0019-8501/01/$–see front matterPII S0019-8501(99)00122-4

Industrial Marketing Management

30, 525–540 (2001)© 2001 Elsevier Science Inc. All rights reserved.655 Avenue of the Americas, New York, NY 10010

Measuring Customer-Perceived Value in Business Markets

A Prerequisite for Marketing Strategy Development and Implementation

Wolfgang UlagaSamir Chacour

Delivering superior value to customers is an ongoing con-cern of management in many business markets of today. Know-ing where value resides from the standpoint of the customerhas become critical for suppliers. In this article, the constructof customer-perceived value is first assessed through a litera-ture review. Then a multiple-item measure of customer value isdeveloped, and our approach is illustrated by the marketing

strategy development project of a major chemical manufac-turer in international markets. The article finally discusseshow the customer value audit can be linked to marketing strat-egy development and provides guidelines for managerialactions. © 2001 Elsevier Science Inc. All rights reserved.

INTRODUCTION

Delivering superior value to customers is an ongoingconcern of management in many business markets today,and the value concept is considered one of the most pop-ular constructs among business managers and academia[1]. Knowing where value resides from the standpoint ofthe customer has become critical for managers, because

Address correspondence to Dr. W. Ulaga, EDHEC Graduate School ofManagement, Department of Marketing, 58 Rue du Port, 59046 Lille Cedex,France.

The authors gratefully acknowledge Professors P. Rajan Varadarajan andPeter Dacin at Texas A&M University and the reviewers for their commentson an earlier draft of this article.

526

greater levels of customer satisfaction lead to greater lev-els of customer loyalty and retention, positive word-of-mouth, a stronger competitive position, and, ultimately,higher market share [2–4].

In recent years, there has been a resurgence of interestin the value construct. In 1997, the Marketing Science In-stitute identified “value-related” issues as a research pri-ority. In 1998, conferences such as the Annual Confer-ence of the Academy of Marketing Science in Norfolk,Virginia, and the Annual Conference of the IndustrialMarketing and Purchasing group (IMP) in Turku, Fin-land have given broader attention to the issue. Many re-searchers have investigated the construct, focusing in thepast mainly on consumer products and services [5]. Re-search in the context of business-to-business markets,however, has been limited [6]. In industrial marketing,the value construct often has been neglected, leaving it toother disciplines, such as engineering, production man-agement, or strategic management. Textbooks on busi-ness-to-business marketing still frequently limit the con-cept to the pricing chapter when comparing value pricingwith other, more traditional pricing methods, such ascost-plus pricing or probability pricing.

However, the value concept is of utmost importancewhen analyzing industrial buyer–seller relationships. Ac-ademic research currently is undergoing a paradigm shiftfrom transaction marketing to relationship marketing [7].In this context, the value concept is considered as a fun-damental constituent of relationship marketing [1]. Infact, delivering superior value to customers is key to cre-ating and sustaining long-term industrial relationships.

In the late 1970s and early 1980s, researchers of theIndustrial Marketing and Purchasing group (IMP) devel-oped an interactive approach investigating the nature ofcustomer–buyer relationships within a network perspec-tive [8–10]. In this framework, customers play an activerole; they establish solid and long-term relationships withtheir suppliers who often develop tailor-made productsand services for them.

But research on relationship value in industrial mar-kets is still in its infancy [1]. Wilson and Jantrania havestudied how value can be measured in relationship devel-opment [11] and Holmlund and Strandvik [12] offer amodel of mapping perceptions in industrial buyer–sellerrelationships.

Value can be created in three domains: value creationthrough relationships with suppliers, value creationthrough alliance partnering, and value creation throughrelationships with customers [7]. In the present article,we adopt the point of view of the supplier and their needto better understand the customer’s perception of value.Because perceived customer value is not easy to measurein industrial markets, the main scope of the present arti-cle is to provide a managerial tool for measuring indus-trial customer’s perceptions of value in form of a cus-tomer value audit (CVA).

We argue that customer value analysis is more thanjust a pricing technique or a market research method. It isa strategic marketing tool for auditing customers’ needs,positioning the company vis-à-vis its competitors, and

WOLFGANG ULAGA is Professor and Head of the Marketing Department at EDHEC Graduate School of Management, Catholic University of Lille, France. He received his doctorate of business administration from the University of Paris 1, Pantheon-Sorbonne. His research interests are in the area of business marketing.

SAMIR CHACOUR is a Senior Vice President with the ISO Health Care Group, an international management consulting firm specializing in providing strategy and organization services to the health care industry. He received his engineering degree and MBA from McGill University, Montreal,

Canada.

Customer value analysis is a strategic marketing tool to clarify a company’s

proposition to its customers.

527

measuring gaps in the buyer’s and vendor’s value percep-tions.

In this article, the construct of customer-perceivedvalue is first assessed through a literature review. Then, amultiple-item measure of customer value is developedand illustrated in the context of the marketing strategydevelopment project of a major chemical manufacturer ininternational markets. The article concludes with a dis-cussion on how the customer value audit can be linked tomarketing strategy development and provides guidelinesfor managerial actions.

LITERATURE REVIEW

The value concept has been widely used in various dis-ciplines, such as economics, accounting, finance, strat-egy, production management, and marketing [11]. Inmarketing, researchers seem to use different terminolo-gies when referring to the construct, such as customer fo-cus, customer satisfaction, customer delight, customerloyalty, or customer value [13]. For the purpose of thisarticle, we need to define what we understand by “cus-tomer-perceived value”. The concept frequently is usedin relation with two other constructs: “customer-per-ceived quality” and “customer satisfaction.”

Customer-Perceived Quality

Traditional approaches to quality have adopted a re-strictive view of the concept, reducing it to “internal”(e.g., technical) product quality delivered by a supplier.Grounded on this “conformance quality,” quality controlconcepts were introduced in the 1950s and 1960s, fol-lowed by quality assurance programs in the 1960s and1970s. During the 1980s, the quality revolution made to-tal quality management (TQM) a buzzword [14, 15].

From the initial focus on internal quality management,the orientation then moved to a broader view integratingthe client’s view of quality. As early as the 1950s, evenbefore the marketing concept made its way, L.D. Miles atGeneral Electric Corporation developed a set of tech-niques called value analysis. These techniques aimed atidentifying and removing unnecessary costs but still ac-complishing the functions that the customer needed andwanted [16]. Miles stated that orientation towards cus-tomers’ needs and wants should be an integral part ofproduct development. His approach thereforecan be re-garded as path breaking for industrial marketers.

Today, quality schemes such as the European QualityAward or the Malcom Baldridge Award are basedheavily on customer measurement of quality [15, 17].The rationale behind management’s focus on productquality as a key issue is the close relationship betweenquality and performance of the firm [14, 15, 18, 19]. Theempirical work grounded on the PIMS database hasshown this strong link between improved quality andgains in market share [20].

What exactly is quality? There have been numerous at-tempts to address the issue, resulting in different perspec-tives [14]. Most operational definitions stem from qualityexperts and consultants, i.e., Crosby’s “conformance torequirements” [21], Deming’s “predictable degree ofconformity and dependability at low cost and suited tomarket” [22], Juran’s “fitness for purpose” [23], andOakland’s “meeting the customer requirements” [24].

Customer Satisfaction

Measuring customer satisfaction with product qualityhas become very popular and today represents an impor-tant source of revenue for market research firms [17–25].In traditional customer satisfaction models, quality ispresumed to precede customer satisfaction [1]. Customer

Value is a trade-off between benefits and sacrifices perceived by the customer in a

supplier’s offering.

528

satisfaction research is influenced mainly by the discon-firmation paradigm [26]. This paradigm states that thecustomer’s satisfaction feeling is a result of the compari-son between perceived performance and one or morecomparison standards, such as expectations. The cus-tomer is satisfied when he feels that the product’s perfor-mance is equal to what was expected (confirming). If theproduct’s performance exceeds expectations, the cus-tomer is very satisfied (positively disconfirming), if it re-mains below expectations, the customer will be dissatis-fied (negatively disconfirming).

The widely accepted quality models recently havebeen criticized [19]. On the one hand, it has been arguedthat the customer’s perception of price or costs should betaken into account. On the other hand, it has been statedthat traditional customer satisfaction models rate a com-pany’s performance as perceived by existing customersbut do not integrate competition in the set of analyses[27]. Their aim is to continuously improve current prod-ucts and services and correct defects and errors. Cus-tomer satisfaction measurement thus provides tacticaltools used by customer service departments. Assessingcustomer-perceived value, however, goes beyond simplytracking customer satisfaction with product quality.Hence, it can be seen as an answer to the above-men-tioned criticism.

Customer-Perceived Value

Researchers have assessed extensively the construct ofvalue in marketing. Flint, Woodruff, and Gardial [28]state that value can be approached in three different di-rections: values, desired values, and value judgements.According to this classification, “value” in a businesscontext is defined as “centrally held enduring core be-liefs, desired end-states, or higher order goals of the indi-vidual customer or customer organization that guide be-

havior” [28]. Desired customer values, to the contrary,are “the customers’ perceptions of what they want tohave happen in a specific kind of use situation, with thehelp of a product or service offering, to accomplish a de-sired purpose or goal” [29]. For the purpose of our arti-cle, however, the third category of “value judgements” isthe most important for a definition of “customer-per-ceived value.” A value judgement is “the customer’s as-sessment of the value that has been created for them by asupplier given the trade-offs between all relevant benefitsand sacrifices in a specific-use situation” [28]. Table 1presents a representative overview of definitions of cus-tomer-perceived value.

When analyzing the definitions of customer-perceivedvalue presented in Table 1, three key issues can be identi-fied: the multiple components of value, the impact ofroles and perceptions, and the importance of competition.

The Multiple Components of Value

The definitions in Table 1 all present customer-per-ceived value as a trade-off between benefits and sacri-fices perceived by the customer in a supplier’s offering.Perceived benefits are a combination of physical at-tributes, service attributes, and technical support avail-able in relation to a particular use situation [30]. Per-ceived sacrifices sometimes are described in monetaryterms [31]. Other definitions describe sacrifices morebroadly. Sacrifices are of prime importance to customersin value perceptions. Monroe [30] argues that customersvalue a reduction in sacrifices more than an increase inbenefits.

Ravald and Grönroos [1] suggest that the trade-off be-tween benefits and sacrifices should not be restricted tothe single episode level. Instead, customer-perceivedvalue should be extended to the measurement of “totalepisode value” taking into account both episode benefits

In the customer value audit, suppliers and customers are asked to assess their

perception of product value.

529

and sacrifices and relationship benefits and sacrifices, be-cause the relationship itself can possibly have an impacton the total value perceived.

The Impact of Roles and Perceptions

Value is perceived subjectively by customers [32].Customers are not homogeneous; therefore, differentcustomer segments perceive different values within thesame product. Previous research on organizational buy-ing behavior has shown that different members in thecustomer organization are involved in the purchasingprocess [33–35]. Whereas in some cases, companies mayhave established a formal buying center, in other casesthe members may be part of an informal group. Also, thenumber of people involved in the purchasing process andtheir positions may vary across customer organizations.

These members of a buyer’s organization have differ-ent perceptions of a supplier’s value delivery [17]. There-fore, in a customer value audit, it is necessary to identifyand assess the value perceptions of all key informants in-volved in the purchasing process [18]. Such a multiple-informant approach is considered to be more reliable byfar than single-informant studies [36–41].

In addition, within the supplier’s organization, opin-ions of how customers view the company’s products dif-

fer among functional areas, i.e., general management,marketing and sales management, salesmen or customerservice personnel [6, 42]. With value perceptions differ-ing between customers and suppliers and even withinthese organizations, identifying and bridging perceptualgaps become critical steps in value delivery [17, 43].

The Importance of Competition

Value is relative to competition. Delivering a bettercombination of intrinsic quality attributes in a productand related services, in other words, offering better valuethan the competition will help a company to create sus-tainable competitive advantage. As stated earlier, one ofthe major criticisms of traditional customer satisfactionmeasurement is that these approaches do not integrate in-formation pertaining to competitors’ product offerings inthe analysis [27]. Customer value analysis, however,goes beyond this approach. Customer value measurementis a strategic marketing tool to clarify a company’s prop-osition to its customers, thus creating a differential supe-rior offering compared with the competition. The tool as-sesses a company’s performance in comparison with itsmain competitors as perceived by former, present, andpotential customers.

Our study focused on the food ingredients

division of a major chemical multinational.

TABLE 1Definitions of Customer-Perceived Value

Definition of Customer-Perceived Value Authors

The consumer’s overall assessment of the utility of a product based on a perception ofwhat is received and what is given. Zeithaml, Parasuraman, and Berry [43]

Ratio of perceived benefits relative to perceived sacrifice. Monroe [30]Trade-off between desirable attributes compared with sacrifice attributes. Woodruff and Gardial (1993) [29]Perceived worth in monetary units of the set of economic, technical, service, and social

benefits received by a customer firm in exchange for the price paid for a product offering,taking into consideration the available alternative suppliers’ offerings and price. Anderson, Jain, and Chintagunta [31]

The customers’ assessment of the value that has been created for them by a suppliergiven the trade-offs between all relevant benefits and sacrifices in a specific-use situation. Flint, Woodruff, and Gardial [28]

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Against the background of the key issues discussed inour literature review, we define customer-perceivedvalue in industrial markets as the trade-off between themultiple benefits and sacrifices of a supplier’s offering,as perceived by key decision makers in the customer’sorganization, and taking into consideration the availablealternative suppliers’ offerings in a specific-use situation.

THE CUSTOMER VALUE MEASUREMENT PROCESS

The definition we developed in our literature reviewwas used in the present study. Figure 1 summarizes thekey elements that had to be addressed in the customervalue measurement process.

Identification of Benefits and Sacrifices

The literature review suggested that value is a multidi-mensional construct. These dimensions can be describedas “benefits” or “sacrifices.” Therefore, the measurementtechnique had to identify these benefits and sacrifices. Inthis study, the criteria were grouped into “quality-related”aspects as an expression of perceived benefits and “price-related” aspects representing the perceived sacrifices. Al-though this approach is not the only possible way of group-ing the criteria, it is consistent with past research [27].

Value Creation as a Trade-Off betweenQuality and Price

Most of the definitions of value in the marketing litera-ture stress that value is created as a trade-off betweenquality and price. Extensive research has been conductedto study whether quality and price may or may not bepositively related. The results of both experimental stud-ies and studies based on secondary market data are equiv-ocal: some studies show a positive correlation, whereasothers show an inverse relationship or no relationship at

all. Garvin [44] provides a detailed overview of the liter-ature on the relationship between quality and price. Theauthor distinguishes between two bodies of literature:economics and marketing. Both approaches generallyagree that quality and price should be positively corre-lated. However, they show some differences.

Economists assume that customers possess sufficientinformation to evaluate product quality and that higherproduct quality can be produced only at higher cost, be-cause additional labor, materials, or capital are required.As long as costs and prices are positively related, qualityand price will move together as well.

Marketing researchers, on the other hand, have ad-dressed particularly the problem of asymmetric informa-tion (the seller is better informed about quality than thebuyer). In such a context, cues, such as packaging, adver-tising, word-of-mouth, or branding, become importantfor evaluating product quality. Price potentially conveystwo opposite functions: on the one hand, it may be per-ceived as a sacrifice and on the other hand as a symbolfor extra quality, value, or prestige.

Despite these contradictory results, one would arguethat especially business-to-business markets are charac-terized by symmetric information. In our study, custom-ers could easily obtain information about the qualitycharacteristics of the products through product documen-tation and testing. We therefore adopted an approachbased on a positive correlation between quality and price.The additional choice of a linear relationship is consistentwith past research in industrial markets [27].

Distinction between Customer Segments and Specific-use Situation

Researchers have suggested that value perceptions de-pend on specific-use situations [29]. Different customersegments perceive different values within the same prod-uct. Hence, our study needed to identify distinct customer

Value maps can be used by a supplier to assess strategic marketing options and to

develop action plans.

531

segments and probe for differences across segments re-garding (1) the types of criteria needed to assess cus-tomer perceptions, (2) the relative importance of eachcriterion, and (3) the competitors to be compared.

Preference for a Multiple-Informant Approach

The literature review suggested that the business-to-business purchasing process typically involves differentmembers of a buying organization. As a consequence, theapproach had to ensure that we captured the value per-ceptions of the key informants involved in the purchasingprocess. In addition, the literature review also indicated apotential for different value perceptions across membersof the supplier organization. Therefore, the study neededto ensure that the internal value assessment was con-ducted with multiple key informants within the supplier’scompany. Finally, the study had to identify an appropri-ate method of (1) aggregating the different views of themembers within a single customer company, and (2) ag-gregating the perceptions of the various customer organi-zations in the form of a summary of the overall customerperceptions of the different suppliers’ products.

Comparison with Alternative Suppliers’ Offerings

Our measurement technique had to compare perfor-mance measurements across competitors. This is one ofthe central aspects that distinguishes customer value mea-surement from customer satisfaction measurement [27].

Phases of the Customer ValueMeasurement Process

In the customer value auditing process, both the sup-plier and customers are asked to assess their perception

of product value. Thus, perception gaps can be identified,and corrective action plans can be developed to reducethese gaps. Figure 2 provides a general overview of atypical CVA process that essentially follows three majorphases.

P

HASE

1: S

TART

-U

P

. The objective of the start-upphase is to assess the supplier’s view of customer percep-tions of product value. Therefore, a group session is setup with the supplier’s sales personnel to generate a list ofpurchasing criteria. The group is asked to rank the crite-ria by relative importance, altogether summing up to100%. On the basis of this internal value audit, a cus-tomer questionnaire is developed. Additionally, the mar-ket is segmented, and a customer sample established.Given the exploratory character of the approach, a smallsample of present, former, and potential customers is se-lected.

P

HASE

2: S

URVEY

. In the second step, interviews areconducted with key representatives of customer organi-zations in different functional areas involved in the pur-chasing process. The objective of the customer value au-dit is to measure customer value based on the differencebetween the client’s expectations and perceptions of per-formance. Therefore, a double-scale approach is used.Customers are first asked to assess their purchasing crite-ria in the same sequence and manner as for the internalcustomer value measurement process, not taking into ac-count any specific supplier. In a second step, they areasked to evaluate the performance of main suppliersagainst their expectations. To avoid any bias, the name ofthe supplier mandating the study is not revealed until theend of the assessment session. Finally, the interviews areanalyzed and value maps are computed.

P

HASE

3: S

TRATEGY

F

ORMULATION

. The value mapscomputed in the second step of the process represent the

FIGURE 1. Key elements of the CVA process.

532

customer’s perception of a “fair” price–quality relation-ship expressed in terms of a value slope. The maps posi-tion various suppliers against this fair level of expecta-tions and visualize gaps in perception. The value mapsthen can be used by a supplier to assess strategic optionsand to develop action plans to change their position onthe value map by simulating the potential impact of alter-native courses of action on the supplier’s overall posi-tioning.

IMPLEMENTING THE CUSTOMER VALUE AUDIT

Supplier Background

Our study focused on the food ingredients division of amajor chemical multinational. This division markets four

product categories in several key countries. The com-plexity of the supplier’s operations, brought about by thenumber of products marketed, and the different countriesserved, can be best described by using Figure 3, whichshows four different levels of businesses.

A first group of food ingredient manufacturers focuseson a single product category selling the products only inthe home country (e.g., the single A in the black box ofFigure 3 representing hydrocolloids in Germany). A sec-ond group of manufacturers concentrates on a specificproduct category that is sold in different countries (e.g.,the first line marked B in Figure 3 representing culturesand dairy ingredients in all four countries). A third group ofsuppliers sells different product categories but in only onemarket (e.g., the first column marked C in Figure 3 repre-senting all four product categories in the USA). Finally, a

FIGURE 2. Phases and steps of the CVA process.

FIGURE 3. The supplier’s levels of business.

533

fourth group of companies can be identified as multiprod-uct, multicountry suppliers, which is the case of the sup-plier that mandated the study (marked D in Figure 3).

The overall objective of the supplier was to determineits competitive position and define its strategy as a globalsupplier of food ingredients (D), including specific strat-egies by product category (B) and by country (C). To de-velop competitive strategies, the company needed tohave an in-depth understanding of perceived customervalue for each product group in each country, individualcustomer information being very valuable to develop mi-cromarketing plans.

The Example of the Hydrocolloid Business in Germany

The literature review revealed that customer percep-tions vary by client segment. Each of the businessesshown in Figure 3 has its own context that can be definedin terms of customer types, market characteristics, andspecific competitors. For example, if we take the blackbox in Figure 3, which represents the hydrocolloid foodingredients in Germany, customer types include threesegments: convenience food manufacturers, ice creamproducers, and dairy product manufacturers. To reducecomplexity, we focus on only one market segment de-fined as hydrocolloids to convenience food manufactur-ers in Germany.

Hydrocolloids are used as stabilizing agents in foodproducts. They may be used for different purposes suchas extending a product’s life or changing its texture. Foodmanufacturers typically develop close long-term relation-

ships with a limited set of suppliers providing them withvaluable insight in their production processes. Customerneeds vary considerably from single ingredients, to com-plex, tailor-made mixtures of ingredients called hydro-colloid systems. For each type of prepared food product,customers select the supplier most adapted to their needs.

Project Start-Up

The customer value audit for hydrocolloids in Ger-many followed the three steps described in Figure 2. Inthe first phase, an internal CVA was undertaken withmarketing management and salespeople from the sup-plier’s organization. In a group session, the participantswere asked to determine value criteria of hydrocolloidpurchasers in the convenience food segment. A list of cri-teria was generated, and written definitions were devel-oped for each criterion. The managers also were asked togroup the items into coherent groups that led to the cate-gories described in Figure 4.

A first group of attributes were linked directly to theproduct’s intrinsic characteristics (product-related com-ponents). A second group of items were related to all ser-vice aspects associated with the product (service-relatedcomponents). Finally, a third category of criteria referredto all items concerned with the way a product was pro-moted to the customer (promotion-related components).

This step was repeated for the other two customer seg-ments to probe for differences across the three marketsegments. The actual list of generated items did not differacross customer segments in this study. However, sup-plier perceptions—and later on the customer percep-

FIGURE 4. Components of customer-perceived product value.

534

tions—did vary across segments in terms of the relativeimportance of each criterion. Table 2 shows the results ofthe internal customer value audit for hydrocolloids in theGerman convenience food segment.

In undertaking the internal customer value audit, thesupplier’s personnel first were asked to estimate howcustomers view the relative importance of price versusoverall product quality. Both categories were ranked bythe participants as equally important in the customer’spurchasing decision (50% for quality and 50% for price).They then were asked to assess the relative importance ofthe different quality categories. Product-related aspectswere perceived as most important (51%), followed byservice-related criteria (34%) and promotion-relatedquality aspects (15%). For each of the three categories,items then were generated. The group members wereasked to weigh the criteria relative to each other. Theproduct’s technical characteristics (20%), breadth ofproduct range (14%), technical support (13%), quick ser-vice and response (10%), and reliability and speed ofsupply (8%) were considered by the participants as pre-dominant in the customers’ decision-making process.

Phase 2: Customer Survey

Key customers were identified in each major marketsegment and asked to participate in the customer valueassessment project. In this step of the CVA process, in-

depth interviews were conducted with 36 informantsfrom 12 companies in the convenience food segment. Ineach company, interviews of approximately two hourswere conducted with key decision makers.

Every respondent company was given an equal weightin the survey. Weighting could have been considered ac-cording to the company’s importance and size. However,no company emerged as being significantly more impor-tant, i.e., none had a purchasing potential significantlygreater than the others. Within the companies, no distinc-tion was made between the different informants. Respon-dents were met together and asked what their joint per-ception was. Table 3 describes the number of companiessurveyed and the number of informants interviewed.

Evaluation of Hydrocolloid Suppliers by German Convenience Food Manufacturers

Table 4 shows the results of the assessment of the per-ceived value of hydrocolloid suppliers by German conve-nience food customers. Respondents were provided withthe list of criteria and their definitions generated duringthe internal audit with the supplier’s personnel. Theywere asked for additional criteria and their definitionsfrom a customer’s perspective. This led to the generationof an extended list of criteria that was very valuable in-formation for the supplier (column 1).

Column 2 of Table 4 represents the relative importanceof quality attributes as perceived by the customers, inde-pendent of any specific supplier. Customers then wereasked to evaluate key suppliers with respect to these pur-chasing criteria (column 3 to column 7). A 10-point scalewith anchors “very low performance” (1) to “very highperformance” (10) and no verbal statements betweenpoints 2 to 9 were used. Column 8 computes an averagesupplier’s position (average of column 3 to column 7).Finally, the client company’s relative position versus thisaverage was calculated in column 9 (difference betweencolumn 3 and column 8).

The total quality position (Q

T

) and price position (P

T

) ofa given supplier are shown in the last two rows in Table 4.

TABLE 2Weighted Quality Attributes Resulting from “Internal” CVA

Total Quality Attributes (%)

Product-related quality1. Product characteristics 202. Range of products (breadth) 143. Consistency of products 64. Natural Product Character 55. Ease of use 56. Other 1Subtotal 51

Service-related quality1. Technical support/application 132. Quick service/response 103. Reliability and speed of supply 84. Other 3Subtotal 34

Promotion-related quality1. Image, corporate identity 62. Personal relations 43. Reliability of supplier 34. Other 2Subtotal 15

Total 100

TABLE 3CVA Customer Sample—Hydrocolloids in Germany

Market Segment Number of Companies Number of Informants

Convenience food 12 36Dairy products 3 9Ice cream 3 9

535

The total quality position of a supplier (Q

T

) was calculatedin Table 4 as the weighted average of the three quality cat-egories identified in our study, i.e., product-related quality(Q

Prod

), service-related quality (Q

Serv)

, and promotion-re-lated quality (Q

Prom

). The customer-perceived weights ofeach of these categories are displayed at the bottom of Ta-ble 4 as follows: the relative importance of product-relatedattributes (w

prod

�

55.8%), service-related attributes (w

serv

�

29.2%), and promotion-related attributes (w

prom

�

15%;see Table 4 footnote). Equation 1.1. summarizes the calcu-lation of the total quality position (Q

T

):

(1.1)

Experience shows that managers find it difficult to quan-tify relative price levels, especially in industrial contexts.Researchers therefore have recommended the use of abase price level as a comparison standard [45]. In this

QT wprodQProd wservQServ wpromQProm.+ +=

study, customers were asked to consider the client com-pany’s price as a reference (100%) and to evaluate theother suppliers’ positions relative to this base price asshown in the bottom line of Table 4.

The comparison of the actual customer results with theinternal CVA results, i.e., Table 2 versus Table 4, indi-cated the gaps between customers’ perceptions and per-ceptions of the internal supplier’s team. For example, thesupplier believed that price was as important as quality inthe customer’s purchasing decision. However, customerswere significantly less price sensitive and weighted qual-ity much higher than price (63.3% for quality versus36.7% for price).

Similarly, at the single attribute level, customers con-sidered product consistency as a key attribute (35% ofproduct-related attributes or 19.8% of total quality at-tributes) whereas the client company weighted it only as

TABLE 4Evaluation of Hydrocolloid Suppliers by German Convenience Food Manufacturers

Importance(%)

ClientCompany

Competitor A

Competitor B

CompetitorC

OtherCompetitors

AveragePosition

RelativePosition

Product-related attributes1. Consistency of product 35.5 8.1 9.0 6.3 8.7 6.6 7.6 0.52. Product characteristics 32.9 8.1 9.0 6.3 8.7 6.6 7.6 0.53. Natural Product Character 14.2 8.0 8.3 6.3 8.0 7.5 7.5 0.54. Ease of use 8.8 8.8 8.1 8.3 7.0 8.3 7.9 0.25. Range of products 5.4 8.1 8.8 7.4 6.3 7.4 7.5 0.66. Nondusting 3.8 8.2 8.3 8.5 9.0 8.3 8.5

�

0.3Subtotal (Q

Prod

) 100.0 8.1 8.8 6.5 8.4 7.0 7.7 0.5Service-related attributes

1. Reliability and speed of supply 26.7 9.0 9.8 7.3 7.7 8.3 8.3 0.72. Technical support/application 23.3 5.7 8.8 5.8 5.7 5.1 6.3

�

0.73. Quick service/response 22.1 3.9 10.0 5.7 7.5 5.6 7.2

�

3.34. Product innovation 12.5 7.7 8.5 4.3 7.3 6.9 6.8 0.95. Technical information/literature 7.9 6.0 7.0 5.3 5.7 4.4 5.6 0.46. Training/seminar 4.2 4.8 5.7 6.3 8.0 2.9 5.7

�

0.97. Global source of supply 0.8 7.8 8.0 8.7 8.5 6.5 7.9

�

0.28. Others 2.5 1.0 1.0 10.0 5.5

�

4.5Subtotal (Q

Serv

) 100.0 6.3 8.8 6.0 7.0 6.3 7.0

�

0.7Promotion-related attributes

1. Image/corporate identity 5.8 7.4 9.6 5.5 8.3 5.7 7.3 0.12. Personal relations 27.5 4.8 9.4 6.8 5.7 5.4 6.8

�

2.03. Reliability of company 45.8 6.6 9.8 5.7 8.0 5.3 7.2

�

0.64. Public relations 0.8 2.6 2.5 1.5 8.0 2.8 3.7

�

1.15. Upstream integration 0.8 3.3 1.0 3.3 2.2 1.26. ISO 9001 certification 19.2 2.0 9.5 1.8 3.3 2.9 4.4

�

2.4Subtotal (Q

Prom

) 100.0 5.2 9.5 5.2 6.5 4.9 6.5

�

1.3Total quality position (Q

T

) 7.2 8.9 6.1 7.7 6.5 7.3

�

0.1Price position (P

T

) 100.0 105.0 87.5 97.5 91.7 95.4 4.6

Quality

�

price, W

q

�

63.33%, W

p

�

36.7%.Product-related attributes, W

prod

�

55.8%; Service-related attributes, W

serv

�

29.2%; Promotion-related attributes, W

prom

�

15.0%; Average quality position (Q

O

),7.3; Average price position (P

O

), 96.3.

536

6% of total quality attributes. In addition, new items weregenerated by customer interviews, which the supplierwas not aware of (i.e., the role of ISO certification).

Elaboration of CVA Maps

Figure 5 uses the information from Table 4, represent-ing the “total quality position” and the relative “price po-sition” of each supplier and plots their position on themap shown in Figure 5. For example, competitor C,showing a total quality position of 7.7 and a relative priceposition of 97.5 in Table 4, is represented by a triangle inFigure 5.

In a second step, a reference point R specified by a ref-erence quality level Q

0

and a reference price level P

0

isplotted on the map. These reference levels might be anindustry norm, an average level among a sample of com-panies studied, or a maximum level that is attainable withthe rating scale. In this study, R (96.3/7.3) was defined asa reference point reflecting the average quality positionof all suppliers (7.3) and their average price position(96.3), as represented in Table 4.

The trade-off that customers were prepared to makebetween quality and price was measured in terms of per-centage changes from the reference point. Weights re-flecting the trade-off between quality and price were de-noted by w

q

and wp (Equation 1.2). Customers wereasked to elicit the weights such that

(1.2)

Table 4 shows that respondents attributed a relativeweight of 63.3% to quality and 36.7% to price, altogethersumming 100%.

Finally, in a third step, a value line in Figure 5 wasdrawn through the reference point R having a slope wp towq. It represented the trade-off that customers were pre-pared to make between quality and price, measured interms of percentage changes from the reference point R(P0/Q0). As discussed earlier, a linear price–quality rela-tionship was assumed.

The customer-perceived value V was calculated insuch a way that V � 0 if both the perceived quality leveland the perceived price level were located on the valueline (Equation 1.3):

wq wp 1.=+

FIGURE 5. CVA map—hydrocolloid suppliers in Germany.

537

(1.3)

Companies positioned below the line were perceived asoffering value lower than expected by the customers,whereas those above the line were perceived as offering ahigher value.

Figure 5 shows that the client company remained be-low customers’ expectations in its overall positioning.An analysis of Table 4 revealed that the company per-formed lower than competition in several areas (see col-umn 9). For example, the supplier faced a significant dis-advantage on the “quick service/response” attribute(�3.3 in column 9) that customers considered to be animportant criterion. The overall importance of this crite-rion can be calculated by multiplying the relative impor-tance of the category “service-related aspects” (QServ �0.292 in Table 4) by the relative importance of this crite-rion within its category (0.221 in Table 4). Hence, “quickresponse” represented 6.5% of the customers’ total qual-ity judgement. When analyzing this particular issue, itbecame evident that the supplier’s poor performance onthis criterion was due to the absence of a technical ser-vice office in Germany.

MANAGERIAL IMPLICATIONS

The importance of the value tables and maps, in devel-oping marketing strategies, resides in that they identifythe specific attributes, as perceived by the customers,which position a company against its competitors,thereby indicating the strategies to be implemented to im-prove the current competitive position.

The objective of a company that is positioned in the“low value” portion of the map is to reach the price/qual-ity slope through a combination of price reduction andimproved quality. This, however, still needs to be per-ceived by the customer. Companies perceived as offeringhigh value have essentially three choices. First, they canconsolidate or improve their high value position, therebyexpecting to gain market share over time. Second, theycan increase their price, while still remaining in the highvalue portion of the map, because they currently are per-ceived by their customers to be offering a “more-than-fair” deal. Finally, they can reduce the level of qualitythat they currently are offering to decrease their costs andimprove their margins. This strategy is considered themost dangerous because creating a perceived positivevalue takes time and represents a key asset to a company

V wq Q Q0–( ) Q0 wp P P0–( ) P0.⁄–⁄= and should not be put at risk lightly. These strategic op-tions are represented in Figure 6.

A key responsibility of top management is strategy de-velopment and the allocation of resources to specific ini-tiatives. The CVA tables and maps, illustrated in Table 4and Figure 5, respectively, are tools that greatly assist se-nior managers in fulfilling this role. The objective priori-ties for action, indicated by those tools, need to be as-sessed by individual companies according to the cost ofacting on them and the expected lag time before qualityimprovements can be perceived by the customer.

When analyzing the data provided in column 9 of Ta-ble 4, a supplier may want to improve its perceived valueby selecting attributes considered as particularly impor-tant by customers. For example, the supplier in this studycould improve the consistency of its products. This at-tribute was not highly rated in the “internal” CVA andeven ranked positive for the company against its compet-itors on average. However, consistency was consideredby customers as the most important quality attribute, andthis probably indicated that not much attention was givento it by the supplier at that time. Improvements still couldbe achieved if more resources were directed to it. Alter-natively, the company could address the attributes whereit compared negatively with its competitors. For exam-ple, the supplier could evaluate its ratings against thehighest rating given by customers to its competitors foreach attribute and then address those criteria where itsperformance was lowest. The supplier in our study wasperforming low in a number of areas, such as quick ser-vice/response or personal relations of the commercialrepresentative. A third possible way of looking at thedata could be to direct the manager’s interest to itemsgiven few or no attention at all in the past, i.e., ISO 9001certification.

Strategic options can be simulated on a CVA map andcompared to determine those giving the best value in-crease for the least cost. Action plans by product andcountry then can be developed to implement the desiredchanges and achieve the required value rating improve-ment.

IMPLICATIONS FOR FURTHER RESEARCH

In this article, we have shown that understanding howcustomers perceive product value can help suppliers de-velop long-term relationships. Because the construct isdifficult to measure, we developed an operational tool ofcustomer value audit to assist manufacturers in develop-

538

ing and implementing marketing strategies. The model’smain advantage resides in its highly operational characterleading the business marketer to relevant managerial im-plications.

We have shown that value must be measured as a mul-tiattribute construct. Perceptual gaps do exist between thesupplier’s and the customer’s view of value delivery. Theunderstanding of these gaps can help suppliers to im-prove their existing marketing activities, allocate market-ing resources where they are needed, and train sales per-sonnel to reduce these gaps.

Future research should be directed towards fine-tuningthe customer value measurement tool. The approach pre-sented in this article deliberately reduced the multifac-eted construct of customer-perceived value to the trade-off between quality (the benefits) and price (the sacrifice).

The approach was based on a positive linear relation-ship between quality and price. Although we discussedthe arguments in favor of this assumption, we feel thatfurther research could be directed toward investigatingthis relationship. For example, which types of productsallow for using a positive price–quality relationship?

Nelson [46] and Darby and Karni [47] distinguish be-tween search, experience, and credence qualities ofgoods. Search qualities associated with a particular pur-chase are those that can be ascertained in the search pro-cess prior to purchase. They are easily known before thepurchase. Experience qualities only can be discovered af-ter purchase as the product is being used. Finally, cre-dence qualities cannot be evaluated in normal use, andthey are generally expensive to judge even after pur-chase. Although the above-mentioned articles draw onexamples from consumer goods, the distinction betweensearch, experience, and credence qualities can be made ina context of business-to-business products and servicesas well. This study focused on a product offering wheresearch and experience qualities were largely predomi-nant. Regarding food ingredients, customers have a largearray of possibilities to ensure that experience qualitiesand credence qualities are limited or nonexistent. For in-stance, they can ask the supplier for test results before us-ing a product in their production process, test a product tobe purchased in their own laboratory, or conduct smallproduction runs before actually undertaking larger pro-

FIGURE 6. Strategic marketing options. Understanding and delivering superior value to customers is key tocreating and sustaining long-term industrial relationships.

539

duction runs. However, other types of business-to-busi-ness products would show a dominance of experienceand/or credence qualities. These types of products wouldsuggest different price–quality relationships. In addition,quality and price criteria and relative weights associatedwith these criteria would differ (e.g., the role of a brandname or the supplier reputation). Therefore, other typesof products involving experience and credence qualitiesof business-to-business products merit being investigatedin further research on customer value assessment.

In terms of research methodologies, other techniques,such as laddering, could be used to explore means-endchains in industrial customers’ perceptions of value. Ad-ditionally, the scope of research could be extended to in-clude both relationship and episode benefits and sacri-fices in the approach.

Given the small size of our sample and the exploratorycharacter of our analysis, the multiple-item scale we de-veloped cannot be scientifically validated at this stage.Other studies have been directed towards this objective byusing large samples to apply statistical methods of analysis[6]. The underlying hypothesis of such approaches is astrong homogeneity of the companies studied. Althoughthis holds true for many commodity products, the homoge-neity of customer expectations towards a product often isdifficult to assume in the area of complex industrial prod-ucts. By aiming at generalizing the validity of their results,such studies often lose part of their managerial character.

Is it therefore necessary to abandon a systematic ap-proach to measuring customer value for complex indus-trial products? The objective of our present study was todevelop an assessment tool and a measurement processadaptable to many situations in industrial contexts. Ourapproach allows the manager to assess gaps in perceptionand to elaborate corrective actions to reduce these gaps.However, the validation of our approach and the im-provement of the measurement tool both require replica-tion in other markets.

Customer value analysis is of increasing importance inindustrial marketing. Yet, few researchers have investi-gated the construct in business-to-business relationships.It is hoped that this study will contribute to further empir-ical research on customer value and its relation to otherareas in industrial marketing.

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