Value-based marketing

Value-based marketing starts with the benefits a defined customer receives rather than with production cost plus a standard margin. It designs, communicates and prices an offer around those benefits while ensuring the resulting price covers cost and supports profit. Because customers differ in what they value, segmentation is fundamental.

When to use it

• Increase the customer value and profitability of a product or service.
• Design differentiated offers and prices for segments with different needs.

Origins

Selling value is an old commercial practice, but modern marketing gave it a customer-centred foundation. In his 1960 essay “Marketing Myopia,” Theodore Levitt contrasted selling’s concern with converting product into cash with marketing’s concern for satisfying customer needs through the complete experience of creating, delivering and consuming the offer.

Consultants and scholars developed value-marketing methods further during the following decades. In 2002, Nicolas DeBonis, Eric Balinski and Phil Allen described a five-part “value pentadigm” that organises the work of discovering, committing to, creating, assessing and improving customer value.

What it is

The method concentrates resources on customers who value the offer and whose needs the organisation can serve profitably. Its five linked phases are:

Discover

Map the market, identify decision makers and users, and understand the outcomes they seek, how they find alternatives and how they choose. Convert meaningful differences in needs and willingness to pay into actionable value segments.

Commit

Select the segments the organisation will serve and define the superior benefits it will promise. Align the organisation around target customers, required standards and measures that show whether the promise is being delivered.

Create

Design the product, service and complete customer experience to produce the promised value consistently. Leadership, culture, capabilities and structure must support the offer; value cannot be added by communications after an undifferentiated experience has already been built.

Assess

Listen systematically. Examine satisfaction, complaints, lost orders, usage, retention and willingness to recommend or repurchase. Compare actual delivery with customer expectations and diagnose why gaps occur.

Improve

Act on the evidence. Close important delivery gaps, anticipate emerging needs and update the proposition before competitors or changing expectations make it obsolete.

Developments of the model

Research methods have become more sophisticated because customers cannot always articulate value directly. They may state rational requirements such as low price and fast delivery while decisions also reflect trust, identity, security or relationships. Observation, behavioural data and trade-off methods can reveal those priorities.

Conjoint analysis, for example, asks respondents to choose among roughly 30 combinations of features, benefits and price. Statistical analysis estimates the utility attached to each attribute and identifies combinations preferred by particular segments. Such estimates remain context-dependent and should be validated against real behaviour.