gronroos presentation understanding customers to support their value creation

Christian Grönroos Svenska handelshögskolan / Hanken School of Economics Finland

Fourth Annual Laurea SID Seminar 4 the May, 2011

Understanding customers to support their value creation

Christian Grönroos Professor of Service and Relationship Marketing

CERS Centre for Relationship Marketing and Service Management Hanken School of Economics Finland

(Svenska handelshögskolan)


The first thing to understand about customers: What goes on in the marketplace?

There are those who need assistance to facilitate their processes, and there are those who have the resources

and capabilities required to offer such assistance.

Which conclusion follows from this?

IN THE MARKETPLACE THERE IS ONLY SERVICE!

1. Firms must be organizedand managed, and perform in way which

enables them to facilitate and support their customers’ processes.

2. There are only service businesses;

i.e. firms that instead of offering their customers resources only,

concentrate on offering them the support required by them, so that their processes are facilitated.


How do customers experience offerings: Case KONE (service and

maintenance)

The firm: Big firm in the lift (elevator) manufactring and service business The problem: The service and maintenance business brought in 50% of the turnover (at the time of the case events), but the firm lost more customers than it could replace; a profitability problem developing

First action: A survey to investigate how the firm’s customers experienced its service operations (repair and maintenance)

The message: Kone’s services are expensive and their quality is low

Management reaction: Confusion. “We have the best resources and systems in the industry – by far!”; “It has to be a communication problem.”


Case KONE (cont’d)

Second action: A qualitative study using personal interviews, basically with only one question: “What mistakes are we doing?” Scope: Key representative of 100 recently lost customers were interviewed


Case KONE: The message from the second study

The result: - ”no problems with the actual repair and maintenance” - ”the way the maintenance people behave is often irritating” - ”we cannot communicate with them” - ”frequently we don’t understand their way of working” - ”it is often difficult to get in touch with you” - ”it is often difficult for us to adapt to your systems” - ”timetables that are not kept is a problem for us, and irritate us” - ”it is often cumbersome to get problems that sometimes occur attended to” - ”lack of flexibility in your systems often causes inconveniences for us” - ”we don’t know how much we can trust you” - ”because of this, we consider your services expensive”

Management reaction: There is a quality problem after all, but it depends on other reasons than we originally thought!


WHAT CAN BE LEARNT FROM THIS CASE?


Learning 1: How is service experienced?

Outcome of the service process

Attitudes Behaviours Accessibility Punctuality Trustworthiness Capability to handle failures and mistakes

Perceived Quality

Outcome or Technical Quality

Process or Functional Quality

WHAT? HOW?

Outcome Process


Learning 2: What does it take to be a service business?

The type of resources needed in facilitating and supporting customers’ processes – products, service activities, information ... – is not important. It is the perspective taken that matters. How a firm positions itself in the marketplace is the key question.

Consequently, any firm can be a service business. Being a service business is a strategic choice.


Learning 3: Focus of innovation

1. The Outcome of the service processes: Can we achieve something novel? 2. The Process: Can we do it in a novel way? 3. The Business model: Can we create a new business?

NB. To become a service business, the third type of innovation is needed as well!

1. Products that are servicized (e.g. easy to use, maintain, upgrade ...)

2. Hidden services that are turned into real service (e.g. invoicing,

handling complaints, documentation ...)

3. Existing service activities that are made supportive to customer processes (e.g. deliveries, installing, call centres, FYI ...)

4. Servicescape

Sources of Process innovations:


Understanding customers: the customer’s gameplan

What is interesting? What kind of solutions are looked for?

What is accepted?

EVERYDAY PRACTICES

VALUES; AREAS OF INTERESTS

NEEDS; EXPECTATIONS

The Customer’s

Value-creating process

To understand the customer: Where to start?

Normally, what do we know least about?

How/where can we get necessary insights?


The logic of being a service business (service logic)

From a provider perspective (provider service logic) Provider service logic means that a supplier gears its practices (processes, activities and competencies) towards facilitating and supporting its customer’s corresponding practices, so that value is created in those practices, and ultimately in the the customer’s business process/life process (Grönroos and Helle, 2010; based on Grönroos, 2008)

From a user perspective (User service logic) User service logic means that users of resources provided use these resources, together with other resources required, and apply skills held by them, in a self-service process – “as service” – in order to create value for themselves (“value-in-use”) (Grönroos, 2008; based on Gummesson, 1995); Vargo and Lusch, 2004)

Depending of the perspective taken, the logic takes different meanings:


RegardingValue there is an agreement in the literature

In the contemporary management and marketing literature, there is an almost complete agreement that value is - created by the customer during usage as Value-in-Use - determined by the customer alone, based on experiences with resources (goods, services, information, etc.) used

In contrast to a previously dominating view that value - is created (and determined) by the firm (supplier, service provider), - and exchanged for money with the customer as Value-in-Exchange


Creation of value for the customer: from value-in-exchange to value in -use

Design Development Manufacturing Delivery Usage

Supplier sphere Customer sphere

Creation of Value-in-Use

Traditionelly in marketing and management (based on labour theory): Value-in-Exchange: Value embedded in production output (e.g. in goods), which is exchanged for money or money’s worth

Contemporary (and originally honoured; based on utility theory): Value-in-Use: Value emerges during customers’ use of resources (e.g. use of goods, services)

Creation of Value-in-Exchange

Value- in-

Exchange

Accumulating Value-in-Use


However, Value Creation is a mess in the literature: two views

1. A view developed in the management literature and inherited, although never formally defined, by most scholars writing about service as a perspective (“S-D logic”): - Value creation is an all-encompassing, unspecific process including unspecified actions by firms, customers and others (“the customer is always a co-creator of value”; “the firm is always a co-creator of value”; Vargo and Lusch, 2006 and a myriad of others)

Meaning: “Everything is value creation”


An alternative view

2. A view developed in the critical S-D logic literature (Service logic): - Value creation relates to the customer sphere. Definition: Value is created by customers during their usage of resources available ( goods, services, etc.)

- During direct interactions, the firm may get access to the customer sphere and co-create value with the customer (“customers create value for themselves”; “firms cannot create value”; “firms can become value co-creators”; Grönroos, 2008; Grönroos and Ravald, 2011)

Meaning: Value creation is a clearly specified process. Other processes may influence and even engage with this process.


Value creation as everything vs. creation of Value-in-Use?

Value creation as an all-encompassing process



Creation of Value-in-Use

These two views of value creation are contradictory. In the same model value cannot be created in two ways!


Defining value as customers’ creation of value-in-use enables theoretical and managerial implications far beyond what is possible according to a view that ”everything is value creation”

Conclusion: Potential Value that customers pay money for is a function of expected Value-in-Use

(and not of value-in-exchange)

The service provider is a value facilitator

Potential Value accruing during production phases

Value for the customer accumulating as Value-in-Use



EXPECTED VALUE-in-USE

at the point of purchase


Theoretical and managerial issues to address

1. How is value accumulating for customers throughout contextual experiences during usage? - how is this process proceeding; what contextual factors exist; how do they influence experiences with use of resources - how can the value accumulation process be influenced indirectly: how can contextual factors be influenced and changed; how can the experience process be influenced

2. How is the value accumulation for the customer facilitated by the development of expected value-in-use - how does the production and delivery of resources facilitate value accumulation - how can the resource constellation delivered by a firm be developed to positively influence value accumulation


Production and Value Creation: the roles of the Service Provider and Customer, respectively

INTER- ACTION

PRODUCTION THE CUSTOMER’S VALUE CREATION

Value Facilitation (Grönroos, 2008)

(Grönroos, 2011)

From a production perspective:

From a value creation perspective:

Joint production process: the Customer participates as co-producer of resources and processes with the provider (Eiglier & Langeard, 1975; Grönroos, 1978)

Joint value creation process: the Provider participates as co-creator of value (value- in-use) with the customer (Grönroos, 2008; Grönroos & Ravald, 2011)


Direct interactions between service providers and customers are fundamental for value co-creation



WHERE CAN DIRECT INTERACTIONS OCCUR?

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Conclusion: Where ever direct interactions occur, the firm has opportunities to co-create value with its customers E.g. The customer co-designs a solution, in the same process the firm may co-create value with the customer


Theoretical and managerial issues to address

1. How can the firm get access to the customer sphere (inviting the customer into various company processes to create direct interactions)? - where is access useful; how can it be arranged; what incentives are needed

2. How can the firm move beyond being a value facilitator only by utilizing the value co-creation opportunities offered by direct interactions with customers? - how can the firm engage with the customer’s value creation; how can it make itself relevant for the customer’s practices


To conclude

1. The Customer is always THE VALUE CREATOR (of value-in-use)

2. The Firm is fundamentally A VALUE FACILITATOR 3. During direct interactions, the Firm can CO-CREATE VALUE TOGETHER WITH ITS CUSTOMERS (Grönroos, 2008)

Ground rule: The customer creates value as value-in-use, the firm facilitates the customer’s value creation


Thank you

Major sources: Grönroos, Christian (2007): Service Management and Marketing. 3rd edition. Chichester: John Wiley & Sons (suomeksi: Palvelujen johtaminen ja markkinointi. Espoo: WSOYPro/Ekonomis-sarja, 2009) Grönroos, Christian (2008): Service logic revisited: who creates value? And who co-creates? European Business Review, Vol. 20, No. 4, pp. 298-314 Grönroos, Christian and Ravald, Annika (2011): Service as business logic: implications for value creation and marketing. Journal of Service Management, Vol. 22, No. 1, pp. 5-22 Grönroos, Christian (2011): Value co-creation in service logic. A critical analysis. Marketing Theory, Vol 11 (forthcoming)

gronroos presentation understanding customers to support their value creation

Business

service processes

real service

service businessservice

service businesses

service operations repair

existing service activities

maintenance business

customers resources