Value-Based Marketing Definition

According to Dowling (2004), many companies have been shifting from cost-based pricing strategy to value-based pricing and creation of customer-perceived value. This has enhanced a better understanding of the factors that distinguish a company’s product from the rest of the products, and the extent to which the difference in the products become a worthy concept to the customer. Value-based marketing enables a company to be able to achieve a consistent approach for measuring the customer-perceived value in the provision of their commodities.

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According to Doyle (2006) value-based marketing has become so critical that it has out-done the concept of the cost-valuation through accounting profits that has been used for a long period in most companies. According to him, accounting profits normally lead to a severely short-term view of business activities. They do not increase investment in a firm’s resources and they also do not enhance customer-supplier relationships which are very important.

In today’s corporate world, accounting concepts only focus on tangible assets and they do not bring out the critical aspect of how intangible assets like the company’s reputation through brand names are a significant source of value in the organization (Doole & Lowe 2005; Doyle & Stern 2006). With these ideas, there has arisen the necessity for companies to move towards value-based marketing that is not only concerned with making profits but also creating value in a company’s activities (Wilson & Gilligan 2005). Value goes beyond the traditional methods of preparing the financial statements. It takes into consideration those assets that do not appear on the financial statements but are key in the proper running of the business; that is, the intangible assets- the company’s brand name, relationship between the customer and the supplier as well as the management’s skills experiences and attitudes (Doyle 2006).

According to West, et al (2006), value-based marketing as a term usually refers to the practice of those organizations whose core values appear to be tightly aligned to the business strategy of such organizations. In this regard, consumers shall be on the look-out for those products that besides offering them satisfaction, also seeks to attach an emotional connection between on the one hand, the consumers and on the other hand, the product or services (Saren 2007). For example, happiness and fun may be used to describe the experience of customers that pay a visit to such an amusement part like say, Disneyland. In this case, the marketers for such a product must always strive to ensure that this kind of an emotional connection with their customers is not lost. It is the one key asset that differentiates them from their competitors.

That said value-based marketing is not a new concept in the field of marketing. Nevertheless, it has lately really captured the attention of many a CEO. For instance, Kraft Foods, Inc. was the very first food processing company to cease their advertisement of junk foods that had children as their target market. As regards this change of policy, Roger Demoredi, the CEO of the company, asserted that the relationship that his company bore with their consumers was one of trust (Muffatto & Panizzolo 1995). As such, there is a need therefore, according to Demoredi, for companies to now align themselves with the society that they serve. Falling short of this, one is bound to their shareholder value destroyed.

Grewal and Levy (2007) have described value based marketing as a system of management that enables the marketing function of a business organization to enhance its financial contribution. For over 10 years now, the area of marketing has been characterized by episodes of frustrations as various CEOs and marketing managers alike have struggled to ‘push marketing into the boardroom’ (Hastings 2007). According to Bradley (2006), creating value in marketing is a continuous process which begins with communication, which means, establishing value propositions that are focused towards inspiring the company’s marketers to sell and the customers to buy. The communication is then let out to the proper market targets and strategies for enhancing consistency in bringing value to marketing.

The steps towards achieving a marketing strategy based on value may be summarized into four stages. First, there is the need for a firm to understand the needs of their customers. Then, a company should strive to create a differential advantage, prior to the establishment of long term relationships with customers. Finally, a company shall always seek to develop the organizational requirements that enhance value.

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Bradley (2006) argues that these steps will focus towards customer-perceived value in providing the right goods and services at the right prices. That there exist a difference between value-based marketing and common marketing is not without doubt. On its part, common marketing makes use of such implied values as convenience and low cost, in a bid to appeal to the targeted market for products and services. As can be seen, the idea is to enable the company to reach the target market with relative ease, and at the same time also ensure that the end product is not so expensive as to discourage the consumers from purchasing it (Thompson & Martin 2005).

On the other hand, value based marketing, the values that a customer places on a given product or service are chosen in conscious manner. In addition, such a choice of values then gets communicated quite explicitly (Collis 1996) , with the effect that it now becomes the main tool and focus for fulfilling the need of the customers.

There is no doubt therefore that value-based marketing may very may fit the description of a natural approach to marketing, at least from the perspective of a new paradigm, in as far as a business entity is concerned. Of particular concern is the fact that value-based marketing may enable a given business entity not just to create an identity that is quite distinct from that of the competition (Dibb & Simkin 2001; Baker 2003), but the concept may also enable such an organization to maintain such an acquired identity. In effect, this then becomes the competitive advantage of an organization, relative to the competitors and therefore, a vital asset

A number of scholars views value-based marketing as a link between on the one hand, marketing and on the other hand, the strategic management of an organization (Blythe 2006; Brenan et al 2008). The perceived objective of the marketing function of an organization may be to both develop and implement strategies that are not only customer-led, but also those that have a potential to create the value for the shareholders of such an organization. By way of placing more value on the shareholders of an organization, this is a remarkable demonstration of the manner in which marketing strategies may seek to augment the value of a given organization. In this regard, value- based marketing acts to ensure that both a language as well as a framework for a profound marketing integration with the other functions of a given business entity are attained.

Moreover, value based marketing is believed to provide individual marketing practitioners within an organization with an augmented theoretical base for exploring the field that is marketing. As a result, this acts to place marketing at an ideal position in as far as the process of formulating business strategies is concerned (Dibb & Simkin 2001; Cova et al 2007). Thanks to the utilization of the value analysis concept on the shareholders of an organization, this act alone encourages the development of lucrative marketing investments within an organization. Normally under conventional procedures, of accounting, the captivity of building brand investments for a firm turns out to be quite a discouraging exercise (Proctor 2000; Laermer & Simmons 2007).This is because the approach has been shown to result in shrinking current profits ands as such they do not have a profound effect on the price of a firm’s share. However, this can only be attained through the analysis of value-based marketing for such a firm. For this reason, value based marketing as a concept, may be seen as resulting in a re-definition of the term marketing.

The driving force of the cash flow of an organization is marketing. As a novel approach into the larger field of marketing, value-based marketing is responsible for illustrating how the revenues and profits of an organization perform. Bradley and Swire have defined value-based marketing as “an entrepreneurial framework for managing marketing to maximize its financial contribution” (Bradley & Swire 2008). At the moment, this concept appears to have leapt out of the lecture theaters in business schools, and has now established itself firmly in the boardrooms and offices of many organizations. One of the organizational functions that has been seen to play a crucial ole in as far as the functioning of value-based marketing is concerned, is procurement. To start with, marketing performance is heavily reliant on how the external agencies to a business entity are performing (Brown 2006; 2008).

In addition, procurement seems to be quite instrumental in as far as the establishment of measurements and performance targets are concerned. Additionally, special offers and prices over a given product or a service usually seem to be in the area of procurement. As such, an optimal setting of these calls for a better comprehension of the elasticities and responses of customers (Lehu 2007). Also, the existing fine balance between on the one hand, the quality of a give product and on the other hand, the input costs of such a product, is also of fundamental importance. For this reason, there is a need to ensure that the procurement function of an organization comes to terms with an organization’s incurred costs, and also their revenue implication.

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What the value based marketing concept appear to suggest is that the decision makers in business organizations should endeavor to lay more emphasis on those marketing processes that are capable of delivering this much sought-after value (Grewal & Levy 2007). This is in contrast to the actual marketing transaction, or the mere action of ensuring that a given product gets into the market. For the last few decades, the field of marketing has evolved through a number of stages, ranging from the idea of transactions in the early days, top the new marketing concept that is now referred to as value-based marketing.

Doyle (2000) argues that through this process of evolving, the thinking on marketing has witnessed a transformation into four distinct stages. Transactional marketing refers to a business process in which the main focus is centered on the ‘actual exchange’, in addition to the establishment of ‘short-term profits for the company’ (Grewal & Levy 2007). In this particular case, sales volume happened to have been the principle indicator of the performance of a business. As such, decisions regarding marketing were mainly geared towards improving the effectiveness and efficiency of such a sale.

Brand-based marketing stage appears to have placed emphasis on the establishment of an augmented product. What this means ids that the brand image of a certain product, along with its associated benefits, played a significant role in as far as the building of value of such a product was concerned. Brand marketing bears a correlation with an establishment of customer loyalty (Grewal & Levy 2007). However, such a customer loyalty often times gets established once a manufacturer of a certain brand manages to establish an emotional relationship between on the one hand, the lifestyle of a customer and on the other hand, the lifestyle around which such a brand has been built. For example, the makers of the Volvo brand of car have established a brand that gives the impression of quality and prestige. By extension, the target market for the purchase of this brand is often those who are looking for a car that would offer not just comfort, but also prestige.

Over the last couple of years, cases have abounded of customers who have sought to question the price differential that is usually a characteristic of major brands. This has especially been worsened by the fact that owing to the ease with which one can now readily obtain information from the internet. In this case therefore, the idea of price transparency comes up. It becomes easy for customers to see the differences in prices that certain brands charges, on a global scale (Wilson & Gilligan 2005). As a result of these developments, a new concept, grey marketing, has come about. this refers to a situation in which brands that could be retained at a reduced price in a certain defined market, ends up instead experiencing a direct purchase from such a defined market “ for other geographical sectors where a higher price is charged” (Grewal & Levy 2007).

For instance, of late, we have witnessed a court battle between Tesco stores and Levi’s jeans, as a result of the practice of Tesco stores souring for cheaper jeans by Levi’s from outside of the European Union. These cheaper jeans so sourced are then brought and sold in the UK market, at prices that are way below those that the authorized distributors of Levi’s charge. In as mush as brand leadership may still be the central focus with regard to the establishment of competitive leverage by companies, nevertheless it is now being considered that the principle deciding factor within the marketplace is the capability of a given organization to add value to its brands, in addition to ensuring that it delivers an even greater value to such a given brand, relative to competition (Grewal & Levy 2007).

In relationship marketing, the principle strategic objective of an organization becomes the retention of their existing customers. Relationship marketing rests on the premise that once an organization manages top establish a loyal following of customers, then this is the one single most important factor in as far as the sustenance of profitability for such an organization is concerned. The main focus here is to have the already existing customers make extra purchases. In addition, relationship marketing helps to retain existing customers by way of loyalty schemes, so that they continue purchasing the products of a company (Grewal & Levy 2007). Some of the loyalty schemes that are commonly used by business entities include a rewarding of loyal customers, and store cards.

A majority of the people are of the opinion that relationship management is not only an expensive exercise in terms of sustenance, but also that it does not translate into a lot of returns relative to the amount of investment committed by such a business entity. There is yet a group of other companies that have sought to a rewarding and competitive leverage through an intimacy building exercise with their customers. In this case, the building of such an intimacy acts as a barrier to would-be business rivals (Grewal & Levy 2007). It is worth of note that the establishment of a close relationship between one the one hand, an organization and on the other hand, their customers, ought not to be viewed at as an end point per se. rather, the most significant strategic objective in all this is the value delivered to customers by an organization, at such a cost as would enable an organization to deliver to such customers value as well

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Value-based marketing is a concept of marketing that seems to embrace a marketing effort that is totally integrated, and one that is capable of handling the entire marketing process in such a manner as to deliver value to customers. In this process, the owners/shareholders of a company are also bale to build value. Those in support of the value-based marketing are of the opinion that in order that an organization may be best placed to compete in an effective manner, such an organization is required to go beyond either the establishment of a brand, or even the creation of a relationship with their customers. It is required of such an organization to establish value (Grewal & Levy 2007). For this reason, in as much as brands and relationships may be vital for a company, the basis for competition appears to depend almost entirely on changing markets. In this case, novel forms of competition keeps on emerging in the market place. What this means is that if at all companies are to attain a competitive advantage that is sustainable, they are required to provide their customers with a propositions for total value.

Doyle (2000) opines that it is “By delivering superior value to customers that management can in turn deliver superior value to shareholder” (Doyle 2000). In order for the delivery of value based marketing to be attained, there are four critical steps that have to be fulfilled. First, there is a need for the development, on the part of an organization, of needs of customers, in a deeper way. Additionally, the processes of decision making, along with procedures of operation have to be understood thoroughly. Secondly, there is a need for an organization to come up with value proposition, which are in line with customers’ needs.

In addition, such a value proposition should act as a perfect opportunity for an organization to establish a differential advantage. Thirdly, it is important that a business entity is in a position to establish relationships with their customers in a long-term manner. This is vital, in order that a level of trust and loyalty may be established, on the basis of the amount of confidence and satisfaction that customers may have over a supplier. Finally, there is a need to have the management of a business entity come into terms with the fact that a superior value delivery to customers calls for skills, superior knowledge, marketing assets and systems. By way of incorporating the idea of vale-based management, the definition of marketing also gets altered. In this case, marketing now gets to be defined as “the management process that seeks to maximize returns to shareholders to build relationships of trust with high value customers and cerate a sustainable advantage (Doyle 20000.

Doyle (2000) contends that there are several changes within the environment that have resulted in an escalation of value based marketing. First among these is the growth expansion of equity markets, coupled with a dwindling participation, on the art of the government, in business. Then there is the issue of globalization with respect to trade and industry. As a consequence of this development, this has meant that now, companies do not just compete on a global scale for customers only, but for finances as well. If at all companies wish to attract finances, it is mandatory that they are capable of persuading potential investors that they are capable of delivering economic returns that are positive, in the days to come (Grewal & Levy 2007). Moreover, the availability of software and enhance potential for processing of data is an implication that a running of assessment tests as regards the financial consequences as a result of marketing decisions, has become quite easier. Further, available evidence shows that the amount of existing data to both current and existing investors is in staggering quantities, as well as of high quality.

For the last few decades, the field of marketing has evolved considerably. Along with this transformation, has been the focus of marketing as well. To start with, we have transactional marketing, in which the main focus appears to have been centered on the actual exchanges that took place. As such, what was of importance to traders then was the volume of sales they were able to attain (Grewal & Levy 2007). Marketing decisions were therefore concerned with the improvement of the effectiveness and efficiency of such a sale.

Next, there was brand marketing, in which customer loyalty was the in-thing. In this case, the main focus was to impress the customer so that they could make a repeat purchase, in addition to retaining these (Doyle 2000). Thus, customer satisfaction and loyalty were well cultivated. Then along came relationship market, which his based on premise that once an organization manages top establish a loyal following of customers, then this is the one single most important factor in as far as the sustenance of profitability for such an organization is concerned. Finally, the concept of value based marketing evolved. This concept is concerned with the delivery of total value to the customer. The idea is that once a customer gets superior value from the organization, then it follows that the shareholders shall also benefit from such a superior value.

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