The writer has a Master's Degree in Economics. She enjoys researching and writing about economic and business issues.
The Shift Towards Marketing
In the past, to lower overhead costs and increase profits, many firms attempted to carry out internal operational improvements such as innovating production processes, utilizing new technologies or enhancing labour productivity. However, as countries open their markets to foreign competitors with more and more free trade agreements, and technologies enable companies to easily reach out to customers around the world, many companies find that they need to find new ways to gain a competitive advantage over their competitors. In this context, instead of only looking inside, firms start seeking solutions from the outside, concentrating on customers and the determinants of their satisfaction as guidance to decisions on necessary improvement (Woodruff, 1997).
One area where firms invest in increasing amounts of financial and human resources is marketing. Firms hope to understand the customers’ needs and wants and modify their products or services accordingly to better serve their target customers (Fejza & Asllani, 2013). Marketing has evolved from just informing, delivering, and exchanging value with customers to proactively creating value for customers, contributing to the overall customers’ satisfaction and retention (Smith & Colgate, 2007).
This article aims to explain the importance of marketing, explore theories related to customer value, outline their relationship, and make some concluding remarks.
The Importance of Marketing
In today’s world, most businesses have a marketing department, or at least someone in charge of those activities. Many people mistakenly think that marketing only means advertising and selling. In fact, marketing also includes many other functions such as identifying customers’ needs, analysing their preferences and developing a product or service that satisfies them the most and maintaining the relationships between a company and its customers, suppliers, distributors and so on (Palmer, 2012). While not directly creating products, marketing is considered crucial to the success of a business for several reasons.
First, regardless of the types of products or services a firm offers, customers are the ones who decide whether the products or services generate any utility, or in other words, have any value to the society at large. Hence, marketing helps to prevent firms from wasting their resources on futile products by conducting research to identify a gap in the market and designing a product that fills the gap perfectly (Schermerhorn, 2012). In addition, marketing also brings information about the product to the right customers, so that customers know about its existence and actually purchase and consume the product.
Marketing Offers Growth Options
Since the ultimate goal of a firm is to boost profits and maximize the interests of its stakeholders, marketing provides the framework to enable firms to evaluate their growth options, and advance with the right strategy (Fejza & Asllani, 2013). For example, Ansoff’s matrix, invented by Igor Ansoff who is regarded as the creator of strategic management, summarizes the marketing strategy for firms to choose whether they should further penetrate the market (by obtaining a larger market share with their existing products), create a new product (aiming at their current customers’ portfolio), enter a new market (approaching new customers with their current products) or diversify their portfolio (bringing a new product to a new market) (Hussain, Khattak, Rizwan, & Latif, 2013).
Third, marketing improves the overall business performance by orienting the strategy planning of all other functions of a firm, thus adding values to the final product offering (Moorman & Rust, 1999). In this sense, marketing supports the company to develop the appropriate knowledge and skills based on its analysis of the relationship between the customer and the product and the company’s available resources.
The Concept of Customer Value
According to Smith and Colgate, from the point of view of customers, the value of a product is the difference between the benefits that they receive (utility) and the costs that they have to pay (price) (Smith & Colgate, 2007). Consequently, Maas (2008) suggested that customer value is a function of quality and price, and for customers, they prefer products with higher quality and lower prices. In either case, customer value is set by the consumers upon consumption of the products, not by the producers, although producers have the capability to create and influence customers’ perception.
According to Johnson and Weinstein (2004), customer value is affected and determined based on four main components which are service (unquantifiable value associated with a product), quality (how the product meets with customers’ expectation and satisfies their demands), image (the reputation of the company, and the perceived image of the customers when using the company’s product), and price (how much money the customers spend to acquire the product). Hence, customer value is not just a vague concept, and businesses must learn to understand their customers on a long-term and ongoing basis. In addition, the value is constantly changing; therefore, being able to grasp new trends and coming up with a timely management strategy are what differentiate a market leader and a market follower (McFarlane, 2013).
Another model explaining the determinants of consumer value is proposed by Sheth, Newman, and Gross (1991). Accordingly, in a product, the customer seeks to achieve five major values: functional value (the perceived usefulness of a product), social value (the way other people in the society perceive the consumers related to the product), emotional value (the feelings the consumer experience when using the product), epistemic value (the knowledge or realization coming from the product), and conditional value (the value acquired from using an alternative product).
To illustrate, customers of Lululemon Athletica, a sports apparel company established in Canada, offering clothing and accessories for yoga, running and so on, are expected to gain those five values (Lululemon Athletica, 2019). First, when buying and using products by Lululemon Athletica, the functional value refers to the utility of the products such as shoes for protecting the feet and enhancing performance. For social value, users of Lululemon Athletica’s products may be perceived by others as active and sporty people with a mid-range income. Regarding emotional value, users can feel excited, active, and comfortable since the products are associated with yoga and workout. The product can intrigue users to learn more about yoga, its history, benefits and practice, or another type of product, thus gaining knowledge or epistemic value. Finally, the conditional value depends on users’ experience with using products from a different brand serving the same purpose.
The Relationship Between Customer Value and Marketing
Marketing is argued to initiate, develop, communicate a product’s value to customers, and maintain the relationship to keep the customers loyal to the company, and ultimately increase profitability (Smith & Colgate, 2007). According to Kumar and Reinartz (2016), customer value creation is a simultaneous process and marketing plays a key role in both ways.
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On one hand, the marketing team needs to help firms learn and understand the customers by creating a company’s customer persona, analyzing their behaviors and the wider market’s trend so that the firms can offer customers a product that best suits their demand. On the other hand, once the product is distributed and consumed by customers, the marketing team needs to get involved with the customers to get their feedback, examine it and transfer back the results to the production team so that firm can change and improve their products to further satisfy customers (Kumar & Reinartz, 2016).
For instance, for Lululemon Athletica, on its website, besides introducing the company’s products for customers, the marketing team spends a lot of resources writing the “Inspiration” section to share with customers inspirational stories of successful athletes, benefits of sports to people’s physical and spiritual health, and so on (Lululemon Athletica, 2019). These stories not only educate and give people more information about various sports events, news, benefits and tips (epistemic value), but also motivate people to do more workout and play sports by infusing readers with a sense of pride and enthusiasm after reading the stories (emotional value). The company also features well-known international and local athletes who use Lululemon Athletica’s products to heighten the company products’ social value.
Another company that is also very successful in using marketing to create value for its product is Apple, Inc., one of the world’s Big Four tech companies. Apple manages to attach extremely high social value to its products by powerful storytelling and making its customers feel like an elite group (Moorman C., 2018).
In addition, marketing helps firms to determine the values that matter the most to customers, thus focusing their resources on features that deliver the most impact to the target market. Even though a product has a dozen of features and functions, customers only actually buy it for one or two features and deriving a particular value from those features. By identifying those functions and values, firms can enhance them and make customers more satisfied (Woodruff, 1997).
In conclusion, although not physically making a product, marketing is vital to adding and driving customer value for a company. By choosing a suitable marketing mix, firms convey the corresponding value proposition for its target customers, influencing their perceived values of the products, thus encouraging or discouraging people from buying (Palmer, 2012).
Nowadays, the marketing channels and techniques evolve significantly, and firms focus their marketing strategy on not just establishing images and reaching customers, but also proactively pushing customer values to win customers over their competitors.
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Larry Slawson from North Carolina on October 25, 2019:
Very informative. Thank you for sharing!