Value in the Context of Marketing - Essay Example

How Do Organisations Create Value in the Context of Marketing? The digital era fuelled novel business opportunities and the continuous evolution of online business channels has made multi-channel retailing a reality, with the customer now placed at the forefront of business strategy. In turn this has reshaped business distribution and marketing models. This has propagated discussion with regard to the need for businesses to adopt customer relationship oriented approach in order to create value in marketing. For example, Weinberg at al’s recent report into changing consumer behaviour highlights that approximately 65-70% of consumers fall within the category of “multichannel shoppers” and increasingly have the highest purchasing power (Weinberg et al, 2007). As a result, Weinberg et al posit that it is “critical that organisations effectively employ a multichannel marketing approach, as consumers in B2C contexts now expect it” (Weinberg et al, 2007, p.385). The focus of this paper is to critically evaluate how organisations create value in the context of marketing and it is submitted at the outset that central consideration should be given to the movement away from the conventional economics based approach to consider the benefit of integrating effective customer relationship management (CRM) into business strategy to create value. Fort example, Vargo and Lusch argue that the underlying basis for marketing is rooted in economic principles of exchanging goods for value (2004). It is precisely this concept of “value” that has been at the heart of marketing strategy in persuading consumers to exchange value for goods in conventional business strategy. However, as the business models continue to evolve in line with changing consumer habits and retail channels, Vargo and Lusch point to the fact that economical basis for traditional marketing strategy has been forced to adapt to remain relevant (2004). Additionally, Vargo and Lusch further refer to the arguments of Achrol and Kotler that the: “very nature of network organisation…..and the potential impact on the organisation of consumption all suggest that a paradigm shift for marketing may not be far over the horizon”(in Vargo and Lusch, 2004). They highlight the point that marketing has been forced to move away from the focus on tangible goods in light of the increasing consumer value attached to intangibles, thereby underpinning the “paradigm shift” in providing value in marketing. A significant part of this has been the move away from the economic model to the recognition of marketing as a social and economic process (Vargo and Lusch, 2004). In evaluating this “paradigm shift”, Gronroos refers to the fact that customer relationship economics presses the need for considering alternative marketing strategies and supports the importance of customer relationship marketing to address what consumers attach to the concept of “value”. Indeed, he argues that “relationship building is paramount”; which questions the relevance of the traditional Four Ps in providing value in context of marketing (1997). Moreover, the digitisation of business has expedited novel business opportunities through the piecemeal development of e-commerce, thereby culminating in an unfamiliar business paradigm. However, the rapid pace of online business activity has led to ad hoc responsive retail strategy measures in an attempt to balance the interests and protection of consumers, whilst simultaneously facilitating market growth. This in itself highlights the multifarious complex issues pertaining to contemporary retail management strategy as a result of the e-commerce business model particularly when we factor in the cultural values at the increasingly individual approach required by contemporary marketing strategy (Patterson et al, 2006). Accordingly, this reinforces Weinberg et al’s argument that: “A critical reality is that the Internet is… arguably the, key driver in the burgeoning consumer demand…. in multichannel marketing” (2007, p.386). Furthermore, the e-commerce business model has facilitated novel societal trends and business openings via piecemeal development of electronic commerce. However, at the forefront of the e-commerce business model has been the increasing power of the consumer, which in turn has increasingly influenced marketing initiatives (Nunes & Cespedes, 2003). For example, an empirical investigation undertaken by Avlonitis and Indounas indicates that service companies’ pricing policies are increasingly dictated by consumer objectives (2007 83). Moreover, the empowerment of the consumer as a whole has led to market segmentation and a changing consumer market, forcing retailers to adopt a multi-retailer strategy (Levy & Weitz, 2008: 27). This in turn has led commentators to recommend the organisational use of customer relationship management strategies (CRM) to ensure value and address the challenges of the multi-channel retail marketplace (Levy & Weitz, 2008: 27). As a result, there is clearly a need to increase the perceived value in marketing strategy, which is supported by the arguments of Webster that marketing has become more than about securing sales, but rather instrumental in customer loyalty and corporate branding. Webster asserts that “the business is increasingly likely to be a network of strategic partnerships”, which highlights the point that a brand and corporate strategy is increasingly defined by the customer in the contemporary marketplace. This in turn correlates to the arguments of Nunes and Cespedes in highlighting the point that the conventional economics based model of marketing has dramatically shifted whereby the customer is increasingly autonomous in determining value. In distinct contrast to the power of retailers in the 1980s and mid 90s, “today’s customers “channel surf with abandon” highlighting the need to implement a new logic for channel strategy; which reiterates the need to be innovative in creating “value” to retain customer loyalty in contemporary marketing strategy. In turn, the relationship between consumers and branding is arguably paramount in determining the centre of how value should be marketed to retain and persuade new customers (Merz, He & Vargo 2009). Indeed, whilst loyalty programs have been viewed as incentives for consumers, the type of loyalty programs in ensuring brand loyalty in the long term has become increasingly dictated by the consumer (Payne et al, 2004). Indeed, the e-commerce archetype has clearly fragmented the retail sector and Galbreath and Rogers argue that, “no enterprise can any longer succeed…..without understanding the needs and desires of its customers”(Galbreath & Rogers, 1999). As such, the increase of consumer power arguably forces organisations to undertake a more lateral approach to marketing as opposed to merely focusing on competitors (Avlonitis & Indounas, 2007). This argument is reinforced by the proposition of Weinberg et al that organisations shouldn’t assume what the customers want, but that it is imperative for organisations to add value in addressing consumer needs to survive in the multi-channel marketplace (2007). Moreover, it is posited growth of online business models is intrinsically interlinked to the impact of CRM, which has distinctly altered the way that companies approach planning; with a marked shift from focusing on product to CRM (Ryals & Knox, 2001). To this end, Vargo and Lusch argue that “marketing’s role as the facilitator of exchange becomes one of identifying and developing the core competencies and positioning them as value propositions that offer potential competitive advantage. To do this, marketing should lead the effort of designing and building cross functional business processes. Therefore, marketing should be repositioned at the core of the firm’s strategic planning”(2004). In considering a paradigm shift, Payne et al consider the use of the “six markets” model, in considering the role of business/stakeholder relationships as being instrumental to highlighting brand value in marketing initiatives (2004). As a result, their central findings in undertaking research into stakeholder relationships is to highlight the four inter-related elements such as stakeholder value propositions, value delivery, design, stakeholder relationship marketing plans, measurement and feedback (Payne et al, 2004). Therefore, the influence of stakeholders forces businesses to be increasingly inclusive in ensuring that the product and brand development stage is tailored to the stakeholder’s perceptions of value (Payne et al, 2004). To this end, Payne et al posit that: “Marketing interest in relationship based strategic approaches has increased strongly over the last decade in line with expanding global markets” (Payne et al, 2004). To this end, they refer to the six markets stakeholder model, sub divided into the major stakeholder groups, which are customer markets, referrals, influence markets, employee markets, supplier markets, internal markets (Payne et al, 2004). The increasing influence of stakeholders in customer oriented marketing not only has resulted in a paradigm shift; but has also dramatically altered the presentation of consumer values in corporate marketing campaigns (Carrigan et al, 2005). Indeed, Carrigan et al suggest that “marketing ethics has developed in the context of business ethics that reflect the interests of various stakeholders in the exchange process” (2005). This reiterates the discussion above that the increasing power of the consumer has forced companies to address the interrelationship of multifarious subjective consumer preferences such as culture, religion, ethics and morality beyond conventional approaches to product development (Carrigan et al, 2005). Moreover, in demonstrating the importance of the paradigm shift to addressing consumer perceptions of value in marketing strategy, Reichheld (1996) suggested that “a 5% growth in customer retention rates culminated in a mean customer lifetime value figure ranging between 35% to 95%, with knock on effects on profit margins” (In Ryals & Knox, 2001). This therefore highlights the importance of presenting value in context of marketing initiatives in customer retention (Galbreath, 1998:14). Accordingly, it is further extrapolated that the contemporary marketplace, particularly in context of the evolution of the internet business model has forced businesses to adopt a different approach to corporate marketing strategy and this is arguably supported by the development of the multi-channel retailing paradigm, which has forced businesses to “innovate” in order to survive the market (Levy & Weitz, 2008). In terms of the need to ensure effective CRM strategy, Kim & Mauborgne argue that blue ocean marketing strategy is vital in the contemporary business paradigm by not competing in the existing market space and create an uncontested market space. Furthermore, the essence of the blue ocean strategy is that focus on competition is incorrect and it is necessary to create a new demand and that as such, the company’s systemic approach should be underpinned by differentiation and low cost, at which point (Chan Kim & Mauborgne, 2005). Indeed, Chan-Kim & Mauborgne comment that “of course competition matters. But by focusing on competition… have ignored far more lucrative aspects of strategy: One is to find and develop markets where there is little or no competition – blue oceans and to protect blue oceans” (Chan Kim & Mauborgne, 2005). Additionally, Murphy (2007) argues that blue ocean marketing is important in highlighting the need to create new markets (Murphy, 2007). Accordingly, the contextual backdrop of the contemporary marketplace arguably highlights the benefit of organisations using CRM in business growth strategy. This is further highlighted by the central arguments pertaining to the benefits of blue ocean marketing. Indeed, Chan & Mauborgne highlight the point that the effective use of CRM and blue ocean strategy provides ample scope for business growth where “companies can create new industries or create a new market from within a red ocean, which changes the parameters of existing industry” (Chan-Kim & Mauborgne, 2005). To this end, Chan Kim & Mauborgne (2005) argue that purchaser value is increased by offering customers new experiences, increasing customer retention rates. Indeed, leading independent marketing consultant Morris comments that “of great interest is…. assertion that the innovations which enable these companies to succeed with a blue ocean strategy did not depend upon a new technology. Rather, each company pursued a strategy which enabled it to free itself from industry boundaries” (In Chan Kim & Mauborgne, 2005). As such, the globalisation of the retail industry as a result of the e-commerce business model has signalled a fundamental shift in customer and business relationships with an intense focus on CRM. Moreover, the main objective of CRM is to identify, qualify, acquire, develop and retain increasingly loyal and profitable customers by delivering the right product and service to the right customer, through the right channel, which has become particularly pertinent in the multi-channel challenge reshaping retail strategy. Additionally, the factors highlighted by Kutner & Crips (1997) underline the importance of understanding consumer behaviour, which is vital to effective CRM. For example, Gupta et al (2003) undertook research into consumer habits and found that regardless of the distribution channel adopted by a consumer, ultimately customer loyalty is inherently reliant on the characteristics of the consumer regarding risk (Gupta et al, 2003). This is further evidenced by Chain et al’s study regarding the weight attached to the product and its concomitant impact on consumer patronage frequency (2004), which determined that this is intrinsically variable depending on the nature of the product. The above analysis highlights that the correlation between globalisation and the digital revolution has fundamentally altered the traditional retail business paradigm. As such, it is evident that the proliferation of the Internet and e-commerce business model has played a vital role in reshaping marketing and distribution channels in retail companies, thereby reformulating the nature of supply and demand. Additionally, it is submitted that segmentation of the traditional marketplace has become increasingly shaped by consumer trends, which has pressed the need to integrate CRM as part of business growth strategy. This in turn has created a novel marketplace, where the consumer is effectively the market, thereby creating novel business opportunities. 2. Application of CRM and Value in Marketing to Apple As highlighted in the above discussion, the role of consumer perception to “value” and CRM has been vital in reshaping marketing strategy in the contemporary market place. Moreover, contemporary marketing theorists such as Chan-Kim and Mauborgne take the “paradigm shift” argument of Vargo and Lusch further by suggesting the need for businesses to adopt CRM and provide value in marketing by creating new markets or “blue oceans” (Chan-Kim & Mauborgne, 2005). For example, if we consider the operations management marketing and multi-retail strategy of Apple in relation to the iPhone, which demonstrates the successful interrelationship of using CRM to inform business strategy from product development to market placement. For example, when the Apple iPhone first arrived in the marketplace, it sold approximately 270,000 units, with an estimated 150 per minute in thirty hours. The success was further cemented by the average price of the iPhone being placed at $499-599. Moreover, it was estimated that sales had reached the million mark by September in the same year of launch, thereby outperforming the adoption rate for the original iPod (Trebilcock, 2007). In applying effective CRM strategy, Apple then slashed the iPhone’s price by $200, resulting in rocketing sales figures (Trebilcock, 2007). It has been argued that Apple’s supply chain management was a significant factor in the creation of a new market in line with consumer demand and blue ocean strategy, thereby highlighting the benefit of integrating CRM into an organisation, particularly in the retail sector (Trebilcock, 2007). For example, in the AMR Annual Supply Chain top 25 report for 2007 undertaken by AMR Research, Apple’s achievements were highlighted for its sophisticated integration of CRM. The company came second in a prestigious list of retail and manufacturing companies (AMR Research, 2007 available at www.amrresearch.com/supplychaintop25). From practical perspective, prior to sales of iPhone, the product was viewed as the perfect integration of product innovation and brand management through understanding of the customer requirements, which presses the need for a customer centric approach in the contemporary retail marketplace (Trebilcock, 2007). Moreover, Kim and Mauborgne explain how to create an uncontested market-space where competition is irrelevant (Chan-Kim & Mauborgne, 2005): “blue ocean strategy is about creating and capturing uncontested market space, thereby making the competition irrelevant. Blue ocean strategy is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players” (Chan-Kim & Mauborgne, 2005). Indeed, Levi highlighted the importance of timely market placement and commented that “A killer product is only successful if it gets to the right customer at the right price at the right time” (Levi in Trebilcock, 2007). Levi further observes that it was the interrelationship between CRM and Apple’s creation of a product directly tailored to consumer thirst for innovation that dictated the success of the marketing strategy’s emphasis on innovation, thereby underlining the importance of demonstrating value in marketing. BIBLIOGRAPHY Ahuja, M., Gupta, B. and Raman, P. (2003). An Empirical Investigation of Online Consumer Purchasing behaviour. 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