Create Value for Customers

Abstract:  Determining the marketing strategy is crucial in the process of running a company. The concept of customer value has become increasingly used in marketing strategy and literature in recent years. Understanding customer needs and wants is very important in designing an effective market strategy. Strategists must consider the complexity of factors when evaluating and selecting marketing strategies. The result of this article is that one of the indicators of customer profitability is customer lifetime value (CLV), which is a discount on net income that is obtained as long as consumers subscribe. The more loyal the customer, the longer the subscription period (customer lifetime), the more likely they are to upgrade buying and cross-buying, and the more they accept price increases so as to provide greater profits for the company. Consumer equity (customer equity) total CLV of all customers owned by the company.

Keywords: Marketing, Marketing Channels, Customer Value

INTRODUCTION

Value is a very popular concept in various fields of science. In the field of economics, value is known as utility.

namely the use of the product for consumers. In marketing the concept of value is also used and even considered as the reason consumers buy products (reasons to buy).

Attention to value has recently increased in marketing. Value is considered to be the main source of competitive advantage today, even being the key to a company's success in surviving in the long term (Khalifa, 2004; Kotler and Keller, 2012). Today's global companies, which are tens to hundreds of years old, such as Nestle, Unilever, Coca Cola, Toyota and others, can become big and survive for such a long time, is because they provide value to their customers. Conversely, brands that previously triumphed and then disappeared from circulation, it is certain that these brands do not provide the right value. Or, even if it provides value, but that value is less than the value provided by competitors.

Companies that are not based on marketing are increasingly realizing that the key to their success is providing value for customers. For example, the reason Microsoft (a software manufacturing company) makes for buying its product is customer value (Figure 1.1).

The market is not a vacuum. Apart from our company, value is also provided by other companies (Seggie, Cagusvil and Phelan, 2007). Often the competition between companies is very high, as described in hypercompetition (D'Aveni, 1997).

Basically competition is a race for consumer choice. because consumer choice is based on value (Kotler and Keller, 2012), competition can also be interpreted as a race to provide value. Therefore, value is the key to successful marketing and strategic marketing must be based on value.

 

DEFINITION OF CUSTOMER VALUE

The concept of value is being used more and more in marketing today. The proof can be seen from the definition of marketing given by experts. When we talk about the definition of marketing, the most widely used standard is the definition of the American Marketing Association (AMA) which is headquartered in Chicago, United States of America.

With free translation, this definition states that marketing is an activity, a set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners and society at large. The objective of marketing is to create, deliver and exchange value with consumers.

According to Scanchez-Fernandea and Iniesta-Bonillo (2006), the concept of different customer values can be grouped into four categories, namely: (1) value as low price, (2) value as anything what consumers want in a product (value as whatever the consumer wants in a product), (3) value as the quality that consumers get in return for the price paid (value as the quality the consumer gets for the price she/he pays) and (4) value as what the consumer gets for what they have given (value as what the consumer gets for what he/she gives). In short, there are two dimensions related to value, namely what the consumer gets (GET) and what the consumer sacrifices (GIVE). The first category that associates value with a low price certainly focuses on GIVE. The second category which regards value as "whatever the consumer wants in a product (value as whatever the consumer wants in a product)" focuses on GET. The third category which considers value as "the quality that the consumer gets in return for the price paid (value as the quality the consumer gets for the price she/he pays)", focuses on the comparison between GET and GIVE. The fourth category, which considers value as "what the consumer gets for what they give (value as what the consumer gets for what he/she gives)", also compares GET versus GIVE, but is more complete than the third category.

SOURCES OF CUSTOMER VALUE

So far, four categories of understanding customer value have been explained. Then it has also been discussed that the four categories of understanding are based on different focuses, whether on GET, GIVE or GET and GIVE at the same time. The GET dimension can be associated with functional/utilitarian, hedonic/experiential as well as symbolic/expressive values. The GIVE dimension can be associated with the cost/sacrifice value. The next question is where do these four types of values come from?

In general, experts do not specify the source of customer value because there seems to be an agreement among them that the source of value is a product or brand. In fact, according to Smith and Colgate (2007), there are five sources of value, namely information, product, interaction, environment, and transfer of ownership.

Information is generated through advertising, public relations, and brand management (such as packaging, labels, and instructions). The information allows consumers to know functional, hedonic, symbolic, and cost or sacrifice values so that they can make decisions more quickly.

Products directly generate functional, hedonic, symbolic, and cost or sacrifice values, so that decisions can be made more quickly. Therefore, Vargo and Lusch (2008) state that products are value vehicles.

The interaction between consumers and company employees as well as with systems created by companies (eg ATMs) can provide functional, hedonic, symbolic, and cost or sacrifice values. For example, the value of lectures at the Open University is influenced by the quality of interaction between students and employees directly or through the mail, telephone, and online systems provided.

The environment is also a source of value. Environmental management as a source of value can be found in retail, restaurants, banks, shopping centers, and others. Environmental settings are related to the outside environment (location, parking lot, and front view) as well as the internal environment, such as setting music, lighting, aroma, decoration, room layout, and merchandising. This setting is made because the environment can generate the four types of values that have been described.

Finally, the transfer of ownership is the source of the four types of value mentioned. These sources relate to accounting (such as payments and invoicing), delivery (including packing, picking, shipping, and tracking), and transfer of ownership (such as contracts, copyright agreements, and naming or branding). These sources can provide functional or utilitarian value, such as timely delivery, hedonic or experiential value (such as satisfaction with the fulfillment process), expressive or symbolic value (such as the feeling of pride in having food delivered from the McDonald's menu to your home) and cost or sacrifice value ( such as calm because the delivery of goods can be monitored).

THE RELATIONSHIP BETWEEN CUSTOMER VALUE AND MARKETING STRATEGY

Company owners or shareholders are generally not interested in the idea of value and customer satisfaction. For them, the satisfaction of the company owner should be sought, not consumer satisfaction. Providing customer satisfaction means reducing company profits and also means reducing company owner satisfaction.

The above thoughts seem reasonable, but when explored further, actually customer satisfaction and company owner satisfaction can go hand in hand. In other words, if it is managed properly, the increase in customer satisfaction will be followed by an increase in company profitability, which also means an increase in the satisfaction of company owners.

The logic is: the higher the value, the higher the customer satisfaction and loyalty, the higher the consumer equity, and the higher the company's profitability. Here a new term is introduced

'consumer equity'. This concept will be discussed in the next section along with another related concept: customer lifetime value (CLV). For the first opportunity, the relationship between value and customer satisfaction, and loyalty is described.

There have been many studies (including Spiteri and Dion, 2004; Carpenter, 2008) that reveal a positive relationship between customer value, satisfaction, and loyalty so such conclusions at this point can be considered self-accepted or unquestioned. There may indeed be different findings, but such findings are considered special cases.

What's interesting about this relationship is the end result, namely consumer loyalty. From this concept, we can build the concept of consumer profitability. However, before that, let's look at the advantages that companies get from loyal customers. First, the subscription period (customer lifetime) is longer, which also means greater sales potential.

Second, there are up-selling and cross-selling. This is an activity to maximize transactions between companies and customers. Upselling means that the customer buys more or buys a higher version of the product so that the consumer spends more money from his wallet for the company (wallet share).

Cross-selling is an event where a customer buys not only the main product but also other products from the company. For example, the main product of PT. Pos Indonesia is a mail and package delivery service. However, this company also has other services, namely banking through postal banks and internet cafes. Cross-selling occurs when customers also use banking services or internet cafes, in addition to mail and package delivery services. The purpose of cross-selling is also to increase wallet share.

Third, consumers become advocates for other potential consumers. Referral A person or an organization who recommends a company (or its products) to other potential customers. Christopher, Payne, and Ballantyne (2002) distinguish two categories of advocates, namely customers and non-customers. Customer advocates (customer referrals) are further distinguished into loyal advocates (advocacy referrals) and company-initiated advocates (company-initiated customer referrals).

 

CONCLUSION

Customer value affects customer satisfaction and loyalty. Loyal customers have higher profitability than disloyal customers. Thus, customer value is positively correlated with customer profitability.

One indicator of customer profitability is customer lifetime value (CLV), which is discounted net income that is earned as long as a consumer subscribes. The more loyal the customer, the longer the subscription period (customer lifetime), the more likely it is to upgrade buying and cross-buying, and the more they accept price increases so as to provide greater profits for the company. Consumer equity (customer equity) total CLV of all customers owned by the company.

In a situation of intense competition, customer value is an important source of competitive advantage. Therefore, the marketing strategy must be based on the creation of superior customer value.

Muhammad Fathul Mu'in                  202110160311474

Reh Tyas Prayogi                                        202110160311483

Muhammad Kafabik Abdullah                 202110160311434