is the customer incentive to purchase. Remember, in this concept of value in business markets, raising or lowering the price of an offering does not change the value that offering provides to a customer firm. Rather, it changes the customer’s incentive to purchase that offering.
Having an accurate assessment of value provides a solid foundation for suppliers to create and deliver value to targeted market segments and customers. And recognizing that the value of a given market offering can vary by segment and by customer characteristics is vital. Suppliers practicing customer value management strive to both understand and capitalize on such variations.
The Customer’s Knowledge of Value
In acquiring products and services, customer managers must decide which suppliers’ market offerings will fulfill a set of requirements and preferences. When more than one supplier’s market offering successfully fulfills these, customer managers then must decide which supplier’s offering will deliver the greatest value to their firm. In many instances customer managers make this decision intuitively, simply choosing the offering that they feel is best (or, alternatively, that has the lowest price). Little or no effort is given to specifically defining what each manager means by “value” and how it might be estimated in monetary terms. As an example, customer managers may feel that it is not worthwhile to conduct a formal value assessment to acquire repositionable sticky notes and instead simply purchase 3M Post-it Notes, even if the price for them is slightly higher than lesser-known or generic brands.
In other instances, though, customer managers consider it worthwhile to conduct a formal assessment, or value analysis, to make a better informed decision. Progressive suppliers may assist customer managers in these assessments or even provide their own assessments of how their offerings deliver superior customer value. Customer value management focuses on these latter instances, where conceptualizing what exactly is meant by “value” and how to estimate it in practice are of principal interest.5
Customer firms often do not have an accurate understanding of what suppliers’ market offerings actually are worth to them. Certainly, customers may understand their own requirements, but they do not necessarily know what fulfilling these requirements is worth to them, how differing ways of meeting these requirements affect their costs, or what changes in these requirements would be worth to them. As an example, Grainger tells its customers that acquisition costs often exceed the price of an item, particularly in the case of maintenance, repair, and operating supplies. We present a Grainger advertisement in figure 2-1 that illustrates this persuasively.
Points of Difference, Parity, and Contention
While the market offering of a supplier may deliver cost savings or incremental revenue and profit to customers in a number of ways, so, too, may the next-best alternative. Thus, although offerings in business markets may have many technical, economic, service, or social benefits that deliver value to customers, the paramount, overriding distinction to understand is this: how do these value elements compare to those of the next-best alternative? There are three possibilities:
1 Points of parity—those value elements whose performance or functionality is essentially the same as the counterpart elements of the next-best alternative
2 Points of difference—those value elements on which either the supplier’s market offering is superior to those of the next-best alternative or the next-best alternative’s market offering is superior to the supplier’s
3 Points of contention-those value elements on which the supplier and its customers disagree about performance or functionality relative to the counterpart elements of the next-best alternative
Grainger advertisement: Acquisition cost transcends price
Source: W. W. Grainger, Inc. Used with permission.
Points of contention arise in two ways: the supplier regards a value element as a point of difference in its favor, while the customer regards that element as a point of parity relative to the next-best alternative; or the supplier regards a value element as a point of parity, while the customer regards it as a point of difference in favor of the next-best alternative.
Without getting too philosophical, we do not believe that there are multiple realities. We believe that there is only one reality but that the supplier and customer can have different perceptions of it. Far from being negative, points of contention provide motivation for the supplier and its customers to work together to gather data to resolve the differences in perception.6
The Three Kinds of Customer Value Propositions
Points of parity, points of difference, and points of contention are the inputs for developing the supplier firm’s value proposition to the customer. When supplier managers use the term “customer value proposition,” what specific meaning do they have in mind, and is this the same meaning that others have for this term? We have found in our research that there is considerable variation in what managers mean in their usage of “customer value proposition.”7
From our research we can classify the substantially different ways managers use customer value proposition into three basic alternatives. We provide these alternatives in table 2-1 and organize our exposition of them to address four fundamental questions that distinguish the alternatives from one another:
Value propositions in business markets: Which alternative conveys value?
Source: Reprinted by permission of Harvard Business Review. “Customer Value Propositions in Business Markets,” by James C. Anderson, James A. Narus, and Wouter van Rossum, March 2006. © 2006 by the Harvard Business School Publishing Corporation; all rights reserved.
1 What does the value proposition consist of?
2 What customer question is the supplier attempting to answer with the value proposition?
3 What is required for a supplier to construct the value proposition and for the sales force to deliver it?
4 What is a potential pitfall of the value proposition?
A// Benefits
The all-benefits customer value proposition is the meaning that supplier managers most frequently attach to the term. Why? It requires the least detailed knowledge about customers and competitors and, thus, is the easiest for supplier managers to construct and deliver. They simply list all the potential benefits they believe that their offering might deliver to targeted customers. The more they can think of, the better.
Yet simply listing all the benefits has the potential pitfall of benefit assertion: claiming distinctions for the offering that actually have no benefit to target customers. Consider the following example: a value-added reseller of gas chromatographs was accustomed to selling high-performance instruments to R&D
