Why is it important for managers to have a strong understanding of value and the value exchange model?

University Degree Business and Administrative studies

Rachael Mein –1944 8635 MKC 1200 Assignment # 1

MKC 1200 – Assignment # 1

Value has pluralistic definitions (Wheeler et al., 2003, p.9) as it “is largely intrinsic to the individual” (Armstrong, 2001, p.12). Value, when discussing from the customers perspectives, is defined by Zeithaml as their “overall assessment of the utility of a product based on perceptions of what is received and what is given” (Armstrong, 2001, p.14). Value in relation to pricing however, focuses more on the benefits the customer receives in relation to their monetary sacrifice. According to the resource theory the role of managers is to “identify, initiate and manage the relational asset as time, competition and change gradually erode their value” (Armstrong, 2001, p.13). The Value Exchange Model consists of two symmetrical sides that focus on both the customer and provider. It seeks to provide a guideline of how value is created and distributed to the customer and provider, and how they interrelate to arrive at the desired outcome (Gabbott, 2004, p.38-39). Customer values and needs are a driving force for an organisation in their attempt to provide a product or service of value. It is essential for managers to have a strong understanding of the different ways in which value can be provided, in the hope of “maximizing the creation of value” (Wheeler et al., 2003, p.11). If managers have a strong understanding of value and the Value Exchange Model, they can recognise the needs and wants of their customers and develop a product or service that satisfies customer and provider perceived benefits.

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One organisation, which seeks to provide their customers with ‘value’, is Crown casino. Recognised for their status and image, Crown casino is a large organisation located on Melbourne’s Yarra River in the city centre. Crown markets their wide variety of services, offering ‘something to meet every need’ (www.crowncasino.com.au). Among other services such as the casino, cinema, hotel facilities, entertainment and shopping, Crown casino is a conference facilities provider with a seating capacity of 12-3000. A manager of Crown casino conference facilities seek to provide customer value by providing benefits and investment. These include facilities to ensure a good conference, such as audiovisual and multi media facilities and power point presentation and technological equipment (www.crowncasino.com.au). In addition, providing five star luxurious facilities, together with necessary services such as technical facilities, managers of Crown are providing their customers with a service of ‘value’. However, managers must understand that perceived value will be different for each customer. A manager’s understanding of the Value Exchange Models attempts to provide a guideline for achieving customer and provider benefits, investments and ultimately, a product or service of value to the individual. Managers must understand the various elements of the Value Exchange Model so they can meet customer desires and follow through with the facilitating of the exchange. Ensign (2001, p.19), regards this as important as “a firm can clearly improve or erode its position within an industry through its choice of strategy” or design approach, in their desire to reach organizational objectives and provide their customer with an efficient, effective and valuable service.

“The objective for every relationship is to maximize the long-term value derived from the asset” (Armstrong, 2001, p.13). In an ongoing effort to understand customer needs and wants, senior levels of management must stay close to their customers (Kotler, 1998, p.7). Human needs are states of felt deprivation (Kotler, 1998, p. 6). Wants are the form taken by human needs as they are shaped by individual personality and culture (Kotler, 1998, p.6). Managers must seek to understand that “consumers view products as benefits and often choose products that give them the best value for their money” (Kotler, 1998, p.7). While “customer values are the central, enduring beliefs that guide a customer’s behaviour” (Gabbott, 2004), managers are “motivated by the anticipated outcomes of their actions” (Armstrong, 2001, p.7). The Value Exchange Model sets out this consumer, provider relationship with the aim of providing and allowing each to benefit from the exchange of a product or service. Managers also need to understand that relationships with suppliers and customers can assist in creating value for the customer. “Collaborative relationships can provide sellers with an opportunity to deliver superior value to their customer” (Armstrong, 2001, p.8).

One example of how a product or service of value can be obtained is through inimicability. Inimicability refers to when a product or service is so unique it is difficult to reproduce due to the complexity of the key resources (Armstrong, 2001, p.7). For example, Crown casino conference facilities provide a unique service and “superior product offering” (Armstrong, 2001, p.6) to their clientele. This uniqueness is partly achieved due to their location next to the Yarra River in the Melbourne Central Business District and the entertainment facilities, such as the casino, movie theatres and the five star hotel services, being provided within the complex. These intangible services are provided in the one complex, which creates inimicability and exclusivity for Crown casino. Crown advertises their exclusive services claiming they provide ‘a world of entertainment’ (www.crowncasino.com.au). If the Sofitel hotel were to offer these same facilities and services, Crown would lose its exclusive value, thus resulting in decreased financial performance. Armstrong (2001, p.7) comments that ‘benefits from an action that is easily copied soon are lost as competitors match the action’. Inimicability can be an important area for managers to address, in their quest to find value for the customer and ultimately create revenue for the organisation. This theory of inimicability is one way in which an organization can create value for a customer, and one reason why it is important for managers to understand value.

Customer value is the difference between the values the customer gains from owning and using the product and the costs of obtaining the product (Kotler, 1998, p.3). Managers must seek to understand the various elements of value, in their journey to provide a product or service of value to the customer. A managers understanding of the Value Exchange Model plays an important role in this process. The Value Exchange Model allows managers to design outcomes that address the desired benefits of their customers and organisation. As shown, Crown casino attempt to provide a valuable service to their clientele by offering a wide variety of facilities for their customers which, ultimately, seeks to provide financial revenue for the organisation.

Reference List

Armstrong, G., Hogan, J.E. (2001) “Journal of Business-to-Business Marketing”, Chapter 1, Vol. 8, No. 4. pp. 6-23.

Wheeler, D., Colbert, B., Freeman, R.E. (2003) “Focusing on Value: Reconciling corporate social responsibility, sustainability and a stakeholder approach in a network world”, Journal of General Management, Vol. 28, No. 3, pp. 1-21.