Customer Value Propositions (CVPs) are all the rage right now. What exactly is a CVP though? Even the writers of seminal marketing text books only vaguely defines it as “a set of benefits that satisfy [customer] needs.” (Kotler & Keller, 2012, p. 32)
At OASIS, we have developed a bespoke approach to measuring and optimising CVP’s, based in sound academic theory. It is important to note that we view a CVP as a holistic organisational offering, and it is different from a product value proposition. Each of your products and services consist of various attributes that should aim to maximise customer utility, while your CVP encompasses your holistic product offering, customer experience of their interactions with you and intangible perceptions. Your CVP is the practical experience customers have when interacting with you, and should support your intended brand positioning. To make all this theory practical, let’s look at an example to show that the theory works in the real world.
Providing the potential for value: The Value Proposition
Let’s consider the example of a retailer that sells fashionable women’s clothing. In order to ensure the experience its customers have is differentiated and something special, we decide to centre our entire experience on the concept of Personal Branding (this is called defining a market space, we will talk about this in another article). Through a painstaking process of mapping out a typical customer’s journey before, during and after purchasing, we create a value proposition that is unique and relevant to our target customer base (more on customer journey mapping as well on another time). This value proposition represents the first three steps in our CVP journey:
-
- Step 1: Price/Quality trade-off: What is the trade-off we’re making between price and quality? Lower prices mean a product of reduced quality, but can make it accessible to more customers. We could even offer a variety of more affordable products that only last one season, as well as selected capsules of more expensive, higher quality items throughout the season.
-
- Step 2: Emotional Value: What is the emotional takeaway we want customers to have when they deal with us? How do we ensure the in-store experience and service interaction leaves the customer feeling good?
-
- Step 3: Social Value: What do we want the usage of our brand / products to say about our customers to other people? Does it create aspiration, or does it say our customers like to look fashionable at an affordable price?
The considerations we just mentioned are the key components of a value proposition, and follows an academic theory called Consumption Value Theory. This states that value has four underlying dimensions, and we use these dimensions to optimise a CVP. These dimensions are price, quality, emotional value and social value (Sweeney & Soutar, 2001). In the example above, Step 1 looks at price and quality. There is always a trade-off between these two elements of a CVP, and careful consideration should be given to how you make this trade-off. Your target market and their preferences should drive this decision. Step 2 looks at emotional value and considers to what extent a customer enjoys their interaction with your organisation. Finally, Step 3 looks at social value, which considers whether the usage of your products and services makes others see your customers in a specific way that is desirable to your customers. These four elements of a CVP can have varying levels of importance depending on your industry and your customers’ needs, and we understand that relevant importance as part of our CVP measurement journey.
The final thing to note here is that at this stage, the retailer has only created the potential for value – no actual value has been created. This is known as (potential) value creation in the Provider Sphere, but more about value creation spheres later.
Getting the customer involved: Value co-production
Our fashion retailer understands that in order to make our value proposition as relevant as possible to customers, we need to understand what she wants, and get our customers as involved as possible in service and purchase interactions. The next two steps towards a winning CVP are:
-
- Step 4: Knowledge Sharing: What data can we collect from our customers to make our products and services as relevant as possible? How do we make it clear to our customers that by providing us with certain data, they will ultimately benefit as a customer by receiving better and more relevant products?
-
- Step 5: Interaction: How do we ensure the actual service or purchase interaction with the customer is optimal? What in-store experience should we provide, and how do we ensure the customer can communicate her needs in the interaction?
These steps ons have to do with a value creation process called Co-production, and forms one of the two components of Value Co-creation as defined by Ranjan & Read (2016). It is also known as value creation in the Joint sphere, and provides a relatively recent view of how customers create value. The Knowledge Sharing and Interaction steps can be defined as follows:
-
- Knowledge Sharing: The extent to which a firm provides the opportunity for customers to share their ideas and suggestions, often based on past experience, in order to improve their offerings creates future value for customers by enhancing the firm’s offering.
-
- Interaction: Whereas the knowledge step can take place outside of the service interaction, creating value through interaction is dependent on active participation of both the firm and the customer in the service interaction as well as a dialogue between the two parties. It requires the opportunity for a customer to express their needs while the service interaction is taking place and playing a proactive role in the process.
Simply stated, co-production is where there is a direct interaction between a company and its customers that enables incremental value for the customer – it could be as simple as a customer sharing some of their information with a company to enable more personalised interactions, or as involved as getting customers to physically help design a product.
Maximising the value of the customer’s end use: Value-in-use
Once our fashion customer has purchased her clothing items, we want her to realise the potential value she created through our CVP. The final three steps of our CVP journey ensure our customers generate maximum value from having interacted with us:
-
- Step 6: Experience: How do we ensure we created a memorable experience for our customers? Does the experience we provided encourage customers to come back to us?
-
- Step 7: Personalisation: Did we provide products and services that make the customer feel it was personalised to her? Was the interaction catered to the customer’s individual needs?
-
- Step 8: Relationship: Have we created a long-lasting relationship with the customer? Does the customer feel that there was sufficient engagement with her, and does she feel an attachment to us?
The final component of creating value through our CVP considers to what extent customers generate value out of their interaction with us once they get back to their lives, and tries to understand whether the CVP delivered on its intended purpose. Not only should the customer experience the intended emotional and social value that we created the potential for through our CVP, they should also have improved affinity for our products and brand.
This step in the value creation process is known as Value-in-use, and is the second component of the concept known as Value Co-creation defined by Ranjan & Read (2016). It is also known as value creation in the Customer sphere, and consists once again of three dimensions that map to the steps outlined above:
-
- Experience refers to the emotional value and memorability of the interaction between a customer and a firm. Experience is intrinsically linked to the products or services a firm supplies, and is created through customers’ interaction with the firm and its outputs.
-
- Personalisation refers to the degree of uniqueness firms provide in their products and services at the individual customer level. In other words, to what extent does a firm personalise its offerings to individual customers and does it adapt its processes in an interaction to suit the needs of the customer it is serving.
-
- Relationship considers the extent to which there is engagement with and attachment to the firm involved in the service interaction. High relationship value is created when there is extended facilitation required from the firm in the service interaction, in other words the interaction transcends the simple buyer/seller relationship.
As with a company’s CVP, not all elements of Value-in-use are equally important, and the uniqueness of your industry and customer segments will determine which elements of Value-in-use require more attention.
Value creation spheres
In our discussion above, we defined value creation in three spheres: the provider sphere, the joint sphere and the customer sphere. This is consistent with a model defined by Grönroos & Voima (2013), and states that there are three distinct phases where value is created. In the provider sphere the firm is a value facilitator and creates the potential for value, not actual value; in the customer sphere the customer independently creates value through usage of products and services; while in the joint sphere the opportunity emerges for Co-creation of value through interaction between the firm and the customer. The diagram below brings together all of the concepts we have been discussing:
-
- (Grönroos & Voima, 2013)
- (Ranjan & Read, 2016)
- (Sweeney & Soutar, 2001)
The relationship between Value-in-use, Co-production and CVPs
In research conducted by one of the founders of OASIS, a significant discovery was made on the relationship between the three value creation spheres:
-
- An improvement in either Value-in-use or Co-production will result in more positive perceptions of a company’s CVP
- An improvement in either Co-production or the CVP will result in greater Value-in-use
While the argument may seem circular, it actually has substantial implications for your CVP. By introducing Co-production into your CVP considerations, you will improve the value a customer creates for themselves in the customer sphere (Value-in-use). When you improve Value-in-use however, customers will automatically perceive your CVP to be stronger. While the importance of Co-production will vary according to industry and customer needs, adding it into your CVP mix can only have positive implications. We summarise this circular relationship in a simple diagram below.
Why do you need to define a CVP, and what is its ultimate goal? According to the theory of Service-Dominant logic (also known as S-D logic), the only way firms can create value is through their Value Propositions: the customer uses the firm’s Value Proposition in order to create value for themselves through the usage of products and services (Grönroos & Voima, 2013) (Vargo & Lusch, 2008). While S-D logic can justify an entire article of its own, it is sufficient to say for now that it has become the dominant paradigm of marketing as business shifts into customer centric thinking rather than firm centric thinking. Using this point of view, it is clear that having a well-defined CVP is about maximising the value your customers generate from your company’s offering.
How we apply this to CVP optimisation and measurement
OASIS uses validated research instruments to measure your CVP, Co-Production and Value-in-use, which we use as the building blocks of our CVP optimisation strategy. By applying our Analytics Value Chain approach, we can measure customer perceptions of your existing performance on these dimensions and the elements they consist of, as well as which attributes are more important to maximise Value-in-use. This informs our CVP measurement strategy, and can be used to enhance an existing CVP.
Contact us if you want us to help you create a winning CVP!
References
-
- Grönroos, C., & Voima, P. (2013). Critical service logic: making sense of value creation and co-creation. Journal of the Academy of Marketing Science, 41(2), 133-150.
-
- Kotler, P., & Keller, K. (2012). A framework for marketing management (5th ed.). Essex: Pearson Education Limited.
-
- Ranjan, K., & Read, S. (2016). Value co-creation: concept and measurement. Journal of the Academy of Marketing Science, 44(3), 290-315.
-
- Sweeney, J., & Soutar, G. (2001). Consumer perceived value: The development of a multiple item scale. Journal of Retailing, 77(2), 203-220.
-
- Vargo, S., & Lusch, R. (2008). Service-dominant logic: continuing the evolution. Journal of the Academy of Marketing Science, 36(1), 1-10.