Customer Value Provision: The purpose of an organization
In this first article, Robert Mason and Barry Evans, authors of Marketing and Logistics Led Organizations, discuss customer value and how an organization should focus on it more than on profit to grow and succeed.
What is the purpose of an organization? Whether the organization is a commercial company trading to sell direct to the end customer; an intermediary in a supply chain providing materials – or services – to the customer-facing organization; a public service organization or even a not-for-profit charity, one can ask the same question. Of course, the purpose is to provide value to the end-customer, or end-user, of that product or service.
Profit is not, and never should be regarded as, the purpose; it is one measure of success of how well – or not – the core purpose is delivered. As we show in our book, Marketing and Logistics Led Organizations, organizations that use profit as their core purpose face a significantly common outcome – they fail! Using profit to measure organizational decisions is associated on many, many occasions with making wrong decisions, usually pursuing efficiency gains that jeopardise and ultimately destroy the effective delivery of customer value. So, if delivering customer value is an organization's purpose, what does customer value look like?
At its simplest, customer value can be delivered via two properties. These are the tangible and intangible properties of the product or service first identified by Levitt (1968). The tangible properties, for example, would be the look, smell and taste of a food product, the looks, paint quality and aerodynamics of a car or the performance of a sports trainer. The intangible properties might be the provenance of the food product, the availability and delivery time of a new car, or the branding of the trainer.
Marketing and logistics particularly contribute to the provision of the intangible elements – as the tangible aspects can be more easily copied, it is certainly the case that products and services are increasingly differentiated through these intangible elements. Martin Christopher (1992) built on Levitt’s ideas, using concentric circles to visualise tangible and intangible features of products. We have further developed Christopher’s two-circle idea, and conceive the way in which marketing and logistics have a role in design, development and provision of the intangible features, teasing out how both functions contribute and identifying how they combine in the customer service dimension – visualised in figure 1.
Figure 1: Core Tangible Value Augmented by Intangible Value Split into Marketing- and Logistics-Led Aspects
Marketing and logistics need to work in harmony to:
- Deliver within current organizational capability;
- Work together to jointly develop and increase the level of organizational capability
This harmony will help the organization remain competitive or ideally become more competitive. It aids the organization in avoiding a major cause of losing customers: over-promising and under-delivering.
Customers have different perceptions that matter to them in their value judgement. Their assessment will differ depending on their view of the relationship between their expectations of a product or service and how well – or not – they feel satisfied by its provision. Expectations are not static. Technology, for example, is a driver of dynamic change to expectations of the performance of supply chains. Examples might include:
- The demands on home delivery performance where Amazon and Tesco, for example, now offer ‘same day’ delivery for internet orders in response to growing consumer expectations;
- Consumers now require organizations to have a 'sustainability' agenda. Where once this could be viewed as a Kano 'performer', it is now for many a 'basic' – consumers will stop buying from any organization that, in their view, fails on the sustainability dimension (Kano et al., 1996).
The 'what’ and the 'why’ - what is customer value and why does it is it matter – can be summarized as:
- The need to understand what customer value is in each situation and providing value well is of vital importance to organizations of any type to survive and prosper;
- Organizations have to be geared around the provision of customer value as their primary purpose;
- Hence, marketing and logistics need to work together, in harmony, to consistently deliver winning value.
In our next blog, we will look at the vital question: 'How' do marketing and logistics work together in an organization to deliver customer value?
Christopher, M. (1992) Logistics and Supply Chain Management, Financial Times, Pitman, London (now in its 5th Edition (2016)
Kano, N., Seraku, N., Takahashi, F. and Tsuji, S. (1996), “Attractive quality and must-be quality”, in Hromi, J.D. (Ed.), The Best of Quality, Vol. 7, ASQC Quality Press, Milwaukee, WI. Chapter 2
Levitt, T. (1968) What Business are You In? Harvard Business Review March/April
About the authors: Robert Mason has a business background, mainly in a variety of roles with M&S. He is now a Reader in Logistics and Operations Management (LOM) at Cardiff Business School and has led many business research projects with Tesco as a partner.
Barry Evans' early career involved roles in Logistics/Distribution with Watney Mann, Rank Hovis McDougall and Royal Mail. This was followed by roles in Tesco plc, including Lean Process Manager in Tesco Supply Chain Development. He joined the Lean Enterprise Research Centre at Cardiff Business School as a Senior Research Associate. Mr Evans is now retired.
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