Customer Value Creation: A Practical Framework

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Journal of Marketing Theory and Practice, vol. 15, no. 1 (winter 2007), pp. 7–23.

ISSN 1069-6679 / 2006 $9.50 + 0.00.

DOI 10.2753/MTP1069-6679150101

CUSTOMER VALUE CREATION: A PRACTICAL FRAMEWORK

J. Brock Smith and Mark Colgate

Creation of value for customers is a critical task for marketers, particularly when developing new products

and services or starting new businesses. This paper presents a new conceptual framework for marketers

to ponder when exploring ways to distinguish themselves, in the eyes of the customer, from others in the

marketplace. This framework is built on the strengths of existing frameworks. Possible applications of

the framework in designing marketing strategy, recognizing new product opportunities, and enhancing

product concept speciﬁcations are discussed.

J. Brock Smith (Ph.D., Ivey Business School, University of West-

ern Ontario), Associate Professor of Marketing, Faculty of Busi

ness, University of Victoria, British Columbia, Canada, bsmith@

uvic.ca.

Mark Colgate (Ph.D., University of Ulster), Associate Professor of

Service Management, Faculty of Business, University of Victoria,

British Columbia, Canada, colgate@uvic.ca.

From a customer’s perspective, customer value is what they

“get” (beneﬁts) relative to what they have to “give up” (costs

or sacriﬁces) (Zeithaml 1988). The creation of customer

value has long been recognized as a central concept in mar

keting (Woodruff 1997) and the fundamental basis for all

marketing activity (Holbrook 1994). It has been suggested

as the purpose of organizations (Slater 1997), a main key

to success via differential positioning (Cooper 2001), and

a precursor to customer satisfaction and loyalty (Woodall

2003). The call for more attention to this concept by Hunt

(1999) has been answered recently with more work within

this area. One of the critical parts of customer value research

is the design of frameworks and typologies to help ﬁrms

better understand value creation. Although there have been

recent attempts to develop these typologies (e.g., Holbrook

2005; Ulaga 2003; Woodall 2003), there is little consistency

in the approaches and none stand out as being particularly

potent in the development of marketing strategy or in con-

ducting marketing research. In this respect, we aim to build

on the valuable previous work undertaken in this area to

enable marketers to think more creatively about customer

value creation.

The strategy literature also recognizes the importance

of value creation and of value creation activities, such as

value chains (e.g., Porter 1985). New product development

research, for example, ﬁnds that products offering superior

customer value are more successful than those that offer

limited value or offer value already provided by other brands,

as are those with a well-deﬁned product concept (Cooper

2001). Little has been written in the strategy literature,

however, on what value to create, when, why, and how, or

what constitutes a well-deﬁned product concept from a

value perspective. Opportunity recognition and exploita-

tion are considered deﬁnitive concepts in both new product

development (Cooper 2001) and entrepreneurship (Shane

and Venkataraman 2000). However, scholars have paid rela-

tively little attention to the opportunity recognition process

(Ucbasaran, Westhead, and Wright 2001) or to tools that

assist in this process (Gaglio 1997).

In light of this, we present an alternative framework for

marketers to assist in their efforts to create customer value;

this will be useful for developing both marketing strategy

and measures of customer value for marketing research.

The aim of this paper is to build on the strengths of previ-

ous frameworks.

CONCEPTUAL FOUNDATIONS

The emerging customer value paradigm and theory of the

ﬁrm (e.g., Hunt 1999; Hunt and Morgan 1997; Slater 1997)

suggests that ﬁrms exist to create value for others where it

is neither efﬁcient nor effective for buyers to attempt to

satisfy their own needs. From this perspective, the objec

tive of marketing is to achieve personal, organizational,

and societal objectives by creating superior customer value

for (exchange with) one or more market segments with a

sustainable strategy.

Despite the centrality of customer value to marketing

thought, customer value research is still nascent and in the

early stages of conceptual development. Although popular

works have focused on normative customer value creation

strategies (e.g., Slywotzky 1996; Treacy and Wiersama 1993),

8 Journal of Marketing Theory and Practice

preliminary academic work has focused on the importance

of the customer value concept (e.g., Band 1991; Gale 1994)

and deﬁnitions, conceptualizations, and typologies of

customer value (e.g., Ulaga 2003; Woodall 2003; Woodruff

1997).

Deﬁnition of Customer Value

The term customer value has many meanings (Woodall

2003), but two dominate—value for the customer (customer

perceived value or customer received value) and value for

the ﬁrm (value of the customer, now more commonly re

ferred to as customer lifetime value). Our focus is on the

former. Woodruff deﬁnes customer value as “a customer’s

perceived preference for, and evaluation of, those prod-

uct attributes, attribute performances, and consequences

arising from use that facilitates (or blocks) achieving the

customer’s goals and purposes in use situations” (1997,

p. 141), which can be evaluated pre- or postproduct use. This

broad conceptualization incorporating multiple contexts

(pre- and postuse), multiple cognitive tasks (preference

for and evaluation of), and multiple assessment criteria

(attributes, performances, and consequences) poses signiﬁ-

cant measurement issues and may not be operationalizable

(Parasuraman 1997).

Holbrook deﬁnes customer value as an “interactive,

relativistic preference and experience” (2005, p. 46), which

is also a bit difﬁcult to understand and apply, but is seem-

ingly intended to capture some of the key characteristics

of customer value. These include: it is perceived uniquely

by individual customers; it is conditional or contextual

(depending on the individual, situation, or product); it is

relative (in comparison to known or imagined alternatives);

and it is dynamic (changing within individuals over time)

(Ulaga 2003). Simpler deﬁnitions (e.g., Gale 1994; Heard

1993–94; Zeithaml 1988) deﬁne customer value as being

what customers get (beneﬁts, quality, worth, utility) from

the purchase and use of a product versus what they pay

(price, costs, sacriﬁces), resulting in an attitude toward,

or an emotional bond with (Butz and Goodstein 1996),

the product.

Although we prefer, and adopt, the simpler deﬁnition,

it is still not clear whether customer value is a summa-

tive (beneﬁts less sacriﬁces) or ratio (beneﬁts divided by

sacriﬁces) based evaluation or whether it is made with

compensatory or noncompensatory decision rules (Para-

suraman 1997). These, however, are empirical issues best

left to investigation in customer value research. Given the

complexity of the customer value construct, it may not be

possible to accurately measure how a particular customer

assesses the value of a product (the value proposition) at

a particular point in time, although some progress has

been made in this area (e.g., Sinha and DeSarbo 1998). It is

possible, however, to understand the categories or dimen

sions on which such assessments are made and to create

a customer value framework that captures the domain of

the construct.

Customer Value Frameworks

Just as there is no commonly accepted deﬁnition of customer

value, there is no deﬁnitive conceptualization, framework,

or typology of customer value. Some attempts have been

made; and while each has its merits, none are particularly

well suited as aids for either developing marketing strategy

or for developing measures of customer value.

In an early conceptualization of consumer needs, Park,

Jawarski, and MacInnis (1986) describe three basic con-

sumer needs that reﬂect value dimensions—functional

needs, symbolic needs, and experiential needs. Functional

needs are those that motivate the search for products that

solve consumption-related problems. Symbolic needs are

desires for products that fulﬁll internally generated needs

for self-enhancement, role position, group membership,

or ego-identiﬁcation. Experiential needs are desires for

products that provide sensory pleasure, variety, or cogni-

tive stimulation. Consumer needs, wants, and preferences

underlie value perceptions. Consequently, three basic types

of value are implicitly suggested by Park, Jawarski, and

MacInnis (1986)—functional value, symbolic value, and

experiential value. This typology, however, does not capture

the cost/sacriﬁce aspect of customer value suggested by the

simple deﬁnition, nor does it suggest subdimensions of the

higher-order constructs.

Sheth, Newman, and Gross (1991) describe ﬁve types of

value that drive consumer choice—functional value, social

value, emotional value, epistemic value, and conditional

value. Functional value represents the perceived utility of

an alternative resulting from its inherent and attribute-

or characteristic-based ability to perform its functional,

utilitarian, or physical purposes. Social value represents

the perceived utility of an alternative resulting from its

image and symbolism in association or disassociation

with demographic, socioeconomic, and cultural-ethnic

referent groups. Emotional value represents the perceived

utility acquired by an alternative as a result of its ability

to arouse or perpetuate feelings or affective states, such as

comfort, security, excitement, romance, passion, fear, or

guilt. Epistemic value is the perceived utility resulting from

an alternative’s ability to arouse curiosity, provide novelty,

Winter 2007 9

or satisfy desire for knowledge. Finally, conditional value is

the perceived utility acquired by an alternative as a result

of the speciﬁc situation or the physical or social context

faced by the decision maker. This typology identiﬁes di

mensions of customer value that related to the higher-order

constructs suggested by Park, Jawarski, and MacInnis (1986),

but it does not speciﬁcally capture the cost/sacriﬁce aspect

of customer value. In addition, there are other functional,

experiential, and symbolic dimensions of customer value

that are not captured in this framework.

More recent frameworks have focused on customer value

in speciﬁc contexts. Ulaga (2003), for example, identiﬁes

eight categories of value in business relationships—product

quality, delivery, time to market, direct product costs (price),

process costs, personal interaction, supplier know-how, and

service support. For each category, Ulaga identiﬁes three or

four speciﬁc beneﬁts that are reﬂective of the category. This

framework is quite comprehensive in delineating relation

ship value, but there are other types of customer perceived

or received value in a business-to-business context.

Woodall (2003) identiﬁes ﬁve primary forms of value

for the customer (VC)—net VC (balance of beneﬁts and

sacriﬁces), derived VC (use/experience outcomes), market-

ing VC (perceived product attributes), sale VC (value as a

reduction in sacriﬁce or cost), and rational VC (assessment

of fairness in the beneﬁt–sacriﬁce relative comparison).

This framework is the most comprehensive of previous

works, and Woodall identiﬁes many speciﬁc types of value

associated with his higher order: derived VC, marketing

VC, and sale VC constructs. There is, however, considerable

overlap in the categories in the sense that the same beneﬁts

appear under multiple headings. In addition, the beneﬁts

and sacriﬁces identiﬁed do not fully capture the domain

of the higher-order value dimension and Woodall does not

identify the subdimensions of customer value of which

the speciﬁc beneﬁts and sacriﬁces might be illustrative

examples. These limitations make the framework difﬁcult

to use either for developing marketing strategy recom-

mendations, or as a basis for developing measures of key

dimensions of customer value.

Similar limitations apply to Holbrook’s (1999; 2005)

customer value typology (axiology) that considers the

source of motivation behind a value assessment (intrinsic

or extrinsic), the orientation of the value assessment (self

or other oriented), and the nature of the value assessment

(active or reactive). Holbrook identiﬁes eight types of

value—efﬁciency, excellence, status, esteem, play, aesthet

ics, ethics, and spirituality. Although this typology has a

clear conceptual basis, it is consumer outcome and meaning

focused, does not fully capture the domain of the customer

value construct, and may not apply as well to business-to-

business contexts.

Finally, Heard (1993–94) takes a different perspective. He

conceptualizes customer value in terms of three factors—

product characteristics, delivered orders, and transaction

experiences—that are linked to basic value-chain activities

or processes (design, production, marketing) that reﬂect

where value is created within organizations. These fac

tors, or sources of value, are evaluated by customers along

four value dimensions—being correct, timely, appropriate,

and economical. The speciﬁcation of three value sources

(product characteristics, delivered orders, and transaction

experiences) is parsimonious, but other sources of value are

created by other processes within organizations. For exam

ple, product and corporate information and, in particular,

the ability to understand the features, functions, beneﬁts,

and use of a product enhance the perceived value of a

product during its purchase and consumption. The physical

environment in which a product is purchased or consumed

is also an important source of value, particularly in the re-

tail and service industries. Finally, transaction experiences

are created through customer interactions with salespeople,

other staff, and transaction systems or processes. The source

of this value is the customer–employee–organization interac-

tion. The type of value created is usually experiential, but

interactions could provide functional/instrumental value

(such as taking a correct order in a restaurant), symbolic/

expressive value (such as being upgraded to ﬁrst class on

an airline ﬂight), or even value concerned with the cost/

sacriﬁce aspect of value (such as being served quickly or

in a stress-reducing manner).

Summary

Understanding what customers value in different contexts,

and what customer value creation strategies are more (less)

appropriate in particular contexts, is central to marketing

strategy and marketing thought. It has been difﬁcult to

use this construct in either practice or marketing research,

however, because of competing deﬁnitions and compet-

ing conceptualizations, frameworks, and typologies of

customer value—none of which fully capture the domain

of the construct or are particularly well suited for either

making marketing strategy decisions or for operationaliz

ing the construct. These issues need to be resolved before

empirical studies can properly address key customer value

research questions and improve early attempts at measure

ment (e.g., Lapierre 2000; Menon, Homburg, and Beutin

2005). We attempt to address these issues by integrating

and extending previous works in a more comprehensive

10 Journal of Marketing Theory and Practice

and useful typology of customer value creation. In doing

so, we adopt the marketing manager’s perspective of cus-

tomer value: what kinds of value can be created, and how

this value can be created by an organization.

A CUSTOMER VALUE

CREATION FRAMEWORK

Drawing on, integrating, and extending previous concep-

tual foundations, a customer value framework is proposed

that builds on the strengths of previous frameworks and

mitigates their key weaknesses (as identiﬁed above). This

framework (see Appendix A) adopts a strategic orientation

in that the focus is on identifying categories of value that

could differentiate offerings and not on identifying all of

the speciﬁc beneﬁts and sacriﬁces that may be perceived by

consumers or customers. Our intent is to develop a com-

prehensive framework applicable to consumer and business

contexts, and goods as well as services. The speciﬁc beneﬁts

and sacriﬁces considered in an overall assessment of value

are known to differ in these different contexts, but we sug

gest that the categories of value are the same.

The framework identiﬁes four major types of value that

can be created by organizations—functional/instrumental

value, experiential/hedonic value, symbolic/expressive

value, and cost/sacriﬁce value. The framework also identi-

ﬁes ﬁve major sources of value—information, products,

interactions, environment, and ownership—that are associ-

ated with central value-chain processes. The resultant 4 × 5

table is useful for describing and documenting customer

value creation strategies and serves as a tool for opportu-

nity recognition and product concept speciﬁcation. It also

provides a foundation for measuring or assessing value

creation strategies.

We describe the framework brieﬂy below and direct the

reader to Tables 1 through 4 for a more comprehensive

positioning of this framework relative to others in the

literature.

Types of Value

Each of the four major types of value has key facets or

dimensions. These are discussed below with illustrative

examples of speciﬁc beneﬁts or sacriﬁces in that category

and illustrative examples of ﬁrms that focus on creating

that type of value.

Functional/instrumental value is concerned with the

extent to which a product (good or service) has desired

characteristics, is useful, or performs a desired function.

As suggested by Woodruff (1997), three key facets of func-

tional/instrumental value are (1) correct, accurate, or ap-

propriate features, functions, attributes, or characteristics

(such as aesthetics, quality, customization, or creativity);

(2) appropriate performances (such as reliability, perfor

mance quality, or service–support outcomes); and (3) ap

propriate outcomes or consequences (such as strategic value,

effectiveness, operational beneﬁts, and environmental

beneﬁts). The face validity of this conceptualization is seen

in its application. Some ﬁrms, such as Rubbermaid, focus

mainly on creating appropriate features and attributes that

translate into customer beneﬁts. Others, such as Ford, Sony,

and McDonald’s, focus on performance, while pharmaceuti

cal companies such as Pﬁzer or Bayer focus on appropriate

outcomes or consequences. Numerous aspects of value

creation relating to each of these three dimensions have

been considered in the literature and illustrative examples

are provided in Table 1. Table 1 does not document all of

the research related to functional value creation. We found

most of the prior research has focused on value derived from

the purchase and use of the products. This is also observed

with respect to experiential/hedonic, symbolic/expressive,

and cost/sacriﬁce value (Tables 2, 3, and 4). Areas in the

tables where there is little extant research suggest areas

where the scope of customer value research could be fruit-

fully expanded.

Experiential/hedonic value is concerned with the extent

to which a product creates appropriate experiences, feelings,

and emotions for the customer. Some organizations, such as

most restaurants and some retailers, focus on sensory value

(such as aesthetics, ambiance, aromas, feel/tone). Most

organizations in the travel and entertainment industries

focus on creating emotional value (such as pleasure/enjoy-

ment, play/fun, excitement, adventure, and humor). Other

organizations, such as toy or game companies, professional

service organizations, and many business-to-business orga-

nizations, focus on social–relational value (such as relational

or network beneﬁts, bonding/connectedness, personal in-

teraction, developing trust or commitment, and responsive

ness). Finally, some ﬁrms, such as Disney, America Online,

and some travel and hotel companies, focus on epistemic

value (such as curiosity, novelty, knowledge, or fantasy).

These and other illustrative examples of the category are

provided in Table 2 with references to the literature.

Symbolic/expressive value is concerned with the extent

to which customers attach or associate psychological mean-

ing to a product. Some products (luxury goods, for example)

appeal to consumer’s self-concepts and self-worth—that is,

they make us feel good about ourselves—either in posses-

sion (e.g., buying a new outﬁt) or in giving (e.g., giving

diamonds to a spouse, as suggested by DeBeers). Holbrook

Winter 2007 11

Table 1

Functional/Instrumental Value Literature

Value Aspect Reference

• Correct/accurate attributes Woodruff (1997)

• Appropriate performances Woodruff (1997)

• Appropriate outcomes Woodruff (1997)

Related Concepts Functional value Sheth, Newman, and Gross (1991)

Use value Woodall (2003)

Utilitarian value Woodall (2003)

Practical value De Ruyter and Bloemer (1999)

Material value Richins (1994)

Sources of Value

Information • Correct/accurate attributes

Supplier know-how Ulaga (2003)

• Appropriate performances

• Appropriate outcomes

Products • Correct/accurate attributes

Excellence Holbrook (1999; 2005)

Product quality Ulaga (2003)

Quality Woodall (2003)

Customization Woodall (2003)

Product characteristics Woodall (2003)

Aesthetics Holbrook (2005), Walters and Lancaster (1999)

Flexibility Lapierre (2000)

• Appropriate performances

Efﬁciency Holbrook (1999; 2005), Möller and Törrönen (2003)

Performance quality Woodall (2003)

Reliability Lapierre (2000)

Value of core service Liu, Leach, and Bernhardt (2005)

• Appropriate outcomes

Effectiveness Möller and Törrönen (2003)

Volume Walter et al. (2003)

Safeguards, security Walter et al. (2003), Woodall (2003)

Operational beneﬁts Woodall (2003)

Financial beneﬁts Woodall (2003)

Interactions • Correct/accurate attributes

Personal interactions Ulaga (2003)

• Appropriate performances

Service/service support Ulaga (2003), Woodall (2003)

• Appropriate outcomes

Environment • Correct/accurate attributes

• Appropriate performances

• Appropriate outcomes

Ownership/Possession • Correct/accurate attributes

Transfer • Appropriate performances

Delivery Ulaga (2003)

• Appropriate outcomes

Strategic value Wilson and Jantrania (1995)

Time to market Ulaga (2003)

(1999; 2005) considers this part of “spirituality”—a relation-

ship with oneself—but Holbrook considers spirituality to be

“other oriented”—in which we view appeals to self-concept

and self-worth to be “self-oriented,” making this dimension

of symbolic/expressive value conceptually distinct. Other

products (such as music, comfort foods, and vacations,

among many others) have personal meaning—associations

with people or events that only have meaning to a particu-

lar consumer (such as an association with Tide detergent

because their mother used it). Products can also provide

12 Journal of Marketing Theory and Practice

a means of self-expression—products such as Calvin Klein

fragrances, Roots clothes, a Volkswagen Beetle, or Body

Shop lotions allow consumers to reﬂect or express their

personalities, tastes, and values. Still other products focus

on social meaning—how others see us. Branded products

such as BMW, Rolex, and Lee Valley Tools are purchased

because of their prestige, status, or image. Finally, some

products (such as roses on Valentine’s Day) have conditional

meaning—symbolism or meaning relating to sociocultural-

ethnic events and traditions. One might argue that personal

meaning is a subset of conditional meaning. We see value in

their separation. Conditional meaning is culturally based,

and marketers can develop strategies to appeal to broad

segments. Personal meaning is person speciﬁc, and al-

though marketers often try to cultivate individual meaning

(Campbell Soup Company’s advertising campaigns often

Table 2

Experiential/Hedonic Value Literature

Value Aspect Reference

• Sensory value

• Emotional value Sheth, Newman, and Gross (1991)

• Social/relational value Sheth, Newman, and Gross (1991)

• Epistemic value Sheth, Newman, and Gross (1991)

Sources of Value

Information • Sensory value

• Emotional value

• Social/relational value

• Epistemic value

Products • Sensory value

Aesthetics Holbrook (1999; 2005)

• Emotional value

Play Holbrook (1999; 2005)

Enjoyment Woodall (2003)

Affective arousal Woodall (2003)

Humor Woodall (2003)

• Social/relational value

Relational support service Liu, Leach, and Bernhardt (2005)

Behavioral value Wilson and Jantrania (1995)

Service/support Lapierre (2000), Ulaga (2003)

• Epistemic value

Knowledge Sheth, Newman, and Gross (1991), Woodall (2003)

Novelty Sheth, Newman, and Gross (1991)

Curiosity Sheth, Newman, and Gross (1991)

Fantasy Sheth, Newman, and Gross (1991)

Interactions • Sensory value

• Emotional value

Trust Lapierre (2000)

Solidarity Lapierre (2000)

• Social/relational value

Personal interaction Ulaga (2003)

Relational beneﬁts Ravald and Grönroos (1996)

Network beneﬁts Möller and Törrönen (2003)

Reliability Lapierre (2000)

• Epistemic value

Environment • Sensory value

• Emotional value

• Social/relational value

• Epistemic value

Ownership/Possession • Sensory value

Transfer • Emotional value

• Social/relational value

• Epistemic value

Winter 2007 13

focus on childhood memories or family relationships), it is

much more difﬁcult to do so. These and other illustrative

examples of symbolic/expressive value are provided in Table

3 with references to the literature.

In addition, to try to maximize, or at least realize value

beneﬁts, consumers and customers also try to minimize

the costs and other sacriﬁces that may be involved in the

purchase, ownership, and use of a product. Cost/sacriﬁce

value is concerned with these transaction costs. Some ﬁrms,

such as Wal-Mart, Amazon.com, and most ﬁnancial institu

tions, focus on minimizing economic costs, such as product

price, operating costs, switching costs, and opportunity

Table 3

Symbolic/Expressive Value Literature

Value Aspect Reference

• Self-identity/worth

• Personal meaning Holbrook (1999; 2005)

• Self-expression Woodall (2003)

• Social meaning Sheth, Newman, and Gross (1991)

• Conditional meaning Sheth, Newman, and Gross (1991)

Related Concepts Intrinsic value Woodall (2003)

Desired value Oliver (1999)

Possession value Richins (1994)

Sources of Value

Information • Self-identity/worth

• Personal meaning

• Self-expression

• Social meaning

• Conditional meaning

Products • Self-identity/worth

• Personal meaning

Spirituality Holbrook (1999; 2005)

Personal beneﬁts Woodall (2003)

Personal circumstances Sheth and Parvatiyar (1995)

Nature of customer Sinha and DeSarbo (1998)

• Self-expression

• Social meaning

Status Holbrook (1999; 2005)

Esteem Holbrook (1999; 2005)

Association Woodall (2003)

Image/brand name Lapierre and Deneault (1997), Parasuraman (1997)

• Conditional meaning

Conditional value Sheth, Newman, and Gross (1991)

Situational circumstances Sheth and Parvatiyar (1995)

Interactions • Self-identity/worth

• Personal meaning

Ethics Holbrook (1999; 2005)

• Self-expression

• Social meaning

• Conditional meaning

Environment • Self-identity/worth

• Personal meaning

• Self-expression

• Social meaning

• Conditional meaning

Ownership/Possession • Self-identity/worth

Transfer • Personal meaning

• Self-expression

• Social meaning

• Conditional meaning

14 Journal of Marketing Theory and Practice

costs. Organizations such as auto malls, retailers such as

Sears, and courier companies such as FedEx focus on con

venience and minimizing psychological or relational costs.

Psychological–relational costs include cognitive difﬁculty/

stress, conﬂict, search costs, learning costs, psychological

switching costs, and psychological relationship costs, such

as attachment. Firms such as 7-Eleven, Dell, and most Inter-

net businesses try to minimize the personal investment of

customers—the time, effort, and energy consumers devote

to the purchase and consumption process. Finally, retailers

such as Target, manufacturers such as Ford, hoteliers such

as Marriot, among many others, attempt to reduce the risk

(personal risk, operational risk, ﬁnancial risk, or strategic

risk) perceived by customers in buying, owning, and using

a product, through the use guarantees, warranties, ﬂexible

return policies, and third-party endorsements. These and

other illustrative examples of cost/sacriﬁce value are pro-

vided in Table 4 with references to the literature.

Table 4

Cost/Sacriﬁce Value Literature

Value Aspect Reference

• Economic costs Walter et al. (2003)

• Psychological costs Woodall (2003)

• Personal investment

• Risk Grönroos (1997), Sweeny, Soutar, and Johnson (1999)

Sources of Value

Information • Economic costs

• Psychological costs

Learning costs Woodall (2003)

• Personal investment

Search costs Woodall (2003)

• Risk

Products • Economic costs

Price/direct costs Ulaga (2003)

Operating costs Woodall (2003)

Delivery and installation Woodall (2003)

Training and maintenance Woodall (2003)

• Psychological costs

Convenience Woodall (2003)

Cognitive difﬁculty/stress Lapierre (2000)

• Personal investment

Human energy/effort Woodall (2003)

• Risk

Interactions • Economic costs

• Psychological costs

Relational/relationship costs Lapierre (2000), Ravald and Grönroos (1996),

Woodall (2003)

Equity Bolton and Lemon (1999)

Conﬂict Lapierre (2000)

• Personal investment

Process costs Ulaga (2003)

Time Woodall (2003)

• Risk

Environment • Economic costs

• Psychological costs

• Personal investment

• Risk

Ownership/Possession • Economic costs

Transfer Opportunity costs Woodall (2003)

Disposal costs Woodall (2003)

• Psychological costs

• Personal investment

• Risk

Winter 2007 15

Sources of Value

Five key sources of customer value are captured in the

framework shown in Appendix A—information, products,

interactions, environment, ownership/possession transfer.

These sources of value are created by a variety of “value-

chain” processes and activities within and between organi-

zations (e.g., Porter 1985), some of which are also illustrated

in Appendix A.

Information is created by value-chain activities associ-

ated with advertising, public relations, and brand manage

ment (such as through packaging, labeling, or instructions).

It provides functional/instrumental value by informing

and educating customers; experiential/hedonic value, such

as sensory or emotion-based value, through advertising

creatively; symbolic/expressive value by drawing associa-

tions and interpreting meaning; and cost/sacriﬁce value

by helping consumers make more informed and faster

decisions.

Products are created by value-chain activities associated

with new product development, market research, research

and development, and production. They directly provide

functional/instrumental value (such as safety features on a

Volvo); experiential/hedonic value (such as the package of

sensory, emotional, relational, and epistemic experiences

offered by Club Med); symbolic/expressive value (such as

Campbell’s focus on developing personal meaning with

the brand); and cost/sacriﬁce value (through the product

price and augmented product considerations that reduce

involvement, investment, and risk).

Interactions between customers and organizations’

employees or systems are created, or enhanced, by value-

chain activities relating to recruitment and training, service

quality, and operations (Vandenbosch and Dawar 2002).

Such interactions provide functional/instrumental value,

such as service timeliness; experiential/hedonic value,

such as relational bonds; symbolic/expressive value, such

as the prestige of privileged interactions; and cost/sacriﬁce

value, such as reducing the personal investment required

to purchase or use a product.

The purchase or consumption environment is created by

value-chain activities such as facilities management, interior

design, and merchandizing. The purchase or consumption

environment can provide functional/instrumental value,

such as lighting that makes it easier to read product labels,

and experiential/hedonic value, such as music that makes

shopping more enjoyable. It can also provide symbolic/

expressive value, such as holiday decorations that appeal to

cultural traditions, and cost/sacriﬁce value, such as a shop-

ping location that has ample and convenient parking.

Finally, ownership/possession transfer is facilitated by

value-chain activities concerned with accounting (such as

payment and billing), delivery (such as product picking,

packing, shipping, and tracking), and transfer of owner

ship (such as contracts, copyright agreements, and titles).

Processes involved with transfer of ownership and posses

sion provide functional/instrumental value, such as timely

delivery; experiential/hedonic value, such as customer

satisfaction with the fulﬁllment process; symbolic/expres

sive value, such as enhanced product meaning by provid

ing tasteful gift wrapping; and cost/sacriﬁce value, such

as peace of mind provided by automated product tracking

systems.

FRAMEWORK APPLICATION

The framework for customer value creation strategies serves

as a tool for (1) describing a generic marketing strategy,

(2) enhancing product concept speciﬁcations, (3) identify-

ing value creation opportunities, and (4) developing mea-

sures of customer value. These will be discussed in order.

Marketing Strategy

The framework is useful for describing generic marketing

strategies, understanding positioning, and identifying

sources of competitive advantage.

Consistent with the work of Treacy and Wiersama (1993),

the four types of value depicted in the framework suggest

four value creation strategies. Firms such as 3M, Volvo, Nike,

and Rubbermaid, which compete by superior creation of

functional/instrumental value, follow a product-leadership

(product-innovation) strategy and invest and excel in value

creating processes relating to new product development,

market research, quality, and technology research and de-

velopment. These ﬁrms place an emphasis on continuous

innovation and time to market, tend to have loose-knit,

organic, and team-oriented structures, and promote an

entrepreneurial and creative culture with a willingness to

experiment and take calculated risks (Treacy and Wiersama

1993).

Firms such as Club Med, Nordstrom, and Disney, which

compete by creation of superior experiential value, follow

a customer responsiveness (or customer intimacy) strategy

and typically invest in, and excel at, customer service, cus-

tomer support technology, ﬂexible manufacturing, market

research, and facilities (Treacy and Wiersama 1993). These

ﬁrms place an emphasis on customer relationships and ser-

vice quality and provide tailored or customized solutions

to narrowly deﬁned market segments.

16 Journal of Marketing Theory and Practice

Firms such as The Body Shop, Gap Inc., Lexus, and

Hallmark, which compete by creation of superior sym-

bolic/expressive value, follow a brand image/brand equity

strategy and typically invest in, and excel at, advertising

and public relations, product quality, and customer service

and support. These ﬁrms often structure and deﬁne their

business around a “family” corporate culture, place an

emphasis on stakeholder relationships, and promote and

reward creativity and novelty.

Firms such as Wal-Mart, Dell, Amazon.com, and South

west Airlines, which compete by creating superior cost/

sacriﬁce value, follow an operational excellence strategy.

The ﬁrms that compete on price and convenience typi-

cally focus on efﬁciency and effectiveness goals, invest in,

and excel at, purchasing, manufacturing, and distribution

processes. They tend to have a top-down emphasis on stan-

dard operating procedures and are tenacious at minimizing

intermediate processing steps and overhead.

Few ﬁrms create just one type of value, and our frame

work extends the work of Treacy and Wiersama (1993)

by suggesting the subtypes of value that can be created

from different value creating processes. Our framework

can thus be used to describe the value creation strategy

of an organization. Starbucks, for example, creates func-

tional/instrumental value mainly via appropriate features

and attributes (product quality, customization, hot drinks

for cold days, and cold drinks for warm days). They create

experiential/hedonic value mainly via sensory value (aes

thetics, ambiance, and aromas), emotional value (pleasure

or enjoyment), social-relational value (by providing com-

fortable spaces where friends and colleagues can interact),

and epistemic value (such as novelty ﬂavors and informa-

tion about coffees). Starbucks creates symbolic/expressive

value through personal meaning (many Starbucks’ custom-

ers consider their relationship with Starbucks as personal,

if not spiritual), self-expression (the ability to personalize

the beverage and experience), and social meaning (there

is some status in the brand name). Finally, with respect to

cost/sacriﬁce value, Starbucks creates economic value (an

affordable luxury) and reduces psychological costs (they

are very convenient to ﬁnd).

Also consistent with the work of Treacy and Wiersama

(1993), it is difﬁcult for organizations to be “world class” at

creating more than one of the higher-order value categories,

as they require different resource investments, organization

structure, and culture; but organizations need to be com-

petitive in the value offering across all four dimensions as

most customers are thought to use a compensatory model

in making brand choices. Although not yet investigated

empirically, anecdotal evidence suggests (consider most

industry leaders such as Starbucks above) that organizations

with a more comprehensive value creation strategy (greater

breadth or depth of value creation) will outperform com-

petitors with less rich value offerings—so long as the value

offered is desired and cost effective to create.

Positioning and Product Concepts

The framework provides a relatively easy way for organi-

zations to document their value creation strategies—for

individual products or for the organization as a whole. For

example, Appendix B documents the value creation strategy

of the Sharkey’s Cuts for Kids franchise.

Sharkey’s mainly offers experiential/hedonic value to

the children of upper-middle-class parents through its

hairstyling products and environment. Sensory value is

created through the purchase/consumption environment

(colorful cartoon themed decor, television programs, music,

video games, mini arcade, and retail store), as is emotional

value (play, fun, excitement, and enjoyment). They cre

ate social-relational value through “glamour girl parties”

(pampering and friendship bonding), “karaoke nights for

moms” (network beneﬁts and personal interactions), and

special certiﬁcates and photos for ﬁrst haircuts. Epistemic

value is created through the novelty of themed chairs

(such as a Harley-Davidson motorcycle, a Barbie car, and a

sparkling Mercedes) and through the novelty of different

hairstyling, and particularly in the glamour parties that

feature different makeup and “updos.” Sharkey’s creates

functional value in terms of appropriate outcomes through

their haircutting service product (good-looking styles) and

interactions with employees and systems (no tears). They

create symbolic/expressive value through self-expression

(different hairstyles, and some locations offer art classes for

kids), and to some extent, personal meaning in the karaoke

nights by means of a personal recording of the songs sung.

The main cost/sacriﬁce value created is a reduction in the

psychological cost (stress and conﬂict) of getting a child’s

hair cut (making it easier for both the parent and child)

through personable staff and the purchase/consumption

environment.

By delineating the value creation strategy of an organi-

zation using the framework, marketers can clearly deﬁne

product concepts, a new product key success factor (Cooper

2001). By mapping all of their brands onto the framework,

organizations can illustrate their value creation portfolio.

Used as part of an industry analysis, the framework helps

marketers illustrate their value creation positioning relative

to key competitors, similar to the “customer value maps”

proposed by Gale (1994)—recognizing that the framework

Winter 2007 17

may need to be applied to speciﬁc market segments to

achieve an appropriate product–market match comparison.

By illustrating gaps in the value creation strategies of an

industry, the framework is useful for identifying value

creation opportunities—either for new products or for how

the product concepts may be enhanced to produce a richer

value proposition. For enhanced product concepts, market-

ers could ask themselves, for each cell in the framework,

whether it would make sense (ﬁnancially and competi-

tively) to create additional value in each area. Sharkey’s,

for example, does not appear to offer much value through

information-related processes. They could create greater

epistemic value (knowledge) by means of information dis

semination relating to active and healthy lifestyles for kids.

There is also little value created through interactions with

employees or systems. Greater functional/instrumental

value could be created in terms of appropriate outcomes

(safeguards) via product sources by letting kids and parents

“see” different hairstyles on their own heads using video

technology. It is recognized, of course, that gaps in the value

map may indicate value propositions for which there is no

demand or market.

Competitive Advantage

Not only does the framework help describe product concepts

and positioning strategies but it also helps marketers specify

sources of competitive advantage—which value creation

processes they are going to focus on to create the value on

which they plan to compete. For example, much of the value

offered by Starbucks concerns (1) the purchase/consump-

tion environment where they have developed expertise in

facilities management, interior design, and merchandizing,

and (2) interactions with customers, supported by expertise

in recruitment and training, service quality, and operations.

Similarly, much of the value created by the Sharkey’s fran-

chise is also in the purchase/consumption environment and

customer interactions. This is to be expected with consumer

services. For goods, one might expect greater focus on

value creating processes relating to product development

and manufacturing. In business-to-business contexts, there

may be greater focus on the value created by means of in-

teractions (social-relational value) and ownership transfer

activities (distribution, logistics, etc.).

Marketing Research

The framework also provides some direction for operation-

alizing the customer value creation strategy construct. Such

a construct could be viewed as having four main facets or

dimensions relating to the four types of value described.

A battery of questions could then be developed for each

dimension and subdimension based on the key sources

of value. (See Appendix C for an illustrative example of

questions that capture the four main types of value from

product sources, examples of questions for the other sources

are available from the authors on request.) Items could

then be summed across sources of value to create formative

indices of functional/instrumental, experiential/hedonic,

symbolic/expressive, and cost/sacriﬁce value, similar to a

“balanced scorecard” approach (e.g., Kaplan and Norton

1992). Alternatively, the framework could be used to assess

the customer value creation strategy of an organization

by means of content analysis of business plans, market-

ing plans, communication plans, or other documents and

materials that describe marketing activity. Appendix D

illustrates a coding scheme for such content analysis that

could be used to create summed scales of functional/in

strumental, experiential/hedonic, symbolic/expressive, and

cost/sacriﬁce value creation.

CONCLUSIONS

Customer value creation is a central marketing concept that

has been underinvestigated (Hunt 1999). The customer value

creation strategy framework developed in this paper offers

a useful tool for specifying and illustrating value creation

strategies, illustrating brand and organization positioning,

identifying opportunities for new value creation proposi-

tions, and suggesting enhancements to the value proposi-

tions of existing products.

In addition to these contributions, the framework also

suggests directions for future research. For example, it leads

to the following questions: Under what conditions are some

types of customer value creation more or less appropriate

than others? Under what conditions are some value migra

tion strategies (patterns and progressions of value creation)

more or less appropriate than others? Are some sources of

value more or less strategically important than others?

Other value creation observations suggest other testable

propositions. Symbolic/expressive value, for example, ap-

pears to be more difﬁcult to create (fewer ﬁrms follow a

brand image/brand equity strategy than other value creation

strategies), but it may provide more sustainable competi-

tive advantage. Most start-up businesses compete by creat

ing functional/instrumental value or cost/sacriﬁce value.

Would start-up performance be enhanced by more complex

value creation strategies? If a ﬁrm started with a focus on

functional/instrumental value, what type of value should

they next try to add to the product concept?

18 Journal of Marketing Theory and Practice

These research questions need to be tested in order to

provide sound prescriptive advice to organizations wanting

to improve their customer value creation strategies. The

customer value creation framework presented here provides

some assistance in this task by extending and integrating

extant conceptualizations of customer value creation. Fu-

ture work is required to develop measures of customer value

creation strategies consistent with this framework.

Being able to differentiate new products and services

is at the heart of marketing. Without a unique position,

businesses (and their associated products and services)

struggle to survive let alone thrive. Being creative about

creating customer value can enable marketers to be more

successful in discovering opportunities. Our goal, with the

presented framework, is to provide some structure to this

creative process.

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20 Journal of Marketing Theory and Practice

APPENDIX A

Customer Value Creation Framework

Types of Value

Functional/Instrumental Experiential/Hedonic Symbolic/Expressive Cost/Sacriﬁce

Sources of Value Value Value Value Value

• Correct/accurate attributes • Sensory • Self-identity/worth • Economic

• Appropriate performances • Emotional • Personal meaning • Psychological

• Appropriate outcomes • Social/relational • Self-expression • Personal investment

• Epistemic • Social meaning • Risk

• Conditional meaning

Information Information informs, educates, Copy and creativity can provide Can position a product, help Helps consumers evaluate

and helps customers realize or enhance sensory, emotional, consumers identify with the alternatives; make more

performance and outcomes. relational, and epistemic product, help them make informed, faster, and less

experiences. associations, and interpret stressful decisions; helps lower

meaning. prices by greater competition.

Products Products directly provide They provide sensory (e.g., Products enhance consumer Product price and augmented

features, functions, and restaurants), emotional self-concepts (e.g., Mac product considerations, such

characteristics that allow (e.g., Six Flags), relational cosmetics), provide personal as operating costs, assembly,

performances and outcomes. (e.g., board games), and meaning (e.g., Campbell’s ease of use, warranty, and

epistemic (e.g., Disney Land) soup), offer self-expression service terms, help to reduce

experiences: augmenting goods (e.g., Gap clothes), and costs and sacriﬁces.

(e.g., IKEA) or as the focal provide social meaning

product (e.g., Club Med). (e.g., Hallmark cards).

Interactions Sales call frequency and Service attributes, such as staff Staff and system interactions Interactions with people and

(with employees duration, service interactions politeness, friendliness, or can make customers feel better systems (such as electronic

and systems) and responsiveness, and empathy, create sensory, about themselves and provide data interchange) add to or

interactions with systems emotional, relational, and personal meaning to customers; reduce the economic and

(such as the telephone, billing, epistemic experiences for privileged interactions support psychological cost of a

or customer support system) customers, as do service status and prestige. Equity product and increase or reduce

provide or enhance desired recovery, customer support, policies can enhance the personal investment

performances and outcomes. and other systems. sociocultural meaning. required to acquire and consume

the product.

Environment Furniture, ﬁxtures, lighting, Features and attributes of the Where a product is purchased Contributes to the economic

(purchase and layout, and other decorative purchasing or consumption or consumed can provide cost of a product (e.g., popcorn

consumption) features and attributes of the environment such as music, personal, social, or at a movie theater),

purchasing or consumption ambiance, and atmosphere sociocultural meaning and psychological cost (such as

environment contribute to can create sensory, emotional, can enhance self-worth and ﬁnding parking downtown),

functional/instrumental value and epistemic experiences expression—a cup of coffee at personal investment (how

by enhancing or detracting for customers. an outdoor cafe may have much searching is required),

from product performances more symbolic value than and risk (personal safety).

and outcomes. coffee at home.

Ownership/Possession Correct, accurate, and timely Fulﬁlling delivery promises and How a product is delivered Can be enhanced with

Transfer fulﬁllment processes (such as how a product is delivered (such as gift wrapped or via payment terms, delivery

order taking, picking/packing, (such as the presentation of a ceremony) and by whom options, return policies,

and delivery) provide a meal) can enhance the (such as the manager of a billing accuracy, order tracking

functional/instrumental value. customer experience—as can car dealership) can create systems, access to supplier

pride of ownership and product symbolic value. personnel, and dispute

potency (future potential). resolution procedures.

Winter 2007 21

APPENDIX B

Framework Application: Sharkey’s Product Concept

Types of Value

Functional/Instrumental Experiential/Hedonic Symbolic/Expressive Cost/Sacriﬁce

Sources of Value Value Value Value Value

◆ Correct/accurate attributes ◆ Sensory ◆ Self-identity/concept ◆ Economic

❖ Appropriate performances ❑ Emotional ❑ Personal meaning ❑ Psychological

➢ Appropriate outcomes ❖ Social/relational ❖ Self-expression ❖ Personal investment

➢ Epistemic ➢ Social meaning ➢ Risk

■ Conditional meaning

Information

• Marketing communication

• Brand management

Products (goods/services)

• Actual

➢ Good-looking styles ➢ Novel styling ❖ Hairstyles

❖ Glamour girl parties ❑ Song recordings

➢ Glamour girl parties

❖ Karaoke nights

• Augmented

❑ Colors, sounds ❖ Art classes

➢ Entertainment variety

❖ First cut services

Interactions

• Employees

➢ No tears ❑ Personable staff

• Systems

Environment

• Purchase and consumption

◆ Decor ■ Cartoon characters ❑ Low-stress environment

❑ Cartoon characters

◆ Theme chairs

Ownership/Possession

Transfer

• Fulﬁllment

• Accounting/legal

22 Journal of Marketing Theory and Practice

APPENDIX C

Illustrative Scale Measures

Types of Value

Functional/Instrumental Experiential/Hedonic Symbolic/Expressive Cost/Sacriﬁce

Sources of Value Value Value Value Value

• Correct/accurate attributes • Sensory • Self-identity/concept/worth • Economic

• Utility • Emotional • Personal meaning • Psychological

• Appropriate performances • Social/relational • Self-expression • Personal investment

• Appropriate outcomes • Epistemic • Social meaning • Risk

• Conditional meaning

Products

• Actual • This organization competes • The products of this • The product(s) of this • A key beneﬁt of the

• Augmented by offering products with organization are fun, organization help enhance products offered by this

the right features or interesting, or exciting to use. consumer self-concepts. organization is their

attributes. • A big part of the appeal of • The packaging associated low cost.

• This organization competes this organization’s product(s) with this product has its • The product warranty, service

by offering products with is the ambiance, feel, or own symbolism. terms, or return policy of

superior performances or aesthetics experienced. • The product(s) of this this organization helps to

outcomes. • The products of this organization allow consumers reduce the perceived risk

• The packaging of this organization help develop or to express their own of its purchase.

organization’s products is enhance social relationships. attitudes, interests, or opinions. • The packaging of the

useful in its own right. • A key beneﬁt of the products • The brand(s) of this products offered by this

• This organization has a offered by this organization is organization have strong organization is hard to

reputation for making that they facilitate interaction personal meaning to me dispose of.

useful products. between people. (to many people). • This organization promotes

• This organization has a • This organization’s product • A main beneﬁt of the ﬂexible return policies,

reputation for making packaging is quite attractive. products offered by this strong warranties, or

quality products. • This organization competes organization is the ability other guarantees or

• This organization competes mainly by offering a desired for customers to express or promises that are aimed at

mainly by offering useful experience to their customers. reﬂect their own beliefs, reducing the perceived risk

products to their customers. • There is a strong knowledge values, or personalities. of buying and using their

• This organization is known or educational component to • The brand names of this products.

for its technological innovation. the products offered by this organization are considered • This organization has a

• The products offered by organization. by many to be prestigious reputation for being difﬁcult

this organization sell well • The products offered by this or reﬂective of status. to do business with.

because they work. organization have strong • The products offered by this • The products offered by this

sensory appeal. organization are sometimes this organization are

• This organization competes associated with particular positioned as being a

mainly by offering outstanding holidays, celebrations, “good deal.”

customer experiences. events, or traditions. • The products offered by this

• This organization has a organization are known for

reputation of being socially being easy to use.

responsible.

Winter 2007 23

APPENDIX D

Measures for Content Analysis

Use the following codes in the margins of documents to indicate the creation of functional/instrumental, experiential/

hedonic, symbolic/expressive, or cost/sacriﬁce value creation. Sum the unique expressions of value creation within each

major type of value created.

Functional/Instrumental Value

F1: (FU) Compete by creating useful products.

F2: (FA) Compete by creating correct/accurate attributes.

F3: (FP) Compete by appropriate performances.

F4: (FO) Compete by appropriate outcomes.

F5: (FV) Value-chain activity/resource allocation consistent with functional value creation.

Experiential/Hedonic Value

E1: (ES) Compete by creating sensory value or appealing to the senses.

E2: (EM) Compete by creating appropriate emotions (fun, pleasure, excitement, relaxation, etc.).

E3: (ER) Compete by facilitating social relationships (bonds, attachments, togetherness).

E4: (EE) Compete by creating epistemic value (knowledge, novelty, fantasy).

E5: (EV) Value-chain activity/resource allocation consistent with experiential value creation.

Symbolic/Expressive Value

S1: (SS) Compete by enhancing self-identity, self-concept, self-worth.

S2: (SP) Compete by creating personal meaning.

S3: (SE) Compete by facilitating self-expression.

S4: (SM) Compete by creating social meaning (status, prestige, image).

S5: (SC) Create value by providing cultural meaning, enabling customers to better celebrate cultural, religious, or other

holidays or events.

S6: (SV) Value-chain activity/resource allocation consistent with symbolic value creation.

Cost/Sacriﬁce Value

C1: (CE) Compete by offering economic value (low prices, value in use, life costs).

C2: (CP) Compete by minimizing psychological investment of customers (ease of use, ease of doing business, simplicity,

availability, accessibility).

C3: (CI) Compete by minimizing personal investment of customers (time, effort, energy).

C4: (CR) Compete by minimizing customer risk (personal, technological, strategic).

C5: (CV) Value-chain activity/resource allocation consistent with cost/sacriﬁce value.

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