The value revolution: riding the four waves of understanding value
Examining the four waves through which our understanding of value has gone makes marketers better surfers, writes Bernardo Figueiredo.
We are undergoing a value revolution. In the past few decades, marketers have changed their understanding of how value is created and delivered. Customer value – the benefit customers obtain from using a product or service – which was once understood as produced and delivered by firms, is now understood as dynamically co-created by multiple stakeholders in the market. Marketers’ understanding of value has gone through four different waves. Understanding these waves allows marketers to ride them better and to take advantage of the current marketing landscape.
Value in production corresponds to the traditional idea that value is produced by companies and consumed by its customers upon acquisition of a product. When producing goods and services, companies transform raw materials into other products. This transformation is known to generate value, which is then infused into the product through the production process. This understanding places value in the product and the value is subsequently released to customers, who pay to access this value. According to this view, when a consumer buys Coca-Cola, for instance, they have access to the value contained in the product. They exchange money for the chance to access a bottle of Coke and, consequently, the value that lies inside it. Similarly, when a consumer buys a car, they gain access to the benefits incorporated in the car. The benefits (e.g. a nice design, a solar panel, comfortable seats, low petrol consumption) are infused in the product by the various makers and they help differentiate among existing options. This view acknowledges that value is accessed and released through consumption, but it is created entirely during the production stage. Although this approach made sense in the early era of mass-produced commodities, markets have evolved, including more customisation and consumer participation, and the notion of value has faced significant challenges.
Second wave: Value in co-production
The evolution of the service sector, the intensification of competition and the need to constantly release new products into the market have made firms realise the potential of engaging customers to participate in the process of value production. The second wave is characterised by an understanding that, although value remains part of the production process and is contained in the product, both the company and its customers participate in the process of generating this value. McDonald’s, for example, relies on the work of its customers to produce its final output. Customers are required to follow a certain script and behaviours (e.g. stay in line, order, wait by the counter, eat the sandwich, dispose of leftovers in the bins) to have the full experience of eating at McDonald’s.
Producers of consumer goods have long known the importance of consumers in the production process. For example, Nike and Converse consumers can participate in the process of designing and creating a new product; they can also customise their own selections. Hewlett-Packard (HP) maintains a customer advisory program where customers provide suggestions for new products and propose changes to existing ones. Hallmark encourages customers to offer ideas and suggestions for cards and new products. While this perspective includes the customer in the production process, it stills situates value on the side of production, leaving experience out of the value-creation process.
Third wave: Value-in-use
The value-in-use paradigm sees value not in the production process, but as part of the consumption process. This means companies can create products and services that may be useful to consumers, but the benefits of these products can only be determined through use. In other words, the firm can only offer a value proposition, a promise that value will be experienced by consumers once in contact with that product or service; however, the value itself is created by consumers themselves when using a product or service. The value-in-use approach ceases to see value as located inside the product and instead situates it in the experience of consumption.
Consumer researchers often engage in fieldwork to try to explain the relationship consumers establish with objects and the multiple consumption practices they engage in during their everyday lives. Indeed, products can develop a ‘life’ of their own that goes far beyond the moment of acquisition and that affects value. Some moments of value creation are far removed from the firm’s control and initial intention. A car, a house, books, CDs or any possession can gain value as they become cherished, sacred or especially meaningful to consumers. Products that are initially acquired for little money, like coins and stamps, can gain much value when placed in collections.
Fourth wave: Value co-creation as dynamic perspective with multiple stakeholders
With the growth of the internet and consumer-oriented technologies, the barriers between production and consumption are disappearing. The creation of value becomes a dynamic process that cannot be linked to either consumption or production. In the process of consumption, many consumers produce value. However, the product of their consumption is channelled back to the firms and other stakeholders, who further transform the product value into an enhanced product, which then returns to consumers.
In addition, other stakeholders, like media companies, governments, NGOs and associations also take part in the process of value creation. In this systemic view of markets, all stakeholders are constantly producing and consuming value. In the gaming industry, for example, World of Warcraft, the massively multiplayer online role-playing game (MMORPG), that has grossed more than $10 billion, was created in 2004 by Blizzard Entertainment. A major part of the value consumers extract from the game is derived from the ways consumers experience the game through communities and online interactions. A player that has played the game once has a very different experience from a player that has made the game the epicentre of their social lives. These avid fans are constantly finding new ways to engage with the product and create further sociality. The company uses these experiences as platforms to generate games that are more advanced. Similarly, fans of the Twilight series (books and films) meet each other at local bookstore events, national conferences, DVD release gatherings, book and movie release parties, Twilight-themed birthdays and celebrations, and book signings. Some consumers even create alternative storylines and plots with the characters. Such fan fiction then circulates informally among fans and some even gains commercial status.
It is important for businesses to understand the evolution of these different understandings of value, because each additional task adds to the marketing role.
In the first wave, marketers only needed to understand the value ‘inside’ the product and to communicate it to consumers effectively. The second wave added an extra layer, demanding marketers become managers of consumer work and interaction. With the third wave, marketers had to find ways to develop further insights into consumers’ lives to understand the journey of a product long after it leaves the firm. Finally, the last wave, the one we should embrace, sees the marketers as not only performing the other three roles, but also working as managers of the overall consumer experience and catalysts for dynamic cycles of value creation among multiple actors in the marketplace.
To succeed, you will need to understand the overall value-creation process. What other market actors, besides your firm, contribute to creating value for your customer? How is value being created and communicated among these actors? How can you support their value creation? These are critical questions for every marketer wanting to successfully ride the fourth wave. Have you thought about them yet?
Dr Bernardo Figueiredo PhD is a lecturer of marketing at RMIT University.
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