Importance of customer perceived value

By Arijeet Krishna Srivastava & Priya Chetty on April 20, 2020

The concept of value creation has been extensively discussed by academicians and industry experts. It has gained considerable attention in the last two decades especially in consumer and industrial marketing research. Academicians perceive customer value through the dimensions of loyalty, satisfaction and repurchase behavior. Literature is cascaded with different definitions and interpretations of customer perceived value in the area of marketing (Holbrook, 2012; Woodruff, 1997; Zeithaml, 1988).

A traditional and popular definition of perceived value, however, is

the consumer’s overall assessment of the utility of a product based on perceptions on what is received and what is given.

Zeithaml, 1988

In simple words, it is the customer satisfaction experienced during an action relative to the cost of that action. Hence, it can be interpreted as a trade-off between the ‘benefit’ and ‘sacrifice’ that a customer makes in market exchange.

Constituents of customer perceived value

Company reputation

Customer perceived value is not only based on ‘rational economic criteria’. The perceptions of consumers are also dependent on many other factors such as:

  • corporate reputation,
  • information sharing,
  • distributive fairness and,
  • supplier’s flexibility (Hansen, Samuelsen, & Silseth, 2008).

Customers’ perception heavily depends on the reputation of organizations in comparison to their competitors. Corporate reputation plays a major role in depicting the value of an organization, which enables customers to build a trusting relationship (Kirmani & Rao, 2000).

Information sharing

Information sharing is another constituent of customer perceived value where the accountability factor of a company is at a display for its customers to review. It is defined as the extent to which companies share significant information like future prices and organizational changes in order to develop a strong relationship with them (Noordewier, John, & Nevin, 1990). It helps in eliminating the problem of asymmetric information and performance ambiguity.

Distributive fairness and supplier flexibility

Distributive fairness is another criteria where customers’ perception of a product is verified through the company’s efforts to maintain a fair distribution of profits and losses. It enables customers to review whether resources are distributed fairly along with “fair supplier reference profit and fair customer reference cost (i.e; price)” (Hansen et al., 2008).

Customers’ perception of the utility of a product is also based on the supplier’s flexibility. Here, the supplier’s ability to adapt to an unwarranted situation is tested, specifically when a customer’s desires deviate from actual standards. It also incorporates situations where the supplier’s ability and determination to correct its mistakes is tested by customers (Noordewier et al., 1990).

Word of mouth and customer exit

Apart from the above constituents, customer perceived value also entails ‘customer exit’ and ‘word-of-mouth’. Positive word-of-mouth is a prerequisite for a business to comprehend customer’s behavioral intentions of purchasing the product. It helps in building corporate reputation and allows the buyers to show their commitment towards the product (Gundlach, Achrol, & Mentzer, 1995).

On the other hand, ‘customer exit’ can be used to assess the behavioral intentions of customers. If customers are not able to realize enough value from a product, they would search for alternatives leading to lower customer perceived value (Hansen et al., 2008).

Constituents of customer perceived value
Figure 1: Constituents of customer perceived value (Hansen et al, 2008)

Importance of customer perceived value for companies

The 21st century has witnessed various transformations in the organizational structure due to rapid changes in business environments like globalization, digitalization, and intensifying competition. Businesses are thriving for competitive advantage by diversifying their marketing techniques. The neck-to-neck competition has intensified, owing to demanding consumers, slackening economy and industrial growth. In the last three decades, companies have shifted their focus on improving the product quality standards as well as streamlining internal processes. Indubitably, advancements in quality have enhanced business performance immensely but organizations need to implore more to recognize the voice of the customer in quality management (Woodruff, 1997).

Customer satisfaction

The effect of customer perceived value on satisfaction has been widely discussed in the literature (Basit, Chen, & Hassan, 2017; Faryabi, Kaviani, & Yasrebdoost, 2012; Setiowati & Putri, 2012). According to Setiowati & Putri (2012), the dimensions of perceived value that affect satisfaction are:

  • behavioral price,
  • monetary price,
  • emotional response,
  • quality and reputation.

Not only does it help foster loyalty towards the brand but it also creates a firm relationship between the business and the customer (Md.Ariff, Fen, & Ismail, 2012). Acknowledging the importance of customer satisfaction in creating the perceived value, Customer Satisfaction Measurement (CSM) was conceived by Chakrapani (1998).

However, its application gave way to dubious results. One of the main reasons behind this was the lack of rigorous measurement of customer satisfaction. They only could establish customer satisfaction tactics and objectives. Also, in-depth knowledge of customer value is essential to support CSM as it is challenging for managers to respond and analyze results without the customer’s voice in quality evaluation (Jones & Sasser, 1998).

It is not surprising for businesses to notice a decline in the strong relationship between satisfaction score and performance index because CSM fails to keep up with changing customer needs (Woodruff, 1997). Therefore, particular attention to improving customer satisfaction is important in creating positive customer perceived value.

Quality improvement and sustained competitive advantage

It becomes necessary for businesses to thrive for competitive advantage beyond quality management, as quality may not be the only source of achieving performance standards. Nowadays, managers lament on the ineffectiveness of ‘quality management’ and ‘product innovation’ to eliminate competitive bottlenecks. Many businesses have tried to circumvent these bottlenecks through internal changes like:

  • downsizing,
  • restructuring and,
  • reengineering.

However, it is unclear whether they were successful or not (Heinonen, 2004). There have been advancements in internal processes and quality improvements but businesses are still figuring out a way to incorporate customer perceived value in marketing strategies. Organizations are required to look beyond organizational changes and shift their focus towards market and consumers rather than inward-oriented structural changes.

Customer retention and loyalty

Many studies suggest companies reorient their marketing strategies towards superior customer value delivery. There are multiple recommendations about how to achieve superior customer value delivery. The first and foremost is to build a knowledge base of markets and target customers by tracking consumer’s value and choices of products. Also, businesses need to align their internal processes with customer perceived value (Woodruff, 1997).

Customer’s needs and wants are an integral part of any marketing strategy. Hence, companies must understand that they need to break the homogeneity and achieve a competitive advantage through customer’s perception. Customer’s decision to purchase a product is dependent on their perceived value irrespective of the business type of any organization. Marketing strategies are trying to focus on this outward-looking strategy for a long time. But it has not been exploited properly, particularly due to lack of management (Yang & Peterson, 2004).

The problem is not the intention to incorporate customer perceived value in marketing strategies, it rather lies in the implementation. Companies can learn from the past success of quality and product management in reaping the benefits of customer perceived value for performance enhancement (Woodruff, 1997).

Customer perceived value of Malay Fine Dining Restaurant

A classic example to illustrate the ability of customer perceived value in reaping the benefits is given by the Malay Fine Dining Restaurant in Kuala Lumpur. It is indisputable that market bottlenecks like stiff competition and huge operational costs have restricted many domestic and international restaurants to bring together fresh concepts. However, this upscale restaurant overcame the challenge of high prices by managing budget judiciously. The restaurant’s performance-enhanced enormously by focusing on traits like:

  • emotional responses,
  • behavioral price,
  • reputation and,
  • monetary prices.

It subsequently provided a unique cultural food experience to customers (Schmitt & Zarantonello, 2013)


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