Customer value in B2B markets

Customer value plays important role especially in business markets. It is crucial for suppliers to identify the value of a product for a customer and effectively communicate it. Many customers understand their needs but often they do not realize what value the fulfillment of the requirements will bring to their businesses. From the supplier perspective this is an opportunity to show the value of their offerings. Suppliers need to translate features and benefits of their offerings and help their customers answer the question: What is it worth for my business? Growing number of suppliers realize that understanding what the customers value would help them to gain competitive advantage over their competitors.
According to Anderson & Narus (1998) these suppliers develop customer value models, which are data-driven representations of the worth, in monetary terms, of what the supplier is doing or could do for its customers. Customer value models are based on the analysis and assessment of the cost and benefits of a given market offering in a particular customer application.

To start the discussion about customer value, how it should be defined and measured, it is important to have a common understanding of what does ‘value’ mean. Below I present selected views for this issue. It is worth noting that among researchers there is no universal definition of value.

According to Miles (1961) value is defined as the minimum dollars, which must be spent in purchasing or manufacturing a product to create the appropriate use and esteem factors. Miles distinguishes four kinds of value: use value, esteem value, cost value and exchange value. Use value is characterized as the properties and qualities, which accomplish a use, work or service. Esteem value is defined as the properties, features, or attractiveness, which cause a want to own it. Cost value describes the sum of labor, material, and various other costs required to produce it. Finally, exchange value is its properties or qualities, which enable exchanging it for something else that is wanted.

Zeithaml (1988) defines value as: (1) low price, (2) whatever I want in a product, (3) the quality customer gets for the price he pays, and (4) what customer gets for what he gives.

Kotler (2000) describes value as (1) total customer value, (2) total customer cost and (3) customer-delivered value. Total customer value is what customer expects from a product or service; total customer cost is the bundle of expected costs by the customer in the process of evaluating, obtaining, using, and disposing the good or service. Difference between total customer value and total customer costs illustrates the customer delivered value.

Neap & Celik (1999) define value of a product as a measure expressed in monetary units, which reflects the desire to obtain or retain the product and is equal to the cost of the product and a subjective marginal value, where the cost of the product is the total price paid for the product. The marginal value is the subjective part of the value and depends on the buyers’ value system.

According to Anderson & Narus (1998) value in business markets is the worth in monetary terms of the technical, economic, service, and social benefits a customer company receives in exchange for the price it pays for a market offering. Value in this definition is the worth in monetary terms a customer firm receives in exchange for the price it pays for a product offering taking into consideration competing suppliers’ offerings and prices. As it defined, a product offering’s value and price are independent of each other. The value provided nearly always exceeds the price paid. That difference is called customer incentive to purchase.

Basically every market offering might be simplified into two characteristics, i.e. its value and its price. It should be noted that any changes in the pricing do not change the value perspective but rather they change the customer’s incentive to purchase the product or service, as it was defined as different between the value and the price of the offering in question.

Anderson & Narus presented definition of value in the following equation:

(Value S – Price S) > (Value A – Price A),

where Value S and Price S are the value and price of the supplier’s market offering, and Value A and Price A are value and price of the next best alternative.

Basically, the difference between the value and the price expresses the customer’s incentive to purchase given product. It is assumed that customer can easily compare other market offerings, the incentive to purchase the supplier’s service must exceed its incentive to go for the next best alternative.