CHAPTER 3

'iA NEW PERSPECTIVEON

CUSTOMER VALUE

One of the chief detenninants of satisfaction for customers of

service organizations is length of waiting time. This is true
'I; for a number of businesses, whether it be a grocery's check-
out line, a doctor's waiting room, or the service call on a
broken copier. How service suppliers respond to this problem,
however, depends very much on how they define it. For
example, a hotel might define the problem as "the lines are
too long at our registration desk." As such, its management
would likely consider solutions that focused on the registra-
tion desk and procedures and that might include ev,erything
from adding personnel to adopting high-technology solutions.
What if the problem \vas defined differently? For in-
stance, a hotel could see a broader goal: to reduce (or even
eliminate) the time between the guests' arrival and when they
get to their rooms. Given this problem definition, which
focuses more on the consequences to the customer and less
on one particular aspect of the business operation, manage-
ment might. think more creatively about ways to create cus-
tomer value. One hotel recently did this when they began to
register customers in the hotel courtesy van on the drive from
the airport. By the time its customers arrive at the hotel, they
have been checked in and provided a room key, allowing them
to bypass the front desk altogether and go straight to their
room.! This is an example of what can happen when a
business stops organizing its efforts around improving attrib-
utes or features of its existing offering and instead defines its
mission as detennining and delivering customer value.

Introduction
"What is customer value?" "What is it that our particular
"customersvalue?" "How do I know if we are delivering value
to our customers?" In whatever form they are asked, these

51
 ---1

A New Perspective on Customer Value A New' Perspective on Customer Value

questions are fundamental to any business organization, whether

it sells a product or a service, whether it is a profit or nonprofit
. . Finally, an increasing number of organizationsare trying
to answer these questions via customer satisfaction meas-
organization, whether it is a relatively young organization or urement (CSM). CSM has multiplied at an astounding
one that has been in busin~ss for years. These are questions that rate over the last decade. Whil~ we will argue in Chapter
must be asked and asked continq.ally, for the answers are com- 4 that pustomer satisfaction is important and worthy of
plex and dynamic. More importantly, these are questions that, attentibn, we will also contend that traditional customer
when answered correctly and insightfully, can ensure the long- satisfaction measures, by themselves, are incapable of
range survival of an organization. Likewise, organizations that fully addressing customer value issues. In short, they are
answer these questions incorrectly - or, worse yet, fail to ask typically more concerned with evaluating product fea-
them at all - are probably doomed to failure in the long run, if tures than with understanding the customer's perception
not sooner. .. of value.
.
As fundamental and basic as these questions are, too many
organizations cannot answer them as well as they should. Or- Second, many organizations do not have information sys-
ganizations that don't understand what their customers value tems and processes in place which are capable of effectively
typically suffer from one of two problems: (1) failing to ask promoting the dissemination and use of customer data. These
customers the right questions and/or (2) failing to disseminate systems and processes may not exist at all. Or existing systems
and use customer information effectively across the organiza- may be deficient for severalreaspns, including: (1) the data may
tion. not be updated often enough, leading to information that is
First, it has been our experience that many managers never outdated and static, (2) information systems may not effectively
ask the right questions to begin with. This manifests itself in integrate customer information from different organizational
many different ways within organizations. sources (e.g., customer satisfaction surveys, salesperson call

. Some managers aren't asking customers any questions at

all. The most obvious cases (although they are becoming
reports, complaint data, and so forth), leaving it to be analyzed
in a piecemeal fashion, (3) the information may not get into the
hands of the managers who need it to make strategic decisions,
more rare) are those where organizations do not have any (4) if the information gets into the right hands, the users may not
processes in place for systematically gathering customer know what to do with it, or (5) organizations may not encourage
feedback. appropriate managerial use of customer information because
. More typical are cases where managers have tried exist-
ing customer information processes only to give up on
they fail to tie responsibilities, performance evaluation, and
rewards to it. Unfortunately, managers are often lulled into
them. This may occur because the existing process fails thinking that existing information systems are working effec-
to provide actionable data or because the managers feel tively when in fact they may not be.
that it is impossible to keep up with rapid marketplace In this chapter, we address the first problem cited pre-
change, including mercurial customer attitudes. More viously: the failure of many organizations to ask the right
arrogant managers are those who feel that they know the questions at the outset. If this problem isn't resolved, it does no
answers better than their customers, who can be good to pursue subsequent problems related to information
"coached" into the correct mindset. (The experiences of dissemination and use. To do this, we must begin by helping the
the American automobile manufacturers in the 1970s and reader understand what customer value is.
,80s are classic examples of this attitude.) First, we define value through the eyes of the customer and
52 53
A New Perspectiveon Customer Value A New Perspectiveon Customer Value

in terms of the interaction that occurs between the product and . (the outcomes that are experienced by the customer),
Products create valu~ through the delivery of consequences
the customer in a use situation. Next, a value hierarchy is
proposed that provides a way for managers to organize their , rather than through their inherent characteristics.
thinking about customer value. This hierarchy encourages a . Customers' value judgments are highly influenced by and
broader perspective on value that goes beyond a narrow focus best determined within the constraints of a particular use
on product attributes or features and instead considers higher "n situation.Thesejudgmentsare subjectto changeacross
order outcomes that the customer experiences. Finally, to ex- use situations, over time, and due to specific "trigger"
.I, situations.
plore the advantagesand managerial implications of a customer
value perspective, a comparison is made between a customer
II.';!,j:;::Fhese
t4ree elements will be explored in more detail below.
value perspective and more traditional ways of thinking about
the customer.
!1;"J;!Con~umptionGoals: Value in Use and Possession Value
One of the most important aspects of the value definition just
Defining Customer Value i;'li;giyenis its suggestion that, for customers, products are merely
What is customer value? The question is deceptively simple. , "~:me!lI1s
to an end. In fact, what managers need to understand first
Although we all believe we know what "value" means, in fact ,,"'ilIldforemost
"!ii' is not the product per se, but what the customer
there are a multitude of different definitions and perspec- "';wants to accomplish - the ulti,mate purpose or goal that is being
tives.[1,2] The concept of value is one that has its roots in many served. The spec,ific purposes! and/or goals that customers are
disciplines, including psychology, social psychology, econom- ';!attempting to achi~ve are as many and varied as the products and
ics, marketing, and management. Even when we narrow our consumption experiences themselves, but they can be more
interest more specifically to consider the "customer value" of a generally understood in two broad classifications: value in use
particular product or service, there are multiple meanings. For e<,andpossession value.[l,4]
instance, for many organizations customer value means "value- "Value in use," as the name suggests, is a functional out-
ie come, purpose, or objective that is served directly through
added," which is the economic cost (price) necessary to build
certain attributes and features into a product or service for product consumption.[5]For example, drinking a cup of coffee
customers. While economic value is certainly part of the puzzle, ~Vy~psthe customer to wake up in the morning, using a word
it is necessary to define value more broadly in order to under- processor increases a user's productivity, and using a particular
,

stand its richness from the customer perspective.[3] supplier's materials in a manufacturing process can increase
The following definition of value has been adopted for our ~1~*1productreliability. Other examples of value in use might include
purposes: Customer value is the customers' perception of what ',time efficiency, thirst quenching, dependable transportation,
they want to have happen (i.e., the consequences) in a specific entertainment, easy clean-up, and so forth. The specific type of
use situation, with the help of a product or service offering, in ,value in use that the customer requires will obviously vary
order to accomplish a desired purpose or goal. There are three ~fEonsiderably by type of product or service. However, even for a
important elements of this definition. ~f'sp,ecificproduct or service there may be a number of value-in-
, ~!Jlse~~objectiveswhich the product must meet. For example,
. Products are means of accomplishing the customers'
purposes. The purposes of product use can be broadly
'i!~~!'tonsumers of the same microwave dinner may have different
ilIld,oftencompeting purposes in mind - including, nutrition, low
classified as value-in-use or possession value. !ii*;~ost;
good taste, quick preparation, and so forth,
;~,:i~~
~'Jit
54 55
A New Perspective on Customer Value A New Perspectiveon Customer Value

Customers can also derive, value simply from possessing a °l1trast, many positive consequences are quite subjective in
product. This notion of possession value acknowledges that l~i}Ire,including stress relief, self-confidence, efficiency, pro-
products can contain important symbolic, self-expressive, and l~ctivity, and &0forth. Positive consequences may result from
aesthetic qualities that accrue to the customer through proximity }y,presence of a single product or service attribute (e.g., front-
and association.[6,7] This type of value is often associated with heel drive to provide better handling on snow). They may also
products that have a very high "pride of ownership" component, ,<;c,[ueacross a number of product attributes and features. For
such as family heirlooms or a firm's expensive office furnish- :xample, many features ora car might combine to determine the
ings. In addition to the obvious luxury items, consumers may lI).sumer's perception of "a comfortable ride," including its
have pride of ownership attached to relatively inexpensive items spension, size, upholstery, climate control, and so forth.
(e.g., a bargain from a garage sale, a clothing fashion item, or Like positive consequences, negative consequences can be
any product with which the consumer has a high involvement lpbjective (e.g., price, time) and subjective (e.g., "difficult
because of his or her specific interests). Services have a parallel' : se"). The most frequently considered negative consequence
"pride of users hip" component. Consider the status and prestige, product consumption is the price. However, negative conse-
that can accrue to the individual who dines at a fine restaurant., ,}!ences go well beyond monetary considerations. Thinking
or the business organization that retains a prestigious legal }qre broadly, for every positive consequence associated with
counsel. , use of a product, there is a corresponding negative conse-
Of course, these two goals are not mutually exclusive. Many lcethat the customer must bear if that benefit is not received.
products deliver both value in use and possession value. Con- I!)nstance, when ease of use 11'not perceived, the negative
sider the owner of a Mercedes-Benz or a corporate jet, or :psequence of using the product might well be the conclusion
fashion innovator's purchase of a new suit, or a firm's new office tUUS "difficult to operate" or that it "takes too much of my
building. These classifications are not meant to imply an e,(or effort)." Negative consequences may include psycho-
either/or mentality, but to alert you to the multiple purposes that ,,'.gical costs (e.g., stress or loss of prestige), the time and effort
may be associated with the use of your products. ~ge~t in purchasing and consuming the product, loss of the
gl?P9rtunity (e.g., lost productivity or sales due to choosing an
The Consequences of Product Use , ,.[~liable,supplier), and various other sacrifices that might be
The ability of customers to attain their desired purposes or goals ciated with the product or service.
is determined by the consequences of product use. As opposed reconsider value to be the result of the trade-off between
to characteristics of the product itself, consequences are out," .ositive and negative consequences of product use as per-
comes that are experienced by the customer as a result oj ei¥~d by the customer (see Figure 3.1).[8] Product and service
product use. Customers will seek consequences that are linked 'r~~¥idersmustkeep in mindthat customers will receive multiple
to a desired purpose or goal and avoid those that are not.' ?quences as a result of using a product and that it would be
Some consequences of product consumption are positive, ly,;,Unusualfor these consequences to be all positive or all
These are the desired outcomes, or benefits, that the customel ive.,For example, a consumer's new car may provide
enjoys as a result of product/service possession and consumpi. ort; a feeling of security and luxury, and better handling.
tion, and they can be far-reaching in scope. Some positive wer,these positive consequences may be offset by having
consequences may be relatively objective in nature - for exam, '", pe"with frequent repairs, deal with insensitive service
pIe, infrequent trips to the service department, minimal time aI1~ ~~g~y~~efsat
the dealership, or experience psychological stress
effort involved in assembly, a lower inventory, and thelike.h , se9f the price. Managers must therefore attemptto under-
56 57
r
I

A New Persp~tive on Customer Value A New Perspectiveon Customer Value

Ii

Perceived positive 1992 revenues of $4.3 billion. While maintaining certain stand-
ards of quality in their furniture, lKEA has encouraged its
consequences
consumers to make product selections with minimal assistance,
(benefitsor ...
I' to assemble furniture themselves, and to transport it to their
desired outcomes) ,,'' homes in exchapge for a lower priced product. To be sure, lKEA
" .assiststheir consumers by providing catalogues, pens, paper,
and tape measures, by filrnishing carts to transport the ready to
assemble furniture to the consumer's car, and by loaning or
selling automobile roof racks to get the furniture to the con-
Value
sumer's,homes. Clearly, the success of lKEA is a result of its
\ "pnderstanding the trade-offs its consumers are willing to make
'as well as its will~ngness to redefine the value equation differ-
'ently from traditional industry practice.
'l:j~il'11:r,'L,';,

Perceived negative " ')'TheImportance of Use Situation

consequences,... i~Yalueis created when a product and a user come together within
(sacrifices or costs) ~, a particularuse situation (see Fig\lre 3.2).[10,11]This p~rspec-
tive is important because customers' judgments about product
value are based upon the requirements of their use situations. In
Figure 3.1. Value as a trade-off in consequences: fact, it is difficult to determine whether a product "generally"
~Ii:providesvalue for an individual or organization without under-
standingthe
l.' many differentways whichthe productwill be used.
stand the consequence trade-offs that their customers will expe- ."GgftiI7{C<pI1ple, a consumer may consider purchasing a bottle of
rience and, thus, the value that is associated with their product. ;w,i~w' for one of many use situations: a dinner at home with the
"" These trade-offs are critical because they determine the extent ann
R
.,,. ~' '~y, a picnic, a means to entertain important guests, as a gift
f
to which the consumer's ultimate goals and purposes are ..
ir'!9r';a,friend, and so forth. The value that a particular bottle of
... .
.
. .

achieved. wine:'has for the consumer may vary considerably depending

Understanding the value trade-offs customers are willing to
ug~J;lthe demands of these different use situations.
make can, in fact, provide strategic opportunities for businesses. '411;'~f\good example of using this triangulated perspective to
For example, in buying home furnishings, consumers have ji create customer value comes from Nissan's development of the
traditionally been willing to pay a premium price so that the " 1\Maiima.[12] Positioned as a sedan for families (users), Nissan
seller will, in turn, provide offsetting benefits such as assembly, 'b~gan to consider the various ways in which their product would
delivery, and displaying the furniture in elaborate showrooms 'J)gps'ed (situations). One specific situation that was considered
staffed by helpful salespeople and interior design consultants. ' waSh'women loading groceries," which put additional emphasis
One furniture manufacturer created a strategic opportunity '~oIT~theneedfor a trunk that would be easy to open and close.
by reconsidering the cost-benefit trade-off for its customers.[9] ;,~ ~q'l1erefore,Nissan designed the trunk (product) with a counter-
lKEA has become the world's largest retailer of home furnish-, balanced lid so that it would create more value for the user in
ings, with a global network of over 100 stores worldwide and ., '!his'situation.

58 59
 \ A New Perspectiveon Customer Value
A New Perspective on Customer Value
The influence of use situation on value judgments has im-
portant implications. First, it implies that the perceived "value"
of a product may, in fact, change over time and across use
situations.[14] For instance, while a compact sedan may be
entirely adequate (and thus create value) for an individual who
"""is-commuting to and from work, its value may diminish when
II '" judged within the context of an extended family vacation.
111 ", In anotherexample of how perceived value can change over
\ II< time, we recently interviewed Department of Transportation'
'"employees'to understand how they judged the value received
,""

\\:1
from suppliers with whom they contract to complete projects,
I ;,suchas building bridges or interstate exchanges. We found that
I "value" could only be defined by specifying the events occurring'
.

during
"I,' the project. During the often complex, preproject bidding
process, the employees judged the value provided by suppliers
"onthe.basis of dimensions such as "frankness and honesty during
,W"'~I

~negotiations," "minimal documentation errors," "doesn't try a

Value judgment 'cookie cutter approach to our unique problems," and "ability to
'1.u~derstandour needs." In contrast, after a supplier had won the
figure 3.2. Value judgments concern relationships between . bidding process and was engaged in actually managing the
the product, the situation, and the user. I!IcOl}tract
and project, other value dimensions emerged, such as
'!reduces our lead times," "becomes an extension of our staff,"
In another example, NEC asked field researchers to studY'i ,~,iWniinalchangeover in personnel," and "communicates well."
the situations in which persons use laptop personal computers. i~;bduct or service providers must realize that value is often less
Among other things, they found that an individual using a '["snapshot" than it is a moving picture. Figure 3.3 shows how a
lstOIIler'svalue perception (represented on the vertical axis) can
portable computer while on the telephone may need to open the
laJ).geover time and use occasions (shown on the horizontal axis).
machine with one hand instead of two. Or, that during a conference';;!>,
~S~cond,we believe that some especially important use
meeting, that same user might need to show the computer screen"!
to others in the room, and might like the option of a detachable:: Iccasionsc~ be identified that trigger changes in product
equirementsand corresponding changes value judgments. No-
display screen that could be turned to face others. NEC took its:;'~" ke"'in Figure
sensitivity for the consumers' various use situation requirements . 3.3 how value
III!!>";;"", .. judgments drop significantly
.. at
IccaslOntnggerOT2 and nse dramatIcally at occaSIOntngger
seriously in producing its Versa notebook computer, everyi~
T7''~le there are sometimes differences in product perfor-
major component (e.g., display screen, disk drives, power SUp-i~' aiic~,;t('such as product failure) that result in changing value
ply, and memory) of which snaps in and out. This design allows" dglllents, these judgments may also vary due to occasion
',"""", ).
the user to reconfigure the machine for different use situatiqqs':'J .ggersii,whichsignal changes in the customer use situation
such as home, office, ortravel. In fact, NEC built a machine that;.
~~~Im,ents- evenwhereobjectiveproductperformancere-
will adapt to (and create value in) the specific use situations, in!r insstable.
which the user finds him- or herself.[13]!'h~J
61
60
A New Perspective on ICustomer Value AINew Perspective on Customer Value

,J;'or example, most car de~ers understand that a critical

E
~
(1)
. e:
casioll'trigger is the new car buyer's first visit to the service
iepartment after purchase. At this time, it is likely that a com-
0 ,leiely different set of value dimensions will be used to judge
"5
. I
:::> l~responsiveness of the dealership than were used during the
;oduct purchase. What are those dimensions? How can the
:8.J.ertrack its customers in order to identify exactly when this
0 9asion trigger is reached? What might be done by the service

....:'
0
Ji
--, c...\
:partment to respond to these occasion trigger requirements?
i~'c1earlyiinportant for managers to know if and when these
iti'cal'occasion triggers exist for their customers and to know,
~~{specific requirements will be used to judge their products
.'ase situations. .
.,., e:
I-- Finally, our research has uncovered another interesting phe-
0 I lomenon
"1:' related to Figure 3.3. We have found that, just as
:::>
prqducts often have a "honeymoon" period after purchase where
...
I-- ~~y 'are highly valued by custo:t;Ilers.However, use over time
0 18 'i"ld'over various situations can s'ometimes result in a "devalu-
ti~~'rprocess, where the customet forms increasingly negative
3J~eljudgments of a product that can escalate into brand or
-(1) !pplier switching.[15] Again, this devaluing may result from
0 );q~uctfailure. However, it can also result from changing use

I--
0
N
J c... ituation requirements that might not even have existed when
:be"product
1~1', was first purchased. We believe that once the. de-
Ie: ~aluationmindset has engaged, a downward spiral or a self-ful-
0
I-- llirigprophecy exists. The customer may actively construct a
0 11> ja~efor switching products or service suppliers. In addition to
(1) ~qtingthis tendency with customers we have interviewed, we
£::) "veiencountered managers who are intuitively and painfully
how devaluation has occurred in their customer base.

(1)

'Z
> (1)

';;;0
:::> -e (1)
:::>
:::>-
(1) 0
-(1)
.2: (1)
0-
0>0
(1) >
:::>
~[Tlmary
learly,product value is a complex concept. Because we have
>dyfinedvalue as multidimensional (in that it includes both
~ > z > Z consumption and possession goals), as a trade-off (in terms
~,llvarietyof positive and negative consequences), and as
nic(thejudgment can vary across different product usage
Figure3.3. Value perception changes over time. ions), it is clear that attempting to understand and measure

62 63
 I:'

A New Perspective on Customer Value

I
A New Perspective on Customer Value

value will be a challenge. To this end, it would be helpfulto have Desired End-States
an organized and systematic way to think about and determine D~scribes th,egoals of the person or organization
customer value. Such a framework is provided by the customer
value hierarchy.
Consequences
i
Describes the user/product interaction
The Customer Value Hierarchy
i
A Hierarchical View of Value Attributes
)'

The means/end theory suggests a hierarchical representation of , Describes the product/service

how customersview products.[16-19] It says that products, and \
more specifically, how products relate to customers, can be :I'
3.4. A value hierarchy.
!!J::'Figure
represented by three levels: attributes, consequences, and de- ,)

sired end-states (Figure 3.4).As we will see,theselevels become <~i~~i::people,

the competence of the mechanics, the responsiveness of
increasingly abstract with movement from the lower to higher ::1i!'ihe
service department, and so forth).
levels, as well as becoming increasingly relevant to the cus- T It should be noted that companies traditionally have defined
tomer. l4!~iwh~t
they do by focusing on attributes. Customer satisfaction
~i~r~~urveys
provide compelling evidence of this, as they almost
Attributes. At the most concrete level, the customer defines the !!W:invariably
measure satisfaction with product attributes or fea-
product in terms of its attributes: what the produ~t!service is, its "';~t\1res.(More will be said about this in Chapter 4.) Make no
features, and its component parts or activities. Attributes are :~!niistake,understanding and improving product attributes is im-
typically what would be mentioned if a customer was asked to ~!portant,and we will argue later that it is a critical undertaking
,j\;!

describe a product ("it is a four door utility vehicle with four- '1f1f:~for
or~an~zations. However, as wi~l become evi~ent, whe.n an
wheel drive, leather interior, and antilock brakes") or a service -if organization's focus stops at an attnbute perspectIve and falls to
I: ("we talk to the receptionist, she dispatches a repair person, he :'~j "'il;c,onsiderthe upper levels of the value hierarchy, that is where
fixes the copier, and we get billed"). One might also consider m'~~,!4,ifficulties
".
(and failures) lie.
these as the "options" that are offered by a particular product!
service. Attributes tend to be defined objectively, and there may j Consequences. At the middle level of the hierarchy are the
fcustomers' more subjective considerations of the consequences
be multiple attributes and bundlings of attributes that make up a
(bbth positive and negative) that result from product use: what
particular product or service.
'j'%efproduct does for the user, the outcomes (desired and unde-
Figure 3.5 depicts a value hierarchy constructed from an
';sired).
in-depth interview we conducted with a car owner. This hierar-
iI!iI\~rj"i!~tIn
interviewing users of a variety of products, we have noted
chy includes several attributes that the consumer noted in dis-
at"they frequently speak in terms of consequences when de-
cussing her car. These were associated with both tangible
elements of the car itself (location of switches, layout of instru- ;ribing their product experiences. For instance, one consumer
'.scussed the effects of inflexible leather soles on a pair of
ments, size, plushness of the interior, and fuel efficiency) and
ldill.sinthe following way: "They were kind of stiff. They had
intangible characteristics of the service surrounding the sale and
III! I maintenance of her car (the use of pressure tactics by sales-
~' :Ii'!:

:llQridof flat-footed effect of a flop, flop, flop because they

,,'it'1::,

65
64
I.

A New Perspectiveon Customer Value

II A New Perspectiveon Customer Value

Desired ':llfora, their 1994 entry into the luxury car market. [20] As early
end states 1;1988,Oldsmobile engineers interviewed owners of European
, " """""""""'"
Ixury cars sucnas Mercedes-Benz and BMW. To be sure, these
Consequences wners mentioned attributes such as leather seats and wood trim,
l'iu\1]-lfivalveengines, and four-wheel disk brakes. However, the
'~~msequences that Oldsmobile designers determined were most
b'~frtticaljndefining the "European luxury car experience" were
'llatthese cars "inspired confidence and security, gave the vehi-
,~opulent hush, and isolated drivers from bumps and jolts."
, ras left to the;;Oldsmobile engineers to determine which
ombination of attributes could produce those desired conse-
luences.They eventually decided that the key was a "rock-solid
d9gystructure" and began to define the combination of materi-
lls;~1idesign,and assembly (attributes) that would produce the
sired consequences.
~!;~~1i,~~gu~e3.6 depicts a different kind of value hierarchy. It is a
',~p,resentationof how a business mi$ht perceive the value deliv-
;t~P?y one of its suppliers. Again,',the distinction between the
t!fib,uteand consequence levels is highlighted. Under this sce-
liiri()~!theattributes provided by the supplier might include the
lelpfulness of the staff, on-time delivery, accurate order filling,
!QFservices, and the like. However, the consequences to the
(yiJ.1giorganizationmight be the extent to which the supplier
ilps,!pecustom~r del~ve~v~ue to their .downstream custo~ers,
:entoryreductIOn, elimInatIng down-time, and so forth. Figure
illustrates how the concepts of a value hier- archy can be
Figure3.5. Our customer's value hierarchy. ted
i"'O not only
to service Providers but to business- to-business
l1!ufacturer-to-customer
relationships.
wouldn't bend." Likewise, a boat owner discussed the locatio iotherway to think aboutthe differencebetween attributes
of the boat's instrumentation: "You have to be a contortionisdo'i'" nsequences is to consider what types of questions one
Mhave
'(" '
to ask in order to understand each one. At the
read your autometer. It is usually mounted between the t\Yf
hatches in the bilge, and you can't get your body in there." The§~ ~P~ylevel, one could simply ask the customer to describe
~rqpuctor service. At the consequence level, however, one
examples highlight the change in perspective from the attribuf{ "-"sk;questions that focus on the customer, such as "How
level. While attributes describe the product, consequences
use this product?," "What happens when you use, this
the results and experience that accrue to the customer as a r
f~ior "What does this product do for you?"
of product consumption and possession. ta~ed earlier, the consequences of product use can be
A good example of a consequence orientation is found itive (benefits, desired outcomes, or realizations) and
Oldsmobile's description of their product design process for!
67
66
pc:i
i
I'::
i

A New Perspectiveon Customer Value A New Perspectiveon Customer Value

Customer 'bute). However, they may disagree completely on whether

responsiveness
esign is u~er friendly (consequence).
,1\n~ther characteristic of consequences that must be kept in
d is that, although there may be a one-to-one correspondence
een some'attributes and some consequences, it is also true
fa conseq~ence may be the result of a combination of many
ib~tes. For example, Ford found that many of its consumers
>mplained of scuffed shoes when riding in the backseats of
.~ir cars. In responding to this negative consequence, several
IJH~tmentswere made, including sloping the underside of the
Lts;widening the space between the seat adjustment tracks,
]TIaking the tracks out of smooth plastic rather than met-
+;[21]One way to think about consequences is that they are
i;key to understanding why customers prefer certain attri-
t~s,orattribute combinations over others. Attributes are

Attributes ,ferred because of their ability to deliver desired conse-

~~ses or to avoid undesirable rnes.
~. .
Willingness to ired End States. At the top of the hierarchy are desired end
portner
e~:
,i,\, the user's core values, purposes, and goals. These are the
(basic and fundamental motivators for the individual, fam-
or, guying unit, or organization. They are the ultimate ends
ilFeiserved by the product or service means. The means/end
Amount of 11)'defines this most abstract level as including values that
Helpful goods damaged ~~eplyheld, such as security, familial love, and achievement.
staff in transit
;~yalues may be directly related to product consumption,
'flow fat entree leads to good health. In addition, product
~,w;nptionmay be indirectly instrumental in other aspects of
Figure 3.6. A business-fo-business value hierarchy. L~dividual;slife, e.g., "a sports drink allows me to compete
~~~~uebasketball which helps me support my community."
~J~!ourdefinition of desired end states would clearly include
negative (sacrifices, costs, and undesirable outcomes). They ':c()re values, we have broadened the definition Jor our
tend to be more abstract in nature than attributes and are more '~es.First, we also include consumption goals or purposes
subjectively defined by the product user. Where customer :,:yariety, productivity, good taste) that motivate the cus-
might easily agree on a description of a product's attributes, the: :~"Relative to core values, the latter represent a lower-order,
may have considerable disagreement over its consequences.: l).mption-specific set of concerns that are related specifi-
For instance, two consumers might objectively describe and '0. the individual's (or organization's) role as a customer.
agree upon the keyboard design of a particular laptop computt(f ition, we 'explicitly consider organizational customers as

68 69
A New Perspective on Customer Value
A New Perspectiveon Customer Value
well as individuals. The desired end states of buying organizac.
lad difficulty gripping their tools. As a response to this negative
tions might include longevity, a sense of unity or community, ~msequence or "sacrifice," they had to reconsider the related
customer responsiveness, quality, or shareholder wealth.
'ttributes.'(design and construction) of their products. Stryker
Again, examples from our interviews illustrate the con-
',bsequently redesigned their tools with variable-size grips
scious way in which .customers' desired end states shape their
lade of rubberized plastic that made them easier to grasp. As
decisions to buy and use products. One boat owner discussed his
\unexpected result, they also found that these products sold
purchase as a way of achieving family unity: "We got our boat
11among Japanese users, who tend to have smaller hands.
to hopefully keep our teenagers interested in being with us for a . ; Likewise, each customerforms a perception of the extent to
few years longer. It keeps us all together." Likewise, a user of a
hichthe consequences derived from product use will help him
health and fitness center commented, "I feel better about every-. ,her obtain desired end states. For example, cars that provide
thing, I guess, and my outlook on life is better." Our consumer
curity and effortless driving help create peace of mind (see
in Figure 3.5 valued peace of mind very highlrboth in her life
'igure 3.5).
in general and, more specifically in her relationship to her Second, as mentioned earlier, the level of abstraction in-
automobile. (It should probably be noted that her history was
teases at higher levels in the hierarchy. While attributes tend to
characterized by a string of undependable and repair-ridden
)~'the most objectively and concretely defined, consequences
"lemons.") By selecting a car that contained a specific configu...
the benefits and sacrifices of use) tend to be more abstract in
ration of attributes (of both product and service) and that pro-
.ature, and desired end state,s are the most abstract of all. One
vided her with three key consequences (the absence of hassles,
esult of this is that it becomes much more challenging to
security,'and effortless driving), she was attempting to improve
her overall peace of mind. 'rleasure and understand the higher levels of a customer's value
ljerarchy. Consumers and organizations may not readily articu-
~te their product desires at the higher levels of the hierarchy,
The Important Characteristics of the Hierarchy
nd those attempting to understand and measure the customer
There are several characteristics of the hierarchy that stand out
'erspective will have to dig more deeply to get at the conse-
when thinking about applying this concept in practice. iuences and desired end states. (This issue will be addressed
First, as implied earlier, the three levels of the value hierar-
ore specifically in Chapter 7.) .
chy - attributes, consequences, and desired end states - are
Another characteristic of the hierarchy has to do with stabil-
interconnected in the sense that the lower levels are the means
over time. There is a tendency for stability to increase at
by which the higher level ends are achieved. Product attributes
igher levels of the hierarchy. According to psychologists, val-
are the "means" by which consequences are delivered to the
es are some of the most enduring and stable traits possessed by
customer. As shown in Figure 3.5, for instance, instrument lay-
out, size, and seat comfort are three attributes that the consumer ~dividuals. While they might change and evolve over time,
:enerally this process is a very gradual one. The same can be
felt contributed to driving ease. Another example of the attribute/
aid for organizations. At the middle level, the consequences that
consequence relationship can be found in the experiences of
m;e desired by customers are probably less stable than valued
the Power Tool Division of Stryker.[22] When Stryker employees
went into customers' factories to see where and how their end states, especially given their tendency to change across
situations. Nonetheless, they are much more stable and much
tools were being used, they came across a surprising fact: one
.ess apt to change than product attributes.At the lowest level the
half of their product users were women. They noticed that one ctual attributes or bundles of attributes that are available to the
consequence of their product design was that these customers
ustomer in the marketplace are continually changing over time;
70
71
 'I I
"
II"11
1'1'
\Ii
Iii
A New. Perspectiveon Customer Value A New Perspectiveon Customer Value \\1
,,' It
product life cycles are decreasing, technological change is oc!
cuffing at an astounding rate, and there is a multiplicity 'of", '"
GI
"' 0
offerings in any given product category. For example, in 1992
..
C
GI
; o/S::IC
::I~~
"" E
:I £Q;~ C
alone some 15,000 new food, health, beauty, and pet productsl' f'" .p ~~ '~:!
'C" 1= E ,- 0 C
were introduced in supermarkets in the United States. In additiOli':,' c :;; tiC
*=
~g 8 ~~
nearly 70 percent of these products were "different varieties:
formulations, sizes, or packages of existing brands." [23] There~j'
0
u ~e
5-6"
c~.2
8,"
°a. -=
C
~
E
""'08U
/~ ~-~
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-
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-:>
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fore, an attribute level perspective results in a quickly changing~, 50&./,!!
02 "'0
target for managers. Consequences and desired end state provicle" a. a.
~"
a relatively more stable strategic focus.
'3 iD ,!: ~ 5-=
u.2 J1 C iD.2u
Finally, touching back on our previous discussion, we must",! ~U 0 .=~"

remember that there is no such thing as "the" value hierarchyJor ~~ g-g ~:~ e
~~ /~ &: "" ~"""-"" 0 a.
a product or service. Our research shows that use situation wi1f~:i' - E-
0 ./'
~
c=5 !!"" /8 J: ~
0 :Jl~
be a critical determinant of value and, therefore, the components' !!~ .U ~l -"
of the value hierarchy may change signifi~antly as use situation -OJ! ~ ~ ~/:5o/S
~ C

~g>
C'- ~ ]~
is altered. For example, Smith and Wesson has competed in the ,g~'
=~ v:>
,!:'", J! &: 'c iD
traditionally male-oriented weapons market for years. However, , iDc .2c "...E
.-='t-;...iD 5;'6
they recently found that as their female customer base has:! -8 0-.1=
J:l! 'CC
~- 8o/S
0
~i
expanded they have had to reconsider how to deliver value,in 8
different use situations. For example, women are more likely torI
carry a weapon in a purse instead of in a holster or inside their'
clothing. One result of this change in use was that the sharp edges'];'!;'
of the guns often ripped the fabric lining of customer purses (a
negative consequence), resulting in complaints to the company.
Incidents such as this have caused Smith and Wesson to recon- ';
sider how to provide value in an expanding variety of use
situations.[24] "
In' an 'earlier example, we discussed how Department,of;
Transportation employees considered different,value dimen~;:
sions when dealing with their suppliers during different project
events, such as the preselection stages (qualifying and bidding).,;
and contract management stage (project implementation).",
Figures 3.7 and 3.8 show how value hierarchies might differ for"
these two situations.

Applying Customer Value Hierarchies in Practice

Value chain for preselection stage transportation
A legitimatequestionto askis whymanagersshouldgo to the
customers.
trouble to understand and measure the entire value hierarchy.
73
72
 A New Perspectiveon Customer Value A New Perspectiveon Customer Value

eelthat there are several compelling reasons, including the

III
mg,
GI
" III "
III
.!! 1 0

11
'Vi III
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:I
IT
",,~
-00
:I
..0
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"5
0
"'E
::.~'O
.1."2':;;
o'g~
.Managers should not define their product or service of-
GI"1:II
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III
-0-0
:c~ :i ~2
"","
~._-=
~"O '. ferings strictly in terms of attributes.
GI C 0'" ~ "-£ a.
0
U
ZO ~-
00
E "," Managers must understand that value is judged by
g~0=~ customers at the upper levels of the hierarchy, specifi-
-<:-0
u ~>=.
0"
"
"" cally in terms of consequence trade-offs.
1]," Managers who have a clear understanding of the
E ~15g
entire value hierarchy will have better criteria for
.Q~i~]
1 ~Qi'~ 11'-5'~ comparing the merits of alternative product and serv-
.B /" ~2 go; 5,§J1 ice offerings.
6 g-:;;;~ ~ 611
-5
" 8..£
0 ~-£ Understanding the linkages between attributes and
! .E.. consequences can help. managers to identify "high-
~o-{!
E "
..,..g.;g impact" attributes that provide multiple benefits for
" § 50 the customer.
~ ~-
£.~:G
;e'8..g
>< "
~ 5'"
0°:E
rH-"
:z:
. Rather than a bottom-up approach to decision making,
the hierarchy suggests a top-down approach. Managers
~ g>
~ ~-g ~
is ~ should first understand the higher hierarchy levels before
o~a. ~-o
,,~
-" 0
u- 50
-0" .. translating this knowledge into a specific configuration
.9 1)g'
00 of attributes or features.
~..c:
"-u
Managers who concentrate their attention on changing,
unstable attributes will find themselves chasing a moving
target, whereas'consequences and desired end states pro-
vide a more stable basis for decision making.
':'The upperlevels of the hierarchy are inherently oriented
toward some future state, while the attribute levels focus
on historical or current offerings.
~~
0 "
The upper levels of the hierarchy provide more opportu-
.!<-<:
"", ~ nity for significant and creative changes in the product or
E~ ,,13
E= .o.!!!. . service, while an attribute focus tends to result in smaller,
8~ 1106
~~ more incremental change.
.-" ~"
,,:§
o~
~ "
""
Sl Advantages of a Consequence-Level Perspective. Many
"-"
.<> luct or service providers view their output as a bundle of
Iblltes or features. [25] They produce their product or service
d:process that combines component parts, features, or pro- .
Figure3.8. Value hierarchy for contract management. es;andtheirresearch and development efforts are frequently

74 75
 A New Perspectiveon Customer Value A New Perspectiveon CustomerValue

aimed at improving their offering by adding, refining, or deletin': ,the most recent technology, and so forth; Manufacturers
attributes. They very often differentiate their products fro, 'n,sequently find that they are undervaluing (and, in some
those of competitors by comparing the attribute options that the~ ;~s;{underpricing) some of their product or service fea-
offer versus those offered by competitors. yifailingto recognize all the benefits that they offer to the
By contrast, the customer value hierarchy clearly shows tha mer;
in order to understand value one must understand which particu
lar set of consequences are - or are not - desired by produc ,PW[1.";Product Design. Second, the customer value
users, as well as what end states are deemed desirable. Unless :~hysuggests a "directional" approach to product or service
these upper levels of the hierarchy are understood, there is n,,9 ~:~fManyorganizations that are product-driven start at the
"north star" to guide managers in the selection and choice 01 "oUhe hierarchy, bundling attributes and setting design
which attributes should be incorporated into, the product ql ~f~1itowork to "build better mouse traps." Later, the
service; nor is there any way to judge the relative attractivene~ ,~tions go in search of customers or markets that might
or importance of alternative offerings. One research study con l}eir offerings. The hierarchy suggests, instead, a "top-
cluded that the most important product characteristics that all approach where the organization begins with an in-depth
related to choice are those at the higher consequence level.[26, tanding of the consequences and end states that are im-
It is clear that many business practitioners are increasingl) fo the customer and then works backward to try to design
viewing the creation of "value" as a competitive advantage, and ~!Ofgoods or services to deliv~r those consequences (as
more specifically, are feeling that providing sustainable superio xfUIlpleof the Oldsmobile Aurora mentioned previously).
value has a direct impact on profitability. [27] ,
Understanding value hierarchies will also remind the prog .,. f}tthe Higher Levels of the Hierarchy. Third, it was men-
uct or service provider that no two customer's - or,segment' St arlier that the hierarchy represents increasing stability at
value hierarchies will be exactly alike and that these difference evels. One obvious implication of this characteristic is
provide both challenges and opportunities. For example, Safet: ilagers who are focused at the attribute level will always
Kleen, a commercial waste disposal business, found that thei dpga target that is moving and changing very quickly.
sm" ,;er customers required a great deal of face-to-face servic) ibutefocus can introduce a frantic sense of keeping up or
I' tailored to their needs. This was largely a result of their lack ~'
'~ead of the competition, often without producingstra-
understanding of regulatory requirements associated with cO! 'lyantage for the product or service provider.
mercial waste. In contrast, these needs were not in the val ~;exampleof this is the technological one-upmanship that
hierarchies of larger businesses, which tend to have staffs me "practiced in the consumer electronics industry. Manu-
astute to these issues. Consequently, Safety Kleen was able ,;are"finding that their "innovations" provide only a
offer their larger customers a "stripped-down" service that nadvantage, as they can often be quickly imitated by
their unique needs.[28] ors.On the other hand, by concentrating on the higher
In addition, if a manufacturer truly understands the custon ;;thehierarchy, the strategic goals are more stable and
ers' value hierarchy, they might be able to identify "high-in ",lPttochange. While management will still have various
pact" attributes or features that serve multiple consequencesfl pities to pursue how they can deliver desired conse-
the customer, thus enhancing value. For example, LCD readou J9customers, the objectives can remain more focused
may provide several benefits for an automobile driver, includir r' periods of time. Again, consider the Oldsmobile
the fact that they are easier to read, that they provide pride f' engineers are focused on creating a sensation of
76 77
A New Perspectiveon Customer Value A New Perspectiveon Customer Value

"cocooning" the driver from the road, there may be a multitude" :!ribute focus has a greater tendency to focus on "what is." For
of ways to deliver this perception. Rather than a one-shot design ~amP1e, a consumer would probably design a future computer
change, the quest for tNs consequence could be an evolutionary, Iy'improving existing features, such as size, keyboard, and
continuous improvement process that includes making changes; lemory. As stated earlier, incremental changes to attributes are
in several product dimensions over time. tan uncofIllIlon route for new product development. However,
~umers can more accurately predict what their needs will be
"Future" Perspective. While customers are pretty good, at" tpe consequence level (e.g., the ability to network computer
responding to a particular product design or idea that is put Tsat various locations, the need to integrate databases repre-
front of them, they are not very good at answeringin the abstract;,' ted by a variety of different formats, accessibility, portability,
"What should a product (service) look like in five years?" Ask 1dso forth). Once a manager has a keener understanding of
'"
,

any manager who has tried. Customers are not well equipped to, leSe'future consequences, he or she can turn an eye toward
project, create, and imagine offerings that they have"not experi- , elivering the endless possibilities and alternatives at the attrib-
enced.[29,30] There are probably several reasons for this, but te level.
two are most obvious.
First, customers are very oriented toward "what is." They,: 'pportunities for Significant, Creative Product Improvements.
tend to think in terms of what they already know or have} ifn<lily,it is increasingly evident that the objective of delivering
experienced, and this often limits their ability to see beyond the, onsequences creates more opportunity for creativity and for
obvious. (Similar effects have been noted in memory research" ignificant or dramatic change than a concentration on improv-
studies in the field of psychology, which have shown a person's ngattributes. It is at this higher level that managers can free up
ability to generate responses to a question can be limited by first leir organization to consider many - and sometimes very
suggesting what some of the responses might be.) This tendency !ffferent - options for the customer. It allows them to think
to ground responses in "what is" obviously has the limitation of, ;eyond their current attribute offerings and systems capabilities,
leading to incremental or marginal improvements in existing: .~s?i11ustratedby our hotel example at the beginning of this
offerings. However, in many cases product and service providers~ :hapter. Instead, it challenges them to think much more broadly
are looking for more dramatic breakthroughs that literally rede< in terms of future directions and opportunities for serving the
fine the product or service. It is such breakthroughs that lead to' :ustomer.
significant improvements in customer value as well as a com-": ;~::;One example of this notion is found in the fast-growing child
petitive advantage. Consumers are simply not very good at :areindustry .[31] Historically, these centers have defined them-
visualizing such breakthroughs. ~elves as "baby-sitters," an attribute-level description of what
The other reason why consumers are not particularly good: they do ("We are caretakers for children."). However, some
prognosticators is the fact that they have limited knowledge. In child care centers have begun to define their role more broadly
many cases they lack the technical, mechanical, chemical, pro-" inLterms of the consequences to the parents - as "surrogate
cess, systems, or resource know-how to understand or even,' extensions of the family." This latter definition provides many
imagine what the possibilities of a product are. In fact, in most, ppportunities to add and expand services that might meet the
instances it is the product or service provider who is much more needs of their customers. For instance, some child care facilities
knowledgeable about its potential. l1ave'begun providing gym and swimming classes, health care
A fourth benefit of pursuing the higher levels of the hierar-!, ld child-rearing information for parents, transportation to ball
chy is that it is inherently more concerned with the future. An" es or to and from schools, prepared meals that parents can

78 79
A New Perspectiveon Customer Value A New Perspective on. Customer Value

take home and reheat, and even regular visits by a doctor who Qm product use. This chapter showed how determining cus-
can provide inimunizations to children. ,mer value,"specifically through a value hierarchy perspective,
Another example of this may be found in Apple's develop, provide a rich and meaningful way to understand the needs
ment of a laptop computer.[23] Their initial efforts (which ,. desires of customers. We feel that if companies are to
ultimately failed) concentrated solely on making a smaller and dress value issues more effectively they wIll have to reorient
lighter version of their existing desktop machines (an attribut~ ;ir thinking (from a product/attribute to a customer/conse-
focus). Once the market rejected these, Apple turned to consum~ ' ence perspective) and reexamine and possibly revise their
ers for redirection. By observing consumers using laptops in.a
gent market information gathering systems. Finally, we high-
variety of situations - on airlines, in cars, and even in bed - they
ghted some of the managerial benefits that we think are inher-
were able to come away with a clearer understanding of the
it in the adoption of a value hierarchy perspective.
consequences of certain product designs. For instance, a mouse
At several points in the chapter, we touched on the difficulty
is of little use when the user is working on a small airplane tray'
measuring customer value. Higher levels of the hierarchy are
table or in his or her lap. From this observation, the inclusion of .
',tas straightforward to measure as are attribute-level attitudes.
a built-in tracking ball was born, a design feature that is now
ikewise, existing customer feedback systems do not always set
being copied by Apple's competition. A successful redesign of
IUO measure these dimensions; often they are inadequate for
Apple's laptops would probably have been less likely had the
company gone out and directly asked consumers what kind of I~hmeasurements. In Chapter 7 we explore some of the spe-
attributes they wanted on their laptop or, worse yet, simply sent fie techniques that are best used to capture your customer's
Jue dimensions.
their design engineers back to the drawing board to try solll,e;
thing different.
In short, we feel that a substantive, radical, and strategically'
sustainable advantage is more likely to result when organiza; :
tions step back from a narrow focus on attribute improvement;
Burns, Mary Jane and Robert B. Woodruff, "Value: An Integrative
and consider the broader issues of consequence and value deliv7'i Perspective," Curtis P. Haugtvedt and Deborah E. Rosen, eds., Proceed-
ery. In turn, this type of radical product improvement is likely. ings of the Society for Consumer Psychology. Washington: American
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margins. . Values and Market Choices- Theory and Applications, Cincinnati, OH:
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. Woodruff,RobertB., DavidW. Schumann,and SarahFisherGardial,
Summary -"UnderstandingValue and Satisfaction from the Customer's Point of
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We began this chapter by discussing the need for a custom~ Burns, Mary Jane and Robert B. Woodruff, "Delivering Value to Con-
value orientation to guide business strategy. It is our contention sumers: Implications for Strategy Development and Implementation,"
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of the requirementsof a particularuse situation,and (3)a trade-off ..ConsumptionExperience: Phaedrus Rides Again" in Perceived Quality:
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80 81
A New Perspectiveon Customer Value A New Perspectiveon Customer Value

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