In a Western economy of surplus rather than shortage of goods and services, it is vital that in any market, an organisation must offer a superior value proposition to its customers, if it wishes to gain a competitive advantage over its competitors. This essay will first discuss what is meant by the term ‘value’ in relation to customers. It will go on to demonstrate how, in a co-ordinated and integrated organisation, the Marketing function can identify, develop and deliver superior value for its customers, whilst maintaining profitability for shareholders.
Piercy, (2002) describes value for a customer, not only in terms of lower prices and higher quality, but more as a perception of one products overall benefits compared to the total cost of purchasing the product. These costs not only include price, but also the time, effort, and difficulties that may arise during the whole purchase decision and post purchase evaluation. Piercy states, that customers have become more ‘sophisticated’ as awareness of marketing activity has increased. The expectations of the customer have increased so much, that traditional marketing perspective where the customer is easily satisfied has all but disappeared.
Customers now want, and expect not only the core benefits of a product, for example, a washing machine that gets your clothes clean, but also secondary benefits such as, design, reliability, brand names, and various colours. Customers also now demand what Palmer (2000) refers to as, the augmented product. This would include, low energy usage, extended warranties, free delivery after purchase, or interest free credit. These secondary and augmented aspects of the product, amount to the overall superior value proposition given by the company to the customer.
The challenge that an organisation faces, is how best to employ its scarce resources to add value to the total product or service offer, whilst meeting the demands of various stakeholders. As stated by Kotler (2001), it is impossible for a company to satisfy all consumers because firstly, there are far too many, and secondly they have such diverse needs and buying requirements. Therefore, as Palmer (2000) illustrates, if the organisation cannot appeal to the mass market, a more defined group of buyers will need to be identified.
It is the role of Marketing to identify this group of potential customers, by way of market analysis and market segmentation. By carrying out an analysis of consumers, the marketing function will be eager to identify a group or segment of potential customers who all have similar expectations and needs. The basis for segmentation can be wide and varied to include, geographics, demographics, psychographics, and behavioural elements. This process of segmentation is stated as being “crucial to the whole philosophy of marketing”, Palmer (2002).
This is because, if after segmenting the market, it can be seen that the segment is non viable to allow sufficient profits to be made, it is likely the product, or service offer would require development, in order to appeal to a larger, more profitable segment. It is much cheaper to realise at this stage that there is no market for a product, rather than later when more costs have been incurred by the organisation. Once the organisation believes it can meet the basic needs of the customer, it must concentrate on the current and possible future competition.
Doyle (2000), states that only by the product or service having a “differential advantage” can the organisation attract and keep customers, and therefore “maintain earnings above the cost of capital”. This means that it is a fundamental role of marketing to offer a superior value proposition, which customers perceive to be both distinctive and surpassing any other companies offerings and therefore giving a unique selling proposition. Although, because the perception of value is different between customers, marketing must decide where to position their product both in the market, and in the minds of potential customers.
Doyle (2000), discusses four types of positioning strategies, which aims to develop the value perception for those customers who base their buying decision on benefits rather than simply cost or convenience. These are “product leadership”, “service leadership”, “customer intimacy”, and “brand leadership”. Product leadership for example, refers to a company who would position their product in the market where the customers demand the latest technologies or innovative products, such as Dyson vacuum cleaners.
Customer intimacy however, would put the company in a position where communication with the customer was on an individual basis. This strategy can be highly reliant on technologies, as information on customers needs to be acquired over time and stored in large databases. One to one communication can then take place allowing a more preferred, tailored service to be offered. This strategy of building a trusting customer relationship has become more widely used, especially with the popularity of Internet forums, help sites, and e-mail.
Brand leadership however, is a means by which marketing can communicate not only a products attributes and benefits, but also the intangibles such as values and identity, giving the target consumer an emotional connection with the brand. Vazquez et al, (2002) confirm this stating, “consumers perceive both functional and symbolic utilities of both the product and the brand name”. Aaker (1992), also highlights the potential of a strong brand, by stating the potential for perceived brand quality, brand awareness, and brand loyalty, which leads to “predictable sales and profit stream”.
These types of strategies however imply a market leader approach. In many cases, it will simply not be financially viable for an organisation to enter a market in this way. For example, in the UK small car market, companies such as Ford and Vauxhall historically were market leaders. However, this has changed over recent years with the influx of new brands especially from the Far East. Companies such as Honda began an offensive strategy based on offering consumers a cheaper, more reliable car, which came with many ‘extras’ included in the price. This offered the consumer greater value and allowed Honda to gain market share quickly.
By identifying and delivering what the consumer wanted Honda, whilst still being a market challenger, has marketed its way into a strong competitive position. Ohmae (nd) cited by McKinsey Quarterly (nd) confirms this strategy by stating that it is better to “provide value to customers, rather than aping the competition”. It was the way Honda developed the marketing mix that allowed this to happen. Not only should marketing identify potential customers, but also they should bring the product to the market in a way that adds value. This includes appropriate price setting for the target customer and extra benefits within the product.
Also required would be effective promotions through marketing communications, and effective channels of distribution and logistical support. All these elements can affect the overall value proposition perceived by the customer. Depending on the product, factors including internal organisational changes, changes in consumer behaviour, new competition, or the product life cycle will require marketing to constantly develop if they are to create, maintain, and deliver a superior value proposition. For example, in technologies, the marketing mix in a growth market may be very different to that of a market in decline.
When in growth, premium prices can be expected, which attracts new competition. In a market in decline, marketers may need to alter pricing and add extra benefits to entice consumers to buy. By altering its marketing mix strategically over time, marketing is able to maintain its competitive advantage, and continue its profitability. Everything discussed so far does suggest that that the touchstone of marketing is identifying, developing, and delivering a superior value proposition. However, this does not account for the cross-functional co-operation and communication that must take place within the organisation.
One of the challenges marketing faces, is being able to communicate the changes to the organisation, in a dynamic, complex, external environment. Marketing must drive these changes through the organisation, so that all functions are aware, and are able to manage their processes in order to maintain customer focus. If this driving force is ineffective, the organisation is liable to become one of reacting to the market, rather than anticipating future trends. By reacting to markets, the outcome will almost certainly lead to the organisation becoming a market follower, and therefore reduced profits.
It has been shown what is meant by the term value, and why marketing must offer a superior value proposition to customers. The ways in which marketing deploys the scarce resources of the organisation have been highlighted, as has how markets are analysed in order to carry out segmentation. Various positioning strategies have been discussed, and using the example of Honda has shown how adopting a certain strategy can entice consumers away from competitors. It has also be stated that, if marketing does not have the full support of the rest of the organisation, their efforts may be in vain.