Creating and Sharing Value: The Cornerstone of Business Marketing Management

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Creating and Sharing ValueThe Cornerstone of
Business Marketing Management
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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_at_mba.wfu.edu (e-mail)
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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.

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Thinking About ValueBasic Considerations

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

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Fundamental Value Equation

• VA - PA gt 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

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Understanding Customer ValueBasic Considerations

• A customers incentive to buy (CIB) or the market
  driving force is
• VA - PA
• A customer will prefer offering A when
• VA - PA gt VB - PB
• If suppliers and/or customers dont understand
  value, CIB reduces to
• PA lt PB

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Customer Value Management
Tailor Market Offerings
Conceptualize Value
Profit from Value Provided
Formulate Value Propositions
Substantiate Value Propositions
Transform Sales Force to Value Merchants
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Profit from Value ProvidedThe Profit Strategy
Pyramid
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Profit from Value Provided
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Profit from Value ProvidedDefinitions

• 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.

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Profit from Value ProvidedAcademic 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?

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Profit from Value ProvidedPotential 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.

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Profit from Value ProvidedPotential 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.

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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 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.