2001 - Payne & Holt

Introduction
Creating value, and more specifically, customer

value, is increasingly seen as the next source of
competitive advantage (Woodruff, 1997). It is also
of major and increasing concern to consumers
and marketers (Patterson and Spreng, 1997). Yet,
despite the increasing attention being focused
on this concept, there is still remarkably little in
the way of agreement in the literature on what
constitutes value and customer value or how
it is related to relationship marketing. Indeed, a
review of the literature reveals, for example, the
term customer value being used in a variety of
contexts; these include creating and delivering
customer value (e.g. how companies can add
value), customer-perceived value (e.g. desired
and received value at purchase and in use) and
value of the customer (e.g. customer lifetime
value). Furthermore, while the term value is fre-
quently used to describe customer value, it is also
used in relation to other aspects of value in the
organization. The objectives of this paper are two-
fold: first, to undertake a comprehensive literature
review of the different perspectives of value; and
second, to develop a conceptual framework which
addresses how these views of value might be con-
sidered in the context of relationship marketing.
Relationship marketing has been one of
the key developments of modern marketing
science (Hennig-Thurau, 2000) and has generated
enormous research interest (Sheth, 2000).
Several leading scholars suggest that relationship
marketing represents a paradigm shift in market-
ing approach and orientation (e.g. Grnroos,
1996a, 1996b; Kotler, 1990; Parvatiyar and Sheth,
British Journal of Management, Vol. 12, 159182 (2001)
2001 British Academy of Management
Diagnosing Customer Value:
Integrating the Value Process and
Relationship Marketing
1
Adrian Payne and Sue Holt
Cranfield School of Management, Cranfield, Bedford MK43 0AL, UK
email: [email protected]
The concept of value and, more specifically, customer value is of increasing interest to
both academics and practitioners. This paper undertakes a substantial review of past
and current literature on value and categorizes this considerable body of research into
nine streams of literature. Building on the emerging relationship marketing paradigm,
it then proposes a framework for relationship value management. Nine core streams
of value literature are identified and discussed: consumer values and consumer value;
the augmented product concept; customer satisfaction and service quality; the value
chain; creating and delivering superior customer value; the customers value to the firm;
customer-perceived value; customer value and shareholder value; and relationship
value. To date, the core focus of most of this literature has been on the nature of value
from the perspective of the organization and its customers the customersupplier
relationship. However, it is argued that the emergence of the relationship marketing
paradigm has emphasized the role of other stakeholders in building relationships. An
existing multiple stakeholder model of relationship marketing, the six markets model,
is introduced and is integrated with key concepts from the value literature to produce
a conceptual framework for relationship value management.
1
The authors thank two anonymous British Journal of
Management reviewers and Martin Christopher for
their comments.
1997; Webster, 1992). This emphasis on relation-
ships, as opposed to transaction-based exchanges,
is very likely to redefine the domain of marketing
and lead to a new general theory of marketing
(Sheth, Gardner and Garrett, 1988), as its funda-
mental axioms explain marketing practice better
than other theories (Sheth and Parvatiyar, 2000).
We consider there is a strong argument for
examining value in the context of relationship
marketing. Although the concept of value is of
central importance in all aspects of marketing,
a review of the literature suggests that value is
typically viewed from the more narrow perspect-
ive of traditional marketing. There are at least
three reasons for considering value in the broader
context of relationship marketing.
First, as Grnroos (2000) points out, value has
traditionally been used in the marketing literature
to address the value of customers for a firm; only
to some extent has value to the customer been
addressed in the literature and this has focused
too much on a transactional context (e.g. Peter
and Olsen, 1993; Zeithaml, 1988). Second, value
in marketing has mainly focused on transaction or
exchange and has not sufficiently taken account
of value creation and delivery through ongoing
relationships that extend beyond individual trans-
actions. Ravald and Grnroos (1996) conclude:
The relational aspect as a constituent of the
offering is not taken into account . . . We suggest
that the relationship itself might have a major
effect on the total value perceived. In a close re-
lationship the customer probably shifts the focus
from evaluating separate offerings to evaluating
the relationship as a whole.
Third, from our review of the literature, we
conclude that value has not been addressed suffi-
ciently in the context of the multiple stakeholder
view of relationship marketing. Most of what
has been written to date on value creation has
focused primarily on the perspective of only one
key stakeholder, the customer. A key difference
in relationship marketing is that its focus is not
limited to a firms relationships with customers.
The relationship marketing approach stresses the
importance of multiple stakeholders (Buttle, 1999;
Christopher, Payne and Ballantyne, 1991; Doyle,
1995; Gummesson, 1999; Kotler, 1992; Morgan
and Hunt, 1994).
In an earlier review of some of the value
literature, Payne and Holt (1999) concluded that
research attention needs to be given to a broader
range of multiple stakeholders. They point to
the need for a model that emphasizes the role
and interdependence of these stakeholders in
an organizations total value-creation process.
This paper extends this work by viewing customer
value in the context of multiple stakeholders
and the organizations total approach to value
management which we term relationship value
management.
The structure of this paper is as follows. First, we
discuss the development of work on the value con-
cept. We then identify and examine nine core
streams of value literature ending with the more
recent concept of relationship value. Recent
developments extend the concept of value beyond
a primary focus on one stakeholder, the customer,
to a focus on multiple stakeholders. Lastly, we
bring together key concepts from both the value
and the relationship marketing literatures to
develop a framework for relationship value man-
agement. This framework integrates the value
process and relationship marketing as well as
addressing the role multiple stakeholders can play
in creating and delivering sustained value.
The development of the value literature
Value has been approached from many different
perspectives. Most are derived from the field of
economics. These include exchange, utility and
labour value theories, as well as marketing, account-
ing and finance. Furthermore, the considerable
strategy and organizational behaviour literature
on competitive advantage is closely linked to
value concepts and preferential choice. Value also
has roots in psychology and social psychology.
Although recent research on value in market-
ing is based on the concept of trade-off (e.g.
Grnroos, 1997), this is derived from the eco-
nomic theory of utility. This economics-based
view of value states that consumers spend their
income so as to maximize the satisfaction they get
from products (Bowman and Ambrosini, 1998).
This neoclassical theory has, however, provided
the basis for much of the work on consumer
value, customer value and relationship value dis-
cussed in this literature review. Other researchers
consider value in the context of labour value
theories. This body of work considers how
positive differential advantage is derived from the
160 A. Payne and S. Holt
actions of labour (e.g. Lado and Wilson, 1994;
Pfeffer, 1985; Wright, McMahon and Williams,
1994). This approach implies that labour can be a
source of firm heterogeneity and hence a source
of value (Bowman and Ambrosini, 1998).
The extensive strategy and organizational
behaviour literature also focuses on many aspects
relating to value. Much of this derives from
the work of Porter (1985) and his colleagues.
Later work (Brandenburger and Nalebuff, 1996;
Brandenburger and Stuart, 1996) describes how
much value is created when different players
come together and transact. In the organizational
behaviour literature, work has focused on creation
of value through the deployment of organizational
resources. These knowledge-based resources or
system resources (Black and Boal, 1994; Miller
and Shamsie, 1996) can be used to create ad-
vantage. These may represent a core competence
of the organization (Prahalad and Hamel, 1990).
However, as Bowman and Ambrosini (1998) point
out it is the artful deployment of competences,
not the competences per se that are important.
Value is also implicit in the work on exchange
theory. The pioneering work done by Kotler (1972)
and Kotler and Levy (1969) on broadening the
concept of marketing, regarded the process of ex-
change as an essential part of marketing activity:
The core concept of marketing is the transaction.
A transaction is the exchange of values between
two parties. The things-of-value need not be
limited to goods, services, and money; they
include other resources such as time, energy, and
feelings. (Kotler, 1972)
Later Bagozzi (1975) focused on the importance
of the exchange process in greater detail. How-
ever, while the exchange theory of marketing
provides good normative rules for exchange
relationships, it does not yet explain why and how
values (and arguably value) are created (Sheth,
Gardner and Garrett, 1988).
To review the research on value, we identified a
large body of literature which we have categor-
ized into nine core streams of research. Figure 1
shows the structure of our literature review
together with an illustrative selection of the main
contributors work in these nine core streams.
It also indicates broadly a chronological repre-
sentation of the research. However, the cat-
egorization of the value literature into these nine
core streams is not meant to imply a smooth
evolution in the literature from a focus on one
aspect of value to another. As pointed out later in
this paper, some of the streams are complement-
ary, overlap or may compete. These nine core
streams of value literature have been divided into
three groups: key influences, recent perspectives
and newer developments.
First, we identify four areas which we consider
have been key influences on the recent thinking
on customer value. These are: consumer values
and consumer value; the augmented product
concept; customer satisfaction and service quality;
and the value chain. Second, three more recent
perspectives have emerged. These are: creating
and delivering customer value; the customers
value to the firm (or customer lifetime value);
and customer-perceived value. Third, the newer
developments in the value literature are addressed;
these are customer value and shareholder value,
and relationship value. As we proceed from a
discussion of the key influences to the recent
perspectives and the newer developments, we
gain a richer understanding of the multifaceted
concept of value as it applies to marketing strategy.
Key influences on the value literature
Four streams of literature are considered in this
section: consumer values and consumer value; the
augmented product concept; customer satisfaction
and service quality; and the value chain. The first
of these key influences derives from work in
psychology, consumer behaviour and marketing;
the second and third from work in product and
services marketing; and the fourth from the
strategy literature.
Consumer values and consumer value. It is appro-
priate at this point to comment on the difference
between the terms value (singular) and values
(plural) as they apply to marketing. Holbrook
(1994), in one of the most detailed academic
treatments of consumer value, suggests the term
value refers to a preferential judgement whilst
values is used to refer to the criteria by which
such judgements are made. Values, for example,
as described by Rokeach (1973), are the deeply-
held and enduring beliefs of individuals. Value
implies, on the other hand, through the notion of
preference, that it is the result of a trade-off
(e.g. between benefits and sacrifices) and an
Diagnosing Customer Value: Integrating the Value Process and Relationship Marketing 161
interaction (e.g. between a customer and the
product/service).
In the marketing literature on consumer values
the focus is on understanding patterns of these
deeply-held and enduring beliefs as they affect
the consumers behaviour. In the early 1980s
several inventories were developed to help meas-
ure consumer values. Two of the most widely-
known examples of these are the values and
lifestyles (VALS) methodology developed by
Mitchell (1983) and the list of values (LOV)
developed by Kahle (1983).
Much literature on consumer value focuses on
the value consumers obtain from the consump-
tion event. Implicit in many definitions of value
(e.g. Butz and Goodstein, 1996; Woodruff and
Gardial, 1996; Woodruff, 1997) is also the concept
of value-in-use. Value-in-use, as the name sug-
gests is a functional outcome, a goal purpose
or objective that is served directly through
product consumption (Burns and Woodruff, 1992;
Holbrook, 1994; Woodruff and Gardial, 1996)
and which can accomplish or contribute towards
accomplishing a task or work (Wilson and
Figure 1. Development of the value literature
Illustrative contributors Key influences
Consumer values and
consumer value
Augmented product concept
Customer satisfaction and
service quality
The value chain
Recent perspectives
Creating and delivering
superior customer value
Customer's value to the firm
Customer-perceived value
Newer developments
Customer value and
shareholder value
Relationship value
Gutman (1982); Holbrook (1994); Kahle (1983);
Mitchell (1983); Rokeach (1973); Zeithaml (1988)
Christopher (1997); Collins (1989); Levitt (1980, 1981);
Lovelock (1995)
Parasuraman, Berry and Zeithaml (1991);
Parasuraman, Zeithaml and Berry (1985, 1988);
Zeithaml (1988)
Bower and Garda (1985(a), 1985(b); Burns and
Woodruff (1992); Clark, Peck, Payne and Christopher
(1995); Gluck (1980); Juttner and Wehrli (1994);
Normann and Ramrez (1993, 1994); Piercy (1998);
Porter (1985); Vandemerwe (1993)
Band (1991); Bowman and Ambrosini (1998);
Brown (1995); Christopher (1997); Cravens (1997);
Day (1990); Gale (1994); Gronroos (1990);
Knox and Maklan (1998); Narver and Slater (1990);
Naumann (1995); Nicholls (1994); Scott (1998);
Slater and Narver (1994); Vandermerwe (1993);
Zemke (1993)
Blattberg and Deighton (1996);
Fredericks and Salter (1995); Reichheld (1996);
Reichheld and Sasser (1990); Slywotzky (1996)
Butz and Goodstein (1996); Christopher (1996, 1997);
Gordon, Kaminski, Calantone and di Benedetto (1993);
Hillier (1998); Parasuraman (1997);
Patterson and Spreng (1997); Slater (1997);
Woodruff (1997); Woodruff and Gardial (1996);
Zeithaml (1988)
Cleland and Bruno (1996, 1997); Laitamaki and
Kordupleski (1997)
Gronroos (1997); Gummesson (1999);
Ravald and Gronroos (1996); Tzokas and Saren (1998);
Wilson and Jantrania (1993, 1994)
..
..
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Jantrania, 1994). Value attaches to an experience
and pertains not to the acquisition of an object
(any good, service, person, place, thing, event
or idea) but rather to the consumption of its
services (i.e. its use or appreciation) (Holbrook,
1994).
Closely linked to value-in-use, is the idea of
possession value. Customers can also derive value
simply from possessing a product; products can
contain important self-expressive and aesthetic
qualities that accrue to the customer through
proximity and association (Woodruff and Gardial,
1996) which in a use situation can enhance or
detract from self or, arguably the organizations
image (Burns and Woodruff, 1992). Building on
the notion of value-in-use is understanding value
in the use situation. Many definitions of value
(e.g. Anderson, Jain and Chintagunta, 1993) omit
the use situation, yet it is argued that customer
value is dependent on the use situation which
is the context in which interactions between the
buyer and seller take place (Garver and Gardial,
1996).
We suggest that the linkage between consumer
values as a set of deeply-held beliefs and the value
that customers obtain from a consumption event
or an event from a business relationship with a
company is that their experience of the consump-
tion event may be conditioned by the set of values
that the consumer has. Thus an understanding of
consumer values may be of importance in deter-
mining the context and outcome of the consump-
tion event.
Research on consumer value in marketing
can be traced to work in consumer research
by academics such as Gutman (1982), who sought
to understand buying behaviour and decision-
making of consumers in the purchase situation
through a meansend chain. Following this re-
search, other work has evolved using the means
end chain, including that by Zeithaml (1988), who
proposes a conceptual model that defines and
relates price, perceived quality and perceived value.
She develops four consumer definitions of value:
(1) value is low price; (2) value is whatever I
want in a product; (3) value is the quality I get
for the price I pay; and (4) value is what I get for
what I give. Her work is especially significant as
it provides a more comprehensive understanding
of the linkages between price, perceived quality
and perceived value and introduces the notion of
trade-off implied in the earlier literature.
The research on consumer values is important
in recognizing that an understanding of the
customers values and behaviour could help an
organization to better design and market its
products and services, and how inventories such
as VALS and LOV can help explore consumers
behaviour in greater detail. However, this work
does not encompass the notions of preference
and trade-off that have become implicit in under-
standing value as distinct from values. The research
on consumer value is important as it provides, at
the level of the individual consumer or customer,
an understanding of the perceived benefits and
sacrifices in the purchasing and use situation.
However, a limitation of this stream of value
research is that it focuses on individual customers
rather than the organization and it does not take
into account the business-to-business context.
Further development of some of these ideas form
the basis of the means-end theory and means-end
models of Gutman (1982) and Zeithaml (1988)
as well as work by Woodruff (1997); these are
described later in the section on customer-
perceived value.
The augmented product concept. This concept
derives from early work by Levitt (1969), who
points out that competition is not between what
companies produce in their factories but between
what they add to their factory output in the form
of packaging, services, advertising, customer
advice, financing, delivery arrangements, ware-
housing, and other things that people value. This
concept is formalized in Levitts (1980) later
work which outlines the generic, expected,
augmented and potential product model.
Shortly afterwards, Levitt (1981) distinguishes in
greater detail between the marketing of intangible
products and product intangibles. In this work,
he points out that from the buyers perspective
the product is a promise, a cluster of value
expectations of which its intangible parts are as
integral as its tangible parts. Here the concept of
value for the customer is very much viewed as an
inherent part of the product or service. Levitts
model is particularly useful as it allows us to
reconcile the marketers traditional view of the
product, seen in the terms of various inputs and
processes needed to produce it, and the consumers
view of the offer, as being a set of solutions
and supporting benefits (Christopher, Payne and
Ballantyne, 1991).
Levitts fundamental work has been drawn on
by many writers. For example, Collins (1989) uses
this framework in the context of describing the
total product concept for a personal computer
from both the consumers and marketers views.
Most recently this concept has been extended in
the context of services marketing by Lovelock
(1995), with his flower of service model. This
identifies eight key elements of supplementary
services which can be used to add value to the core
service or product. Lovelocks work is important
as it provides a far more structured approach for
considering the expected, augmented and potential
elements of a product or service.
The research on the augmented product con-
cept has had a significant impact on the thinking
of both marketing academics and practitioners.
Its special contribution lies in a recognition that
additional elements, beyond that of the product
itself, have a profound impact on the value that be
added for customers. Its limitation is there is no
measurement system associated with identifying
which elements of the augmented product are
likely to have an identifiable impact on the
customer.
Customer satisfaction and service quality.
Customer satisfaction has been a theme of great
interest for researchers and practitioners for many
years. For example, customer-attitude tracking
involving tools such as complaint and suggestion
forms; consumer panels and customer surveys
have been used widely for decades and a number
of academics have developed models of customer
satisfaction. However, much of the existing cus-
tomer satisfaction research focuses on the indi-
vidual or customer level (Anderson and Fornell,
1991), rather than at the organizational level, ex-
cept where the link between customer satisfaction
and financial performance has been explored
(Anderson, Fornell and Lehmann, 1994; Yeung
and Ennew, 2000).
In contrast to exploring the purchase and
decision-making behaviour of consumers, the
multi-attribute models of customer satisfaction
and service quality (e.g. Parasuraman, Zeithaml
and Berry, 1985) are largely concerned with value
outputs, e.g. the measurement and evaluation of
customer reaction after the purchase or service
delivery. In particular, the work on SERVQUAL
(Parasuraman et al., 1985, 1988, 1991) focuses
on creating a measure of service quality based on
perceived differences between product and ser-
vice quality. The development of the
SERVQUAL instrument into five dimensions of
tangibles, reliability, responsiveness, assurance
and empathy (Parasuraman et al., 1988) points to
the importance of the expected, augmented and
potential elements referred to in the previous
discussion on the augmented product concept.
Other influential work undertaken within the
Profit Impact of Market Strategy (PIMS)
research e.g. Buzzell and Gale (1987) has also
highlighted the importance of service quality. In
particular, they identified a high level of cor-
relation between relative quality and profitability.
Early PIMS work also examined service quality
and its relationship to value. One of the early
Pimsletters (Chusil and Downs, 1979) describes
a PIMS formulation of value which combines
relative product quality and relative price. A
business offers value when the quality of its
products exceeds that expected for a given price,
or when the price is below that expected for a
given level of quality (Chusil and Downs, 1979).
The notion of some form of trade-off is once
again evident here.
However, some researchers see problems with
customer satisfaction measurement approaches
(e.g. Reichheld, 1996). One key criticism of cus-
tomer satisfaction and the dominant theoretical
model, the expectancy/disconfirmation model or
consumer (dis)satisfaction model (Clemons
and Woodruff, 1992) on which it is based, is that
instead of consumers using expectations as the
basis for judging satisfaction, researchers now
argue that consumers use values and desires.
It has also been suggested that there may be
an over-emphasis on measurement of product
attributes in customer satisfaction research at the
expense of more affective dimensions e.g. Alford
and Sherrell (1996). Customer satisfaction and
service quality have been concerned with identi-
fying, for example, key buying criteria or key
elements of service which are operationalized
as customers preferred or desired attributes
(Woodruff, 1997). Widespread application of these
multi-attribute consumer choice models probably
accounts for this preoccupation with attributes
(Day and Wensley, 1988). However, it is argued
that important nuances may be missed if we
limit customer learning to this narrow point of
view (Woodruff, 1997). Customer value explores
the interaction between the product and service,
the user and the use situation requirements, while
customer satisfaction generally focuses on the
product or service, i.e. what the organization
provided (Woodruff and Gardial, 1996).
The important contribution of the stream of
research on customer satisfaction and service
quality measurement is that it led to the explicit
measurement of the impact of a companys total
offer to their customers. This total offer incorpor-
ates the notion of the augmented product concept
discussed previously. Within the PIMS and
SERVQUAL elements of this research there now
exists a developed body of empirical research (see
Buzzell and Gale, 1987; Zeithaml, 2000). Whilst a
consideration of what to measure has been, and
will be, an ongoing topic of critical debate, recent
advances in measurement have made a significant
contribution to understanding how much value
customers derive from the offer. Some of the
limitations described above are addressed in
the later section on customer-perceived value.
The value chain. Here we use the term value
chain to cover an umbrella of conceptual ap-
proaches typified by the well-known work by
Porter (1985). Porters work on the value chain
has its origins in the business system developed
by McKinsey & Co, and described by Buaron
(1981) and Gluck (1980). Other related con-
ceptual approaches include the customer activity
cycle, the value delivery system, the value system
perspective, the relationship management chain
and the value constellation.
With the introduction of Porters (1985) work
came the idea of creation of competitive ad-
vantage through the management of the internal
activities of the organization that together formed
the organizations value chain. Porter states that
his value chain is an advancement on the business
system concept because it addresses activities and
sub-activities rather than functions, and shows
how these activities are related.
In 1985, McKinsey & Co outlined their
development of a value delivery system or value
delivery sequence (Bower and Garda, 1985a).
This approach, which is often referred to as the
value proposition, emphasizes that companies
need to shift from a traditional view of seeing
their business as a set of functional activities to an
externally-oriented view concerned with seeing
the business as a form of value delivery (Bower
and Garda, 1985b). The value delivery sequence
argues that focusing on the traditional physical
process sequence of make the product and sell
the product is sub-optimal. The value delivery
sequence, in contrast to the value chain, depicts
the business as viewed from the customers per-
spective rather than a set of internally-oriented
functions.
Porters seminal work has been influential for
many researchers. The customers value chain, for
example, is further developed by Vandermerwe
(1993). She represents the customers processes
as a cycle; the customers activity cycle. Other
approaches include the value system perspective
of Jttner and Wehrli (1994) and the analytical
framework of Piercy (1998), who identifies how
a number of organizational processes lead to
customer value. A further value system model
related to this work is the concept of the relation-
ship management chain or relationship chain
(Clark et al., 1995). Stabell and Fjeldstad (1998)
suggest an alternative model for understanding
and analysing firm-level value creation.
In contrast, Normann and Ramrez (1993,
1994) introduce the value constellation as a
criticism of and in opposition to Porters value
chain ideas. They argue that strategy is not a
matter of positioning a fixed set of activities along
a value chain. Rather, it shows how the focus of
strategic analysis should not be the company or
the industry but the value-creating system itself,
within which economic actors (suppliers, business
partners, allies and customers) work together to
co-produce value (Normann and Ramrez, 1994).
Mutual value is developed as a consequence of
a reciprocal interactive relationship between
organizations and stakeholders in a constellation
or network.
This stream of literature commences with a
somewhat mechanistic and process-oriented
approach to value, especially when compared with
some of the more psychologically-based ap-
proaches such as those discussed earlier (e.g.
Holbrook, 1994). However, the later work identi-
fied above integrates more behavioural elements.
From an empirical research perspective, a major
limitation has been the failure of studies to
address the linkages between the company value
chain and the customer value chain. Although
highlighted by Porter as important (1985), little
subsequent empirical research has focused on this
issue. However, this complex and rich stream
of research has provided a basis for a number
of key ideas that are evident in the later work on
customer value, which are considered in the
sections on customer-perceived value and relation-
ship value. Key concepts emerging from the value-
chain research have also developed alongside
the literature on creating and delivering superior
customer value, described in the next section.
The work of Normann and Ramrez (1994) is
particularly important as it draws attention to the
role of additional, non-customer stakeholders,
in the creation of value. This reinforces the im-
portance of the role of multiple stakeholders in
relationship marketing, which is addressed later
in the paper.
Recent perspectives of value
Building on the four key influences of value,
three more recent perspectives have developed
in the marketing as well as the strategy
literatures; these are: creating and delivering
superior customer value, value of the customer
and customer-perceived value. These customer-
oriented approaches to value are closely linked to
the role of value in creating competitive
advantage.
Creating and delivering superior customer value.
The area of superior customer value creation
and delivery has been the focus of much research
interest in the 1990s (e.g. Band, 1991; Brown,
1995; Cravens, 1997; Day, 1990; Gale, 1994;
Naumann, 1995; Scott, 1998). This work is closely
aligned with the calls for organizations to become
more market and customer-focused with strong
influences from the market orientation strategy
literature (Cadogan et al., 1999; Connor, 1999;
Day, 1994; Day and Wensley, 1988; Jaworski and
Kohli, 1993; Jenkins, 1996; Kohli and Jaworski,
1990; Morgan and Strong, 1997; Morgan et al.,
1998; Naver and Slater, 1990; Slater and Narver,
1994, 1995). The emphasis of this work is on the
linkages between customer value and organiza-
tional profitability, performance and competitive
advantage, and argues that a companys success
depends on the extent to which it delivers to the
customer what is of value to them. Essential to
this process is creating a market-driven culture
which reinforces the core capabilities that con-
tinuously create superior customer value (Slater
and Narver, 1994). Recent work in the strategy
area has focused on understanding the creation and
capture of value (e.g. Bowman and Ambrosini,
1998).
Later work by Gale (1994) in this context, is of
special interest. Gale outlines four key steps in
the management of customer value, including:
(1) conformance quality; (2) customer satisfaction;
(3) market-perceived quality and value relative to
competitors; and (4) customer value management.
This body of work is notable for demonstrating
how superior quality, relative to the competition,
is linked to improved profitability.
Naumann (1995), however, stresses that
product quality alone is not enough to guarantee
survival. He states that the key success factor for
a company is the ability to deliver better customer
value than the competition. Building on key con-
cepts already discussed in the augmented product
and service quality literatures, he introduces
the customer value triad which brings together
product quality, service quality and value-based
prices. Grnroos (1990) perspective on perceived
service quality being a combination of technical
quality, functional quality and image is important
in this context because it illustrates the funda-
mental aspects of service quality. Product quality
and service quality are the pillars that support
value-based prices (Naumann, 1995). Authors
such as Knox and Maklan (1998) and Naumann
(1995) suggest that brands will become more
important in the value that they convey to the
customer in the future.
The research on creating and delivering cus-
tomer value has helped us to better understand
the critical role of developing a customer focus
and market orientation and how a market-driven
strategy helps develop the capabilities that create
superior customer value. This work also empha-
sizes the importance of employee value created
within the internal market, one of the key stake-
holder groups in the multiple-stakeholder models.
The concept of internal marketing which applies
marketing techniques within the internal market
place has a crucial role to play here (e.g. Grnroos,
1985; Gummesson, 1987). Within the market
orientation literature, more empirical work needs
to be conducted on the linkages between market
orientation and profitability. Furthermore, links
with shareholder value need to be developed. The
PIMS research also makes a contribution to this
stream of literature, in that it provides a quanti-
fication of the improved return on investment
that can be achieved as a result of having a higher
market-perceived quality than the competition.
This large body of PIMS empirical research
(Buzzell and Gale, 1987) provides examples of
the correlation between perceived quality and
return on investment, something which has also
been the focus of more recent research, for
example Aaker and Jacobson (1994).
The customers value to the firm. Understanding
customer value from the perspective of the value
of the customer to the organization has also
received attention from researchers. This stream
of research differs from other aspects of customer
value in that it concerns the value of the customer
to the firm, i.e. it is an output of, rather than an
input to, value creation. As such, it focuses not on
the creation of value for the customer but on the
value outcome that can be derived from providing
and delivering superior customer value. A key
concept that forms part of this perspective is that
of customer lifetime value (CLV). Research on
customer retention represents a significant part of
the perspective.
Early work in this area was undertaken by
Reichheld and Sasser (1990), who looked at the
net-present-value profit improvement of retain-
ing customers. They undertook empirical research
which identified that in a number of service
and business-to-business organizations, a five-
percentage-point increase in retention could yield
up to 125% improvement in net present value
profits. This was calculated using the concept of
CLV which is defined as the net present value of
the future profit flow over a customers lifetime.
This work led to a stream of publications in this
area, for example Dawkins and Reichheld, 1990;
Reichheld, 1993, 1996; Reichheld and Kenny,
1990.
A number of other researchers have developed
an interest in customer retention. Rust and Zahorik
(1993) and Rust, Zahorik and Keiningham (1995)
outline procedures for assessing the impact of
satisfaction and quality improvement efforts on
customer retention and market share. Clark and
Payne (1994) identified some key concepts for
retention improvement. Payne and Frow (1997)
have used a model developed by Payne and
Rickard (1997) to empirically examine the impact
of marketing programmes aimed at retaining
existing customers and acquiring new customers
for a major UK electricity supplier. Other work
on customer retention has been undertaken by
Ennew and Binks (1996), who examined the links
between customer retention/defection and service
quality; and Page et al. (1996) who used an
empirical approach to analysing defections and
their impact. They conclude the cost of retaining
customers is generally much less than the cost of
acquiring new customers.
This idea that existing customers are much
cheaper to retain than new customers are to
acquire is widely emphasized in the marketing
literature, e.g. Blattberg and Deighton (1996).
Although it is argued by a number of authors
(Christopher et al., 1991; Filiatrault and Lapierre,
1997) that it costs many times more to acquire a
new customer than it does to keep an existing
customer, there is a lack of empirical evidence
supporting this. Further research needs to be
conducted in this area. Customer value analysis
(e.g. based on CLV) should lead companies to
emphasize customer-retention strategies.
It is also important to recognize that different
customer segments have different value. Hallberg
(1995) points out that not all customers are
created equal and some segments will be profit-
able, some will break even and some will be
unprofitable. Thus, increasing customer retention
does not always increase profitability. Under-
standing the CLV profitability and unprofitability
of different segments will enable organizations to
focus on the profitable customers and customer
segments. This CLV approach is also dynamic in
the sense that it can be applied to those segments
which may not be profitable now but which will
be profitable in the future, and those which are
profitable now but may be unprofitable in the
future.
This body of research on the customers
value to the firm is important for three reasons.
First, different customer segments have different
potential profitability and the pattern of profit-
ability may vary dependent on the stage in the
customer life-cycle and other considerations.
Second, by keeping a higher proportion of the
most valuable customers for longer, profitability
can be dramatically increased. Some of this
research focuses on how such improved customer-
retention and resulting profitability can be
achieved. Of particular note is the empirical work
which identifies the different profit impacts of
customer retention across different industry
sectors (Reichheld and Sasser, 1990). Third, this
work emphasizes the linkages between internal
service climate and its impact upon employee
satisfaction and customer retention (Reichheld,
1996; Schlesinger and Heskett, 1991; Schneider,
1973; Schneider, Parkington and Buxton, 1980).
This latter research also extends the value con-
cept to employees (employee value), thus empha-
sizing the importance of stakeholders other than
customers. The major potential weakness of
this approach is that it considers customer value
only from the perspective of how much value can
be derived by a company from its customers;
equally, the value delivered by the company to
the customers needs to be considered. The empir-
ical studies described above have not focused on
these perspectives.
Customer-perceived value. Customer satisfaction
measurement (CSM) has traditionally been the
main mechanism for listening to the customer.
More recently Woodruff (1997) has argued that
CSM needs to shift towards understanding more
fully what customers value in terms of which
products and services help them to achieve their
organizational goals and purposes.
As a result, many researchers are now focusing
on this extended view of customer-perceived
value (e.g. Anderson and Narus, 1998; Butz and
Goodstein, 1996; Fredericks and Salter, 1995;
Garver and Gardial, 1996; Gordon et al., 1993;
Grnroos, 1997; Hillier, 1998; Nicholls, 1994;
Parasuraman, 1997; Patterson and Spreng,
1997; Ravald and Grnroos, 1996; Slater, 1997;
Woodruff and Gardial, 1996; Zemke, 1993). In
this context customer value becomes a customer-
directed concept. It is this perception of the
customers view of what is created and delivered
that should be determined and taken into account
when the organization defines its value offering.
A number of researchers have suggested ways
in which to define value from the customers point
of view (e.g. Anderson et al., 1993; Christopher,
1982; De Rose, 1991; Ravald and Grnroos, 1996;
Woodruff and Gardial, 1996; Zeithaml, 1988).
We consider Woodruffs (1997) definition to be
the most comprehensive. Building on these
earlier definitions, he defines customer-perceived
value as a . . . customers perceived preference
for and evaluation of those product attributes,
attribute performances, and consequences arising
from use that facilitate (or block) achieving the
customers goals and purposes in use situations.
Woodruff builds the key elements in this
definition into a customer value hierarchy model
which links desired product/service attributes and
performances to desired consequences in use
situations which ultimately link to the customers
goals and purposes. It is argued that the customer-
value hierarchy allows the determination of
customer-perceived value by providing a more
rich and meaningful way to understand the needs
and desires of customers (Woodruff and Gardial,
1996). This approach has considerable appeal.
Parasuraman (1997) concluded: the proposed
value hierarchy model and its exposition have
much to offer executives involved in customer
value determination and researchers interested in
refining customer value theory.
In common with this and other views of
customer-perceived value (e.g. Christopher, 1996,
1997; Ravald and Grnroos, 1996), is the idea
of a trade-off between perceived benefits and
perceived sacrifice (or positive and negative
consequences). Perceived sacrifice involves a
recognition of all costs a buyer incurs when they
make a purchase; e.g. purchase price, acquisition
costs, transportation, installation, order handling,
repairs and maintenance and risk of failure or
poor performance. The perceived benefits repre-
sent a combination of a number of elements which
may include physical attributes, service attributes
and technical support available in relation to the
use of the product as well as the purchase price
and other indicators of perceived quality.
The customer-perceived value research has
roots in the consumer value, augmented product
concept and the customer satisfaction and service
quality literatures. This approach is important
because it links desired product or service attri-
butes and performances to desired consequences
within the usage context, as well providing a
linkages to the customers goals and purposes. To
date, much of the work here has been conceptual
and there is a need for further empirical work.
This stream of literature, in emphasizing the
central role of the customer, does not focus suffi-
ciently on the potential costs and gains to organ-
izations seeking to increase customer-perceived
value.
New developments in customer value research
We have explained above how the research in
customer value has shifted from studying the
values of individuals; to looking at how value can
be created by an organization both internally and
with respect to customers; and finally to a percep-
tion of value that considers both the customers
and the organizations perspectives. However,
the three recent perspectives on customer value,
while largely customer-centric approaches, also
suggest the need for a broader approach to value.
More recently, the thrust of value research has
started to reflect more explicitly the role of other
stakeholders in the value process. We now review
two newer developments in value research:
customer value and shareholder value, and
relationship value.
Customer value and shareholder value. Share-
holder value has become an increasingly dom-
inant area of interest among practitioners and
academics. Many organizations now consider the
creation of shareholder value as their principal
focus. However, more recently organizations are
having to consider the role of both shareholder
value and customer value where they have some
form of share-ownership structure.
We consider much of what has been written to
date on shareholder value emphasizes maximizing
shareholder value without sufficient attention
being directed to the customer. Whilst increasing
shareholder value is widely accepted as the major
goal of management, Bughin and Copeland
(1997) believe that maximizing shareholder value
may come at the expense of other stakeholders,
leaving in its wake diminished job security,
higher unemployment and poorer products and
services and, ultimately therefore, reduced share-
holder value. For example, in the short term,
shareholder value could be enhanced by reducing
customer value as a result of cutting budgets in an
area such as customer service.
Measuring shareholder-value creation has also
received attention in the last few years (e.g.
Dobbs and Coller, 1998). A considerable number
of approaches have been developed. Cornelius
and Davies (1997) outline nine consulting firms
which have advocate a range of shareholder
value-measurement approaches. Amongst these
approaches are SVA (shareholder value added
e.g. Day and Fahey, 1990; Wenner and LeBer,
1989), EVA
TM
(economic value added e.g. Stewart,
1991) and VBM (value based management e.g.
Bannister and Jesuthasan, 1997; Slater and Olsen,
1996). Although there is considerable argument
as to the best means of measuring economic or
shareholder value-added, Day and Fahey (1990)
point out that shareholder-value analysis must not
be undertaken without a detailed examination of
strategic fundamentals.
Some researchers argue that customer value
drives shareholder value (e.g. Corpulsky, 1991;
Laitamki and Kordupleski, 1997; Leemon, 1995;
Slywotzky, 1996; Slywotzky and Linthicum, 1997).
However, Cleland and Bruno (1996) point out
that customer value is a necessary but not
sufficient condition for shareholder value and
that an enterprise must
make sure that its customer value strategies
deliver rigorous revenue growth and the profit
margins needed to beat its cost of capital and
thereby build wealth for shareholders . . . we start
with customer value because it opens the oppor-
tunity for shareholder value, although it by no
means leads automatically to it.
McTaggart, Kontes and Mankins (1994) make a
similar point when they argue that high levels
of customer satisfaction can be achieved by an
organization without it being translated into
adequate returns for shareholders. More recently
Doyle (2000) has emphasized that shareholder
value maximization requires a focus on delivering
customer value through marketing.
The customer value and shareholder value
stream of research is important because it intro-
duces a further stakeholder, the shareholder, into
the consideration of value. The shareholder-value
element of this research tends to be highly mech-
anistic. Customer value and shareholder value
need to be considered together. It is possible that
if too much emphasis is placed on either of them
this could have an adverse long-term impact. It
is possible for some organizations to deliver high
customer value with poor shareholder value.
Other organizations may maximize shareholder
value but in the process may reduce customer
value. Cleland and Bruno (1996, 1997) discuss
how business strategies involving an understand-
ing of the interdependencies between customer
value and shareholder value need to be considered.
Again, there is a lack of rigorous empirical
research which explores the interaction of the
relationships between customer value and share-
holder value in the context of different businesses.
The potential contribution role of the employee
and the internal processes is not taken into
account within this literature.
Relationship value. Considering customer value
from the perspective of relationship marketing, or
relationship value, is the most recent develop-
ment in value research. However, as yet there is
limited theoretical and empirical work in this area
(Ravald and Grnroos, 1996).
Crosby, Evans and Cowles (1990), in their
study of relationship quality in services selling,
represent one of the first pieces of work in this
area. They highlight the need to understand the
elements of quality in a relationship. They sug-
gest addressing this by understanding the nature,
consequences and antecedents of relationship
quality as perceived by the customer in longer-
term relationships. This view acknowledges that
the creation and recognition of quality or value
in a relationship involves the customer as well as
the service organization.
Wilson and Jantrania (1993, 1994) were the first
reseachers to explicitly describe the dimensions
of relationship value; these include economic
dimensions (investments quality, value engineer-
ing, concurrent engineering and cost reduction,
strategic dimensions (core competencies, strategic
fit, time to market and goals) and behavioural
dimensions (social bonding, trust and culture).
They make the fundamental point that any
relationship creates some value to both partners
and how this value is shared is likely to be a major
issue in the life of the relationship. Tzokas and
Saren (1998) provide a useful overview of this and
other approaches to understanding value within
relationships, and conclude that further research
needs to be done in this area.
The relationship itself can also have a major im-
pact on the total value received by the customer
(Ravald and Grnroos, 1996). These authors
emphasize that in a relational context . . . value
for the customer is not embedded in a trans-
actional exchange of a product for money. Instead
customer perceived value is created and delivered
over time as the relationship develops (Grnroos,
1997). In a long-term buyerseller relationship they
suggest the need to look at total episode value
which they describe as a function of episode
value and relationship value in the following
equation:
episode benefits +
total episode value =
relationship benefits
episode sacrifice +
relationship sacrifice
They show that a poor episode value can be
balanced by a positive perception of the relation-
ship as a whole, so it is important for the supplier
to maintain a good relationship with the customer,
since this could make the customer more tolerant
towards occasional inferior performance. Any
relationship creates some value to both partners;
thus how this value is shared is also likely to be a
major issue in the life of the relationship.
Further work by Gummesson (1999) proposes a
number of fundamental values in relationship
marketing, the core value being the emphasis on
inter-party collaboration and the creation of mutual
value. This derives from other work on relationship
value and on the value constellation. Gummessons
concept of total relationship marketing empha-
sizes long-term win-win relationships with cus-
tomers, which transcend boundaries and disciplines.
Here, value is co-produced through the interaction
of a number of additional stakeholders including
suppliers, customers, competitors and others.
This stream of research is important because
understanding relationship value in long-term
relationships can have a critical impact if a com-
pany is taking a relationship marketing approach
to its customers. It differs from previous streams
of value research in that it acknowledges the on-
going interactions over time between a company
and its customers (for example, the augmented
product concept (Levitt, 1980) considers only a
discrete customer episode). No longer can value
be viewed as part of an individual transaction
process; value is created over time and will be
subject to changes and external influences, e.g.
other stakeholders. It also adds dynamism to the
value concept. However, research in this stream
is at an early stage of development. More con-
ceptual and empirical research needs to be under-
taken here and the role of and interaction between
different stakeholders needs further consideration.
One objective of this paper is to address this
gap by developing a conceptual framework for
relationship value management which integrates
key elements from the nine core streams of the
value literature within a multi-stakeholder context.
Relationship marketing: the role of
multiple stakeholders
Within the core streams of value literature
above, we have outlined how customer value and
shareholder value need to be considered together,
and also briefly discussed the role of employee
value. We have also suggested it is important to
recognize that customer value in the context of
relationship value is a dynamic concept; value is
created and changed over time as a result of
an ongoing series of transactions. However, we
consider that customer value, shareholder value,
employee value and relationship marketing
are closely related and form part of a broader
value process. In this section we consider the role
of multiple stakeholders. In the following section
we develop a framework for relationship value
management based on a relationship marketing
perspective which draws on concepts from the
nine core streams within the value literature.
Understanding long-term relationships with
both customer and other stakeholder groups
has been neglected in the mainstream marketing
literature (Christopher et al., 1991; Dwyer, Schurr
and Oh, 1987; Ford, 1990; Grnroos, 1994;
Gummesson, 1997; Hkansson, 1982; Morgan and
Hunt, 1994; Mller, 1992, 1994; Parvatiyar and
Sheth, 1997; Sheth and Parvatiyar, 1995). Man-
aging the organizations internal and external
relationships needs to become a central activity;
this central activity is relationship marketing
(Brookes, Brodie and Oliver, 1998). Hennig-
Thurau and Hansen (2000) also point out reasons
why competent management of relationships with
other stakeholders, in addition to customers, is
seen as necessary for economic profitability. These
researchers provide strong support for consider-
ing multiple stakeholders within the context of re-
lationship marketing. We consider that traditional
marketing approaches have not placed sufficient
emphasis on careful stakeholder management.
An exception is the approach to stakeholder man-
agement advocated within public relations (PR),
and referred to as publics by PR practitioners.
However, it has been argued that this approach is
weaker in rigour and relational emphasis than a
relationship marketing approach (Payne, 2000).
It is important to note that within the strategy
field there has been considerable work undertaken
on stakeholder management. Over the last fif-
teen years stakeholder theory has developed into
an important area (e.g. Campbell, 1997; Carroll,
1989; Donaldson and Preston, 1995; Freeman,
1984; Harrison and Freeman, 1999; Harrison
and St. John, 1996; Useem, 1996). However, within
the strategy field there is little agreement on
the scope of stakeholder theory (Harrison and
Freeman, 1999). In particular, there is consider-
able debate regarding the constituent groups
an organization should consider as stakeholders.
Argenti (1997) suggests an infinite number of
potential groups, whilst Freeman (1984) points
to excessive breadth in identification of stake-
holders. The insights from the strategy literature
on stakeholders have influenced the development
of multiple-stakeholder approaches in relation-
ship marketing. However, in contrast with the
strategy literature, the relationship marketing
literature on stakeholders has developed categor-
ization schemes of special relevance to the
consideration of value in the marketing context.
A number of researchers working in the re-
lationship marketing field have developed models
which propose the broadening of marketing to
include relationships with a number of stake-
holders or market domains. Gummesson (1999)
has provided a comparison of four of the best-
known approaches to classifying multiple stake-
holders, including those of: Christopher et al.
(1991), Gummesson (1994), Kotler (1992) and
Morgan and Hunt (1994). The first three of these
are concerned with the relationships which an
organization has with its traditional stakeholders.
The 30R approach of Gummesson (1994, 1995)
goes considerably beyond the coverage of this
paper in that it identifies relationships beyond
stakeholder relationships including ones not of
interest to us here such as the criminal network
relationship. The other three models have strong
similarities between them. The Christopher et al.
(1991) framework has six market domains which
are then divided into sub-markets, whilst that
of Kotler (1992) identifies ten specific players.
Morgan and Hunt (1994) suggest ten relationship
exchanges with four partnership groups. Other
similar models have also been proposed, includ-
ing the SCOPE model which identifies five key
stakeholder groups; customers, employees, partners,
suppliers and owners (Buttle, 1999). Like the six
markets model, SCOPE has the customer as the
central constituency of the model.
For the purpose of this article we have chosen
the six-markets model. This has been selected for
a number of reasons: it is arguably the most
comprehensive (of the three approaches that are
concerned with relationships with traditional stake-
holders) in that each of the six market domains
can be further subdivided in a manner which can
cover all major stakeholder groups (Peck et al.,
1999); it has been used successfully in projects
with over 50 organizations (Peck et al., 1999);
furthermore, of the models above, it has been
in existence the longest, is well known by
researchers in the relationship marketing area
and been used in a considerable number of
articles, conference papers and books.
Other models also exist within the field of
relationship marketing. Perhaps the best known
of these is the IMP research (e.g. Ford, 1990; Ford
et al., 1997; Hkansson, 1982). However, this work
is not central to this current paper for several
reasons. First, our interest is in organizations
in all sectors, including business-to-consumer and
business-to-business markets. As the IMP work
is solely concerned with business-to-business, this
approach is not directly applicable to all sectors.
Second, much of the network theory developed
by the IMP researchers is primarily concerned
with networks of companies and typically does
not focus on stakeholders such as shareholders.
Further, in this complex area of networks con-
ceptual development is in no way yet accomplished
(Hkansson and Snehota, 2000). Thus the IMP
research, whilst contributing greatly to our under-
standing of buyer-seller dyadic behaviour and
networks in the supply chain, is not considered an
appropriate conceptual model to use to review
the role of value in the context of multiple stake-
holders. The role of the IMP research is, however,
considered briefly in a later section dealing with
supplier relationships with the external stake-
holder group.
The six markets relationship marketing frame-
work (Christopher et al., 1991; Peck et al., 1999),
provides a useful framework to review the role of
an extended set of stakeholders in the creation
of total organizational value in both business-
to-consumer and business-to-business markets. It
proposes six key market domains, representing
groups which can contribute to an organizations
marketplace effectiveness. While customers are
viewed in this framework as a major stakeholder,
five other stakeholder groups, or market domains,
are identified; influence (including shareholder)
markets, recruitment markets, referral markets,
internal markets and supplier/alliance markets.
A later version of the model is shown in Figure 2.
Each market is made up of a number of key
participants. For example, the customer markets
are made up of buyers, intermediaries and
consumers, and influence markets are made up
from financial and investor groups, unions, indus-
try bodies, regulatory bodies, business press and
media, user and evaluator groups, environmental
groups, political and government agencies and
competitors. Companies need to manage all these
different sub-markets or stakeholders in the re-
lationship value-management process. This model
provides the key stakeholder groups represented
in the framework for relationship value manage-
ment, which is now developed.
Towards a framework for relationship
value management
We now develop a framework for relationship
value management. This conceptual framework
presents a strategic approach to managing an
organization in order to maximize value to cus-
tomers and the organization through the inte-
grated management of relevant stakeholders. We
commence with an overview of the framework
and outline how this comprises of a central value
process (derived from the value literature) and
three key stakeholder groups (derived from
the six markets model). Next, we explain in more
detail how the framework is developed with refer-
ence to the nine core streams of value literature.
Figure 2. The six markets model
Internal
markets
Supplier/
alliance
markets
Recruitment
markets
Influence
markets
Referral
markets
Customer
markets
Source: Peck et al. (1999)
Finally, we discuss integrative aspects and the
interdependencies within the framework.
Overview of the framework for relationship value
management
The framework for relationship value manage-
ment is shown in Figure 3. The framework has
two main elements; the central value process and
the surrounding stakeholder interaction processes.
At the centre of the model is the value process,
which is aimed at determining a total organizational
value proposition. This value process involves
four sequential value-based activities: value deter-
mination, value creation, value delivery and value
assessment.
The model also illustrates how the value
process has linkages with specific stakeholders.
Within the value relationship management frame-
work all the stakeholders in the six markets
model potentially have a role to play. All these
stakeholders are represented in the three circular
stakeholder groupings surrounding the central
key value process in Figure 3.
These groupings comprise customers, the
employees and external stakeholders of whom
shareholders are especially important in a publicly-
owned organization. Each of the six market
domains described above is represented within
the three groups including: customer markets and
referral markets (within the customer group);
internal markets and recruitment markets (within
the employee group) and influence, including
shareholders and supplier and alliance markets
(within the external stakeholder group). Each of
the three major stakeholder groups represents
opportunities for value creation and delivery.
In each of the three stakeholder groups in
Figure 3 there are a number of key value activities
which have been represented as three circular
Figure 3. A framework for relationship value management
Value
determination
Value
assessment
Value
creation
Value
delivery
The value
process
Customer
satisfaction
Customer
attraction
Customer
retention
Employee
recruitment
Employee
satisfaction
Employee
retention
Stakeholder
retention
Stakeholder
engagement
Stakeholder
satisfaction
Customers

Customer markets
Referral markets
Employees
Internal markets
Recruitment
markets
External
stakeholders
Shareholders
Other influence
markets
Supplier and
alliance markets
sub-processes. Within the customer group, these
key activities are customer attraction, measuring
customer satisfaction and ensuring customer
retention. Within the employee group, the key
activities are employee recruitment, employee
satisfaction and employee retention. The external
stakeholder activities involve stakeholder engage-
ment (engaging the right stakeholders, e.g.
investors and suppliers), stakeholder satisfaction
and stakeholder retention (retaining them and
ensuring that the needs of e.g. shareholders are
satisfied). Whilst most organizations will place
much of their emphasis on shareholders within
this group, it is important that other stakeholders
including influence markets, particularly for the
not-for-profit sector, and supplier and alliance
markets are managed in a way that ensures they
are also part of the whole value process.
The value process and the three key stakeholder
groupings: links with the value literature
Each of the nine core value streams discussed
in the literature review underpins one or more
elements within the framework. Although some
of the links are obvious, some are less so. In this
and the next section we elaborate in greater detail
on how this literature informs, supports and pro-
vides a rationale for the framework for relation-
ship value management and the integrative aspects
of the framework.
The four activities of the central value process
have their roots in the value literature discussed
earlier in this paper. In particular, the value
process builds on the value delivery sequence of
Bower and Garda (1985a) of choose the value,
provide the value and communicate the value.
We consider there are subtle, but important dis-
tinctions in the four-step process represented in
our framework. First, the value-delivery sequence
does not place sufficient emphasis on value from
the viewpoint of the customer; it places greater
emphasis on the viewpoint of the organization.
Second, we argue that value determination (com-
pared with choose the value) involves a much
more rigorous understanding of both what the
customer values as well as the customers lifetime
value to the firm. Third, there is no value assess-
ment activity within the value-delivery sequence.
We consider this step is critical in providing
measurement and feedback on customer-perceived
value. This latter point is also emphasized by
Burns and Woodruff (1992), who also argue for
the need to assess the delivered value. Finally,
models such as the value delivery sequence place
little emphasis on other stakeholders. In contrast,
the value process in the framework emphasizes the
broader perspective of relationship value which
also relates to employees and to other external
stakeholders, as well as to customers.
The four value activities in the central value
process and each of the three circular sub-
processes are informed by the literature discussed
earlier in the paper. A number of streams
underpin value determination. This activity can
be undertaken, for example, by using a formal
customer-perceived value determination approach
such as those suggested by Woodruff and Gardial
(1996). In terms of determining consumer values,
it will be important to identify and understand the
values and beliefs that are motivating customers
to buy products and services (e.g. Kahle, 1983;
Mitchell, 1983). In determining consumer value, it
will be important to identify what is driving the
customer when they are trading off the benefits
and sacrifices, both when they are purchasing
and when they are using or consuming products.
Equally, the work of Levitt (1981) on the aug-
mented product concept and its extension by
Lovelock (1995), provides insights into the cluster
of value expectations that surround a product or
service which have both a tangible and intangible
component. Identifying and understanding what
these value expectations are will form a critical
part of value determination.
Value determination is equally important for
the employees and external stakeholder groups.
For the employee group, value determination
involves understanding what attracts, retains and
satisfies employees. Although relatively little has
been written regarding the concept of employee
value (exceptions are some work on labour value
theories and internal service climate discussed
earlier in the paper and a brief discussion by
Dolmat-Connell, 1999), much work deals with spe-
cific aspects of what employees value. For example,
it has been shown that getting the psychological
contract right with employees is important. (e.g.
Rousseau, 1989). Further empirical research high-
lights the importance of employee retention and
the costs of employee defection (e.g Sheridan,
1992). Some organizations are particularly inno-
vative in examining value determination from the
perspective of understanding what prospective
employees want and how they are recruited in-
cluding holding focus groups with targetted groups
of prospects (Peck et al., 1999). For external
stakeholders, such as shareholders, value deter-
mination involves identifying factors such as:
what will make them invest, what will make them
continue to invest and what returns do they
expect. Understanding the issue of what value
determination means for shareholders is especi-
ally important, especially where there are low
levels of shareholder retention. Reichheld (1996)
points out that shareholder churn in the average
US public company is greater than 50% per
annum, and emphasizes the importance of
improving shareholder retention.
The value creation activity involves developing
and aligning the companys products/services
(including its processes and employees) to meet
the requirements identified at the value deter-
mination stage. Concepts such as the augmented
product concept (Levitt, 1980) and the various
value chain models (e.g. Bower and Garda, 1985b;
Porter, 1985) underpin this stage of the value
process. The value chain stream of literature
provides a structure for understanding how the
companys value-adding activities can be system-
atically organized to create value, with the earlier
steps in the value chain concerned with con-
figuring the organizations offer to the customer,
and the latter steps concerned with value delivery.
In determining what value-creating activities
should take place, it is likely that an organization
will need to make an assessment of the customers
value to the firm. This stream of literature helps
understand which customers are profitable and/or
have a significant CLV. These should be the focus
of bespoke value offerings. The creation of these
offerings should also be designed to retain exist-
ing customers as well as attracting new ones.
Value creation also needs to be considered in the
context of employees and external stakeholders.
Value creation for employees needs to be con-
sidered from two perspectives the value em-
ployees create for the organization, and the value
the organization creates for employees. In creat-
ing value for employees, there is evidence that
supportive human resources practices have bene-
ficial results on employee satisfaction and perform-
ance (e.g. Hallowell, Schlesinger and Zornitsky,
1996). Similarly, value creation for external stake-
holders also needs to be considered from two
perspectives the value these stakeholders create
for the organization, and the value the organization
creates for stakeholders (e.g Reichheld, 1996).
For the value delivery activity, the value-chain
literature also provides a framework for con-
sidering the connection between the organization
and the customer. In particular, a consideration of
the interaction between the organizations value
chain and the customers value chain helps inform
decisions about the value delivery process. The
work of Normann and Ramrez (1993) also under-
pins the need for value delivery with the non-
customer stakeholders, such as employees and
shareholders. For employees, the creating and
delivering superior customer value literature
stream stresses the importance of their role in
value delivery, especially in the work on internal
marketing (e.g. Grnroos, 1985; Gummesson,
1987). For external stakeholders such as share-
holders, the literature on shareholder value under-
lines the importance of concentrating resources in
order to deliver value for external stakeholders,
particularly shareholders.
Finally, the value assessment stage for the
customer is underpinned by the customer satis-
faction and service quality literature stream. This
assessment stage can be facilitated by utilising
multi-attribute tools and models such as customer
satisfaction surveys or service quality measures
(e.g. Parasuraman et al., 1985, 1988, 1991). Work
on the PIMS project (Buzzell and Gale, 1987) is
also important, as it provides empirical evidence
as to how many factors, including relative product
and service quality impact on return on invest-
ment, thus providing a further means of value
assessment in rigorous financial terms as opposed
to the more subjective CSM and service quality
measures.
While the value literature to date has largely
ignored the notion of employee value (except in
the work noted above), work has been done on
employee satisfaction and performance measures
(for a meta-analysis see Petty, McGee and
Canender, 1984). Like customer satisfaction
measures, these can be used to feed back into the
value determination part of the process. It is also
important to assess the value of employees to
the firm. Employees tend to perceive behaviour-
based evaluation as a more reliable indicator of
value delivered (e.g Anderson and Oliver, 1997).
Value assessment for employees is closely linked
to employee retention. Employees of long tenure
are more likely to know their jobs and the goals of
the organization and thus be more productive.
This view is supported by empirical evidence, for
example see Sheridan (1992).
A similar process needs to be adopted for
relevant external stakeholders. Within the ex-
ternal stakeholders group, shareholders have
received a high level of attention in the literature.
This is not surprising given their high profile and
the extent to which they influence organizational
activities. As discussed earlier, the shareholder-
value literature emphasizes methods for assessing
the value the organization is delivering to share-
holders; but relatively little emphasis is placed on
the value shareholders deliver to the organization
(for an exception see Reichheld, 1996). However,
other external stakeholders can also have critical
roles to play. For example, the interaction be-
tween a company and its suppliers may be critical.
The IMP research has particular relevance here in
terms of an organizations relationship with its
suppliers and other key alliance partners.
The results from this value assessment activity,
which should also involve an assessment of the
value of the customer to the firm after the value
delivery activity, can then be fed back into the in-
itial stage where value determination is reassessed.
Thus the value process is dynamic and iterative.
Integrative aspects of the framework
Two core literature streams of customer value and
shareholder value and relationship value point to
the integrative aspects of the framework, especi-
ally in terms of the three stakeholder groups.
These stakeholder groups are shown as separate
sub-processes in the framework, but they are
highly interdependent in the value process.
Research on the links between customer value
and shareholder value emphasizes the interdepend-
ence of these two key stakeholders; however, this
stream of research does not emphasize the im-
portance of the other stakeholders. The emerging
work on relationship value considers value firmly
from the perspective of relationship marketing,
thus supporting the need for value to be addressed
with all key stakeholders a holistic approach to
value management.
The relationship value literature also explicitly
recognizes the impact of the ongoing relationship
itself, through a series of customersupplier inter-
actions (e.g. Grnroos, 1997; Sheth and Parvatiyar,
1995). As such it provides further support for the
need to develop an integrated approach to the
value management process within a relationship
marketing context. The whole notion of CLV,
encompassed in the customers value to the firm,
also reinforces the need for an ongoing relation-
ship approach to managing value.
The value literature, to date, has not empha-
sized this holistic approach to value management,
although elements of the value literature do show
approaches to value that link some of the three
key stakeholder groups in Figure 3. For example,
the customer-value and shareholder-value lit-
erature emphasizes these links and the internal
marketing literature describes (but does not
measure) how positive employee behaviour can
improve customer value. In 1993, Rust and
Zahorik concluded there exists no published
studies which have examined the entire chain of
stakeholders. However, since then there have
been some attempts to start to understand such
relationships. There is now an emerging body of
work that explores the linkages between different
stakeholders, including customers and employees.
Much of this work is concerned with developing
linkages between employee satisfaction and
customer satisfaction and customer retention and
employee retention, and how these impact on
shareholder value (e.g. Heskett et al., 1994, 1997;
Rucci, Kirn and Quinn, 1998).
Work in the services marketing literature
suggests that three key stakeholders are closely
linked. Research undertaken, on what is now
known as the service-profit chain model, focuses
on establishing the relationships between em-
ployee satisfaction, customer loyalty, profitability
and shareholder value (e.g. Heskett et al., 1994;
Loveman, 1998; Loveman and Heskett, 1999).
The model has been empirically tested in a num-
ber of industries (see Heskett et al., 1997). This
work supports the relationship value management
framework in terms of three key stakeholders:
employees, customers and shareholders. Related
work by Reichheld (1996) also identifies the
interdependence of customers, employees and
shareholders. Unlike the service-profit chain
research, Reichheld points out that other stake-
holders can have a major role to play. However,
he emphasizes it is these three that are central to
achieving success. More recently, Rucci et al.
(1998) have taken the service-profit chain model
(Heskett et al., 1994) and empirically tested
it within a US retailer, Sears, Roebuck and
Company. In contrast to the service-profit chain
research which measures correlations, this
research uses causal path modelling to better
understand cause and effect within the chain.
Thus the framework for relationship value
management described above draws from each of
the nine core streams of value literature. It also
draws on parts of the relationship marketing and
services marketing literatures and emphasizes the
importance of integration amongst the key ele-
ments within the framework. Having explained
the framework, we now discuss some implications
of our work and opportunities for future research.
Discussion and future research
An extensive review of the literature has shown
the concept of value has its roots in many dis-
ciplines including psychology, social psychology,
economics, management and marketing. This
review also confirms how many of the concepts
overlap to some degree with a blurring of distinc-
tions across different forms of value. However,
in spite of continued and increasing interest
from researchers and practitioners in this area,
the growing body of knowledge on customer
value has been fragmented, with different points
of view and no widely-accepted way of pulling the
views together (Woodruff, 1997).
We identified a number of implications from
this review of the literature, which included:
(1) value is a broader topic than generally
recognized in the value literature;
(2) there is a need to develop a conceptual
framework which integrates the existing
streams of value research in a more coherent
manner;
(3) a relationship marketing perspective and
a multiple stakeholder approach would be
beneficial in considering value integration
and developing such a framework;
(4) value measurement, in this broader context
is likely to develop into an important area of
future work.
As a result, we have developed a conceptual
framework for relationship value management
aimed at integrating the value process with
the multiple-stakeholder concept in relationship
marketing. We view the principal benefit of this
framework as being that it provides an integrated
strategic approach to relationship value manage-
ment. The need for a strategic approach has been
emphasized by Normann and Ramrez (1993)
who point out the importance of value creation
as part of the strategic process: Strategy is the art
of creating value. It provides the intellectual
frameworks, conceptual models and governing
ideas that allow a companys managers to identify
opportunities for bringing value to customers and
for delivering that value at a profit. This paper
presents a first attempt in providing such a
framework. Furthermore, the framework helps
understand value in the context of multiple
stakeholders. This adds a dynamic element to
the existing value concepts. No longer should
value creation be viewed just as part of an indi-
vidual customer transaction; value will be created
over time and will be subject to the influences
of other external and internal stakeholders.
Gummesson (1999) has argued that the creation
of mutual value will become the core focus of
both customers and suppliers and other stake-
holders in the relationship so that value is jointly
created between all the parties involved in a
relationship.
Ideas around the convergence and integration
of value concepts and relationship marketing into
what we term relationship value management
are still at an evolutionary stage. We believe that
over the next few years this will be an area of
increasing interest. Given the nature of value
and relationship value as concepts, there exist a
number of opportunities for future research; five
of these are identified.
First, within the individual value streams there
is a need for more empirical research. At present
empirical work is not evenly developed across
the nine core streams of literature we explored.
For example, the amount of empirical research
undertaken within the customer satisfaction and
service quality stream, especially in the work on
SERVQUAL and PIMS, is considerable. This
highlights how empirical research could further
develop a number of the other value streams.
Second, the importance of all relevant stake-
holders needs to be considered. In particular, the
concept of employee value needs further develop-
ment. We have outlined above the considerable
amount of work that has been undertaken in
the areas of customer value and shareholder
value. Work needs to be undertaken to identify
the core elements of employee value from two
perspectives: the value of the employees to the
organization as well as the value the organization
delivers to employees. Such work should build
upon the internal marketing literature and early
work done on the value of employees by Reichheld
(1996). Equally, the role of other external stake-
holders such as suppliers and alliance partners
and influence markets needs to be explored.
Third, further empirical research is needed to
identify the relationships and linkages between
multiple stakeholders. In particular, the linkages
between employee, customer and shareholder
value need to be developed further. Although
some progress has recently been made through
the service-profit chain research, much of the work
to date has been based on correlation analysis
without considerations of causality (with the ex-
ception of Rucci et al., 1998). Much work remains
to be done in exploring causal relationships
and understanding differences across a range of
industries. This area represents a key opportunity
for the development of more sophisticated value
measures.
Fourth, further conceptual development and
testing of the framework for relationship value
management is required. The framework repre-
sents a first step in providing an integrative
approach. In the future, it could be tested and
refined by applying the framework using a num-
ber of organizations as case studies.
Finally, more work needs to be done in the
whole area of measurement and development of
metrics around the value process, including the
further development of specific tools for value
measurement for each activity in the value pro-
cess. Although some measurement systems such
as customer satisfaction and service quality already
exist, a key aspect will be the development of a
comprehensive integrated set of measures across
the whole value process. We view this as one of
the most important areas for future research.
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Introduction

Creating value, and more specifically, customer

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