From brand

From brand values to values to

customer value customer value

Martin Christopher
55
Recently there has been a growing tide of articles, papers and even conferences
devoted to the question of the future of marketing (see, for example Brady and
Davis, 1993; Coopers & Lybrand, 1993; Mitchell, 1994). Essentially, the point at
issue is whether traditional marketing is appropriate for the conditions that
now prevail in the late twentieth century. The basic principle of marketing still
applies, that is the focus of the business on the satisfaction of customer needs,
but, it is argued, the way in which marketing is practised may need to change
fundamentally.
It has to be recognized that there have been some radical changes in the
marketing environment since marketing first came to prominence in the early
1960s. Organizations which had even the most rudimentary understanding of
the marketing concept were able to reap the harvest of fast-growing markets
comprising customers who had money to spend. In such conditions it was easy
to believe that the companys marketing effort was the main driver of this
success. In reality that success was due as much to the fact that the business
was being carried along with the tidal wave of market growth.
The most significant change to impact western companies has been the
maturing of the markets in which they compete. Mature markets have certain
characteristics which mark them out as being significantly different from
growth markets. Chief among the characteristics of mature markets are:
Customer sophistication. In the majority of western economies, todays
customer and consumer has seen it all, they have been there and bought
the T-shirt. In industrial markets, as well as fast-moving consumer
goods markets, the supplier is now faced with a buyer who is much more
demanding and less easily persuaded by marketing hype. One
consequence of this change is the gradual decline in brand loyalty in
many markets (Industry Week, 1993).
Decline in the impact of advertising. It has been suggested by some
industry commentators (Maddox, 1995) that, with the decline of the mass
market and the consequent fragmentation of markets into smaller
segments, conventional media-based advertising, particularly TV, is
costing more and more to deliver the requisite ratings. This is causing a
rethink in many organizations as to how they allocate their marketing
budget. For example, it is reported that in the UK, Heinz is planning to Journal of Marketing Practice:
divert most of its marketing communications budget from TV and apply Applied Marketing Science, Vol. 2
No. 1, 1996, pp. 55-66. MCB
it instead to direct marketing. University Press, 1355-2538
JMP: Perceived product equality. Mature markets exhibit similar character-
AMS istics to commodity markets in that customers perceive little difference
2,1 between competing offers. In such conditions, while customers might
have brand preferences they have less brand loyalty meaning that if the
preferred brand is not available, they will willingly accept a substitute.
Even product/markets with high rates of innovation do not seem
56 immune from this tendency to commoditization; take, for example, the
personal computer market, where clones and me-toos now account for
significant market shares.
Price competition. Almost by definition the combined effect of the
previous three factors is a downward pressure on price. As a result, there
is a temptation to seek to achieve tactical gains in sales volume through
discounting in one form or another which is compounded by the
continuing demands for price reductions by powerful customers.
Paradoxically, the more that organizations compete on price, the more
they reinforce the customers view that they are indeed commodity
suppliers.

Concentration of buying power

A further significant difference in todays marketing environment, compared to
the past, is the continuing concentration of buying power in many markets.
Concentration has occurred as organizations merge or grow through take-overs,
and as the inevitable result of a competitive process that leads to the survival
of the fittest (The Economist, 1993). This process of concentration seems to be
present in just about every industry. The grocery retail market is a very visible
example. Figure 1 shows the percentage of the total market in western
European economies accounted for by the top five retailers in those countries.
In that same market, there are beginning to emerge pan-European buying
groups which will add to the concentration effect. These groups seek to use
their combined buying power to gain better prices than they might be able to
achieve by acting alone (Thornhill, 1990).
The process of concentration in other industries in western Europe has
been further accelerated through the process of European economic
integration. Previously, countries had tended to develop their own industrial
base independently from their neighbours, but now that the barriers to trade
have mostly been removed there exists significant over-capacity in many
industries. If a comparison were to be made between the USA and the
countries of the European Union in total the size of their populations are
roughly similar then it will be found that in many comparable industries
there tend to be more players in Europe than in the USA. A good example is
provided by the turbine generator industry where there are ten companies
competing in that market compared to only two in the USA (Cooper et al.,
1991).
 120 From brand
values to
100 96.7 customer value
80
80
70.2
65
57
62
60
52.9
50
46.7 45.2 45.1
42.5
40

20.4
20 12.7
10

0
SF SW A CH UK IRE B D NL FR DK SP P IT
Key
SF = Finland IRE = Ireland DK = Denmark
SW = Sweden B = Belgium SP = Spain
A = Austria D = Germany P = Portugal
CH = Switzerland NL = The Netherlands I = Italy Figure 1.
UK = United Kingdom FR = France Market share of top five
retailers
Source: AIM report

The fragmentation of consumer markets

Paradoxically, while buying power in business-to-business markets is tending
to concentrate, in consumer markets the trend has been to fragmentation.
By fragmentation is meant a transition from the old idea of a uniform, homo-
geneous, mass market to much smaller segments where consumers seek
individual solutions to their buying needs. The emerging idea of micro-
marketing (Kotler, 1994) is an attempt to focus marketing strategies on ever
smaller groupings of customers.
In the fragmented marketplace the conventional tools of mass marketing no
longer have the same effect. National advertising campaigns through the mass
media, for example, may no longer be the most cost effective way of communi-
cating with these micro-markets. At the same time there is evidence that the
more sophisticated consumer is influenced less by traditional advertising and
that more purchase decisions are actually made at the point of sale (Dickson
and Sawyer, 1990).

The transition from brand value to customer value

Much has been written about the changed nature of brand loyalty (Aaker, 1991),
how the continued rise of private label products is further challenging
JMP: conventional brands (Glmet and Mira, 1993) and how the company brand
AMS may be taking over from the individual brand (Barwise, 1992).
Underlying these discussions is the view that brand values may not be as
2,1 strong in the eyes of the consumer as they once were. The concept of brand
values implies that what makes a brand a brand is its personality which
distinguishes it from others and that the presence of this personality imparts
58 some utility however tangible to the consumer. There is a strong body of
research supporting the idea of brand personality as a source of value to the
consumer (King, 1973). However, what seems to be happening is that the
changes in the marketing environment summarized earlier are tending to
diminish the strength of that value.
The thrust of this article is that the original concept of brand value is in need
of extension, and needs to be embodied within a wider concept of customer
value. The customer value concept recognizes that marketplace success in the
new competitive environment described above will require not only continued
investment in the brand but also investment in customers. The underlying
philosophy is that customers, not just consumers, have goals that they seek to
achieve and that the role of the supplier is to help customers achieve those goals.

Defining customer value

Put very simply, customer value is created when the perceptions of benefits
received from a transaction exceed the costs of ownership. The same idea can be
expressed as a ratio:
Perceptions of benefits
Customer value =
Total cost of ownership
The marketing task is to find ways to enhance customer value by improving the
perceived benefits and/or reducing the total costs of ownership. Both the
numerator and the denominator of this ratio should be measured relative to
competitive offers.
Total cost of ownership rather than price is used here because in most
transactions there will be costs other than price involved. For example,
inventory carrying costs, maintenance costs, running costs, disposal costs and
so on. In business-to-business markets, as buyers become increasingly
sophisticated, the total cost of ownership can be a critical element in the
purchase decision (Ellram, 1993). Life cycle costs, as they are referred to in the
military and defence industries, have long been a critical issue in procurement
decisions in those markets.
The concept of customer value is of equal importance in consumer
marketing as it is in business-to-business environments. In 1993, 2 April was
termed Black Friday on Wall Street, New York because of major falls in the
share prices of most branded goods companies. The trigger for this collapse
had been the decision by Philip Morris to cut the price of its Marlboro
cigarettes by 20 per cent or 40 cents a pack in order to counter competition
from low price own-label products. The reason suggested by commentators for
the fall in the share price of branded goods companies was that the Marlboro From brand
episode signalled the beginning of a revolt by customers who were starting to values to
question the worth of paying significantly more for branded products which customer value
were no longer seen as delivering a commensurate amount of added value
(The Economist, 1994a). Lowering the price (which had been increased ahead
of inflation year after year) enabled Marlboro to restore the customer value it
had been progressively eroding. Since taking this action its market share in the 59
USA has increased dramatically.
In seeking to deliver significantly superior customer value the marketer must
clearly define, communicate and deliver a value proposition which is
recognized by the target market as a better proposition than that presented by
competitors. It should also be recognized that in most markets there will be
different value segments but that to be successful in any one of them the
customer value ratio must be seen to be superior to competitive offers. Figure 2
highlights how this idea might be applied to parts of the UK car market.
Focusing on the value proposition forces the marketer to define clearly the
two dimensions of cost and value shown in Figure 2 in terms of what you give
and what you get. It must also be recognized that these dimensions are
perceptual, meaning that continuing customer communication will be
important if the value proposition is to be understood clearly by the target
market.
The sources of superior customer value are many. Treacy and Wiersema
(1993) identify three value disciplines which can provide competitive

"What you get"

(perceived
benefits)

Superior Lexus
value

BMW

Inferior
Fiat Uno value

Different
value segments

"What you give" Figure 2.

(total costs of ownership) Value segmentation
JMP: advantage: operational excellence, product leadership and customer intimacy.
AMS Operational excellence is achieved through a focus on systems, cost-
effectiveness and speed so that customers are provided with the service they
2,1 require, but at less cost. Product leadership as a strategy requires a
commitment to continuous innovation, high levels of research and development,
and a willingness to take risks. Customer-intimate companies are those that
60 focus on building long-term relationships with customers particularly through
a focus on service. While these strategies are not mutually exclusive, successful
companies tend to follow predominantly one or other of these value disciplines.
The emerging philosophy of relationship marketing (Christopher et al., 1991)
is a reflection of the growing recognition that long-term competitive advantage
is gained by creating superior perceived value for customers. The argument is
that customers are more likely to stay with suppliers if they believe that the
relative customer value received from a current supplier is higher than that on
offer elsewhere. Furthermore, there will often be considerable switching costs
which would make a change of supplier unattractive. There are a growing
number of examples of organizations that are establishing market leadership
positions through a focus on customer value. Companies as diverse as Procter
& Gamble, British Steel, DHL and Milliken have all demonstrated that enduring
customer relationships can be created through an understanding of the
importance of operational excellence, product leadership and customer
intimacy.

The sources of marketing advantage

In the new competitive environment, it is increasingly evident that successful
marketing strategies are based on an amalgam of three critical elements: the
creation of a consumer franchise whereby end-users are attracted to the
product/service in question because they perceive a superior offer; a strong
customer franchise where intermediaries want to do business with us because
of a tangible economic benefit and, third, an under-pinning supply chain
effectiveness that delivers superior service at less cost. Figure 3 summarizes the
three sources of competitive advantage. Each of the three dimensions requires a
clearly defined strategy, but developed as part of an integrative package to
deliver superior value to customers and consumers alike.

The consumer franchise

While brand loyalty may no longer be as strong as it once was, the need to build
a contract with the end-user is still a vital prerequisite for marketing advantage.
Brand value is still a critical element in many purchase decisions although it
seems that there has been a return to a concept of value based on traditional
tangible or core benefits rather than the more emotionally-based, intangible
benefits that seem to have fixated many marketers in the last quarter century.
Now it seems that consumer loyalty more often is based on hard rather than
soft dimensions. So, value for money, convenience, reliability, safety and
functionality become the drivers of product or service choice. We buy a TV set
 Consumer franchise From brand
Brand values values to
Corporate image customer value
Benefit focused

61
Marketing advantage

Customer franchise Supply chain effectiveness

Cost of ownership Network management
Value-adding Quick response Figure 3.
relationship Low cost supplier The sources of
Service quality focus marketing advantage

more for its features and the reputation of its manufacturer for reliability than
we do for its image, for example. The impact of own-label, retailer-branded
products in many categories is further testimony to this development.
Coca-Cola, regarded as the worlds most recognized brand, has seen its market

30

Britain
25

20
Germanya

15
France
10
Spain
5
Italy
0
1980 1986 1992 1993 Figure 4.
Note a
Figures do not include Aldi Percentage of own-label
market share
Source: Boston Consulting Group
JMP: share in the USA and the UK (and elsewhere too) under attack by own-label
AMS products which are seen by customers to deliver better value for money.
2,1 Figure 4 shows the growing penetration of own-label products in major
European markets.
What this means for twenty-first century marketers is that in order to
strengthen the consumer franchise, the focus of marketing effort must
62 increasingly be on delivering solutions which can be translated into hard,
tangible benefits by individual consumers. In many cases this will mean a
transition to micro or one-to-one marketing whereby a greater degree of
tailoring/customization of the product offer is achieved (Pine et al., 1995).

The customer franchise

Because the power of intermediaries has strengthened in many markets, it is of
paramount importance to make the customer not just the consumer an
integral part of marketing strategy. Whether the intermediary be a retailer, a
distributor or an original equipment manufacturer, without their support it is
unlikely that even the strongest brand could achieve its full potential.
Not only has the purchasing power of the customer increased as a result of
concentration, but there is a growing trend towards single-sourcing by those
customers. In other words, whereas in the past the practice was to spread the
total purchase of an item across several suppliers, now the aim is to reduce the
size of the supplier base and to seek further cost reductions as a result (Hines,
1994).
While to many suppliers such developments may be perceived as a threat, to
others they present an opportunity. If the supplier can offer a superior value
package with a measurable positive economic impact on the customer, then the
likelihood is that they will win the business. Todays customer is a more
sophisticated buyer, used to working with concepts such as total cost of
ownership, life-cycle costing and cost/benefit analysis. Indeed, many customers
now actively pursue a partnership sourcing concept (Lamming, 1993) whereby
they seek to establish long-term relationships with preferred suppliers based on
win-win philosophies.
It can be argued that a preferred supplier, continuing to deliver superior
customer value, has in effect the advantage of a barrier to entry that in many
respects is far more difficult to surmount than more conventional competitive
defences.

Supply chain effectiveness

This author has suggested elsewhere (Christopher, 1992) that individual
companies no longer compete with other standalone companies, but rather that
supply chain now competes against supply chain. The rationale for this
viewpoint is based on the fact that when organizations work independently of
their up-stream suppliers and down-stream customers, costs and inefficiencies
tend to build up at the interfaces (Houlihan, 1985).
 The need for co-ordination between partners in the supply chain has From brand
increased as the network organization becomes more common. The network values to
organization comprises a complex web of linkages between focused partners customer value
each of which adds value through specialization in an activity where it can
provide a differential advantage. A company like Apple Computers, for
example, relies heavily on other companies to supply components, to
manufacture hardware, to create software and to distribute its products around 63
the world. Something like 90 per cent or more of the cost of an Apple computer
is going to outside suppliers. It has been suggested (Webster, 1992) that
marketing as a function may even disappear as the strategic focus shifts
towards network management.
This progress towards the idea of supply chain integration as a source of
competitive advantage will be accelerated as the growth of time-based
competition (Stalk and Hout, 1990) accelerates. In markets that are increasingly
volatile, responsiveness becomes a critical competitive requirement. Companies
like Benetton and The Limited have gained significant advantage through their
ability to respond rapidly to fashion changes in the markets they serve.
Through the use of highly co-ordinated logistics and supply chain structures,
driven by the real-time capture of sales data, these companies, and others like
them, can adapt their product range and their volumes in weeks rather than
months.
Supply chain management should not be seen as something separate from
marketing. Indeed in the new competitive paradigm supply chain effectiveness
becomes an essential prerequisite for marketplace success.

Delivering customer value

Once it is recognized that customer value provides the basis for successful
differentiation the next issue is how might that value best be delivered?
A profound change is taking place in many companies as they review the
appropriateness of their organizational structures for the changed marketplace
of the late twentieth century and beyond. The traditional, functional
organization structure is thought by many to be unable to meet the challenge of
todays volatile, time and cost-sensitive markets. Instead, the organizational
imperative is to become market-facing and to break away from tightly
constrained functional departments.
The horizontal organization, as it has come to be called (Ostroff and Smith,
1992), is oriented around the management of cross-functional processes.
Processes are the fundamental tasks which have to be achieved in order to
create and deliver customer value. In any business there are a number of core
processes that should be managed on a cross-functional basis. Examples of core
processes would include:
brand development (including new product development);
consumer development (primarily focused on building loyalty);
customer management (creating relationships with intermediaries);
JMP: supplier development (strengthening up-stream relationships); and
AMS supply chain management (including the order fulfilment process).
2,1 The transformation from a functional to a horizontal organization has major
implications for the management structure of the business generally and for
marketing management in particular. In effect, in the horizontal organization,
64 marketing is no longer a series of activities performed within a marketing
department. Indeed in many companies that have made the transition from
vertical to horizontal organizations the marketing department has disappeared
(The Economist, 1994b).
However, this is not to assume that marketing is dead, indeed the reverse is
the case the need for market-driven businesses is as strong now as it ever was.
Rather, we are seeing the transformation of marketing from a narrow set of
functional skills based on a conventional 4Ps marketing mix, to a broader
business orientation where the delivery of superior customer value becomes the
key objective. However, this being said, it must be recognized that there are still
important functional skills that marketing must continue to develop, for
example, research to provide in-depth market understanding and knowledge of
consumers buying patterns, motivations and so forth.
Strategic marketing planning also takes on a different form in the horizontal
organization. Essentially the task of marketing planning in this new
organizational model is to translate strategic goals into process plans, for
example one major brewing company established the strategic goal of a perfect
pint in every pub. The marketing planning task now becomes one of
translating that goal into specific programmes for each process. So, for
instance, what does a perfect pint in every pub imply for the brand
development process, the customer management process and so on? Because
each process in this company is now managed by a cross-functional process
team a wider, more integrated perspective is brought to bear on the issue.
Some might argue that this underpinning, integrative process of strategic
marketing planning might better be termed strategic business planing. This is
really only semantic and, in reality, it does not matter what we call this critical
process, only that we manage it and recognize its central importance. Figure 5
summarizes the radically different shape of the process organization and the
central role of strategic marketing planning.
Moving to a process orientation clearly implies significant change for the
business. The benefits of the transformation though can be considerable,
particularly in the improvement of market responsiveness, the shortening of
lead-times and the re-engineering of processes to deliver more customer value at
less cost (Hammer and Champy, 1993).

Conclusion
In a world where the customer has become ever more sophisticated and
experienced, where competition comes from new global players, alternative
technologies and lower priced generics and me-toos, the focus of marketing
 From brand
Brand development process values to
customer value

Supplier Strategic Customer Consumer

development marketing management development 65
process planning process process
process

Supply chain process Figure 5.

Marketing in a process
context

strategy must be on differentiation through superior customer and consumer

value.
Value is perceptual but comprises the customers understanding of what they
are getting compared to what they are giving. In other words the functionality
of the product and any emotional or intangible value plus the hard, tangible
benefits must be set against the total cost of ownership.
The task of marketing, therefore, has to be expressed in terms of the creation
and delivery of customer value. It begins through an understanding of the value
requirements of market segments or even individual customers; it then seeks
through cross-functional processes to deliver that value through customer
specific solutions.
As many organizations are now learning, to become a customer value
focused business requires a fundamental transformation of the way we
manage. This transformation requires a shift from a compartmentalized view
of the business where marketing is seen as the responsibility of the marketing
department to a view that recognizes that processes deliver customer value and,
hence, should be managed accordingly. Those companies that understand this,
and are prepared to make the change, are those that will become the leaders in
the increasingly demanding markets we now confront.

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(Martin Christopher is Professor of Marketing and Logistics at Cranfield School of Management,

Bedford, UK.)