Customer value: what is it?

Abstract
This short paper surveys the main usages of the term value in the
Marketing feld highlighting the extraordinary variety of defnitions
that it has attracted. Although the paper focuses on semantic issues, it
is argued that the complexity and confusion that currently surrounds
the meaning of the term is a hindrance to efective operations in oth
the academy and practice. The suggestion is made that it is possile
to ring some order and clarity to the current semantic complexity
surrounding the !ord value y comparing the existing defnitions
!ith a rutally simplifed variation. This is carried out, and the true
nature of some of the most popular usages of the term in the feld is
revealed.
The paper ends !ith a radical plea for semantic clarity, not only
to protect the concept of value from further degradation and possile
loss of efectiveness as an explanatory variale in empirical research,
ut also to prevent its aandonment y practitioners as an aid in the
motivation of staf and the management of frms.
"eople have een thinking aout the nature of value for more than
t!o millenia. #enophon $c. %&'()** +,-, the earliest pulished
economist, oserved that value comes from the interaction of a
product !ith a consumer, and not the product itself.
A flute for example, is wealth to one who is competent to play it, but to an incompetent person it is
no better than useless stones.
Xenophon, 1923, p. 10
/ne result of such prolonged and sustained re0ection might have
een the creation of the most highly polished, unamiguous concept
in the 1nglish language. 2o!ever some &*33 years later !hat !e
have is semantic anarchy, and a general and gro!ing confusion aout
!hat the !ord value actually refers to. 4n the Marketing feld alone
the !ord has een attached to an astonishing array of usages. There
is a core of !ork that focuses on the value that customers en5oy or
perceive 6the precise choice of ver is su5ect to dispute7. This core
idea is variously defned as8 a trade(of et!een enefts and costs or
sacrifces 6many authors including $9impson et al, &33:-, $Monroe,
:;;:-8 <uality as specifed y customers $=ale, :;;%-8 the monetary
!orth of enefts $Anderson and >arus, :;;;-8 a relationship
et!een one companys ofering and that of its competitors
$?othandaraman and @ilson, &33:- and a process involving a range
of stakeholders $"ayne A 2olt, &33:7. 9ome adopt the ontological
position of arguing that value is located in the products and services
that companies supply, others argue that it is to e found primarily in
the minds of customers as customer perceived value $e.g. @oodruf,
:;;'-, $=rBnroos, :;;'-. Around this core of generalised defnitions
circle a numer of narro!er, more specialised treatments that
concentrate on one particular source of value for customers, see for
example relationship value in $2ogan, &33:7. Cinally, $De ,hernatony
et al &333- detail a e!ildering range of cominations of the !ords
value and added. 9ome of these appear to e attempts to devise
marketing(specifc versions of the accountants value added, see for
example, $=rEnroos, :;;'-, $>ilson, :;;&- and $Car<uhar, :;;%- all of
!hom refer to exceptional services or giving customers more than
they !ere expecting. /thers seem to e using the !ord added simply
to mean extra degrees of normal customer value, see $Feithaml,
:;GG- and $Havald and =rEnroos, :;;I-.
The reasons for the extraordinary profusion of the current
semantic 5ungle surrounding the concept are unclear, ut academics
respond to the complexity in a limited numer of !ays. 9ome simply
ignore the prolem and use the !ord value, !ithout explication, as
though its meaning !ere self(evident. /thers see the !elter of
defnitions, <uite reasonaly conclude that the precise meaning of the
term has yet to e agreed, and coin their o!n ne! defnition or usage
6see, for example, $Clint and @oodruf, &33:, p.)&&-7. 9ome avoid the
prolem of choosing et!een competing meanings y listing a !hole
variety of possile alternatives 6see for example, -2ogan, &33:, p.
)%3-7 Cinally, it is no coincidence that authors revie!ing or surveying
the value literature, those in other !ords !ith the most complete
grasp of the su5ect area, all stress the semantic confusion that exists
6see for example $Anderson et al, &333, p. )3G-, $de ,hernatony et al,
&333, p. %:-, $JesKinski and Marn, :;;', p.;;- $"ayne and 2olt, &33:,
p. :*;- and $Fiethaml, :;GG , p. &-. Ce! !ould argue that this is a
satisfactory state of afairs, and this rief paper is an attempt to ring
some clarity to the feld of Marketing.
A proposal
The core usages of the term either refer simply to value, !ith the
context making it clear that the author is thinking aout the value
customers en5oy or perceive, or they employ the phrase customer
value. 2o!ever those same !ords are used to refer to a e!ildering
variety of apparently diferent phenomena. /ne method of ringing
order to this semantic chaos !ould e to agree on a single defnition
of the concept. 2o!ever, there are no generally accepted rules
governing the design of defnitions, nor criteria for choosing et!een
competing alternatives. 4n the asence of a selection method that
!ould e acceptale to every authority on the su5ect, it is suggested
that the feld should apply Alert 1insteins advice aout theory
construction to the task of defning value, and accept a defnition that
is as simple as possile, ut no simpler, thus. Customer value is the
beneft that customers enjoy or experience from the receipt of
products and services.
,learly such a spartan defnition is incapale of emracing and
communicating the sutleties of the distinction et!een, for example,
sources of customer value ranging from the characteristics of
products through to the psychological in0uences on customers
perceptions. >or can it incorporate diferences in value efore and
after a product or service has een received or consumed. /r even the
distinction et!een value in the act of consumption as compared to
that in the process of exchange, and so on. 2o!ever, using this
extremely simple defnition idea as a yardstick it is possile to
examine a representative sample of the host of defnitions already on
ofer !ith a vie! to explaining !hy the meaning of the concept has
ecome so complex and difuse.
4t is argued that a signifcant proportion of the current semantic
confusion stems from the fact that any defnition of the term
customer value should ans!er the <uestion. @hat is customer
valueL, yet many of the pulished defnitions have much more
amitious aims, seeking to ans!er a range of closely related, ut
diferent, more complex <uestions. Cor example, some of the most
popular defnitions at the time of !riting focus on a putative trade(of
in the minds of customers et!een costs and enefts, thus.
Muyers perceive value as a trade of et!een perceived
<uality and enefts in the product or service on the one
hand and perceived cost on ac<uiring and using the
product or service on the other.
Monroe , :;;:, p. G'
and
Mcustomer value is created !hen the perceptions of
enefts received from a transaction exceed the total costs
of o!nership. The same idea can e expressed as a ratio.
"erceptions of enefts
,ustomer value N Total cost of o!nership
,hristopher A "eck, &33), p.%)
These defnitions go eyond simply defning !hat customer value is to
explore the roader <uestion of. 2o! do customers decide if a
product or service is !orth uyingL. They arrive at the reasonale
conclusion that customers !eigh up the costs and enefts associated
!ith the receipt of a product or a transaction !ith a company to
produce some estimation of !hat might e called the net eneft, and
then use this mental calculation to guide their decision(making. This
explanation generates confusion not only ecause it goes far eyond
the are defnition proposed aove, ut it also implies the illogical
notion that value N 6value O costs7. /ther authors have suggested that.
PalueMis the relationship of a frms market ofering and
price !eighed y the consumer against its competitors
market ofering and price. Cor a customer to perceive
value a choice is necessary et!een the availale market
oferings in the context of price.
?othandaraman A @ilson, &33:, p.)G3
and.
,ustomer value is the relationship et!een the degree of
customer satisfaction !ith the products and services
received and the satisfaction !ith the price paid. A
company creates customer value added 6,PA7 !hen it
provides products and services for customers that are of
greater value than they could expect from those of
competitive companies in similar marketsM.
"erceived !orth of the company ofer
,PA N "erceived !orth of competitive ofers
JaitamQki A ?ordupleski, :;;', p.:*G
4n this case, the authors are seeking to ans!er the roader <uestion.
2o! do customers choose et!een competing product or service
oferingsL This an interesting and useful <uestion for improving our
understanding of interactions et!een companies and customers, ut
its ans!er produces much more than a defnition of value.
There is a also considerale and gro!ing literature devoted to
!hat is termed perceived customer value, thus.
$perceived customer value is- a customers perceived
preference for and evaluation of those product attriutes,
attriute performances and conse<uences arising from
use that facilitate 6or lock7 achieving the customers
goals and purposes in use situations.
@oodruf, :;;', p.:%&
and.
Mperceived value is the consumers overall assessment of
the utility of a product ased on perceptions of !hat is
received and !hat is given.
Feithaml, :;GG, p.:%
These defnitions may e seen to e ans!ers to the <uestion. @hat
kind of processes or factors afect customers perceptions and
preferences for products or servicesL. /nce more the ans!ers far
exceed the re<uirements of a defnition of customer value.
9ome authors seek to generalise a rather narro! conception of
the term that they favour, for example.
Palue in usiness markets is the !orth in monetary terms
of the economic, technical, service and social enefts a
customer frm receives in exchange for the price it pays
for a market oferingM!e express value in monetary
terms. 9uch as dollars per unit, guilders per liter, or
kronor per hour. 1conomists may e interested in RutilsR,
ut !e have never met a manager !ho did. 6sic7M
Anderson A >arus, :;;;, pp. *
This incorporates a version of the simple defnition proposed aove,
ut goes on not only to employ the !ording of "orters $:;G*, p.)G7
traditional, microeconomics(inspired vie! of prices, ut to rigidly
specify !hat kind of enefts are deemed suitale for consideration.
This is an interesting approach, ut some might argue that the
inclusion of an emphasis on prices is super0uous in a defnition of
value, !hilst the exclusion of all non(monetary enefts unnecessarily
rules out the investigation of a range of possile forms of eneft that
may e essential to any deep understanding of uyer ehaviour.
Cinally, there is a small group of authors O $+latterg and
Deighton, :;;I-, $@alter et al, &33:- and $MEller and TErrEnen, &33)-
( !ho look at the value of the customer to the frm, for example.
M!e understand value as the perceived trade(of et!een
multiple enefts and sacrifces gained through a customer
relationship y key decision makers in the suppliers
organiKation.
@alter et al, &33:, p.)II
2o!ever, if customer value is value en5oyed or experienced y
customers, then these three papers are actually discussing an entirely
diferent concept that ought logically to e called supplier value.
Conclusion
The marketing feld, in the form of authors, 5ournal editors and
pulishers, has allo!ed the task of defning the concept of customer
value to lose focus, spread out and incorporate more complicated and,
some might maintain, more interesting <uestions than the lo!ly @hat
is customer valueL. The resulting confusion !as inevitale. ,larity
and improved understanding could e restored if the marketing feld
!ere to adopt the delierately narro! defnition of value suggested
aove. ,learly, there !ould remain a an extremely !ide range of
topics associated !ith the nature of value that !ill invite
investigation, including.
The factors that contriute to the creation of enefts for
customers
The mental processes involved in customer perceptions of
enefts
The diferent types of eneft arising in diferent forms of uyer(
supplier interactions
2o!ever, if the current practice of laelling all such related
phenomena as customer value !ere stamped out, not only !ould
there !ould e no further confusion aout !hat the core term meant,
ut the intent and relevance of explorations of the related phenomena
!ould also ecome much more easy to determine. 9ome might cavil at
the thought of such an apparently outrageous piece of linguistic
9talinism. 2o!ever, it is not eing argued that ideas should e
suppressed, merely that they e clearly expressed in order to
minimise oth academic and practitioner confusion. 4f the current
state of afairs is allo!ed to continue and the language to sufer
further degradation, the concept of value may ecome entirely
discredited and unusale as an explanatory variale in empirical
research. This !ould surely e a serious loss. Much of the !ork in this
area ofers valuale insights into customer and company ehaviour
and performance.
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