Customer Value and New Product Retailing Dynamics: An Analytical Construct for Gaining Competetive Advantage

Customer Value and New Product Retailing Dynamics: An Analytical Construct for Gaining Competetive Advantage

Dr. Rajagopal (Monterrey Institute of Technology and Higher Education ITESM, Mexico)
DOI: 10.4018/978-1-60566-248-0.ch003

Abstract

The customer value concept is utilized to assess product performance and to determine the competitive structure of the new products. The analytical approach to the new product-market structuring based on customer value may be fitted well within the microeconomic framework. The measure of customer value as the product efficiency may be viewed from the customer’s perspective towards a ratio of outputs (e.g., perceived use value, resale value, reliability, safety, comfort) that customers obtain from a product relative to inputs (price, running costs) that customers have to deliver in exchange. The efficiency value derived can be understood as the return on the customer’s investment.
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Previous Contributions

It has been observed that there is increasing number of customer goods and services offered in recent years suggest that product-line extensions have become a favored strategy of product managers. A larger assortment, it is often argued, keeps customers loyal and allows firms to charge higher prices. There also exists a disagreement about the extent to which a longer product line translates into higher profits keeping the customer value higher. The academics, consultants and business people speculated that marketing in the new century would be very different from the time when much of the pioneering work on customer loyalty was undertaken (Churchill 1942; Brown 1953; Cunningham 1956, 1961; Tucker 1964; Frank 1967). Yet there exists the scope for improving the applied concepts as there have been many changes over conventional ideologies. A study using market-level data for the yogurt category developed an econometric model derived from a game-theoretic perspective explicitly considers firms' use of product-line length as a competitive tool (Dragnska and Jain, 2005). On the demand side, the study analytically establishes the link between customer choice and the length of the product line and includes a measure of line length in the utility function to investigate customer preference for variety using a brand-level discrete-choice model. The study reveals that the supply side is characterized by price and line length competition between oligopolistic firms.

Another study explores qualitatively the understanding of the importance of intangibles as performance drivers in reference to Swedish organizations using a combination of evolutionary theory, knowledge-based theory and organizational learning. The study reveals that the customer values are created towards the new products through individual perceptions, and organizational and relational competence (Johanson et.al., 2001). The firms need to ascertain a continuous organizational learning process with respect to the value creation chain and measure performance of the new products introduced in the market. In the growing competitive markets the large and reputed firms are developing strategies to move into the provision of innovative combinations of products and services as 'high-value integrated solutions' tailored to each customer's needs than simply 'moving downstream' into services. Such firms are developing innovative combinations of service capabilities such as operations, business consultancy and finance required to provide complete solutions to each customer's needs in order to augment the customer value towards the innovative or new products. It has been argued that the provision of integrated solutions is attracting firms traditionally based in manufacturing and services to occupy a new base in the value stream centered on 'systems integration' using internal or external sources of product designing, supply and customer focused promotion (Davies,2004). Besides the organizational perspectives of enhancing the customer value, the functional variables like pricing play a significant role in developing the customer perceptions towards the new products.

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