By: Chris Lawer

Everyday, marketers, product developers, managers, all business-people in fact talk about “value”. In fact, I reckon it is probably the most popular – yet at the same time, most misunderstood - word used in everyday business conversation.

(Quick “non-empirical test” using Google: Value – 776 million hits, Customer – 583 million hits, “A Definition of Value” – 606 hits!)

For the past 2-3 years - off and on admittedly, I have been interested in how value is increasingly being co-created by firms and customers. ("Traditionally, learning about customer needs and the process of value-creation occurred within the firm’s boundaries or at best within partnerships amongst firms. The role of the firm was the development and delivery of goods and services, and the role of the customer was the consumption of those goods and services. However, a perspective of the firm as an autonomous value-creator is becoming increasingly redundant … " etc etc)

Over this period, I have become increasingly aware that to understand co-creation and by extension, to understand how firms can become effective co-creators with their customers, it is first essential to have much greater clarity on what we mean by value – particularly what value is being created and when, by whom and for whom. In the book, The Service-Dominant Logic of Marketing (eds. Vargo and Lusch), Woodruff and Flint critique our understanding and use of value as being too conceptual and too vague. They suggest that value is too often talked about as a “variable or a state-of-being” and little time is spent understanding the processes behind how customers form the value judgments that they do.

In terms of providing definitions of value, Woddruff and Flint go on to identify two broad schools of thought. These are firm-centric and customer-centric perspectives.

Firm-Centric Perspectives

Much of the knowledge on customer value is from the firm’s perspective in that it emphasises one of three varieties of firm-created or -derived value:

  1. Value-Added   This perspective suggests that value is embedded in the firm’s products and services and is independent of the customers’ perceptions of value. As such, value is something that is owned, created and exchanged by the firm and the emphasis is on designing offers that target customers will purchase.
  2. Economic Worth of a Customer   Here, the firm’s concern is to extract value from (particularly existing) customers and to segment them according to their value potential. Much of popular CRM and customer loyalty thinking focuses on this variety of value
  3. Economic Worth of a Seller’s Product / Service Offering to a Customer   This view defines a customer’s view of value in primarily monetary terms – where value is equated to price – and that customer’s measure the value attained in terms of their ability to derive a preferable deal from sellers.

We then have an important customer-centric perspective on value-definition.

Customer-Centric Perspectives

  1. Value-in-Use, is a concept which defines value as something that is perceived by a customer when interacting with products and services in use situations. Rather than the value being contained in the product, here value refers to a customer’s meaning that is attached to product and service bundles relative to a use context. In other words, a customer’s valuation of a product or service depends on their experience with its use in situations that are important to them. Another way of putting this - value-in-use can be expressed as the job that customers are trying to get done. They "hire" a product or service which they believe will help them get these jobs done most effectively and efficiently.

This is of course a much more useful perspective for identifying how firms can co-create value with their customers – it is the experience or value-in-use relative to a specific context that is being co-created and which should form the primary unit of analysis for value-creation.

Now, using these definitions of value, I argue it is possible to identify two broad categories or styles of co-creation, 1) Value-Added within a Firm-Centric perspective and 2) a Customer-Centric Value-In-Use perspective

1) Value-Added Co-Creation within a Firm-Centric Perspective

1. Product “Finishing”, The customer completes the product or service and is the final co-creator of value or actor in the business system or value chain, e.g. IKEA

2. New Product Design and Development (Lead User), Here a limited number of expert customers are invited “into the firm” to share their knowledge and contribute to the development of new products and services. There is a good description of the Lego Mindstorms lead user project in February 2006’s Wired magazine. Other examples include Harley Davidson HOG events, Saturn Cars, Proctor and Gamble’s Connect & Develop programme and Silicon Graphics.

3. Existing Product Adaptation (Customer Feedback), Here the company actively solicits expressed customer needs or feedback to improve its products, e.g. Cisco and Microsoft Knowledgebase

4. Mass Customisation, This is the provision to the customer of a limited set of company-determined choices or options with which the customer can personalise a standard product or service template. Examples include Adidas custom shoes, Dell PC’s and BMW cars (plus most other manufacturers)

5. Open Community Ideation and Product Design and Development. I differentiate the open-source movement because a) it is more distributed and b) firms cede more control to the community of users and creators. Also, open source tends to bias in digital environments, creating mods to games software for example as well as the well-known examples of Linux, Firefox and Sugar CRM. I also include Innocentive here because of its community basis for creating solutions to R&D problems.

6. New Service Design, I distinguish new service design from new product design and development (Lead User) (2 above) because service tends to involve more consumers in the innovation process and are also easier to test in markets than products through experimentation, probe and learn approaches. Also, of course, service value is inherently more adaptable than tangible product value, involving more knowledge-rich interaction. Examples include Teliasonera’s testing and piloting of new mobile phone services and Alaris Medical Systems constant dialogue with customers to improve its advocacy offering.

2) Customer-Centric Value-In-Use Co-Creation

7. Real-Time Marketing & Service Adaptation, Moving more to within markets and value-in-use with higher adaptability, this style of co-creation is characterised by high levels of customer dialogue and interaction, enabled by digital technology. This allows individual customers to change the value presented by the firm in real-time, so for example, Cemex allows its customers to modify the delivery time and quantity of cement to fit with their changing operational requirements, Fedex allows large corporate customers to change package transit times and destinations in real-time. These are enabled via an intelligent knowledge interface between the firm and the individual customer.

8. Personalised Experience Value and Knowledge Co-Creation. Finally, this is where the firm and the customer interact within an experience environment to realise unique co-created value. The unit of value is not the product or the service but the individual experience and its interaction with a host or experience network partners. Examples here include those such as iPod / iTunes (facilitates a personalised music experience, it is less about the white box and more about the experience gateway it provides), Medtronics pacemakers (less about the pacemaker technology, more about the intelligent care network ), John Deere (less about the heavy agricultural machinery, more about the remote sensing capability and adapt-to-farm conditions value) and Amazon (especially in the US which is experimenting with all kinds of personalised interfaces and content).

Capabilities for 7 and 8 Value-in-Use Co-Creation

Traditional Voice of the Customer approaches to customer needs identification tend to emphasise the value-added concept at the expense of value-in-use in their assumptions about customer needs and value. For example, the House of Quality first defined a set of capabilities and a process for collecting customer needs. Since then, many methods have been developed for translating VoC data into inputs into the value-creation process. In each instance, the firm tries to identify known or latent needs/wants of customers through a variety of mechanisms such as interviews, surveys, observational techniques, and so on. In these approaches, the firm’s capabilities are designed to help it learn about customer needs that exist in the market, beyond the boundaries of the firm. The company does the asking, the listening, the observing, experimenting and learning; customer needs/wants are the object of the study. After the firm learns about customer needs and wants, it then develops and delivers the goods and services that it feels will provide value to customers.

Now however, co-creation demands an alternative process for “co-creating the voice of the customer”, one where the customer and the firm are engaged together in the asking, listening, observing and experimenting – that is, both are engaged in learning. Importantly, the subject of the value-creation process is both the firm’s needs and wants and the customers’ needs and wants. This will be the subject of some later posts. Cheers

Original Post: http://chrislawer.blogs.com/chris_lawer/2007/05/value_value_val.html

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