Understanding Customer Value Imperative in Marketing - Coursework Example

Supervisor Understanding the value imperative is a crucial success factor for marketing in comtemporary business organisations. Discuss this statement using EXAMPLES to illustrate your answer By November, 2008 TABLE OF CONTENTS 1.0Introduction 1.1 The Customer Value Imperative 1.2 Customer's Equity and Brand value The New Marketing Concepts-Putting Customers First 1.3 Importance of Customer's Brand Equity Model 1.0 Introduction In pursuit of continuous improvement, quality, time and cost should be the focus of contemporary organisations (Anthony et al. 2002, p.1). In a study by Anthony et al (2002 cited Deming, 1990; Juran, 1989) Customer satisfaction lies at the heart of all modern thinking on quality and business management. Customers and suppliers are important stakeholders. "Stakeholders are those individual or groups who depend on the organisation to fulfill their own goals and on whom, in turn, the organisation depends" (Johnson et. al.2005:179). Today, with increasing number of challenges facing firms with respect to stakeholders' management, they are obligated to deliver quality just to keep up or stay even with their rivals. New ways are needed to achieve an edge and to stand one step ahead of others (Keller 2003). In the phase of increasing competition, many corporate mission statements set customers as the focus of an organisation's business activities, and key thinkers have defined the quality of goods and services with reference to how well they satisfy needs and expectations of the customer base (Johnson et al 2005). At the other end, some companies are paying performance premiums. According to Aaker & Keller (1990) delivering superior value to carefully targeted customers seems to be the generally accepted path to sustained profitability (Keller 2003). In the light of the above, this essay essay is an attempt to clarify how developing a customer orientation affects the profitability of firms by referring to the fundamental elements of a customer driven marketing strategy: segmentation, targeting and positioning. It also presents a comprehensive understanding of the customer and the customer value imperative by using relevant examples. 1.1 The New Marketing Concepts, Putting the Customer's First As competition grows bigger, more and more organisations try to maximize customer value in order to achieve their full potential and get a competitive edge. There are several reasons for this awakening and change in perception (Porter 1990). Realizing the role of 'customers' and 'customers' equity, companies strive at satisfying their customers through the creation of brand equity (Aaker 1990). Customers are important stakeholders of a company. According to Sacconi, (2004), customers need quality products and services as well as increased customer value and customer satisfaction (Sacconi 2004). A customer is one who buys and uses goods and services. They are individuals who are affected by or who affect the product and service supplied, and bear the value and cost of a company's activities (Sacconi 2004). In most companies, customers are seen as the most important assets. For example, Berry & Parasuraman (1991) argue that, It is easier - and much cheaper - to keep existing customers than to get new ones. To Berry et al. (1990), the benefit from achieving satisfied and loyal customers stems from the fact that, the willingness for future repurchases will be much higher for satisfied and loyal customers than for dissatisfied and indifferent ones. Despite this awareness concerning the importance of customer satisfaction, it is beyond the ability of many of today's companies to maintain satisfied customers (Aaker 1989). To fully understand the meaning of 'customer value' and customers value creation, Aaker (1990) argues that this should be approached from the customer's perspective. Today, most companies have realized the importance of satisfied customers and are redefining their value chain towards customer's satisfaction attributes (Porter 1985). These attributes include product/ service quality, costs and the brand/ image (Aaker 1990). Customers loyalty and customers satisfaction is not only important at the level of the customers but primary for a sustain business for the firm (Parasuraman et al. 1995). According to Kortler, (2002) customers have specific needs, expectations, and perceptions, and if a company is not able to exceed or at least meet these expectations, the customer becomes dissatisfied and probably does not consider a repurchase. One prerequisite for customer satisfaction is therefore that the company knows their customer's needs and expectations (Kortler 2002).To some authors (e.g., Nowacki 2001 cited in Porter 2002), "A customer is satisfied only if and when they say they are satisfied. The perception is his/her interpretation of the value received played back against expectations. This declaration does not require any objective evidence and it can be a declaration made with no reason" (Nowacki, 2001). Various researchers have written about the concept of customer value .The term "value" has many meanings and thereby produces confusion. The concept of customer value is defined as the summation of benefits and sacrifices and results as a consequence of a customer using a product/service to meet certain need (Best 2006).Focusing on customer value can yield big results. However, in order to realize the benefits of a customer value strategy, the concept of customer value must be made operational as stated previously (Knox. & Maklan 2004). Some marketers erroneously define value to mean low cost or a price cut (Power, 1991). Of course, value always has a cost component, but consumers usually define value to include other parameters they want beyond the core service. Moreover, value for customers is not a fixed size; it is rather dependent on various factors, not least the physiological aspects of the customer (Best 2006). In the phase of increasing technology, companies have no other choice but to value their customers by embracing the "customer comes first" fact to survive. Adopting such a strategy is not as superficial as this frequently used three word motto. Customers are 'individuals' with different preferences and needs. Although it is not possible to measure customer value individually, dividing them into segments by considering the demographics,socio- economic statistics, potential value and so forth, seem to be a more feasible option (Kortler 2002). 1.1 The Customer's Value Imperative Market segmentation and positioning may support strong brand equity. A strong brand means power which brings along loyalty referred to as the probability of repeated purchases of the product by the same satisfied customer who might suggest it to another potential being (Aaker 1990). Briefly loyal customers are more profitable and in the following figure, Bain and Company proves why Adapted: www.mcintoshassociates.com According to Company report (2007), Procter & Gamble (P&G) experienced the importance of customer-derived brand loyalty when they attempted to change the color of the Prell shampoo from green to blue. "Consumers thought Prell was the green stuff. The guys at P&G said 'No, it's blue.' Challenging customer perceptions is very tricky, and is generally a mistake." summarized Jack Trout, marketing consultant of Trout & Partners. P&G, then, brought back the original formula which had a strong image in customers' minds. A similar example can be drawn from the Coca-Cola experience. Coca Cola's "New Coke" fiasco. As much as it is important for a company to know their target market, they should also be able to choose and invest in customers who are likely to come back and invest in them following the customer value determination process. Customer selection is a crucial strategic step towards maintaning a distinctive competitive advantage (Kortler 2002). For instance, there are two customers with 900 to spend on a designer bag. One has an annual income of 15000 whereas the other has 60000. According to a market opportunity analysis, it is the high share customer whom such a high fashion company should focus on and work to identify the customer value dimensions further. It is about customer relationship management (Kortler 2002). According to the customer relationship management cycle, with the acquisition of the target customers, development of relationships with them should promptly, but carefully, follow as customers will most likely do repeat business with the firm if it understands and responds to their individual needs and continue to do so when those needs change (Kortler 2002, Aaker 1990). However in order not to waste resources, the firm, in the course of building relationships with customers, should be able to carefully pinpoint the high-value customers, or those perceived to later form part of the firm's regular and valuable customer base. According to Keller (2003) the CBBE model approaches brand equity from the perspective of the consumer-whether it be an individual or organisation (Keller 2003). This model is built on the premise that, the power of a brand in the market is in "what customers have learned, felt, seen and heard about the brand due to their experiences over time" (Keller 2003:59). Keller (2003:60) defines CBBE as the "differentiated effect that brand knowledge has on consumer response to the marketing of that brand: brand awareness and brand image. The CBBE model suggests that four sequential steps are necessary in building a strong brand. As outlined in the model, these steps start from given an identity to the brand (who are you), to marking a difference between the brand and other related brands. Thus for the situation of a retail outlet, emphasis will be focusing on a cost leadership strategy by promoting those brand related salient features (fresh merchandise, smart staff, easy access, displacement, total comfort etc). Today, companies use brands to distinguish themselves from their competition and to communicate unique qualities of their products (Aaker and Keller 1990; Low and Fullerton 1994). Once a brand is established, the brand name itself is thought to add value to the product in the minds of consumers. This added value is referred to as brand equity (Aaker 1991). Companies and designers often employ marketing strategies that capitalize on their brand equity and place a greater value on the shapes and labels of their products than the material from which they are made. Such companies provide buyers with what are conventionally called elite brands, defined by Silverstein and Fiske (2003) as those brands that possess higher levels of quality, taste and aspiration than other brands in the product category. These products are often justifiably priced higher than other brands in order to make their brand seem exclusive and more prestigious. For example, elite designers are able to transform a 10 pound t-shirt into a $200 sought after treasure (Chatpaiboon 2004). Recently, Hermes reported that customers were placed on a two-year waiting list for their most popular Birkin bag, which retails for $6000 (Branch 2004). On EBay, women engaged in bidding wars over a blue Birkin bag for which the winner ultimately paid over $13,000 (Rose 2003). 1.3 Importance of Brand Equity As Court and Freeling, (1996) found in their research 'Brands have real power to persuade customers to purchase one product rather than another'. Hence brand equity is important in achieving customer equity because it helps to build emotional ties that adds value to the consumer because they trust the products or services that are being offered and thus are likely to become more loyal to a company or shop. Brands can reduce marketing costs because if the brand name is able to acquire new customers, then there is not such a greater need in heavy promotion and advertisement to push your name and values to the customer because the brand name will signal these and thus pull the customer to the organisation. This brand values are dependent on previous customer's satisfaction and values created. Keller, et al, (2002) have typified the importance that brand equity can play in achieving customer equity and subsequently improve firm performance. They highlighted four key areas that brand equity can have a positive effect on. The four areas are: 1) The brands ability to acquire new customers for current offerings, 2) The brands ability to encourage cross-buying from current customers, 3) The brands ability to charge a price premium for its products and services, and 4) Reduce marketing costs It is no suprise that those brands competing on customer's value prosper the most. Customer's conceived the brand name as quality and embraces it with higher expectations developing a strong attachment /commitment to the brand name. An example can be seen in Apple Inc where, its fanatically loyal customers who are mesmerized by a simple logo refused using anything but Apple products. This shows how customer value is a critical path to success for brands- in other words; there is a strong link between brand building and value adaptation. No wonder, brand marketers had to shift focus from imposing the functionality of the product or service to enhancing customer value by realizing its the emotions that affect sales (Aaker 1990, Best 2006, Keller 2003).). The toothpaste manufacturers for example replaced their "cleans and removes dental plaque" advertising with lovers preparing for their dates and effects of white teeth on people's social lives. British telecom changed its tagline as "It's good to talk", Nokia came up with "Connecting people" implying the effects of telecommunication on relationships by maintaining contact with friends and family whereas some companies chose to focus on 'socially responsible' marketing. In response to the brand-value fact, companies like Unilever even hired brand psychologists. Brand, today is critical in customers' value creation, customers' loyalty and the profitability of the company (Jill et al. 2002). References Aaker, D. and Keller, K. (1990) Consumer evaluations of brand extensions. Journal of Marketing, 54(Jan.), 27-41. Aaker, D. and Keller, K. (1990) Consumer evaluations of brand extensions. Journal of Marketing, 54(Jan.), 27-41. Aaker, D. (1991) Managing Brand Equity. New York: Free Press. Aaker, D.A., (1989)"Managing Assets and Skills: The Key to a Sustainable Competitive Advantage," California Management Review 17, Winter Issue 1989, 47-50. www.questia.com Anthony. et al. 2002. Understanding, Managing, and Implementing Quality. Framework Techniques and Cases Berry, L.L (1986): Big Ideas in Service marketing, Journal of Consumer Marketing, spring, PP.47-51 Berry, L.L.,A. Parasuraman(1991): Marketing Service: Completing Through Quality, The Free Press, New York. Berry, L.L, and V.A Zeithaml, A. Parasuraman (1990): Five imperatives for improving service quality, Sloan management Review, Vol. 31, summer, pp. 29-38 Best, J.R., (2006). Market-Based Management: Strategies for growing customer value and profitability. Bourdieu, P. (1984) Distinction: A Social Critique of the Judgment of Taste. Cambridge, MA: Harvard University Press Fisk, G. (1980) Taxonomic Classification of Micromarketing Theory. Syracuse, N.Y.: Syracuse University School of Management. Jill et al. 2002 Customer Loyalty: How to earn it, How to keep it. Jossey-Bass San Francesco Karr, R. (2003) Fashion industry copes with designer knockoffs. National Public Radio, September 18,2003. Keller, K. L., (2003). Strategic Brand Management. Building, Measuring and managing Brand equity 2nd Edt New Jersey. Prentice Hall. Kotler, P. and Keller, K.L. (2007) A Framework for Marketing Management. 3rd ed. Upper Saddle River, NJ: Prentice Hall. Keller, K. L., (2003). Strategic Brand Management. Building, Measuring and managing Brand equity 2nd Edt New Jersey. Prentice Hall. Kortler, P. A framework of Marketing Management. 2nd ed. Published by Pearson education, Inc. 2002 Knox, S., & Maklan S (2004).Competing on value: Bridging the gap between brand and customer value Low, G. and Fullerton, R. (1994) Brands, brand management, and the brand manager system: A critical-historical evaluation. Journal of Marketing Research, 31 (May), 173- 190. Rose, J. (2003). Knockoffs-who is it The Arizona Republic, January 15,2003. Rozin, R. S. (2002) The branding iron: From cowboys to corporations. Journal of Brand Management, 10(1), 4-8. Sacconi, L. (2004). A Social Account for CSR as Extended Model of Corporate Governance (Part II): Compliance, Reputation and Reciprocity. Journal of Business Ethics, No. 11, pages 77-96. Read More