involves in trustworthiness, believability, and honesty of customer contact personnel that work towards the customer’s best interests. It is contributing to credibility of company name and reputation.

3. Understanding the Customer. It means attempting to know the customer’s need and making the customers feel in control. In this aspect, the firm must learn the customer’s specific requirements, rendering individualised attraction and recognising the regular customer.

4. Tangibles. This includes the appearance and quality of facilities that provides physical evidence of the services. For example, a conformable car showroom with friendly sales executives ready to serve the waiting customers.

2.64 Managing Service Quality

According to Philip Klotler (2000) the marketing theory and practice was initially developed in relation to physical products such as cars, computers, tools, and mobile phone. A commonly mentioned service providers include airlines, banks, hospital, hotel, insurance companies, accounting firms, legal firms, management consultant firm etc. In recent years, major trend has been inclining to the phenomenal growth of services. Therefore, the offering of Malaysian automobile firms must build the offerings that comprise of tangible cars accompanied by one or more services such as display rooms, on time delivery, repairs and maintenances, warranty fulfilment, and easy monthly repayment scheme. Thus, the auto firms have to be more service than manufacturing intensive. To define quality for services is more complex than for products in view of its intangible and variable nature of service characteristics. In this study, there emerged a broadened definition of service quality to derive the superior customer value that customers seek for.

Parasuraman (1990) and his colleagues explained that service quality is a measure between service perceptions as well as expectations. It is related to a comparison of what a consumer feels a service provider should offer against their perception of what the service provider actually can offer. Therefore, to provide superior customer service, the firm must ensure that the service offered meets or exceed customers’ expectation.

2.65 Strategic Implications of Quality

We have emphasized previously the entire product and service characteristics that must be considered as an important customer value traits to built and deliver a superior customer value. These attributes of quality must be incorporated into the design of the product that results in the products and service consumers’ want and having quality they expect. Why is then so significant of quality in the formulation of strategy?

John Beckford (1988, p.11) has highlighted from the citation of Jiang Zemin, President, Peoples Republic of China, 1996 “focus on quality, not quantity”. He further pointed that China, the world’s largest emerging economy consisting of 1.2 billion potential consumers, is treating quality not just as an organisational issue but also as a national one. Such a position reinforces the message that all organisations, which want to survive and succeed, must take quality seriously. There was a conclusion that the pursuit of quality must be considered as strategic as a winning strategy dimension tools. In the context of strategic management, firstly, the process for formulating strategy must display quality characteristics in that the business strategic planning itself must be correctly designed and implemented. Secondly, the impact of the choice to pursue quality fits with the generic strategy of differentiation. Thirdly, the pursuit of quality has an impact on strategic decisions because it may generate changes in consumer behaviour. This in turn may obviate the need to establish additional facilities or new distribution channels to fulfil the changing expectations of customers. Roberta & Bernard (2003) cited that firms in which quality drives their competitive strategy have certain common characteristics. That includes a clear strategic goal, vision, or mission that focus on customer satisfaction through quality. For example, Motorola’s company objective of “total Customer Satisfaction” reflects their commitment to customer satisfaction and quality as par of their overall strategy and vision. On the other hand, most quality gurus stated that quality must be inherent throughout the organisation in order for it to survive. Commitment of employees and strong leadership are also the key to successfully integrating quality into a company’s strategic plan.

2.7 Price Attribute

Art & William (1999) quoted “Price is what you pay. Value is what you get.” (Warren Buffett, CEO, Berkshire Hathaway).

2.71 Communicating Value through Price

Price can vary substantially according to whose perspective we are taking from. To the firm, price is used to signal value for their products or services, to differentiate their offer from those of the competitors, or to shift consumer demand. To consumers, price influences the perceived value, reflecting how much they have to give up to take possession of the product or service. From the competitor’s view point, price is use as benchmark to compete (e.g. as entry barrier in price war). Philip Klotler (2000) pointed out that there is an increasing number of companies fixing price according to the customer’s perceived value. They see buyer’s perception of value, not the seller’s cost, as the key to pricing. The companies have been building up the perceive value in the mind of customer using pricing and other marketing-mix elements, such as advertising and sales force. Value pricing indicates that the price should reflect a high-value offer to consumers. The key to perceived-value pricing is to determine the market’s perception of the offer’s value accurately. Seller with offer’s value perceives to be superior has the possibility of charging higher than competitors. Seller with inferior offered value will normally charge less than they could. Therefore, it is important to conduct a market research in order to establish the market’s perception of superior customer value as a guide to effective pricing (James, Dipak & Pradeep, 1993).

Art & William (1999, p.84) cited that value is often mistakenly implied to mean low price or bundled price. The true attribute of customer value is embedded in the tradeoff between the benefits consumers receive from the product or service and the price they pay. In the eyes of consumers, price is meaningful only if it paired with the benefits delivered, both, tangible and psychological. Substitution of product or service has a comparative role to play in consumer value assessment that satisfies the same need. Similar, the price of these substitutes also determines the consumer’s evaluation of value. Therefore, Art and William (1999) concluded that consumers evaluate the value of a product or service based on the firm’s benefits and price taking into consideration of a competitor’s offer.

Robert & Sue (2003, p.316) stated that customers often use price as a quality cue i.e. as a basis for making inferences about the quality of the product or services. The inference is made in the context of psychophysics of price that refers to how customers psychologically perceive prices. Zeithmal (1988) said the use of quality value is particularly true where the quality of the goods or service cannot be independently judged. Anon (1996) mentioned that the quality-price link also tends to be stronger for durable goods than for non-durable goods. Robert and Sue, referring to the literature review of the researchers Kent & Krishnan (1983), concluded, “a positive price-perceived quality relationship does appear to exist”. Again this is especially likely when other clues for inferring quality are unavailable. On the other hand, the customers would not likely to use price as a quality clue if they can make judgements about quality or judge alternatives to be of the same quality. Biswas & d Blair (1991) illustrated that firms can formulate their pricing strategy by preparing a value map as shown in figure 2.5. A value map indicates the value positioning of the competitors in the market place by comparing relative price to relative quality.

2.72 Valued-Based Pricing Strategies

Smith & Nagle (1995) stated that it is not uncommon many firm treated pricing as a tactical marketing tool instead of part of a well-integrated marketing strategy. As far as possible, pricing should convey a message strategically together with all other brand messages in order to deliver to customers a coherent, meaningful statement. Moreover, the price established need to be aligned with the firm’s overall value proposition.

Philip Klotler (2000) cited that companies would choose one or more of the several pricing methods after consideration the customers’ demand schedule, the cost function, and competitors’ prices. This dissertation shall not review all these possible pricing methods. However, the focus will be on valued-based pricing that is truly customer oriented from customer value’s perspective. Many traditional pricing methods are either cost or profit oriented. Firms that formulate value pricing are heading towards to the belief that the pricing of goods or services must be fixed to reflect and capture customer value. The value pricing must balance up the value equation either by lowering prices or raising value or both. Berry & Yadav (1996) recommended that firms pursuing value pricing consider using service guarantees i.e. raising service quality, to reinforce this approach. Philip Kotler (2000) has constructed a very powerful value tool i.e. price value grid to determine the value pricing. As illustrated in figure 2.6, firm that offers a highquality offering at low price would possess a strong value proposition.

Reidenbach (1996) using his benefit-cost grid “Assessing a Company’s Value Position” to explain organisations should use cost-benefit analysis periodically to assess how their value proposition is positioned in the mind of the customers compares to the competitors’ option. Best value represents a strong competitive advantage where the benefit to customer is high and the cost incurred is low.

2.8 Role of Branding

The study takes the literature reviews about the role of branding that plays a very important implication in conveying superior customer values. The survey study shall also conclude building brand image that will influence the customer’s buying decision.

2.81 What is a Brand?

Branding has been in existence for years commonly mean to distinguish the goods or services of one producer from their competitors. Alvin (1993) refined his definition of brand as ” More specifically, what distinguishes a brand from its unbranded commodity counterpart and give it equity is the sum total of consumers’ perceptions and feelings about the product’s attributes and how they perform, about the brand name and what it stands for, and about the company associated with the brand”. Philip Kotler (2000, p.404) cited that a brand is essentially a seller’s promise to deliver a specific set of features, benefits, and services consistently to the buyers. The best brand conveys a warranty of quality. These definitions show that brand play a significant role in signalling certain product or service characteristics (attributes and benefits) to consumers. He also mentioned that brand is something said about the producer’s values proposition i.e. the total resulting experience that customers can expect.

According to Paul Temporal (1999) branding is essentially based on the principle of satisfying the needs of consumers. The fundamental elements of successfully branded products or services comprise of two basic constituents, namely, features and attributes, and emotional benefits. Features and attributes have benefits associated with them, in terms of how they will satisfy the rational needs and wants of customers. In tandem with Philip Kotler’s (2000) interpretation of branding, attributes must be translated into functional and emotional benefits. It is the customer values imbedded in the benefits that satisfy emotional needs of people. This is the heart of branding building processes.

2.82 Branding customer experiences

Colin & John (2002) pointed out that it is important to understand what the customers’ expectations. The actual customer experience must match with the expectation set by the brand or it will turn into a bad experience. They stated that one of their seven philosophies for building great customer experience is the brand is in the embodiment of the customer experience.

Kevin (2003) pointed out that the basic principle of the Customer-Based Brand Equity model is that the power of the brand is reflected in what customers have learned, felt, seen, and heard about the brand as a result of their experiences over time. He phased in other words “the power of a brand lies in what reside in the minds of customers.” Therefore it has put to the challenges of most companies today in building a strong brand to ensure that customers have the valued experiences with their products or services offered and that should be linked to their brand.

2.9 Factors influence Product Decision

In this survey study, it will include to describe how the triads of superior customer value that can influence the purchase decision of customers. As cited by some of the abovementioned academics, superior customer value is the resulting experiences of customers towards a goods or services. John & Michael (1998, pp. 347) have proposed three different alternative decision-making models but the experiential perspective can be a more relevant model for the literature review in our study. They described experiential perspective recognises consumers as “feeler” as well as thinkers i.e. it expressed that people will be influenced to purchase different types of products or services for the sensations, feelings, images, and emotions that these products or services produce (Meera and Deborah, 1985). The experiential perspective also recognises that many products carry symbolic meanings for consumers (Sidney, 1959).

On the other hand, brand is indeed a promising agent of superior customer value. How can the promising attributes of superior customer value embodied in the brand equity influence the preferences of customers over a product or services? Kevin (2003) mentioned that a high level of brand awareness can affect choices among brands in the consideration set, even if there are essentially no other associations to those brands. He quoted the example from Jacob and his colleagues (1993) that consumers have been shown to adopt a decision rule to buy only more familiar, well-established brands in some cases.

Brands that satisfied the customers in past will provide a shorthand device or means of simplification for their product decisions. In this case, the customers do not have to spend additional thought or processing of information in their buying decision. Customers always offered their loyalty and trust with the implicit understanding that the brand will fulfil their promise that provide them the utility through consistent product or service performance, pricing, and other benefits. As long as they received the satisfaction from the product or service consumption, they are likely to continue to buy it (Jacob, Jerry & Rafael, 1977). Ted (1971) cited that brands can assist to reduce the risks in product decisions. Consumers will be influenced to purchase only those brands that are perceived to be of lower risk. Philip Kotler (2000) elaborated that the amount of perceived risk depends on the amount of money at stake, the amount of attribute uncertainty and the amount of consumer self-confidence. Thus the ability to simplify decision-making and reduce risk is invaluable that should constitute the main influencing factors of choices.