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Value postures and the service-dominant logic: Between-firm and within-firm business perspectives  

Otago Forum 2 (2008) – Academic Papers  

 

Paper no: 10      

Roderick J. Brodie University of Auckland, New Zealand [email protected]

Victoria J. Little University of Auckland, New Zealand

Judy Motion University of Auckland, New Zealand

       

 

 

Otago Forum 2: Academic Papers

Value postures and the service-dominant logic: Between-firm and within-firm business perspectives Abstract The paper focuses on value creation processes in marketing at an organisational level. It does so by developing a literature-based classification scheme of value postures. The classification scheme is refined and expanded using a three-stage multi-method approach. Stage one (‘scoping’) employs an interactive and iterative survey of 152 managers, stage two (‘substantiating’) involves 14 individual cases, and stage three (‘enriching’) features an indepth case study of a distributor of industrial electronics products. Implications of the findings are examined in the context of the S D Logic.

Introduction The quest for a deeper understanding of the nature of value and the processes by which it is created, delivered and captured continues to attract attention within the management disciplines. In the marketing discipline the importance of value is highlighted in the American Marketing Association’s (AMA) most recent definitions of marketing. The 2004 definition takes a relational perspective, incorporating both implicit and explicit mention of value, at both firm and consumer level: “…an organisational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organisation and its stakeholders (AMA, 2004)” Value is also central to the AMA’s broadened 2007 definition: “...is the activity, conducted by organizations and individuals, that operates through a set of institutions and processes for creating, communicating, delivering, and exchanging market offerings that have value for customers, clients, marketers, and society at large (AMA, 2007)” Within the Service Dominant (S D) Logic value also plays an integral role. Vargo and Lusch (2006) state: “...it is important to recognize that there are two components of value co-creation. The most encompassing of these is the co-creation of value. This concept represents a rather drastic departure from goods dominant logic, which views value as something that is added to products in the production process...." (p. 284) In contrast to the Goods Dominant (G D) Logic the S D Logic implies that value is the result of interaction between the enterprise and customers i.e. ‘market with’. This leads to a broader conceptualisation of value than the managerial “market to” perspective of the G D Logic. While enterprises can offer their applied resources for value creation and collaboratively create value they cannot deliver value independently. Within this broader perspective it is recognised that value is idiosyncratic, experiential, contextual and meaning laden. 140

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Vargo and Lusch (2008) outline the S D Logic perspective on value in three of their revised 10 fundamental premises (FP6, FP7, FP10). The 10 premises are: FP1: Service is the fundamental basis of exchange; FP2: Indirect exchange masks the fundamental basis of exchange; FP3: Goods are distribution mechanisms for service provision; FP4: Operant resources are the fundamental source of competitive advantage; FP5: All economies are service economies; FP6: The customer is always a co-creator of value; FP7: The enterprise cannot deliver value, but only offer value propositions; FP8: A service-centered view is inherently customer oriented and relational; FP9: All economic and social actors are resource integrators; FP10: Value is always uniquely and phenomenologically determined by the beneficiary; Discourse about the role of value co-creation plays a central role in most of the papers that Vargo and Lusch and other authors have published about the S D logic in the last five years. For example, a content analysis of the 15 papers published in the recent 2008 Special Issue of the Journal of the Academy of Marketing Science on the S D Logic found the concept of ‘value’ to be one of the most frequently used. However most of the discussion is at a theoretical level with little attention to empirical research. Thus, knowledge about the relevance and application of S D Logic and the notion of co-creation of value to marketing practice is limited. The concept of value creation is attracting attention in other management disciplines. In a recent special issue of The Academy of Management Review on value creation Lepak, Smith and Taylor (2007) discuss the confusion and contradiction associated with the concept of value. They attribute this to the multi-disciplinary nature of the field of management, which has lead to multiple approaches to the study of value. While the importance of the topic is agreed, the nature and process of value creation differs on whether value is created at individual, organisational or society level. The complexity of the value construct and value-related processes can lead to ambiguity and paradox; and hence issues with conceptualising and expressing ideas, for example HampdenTurner (1990): “Value creation lies in the capacity of acknowledging those dilemmas which arise from competing and contrasting claims and combining both…in resolution that which enhances all values in contention” (p. 10) To find resolution to such dilemmas requires research that focuses on building understanding of value-related phenomena from a holistic perspective (Lepak et al. 2007; Moller 2006; Wind 2005). An holistic approach draws on the ‘power of richness’ (Weick 2007), acknowledging diverse arguments and research streams directed at delivering contextually appropriate understanding; and calling for: “… detail, for thoroughness, for prototypical narratives, and an argument against formulations that strip out most of what matters …. the power of richness lies in the fact that it feeds on itself in ways that enlarge our understanding of the human condition.” (ibid, p.18)

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Such an approach provides for building requisite variety, or a complex base of knowledge and insights, directed at understanding commensurately complex phenomena or events. We argue that such an approach is necessary for building knowledge in value-related research. The research reported in this paper is part of the Contemporary Marketing Practice (CMP) research programme, which is directed at profiling marketing practice in a contemporary environment ( Brodie et al. 2006). CMP research embraces a multi-method approach that provides both a broad and general perspective, and a deeper contextual understanding. Thus the approach invokes the “power of richness" directed at building understanding of the nature of customer value, and its creation and delivery. Following Priem (2007) our intent is not to argue for or against any particular approach to understanding value, but to acknowledge different perspectives, as each perspective contributes to understanding in a different ways. This paper focuses on value creation processes at the organisational level. In particular, it reports on an empirical study aimed at understanding how firms treat value, and the value postures that they adopt to undertake marketing activities. The next section provides a literature review and the following section develops a classification scheme of value postures that a firm may adopt. Section four refines and expands the classification scheme, drawing on the findings from a threestage multi-method empirical study. Stage One (‘scoping’) employs an interactive and iterative survey of 152 managers. Stage Two (‘substantiating’) involves 14 individual cases and Stage Three (‘enriching’) features an in-depth case study of a distributor of industrial electronics products. In the final section the implications of the findings are examined in the context of the S D Logic.

Perspectives of value in marketing Customer value as a trade-off Traditionally, the marketing literature focuses on value from a customer perspective, using the term “customer value”. Market-oriented managers focus on the creation of value for consumers, from the perspective of functional specialists. In the consumer literature, ‘value’ is viewed as a trade-off of benefits enjoyed and sacrifices made, or the difference between benefits received and costs incurred (e.g. Zeithaml 1988). In this conceptualisation, ‘costs’ include both price paid by the customer and other psychological and physical costs such as image, reputation and decision-time. In the business-to-business literature, customer value is similarly defined: "Put very simply, customer value is created when the perceptions of benefits received from a transaction exceed the total costs of ownership. The same idea can be expressed as a ratio: Customer value = Perceptions of benefits/ Total cost of ownership." (Christopher 1997 p.49) Cost of ownership (rather than price) is the focus of this definition. The rational customer is assumed to take into consideration costs other than the acquisition price e.g. technical support costs, inventory holding costs, training costs, maintenance costs, operating costs, management costs and disposal costs (ibid). At a societal level, it is timely to note that the t ‘cost of ownership’ perspective into notions of consumer value – for example ‘cradle to cradle’ production and consumption perspectives (McDonough and Braungart 2002; Senge et al. 2001), and the social or community production and consumption of value, focusing on beneficial social impact for the many rather than wealth accumulation for the few (Arvidsson 2008; Kozinets 2002). 142

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At the market level, the notion of sacrifice implies an explicit or implicit calculation of perceived utility on the customer’s part, acknowledging a trade-off between benefits received and costs incurred (Woodruff 1997). An underlying assumption of a trade-off between quality and cost is that there is a simple linear association between the two constructs. However, this may be a naïve view, in the light of aggressive competition based on both price and quality. There have been numerous calls for value innovation, urging firms to deliver increased levels of quality or utility for the same price (e.g. Doyle 1995; Kim and Mauborgne 1997; Markides 1997).

Limitations to customer value The notion of the exchange of value and the relativity inherent in that exchange (i.e. that value which is given and received, vs. potential value able to be given and received via competitive offerings) is central to the customer value trade-off perspective. Thus, this perspective is more closely aligned to the G D Logic where a firm markets to customers. In contrast, S D Logic places emphasis on marketing with customers (an interaction process). Here, the customer is the arbiter of value co-created in direct service interaction, and most importantly, the arbiter of value-in-use of any goods sold. Put another way, goods are service appliances which offer the customer value-inuse. Ultimately service is exchanged for service. Gronroos (2008) simple definition of value is based on this idea: Value for customers means that after they have been assisted by a self-service process (cooking a meal or withdrawing cash from an ATM) or a full-service process (eating out at a restaurant or withdrawing cash over the counter in a bank) they are or feel better off than before. (p.303) While ‘benefits less sacrifices’ may appear initially appear a reasonable approach to conceptualising customer value, the reality is more complex. As (Holbrook 2005) notes, customer value is by definition customer-defined, and therefore contextual, relative, opaque, and multidimensional. The attendant issues are subjectivity, fluidity, context-specificity, multidimensionality, involvement of multiple stakeholders, and the issue of trade-offs - regardless of whether customer value is conceptualised in the business-to-business or consumer contexts. The issue of subjectivity is of particular importance, as it recognises perceived rather than an objective notion of value. Clearly, individual perceptions create difficulties in objectively determining benefits or costs in an exchange. Customer value is defined by customers; therefore, each individual may have a different perception of expected and received value based on experience and the context in which the value is considered. Subjective evaluations therefore occur, relating to both expectations and perceptions of benefits and costs (Naumann and Donald 1999).

Relational perspective While Christopher (1997) takes a transactional perspective, the trade-off approach can readily be expanded to include relationship value. Here the trade-off is between buyer perceived relationship quality including social considerations and the technical, social and economic costs (Wilson and Jantrania 1994). Within this perspective attention shifts to the supply side, and in particular value within the buyer-seller dyad and the interface of strategic management and marketing; providing insight into the role of resources and competencies in creating and capturing value (e.g. Moller 2006; Sirmon et al. 2007; Zerbini et al. 2007). Some traction on understanding value-creating processes been achieved through the resourcebased view (RBV) of the firm, and consideration of linkages between marketing and financial performance (Srivastava et al. 1999; Srivastava et al. 2001). Under the RBV, competitive success 143

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is predicated on the ability of the firm’s managers to obtain and productively exploit resources and assets (Barney 1986; Peteraf 1993; Wernerfelt 1984). That is, competitive success is based on the ability to create and deliver superior customer value through a set of value-based processes and resources (Sirmon et al. 2007). In a normative sense, superior customer value is expected to translate into a position of differential advantage. This position may or may not deliver superior financial returns depending on how value is appropriated and distributed among stakeholder groups, in turn a function of the relative power position of each group (Fahy and Smithee 1999) and managerial capability (Hawawini et al. 2000). Calls have been made for developing greater understanding of value-creating processes, particularly in terms of how these processes are affected by the firm’s capabilities and market-based assets, and for further empirical testing and refinement of these concepts (Lepak et al. 2007; Tzokas and Saren 1998). It is important not to neglect the seller side of the dyad. Recent work in marketing (Holbrook 2005; Moller 2006; Vargo and Lusch 2004) and strategic management (Priem 2007) is again focusing on the role of the customer in creating value. This takes into account joint value creation or value co-creation, building on the work of Prahalad and Ramaswamy (2004). As mentioned in the introduction to this paper, the co-creation of value is one of the central concepts in the S D Logic. For example in the 2008 Special Issue of the Journal of the Academy of Marketing Science on the S D Logic, virtually all of the papers by make some reference to co-creation - with papers by Vargo and Lusch (2008), Payne et al (2008), Etgar (2008), Xie et al (2008) and Blazevic and Leivens (2008) paying particular attention to the issue.

Broader systemic network perspective Both the 2004 and 2007 AMA definitions of marketing acknowledge the role of marketing to create value for multiple stakeholders - including shareholders, employees and society. This perspective of ‘many-to-many’ marketing has been articulated by Gummeson (2006) in his essay in The Service-Dominant Logic of Marketing: Dialog, Debate and Directions (Lusch and Vargo 2006) titled “Many-to-Many Marketing as a Grand Theory”. This view is further articulated by Gummeson (2008) and other authors in the Special Issue of the Journal of the Academy of Marketing Science in their commentaries about the implications of the S D Logic. When this broader perspective is taken, then, the notion of customer as an individual – or even in the relational context - becomes too narrow. A systemic or network perspective is needed. The network interaction view has been well accepted within the Nordic School, where leading scholars hold that the essence of Nordic relationship marketing is an approach based on interactions, relationships and networks (Gummesson 1994). A recent perspective on interactions is offered by Gronroos (2008), considering the implications for interactions when there is a shift from “value in exchange” to “value in use”. The notion of network value is also fundamental to the IMP approach to marketing (e.g. Axelsson and Easton 1992; Ford and McDowell 1999; Wilkinson 2001) and from North American scholars. For example Achrol and Kotler (2006) articulate this view in their essay in the book The Service-Dominant Logic of Marketing: Dialog, Debate and Directions (Lusch and Vargo, 2006). Vargo and Lusch (2008) also recognise the interactive and networked nature of value creation as fundamental to the S D Logic. They acknowledge they were not explicit about the interactive and networked nature of value creation and exchange in their earlier writings, and discuss how the concept underpins a number of the fundamental premises. Vargo (2008) in a recent commentary recognises a broader perspective of what he refers to as the “value creation space”. Drawing on the fundamental premises and in particular FP9 (all economic and social actors are resource 144

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integrators) and FP10 (value is always uniquely and phenomenologically determined by the beneficiary), he suggests the need for a network to network perspective in the context of a larger “value-configuration space”. Within this conceptual framework each actor is a primary resource integrator.

Conceptual framework The literature review highlights the differing nature of value between firms, according to each firm’s strategy. That is, the strategic intentions of firms relating to their customers differ, and the expression of that strategy in value related processes (or marketing practices) also differ. The discussion above identified three alternative strategic expressions: 1. Transactional Value Posture; 2. Relational Value Posture; 3. Systemic-Network Value Posture.

Transactional value posture Transactional customer value is concerned with value perception and receipt, and is a consumer orientation, concerned with the perception of value from the receiver’s point of view. This view is consistent with the G D Logic value-added perspective, and is characteristic of an ‘industrial’ view of commerce, whereby an extractive posture is adopted towards converting resources into goods and services for consumption (Senge et al. 2001). A definition of value typifying this view is that of Woodruff (1997): “Customer value is a customer’s perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use that facilitate (or block) achieving the customer’s goals and purposes in use situations.” (p. 142). By taking this posture, value is primarily approached from a consumer or customer level, and is concerned with value perception and receipt from the receiver’s point of view, as understood by the firm’s managers. From the firm’s perspective, concern is primarily directed at the ‘value of value to the firm’ i.e. the degree of value return received in exchange for value delivered, or the level of value appropriation achieved. By employing techniques such as value-based strategies, value analysis of products or solutions, value-in-use, and value-based pricing firms seek to increase customer value in relation to other firms and in so doing, create competitive advantage (Doyle 2000). Satisfactory levels of value appropriation are assumed, and translated into shareholder value. Slater and Narver (2000) highlight the economic linkages between customer value and shareholder value accruing to customers from this ‘net value’ perspective: "Economic value for the customer is created when the present value of the cash inflows from increased revenues exceeds the present value of the cash outflows from the investment in the equipment and the associated operating costs. A seller creates superior value when the customer's NPV from purchasing the seller's offering is greater than the NPV from purchasing any competitor's offering." (p. 120) Brands and the means of production (i.e. operational assets) are the key resources or assets in the transactional perspective. The value chain (Porter 1985) presents a characteristic view of the oneway or transactional value posture, as it represents a structural and functional approach to valueadding activities. This model is designed to enable strategists to focus on internal differences 145

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among firms, and in so doing provide insight into factors underlying competitive advantage. The value chain was an important foundation for exponents of the resource-based view of the firm (RBV), specifically in developing the notion of competencies and capabilities, based on assets and skills and combinations of activities in internal processes (Stalk et al. 1992). Thus, from the perspective of managers or the firm, customer value is considered primarily in the context of relative delivered customer value, that is, the firm’s value outputs to customers relative to other firms, and with regard to the net financial returns achieved. While shareholders returns are important (and viewed as a corollary or result of delivered customer value) external stakeholder groups such as suppliers, society and the environment are not of central concern.

Relational value posture The relational perspective of customer value is conceptualised at firm or industry level, and is concerned with value creation and delivery and has an orientation toward firms and managers. This is a two-way view of value, whereby value is developed by the firm in consultation with customers (e.g. Butz and Goodstein 1996; Juttner and Wehrli 1994a; Normann and Ramirez 1993). The two-way/ relational value provides co-creation view and thus has characteristics similar to the S D Logic. A definition of customer value commensurate with this view is offered by Wilson & Jantrania (1994): “The 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 prices.” (ibid, p.56). The supply chain represents a characteristic view of the two-way or relational value posture, as it represents a cross-functional approach to value creation and delivery, recognising interaction between multiple players. The terminology ‘chain’ is unfortunate, as it implies sequential rather than iterative processes, however, the notion of the supply chain describes the complex interaction of multiple players embedded in the relational view of value creation. The definition identifies a multiplicity of benefits, and implies a two-way exchange of information and value. In the relational view, firms are concerned primarily with the ‘value of value in the relationship’, i.e. to both the firm and to the firm’s customers. Again, managers consider value in comparison with other firms, and with regard to the net financial returns achieved for the firm, rather than for external stakeholders and wider society. The view of customer value in a relational context has an orientation toward firms and managers and with a strong business to business (rather than business to consumer) approach (e.g. Juttner and Wehrli 1994b; Normann and Ramirez 1994). A relational perspective focuses on both members of a dyad, and on issues such as relationship strength and duration, and that the buying firm’s assessment of technical, social and economic costs and benefits in creating customer and shareholder value (Wilson and Jantrania 1994). Value is created through a process of synergy, whereby the relationship offers more value to partners than individual operations through joint efforts. This view of value is strongly contextual, contingent on the nature and type of relationship in question.

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Systemic-network value posture A relational posture assumes that the focus is on economic value created within a relationship. In contrast, the systemic network view also includes ethical and philosophical considerations of value, taking into account potential conflicts arising from either a shareholder or a stakeholder approach to value. The systemic perspective leads to a network approach to value creation and delivery that includes multiple stakeholders (customers, clients, marketers, and society at large), representing an expanded holistic and systemic understanding, encompassing the role and contribution of all players in the value creation, delivery and receipt network, for example suppliers, influencers and society as a whole. A system of entities develops value, and each entity benefits from the value creation process. The work of the IMP Group (e.g. Axelsson and Easton 1992; Ford and McDowell 1999; Wilkinson 2001) provides insight into network-based competition and the creation of customer and network value within these networks. Taking the work of the IMP a step further, a societal view of value locates businesses and industries in the wider social and environmental context, and views implications for value in terms of sustainability and returns for the wider community or stakeholders (Ramirez 1998; Senge et al. 2001). Advocates are critical of the school of strategy grounded in industrial organisation economics (e.g. Porter 1980, 1985), positing that the interests of firms in this model are incompatible with the interests of society (Ghoshal et al. 1999). Furthermore, under the ‘industrial’ or non-systemic models, firms’ goals are to appropriate value and create imperfect competition; the cost is therefore social and environmental welfare. This model is argued to be socially and environmentally unsustainable (Arvidsson 2008; Senge et al. 2001). Within the systemic network posture a shift in perspective on value creation is occurring. Rather than associating value creation with traditional members of the supply or value chain functioning individually in Smithian ‘enlightened self interest’, it is associated with collective and cooperative behaviours (Normann & Ramirez, 1993). A firm is thus seen as a value creating system, within which relationships and competencies must be constantly refreshed. Thus, value is now richer in terms of information, knowledge and other resources i.e.: “more and more opportunities for value creation are packed into any particular offering” (Normann & Ramirez 1993, p. 69). An expansion on the stakeholder view is offered by more recent literature highlighting the cocreation aspects of value (Ghoshal et al. 1999; Ramirez 1998). In this view value creation is customer-centric rather than firm centric. Furthermore, two traditional assumptions are relaxed: that firms create value unilaterally, and that value resides exclusively in the firm’s products and services. Prahalad & Ramaswamy, (2004) state: “value lies in the co-creation experience of a specific [customer], at a specific point in time in a specific location, in the context of a specific event.” (p. 10). Value is thus created by interaction and in context, and is both experiential (i.e. service-related) and tangible (i.e. artefact/goods related). From this perspective a change in emphasis is occurring, from the value inherent in ‘things’ to the value provided by things. The result is emphasis on providing better solutions rather than selling more equipment, from a focus on producers and consumers to a focus on co-creation and process-based aspects of value (Prahalad & Ramaswamy, 147

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2004), and from consumers to ‘prosumers’ i.e. people who actively participate in generating the value they derive from any product (Toffler 1981). Views of value thus reflect a widening of perspective – from a firm-centric (production oriented) view, to a customer-centric view, then to a relational view encompassing both firm and internal/ external customers, and as discussed above, to a network view (firm, customer and other partners). Extending the network view, recent work in the sustainability and anti-consumption stream expands the notion of value to a societal level, whereby business is located in its wider environmental context and the implications of value creation and consumption is viewed in terms of sustainability and returns for the wider community (Ballantyne and Varey 2007; Kozinets 2002; Senge et al. 2001). Thus, the view of value has developed in concert with the changing perspective of the scope of marketing – from a transactional/ micro/ functional perspective to a crossfunctional/ process-driven perspective, to the inter-firm/ network view, and more recently to a macro/societal/ global view, as illustrated in Figure 1: Figure 1: Conceptualisations of value over time: From transactional to systemic

Systemic Relational Network Societal

Transactional

1950

1960

1970

1980

1990

2000

Classification scheme for value postures Having elaborated on the generic value postures the next step is to develop a classification scheme to serve as a basis for the empirical research. The five managerial dimensions developed by Coviello, Brodie and Munro (1997) in the classification scheme of marketing practice provide a starting point to develop a classification scheme. The original dimensions (managerial intent, decision-making focus, types of marketing investment, organisational level at which marketing decisions are implemented and managerial planning time frame) are adapted and augmented to capture themes relating to creating and delivering customer value, ‘managerial intent’ ‘decisionmaking focus’, and ‘managerial planning time frame’ remain: •

Managerial intent: Is the goal to attract customers? Retain customers? Interact with customers and/or other parties? Co-ordinate and co-operate with customers (and other parties) to achieve mutual goals?

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• • •

Decision focus: Is decision-making focused on the product/ brand? Customers in a market? An individual relationship? A firm? Firms in a network of connected relationships? Managerial planning time frame: Is the planning horizon short term? Long term? Organisational level: Are decisions made and implemented by functional managers? Specialist marketers? Managers from across functions? A general manager?

‘Types of marketing investment’ is refined to ‘Types of managerial investment’ in order to capture non-marketing dimensions of investment, congruent with the cross-functional and panorganisational location of the phenomena under study. Questions were: Are resources invested in internal marketing assets or capabilities? Developing committed relationships with individuals? Developing a position relative to other firms? ‘Organisational level at which marketing decisions are implemented’ was likewise refined to ‘Organisational level at which value-related decisions are taken’, with relevant issues being: Are decisions made and implemented by functional managers? Managers across functions? General managers? Boards? Table 1: Classification Scheme for Generic Value Postures   Transactional Value Posture

Relational Value Posture

Managerial intent

To attract customers

To attract customers

Decision focus Types of managerial investment

Exchange product/ brand

Dimension

Managerial level Managerial planning time frame Market context Managerial scope

&

retain

Relationships Supply/ demand chain Internal assets: Internal & external assets: brands, operational assets, products/ brands, plus capabilities developing committed relationships with individuals and other firms. Functional managers, Functional managers and specialist marketers managers across functions Shorter sub-generational

term/

Marketing to customers Firm-centric/ functional

Systemic Network Value Posture To coordinate and cooperate with customers (& other parties) to achieve mutual goals Networks Society/ network Internal & external assets: products/brands, plus relationships, plus developing positions in wider networks, alliances and society Senior/general management, boards of directors

Longer term/ generational

Long multi-generational

term/

Relationships between firm and customers Customer/ supply chain/ B2B/ services/ dyads/ cross-functional

Relationships with multiple stakeholders Networks/ societal/ alliance-centric/ extrafunctional

Two further dimensions were added based on analysis of the value-related literature: ‘market context’ and ‘research focus’. Market context acknowledges the influence of temporal context on managerial behaviour e.g. in the 1970s and 1980s, concerns were with meeting the demands of growth (an industrial orientation), in the 1980s and 1990s maturing markets led to the need for new approaches, and in the 2000s concerns about at the wider social and environmental issues have arisen. Managerial scope reflects the focus of managerial attention with respect to valuerelated factors i.e. whether the primary focus of value creation is upon customers, managers, firms, industries, buyer-seller dyads, networks, or wider society. 149

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We identify three value postures that provide three distinct views of value, transactional, relational, and a combined network-systemic posture that reflects both the practice and philosophy of a wider perspective. The dimensions defining these postures are outlined in Table 1.

Research approach and findings Research approach A multi-staged, multi-method action research-based approach is used. Deployment of a variety of research approaches over time enables ‘rich and thick’ (Geertz 1973) knowledge building, both within-stage and between-stage, taking into account the complex process-based nature of value. To further enrich our understanding, we took an action research approach. Action research entails an iterative cycle of enquiry: plan-act-observe-reflect (Ballantyne 2004; Perry and Gummesson 2004). The outcome is a knowledge-rich approach appropriate to understanding change and learning related phenomena (Little et al. 2006). Over a series of action research cycles we drew out explicit and tacit knowledge by challenging managers, then facilitating reflection (for fuller description of method, see Little et al. 2006). Stage One (‘scoping’) employed an interactive and iterative survey of 152 managers. Stage Two (‘substantiating’) involved 14 individual cases and Stage Three (‘enriching’) featured an in-depth case study of a distributor of industrial electronics products. The survey provided a broad spectrum of industry contexts and organization types, enabling assessment of the magnitude and incidence of various approaches to customer value creation and delivery. The second stage substantiated these findings, explaining anomalies and providing greater insight. The final stage provided rich, contextually embedded data. Details of the methodology relating to the three stages are summarised in Table 2. Table 2: Summary of research stages by informants, research method and nature of customers Research Stage Stage ‘Scoping’

Informants

Research method

Nature customers

of

1: 152 managers in 152 Survey based on Heterogeneous, firms adaptation of goods and services, previous CMP work B2B and consumer

case studies Heterogeneous, Stage 2: 14 managers in 14 14 firms across various goods and services, ‘Substantiating’ industry sectors B2B and consumer Stage ‘Enriching’

case, Heterogeneous, 3 19 managers in 1 In-depth firm industrial electronics goods and services, SME B2B only. Direct customers and onsellers.

We now summarise our findings.   150

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Stage 1 findings: “Scoping” We found three groups of firms with identifiably different value approaches: 1. Predominantly ‘transactional’ value posture (TT); 2. Predominantly ‘relational’ value posture (TR); 3. ‘Pluralistic’ (i.e. transactional and relational) value posture. The research did not find evidence of firms with the systemic network approach to customer value creation and delivery. Figure 2 depicts the findings. Figure 2: Approaches to customer value – findings from stage one

L i te r a t u r e

S ta g e O n e f in d in g s

T r a n s a c t io n a l

T r a d i t io n a l T r a n s a c t io n a l (T T )

R e l a t io n a l

T r a d it i o n a l R e la t io n a l (T R )

S y ste m i c/ N etw o r k

P lu r a lis t ic

Stage 2 finding: “Substantiating” In this substantiating stage, managers in various middle management positions in 14 businesses undertook a detailed analysis of the how value was created in their firms. Their analysis revealed two firms with a traditional transactional (TT) value posture. They were a national office of a large multinational pharmaceutical company, and a large travel services firm. Eleven of the twelve remaining firms had characteristics of a relational value posture (TR). These firms were from: consumer health and education services, information services, food and beverage manufacturing, telecommunications, and the packaging industry. Two of these firms were neither predominantly transactional nor predominantly relational in their approach. We termed these ‘hybrid’ or ‘transitional’ firms. The final case study of a not-for-profit public service organisation revealed a clearly systemic network value posture. The manager stated: “To create value in the marketplace as a community leisure provider [council] adopts a holistic approach, strongly partnering with community groups and stakeholders … [Council] clearly fits with a systemic view of value.” Business manager, City Council Figure 3 depicts the findings.

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Figure 3: Approaches to customer value – findings from stage two Stage one findings Traditional Transactional (TT)

Stage two findings

Transactional Transitional/ Hybrid

Traditional Relational (TR)

Relational

Network

Pluralistic

Systemic

Value approaches are clearly more complex than the stage 1 results indicate. Two new value postures emerged: transitional-hybrid, and systemic. The former characterised firms moving from a purely transactional approach to a more relational approach, or having characteristics of both: Diagnosis of [firm] shows the current value posture is partway between transactional and relational. While [firm] is striving to create a relational approach, the firm’s concept of value must evolve further to achieve this. Business Manager, packaging manufacturer. The network value posture differed from the network-systemic approach identified in the literature. It characterised firms with value approaches that encompassed partners beyond immediate buyerseller dyads. …as business applications and supporting technology become more complex [firm] will need to consider a more systemic/networked approach ... it will not be possible to undertake all activities ourselves, and in order to be a single source supplier providing maximum customer value, it will be necessary to partner more closely with other service providers. Sales & Marketing Manager, software services provider. The network form has been identified in previous CMP work, characterised by firms positioned in a connected set of inter-firm relationships ( Brodie et al. 1997). The stage 2 analysis enriches conceptualisation of marketing practice relating to value creation, delivery and capture. Approaches to value, or value postures were not ‘pure’ forms, rather, there is a multiplicity of approachs: Fundamentally there are various aspects of all three archetypes or appreciation to value incorporated within [firm] … all three archetypes can be seen within [firm’s] value approach ... Market Development Manager, food & beverage manufacturer.

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Stage 3 findings: Enriching With this enhanced view of the value landscape, the study progressed to stage three. The case firm was an industrial electronics SME: The CEO described the firm as: ...a professional value-added distributor, providing quality technology solutions equipment and components for communications networks and electronic systems. This final stage of the study deepens and enriches the findings of previous stages. The focal firm took an identifiably relational approach to marketing practice and hence to value creation and delivery processes: ... we’re focused on developing key relationships … We’re specialist in the provision of customer solutions. CEO. Operating in a business-to-business context, customer value creation efforts were directed at creating and sustaining competitive advantage. It was customer and partner centric, taking a crossfunctional rather than functional or wider network approach. Key investments were in relationships, knowledge and in supporting the capabilities and competencies related to those investments – a wider purview than a transactional posture. Knowledge was one of the firm’s key competencies as the following quotations illustrate: ... we know how to transfer our knowledge to people ...To my mind that’s our core competency ... it’s knowledge, if you had to pin it down to one single word, one single theme to me it’s that. Product Manager. As you get into complex products, you can’t add value to the market or your channels without an incredible amount of knowledge. CEO. Being a profit making enterprise, a systemic posture was not taken, although evidence of altruistic behaviours was found. This in-depth case research highlights a further perspective – that of within-firm rather than between-firm approaches to value creation and delivery. Three within-firm approaches were found: strategic, functional and front-line. Each related to the nature of the provider or receiver of value, and their perception of the value provided. At front line level, value was given and received by front-line personnel, in this case customer service representatives and purchasing officers. At this level products and services were viewed as a commodity, and customers valued attributes such as ready availability, at lowest price. [Front-line level] is basically the intrinsic level value. That’s your price, functionality, reliability, all that stuff. And it is what 99% of selling is done on … [A customer might say]: “We want to buy some hardware, we want to buy some software, we want to buy some training services, we want to buy some implementation advice, here’s a list of things we’re going to buy.” Competitive differentiation can thus be achieved by zero defect service delivery. Consultant At the functional level, more sophisticated managerial level personnel (e.g. product or project managers) also value low price and convenience attributes, however, these are necessary but not sufficient attributes. Knowledge becomes the order winner – enabling lower cost of ownership 153

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through customised solutions that are tailored to that firm’s particular business needs. For such solutions the customer may be prepared to pay a premium (ceteris paribus). As the consultant points out: … a good sales person might say “That’s fine, but why are you buying [all these things]?” ... “Oh I’m buying them because we’re establishing a call centre” …If I asked someone who’s establishing a call centre, “why did you pick these key strategic suppliers?” their answer’s going to be “because they will help me implement a more successful call centre”. You see how the value just shifted? At the strategic level, both front-line and functional level value becomes a given. At this level top management are concerned with the need to enhance revenue streams, and delivered customer value is evaluated on the basis of the vendor’s ability to support generation of long-term cash flows. The case revealed that the key issue at this level is value co-generation i.e. the ability to partner and to form strategic relationships enabling each partner to achieve business growth. Customer value is thus embedded in a complex set of processes bundling service, solutions and resources and that underpin the total value proposition as the consultant points out: ... the smart guy … is going to say “Why are you doing that? Why are you establishing a call centre, what is it about the business that is driving you?” So what he’s after is what are the key business drivers for the business? And which of those drivers is this initiative addressing? ... Now I can articulate the value I bring in terms of helping address the business driver and secondly, there may be things that I can bring of value outside what was in their minds. Figure 4 depicts the findings from stage three of the study. Figure 4: Approaches to customer value - findings from stage three of a three stage study

Systemic

Network Increasing richness Relational

Hybrid

Transactional Front-line staff

Functional – Middle management

Strategic – Senior management

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In summary, this final “enriching” stage of the research reveals a more nuanced perspective of customer value creation, building on the notion of value postures emerging from stages one and two. This detailed study of a firm taking a relational posture reveals ‘within firm’ approaches to understanding value – contingent on the perceptions and motivations of managers and employees at various levels. It furthermore shows that delivery of value places high demands on the firm’s resource base. Senior managers require high-level business skills, including the ability to analyse and understand other businesses, to convert this analysis into a set of value propositions, and to communicate these ideas – or negotiate value - effectively with other senior managers in customer firms. The investment and effort required to develop and maintain these relationships were considerable as the CEO points out: People underestimate the power of [business] relationships … I’ve seen it myself with the growth that we’ve had. You agree at senior level to do business together, because the two organisations are going to get some benefit out of it, and a whole lot of things happen naturally because of that. Most relationships aren’t created without difficulty, they aren’t created without negotiation, and that’s a really complex dance. And you need to have experienced it, and there is some process in all of that chaos, but it is really difficult. Very few people are capable of doing it.

Evidence of co-creation of value The empirical research was undertaken prior to 2004 explained how firms deliver value. The data was revisited to examine whether there was support for the premises FP6, FP7 and FP10 of the S D Logic.: With regard to FP6 (The customer is always a co-creator of value), value co-creation was generally accepted to be created with and for the customer – either explicitly or implicitly. For example: “… we redesigned [the solution] … because you can’t buy something off the shelf that’s manufactured to meet the customer needs. … you [visit a customer] and you’re looking at someone using a particular item that you’re selling, but they’ve got sticky tape all over it and they’ve got a guard on it, and you’re wondering “why don’t we manufacture it with a guard on it?” Or it’s an accessory that you can pop on and pop off in case it gets in the way, so rather than them sticky taping a bit of Perspex on we should actually integrate it into our product … You have to see how it’s being used, or mis-used, or used in a way in which you’ve never seen it used before.” Senior Product Manager “...value for customers is based on … fundamentals, you know the human drivers, the human needs and … the frustrations they’re trying to avoid and the time they’re trying to save, and making things predictable … And that’s really what the basic service structure is about, helping people get an expectation and then delivering on it.” Managing Director “… what’s the best thing I can do for [channel partners]? It’s to grow their business. That’s the way I look at it, is that if I am defining value for my customer, they should look upon me as one of them, so I am one of their account managers. I am working for them, rather than for [case firm].” Business Development Manager … we’re becoming extremely proud of [school] development. … schools always are working on cost … [but] you’re undermining the value you’re delivering to them if you’re only focusing on cost, because they need performance from their networks, and if you deliver dogs 155

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of networks, who can afford to go to class when it takes half an hour to deliver the information to class and the other half to send back again. Senior product manager With regard to FP07 (The enterprise cannot deliver value, but only offer value propositions), the evidence is more implicit. For example: … People underestimate the power of relationships … the amount of business coming in uncontested because of the organisational relationship [between supplier and large telco] was phenomenal. And I’ve seen it myself with the growth that we’ve had. You agree at senior level to do business together, because the two organisations are going to get some benefit out of it, and a whole lot of things happen naturally because of that. Most relationships aren’t created without difficulty, they aren’t created without negotiation, and that’s a really complex dance. And you need to have experienced it, and there is some process in all of that chaos, but it is really difficult. Very few people are capable of doing it. CEO … the value adding for customers now has gone completely outside the product … The value shift is to helping [customers] market themselves and add value to their customer with these products. … if you package it up right put the right proposals together you can always compete against the different product range, different price, different company, just with the right solution. CEO [MD] understands the whole value piece far more than most people do. Particularly in the sales process having to communicate the value proposition, it’s just core to everything he does … And it’s so hard to find. Even people that go all the way through university training still forget the fundamental proposition. It’s so hard to meet product-marketing people that can be given something and pick out of it what’s relevant for either our customer base for the market and say you know “this is the value proposition and this is the product proposition.” People that design and manufacturer goods often are terrible at it, and the worst at producing value propositions. We were recently giving one for the telecom market, and I ended up sitting all the people together in the room - and there must have been six of them and we almost had an argument. It took us about three or four hours, and it was just a matter of going through the different products we couldn’t even agree on what we were going to promote. We had two offerings we went through those offerings, we went through the competition, we went through what the customer was trying to do and worked out what we had was unique and what the customer was looking for and what the gap was, and positioned it and put a presentation together. And I can do that with all the information, but it was just frustrating that people that understand these things and had the information can’t do it. CEO … [as a supplier] you’re just making a contribution to a certain area. Just like a doctor does, he fixes you up instantly and you’re wonderfully grateful, but life carries on. It’s just one thing in a long chain of events. MD With regard to FP10: (Value is always uniquely and phenomenologically determined by the beneficiary) the evidence is more implicit. For example: … [what internal customers value], particularly from sales, external and internal and including product managers obviously, is the speed of response from my group, because they’re dealing with a customer who doesn’t want to be told “I’ll come and see you 156

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tomorrow”, or “I’ll ring you back in three days” they really want the answer on the fly, so it’s speed of response, the accuracy of the information and reliability are the key … what they value. Logistics Manager D: … we’re really here to satisfy a need, so we have to identify the need first. And the need for our customer base … is someone to get on with the job and solve their production problems. Now if we could be a value-added supplier then I think we’re … going to be more significant player in their business than if we’re just a bare-bones component supplier. … we were saying to the customers “here’s the connectors, here’s the cable and here’s the tooling, now go away and use it.” And they were saying “but hang on, all we want to do is come up with a cable assembly to join that to that!” SBU Manager … I guess value is perceived from their point of view isn’t it. One of the things we do offer them and I think it’s a major attribute, is a so-called just in time system, whereby they give us a forecast and we will place an order and get the product here roughly a month in advance of when they need it, so that if they have an urgent requirement hopefully we’ll have it in ex-stock. SBU Manager … the main judge as to whether it’s working or not and whether it’s valuable or not comes from the customers and the market, they’re the ultimate judge … So structuring ourselves to produce value and [choosing] where we should be trying to provide value, where there’s opportunity, and we’ve also got a job to do as to how to upgrade our value …And the value that we’re offering has moved in recent times. For a long time we’ve built our effort on if you like transactional value and project value. They’re still relevant, but we’ve added to that now. V: What do you mean by project value? B: Normally where people are involved with building plants or building offices … a project putting a system in a new building or a new plant, one of the dairy plant expansions … large on-going projects … Now what we’re doing is focusing on larger customers, and the value that we offer of course is still within the transactions and the projects, but now it’s a lot more based on relationship value and managing and developing value in relationships. MD. … the idea that in all this complex situation that you’re still providing value for customers which is value that the customer wants, because that’s the very definition of it, that the customer has to value it for it to be of value. To be value for it. MD … in the electronics world … when your network doesn’t run, you’re off the air …Ideally anyway the network’s doing all the things you want to do in the way that you want to do it, and you never know it’s there … the motivator for the whole thing is actually that the system works and carries real load and performs real well and doesn’t stagnate or come to a halt because of inadequacies in the network … [which is] very difficult [for schools to assess beforehand]. They can tell afterwards because your terminal doesn’t work, or your computer doesn’t work, or your network goes very slow when all the kids get on it all at once … and if it sustains life through the roughs and tumbles of equipment upgrades and extensions and migrations and all that the business wants to do … and also to ride the technology improvements or increases. MD … the best way to uncover [customer needs] is to ask “Why? Why you’re buying this, what is it that you’re doing?” … And one example that illustrates this quite well is that a 157

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level one expression of an opportunity could be: “We want to buy some hardware, we want to buy some software, we want to buy some training services, we want to buy some implementation advice, so there could be a list of things we’re going to buy.” And a good sales person might say “That’s fine, I understand all those things, you’ve given me excellent RFP that tells me all about the attributes of those things you’re after, but why are you buying them?” And that comes down to, “oh I’m buying them because we’re establishing a call centre”, let’s say … if I know they’re going to establish a call centre, then maybe the value I can bring, outside of the products or services requested to help them establish a successful call centre for example … Secondly, the things - even if I propose the same types of services they’ve asked for - what I now need to do is interpret the value my organisation brings in terms of the success of the call centre. Because such things as risk, such things as certainty, now should be reflected in terms of impact on the call centre, not as attributes of the product or service. And suddenly what happens is the value perception has changed. If I asked someone who successfully bid against that request for products and services, why did you pick them? The answer will be because they had good products and services, whether that be functionality, price, reliability - whatever reasons. If I asked someone who’s establishing a call centre, why did you pick these key strategic suppliers their answer’s going to be “because they will help me implement a more successful call centre.” … see how the value just shifted? Consultant

Implications The research brings together various perspectives of customer value, contributing to theoretical ‘requisite variety’ (Weick 2007) with respect to current understandings. It provides a deep and rich perspective of the value phenomenon by providing multiple alternative perspectives of customer value, both between-firm and within-firm. While this research does not directly investigate the prevalence of a specific organisation’s value posture that expresses the S D Logic it has a number of important implications for the way value is articulated.

Between-firm perspectives The research expands the initial three generic value posture to five (transactional, hybridtransitional, relational, network and systemic). Firms tend to practice marketing in line with the characteristics of one of these dominant forms, although commensurate with the complexity of the value construct, reality defies ‘tidy’ description. The single site case firm is characterised by a ‘relational’ approach to marketing, while elements of each of the approaches is detectable. While the research provides evidence of the relational, network and systemic value postures that are aligned to dialogue and concepts about value within the S D Logic there is evidence of other practices. What the study shows is that explanation and prescription relating to value creation and delivery cannot be usefully developed without due consideration of contextual factors. Thus future research should be undertaken using datasets of homogenous ‘segments’ of firms with particular value postures. Otherwise the interpretation of results should be undertaken with the differential approaches to marketing practice in mind. Managers could diagnose their firm’s value posture, to enhance sense-making around value creating and delivering activities within the context of their operating environment. With respect to marketing practice, diagnosing the prevailing approach to value creating and delivery, and auditing activities accordingly, would be a useful exercise. Furthermore, marketing oriented managers should develop and apply a layered view of customer value creation and delivery at the single firm customer level, and in developing marketing strategy. 158

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The research shows the conventional approach advocates creating value by means of a differentiated product offering, however our findings indicated that this was necessary but not sufficient – our single case data indicated that meaningful differentiation was achieved by an expanded view of value encompassing the firm, the solution and service quality.

Within-firm perspectives The research highlights the importance of also taking a within-firm perspective to understand the differences relating to value creation and delivery. These are characterised as front-line, functional and strategic perspectives of value, held by managers and firms. Each view of value is particular to the stakeholders at each level. For example at front-line level, customer service representatives provide value to customers in the form of delivery in-full on-time in-spec (IFOTIS). This is a necessary but insufficient condition for providing value at the functional level, where managers value support for organisational processes – for example the establishment of a call centre. This is in turn a necessary but insufficient condition for providing value at top management level, where strategic views of value focus on long term goals, for example lowered costs and increased revenue streams based on more effective and efficient customer contacts. We note that much of the dialogue about the S D Logic applies to top management concerns and the strategic view, and in the context of relational, network and systemic value postures. Responses drawn from informants at the functional and front line level would offer stronger evidence for transactional and transactional/hybrid value postures, regardless of the ‘true’ posture of the firm. Thus when future research is undertaken, care should be taken with the interpretation of results form single respondent surveys – value perception of value is influenced by respondent level in the organisation, and the results should be interpreted accordingly. Following Flint, Woodruff and Gardial’s (2002) research into customer desired value change, effort is required at providing deeper understanding of the factors influencing value perceptions at each level, and how these perceptions change over time. Our findings also indicated that approaches to value creation and delivery are dynamic - firms can migrate from one value ‘state’ to another (e.g. as in firms found to have a transitional approach to value).

Conclusion Overall, we conclude that research into aspects of value is appropriately served by a ‘rich and thick’ approach such as this multi-method multi-stage study. We have employed Weick’s (2007) lessons by drawing insights from a broad church of literature; we build on the literature by designing and implementing a study commensurate with the level of complexity of the phenomena; we compare and contrast a staged series of findings; we allow the present to ‘speak’ (i.e. allow phenomena to emerge), without overlaying the orthodoxies of the past; and we pay attention to the particulars, to the context and to the situation. Perhaps the most valuable contribution of the S D Logic approach to understanding value is the impetus to apply a new perspective to a long-standing challenge.

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Xie, Chunyan, Bagozzi, Richard P., and Troye, Sigurd V. [2008], 'Trying to prosume: toward a theory of consumers as co-creators of value', Journal of the Academy of Marketing Science, Vol. 36, No. 1, pp. 109-22. Zeithaml, Valarie [1988], 'Consumer perception of price, quality, and value: A means–end model and synthesis of evidence.' Journal of Marketing, Vol. 52, No. 3, pp. 2-22. Zerbini, Frabrizio, Golfetto, Francesca, and Gibbert, Michael [2007], 'Marketing of competence: Exploring the resource-based content of value-for-customers through a case study analysis', Industrial Marketing Management, Vol. 36, pp. 784-98.

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