Service-dominant logic and value propositions: Re-examining our mental models

Transcription

1 Service-dominant logic and value propositions: Re-examining our mental models Otago Forum 2 (2008) Academic Papers Paper no: 5 David Ballantyne University of Otago, New Zealand dballantyne@business.otago.ac.nz Richard J. Varey Waikato Management School, New Zealand varey@mngt.waikato.ac.nz Pennie Frow University of Sydney, Australia p.frow@econ.usyd.edu.au Adrian Payne University of New South Wales, Australia a.payne@unsw.edu.au

2 Otago Forum 2: Academic Papers Service-dominant logic and value propositions: Re-examining our mental models Abstract The aim of this paper is to examine the functioning of value propositions, seen through a service-dominant logic (S-D) lens. We argue that value propositions, when reframed within the S-D logic as reciprocal promises of value, support relationship development, knowledge renewal and dialogical communication between participants. First, some basic mental models associated with marketing exchange are examined, and the market behaviour of initiators and participants highlighted. Next, the various perspectives used to understand value propositions are examined, from unidirectional offers to reciprocal promises of value. We then argue that marketing interactions when framed within service cycles show the potential for supplier involvement beyond sale/purchase transactions to include value-in-use assessments and the value propositions that initiated them. Also, the use of the six markets stakeholder model (Payne et al 2005) is demonstrated as a means of extending the reach of reciprocal value propositions. Finally, we show with case examples that reciprocal value propositions are appropriate to initiate resource integration processes between firms, or across a network of firm stakeholders. Introduction Goods-dominant (G-D) marketing logic has historically limited the scope for business interaction and the co-creation of value (Vargo and Lusch 2004). The emphasis on transaction-specific exchanges, associated with the managerial marketing mix, also puts limits on the potential for creating customer loyalty over time, and on understanding the lifetime value of the customer (see for example Grönroos 1994). The rigidity of this dominant logic has led to reformist agendas sometimes breaking free and attempting to develop their own logic, such as services marketing (Shostack 1977), market orientation (Narver and Slater 1990; Kohli and Jaworski 1990) and relationship marketing (Berry 1983; Christopher, Payne and Ballantyne, 1991, Grönroos 1994, Gummesson 2002, Sheth and Parvatiyar 1995). Relationship marketing is arguably the most significant of these reformist agendas over the past 20 years. It took hold slowly, first in services industries (Grönroos 1983; Gummesson 1987). Also Jackson (1985) made an important distinction between transactional and relationship orientations in business markets. The relational interdependencies between firms also became evident (see for example Dwyer, Schurr and Oh 1987; Anderson and Narus 1990). Also a community of relationship oriented scholars grew up around the largely European-based Industrial Marketing and Purchasing (IMP) group (see for example, Ford 1990; Axelsson and Easton 1992; Håkansson and Snehota 1995). Yet the significance of these contributions and departures from mainstream marketing logic is still not widely recognised in student marketing texts. 42

3 Service-dominant logic and value propositions: Re-examining our mental models David Ballantyne, Richard Varey, Pennie Frow, Adrian Payne The service-dominant (S-D) logic of marketing is also a reformist agenda. It argues that customers participate in the co-creation of value, which they assess through service experiences gained in the co-sharing and integrating of resources with suppliers, especially skills and knowledge. Rather than firms marketing to customers, emphasis is placed on suppliers or other parties marketing with customers, as part of an interactive process. It follows that marketing is not producer-dominant or even customer-dominant but service-dominant. The customer is the arbiter of value cocreated in direct interaction with suppliers, and most importantly, the arbiter of valuein-use derived from interaction with goods and other physical resources purchased. In other words, goods and physical (operand) resources are seen as service appliances, distribution mechanisms for service, and their value is determined at the time of use, as value-in-use (Lusch and Vargo 2006a,b); Vargo and Lusch 2004, 2008a,b). The controversial aspect of this agenda is that service becomes the basis of all marketing activity, involving reciprocal giving and receiving, across time and place. S-D logic draws on ideas from earlier phases in the development of marketing thought, for example, Nordic School service management thinking (compare Grönroos 1983 and 2006), value constellations (Normann and Ramirez 1993), and strategic approaches to knowledge and value co-creation (Wikström et al 1994; also Ramirez 1999). However, S-D logic has brought disparate parts of marketing logic together in a new configuration. What becomes clear is that value is co-created indirectly through interaction with goods in their use, as well as through direct interaction between suppliers, customers and other parties. Vargo and Lusch suggest that their service-dominant thesis is not a theory but a work in progress, intended as a basis for evolving a marketing logic in all industry and consumer contexts (Vargo and Lusch 2006; Vargo 2007). This presents a challenge to the mainstream goods-dominant logic. For example, mainstream logic explains service(s) as intangible goods. This means that the role of services is to gap-fill what cannot be done by tangible goods. Drawing on earlier traditions and meanings of service, S-D logic says that service is the effort required to satisfy another s need, or to bring about an improvement in some thing or condition. There is nothing intangible about this. Further, through interaction, the experience of service is the basis for derived value, or value-in-use, whether that value is derived from goods, or from direct interaction with another party. On this point S-D logic follows an earlier marketing tradition (Alderson 1957) that posits that value is not derived from acquisition. At this stage in the development of S-D logic, fuzzy definitional problems remain associated with many of the terms used. Through time and use, common marketing definitions and ideas become category-bound and there is a need to reflect on words used and clarify their meanings. The term value proposition is a case in point and the underlying concept is the central issue for discussion in this paper. A value proposition is usually taken to mean the marketing offer or value promise initiated by one party with the intent that it be accepted by another. On the face of it, this definition seems reasonable in a mainstream marketing context but in S-D logic with its emphasis on interaction and service reciprocity, we argue that something of potential use is being misconstrued. In the shift from a unidirectional and monological logic to participative and reciprocal logic, the meanings of words matter. As Polanyi (1966) has said, words point to things. 43

4 Otago Forum 2: Academic Papers The aim of this paper is to examine the functioning of value propositions seen through an S-D logic lens. We will argue that a recalibration of the concept of value propositions is needed to reflect the contemporary industrial marketing practice of initiating and responding to value propositions, and to encompass the possibility of their co-creation within a broader relational context. The structure of the paper is as follows: Some basic mental models of marketing exchange are examined, and the market behaviour of initiators and participants highlighted The various perspectives used to understand value propositions are examined, from unidirectional offers to reciprocal promises of value Marketing interactions when framed within service cycles show the potential for supplier involvement beyond sale/purchase transactions to include valuein-use assessments and the value propositions that initiated them The use of the six markets stakeholder model (Payne et al 2005) is demonstrated as a means of extending the reach of reciprocal value propositions Finally, we show with case examples that reciprocal value propositions are appropriate to initiate resource integration processes between firms, or across a network of firm stakeholders. Marketing exchange mental models A mental model means shared assumptions that are seldom questioned. We highlight three that seem in various degrees to create barriers to making clear empirical observations of business practice. First, we affirm the diversity of exchange markets as spaces and places for interaction. Markets defined as places where the actors are geographically proximate coexist with markets that are spaces defined fluidly and globally, such as telephone calls or conversations connecting disparate places, or internet interactions in digital space. Recognising that the domain of proximate market actors extends beyond fixed physical places to include technology connected global spaces is the first mental model correction needed in our exploration of the functioning of value propositions. Of course the shift in this mental model has been under way for some time. Second, if interaction is seen as the basis of all business activity (Ford 2004), we can go one step further and say that interaction is the enactment of exchange (Ballantyne and Varey 2006, p.336). The time-logic of exchange is open ended, from pre-sale service to post-sale service and beyond. For example, direct service interaction may support and enhance the value of goods in use, continuing over time as relationships evolve. Seeing interaction this way also means that transactions are one important kind of interaction within a service system. This time-logic includes various search activities initiated by upstream buyers, purchase negotiations with suppliers, 44

5 Service-dominant logic and value propositions: Re-examining our mental models David Ballantyne, Richard Varey, Pennie Frow, Adrian Payne downstream distribution and after-sale service support activities. In other words, an end customer s value-in-use assessment is the culmination of a time-series of value propositions, negotiated agreements and value-in-use determinations by various resource providers and integrators. Opening up the time-logic of exchange to include a variety of interactions is the second mental model correction needed in our exploration of the functioning of value propositions. Third, there is no active market space or place without buyers and so it follows that marketing is never just what sellers do. Marketing has become so attached to seller dominant managerial perspectives that we easily forget that a market is shared space for sellers, buyers, facilitators and other stakeholders. Oddly enough, industrial marketing practice readily recognises that the purchaser or the seller may take the initiative in developing and making a value proposition, or indeed another associated party. However, mainstream marketing logic assumes that the seller is proactive in the market. As a necessary corrective, we introduce two commonsense terms familiar in Information Science, namely initiators and participants. That is, there are both initiators and participants in any market encounter. For example, a market encounter may start with an enquiry which is countered with a value proposition, or it may be the other way around. It is unduly restrictive of innovation to say that only a seller will initiate an enquiry or a value proposition. That initiator and participant roles are routinely interchangeable in practice is the third mental model correction needed in our exploration of the functioning of value propositions. In sum, we argue that the place, time and who is involved aspects of common mainstream mental models (shared assumptions) need updating to align with what we see as a commonsense understanding of market exchange. If this is agreed, or even taken on provisionally, we will be in a position to review what is meant by value proposition. Value proposition perspectives The genesis of the concept can be traced to a value delivery system project undertaken by consulting firm McKinsey & Co. in the 1980s. However, only brief mention was made of the concept in the business literature of the time (Bower and Garda 1985). It was not until 1988 that a more complete description of the value proposition, as well as the related work on the value delivery system, was published in an internal McKinsey Staff Paper (Lanning and Michaels 1988). They consider that business success is constrained by companies adopting a traditional production-led approach (in today's terminology a goods-dominant logic approach) that focuses on making a product and selling a product. They argue that, rather than adopting the supplieroriented approach inherent in Porter's (1985) value chain, companies need to adopt a customer value oriented approach. This involves focusing on two things: developing a value proposition and creating a value delivery system. Their value proposition approach involves three processes: analyzing and segmenting markets by attributes that customers value; assessing opportunities in each segment to deliver superior value; and, explicitly choosing the value proposition that optimizes these opportunities. The McKinsey Value Delivery System framework (Figure 1) identifies how a business might choose, provide and communicate profitably the chosen value proposition. Lanning and Michaels (1988) emphasise that achieving 45

6 Otago Forum 2: Academic Papers competitive success is not only dependent upon choosing the right value proposition, but is also based on how thoroughly and innovatively it is delivered and communicated. Figure 1: McKinsey & Co s Value Delivery System Model Choose the value Provide the value Communicate the value Customer value needs Value positioning Product development Service development Pricing Sourcing, making Distributing, servicing Sales force message Advertising Sales PR, etc. promotion Message & media Source: Based on Lanning and Michaels (1988) Interest in the value proposition concept increased following publication of a popular managerial text by Treacy and Wiersma (1995) who saw a value proposition as: An implicit promise a company makes to customers to deliver a particular combination of values - price, quality, performance, selection, convenience, and so on. However their positioning for value propositions is strategic but clearly generic they suggest companies should pursue strategies for achieving best total cost (operational excellence), best product (product leadership), or best total solution (sustained customer intimacy ). Other authors also describe the value proposition concept from the perspective of an organization (e.g., Kaplan and Norton 2001). Anderson et al. (2006) suggest that organisations typically adopt one of three approaches to developing value propositions: All benefits (identifying benefits a company can deliver to customers), favourable points of difference (identifying benefits relative to those delivered by key competitors) and resonating focus (key benefits valued by chosen customers that are delivered or potentially could be delivered). These authors contend that the third approach is preferable. A recent review of the literature on value propositions was conducted by Frow and Payne (2008) with groups of managers attending five executive events on three continents. A total of 265 senior and mid-level managers participated in this study, representing over 200 large and medium-sized companies. Two questions were addressed: first, Is the term value proposition one that is in regular use within your organization? and second, If so, is the term just used in a general sense without specific meaning attached to it, or is there a structured underlying process resulting in a clearly articulated written customer value proposition within your organisation?. On average, the term was used within 65% of the organisations. However, only 8%, of those who were using the term stated that they had a formal process for developing written value propositions and communicating them within their organisation. The results from the Frow and Payne (2008) survey suggest that the term value proposition is used most commonly to indicate only that value offered to the customer is important. This supports Anderson et al. s (2006) view that the term is widely used within businesses but it also endorses Lanning s (2003) contention that: The term value proposition is frequently tossed about casually and applied in 46

7 Service-dominant logic and value propositions: Re-examining our mental models David Ballantyne, Richard Varey, Pennie Frow, Adrian Payne trivial fashion, rather than used in a more strategic, rigorous and actionable manner. One possible explanation for this is that, up until the late 1990s, detailed descriptions of the value proposition approach only appeared in client white papers or internal staff papers of consulting firms. Notwithstanding, our examination of the literature does permit some general observations, and to identify some new perspectives: The early literature understood value propositions as deliverable value offering to customers (Bower and Garda 1985). Hence this value proposition perspective involves a marketing offer or promise initiated and communicated by one party to another, offering something of value to a customer, with the intent that it be accepted by the customer. This is on the face of it customer oriented but it is also a unidirectional value proposition, framed as an offer or promise. This view is arguably associated with a good-dominant (G-D) logic and production orientation. Second, the concept became more prominent following the work of Treacy and Wiersema (1995), who argued that market place success is strongly influenced by the kind of generic value proposition that companies pursue. Taking a resource based view, Day (2006), also outlines three generic value propositions for achieving market advantage, namely, price value, performance value and relational value. This view of the meaning of value proposition is clearly owes something to Porter s generic strategies (1985), updated to reflect a more relationally oriented concern with keeping contact with customers. Third, the literature on value propositions is largely about customer value propositions but there are exceptions. The importance of internal markets and internal marketing to employees has been emphasized by a number of researchers, usually in the context of services marketing and relationship marketing (e.g., Varey 1995, Varey and Lewis 2000; Ballantyne 1997). Some authors also propose strategic planning frameworks that bring to light interrelationships between the focal firm and its stakeholders, and this information is used as an aid to developing value propositions in both external and internal market domains (Christopher, Payne and Ballantyne 2002; Payne et al 2005). Relationships with key stakeholders are enhanced through the implementation of value-based strategies enacted through value propositions and value creation and relationship development become highly integrated. However in these perspectives, the initiative for developing value propositions rests implicitly with the suppler. Fourth, business-to-business relationships support an increasingly complex set of demand and supply tensions in value chains and global networks. Flint and Mentzer (2006) examined the impact of S-D logic thinking on account managers working in integrated supply chains. They report that value propositions are co-produced but seldom pre-packaged by the supplier. Instead, suppliers and customers engage in dialogue and work with emergent components of value propositions, which are then considered and modified to the satisfaction of both parties (p. 142). 47

8 Otago Forum 2: Academic Papers Fifth, the concept of reciprocal value propositions represents a more recent area for development. Glaser (2006) claims that if participants in the value creating process recognise that their objectives are complementary, rather than antagonistic, and carry this idea into the process of negotiating then the value outcomes for all parties are likely to be enhanced. Value in this sense is not a strategy or a set of customer benefits proposed in exchange for a monetary price but an all inclusive reckoning, where negotiation is the path by which participants share in the creation of value (Glaser, p. 446). In similar spirit, Ballantyne and Varey (2006) point out that there can be no satisfactory relationship development unless exchange participants reciprocally determine their own sense of what is of value, and begin this process with the development of reciprocal value propositions. The orientation for use of the term value proposition ranges from emphasising precalculated customer value and the crafting of generic firm-level strategies, to covering broader market stakeholder constituents as well as those in customer markets. Also from unidirectional propositions on the one hand to reciprocal value propositions on the other, with potential for application within integrated supply chains or stakeholder networks. Despite some acknowledgement of customer orientation in the development of value propositions (Lanning 1998), vestiges of goods-dominant logic remain, given the emphasis of much of the work on the delivery of value, rather than co-creation of value. Returning to our marketing exchange mental models, discussed earlier, the time-logic of exchange has profound implications for the framing of key account strategies. What might be uniquely valuable propositions to a counterpart can be crafted in advance by any initiator. These propositions might be accepted as a starting point for negotiation, or as a basis for working together over a longer term to create mutual benefits or cost savings. Under this marketing logic, value propositions can be crafted as provisional promises of reciprocal value, and if the parties involved wish it, cocreated or co-evolved further over time, with value being determined later, in use. Analysing reciprocal value propositions within S-D logic To date the use of the term value proposition in the S-D logic literature has not been adequately developed. Despite value propositions forming a central foundational premise of S-D logic, there has been little settling of ideas within the fairly substantial literature that has developed since the first set of fundamental premises (Vargo and Lusch 2004). The relevant fundamental premise, FP 7 (Vargo and Lusch 2004), reads: The enterprise can only make [or offer] value propositions Clearly an enterprise can and does take on many activities other than this. The only meaning possible is that one party cannot deliver value to another, since it is the beneficiary who determines what is of value. In a recent article, Lusch (2007, p. 265) explains: Value is perceived and determined by the consumer on the basis of value in use. Consequently, firms cannot add value but can only offer value propositions. In other words, value is not added (or deliverable) but assessed by someone other than 48

9 Service-dominant logic and value propositions: Re-examining our mental models David Ballantyne, Richard Varey, Pennie Frow, Adrian Payne the initiator of the value proposition. So the sense we draw from FP 7 is that value propositions are offers that an enterprise can uniquely initiate without external cocreation. We suggest that a less ambiguous rendering of FP 7 would be that: The enterprise can initiate value propositions but only the beneficiary can determines what is of value, in use. In other words, the designation only clearly should not apply to enterprises as such but it does apply to beneficiaries. It is not often expressed this way but one value proposition is always implicitly or explicitly offered for another. Participants are enjoined in exchange through offer and consideration or there is no purchase or sale. Logically, the participants offer and consideration must come together as a reciprocal value proposition before any sale agreement. Of course, in consumer markets, this distinction is ignored in simple goods for cash transactions. However, additional insight is derived from Lusch et al (2007) who comment that price as an exchange mechanism is replaced with a value proposition created by both sides of the exchange. Participants may choose to work together to create a value proposition. Working together may require significant resource inputs from participants but we suggest that the risk of misunderstanding or later default is reduced in working together. So we propose a refinement of FP 7 as follows: The enterprise can initiate or participate in working together to develop value propositions as reciprocal promises of value - but the beneficiaries determine what is of value in use. This premise as reformulated puts attention on value propositions as reciprocal promises. The first-mover initiative might rest with a supplier, buyer or other stakeholder according to the circumstances. Clearly intent is important in co-creating or co-producing value as is transparency as to who will be the beneficiaries of the benefits (or reduced costs) that follow. We also recognise that the assessment of what is of value may change according to the risk profile of the evaluator. This means that a value proposition includes the estimated value-in-use (adjusted for risk) of any goods to be exchanged. A negotiated or co-created agreement may eventuate after some depth of dialogical interaction (Ballantyne, 2004; Payne, Ballantyne and Christopher, 2005). Following Vargo and Lusch (2004), we take the view that value-in-use is the determination of value by the beneficiary. In the context of industrial marketing this is usually a post sale assessment, part of a continuing evaluative process within a buyerseller relationship. Thus we see the value assessment as episodic, comprising communicative interaction and knowledge sharing prior to sale and post-sale, as well as assessments of value-in-use provided by any goods component of that value assessment. Furthermore, what is made clear from this reformulation is that participants value assessments begin with their assessment of the value proposition. Any direct interaction involved in working together to create or negotiate a value proposition is itself an episode in the process of co-creating value. Put another way, the outcome of a value proposition is value-in use, but the process of achieving the agreed value proposition may be assessed to be of unique value in itself. 49

10 Otago Forum 2: Academic Papers Process and outcome value Service interactions potentially generate value-able experience for participants in interaction, as well as value-able outcomes. Thus value is something at first promised (a provisional value), then later judged as value-in-use. We see this occurring in two forms: Service process value, which is the value of the direct interaction experienced by a participant Service outcome value, which is the value of goods experienced in use, and because physical goods are a store of potential value, this is a whole life of asset assessment These value distinctions follow the schema proposed by Grönroos (1983/4) for service quality management. In the form presented here, they seem entirely appropriate for use in any industrial setting where service logic is dominant. S-D logic forces us to recognise the discipline bounded nature of some key marketing definitions and ideas but the early Grönroos model highlights the importance of sustaining relationships with valuable customers, not only by delivering on promises made during the sale, but by focusing on the quality of the customer s interactive experience with the supplier before and after the sale. Service cycles Researchers of the Industrial Marketing and Purchasing Group (IMP) tend to use the term interaction to indicate that sales and purchase transactions are only some of a range of possible marketing and purchasing interactions within a business relationship, or by extension, within networks of relationships (see for example, Axelsson and Easton, 1992). Grönroos (1990) discussed the behavioural aspects of customer-supplier interactions as moments of truth (Normann 1992), or as critical incidents which managers can track and map within what Albrecht (1990) called the service cycle, also referred to as customer activity cycles in Vandermerwe (1993). This interactive service cycle perspective is a common platform for services marketers, who have tended to classify various kinds of interaction into sequences of episodes which contain various service acts (Liljjander and Strandvik (1995). It is perfectly feasible for a firm to map out routine but key customer contact points and work to improve them. Understanding something about the experience of a customer through past sequences of episodes of interaction with a supplier can help explain the state of a relationship as it exists at a particular point in time. These perspectives on service interaction are not bound to services marketing but can apply to all risk points assessments with an industrial setting. This is because the mapping method emphasises various customer and supplier interactions sequentially, and time-based episodic periods can be applied to critique these behaviours. Once a firm understands the nature of the interactions that are for example of customer value, 50

11 Service-dominant logic and value propositions: Re-examining our mental models David Ballantyne, Richard Varey, Pennie Frow, Adrian Payne they can choose to modify the nature of their interactions, to introduce activity or resource improvements, fix weaknesses and eliminate unwanted steps in various firmbased processes. The gains from a thoughtful service cycle review are service improvements and cost reductions. Ballantyne and Varey 2006) have argued that there are three value-creating activities that make up a synergistic whole within S-D logic. This schema can be applied to any service cycle and by extension, to value propositions. The three activities are knowledge renewal (knowledge generation and application), relationship development, and communicative interaction. These service activities are not located uniquely with the supplier firm or even exclusively within the customer domain, but between customer and supplier as interactive exchange connections. Six Markets model revisited Christopher et al (1991) introduced a stakeholder strategy planning model which attempted to broaden a firm s marketing planning activity to include not only customer markets, but the employee of internal market, supplier and alliance markets, referral markets (a firm s advocates), recruitment markets (potential employees) and influence markets (the institutional context in which the focal firm operates). This model (see Figure 2) was reviewed and further elaborated in Payne et al (2005). They also found that a planning framework for crafting reciprocal value proposition includes these elements: crafted as a [reciprocal] exchange of value described in terms of perceived benefits or reduced costs transparent about to whom that value should flow and how perceived as a fair exchange of value delivered over a time frame longer than a single transaction often co-created through interaction between two or more parties congruent with the relationship objectives set for a particular market. One complication is that value creation in Industrial markets usually involves many companies where the links between them are interdependent and not really controlled by any of them. This is a perspective that is as yet not well understood by business firms (Ballantyne and Williams 2008, p. 101) although the global financial market meltdown of has initiated a rethink of the convention of firms acting as discrete entities, captive to the self-interested profit maximizing economic model. The view that firms are not absolute controllers of their own fate is gaining some support academically (Håkansson and Ford 2002) and fits well with fits well with S-D logic emphasis on mutual service. The new pragmatism may be that firms are becoming participating, adaptive, sensing and learning organizations that have to respond to unforeseen and unforeseeable opportunities and problems (Welch and Wilkinson, 2004, p. 83). The economic times seem to favor a shift in business mental models to accommodate the idea of the market as a network of social actors with economic interests, such that their interactions have economic consequences. This would involve a shift in strategic perspective to recognize a broader view of stakeholder interests, in which customers, 51

12 Otago Forum 2: Academic Papers suppliers, others institutions and their respective employees are embedded (Payne et al 2005). Figure 2: The six markets model Internal Markets Supplier/ Alliance Markets CUSTOMER MARKETS Referral Markets Recruitment Markets Influence Markets Source: Payne, Ballantyne and Christopher (2005) Case examples Many managers using the reciprocal value propositional planning framework have experienced a shift in ideas about how value is recognised, created and extended over time, breaking free from mental models where traditional thought has become ossified and boundary reinforcing. One of the authors worked with mid-career managers over a number of years to explore how to better craft reciprocal value propositions. The seven planning elements mentioned in the previous section evolved as a consequence of this experience. The key element of reciprocity was ensured by calling for propositions in the form of If we (state the benefit), will you (state the benefits). The six markets model was also used and the task for each manager was to create succinct value propositions in each of the six markets for his or her firm, or department. Most managers (with either marketing or logistics management roles) found the exercise difficult but rewarding, as it forced them to confront hidden constraints and interdependencies that they had not previously been aware. This alone was reward enough for some. However, many of the managers went further and were able to craft at least some reciprocal value propositions that were accepted by their firm and implemented, often with outstanding success. Nobody had thought of that before, was a common response. Some gains in value given and received came from unexpected places. One manager from a National Taxation Department was able as a consequence of just one value proposition to save more that $1M in unnecessary interdepartmental costs (Internal market). 52

13 Service-dominant logic and value propositions: Re-examining our mental models David Ballantyne, Richard Varey, Pennie Frow, Adrian Payne A challenge for businesses is that they are often positioned in loose-knit multiple stakeholder networks but unaware of it because there is no stakeholder relationship review process in place. For the marketing strategist, the reciprocal value propositions planning framework and the six markets model bring to the surface, possibly for the first time, the complexity of the network of relationships in which the firm is embedded. Here are some examples of value propositions for each of the six markets. The simplicity of each proposition is deceptive. What is as important is the intention to offer something of value to another party and the creative dialogue and adaptations that follows its communication. Customer markets 1. If you commit the time to giving us comprehensive briefings on your business problems and opportunities, we will work with you to find cost-effective solutions to your problems and opportunities. 2. If we set up and organise a customer satisfaction survey, will you take the time to complete it, and be prepared to enter dialogue with us about the findings, so that we might work together to improve areas of weakness? Referral markets 1. If you refer clients to us to provide a benefit not offered by yourselves, we will strive to meet your client s expectations, and at all times act in an ethical manner and respect your own relationship with that client. 2. If you join our (wine) supporters group, we will offer you information about our new offerings in advance of public notice, provide access to special offers, wine tasting days and the opportunity to meet the wine makers, and a rebate scheme on your three monthly spend with us. Influence Market 1. If we join your (trade) organisation, adhere to its voluntary codes of conduct, actively participate in forums and knowledge exchange, will you represent our interests ethically to government agencies? 2. If you endorse our product as environmentally safe after testing, we will copromote your industry standard and work with you to develop further environmental initiatives. Supplier and alliance markets 1. If you work with us to reduce our shared transaction costs, we will provide you with our daily forward supply outlook. 53

14 Otago Forum 2: Academic Papers 2. If we share our forward supply requirements with you on line, will you revise your inventory holding levels downwards and share the cost savings with us? Recruitment market 1. If you locate for us candidates for key jobs, and dedicate one person to oversee this as a talent management task, we will appoint you our sole recruitment provider. Further, if such appointees leave our company within six months, we want you to refund to us your placement fee. 2. If you (an educational institution) allow us to explain our employment opportunities to your undergraduate students each semester, we will support your Faculty by organising tours of our works for your students, case study subjects, and research opportunities for your graduate students. Internal Market 1. If you stay with us for four years, we will send you to our (overseas office) in the fifth year as part of our executive training program to enhance your knowledge and improve your career prospects with our company. 2. If you want to learn about team dynamics and leadership, as well as enhance your career and self-development, we will offer you an opportunity to join our internal marketing activities, specifically our cross-functional problem solving groups who challenge the internal activities that need to be changed for service improvement. Conclusions Reciprocal value propositions require initiators and participants. The initiator role is not permanently attached to suppliers. The reciprocal value proposition concept allows any initiator to develop a provisional but reciprocal view of what might be of value to the focal firm and a counterpart, and through use of the six markets model, to recognise how wider stakeholder interests may be impacted. When seen through the lens of the S-D logic, what is of value becomes a judgment by beneficiaries of the consequences of their service experience. This means that a reciprocal value proposition is an enabler of the value creating process. A reciprocal value proposition also holds the potential for co-learning and co-development of new skills, and we are suggesting that this working together aspect extends beyond the immediate self interest of any focal firm to include stakeholder networks. Learning together becomes a key strategy for knowledge up-skilling in an uncertain Industrial world in which communication is fluid and interactive. Further research on this topic is needed. First, there is a need for more detailed surveys of the adoption and use of value propositions within organisations. Case study research and action research strategies could explore approaches to proposition development over time. This work would assist in identifying better practice. Second, the literature does not sufficiently emphasize the importance of provisionally developing and crafting value propositions as reciprocal promises of value. More research needs to be undertaken to identify the use and application of the concept at 54

15 Service-dominant logic and value propositions: Re-examining our mental models David Ballantyne, Richard Varey, Pennie Frow, Adrian Payne the segment and individual customer levels rather than the earlier emphasis on generic strategies. Third, an important area for further work is to investigate the use of value propositions in the context of supply chains and stakeholder networks (Flint and Mentzer 2006; Payne et al 2005). 55

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