Modulo 3.4 lectura_articulo value chain

© 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589

www.palgrave-journals.com/bm/

Correspondence: Clive Helm Department of Marketing and Business Strategy, Westminster Business School, University of Westminster, 35 Marylebone Road, London, NW1 5LS, UK E-mail: [email protected]

Original Article

Extending the value chain – A conceptual framework for managing the governance of co-created brand equity Received (in revised form): 19 th May 2010

Clive Helm is a senior lecturer in Marketing and Business Strategy at the Westminster Business School and a Visiting Lecturer in Brand Management at the Copenhagen Business School. He also writes and undertakes research and consultancy in the area of strategic brand management, focusing particularly on issues in value creation through successful delivery of brand experience.

Richard Jones is at the Department of Marketing at Copenhagen Business School, where he is also the coordinator of the MSc programme in Marketing Communications Management. His main areas of research are brand management, corporate branding and stakeholder relations. He has recently been a visiting scholar at Griffi th University, Australia where he has been working with colleagues on a number of projects on corporate-level branding. His most recent research looks at safeguarding brand value and issues around the implementation of branding strategies at a managerial level; he is particularly interested in the interplay between branding, corporate strategy and innovation.

ABSTRACT Successful brands are primary sources of a fi rm ’ s value and often its most valuable assets. Governance of the considerable equity in them is therefore a critical issue. At the same time, the notion of co-creation, in which value creation for fi rm, consumers and stakeholders derives from providing a uniquely differentiated and meaningful brand experience, suggests that fi rms ’ capability to create long-term value comes not only from ownership of successful brands, but also from having the ability to consistently deliver the experience they promise. Co-creation therefore offers a whole new perspective on fi rms ’ fundamental ability to create and safeguard long-term value and brand equity. This article briefl y discusses the limitations of earlier models of fi rms ’ value-creation capability when considered from this newer vantage point. Co-creation also implies that an organisation ’ s internal value chain is only one part of a larger system in which value is created by managing a virtuous cycle of stakeholder expectations, successful brand delivery, satisfaction and loyalty that combine to generate sustainable and superior industry returns. We therefore propose a conceptual framework that extends the value chain into this wider context and offers a more holistic perspective for managing the creation and governance of brand equity. The main implications of this framework are: (1) to draw attention to the risks of narrowly interpreted value chain analysis that ignores the need for meaningful differentiation; (2) to emphasise the critical importance of successful

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deliver that experience so as to engage and build long-term relationships with them.

Co-creation therefore offers a whole new perspective from which to consider the nature of fi rms ’ fundamental ability to create long-term value and brand equity. This article briefl y reviews and discusses the limitations of some earlier models and cri-teria for assessing fi rms ’ value creation capa-bility when considered from this newer vantage point. Co-creation also implies that a fi rm ’ s internal value chain, rather than being its source, is only one part of a larger system in which value is created by man-aging a virtuous cycle of stakeholder expec-tations, successful brand delivery, satisfaction and loyalty that combine to generate sus-tainable and superior industry returns. We therefore propose a conceptual model that extends and integrates the value chain into this wider context and offers a more holistic perspective for managing the creation and governance of value and brand equity. We conclude that there are risks to competitive-ness in relying on conventional performance criteria that may ignore the complex expec-tations of increasingly empowered con-sumers, and that there is a need for a much more sophisticated conceptualisation of brand experience and measures of experi-ence quality that are fully customer- and stakeholder-, rather than fi rm-centric.

BRANDS AS KEY STRATEGIC RESOURCES The creation of superior value in an industry from competitive advantage is

INTRODUCTION In the competition between PCs and Macs, we outsell Apple thirty to one. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience.

(Steve Ballmer, Chief Executive, Micro soft, quoted in Rushe) 1

Successful brands are primary sources of a fi rm ’ s present and future value and often its most valuable assets. 2 – 4 The equity in such brands has been described as the ‘ upstream reservoir ’ that provides future cashfl ow. 5 Managing the creation and gov-ernance of that value and equity is therefore a critical issue.

At the same time, the notion of co-creation has emerged in recent years in which value for both fi rm and consumers is seen to be co-created in the meaningful experi-ence that consumers derive from the inter-action between themselves and a brand in which they play a participative role. 6 – 9 As Gronroos 10 puts it, ‘ customers do not look for goods or services, … but for solutions that serve their own value generating proc-esses ’ . From the co-creation standpoint, fi rms ’ ability to create long-term value therefore appears to come not only from ownership of a brand that holds out the offer of a distinctive and meaningful expe-rience to consumers and other stakeholders, but also from being able to consistently

brand delivery to long-term value creation and competitiveness; and (3) to highlight the need to develop both a more sophisticated conceptualisation and also measures of brand experience quality that are fully consumer- and stakeholder-, rather than fi rm-centric. Journal of Brand Management (2010) 17, 579 – 589. doi: 10.1057/bm.2010.19

Keywords: co-creation of value ; brand experience ; value chain


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probably a fi rm ’ s overriding, long-term strategic concern. According to strategic management theory, this is achieved when competitive position and internal processes produce superior profi tability in a way that cannot be replicated. Although most fi rms cannot control the nature of the industry they are in, they can attempt to manage their activities to provide buyers with either comparable value more effi ciently, or greater value through differentiation that commands a premium. 11 According to the resource-ased view (RBV) of the fi rm, 12 – 14 competitive advantage and superior returns derive from ownership of resources that are strategic through being ‘ inimitable ’ , ‘ rare ’ and ‘ valuable ’ .

In mature industries, in which products tend towards commoditisation, differentia-tion is often hard to achieve and much innovation easy to copy, and successful branding is probably one of the few means of achieving sustainable distinctiveness. There seems little doubt that, as a legal property that signals a unique set of valuable benefi ts, a successful brand is, in terms of the RBV a strategic resource. The implica-tions of all this are well known; that such a brand can deliver superior long-term future profi tability and cashfl ow, occupy a unique market position and ‘ lock out ’ com-petitors by virtue of its dominant market share. Brand management therefore con-nects fundamentally with an organisation ’ s core business strategy on three main counts; fi rst, in achieving sustainable and valuably meaningful distinctiveness; second, in the creation of strategic resources that deliver long-term, superior value; and third, by forming entry barriers to competition.

EARLIER PERSPECTIVES ON VALUE AND VALUE CREATION – A BRIEF REVIEW Early perspectives on value creation were concerned with economists ’ notions of ‘ utility ’ and the wealth resulting from

commercial exchanges between nations or fi rms. 15 However, there has also been a long history of examining the value derived from managing intrafi rm resources and activities, going back to Adam Smith ’ s 16 insights into the advantages gained through specialisation and the division of labour. Firms are seen as entities that add value to inputs so as to produce outputs that are sold to make profi ts for distribution to owners and other inves-tors. Some early twentieth century perspec-tives also drew attention to the value resulting from superior productivity; Taylor ’ s 17 prin-ciples of ‘ scientifi c management ’ , for example, saw a direct relationship between effi cient utilisation of asssets through the measurement and standardisation of manufacturing proc-esses, and increased profi tability.

As fi rms became larger and more diver-sifi ed, a variety of more sophisticated tools such as Return on Investment, Activity-based Costing and Discounted Cash Flow, among others, were developed to aid in making increasingly complex resource allo-cation decisions. In general, these tend to focus on returns on assets measured by fi nancial criteria. More recently, however, attention came to be drawn to the hazards inherent in assessing the present and future value of investments, or indeed whole busi-nesses, on assumptions based on past per-formance, an approach that is necessarily retrospective and short term. 18 In the 1980s, Rappaport, 19,20 for example, suggested that there were three main elements that should be considered in valuing a fi rm; long-term future cashfl ow, risk and competitive advan-tage, thus acknowledging a linkage between future value-creating ability, changes in a fi rm ’ s business environment and any stra-tegic resources it may own.

Similarly, ‘ Value-based Management ’ (VBM) which, at its simplest, sees value being created when capital produces a return that acceptably exceeds cost, also regards future cashfl ow as the most important measure of a fi rm ’ s future worth and

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of short- term profi t has often been criti-cised more generally in that it can result in fi rms under pressure simply resorting to rapid cost cutting, divestment or reduction of investment in strategic resources, all of which may well destroy longer-term value. 18 More fundamentally, VBM seems to offer little help in identifying the nature of the ‘ strategic drivers ’ from which the anticipated value may actually fl ow. The Balanced Scorecard and Marketing Dashboard could also be criticised for either the vagueness or the bias that managers may bring in choosing performance criteria and targets that may be either short term or fi rm-centric rather than strategic and genuinely customer oriented. A published case study of a major recruit-ment agency ’ s use of the Scorecard, for example, shows that the goal of ‘ Increasing Customer Value ’ has in practice been trans-lated into the much simpler and quantifi able operational target of ‘ client retention ’ , while the objective of ‘ Achieving Operational Excellence ’ has been modifi ed to become, more prosaically, ‘ to lower the cost base of the business ’ . 24

DELIVERING VALUE TO THE MARKETPLACE: THE VALUE CHAIN Value chain analysis 25 has long provided a means for examining the value created within a fi rm ’ s activities so as to confi gure them for strategic advantage (see Figure 1 ). Functions that are non-core – those that do not draw on strategic assets or capabili-ties – may be benefi cially outsourced to suppliers who can perform them more effi -ciently or effectively. Variants of the model have been developed for not just manufac-turing but also service-based and network organisations that operate largely by man-aging a group of outsourced suppliers and partners.

The Value Chain offers a familiar frame-work for identifying value creation from strategic resources, insofar as the process of adding value is seen to occur within what

recognises the connection between this and a fi rm ’ s ‘ value drivers ’ – resources that directly infl uence future earning capability. 21 Although still fi nancially oriented, VBM acknowledges more explicitly a relationship between a fi rm ’ s future value-creation capa-bility and its strategic resources and goals.

However, a criticism of such fi nancially based perspectives has been that they tend to see value creation mainly as a goal or outcome, while at the same time offering little insight into how value creation occurs or where the source of any competitive advantage on which it depends may actually lie. In the 1990s, the Balanced Scorecard 22 was one of the fi rst frameworks to include non-fi nancial criteria in assessing value-creation ability. The Scorecard ’ s signifi -cance is that it implicitly connects current and future resources and the translation of strategic goals into operational activities with future value creation, thereby taking a more holistic view that is neither wholly retrospective nor economic. More recent versions of the Scorecard assess perform-ance in categories including ‘ Customer ’ , ‘ Internal Business Processes ’ and ‘ Innova-tion and Learning ’ . In attempting to con-sider both current performance and future value-creating competences, it exceeds earlier approaches in highlighting the rela-tionship between strategic resources and longer-term profi tability. The Marketing Dashboard 23 takes this further by incorpo-rating a wider range of non-fi nancial met-rics in assessing value-creation capability.

However, while VBM, the Balanced Scorecard and Marketing Dashboards have offered newer frameworks for assessing value creation, all have provoked debate about their possible limitations. Although VBM acknowledges a connection between future value and strategic resources, it could be argued that, in practice, maximising shareholder returns remains managers ’ overriding goal, probably to the exclusion of wider strategic imperatives. The pursuit



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are conventionally seen as the fi rm ’ s boundaries. But in locating value creation in the interaction between the fi rm ’ s brand and consumer, co-creation has offered a wider perspective and, indeed, challenged the notion of where the fi rm ’ s boundaries may actually lie. 26 – 28 To consider value being created from the ownership of stra-tegic assets in terms of the RBV is clearly a tautology, as one of the criteria the RBV demands for an asset to be strategic is that it is, in itself, valuable.

Traditionally, strategic management theory has advocated that competitiveness derives from the best alignment or fi t between resources and environment and from factors such as access to superior resources or the ability to create entry or exit barriers. 29 Underlying all this are assumptions of industry homogeneity – that fi rms in a sector operate along broadly similar lines and that industry contexts are evolving but relatively stable. 30

More recently, this ‘ introverted ’ stance has been criticised in the strategy literature as being too static and appears to be giving way to a view in which industry structures are seen as more heterogeneous in a context in which business environments are ever more turbulent as a result of increasing global competition, new technologies and more complex and shifting customer demands. 31 – 33 Echoing the idea of value

co-creation between fi rm and stakeholders, it seems that strategic management itself is making something of a transition – from an almost scientifi c discipline, based on long-range projections and planning, to a more crafted and nuanced approach in which longer-term strategic vision merges more closely with shorter-term tactical implementation in a process that is increas-ingly and more immediately market respon-sive. In order to remain competitive, fi rms are developing more outward-looking, dynamic and interactive approaches to the whole processes of production, marketing and product delivery. The necessity for this is illustrated by the case of an American car industry that spent many years building and developing relationships within its value constellations of suppliers and dis-tributors throughout the 1980s and 1990s, only to fi nd that the market it thought it was serving had actually moved on. 34 Currently, successful brands such as Apple and Ryanair, while maintaining a strategic vision of what their brands stand for, seem to maintain competitiveness by also constantly monitoring and sometimes rap-idly fi ne tuning their value propositions so as to be responsive to, or indeed drive, what are sometimes subtle and unpredict-able changes in consumer perceptions and demand.

Figure 1 : The value chain.

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offers is actually a complex mix of relevant tangible and intangible elements delivered and consumed across a wide range of touch-points. Competing for value in the market-place therefore becomes based on the ability to deliver an experience that is superior, but by criteria that customers themselves deter-mine, perhaps in user-friendliness, aesthetics or hedonic qualities. 39 The brand acts as a signifi er for this promised experience and thus comes to act as a repository of what Bourdieu 40 has called cultural capital. Such capital has enabled some long-established brands to stretch their franchise from core manufacturing into value-added entertain-ment businesses such as toy manufacturer Lego, which successfully transferred its proposition of creative play to theme parks, and breakfast cereal manufacturer General Mills, which built on its brands ’ core values of wholesomeness and fun to open children ’ s amusement centres in American shopping malls. 41 Interestingly, a brand experience per-ceived as valuable need not necessarily be high quality if the price is low enough. Budget airline Ryanair has been subject to much media comment for its level of cus-tomer service in terms of lack of compensa-tion for late fl ights and its policy of charging for extras that full price airlines provide for free. In answering criticisms of possible pas-senger disturbance by the introduction of a new in-fl ight mobile phone service, the chief executive Michael O ’ Leary replied, ‘ If you want a quiet fl ight, use another airline. Ryanair is noisy, full and we ’ re always trying to sell you something ’ . However, its ruth-lessly low-cost, low-price business model delivers an overall value proposition and brand experience that, on balance, seems irre-sistible to a signifi cant segment of budget-conscious travellers. As a result, Ryanair ’ s 42 value-creation capability in its industry has been unsurpassed – as at August 2006, by measures of operating and net profi t margins per plane and per passenger, it was the most profi table airline in the world.

VALUE AS CO-CREATED IN THE MARKETPLACE It has been argued that many of the ideas inherent in the co-creation paradigm are in fact developments of the marketing concept that has always considered the source of value to be found in successfully serving market needs. In a market-oriented view, value is created when a buyer and a seller enter into what they see as being a mutu-ally benefi cial exchange. Products are clearly valueless, no matter how cheaply produced, if no one is prepared to buy them, and it follows that a fi rm ’ s resources are only strategic and capable of delivering superior value if a market also similarly values the outputs they are responsible for producing. The life of a strategic asset may also be fi nite – environmental or techno-logical changes may render it obsolete. Arguably, this was demonstrated in the well-known study by Peters and Waterman, 35 which attempted to investigate the resources that contributed to the excellent perform-ance of a number of American Fortune 500 companies. However, the fact that, only a few years later, many of the fi rms examined were performing anything but excellently, apart from raising the question of whether many of the resources uncovered were actually strategic, also goes to show how a resource ’ s value may be dependent on how well it serves market needs that are inevi-tably liable to unpredictable change.

Co-creation also highlights the value of a fi rm ’ s outputs as being dependent on the quality of the total experience they provide, rather than on the narrower notion of ‘ product quality ’ . Experiential marketing – the idea of brand as experience – embodies the idea of consumption as a form of the-atre in which the brand owner provides the stage on which consumers and other stakeholders play out their value-seeking roles. 36 – 38 Whether the branded offering is primarily a good or a service is also less impor-tant than the fact that the total experience it



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BRAND DELIVERY AS A CRITICAL COMPONENT OF VALUE CREATION Co-creation has therefore highlighted suc-cessful and consistent brand delivery – the capability, as Aaker 43 describes it, to deliver the expected brand experience ‘ with reli-ability ’ – as a critical component of the value-creation process. In increasingly competitive markets, consumers are increas-ingly intolerant about any gap between what a brand promises and the experience it actually delivers, and can usually easily go elsewhere. 44

Brand delivery is both spatial and tem-poral. The spatial dimension is the sum of all the experiences offered across the whole spectrum of delivery and communication touchpoints, whereas the temporal dimen-sion acknowledges that brand encounters take place throughout the whole consumer journey from initial awareness through consumption to post-purchase decision making. If expectations are repeatedly ful-fi lled in both dimensions, consumers become loyal and both they and the brand owner derive the value from the long-term relationship, thereby completing the vir-tuous cycle of brand value creation shown in Figure 2 .

TOWARDS A MORE HOLISTIC VIEW OF CREATION AND GOVERNANCE OF BRAND EQUITY – EXTENDING THE VALUE CHAIN A co-creation perspective therefore sug-gests that a conventional interpretation of a fi rm ’ s value chain – as a primarily one-way delivery system of goods and services to a largely passive marketplace, in which value derives from ownership of internal strategic resources – offers only a partial and limited picture of the value-creation process. We therefore propose a conceptual framework that offers a more holistic view for managing the co-creation and govern-ance of value and brand equity, as an inter-linked system, of which the set of activities

conventionally represented within a fi rm ’ s value chain is only part (see Figure 3 ).

In this model, an organisation ’ s value chain is part of a larger system of mutual value-seeking and creation processes among fi rm, consumers and other stakeholders. Value is co-created through successful delivery of the expected brand experience in the context of demand created by a dis-tinctive and meaningful brand promise. The fi rm ’ s value-generating resources are thus aligned to meet consumers ’ value-seeking processes in the virtuous cycle of consumer satisfaction and loyalty, which is the result of successful fulfi lment of brand promise and expectations. Value for the fi rm manifests itself as the superior revenue, returns on investment and store of brand equity created by achieving this consistently and building relationships with those con-sumers and stakeholders. Consumers and stakeholders seek value through personal or collective need fulfi lment that underpins their aspirations that can be considered to be transformational – representing at best what they would ultimately like to achieve or become. More rationally, consumers and stakeholders accept that some aspirations may not actually be fully attainable; these are therefore translated into a more realistic set of lower-level expectations that the brand is actually anticipated to deliver, and by which they critically assess its perform-ance.

MAIN IMPLICATIONS In a co-creation context, we suggest that this framework has three main implications for managing the creation and governance of value and brand equity.

(1) It draws attention to the risks of a narrow, cost minimising, interpretation of conventional value chain analysis: The fi rst is to draw attention to the risks inherent in a narrowly interpreted, conventional value chain anal-ysis that focuses simply on the value gained

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for a deeper understanding of their needs, perceptions of experience quality and the criteria they themselves use to assess it. This fi nds echoes in the recent services literature in which Buttle, 45 for example, has pointed out that a limitation of service delivery quality models such as SERVQUAL may be that they fail to take into account the complex and changing nature of current and future customer expectations. Lages and Fernandes 46 have also suggested the need for further development in service delivery modelling that accommodates more fully customers ’ own sets of needs

from minimising an organisation ’ s costs. Such an approach, while offering a threshold level of competitiveness, is not suffi cient to capture the value available from delivering experiences to consumers, which are per-ceived as distinctive and meaningful. Although the value chain can highlight strategic resources in areas such as product design, brand management or distribution that may contribute to successful experi-ence delivery, the model suggests that this is only part of the story: creating and deliv-ering distinctiveness and meaning to con-sumers and stakeholders implies the need

Figure 2 : The brand value creation cycle.

Figure 3 : Brand equity governance: A value co-seeking and co-creation system model.



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and values. In a co-creation context, resources are only value generating if con-sumers judge the experience they deliver to be superior – and it is they, after all, who increasingly decide what ‘ superior ’ means, and therefore how valuable the experience ultimately is.

(2) It emphasises the critical role of brand expe-rience delivery to the process of creating and safe-guarding value and brand equity : The second implication, mentioned earlier, is to empha-sise the critical role of brand delivery to the process of creating and safeguarding brand equity, and the need for capability in deliv-ering the expected experience consistently. In practice, this is not easy to achieve and the literatures on both brand and services delivery have long recognised the gap that can lie between consumer expectations and the reality they experience. 47 – 49 Further-more, because of the growing number of brand variants, channels and strategic part-ners involved, delivering a coherent expe-rience both spacially and temporally across a whole network of touchpoints is becoming an increasingly complex and diffi cult task. According to a report by consultancy Inter-brand, ‘ Strict adherence to brand standards creates brands with customer impact – but few companies have been able to secure consistent compliance across their organisa-tions ’ . 50

(3) It highlights the need to develop both a more sophisticated conceptualisation and measures of brand experience delivery quality that are truly consumer- and stakeholder- rather than fi rm-centric : A third implication is to highlight that many of the criteria and measures that fi rm ’ s currently use to assess their perform-ance are essentially fi rm-centric – they tend to take an inward-looking view in which performance goals are set and assessed largely according to standards considered important by managers within the fi rm. However, from a co-creation standpoint, if

a fi rm ’ s main sources of value are its brand promise and quality of experience, then these are, by their nature, extrinsic and dynamic – they lie in the perceptions of customers and are subject to change beyond the fi rm ’ s control; indeed, co-creation has raised a whole debate about where the brand itself actually exists and who actually owns and controls it. Brand owners may well be unaware of the sometimes complex and subtle means by which consumers are assessing the experiences they deliver. As a result, they risk losing competitiveness if they set organisation-centric success criteria that ignore the expectations of customers who are key participants in the value-crea-tion process. Although there have been recent advances in developing non-fi nan-cial performance measures for assessing customer satisfaction and brand delivery quality, we would argue that co-creation implies an urgent need for a more sophis-ticated conceptualisation of brand experi-ence and tools and metrics that take a view of brand experience that is fully customer and stakeholder oriented, based on deeper insights into their own expectations and perceptions of what constitutes experience ‘ quality ’ .

CONCLUSION In his seminal 1986 book, ‘ The Marketing Imagination ’ , Theodore Levitt 51 stated something probably now long considered obvious, but still fundamental; ‘ The essence of competition … is differentiation: pro-viding something different and providing it better than your competitor . The problem has always been in defi ning what is meant by ‘ better ’ . Co-creation offers an answer from a perspective in which competitive advantage derives from delivering a brand experience that is better according to the criteria that customers and stakeholders themselves, rather than the fi rm, determine. It also emphasises the importance to com-petitiveness of knowing and understanding

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