(CVP) Understanding the Concept of Customer Value

A Customer Value Proposition (CVP) is a statement employed by companies to persuade customers in selecting their products, ensuring the delivery of superior value and competitive advantage.

The paradigm of customer value emerged within the Theory of the firm (Hunt, 1999, Slater, 1997) to address the organization’s role in providing superior value to customers as a strategy for obtaining sustainable competitive advantage supported by marketing efforts.

The customer value is defined as “a customer’s perceived preference for, and evaluation of, those product attributes, attribute performances, and consequences arising from use that facilitates (or blocks) achieving the customer’s goals and purposes in use situations” (Woodruff, 1997, p. 141), which can be evaluated pre- or post- product use. As Smith and Colgate (2003) note, such broad conceptualizations pose operationalization and measurement issues; “it is possible, however, to understand the categories or dimensions on which such assessments are made and to create a customer value framework that captures the domain of the construct.” (Smith and Colgate, 2003, p.8). While customer valuation is subjective, evidence from early literature on the conceptualizations of value emphasizes the idea that customers organize information about products and services at various levels of abstraction, from simple product attributes to complex personal values (Table 1). 

Selected means-end chain models and their proposed relationships with quality and value (Table 1)

Source: Smith and Colgate, 2003, p.10

Considered a pivotal determinant of customer behavior, the perceived value was tied early on to the highest level of abstraction a product can receive. The most complex level is the payoff of the product to the consumer, depicted by Young and Feign (1975) in the “Grey Benefit Chain”  (Figure 1), which illustrates how a product is linked through a chain of benefits to a concept called the emotional payoff.

The Grey Benefit Chain  (Figure 1)

Source: Young and Feign, 1975.

In other words, customers perceive value as the relationship between what they “get” (benefits) relative to what they have to “give up” (costs or sacrifices) (Zeithaml, 1988).

In defining customer value, literature often refers to the customer's perceived (or received) value.

Since 'the creation of customer value’ is recognized as the main purpose of an organization, a key driver of success through differential positioning, and a precursor to customer satisfaction and loyalty' (Smith and Colgate, 2015, cited in Slater, 1997; Cooper, 2001; and Woodall, 2003), it is essential for scaling.

Value creation activities are key drivers of innovation and include opportunity fostering and exploitation, especially in new product development or entrepreneurial ventures (Smith and Colgate, 2015).

Scholars have devised frameworks and typologies to aid practitioners in comprehending the creation of value, addressing questions of what value to create, when, why, and how. However, there remains a lack of consistency in the strategy literature regarding the definition of value, largely due to its conceptual and empirical multidimensionality. Among these scholars, I embarked on exploring the concept of value creation, starting precisely with perceived value.

Exploring the Paradigms of Customer Value

Over the past thirty years, there has been a notable resurgence in research focused on customer value. To comprehensively integrate and analyze this body of research, covering conceptualization, operationalization, and measurement, Zeithaml et al. (2020) conducted a thorough examination of numerous journal publications, uncovering three distinct paradigms: positivist, interpretive, and social constructionist. The positivist paradigm emphasizes understanding customer value solely from the customer's perspective, employing deductive logic. In contrast, the interpretive paradigm seeks to explore the subjective nature of customer value through inductive logic. Finally, the social constructionist paradigm views customer value as emerging from collaborative value co-creation practices within complex ecosystems (Figure 2).

Customer value framework  (Figure 2)

Source: Zeithaml et al., 2020.