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) [email protected] (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 gain value and later .

Fundamental Value Equation

V

A

- P

A

> V

B

- P

B where,

–

V = the offering

net benefits

(i.e., benefits minus cost of-use) associated with a supplier’s market

–

P = the

net price

a customer firm pays for a supplier’s market offering

Understanding Customer Value

Basic Considerations A

customer’s incentive to buy

market driving force is: V A - P A (CIB) or the A customer will prefer offering A when: V A - P A > V B - P B If suppliers and/or customers don’t understand value, CIB reduces to: P A < P B

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 Customer’s Business Eliminate Value Drains & Value Leaks

Profit from Value Provided

Goals Strategies Customer Willingness to Pay Cost to Serve Customer

Gain a Price Premium Secure a More Profitable Mix of Business Grow a Greater Share of Customer’s Business Eliminate Value Drains & Value Leaks Solutions Multiple Single Sourcing Bundles 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 provide most profitable solutions to one customer location.

– contract to exclusively 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 partner’s 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 customer’s product versus reducing the customer’s 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 H4 : 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.

: 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). ISBN-13: 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 Customer’s 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.