Understanding value

By Karen W Miller

Dr Karen W Miller
UNIVERSITY OF SOUTHERN QUEENSLAND
 THE VALUE OF
MARKETING
TO BUSINESS

1|Page Dr Karen W Miller

 Marketing is not the art of
finding clever ways to
dispose of what you make.
Marketing is the art of
creating genuine customer
value Philip Kotler (1980)

The notion of creating genuine customer value is not new. However, the practice of
demonstrating the value that marketing provides an enterprise is challenging many
marketing managers and academics alike. Underpinning this challenge is some confusion
around the term marketing, what it means and does for an enterprise. Hanssens and
Marketing is a
profit centre and
Pauwels (2016) suggest that some of this confusion about the value of marketing to an
enterprise is caused because of the various viewpoints to do with the term, marketing.
They (Hanssens and Pauwels 2016 p 173) argue that -
not a cost centre
“Marketing is a philosophy (customer centricity), an
organisational function (the marketing department), and a set of (Hanssens and Pauwels 2016)
specific activities or programs (the marketing mix).”

2|Page Dr Karen W Miller

Hanssens and Pauwels (2016 p.177) argue that one of the key issues is that few The nature and type of activities that
enterprises consider the marketing department (or function) within an enterprise to be managers, distributors, retailers and
the true profit driver and therefore both hold it accountable for profitable growth driver customers perform affect the operations
and provide it with the necessary resources and authority to achieve profitable growth. and outcomes in their ‘enacted
The truth is that often the financial success of an enterprise depends on effective marketplaces’ (Kotler and Keller 2015).
marketing management. Marketing excellence is a superior ability to perform essential This is how practices, or more
customer-facing activities that improve customer, financial, stock market, and societal fundamentally the assumptions behind
outcomes (Moorman and Day 2016, p. 6). the practices, ‘create markets’ (Moorman
and Day 2016).
Finance operations, HR, IT, accounting, project management and other business
functions will not matter if customers do not buy (Kotler and Keller 2015). Marketers For example, where, when and how a
create demand (Hanssens and Pauwels 2016). If there is not sufficient demand for the supplier offers their goods and/or
offerings to be exchanged with buyers for a profit, then the enterprise will not be services for sale affects where, when and
successful (Moorman and Day 2016). Marketing is a strategic business function that co- how customers go to view and buy them,
creates value by stimulating, facilitating and fulfilling customer demand (Kotler and Keller or not. The resulting exchanges take
2015). place and shape the type and nature of
the ‘market’ that arises from these
Marketing actions co-create value by being customer-centric when building brands, activities (Kumar et al 2016).
nurturing innovation, developing relationships, creating wow-moments in service delivery
and communicate the key benefits to customers (Reed 2015). With a customer centric Behind these marketing activities, is the
view, marketing brings positive returns on investment, satisfies shareholders and choice of approach that the supplier
stakeholders from business and the community, and contributes to positive behavioural takes for offering their products (goods
change and a sustainable business future (Davies 2014). or services) to potential customers in the
first place – this ‘choice’ is usually
Marketing Management is a practice that focuses on how marketing activities and subsumed within the marketing strategy.
processes influence the operation and format of markets. This view sees Marketing This type of marketing decision made by
Managers as playing a role in the construction of markets themselves. This approach Marketing Managers and their team of
means that markets should not be viewed as pre-existing institutions or entities that are marketers, and the practice by suppliers
separate from these participants – managers, retailers and consumers, themselves. influences the operations of these
Underlying these activities is the way the participants see things – their own markets (Hanssens and Pauwels 2016).
understanding and definition of the market they adopt – that affects the nature, type,
place, time and frequency of exchanges that takes place (Kumar et al 2016).

3|Page Dr Karen W Miller

Marketing typically involves subsets of teams that are responsible for activities, such as
designing solutions to customer pain-points, enhancing customer benefits and ensuring
the jobs customers expect are satisfied (Osterwalder et al 2014). Some refer to this as
entrepreneurial marketing as these marketing activities are common practices that
entrepreneurs use to bring their start-ups to market (Rojas Consulting Group 2014).

Entrepreneurial marketing is the unique set of marketing practices and methods by

entrepreneurs, start-ups, and small businesses to market and build sustainable
businesses (Rojas Consulting Group 2014). Both marketers and entrepreneurs
communicate value propositions and co-create value with customers by improving
customer processes to enhance the customer experience, and finding the right channel
for the right customer (Osterwalder et al 2014). Entrepreneurial Marketing Managers
Since 1986, marketing has involved the
may act differently and define their own markets. In doing so, entrepreneurial marketing
use of sophisticated empirical techniques
managers may seek to understand the market(s) that affect their operations and the
to solve problems and find solutions for
outcomes in their chosen ‘marketplace’ and look for blue oceans (niche or monopolistic
markets. The use of interdisciplinary
markets).
knowledge has grown and so have the
Marketing has grown from its roots in economics, psychology, sociology and statistics. developments of database technologies
Kumar et al (2016) developed a timeline to plot the growth and changes that have and the abilities to capture individual
occurred in marketing, and parts of this timeline have been adapted and shown here. customer data and perform analysis as
the individual customer level. These
Timeline Marketing
technology advancements give
1936-1945 Marketing as applied economics marketing teams deeper insights to aid
1946-1955 Marketing as a managerial activity marketing initiatives. Since 2005, much
1956-1965 Marketing as a quantitative science of the marketing investment is directed
at the customer level and to understand
1966-1975 Marketing as a behavioural science
customer value and changes in media
1976-1985 Marketing as a decision science and usage patterns to focus on
1986-1995 Marketing as an integrative science efficiencies and effectiveness in
marketing campaigns to generate value,
1996-2004 Marketing as a scarce resource
not only for the customers, but also for
2005-2012 Marketing as an investment
the enterprise and their key stakeholders
2013- present Marketing as an integral part of the enterprise (Kumar et al 2016).

4|Page Dr Karen W Miller

One of the key purposes of business is to create value, first for the customers, as
customers are the ultimate adjudicators of price and value (Kumar and Reinartz 2016).
Marketing does not
Because the demand volume from customers increases so, do the profits an enterprise
makes, thereby creating value for the enterprise (Hassens and Pauwels 2016).
take place in
Marketing impact on business performance isolation. When
Marketing Actions Growth driver effective, marketing
Advertising Minor is the engine that
Product differentiation Major drives the successful
Sales Major
growth of a business
Price Minor
enterprise.

Distribution Minor

Price promotion No

Innovation Major

Customer value satisfied Major

Brand / customer assets Major

(Hanssens and Pauwels 2016)

5|Page Dr Karen W Miller

 Marketing activities take place
within the wider context of an
enterprise, industries, cultures
and countries, so that the
marketing endeavour is often
viewed as boundary-spanning
role between the enterprise
and the environment (Moorman
and Day 2016).
Of course, the immediate
environment for marketing is
the enterprise in which it takes
place, but marketing is
considered to extend beyond
the marketing team, the
marketing department or the
marketing function (Hanssens
and Pauwels 2016).
The external environment
exists outside of the enterprise,
is impacted on, and influences
the marketing actions of the
enterprise. The external
contexts that influence the
enterprise come from the
economic environment,
technology, political, legal and
social cultural environments.
Context influences the practice
6|Page Dr Karen W Miller
of marketing (Kotler and Keller 2015).
1. Sometimes marketing is perceived as
synonymous with sales, which
delivers marketing communications,
advertising, personal selling and
promotional activities. This
perspective is labelled as having a
‘sales orientation’
2. In order to aspire to be fully
‘marketing orientated’, all of the
activities of the enterprise centre on
the customer. This means that all
functions and personnel, not only
those in marketing teams, but those
in other functional teams within the
enterprise must undertake marketing
activities. As such, everyone in the
enterprise is a marketer.
3. In order to provide something of
value to their customers or users
outside, the activities and
departments involved inside the
enterprise, each must deliver their
part of the process to the other
internal units and functions involved.
For instance, R&D focus on delivering new and innovative goods and/or services for
customers, the IT department focuses on improving the process that underpins the
customer experience and the HR department focus on hiring the right personnel to
deliver to and exchange with the customer (Moorman and Day 2016). In this way, each What offers
internal activity has a customer-focus inside the enterprise (Hanssens and Pauwels
2016). These processes and capabilities came into the fore during the 1980s under the
Resource Based View (RBV, Wernerfelt, 1984). In this way the internal resources, which are
includes both assets and capabilities that are cultivated by the enterprise over time
(Moorman and Day 2016), and the strategic view of management is to determine how
best to leverage these to access the market (thus an inside-out approach). The outside- exchanged?
in approach is where the focus is on the customer (outside) and how processes and
activities (inside the enterprise) provide value for the customer. Goods

Marketing is a core function within any enterprise whether recognised or not, as it is Services
responsible for reflecting customer value back to the enterprise and ensuring the
enterprise is co-creating value for its existing and potential customers. Marketers often Events
seek to understand customers to discover what is important to them, how they think,
Experiences
feel and use goods and services and where any pain points may lie that need solutions to
improve the life of the customer. People

Places
MARKETING DEFINITON
Properties
Marketing is the activity, set of institutions, and processes for
Enterprises
creating, communicating, delivering, and exchanging offerings that
have value for customers, clients, partners, and society at large (AMA Ideas

2018). Information

The key words of this marketing definition are: (Kotler and Keller 2015)

 activity and processes

 exchanging offerings that have value for customers, clients, partners and society

7|Page Dr Karen W Miller

While generally considered a contemporary idea, the notion of marketing is old. For
many centuries, marketing has been around and in different forms or
paradigms of thinking and doing. Currently, many business
enterprises, as well as Governments, schools, churches, state and
local tourism entities, practice the marketing concept by focusing on
the customer.

Sales and marketing activities have existed in various forms

throughout time, from ancient civilisations, through to the modern
era. Traditionally, the marketing emphasis was on the production of
crafts, agricultural products, and other goods for sales though local
markets. The initial purpose of marking and branding these goods
was to identify the seller through the supply chain and to distinguish
one seller from another in the marketplace. Customers could identify
the seller of the good. Even back then, markets were a place where
value was exchanged.

The modern concept of marketing began after World War 11, when
the focus was on supply, production, and finding new markets for the
goods produced. War-like terms were created at this time, terms
such as scattergun approach and target market. During this time,
enterprises focused on efficiencies of production and generating sales. The sales
orientation of marketing focused on advertising to the market and creating demand and
sales for the goods produced.

With the saturation of markets with goods, marketers began to focus on developing
relationships with customers, and the notion of creating value-added relationships
became a key influence in marketing management strategies.

As services began to dominate markets, the customer experience journey became an

important factor to understand in order to co-create value for the customer. Now, a key
focus of marketing managers is to create a valuable customer experiences that also add
value to relevant stakeholders (i.e. shareholders and partners of the enterprise).

8|Page Dr Karen W Miller

For marketing to take place there must be something of value to give and something
of value to get in return.

Give—for—get
Value is exchanged in the market place. Two (or more) parties each have something
of value the other wants so each give and each get when they exchange value.

Coping with these exchange processes calls for an entrepreneurial mindset, a

considerable amount of effort, strategy and skill from the marketing team.

Marketing management takes place when at least one party to a potential exchange
thinks about the means of achieving desired responses from other parties.

Defined, marketing management is the art and science of choosing target markets, and
getting, keeping and growing customers through creating delivering and communicating
superior customer value (Kotler and Keller 2015)

The skills of marketing management are changing and these skills require training and
development. Marketing is a management function that involves analysis, planning,
implementation and control. Other management functions also have planning structures
that link to the corporate plan in larger enterprises.

A key mindset requirement of marketing management is the ability to change, look

forward, empathise with others, and work in teams to respond quickly to customer
marketplace changes. To do this, marketing managers must be effective team leaders
and have a degree of influence over the co-creation of value that permeates through and
enterprise.

9|Page Dr Karen W Miller

 Marketing actions The enterprise

Figure 1: the chain of marketing productivity (Rust et al 2004)

10 | P a g e Dr Karen W Miller
Marketing managers are key leaders who facilitate the co-creation of marketing strategic EFFECTIVE MARKETING
thinking, implementing and evaluating strategic operational plans. Research into from
MANAGERS
Moorman and Day (2016) into marketing managers’ shows that they are likely to add
value to the performance of an enterprise when the enterprise is outward looking in its  prioritise target customers at the
strategic thinking and decision-making. If an enterprise has an innovative marketing core
orientation culture and branding permeates the enterprise from top down, then not only  align the leader talk and actions
is the enterprise more likely to succeed, it is more likely to have a marketing manager  attract curious and open minded
that is adding value. At the core of the marketing orientated culture and all of the marketing people
strategic thinking throughout the enterprise are the target customers.  build thorough values, beliefs,
behaviours and artefacts
 build effective formal and
informal learning mechanisms
 introduce resources and rewards
 demonstrate impact across
financial and non-financial
outcomes
 embrace complexity
 make sense of data
 rely on frameworks
 identify the right metrics
 work in teams
 encourage creativity
 make the world a better place

(Lemon 2016; Moorman and Day 2016)

11 | P a g e Dr Karen W Miller
Moorman and Day (2016, p. 12) argue that marketing capabilities are: performance. Attracting important
financial, human, and other resources
 Market sensing and knowing management capabilities – notably including market and engaging in asset management that
orientation as the process of generating, disseminating and responding to marketing develops and deploys marketing assets
intelligence (Moorman and Day 2016, p. 27).
 Relational capabilities such as customer relationship management (CRM) processes of
acquiring and retaining valuable customers and managing channel partnerships 1) Anticipation
 Management of the brand asset and the leverage of brand equity 2) Adaption
 Strategic marketing planning, implementation and control capabilities that direct and 3) Alignment
coordinate the deployment of tactics and specific capabilities to co-create value 4) Activation
 Specific functional capabilities related to the co-creation of marketing value through 5) Assessing accountability
the marketing mix of the 7-ps, which are product offerings, personnel, physical 6) Attraction and
environments, process management, price, place, promotion and communication 7) Asset management
activities.

To build superior marketing capabilities, Moorman and Day (2016) argue that the process
begins by identifying which knowledge skills are important to the success of the
enterprise and from consideration of the types of value it will offer to its customers. To
ensure capabilities create superior value it is important to identify the knowledge and
skills necessary to meet objectives. Then where skills fall short, the idea is to build
knowledge and skills through professional development and training. The next
step is to embed the skills and capabilities through formal and informal
frameworks, design processes, and integrate these throughout the enterprise.
The later stages of the building superior marketing capabilities accumulate experience,
which drives costs down, improves effectiveness, and protects the enterprise from rivals
and builds a sustainable competitive advantage by prioritising and serving target
customers over the long run (Moorman and Day 2016).

The role of seven (7) marketing activities is the basic ingredients of the ways in which
marketing teams add value to the performance of the enterprise. The 7As includes
marketing contributions to anticipating marketplace changes, adapting the enterprise to
such changes, aligning the processes, structures and people. Activating efficient and
effective individual and organisational behaviours; creating accountability for marketing

12 | P a g e Dr Karen W Miller
Learning activity

1. Using the box above, write down in your own words your thoughts about what
marketing is and what marketing managers and marketing teams do
2. Share your thoughts on Study Desk
3. Respectfully comment on another person’s Study Desk post.

13 | P a g e Dr Karen W Miller
14 | P a g e Dr Karen W Miller
UNDERSTANDING CUSTOMER VALUE Typically, consumers only notice the
attributes that are important to them.
Aligning the customer perceived value with customer generated value and vis-versa is These attributes are then aggregated by
challenging and Kumar and Reinartz (2016, p 36) are the following questions. customers through a categorisations
process into more abstract benefits such
1) What is value to the customer?
as (easy, convenient, fun etc.). These
2) How customer perceptions of value exchanged are measured?
abstract benefits help consumers to
3) How is value from the customer measured and managed?
reduce information overload and to
4) What are the drivers of customer value?
facilitate further processing. Customers
5) How are the drivers of customer value incorporated into real-time marketing
are seeking offerings that yield the
decisions?
highest expected value (Kumar and
Reinartz 2016).

PERCEIVED VALUE
Defined, perceive customer value of an offering refers to the
aggregation of benefits that the customer is seeking, expecting, or
experiencing and the undesired consequences that come with them
(Guttman 1982).

Benefits (or gains of the offering) and the pain-points (annoyances and undesired
consequences of the offering) are the results of buying and consuming the offering.
These may accrue directly or indirectly and be immediate or delayed (Guttman 1982;
Osterwalder et al 2014). The pain-points and the undesired consequences have a Value is at the heart of the
negative impact on perceived value, whereas, the gains (or benefits) have a positive
influence on perceptions of value. Value is perceived when the benefits outweigh the
customer experience.
pain-points or undesired consequences. The central aspect of this conceptualisation is Understanding customer
that customers choose actions that maximise the desired consequences and minimise
concurrent undesired consequences. Both the benefits and the pain-points are generated value or what potential
through offering attributes in that people receive benefits, whereas offerings have customers’ value is key
attributes (Guttman 1982).

15 | P a g e Dr Karen W Miller
UTILITARIAN VALUE
- is gratification derived from something that helps the
consumer to solve problems or accomplish tasks that
are part of his/her life (Babin & Harris 2017)

Because a broom and dustpan accomplish tasks and solve the

problem of mess on the floor, typically, consumers experience
utilitarian value when using the broom and/or dustpan
HEDONIC VALUE
- is the immediate gratification that comes from
experience some
activity
- (Babin & Harris 2017) Fun is immediate gratification. Scary is also
immediate gratification and both are
examples of hedonic value experienced by a
roller coaster rider.

16 | P a g e Dr Karen W Miller
SYMBOLIC VALUE
Symbolic value is the extent to which customers attach or
associate psychological meanings through product use (Reed
2015).

These associations are based on the individual’s self-concept or self-worth (Sirgy 1982)
and value comes from perceptions that the use of the product offering is enhancing the
individual consumer’s self-concept, either how they see themselves or how they think
others see them. Wearing makeup provides symbolic value to numerous consumers, as
these people feel more confident with the use of makeup as the perception is that
makeup enhances their appearance. Any offering that improves how an individual feels
about her/himself is an example of symbolic value. Sometimes symbolic value is referred
to as social value, because the premise of symbolic value is the individual’s perception of
enhancing their ‘actual’ or ‘social’ self-concept. More often, it is about enhancing the
social self and the perception of appearing better in the eyes of others.

EXPRESSIVE VALUE
Expressive value is the reflection of one’s self-
concept or self-actualisation or personality (Reed
2015).

This is where the individual consumer is confident in who they are and
are sharing who they are as a person. This is where a consumer using
makeup will use it to express who they are regardless of what others
think. In some cases, these people are wearing bright pink or purple
lipsticks or black (e.g. grunge).

17 | P a g e Dr Karen W Miller
Learning activity
1. Consider three recent purchase made by you in the last week.
2. Identify the types of value that you experienced from these three products (goods
or services).
3. Place your answer in the box below
4. Share one of your examples of ‘value’ on Study Desk
5. Comment on another person’s example.

18 | P a g e Dr Karen W Miller
The primary value in traditional marketing seems to be ‘market value’, that is the Vargo, Maglio and Akaka (2008, p145)
creation of economic value to sellers and buyers. Many argue that the very purpose of argue the notion of value has changed
marketing is value creation, but how is it created and for whom? from a goods-dominant logic to a
services-dominant logic. The quotes
Let us look at how various people have considered the concept of value creation. from their paper are listed below.

 Miles and Snow (1978) suggest that value comes from choosing customers and In a goods-dominate (G-D) logic, value
narrowing down the operational focus to serve best that market segment. They is created (manufactured) by the
argue that customer satisfaction and brand loyalty do not by themselves create enterprise and distributed in the market,
unmatched value. usually through exchange of goods and
money. From this perspective the roles
 Porter (1985) believes that an enterprise is profitable if the value it commands of ‘‘producers’’ and ‘‘consumers’’ are
exceeds the costs involved in creating the product. distinct, and value creation is often
thought of as a series of activities
 Condra (1985) interprets value as a fair return in goods, services or money for performed by the enterprise. An
something exchanged that are judged worth equal or more than something similar alternative view service-dominant (S-D)
(i.e. competitors product) logic is tied to the value-in-use meaning
of value (Vargo and Lusch, 2008a)……..
 Merrifield (1991) says that an increase in value that occurs at each stage of the
manufacturing process and that value resides in the concentration of resources In service-dominant logic, the roles of
focused on selected business areas. producers and consumers are not
distinct, meaning that value is always
 Woodruff (1997) supposes that the key source of competitive advantage for the co-created, jointly and reciprocally, in
21st century is creating value. interactions among providers and
beneficiaries through the integration of
 Treacy and Wiersema (1997) see value as resulting from the fulfilment of resources and application of
customer expectations, through which the enterprise achieves the economic competences.
benefit.

19 | P a g e Dr Karen W Miller
The Service-Dominant (S-D) logic viewpoint argues that enterprises offer value
propositions and that value is co-created during interactions, and the customer in context
subjectively determines that value. That is when the customer uses the good or the
service. As such, value cannot be communicated or delivered to the customer in
VALUE IS
accordance with a value proposition, as the traditional goods-based marketing logic-
informed value proposition literature maintains, because value depends on both the CO-CREATED
interaction and the customer context (Vargo and Lusch 2008). Further thinking on the
notion of a value propositions, Pires et al (2014 p 1) posits that value propositions are DURING
co-created and co-produced via customer and supplier participation in exchange
processes. This viewpoint notes the key stakeholders required in the value chain and it INTERACTIONS
moves away from the goods-dominant logic – such as Porters value chain (1985).

The notion of value propositions are changing as the argument is that value is co-created AND IN THE
and co-produced. The traditional goods-dominant logic argued that the enterprise
created the value proposition for the market, then communicated (to the customer) then CUSTOMER
delivered to the market for the value to be exchanged. The alternate viewpoint uses
services-dominant logic and argues that value isn’t realised and doesn’t occur until it is CONTEXT,
co-created during interactions and in the customer context.

Skalen et al (2014) developed a framework (see below) that shows the process of
THEREFORE
developing a value proposition and argued that when operant and operand resources are
stabilised, and a stable relationship exists among the practices, a value proposition will VALUE IS NOT
exist that is aimed and benefiting the customer’s value creation. Operand resources are
those on which an act or operation is performed and operant resources are those that act COMMUNICATED
on other resources (Madhavaram and Hunt 2008 p 67). These practices, Skalen et al
(2014) argue, enable the maximum utilisation of the enterprise’s knowledge and skills, OR DELIVERED.
allowing the enterprise to interact with other parties to develop value propositions.

provision,
operant &
management, services new or developed
operand
orgainising and innovation value propositons
resources
representational

20 | P a g e Dr Karen W Miller
A value proposition is a common term used in marketing and by Marketing Managers
and is an implicit promise an enterprise makes to a customer to deliver a particular
combination of values (Treacy and Wiersema 1997). The subsequent application of this
concept has changed the focus of operations of many enterprises. For example, IBM has
shifted the traditional, internally focused functions to customer-oriented, market-driven
processes, looking towards a form of value delivery. In doing so, these enterprises have
to make some fundamental decisions on segmentation and target customers’ profiles
(Walters and Lancaster, 1999).

Treacy and Wiersema (1997) posit three value proposition types.

1. Operational excellence – these enterprises provide middle of the market

products at the best price with the least convenience. The value proposition to
customers are low prices and hassle-free service

2. Product leadership – these enterprises offer products that push performance

boundaries. The proposition to customers is an offer of the best product in the
best times. Moreover, product leaders do not build their propositions with just
one innovation; they continue to innovate year after year, product after product.

3. Customer intimacy – these enterprises focus on delivering not what the broad
market wants, but what specific targeted customers want. Customer intimate
enterprises do not pursue one-time transactions they cultivate relationships.
They specialise in satisfying unique needs. Their proposition to the customer is
‘we have the best solution for your pain points and we provide all of the support
you need to achieve optimum results’.

Figure 2: Value proposition design

(Osterwalder et al 2014)

21 | P a g e Dr Karen W Miller
The notion of three value proposition types may (or may not) limit strategic thinking and The value chain concept identifies each
may potentially miss characteristics and competencies critical to the market that could step in the ‘chain’ and enables an
influence the competitive advantage of an enterprise. Porter (1985) argues that analysis of how each contributes to
competitive advantage cannot be understood by looking at the enterprise as a whole. He creating customer value.
argues that it stems from the many discrete activities an enterprise (small, medium or
large) performs in designing, producing, marketing, delivering and supporting its goods When an enterprise identifies an activity
and services (or products). Each of these activities can contribute to an enterprise’s that is not contributing as much as
relative cost position and create a basis for differentiation in the market. possible to value in relation to its cost-
effectiveness, then it enables managers
The solution argues Porter (1985) is the value chain. The value chain disaggregates an to consider various internal or external
enterprise into its strategically relevant activities in order to understand the behavioural solutions so there is an integrated
costs and the existing and potential sources of differentiation. An enterprise gains a seamless process flow in which every
competitive advantage by performing these strategically important activities more component adds value.
cheaply or better than its competitors perform.

Value-chain activities can be categorised into two key types

1) primary activities (i.e. inbound logistics, operations, outbound logistics,
marketing, sales and service) and
2) support activities (infrastructure, human resource management, technology
development and procurement).

These support activities are integrating functions that cut across various
primary activities within the enterprise. An enterprise can deliver more value
to its customers performing these activities more efficiently than its
competitors or by performing the activities in a unique way that creates
greater differentiation (Porter 1985).

22 | P a g e Dr Karen W Miller
 Figure 3: Value chain (Porter, 1985)

23 | P a g e Dr Karen W Miller
Until the customer ‘speaks’ in the marketplace by offering a given
price for exchange, the price of the final offering is only an
assumption. Take for example, the notion of market failure
where the offering ultimately ‘fails’ in the marketplace (i.e. the
consumer will not buy or is willing to pay a price below the cost to
produce and deliver the offering to the marketplace). The value
added by each enterprise in the supply chain (i.e. suppliers of the
raw materials or the technology, processing, parts, assembly,
manufacturer, distributors, retailers) will have been based on the
assumption of a successful final value judgement of the offering in
the marketplace (Porter 1985). The customer is the ultimate
judge of value.

Enterprises within the value chain calculate margins throughout

the exchange and supply processes. Their prices are based on
this assumption. If the customer’s voice is not heard and the
value-adding activities not realised, this means the ‘value-adding’
activities did not actually add any value. As such, value can only
be judged through experimentation with customers at earlier pre-
launch stages through customer research or post-launch through
customer sales (Pires et al 2014). Ultimately, the customer has
the final say regarding value.

A marketing-oriented enterprise in which marketing activities

permeate throughout the enterprise may realise that the role of
everyone in the enterprise is to create value for the customer
given the significance of the customer voice.

Beyond speaking in the marketplace, the role of the consumer in the ‘system’s’ value-
creation process is far from clear. The production-orientation sees that value is
something produced by the enterprise and delivered to the customer. The alternative,
marketing-orientation model sees the customer as central to strategy development.

24 | P a g e Dr Karen W Miller
Design-led thinking value-creation processes see value as a co-creation process in which This connection is referred to as
value is co-created through interactions between the enterprise and the customer, and empathy mapping in design-led thinking
not in value chains, but in value ‘constellations’. terms. The mission of design thinking is
to translate observations into insights
Consumers can play a role in value creation too, not just enterprises, and the role of and insights into valuable offerings (or
consumption – i.e. the activities, behaviours and motivations that consumers undertake goods and services) that will improve the
when making decisions and forming perceptions about products (goods and services) – is lives of customers.
one of value creation (rather than using or depleting value).
Empathy is the mental habit that moves
To design thinkers, behaviours are never right or wrong, they are always meaningful. beyond thinking of people as survey
The job of the Marketing Manager with a design-led thinking approach is to convert participants, experiments, laboratory
customer pain-points into solutions or customer needs into demands by placing the rats or standard deviations. Bridges of
customer at the centre of the strategy (or story) and putting people first (yes, before insight are built through empathy, the
products) and co-creating customer-value adding experiences. effort to see the world through the eyes
of others, understand the world through
Gaining customer insights comes from observing and interacting with customers seeing
their experiences, and feel the world
and understanding their lived experiences. The evolution from design to design thinking
through their emotions. By undertaking
is the analysis of co-creation of value through the relationship between people
the customer journey and mapping the
(consumers) and products.
customer journey with the jobs the
Simply asking the customer to fill in a survey frames the problem, and therefore the customer expects to be done, the
solution, from the perspective of the Marketing Manager and the enterprise, rather than benefits (gains) customers are seeking
from the perspective of the customer. and the pain-points customers are
experiencing, the problems can be
It is possible to spend days, weeks, or months conducting research from the perspective understood better and insights gained.
of the customer through observation, but at the end of it all, there will be little more than From these insights, design thinkers map
stacks of field notes, videos and photographs unless there is a connection with the people the customer jobs, their pains and gains
(target customers) being observed at a fundamental level. and develop or fit solutions that co-
create value and customer demand.

25 | P a g e Dr Karen W Miller
26 | P a g e Dr Karen W Miller
Design thinkers, Diego Rodriguez and Ryan Jacoby developed a ‘Growth Matrix’ to Most growth occurs through brand
evaluate the fit solutions that co-creates value for customers (cited in Brown 2009). extensions (extend), incremental
changes through the customer feedback
The Growth Matrix looks creating solutions for customers and sees innovation from the loop (continuous improvements) and/or
perspective of Marketing Managers. The Growth Matrix is useful to evaluate the through evolutionary change when
innovation within an enterprise. The Growth Matrix maps innovation efforts along a designing a fit to new customer markets.
vertical axis and on the horizontal axis maps existing to new customers or users. Using
the Growth Matrix Marketing Managers and other managers in the C-suite can get a good New offerings that are revolutionary
picture of how the enterprise is using innovation at a strategic level to manage, extend, happen the least often because they are
adapt or create business growth. the most challenging and risky, yet they
can be the most profitable and can
create new markets. Examples of
revolutionary (new) offerings with new
customers from an existing enterprise
New EXTEND CREATE are Sony Walkman and Apple iPod.
offerings Examples of new businesses (offerings)
(evolutionary) (revolutionary) that were revolutionary are Google,
Facebook, Airbnb and Uber.

Existing MANAGE ADAPT Blue Ocean strategy focuses on creating

offerings new and revolutionary markets by
(incremental) (evolutionary)
eliminating the competition and focusing
on the customer. With Blue Ocean
strategy the focus is on eliminating the
‘bits’ that don’t add value to the
customer and raising the ‘bits’ that do
Existing customer users New customer users
and creating new market offerings that
have the potential to revolutionise or
disrupt ‘business as usual’ with new
Figure 4: Growth Matrix (Rodriguez
markets. Sony Walkman, Apple iPod,
and Jacoby cited in Brown, 2009)
Google, Facebook, Airbnb and Uber are
examples.

27 | P a g e Dr Karen W Miller
Marketing is complicated and has been the weakness of many formally prosperous
enterprises such as Levis Straus, Kodak, Nokia, Sony and Xerox. These enterprises
achieved success with a product-orientation and this served them well for many years.
The product orientation focuses on managing incremental changes or by managing
growth through brand extensions (see the left-hand side of the Growth Matrix).

More recently, successful growth in the marketplace has occurred through the right-hand
side of the Growth Matrix. This is because customers change, as they inevitably do and
new markets emerge because some enterprises focus on innovation, co-creation of value
and change with the people they hope to serve, their customers.

In modern marketing, customers desire to do business with enterprises with a marketing

orientation. Customers expected their brands to hear their voices and act on what they
are saying, to personalise their offerings, and to create value for the customer.
Customers are interested in what goods and services will do for them. They are
interested in reducing risk, pains, using goods, and services that enhance value for them
personally. Customers expect to have a relationship with their brands. Customers want
their pain-points in their customer journeys addressed.

A recent change to the notion of value is that customers do not always want to own
goods and services. More recently, customers are opting to share, rather than own.
Customers are using subscription services (i.e. Netflix) and share services (i.e. Uber).
The landscape for value is changing and challenging Marketing Managers is keeping with
the pace of change about what potential customers’ value.

Marketing Managers and their marketing teams are continually challenged to co-create
value with their customers when, where, how the customer desires. Marketing is not just
the job of the Marketing Manager and the marketing team.

Marketing permeates enterprises with an outward focus that seek to understand their
markets or look for new markets to serve. Non-marketers are expected to be marketers
in this modern world. However, not everyone understands what marketing is and how it
works.

28 | P a g e Dr Karen W Miller
Learning activity

1) Using the box above explain how marketers co-create value

2) Provide an example to illustrate your answer
3) Share your example on Study Desk
4) Respectfully comment on someone else’s example

29 | P a g e Dr Karen W Miller
REFERENCE LIST

Babin, Barry and Eric Harris (2016), Consumer Behaviour 7th Ed. Cengage Learning

Bitner, Mary Jo (1992), Servicescapes: the impact of physical surroundings on customers

and employees, Journal of Marketing, 56 (April), 57-71

Chandler, Jennifer D and Robert F Lusch (2015), service systems: a broadened

framework and research agenda on value propositions, engagement, and service
experience, the Journal of Service Research, 18 (1), 6-22.

Charlesworth, Alan (2018) Digital Marketing, a practical approach 3rd Ed. Routledge, New
York

Davies, Eric (2014) the Marketing planning coach, McGraw-Hill Companies, Inc, London

Gutman, Jonathan (1982), A means-end chain model based on consumer categorisation

processes, Journal of Marketing, 46 (April), 60-72

Hanssens, Dominique M and Koen H Pauwels (2016) Demonstrating the value of

marketing, Journal of Marketing, 80 (November), 173-190.

Kotler, Philip (1980) the Principles of marketing, Prentice Hall, London

Kotler, Philip and Kevin Land Keller (2015) Marketing Management 15 Global Ed. Pearson
Education, Harlow, England

Kumar, V. and Werner Reinartz (2016) Creating enduring customer value, Journal of
Marketing (November), 36-68.

Kusinitz, Sam (2014), the definition of a buyer persona, Hubspot (March 8), accessed 1st
of July 2018 from www.hubspot.com/marketing/buyer-persona-definition-under-100-sr

Lemon, Katherine (2016) the art of creating attractive consumer experiences at the right
time: skills marketers will need to survive and thrive, new skills, 8 (2) 45-49

30 | P a g e Dr Karen W Miller
Lemon, Katherine N and Peter C Verhoef (2016) Understanding customer experience
throughout the customer journey, Journal of Marketing, 80 (November), 69-96.

Levitt, Theodore (1980), Marketing success through differentiation – of anything,

Harvard Business Review, January-February 1980.

Lovelock, Christopher, Patterson, Paul and Rhett Walker (2004) Services Marketing an
Asia-Pacific and Australian perspective, Pearson Education, Frenchs Forrest, Australia.

Madhavaram, S. and Hunt, Shelby, D. (2008), the service-dominant logic and a hierarchy
of operant resources: developing masterful operant resources and implications for
marketing strategy. Journal of the Academy Marketing Science 36 (1) 67-82.

Magrath, A. J. (1986), When marketing services, 4ps and not enough, Business Horizons,
May-June, 44-50.

Miletsky, Jason I (2010), Principles of Internet Marketing, new tools and methods for web
developers, Cengage Learning, Boston MA.

Moorman, Christine and George S Day (2016) Organising for marketing excellence,
Journal of Marketing 80 (November), 6-35

Osterwalder, Alex, Yves Pigeur, Gred Bernarda and Alan Smith (2014) Value proposition
design – how to create products and services customers want. John Wiley, Hoboken, NJ

Pires, Guilherme D, Dean, Alison, and Muqqadas Rehman (2014), ‘using service logic to
redefine exchange in terms of customer and supplier participation’, Journal of Business
Research

Posner, Harriet (2015) Marketing Fashion strategy branding and promotion 2 nd Ed.
Lawrence King Publishing, London, England.

Reed, Peter (2015) Strategic marketing – decision making and planning, Cengage, South
Melbourne, Australia

31 | P a g e Dr Karen W Miller
Rojas Consulting Group (2014), what is entrepreneurial marketing? the definition of
entrepreneurial marketing, www.rojasconsulting.net January 19th 2014, accessed 30 June
2018

Rust, Roland T, Tim Ambler, Gregory Carpenter, V Kumar and Raj Srivastava (2004),
Measuring marketing productivity: current knowledge and future directions, Journal of
Marketing 68 (October), 76-89

Sherman, Leonard (2017) if your market is a competitive dogfight, think like a cat,
Strategy and Leadership, 45 (1), 11-19.

Sirgy, Joseph (1982), the self-concept in consumer behaviour, a critical review, Journal
of Consumer Research 9 (3), 287-300

Skalen, P, Gummerus, J, von Koskull, C and Magnusson, P. R. (2014) Exploring value

propositions and service innovation: a service-dominant logic study Journal of the
Academy of Marketing Science, 1-22.

Vargo, S. L. and Lusch, R. F. (2004) Evolving to a new dominant logic for marketing.
Journal of Marketing, 68 (1), 1-17.

Vargo, S. L. and Lusch, R. F. (2008) Service-dominant logic: continuing the evolution

Journal of the Academy of Marketing Science, 36(1), 1-10.

White, Charlie (2011) 7 Disruptive innovations that turned their markets upside down,
Mashable Australia, October 9th, 2011, accessed 27/06/2018.

Wernerfelt, Biger (1984) A resource-based view of the firm, Strategic Management, 5

(2), 171-180

Wood, Marian Burk (2004) Marketing Planning principles in practice, Prentice Hall,
Harlow, England

32 | P a g e Dr Karen W Miller
33 | P a g e Dr Karen W Miller