Creating and Sharing Value:

The Cornerstone of Business Marketing Management

James A. Narus, Ph.D.

Babcock Graduate School of Management Wake Forest University Suite 150, One Morrocroft Centre Charlotte, NC 28211-3551 USA +1.704.365.6717 (telephone) +1.704.365.3511 (fax) jim.narus@mba.wfu.edu (e-mail)

Thinking About Value

Value is the worth in monetary terms of the net economic, technical, service, and social benefits a customer receives in exchange for the price it pays for a market offering.

Thinking About Value

Basic Considerations

In general, customer firms pay price now and gain value later.

Fundamental Value Equation

VA - PA > VB - PB
where, V = the net benefits (i.e., benefits minus cost-of-use) associated with a suppliers market offering P = the net price a customer firm pays for a suppliers market offering

Understanding Customer Value

Basic Considerations A customers incentive to buy (CIB) or the market driving force is:
VA - PA

A customer will prefer offering A when:

VA - PA > VB - PB

If suppliers and/or customers dont understand value, CIB reduces to:

PA < PB

Customer Value Management

Tailor Market Offerings

Conceptualize Value

Formulate Value Propositions

Substantiate Value Propositions Transform Sales Force to Value Merchants

Profit from Value Provided

Profit from Value Provided

The Profit Strategy Pyramid
Customer Contribution to Profitability

Customer Willingness to Pay

Cost to Serve Customer

Gain a Price Premium

Secure a More Profitable Mix of Business

Grow a Greater Share of Customers Business

Eliminate Value Drains & Value Leaks

Profit from Value Provided

Goals Gain a Price Premium Strategies Solutions

Customer Willingness to Pay

Secure a More Profitable Mix of Business Grow a Greater Share of Customers Business Eliminate Value Drains & Value Leaks

Multiple Single Sourcing

Bundles

Cost to Serve Customer

Transaction Process Management

Profit from Value Provided

Definitions

Solution a complementary group of products and/or services engineered to meet customer requirements and sold for a premium price. Multiple Single Sourcing contract to exclusively provide most profitable solutions to one customer location. Bundle an unrelated group of products and/or services consolidated for a customer and sold at a discounted price. Value Drain a feature or benefit which costs the supplier more to provide than the customer is willing to pay. Value Leak customer processes that needlessly increase the cost of doing business.

Profit from Value Provided

Academic Research Questions

How can firms maximize customer contribution as a function of the type of working relationship? Should customer contribution strategies vary as a function of relationship life cycle? When should a supplier strive to reduce a partners total cost of ownership versus enhancing their revenue streams? Under what conditions is it more profitable to sell bundles versus solutions? When should a supplier seek to improve the value-added by a customers product versus reducing the customers operating costs?

Profit from Value Provided

Potential Academic Hypotheses
H1: For collaborative accounts, solutions and multiple single sourcing strategies will yield greater customer contribution to profitability than bundles and transaction process management strategies. H2: For transactional accounts, bundles and transaction process management strategies will yield greater customer contribution to profitability than solutions and multiple single sourcing strategies.

Profit from Value Provided

Potential Academic Hypotheses
H3: During the exploration phase of the relationship life cycle, bundles and transaction process management strategies will yield greater customer contribution to profitability than solutions and multiple single sourcing strategies. H4: During the maintenance phase of the relationship life cycle, solutions and multiple single sourcing strategies will yield greater customer contribution to profitability than bundles and transaction process management strategies.

References

James C. Anderson, Nirmalya Kumar, and James A. Narus, Value Merchants, Boston, MA: Harvard Business School Press, 2007). ISBN13: 978-1-4221-0335-7. James C. Anderson, James A. Narus, and Wouter van Rossum, Customer Value Propositions in Business Markets, Harvard Business Review, (March 2006): 90-99. James C. Anderson and James A. Narus, Selectively Pursuing More of Your Customers Business, MIT-Sloan Management Review, (Spring 2003): 42-49. James C. Anderson and James A. Narus, Business Marketing: Understand What Customers Value, Harvard Business Review, (November-December 1998): 5-15.