Customer value: what is it?
Abstract
This short paper surveys the main usages of the term ‘value’ in the Marketing field
highlighting the extraordinary variety of definitions that it has attracted. Although the paper
focuses on semantic issues, it is argued that the complexity and confusion that currently
surrounds the meaning of the term is a hindrance to effective operations in both the
academy and practice. The suggestion is made that it is possible to bring some order and
clarity to the current semantic complexity surrounding the word ‘value’ by comparing the
existing definitions with a brutally simplified variation. This is carried out, and the ‘true’
nature of some of the most popular usages of the term in the field is revealed.
The paper ends with a radical plea for semantic clarity, not only to protect the
concept of value from further degradation and possible loss of effectiveness as an
explanatory variable in empirical research, but also to prevent its abandonment by
practitioners as an aid in the motivation of staff and the management of firms.
People have been thinking about the nature of value for more than two millenia. Xenophon
[c. 427-355 BC], the earliest published economist, observed that value comes from the
interaction of a product with a consumer, and not the product itself:
A flute for example, is wealth to one who is competent to play it, but to an incompetent person it
is no better than useless stones.
Xenophon, 1923, p. 10
One result of such prolonged and sustained reflection might have been the creation of the
most highly polished, unambiguous concept in the English language. However some 2500
years later what we have is semantic anarchy, and a general and growing confusion about
what the word ‘value’ actually refers to. In the Marketing field alone the word has been
attached to an astonishing array of usages. There is a core of work that focuses on the value
that customers enjoy or perceive (the precise choice of verb is subject to dispute). This core
idea is variously defined as; ‘a trade-off’ between benefits and costs or sacrifices (many
authors including [Simpson et al, 2001], [Monroe, 1991]; ‘quality’ as specified by customers
[Gale, 1994]; the ‘monetary worth’ of benefits [Anderson and Narus, 1999]; ‘a relationship’
between one company’s offering and that of its competitors [Kothandaraman and Wilson,
2001] and a ‘process’ involving a range of stakeholders [Payne & Holt, 2001). Some adopt
the ontological position of arguing that value is located in the products and services that
companies supply, others argue that it is to be found primarily in the minds of customers as
‘customer perceived value’ [e.g. Woodruff, 1997], [GrÖnroos, 1997]. Around this core of
generalised definitions circle a number of narrower, more specialised treatments that
concentrate on one particular source of value for customers, see for example ‘relationship
value’ in [Hogan, 2001). Finally, [De Chernatony et al 2000] detail a bewildering range of
combinations of the words ‘value’ and ‘added’. Some of these appear to be attempts to
devise marketing-specific versions of the accountant’s ‘value added’, see for example,
[Grönroos, 1997], [Nilson, 1992] and [Farquhar, 1994] all of whom refer to exceptional
services or giving customers more than they were expecting. Others seem to be using the
word ‘added’ simply to mean extra degrees of ‘normal’ customer value, see [Zeithaml, 1988]
and [Ravald and Grönroos, 1996].
The reasons for the extraordinary profusion of the current semantic jungle
surrounding the concept are unclear, but academics respond to the complexity in a limited
number of ways. Some simply ignore the problem and use the word ‘value’, without
explication, as though its meaning were self-evident. Others see the welter of definitions,
quite reasonably conclude that the precise meaning of the term has yet to be agreed, and
coin their own new definition or usage (see, for example, [Flint and Woodruff, 2001, p.322]).
Some avoid the problem of choosing between competing meanings by listing a whole variety
of possible alternatives (see for example, ]Hogan, 2001, p. 340]) Finally, it is no coincidence
that authors reviewing or surveying the value literature, those in other words with the most
complete grasp of the subject area, all stress the semantic confusion that exists (see for
example [Anderson et al, 2000, p. 308], [de Chernatony et al, 2000, p. 41], [Leszinski and
Marn, 1997, p.99] [Payne and Holt, 2001, p. 159] and [Ziethaml, 1988 , p. 2]. Few would
argue that this is a satisfactory state of affairs, and this brief paper is an attempt to bring
some clarity to the field of Marketing.
A proposal
The core usages of the term either refer simply to ‘value’, with the context making it clear
that the author is thinking about the value customers enjoy or perceive, or they employ the
phrase ‘customer value’. However those same words are used to refer to a bewildering
variety of apparently different phenomena. One method of bringing order to this semantic
chaos would be to agree on a single definition of the concept. However, there are no
generally accepted rules governing the design of definitions, nor criteria for choosing
between competing alternatives. In the absence of a selection method that would be
acceptable to every authority on the subject, it is suggested that the field should apply Albert
Einstein’s advice about theory construction to the task of defining value, and accept a
definition that is as simple as possible, but no simpler, thus: Customer value is the benefit that
customers enjoy or experience from the receipt of products and services.
Clearly such a spartan definition is incapable of embracing and communicating the
subtleties of the distinction between, for example, sources of customer value ranging from
the characteristics of products through to the psychological influences on customers’
perceptions. Nor can it incorporate differences in value before and after a product or service
has been received or consumed. Or even the distinction between value in the act of
consumption as compared to that in the process of exchange, and so on. However, using
this extremely simple definition idea as a yardstick it is possible to examine a representative
sample of the host of definitions already on offer with a view to explaining why the meaning
of the concept has become so complex and diffuse.
It is argued that a significant proportion of the current semantic confusion stems
from the fact that any definition of the term ‘customer value’ should answer the question:
‘What is customer value?’, yet many of the published definitions have much more ambitious
aims, seeking to answer a range of closely related, but different, more complex questions.
For example, some of the most popular definitions at the time of writing focus on a putative
trade-off in the minds of customers between costs and benefits, thus:
and
…buyers perceive value as a trade off between perceived quality and benefits
in the product or service on the one hand and perceived cost on acquiring
and using the product or service on the other.
Monroe , 1991, p. 87
…customer value is created when the perceptions of benefits received from a
transaction exceed the total costs of ownership. The same idea can be
expressed as a ratio:
Perceptions of benefits
Customer value =
Total cost of ownership
Christopher & Peck, 2003, p.43
These definitions go beyond simply defining what customer value is to explore the broader
question of: ‘How do customers decide if a product or service is worth buying?’. They arrive
at the reasonable conclusion that customers weigh up the costs and benefits associated with
the receipt of a product or a transaction with a company to produce some estimation of
what might be called the ‘net benefit’, and then use this mental calculation to guide their
decision-making. This explanation generates confusion not only because it goes far beyond
the bare definition proposed above, but it also implies the illogical notion that value = (value
– costs). Other authors have suggested that:
Value…is the relationship of a firm’s market offering and price weighed by
the consumer against its competitor’s market offering and price. For a
customer to perceive value a choice is necessary between the available market
offerings in the context of price.
Kothandaraman & Wilson, 2001, p.380
and:
Customer value is the relationship between the degree of customer
satisfaction with the products and services received and the satisfaction with
the price paid. A company creates customer value added (CVA) when it
provides products and services for customers that are of greater value than
they could expect from those of competitive companies in similar markets….
CVA =
Perceived worth of the company offer
Perceived worth of competitive offers
Laitamäki & Kordupleski, 1997, p.158
In this case, the authors are seeking to answer the broader question: ‘How do customers
choose between competing product or service offerings?’ This an interesting and useful
question for improving our understanding of interactions between companies and
customers, but its answer produces much more than a definition of value.
There is a also considerable and growing literature devoted to what is termed
‘perceived customer value’, thus:
and:
‘[perceived customer value is] a customer’s perceived preference for and
evaluation of those product attributes, attribute performances and
consequences arising from use that facilitate (or block) achieving the
customer’s goals and purposes in use situations.
Woodruff, 1997, p.142
…perceived value is the consumer’s overall assessment of the utility of a
product based on perceptions of what is received and what is given.
Zeithaml, 1988, p.14
These definitions may be seen to be answers to the question: ‘What kind of processes or
factors affect customers’ perceptions and preferences for products or services?’. Once more
the answers far exceed the requirements of a definition of customer value.
Some authors seek to generalise a rather narrow conception of the term that they
favour, for example:
Value in business markets is the worth in monetary terms of the economic,
technical, service and social benefits a customer firm receives in exchange for
the price it pays for a market offering…we express value in monetary terms.
Such as dollars per unit, guilders per liter, or kronor per hour. Economists
may be interested in "utils", but we have never met a manager who did.
(sic)…
Anderson & Narus, 1999, pp. 5
This incorporates a version of the simple definition proposed above, but goes on not only to
employ the wording of Porter’s [1985, p.38) traditional, microeconomics-inspired view of
prices, but to rigidly specify what kind of ‘benefits’ are deemed suitable for consideration.
This is an interesting approach, but some might argue that the inclusion of an emphasis on
prices is superfluous in a definition of value, whilst the exclusion of all non-monetary
benefits unnecessarily rules out the investigation of a range of possible forms of benefit that
may be essential to any deep understanding of buyer behaviour.
Finally, there is a small group of authors – [Blattberg and Deighton, 1996], [Walter et
al, 2001] and [Möller and Törrönen, 2003] - who look at the value of the customer to the
firm, for example:
…we understand value as the perceived trade-off between multiple benefits
and sacrifices gained through a customer relationship by key decision makers
in the supplier’s organization.
Walter et al, 2001, p.366
However, if ‘customer value’ is value enjoyed or experienced by customers, then these three
papers are actually discussing an entirely different concept that ought logically to be called
‘supplier value’.
Conclusion
The marketing field, in the form of authors, journal editors and publishers, has allowed the
task of defining the concept of customer value to lose focus, spread out and incorporate
more complicated and, some might maintain, more interesting questions than the lowly
‘What is customer value?’. The resulting confusion was inevitable. Clarity and improved
understanding could be restored if the marketing field were to adopt the deliberately narrow
definition of value suggested above. Clearly, there would remain a an extremely wide range
of topics associated with the nature of value that will invite investigation, including:
 The factors that contribute to the creation of benefits for customers
 The mental processes involved in customer perceptions of benefits
 The different types of benefit arising in different forms of buyer-supplier interactions
However, if the current practice of labelling all such related phenomena as ’customer value’
were stamped out, not only would there would be no further confusion about what the core
term meant, but the intent and relevance of explorations of the related phenomena would
also become much more easy to determine. Some might cavil at the thought of such an
apparently outrageous piece of linguistic Stalinism. However, it is not being argued that ideas
should be suppressed, merely that they be clearly expressed in order to minimise both
academic and practitioner confusion. If the current state of affairs is allowed to continue and
the language to suffer further degradation, the concept of value may become entirely
discredited and unusable as an explanatory variable in empirical research. This would surely
be a serious loss. Much of the work in this area offers valuable insights into customer and
company behaviour and performance.
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