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The aim of this article is to examine the concept and functioning of value propositions, seen through a service- dominant logic (S-D) lens. The variety of perspectives used to understand value propositions are examined, from unidirectional communication of value to reciprocal promises of value. The concept of reciprocal value propositions is examined in the light of S-D logic’s fundamental premises. Examples are included to show how reciprocal value propositions can be used to initiate and guide resource integration activities between initiators and participants across a range of stakeholders of the firm. Some ‘taken for granted’ assumptions about market exchange are examined which act as a constraint on innovation in developing reciprocal value propositions, and more generally, stand in the way of innovative marketing practice. We also argue that reciprocal value propositions reveal opportunities for focal firm engagement with suppliers, customers, and other beneficiaries beyond sale/purchase transactions, as part of a platform for communicative interaction. In summary, we position reciprocal value propositions as a communication practice that brings exchange activities, relationship development, and knowledge renewal closer together.
It has been clear for some time that the historical emphasis on a goods dominant logic (G-D) logic, associated with the managerial marketing mix, limits the potential for creating customer loyalty and understanding the lifetime relationship value of a customer. The pervasiveness of G-D logic in marketing thought has led to reformist agendas attempting to ‘break free’ and develop their own alternative logic, especially in services marketing, market orientation and relationship marketing. Yet this work has been marginalized in student texts and in much of general marketing practice.
Service-dominant (S-D) logic is the latest reformist marketing agenda. This logic states that customers participate in the co-creation of value, which they assess through the sharing and integrating of resources with suppliers, especially their skills and knowledge. Rather than firms marketing to customers (i.e., producers taking products to market), emphasis is placed on suppliers and other parties marketing with customers (i.e., both sellers and buyers participating) as part of an interactive, relational process. The customer is the final arbiter of value co-created through direct interaction with suppliers, and most importantly, the arbiter of value-in-use derived from interaction with goods and other physical resources. In other words, goods and physical resources are seen as service appliances, as distribution mechanisms for service, and their value is determined at the time of use, as value-in-use. The controversial aspect of this agenda is that service becomes the basis of all marketing activity, involving reciprocal giving and receiving. From this perspective, a market is not only a meeting place or space but involves communicative interaction.
S-D logic draws on ideas from earlier phases in the development of marketing thought, for example, Nordic School service management thinking, value constellations, Industrial Marketing and Purchasing (IMP) network thinking involving the relationship between activities, resources and actors, and strategic approaches to knowledge and value co-creation. However, S-D logic brings disparate parts of earlier marketing logic together in a new configuration. 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 across all industry contexts. Drawing on earlier traditions and meanings of service, S-D logic says that service is the activity required to satisfy another’s need, or to bring about an improvement in something or some condition. But it’s not service(s) in the mainstream sense, where the role of services is to gap-fill what cannot be achieved with tangible goods. In S- D logic, ‘service’ is super-ordinate to both goods and services. Through interaction, the experience of service becomes the basis for assessments of value-in-use by beneficiaries, whether that value is derived from goods, or in direct interaction with another party. On this point S-D logic follows an earlier marketing tradition that posits that value is not derived from acquisition.
At this stage in the development of S-D logic, fuzzy definitional problems associated with many of the terms used remain. Through the passage of time and sometimes through misuse, common marketing assumptions and ideas become category-bound. Thus there is a need to reflect on marketing terms used and in some cases, to clarify their meanings. The term value proposition is a case in point. A value proposition is conventionally taken to mean the marketing offer or value promise formulated and communicated by a seller, with the intent that it be accepted by a buyer. This definition seems reasonable in a G-D logic context but the marketing and purchasing landscape changes with S-D logic where unidirectional communication gives way to reciprocal communication, or dialogical communication in those cases where the parties involved purposefully engage in working together and learning together.
Value propositions are one of the key foundational premises in S-D logic, yet there is little detailed consideration of the concept and its application within the rapidly growing S-D logic literature. The aim of this article is to address this gap in the literature by examining the meaning and functioning of value propositions seen through the lens of S-D logic. We argue that while the concept of value proposition is supported in S-D logic, an emphasis on reciprocity is also needed to reflect the contemporary industrial marketing practice of initiating and responding to the requirements of customers, suppliers and other stakeholders.
The structure of this article is as follows. First, different perspectives on value propositions are reviewed, from unidirectional communicating of value to developing reciprocal promises of value. Second, the concept of reciprocal value propositions is examined in the light of S-D logic’s fundamental premises. Third, examples from industrial enterprises are used to illustrate how reciprocal value propositions can initiate resource integration across a network of firm stakeholders. Some ‘taken for granted’ assumptions about market exchanges are then examined which, we argue, can act as a constraint to innovation in developing reciprocal value propositions, and more generally, can stand in the way of innovative industrial marketing practice. We then outline a platform for communicative interaction involving the evaluation of value propositions, resource integration and value-in-use. Finally, we discuss our conclusions and identify areas for future research.
2. Value proposition perspectives
The genesis of the value proposition concept can be traced to a project undertaken by McKinsey & Co. in the 1980s. Brief mention only was made of the concept at that time. Later, Lanning and Michaels defined value proposition as a statement of benefits offered to a customer group and the price a customer will pay. Their approach was presented as a ‘value delivery system’ involving three steps which highlighted the critical importance of communicating value. The framework in Fig. 1 shows these steps: choose the value; provide the value; and communicate the value.
These authors argued that business success is constrained when companies adopt a value orientation that focuses on making and selling a product (in today’s terminology, a G-D logic). The term ‘value delivery system’ collectively refers to the formulation and implementation of a value proposition. However, it appears to do so in a supplier-led manner. On the positive side, the formulation of a value proposition and its implementation forces an organization to choose the basis on which it will compete in its chosen markets.
Despite widespread use of the term value proposition, there is surprisingly little published research on this topic. Frow and Payne surveyed the extent to which value propositions were actively used within organizations. This work drew on a sample of 265 managers attending five executive events on three continents. They identified that although the term was used by 65% of the organizations only 8% had developed and routinely communicated formal value propositions. Notwithstanding the seemingly restricted use evident in their study, our examination of the literature has identified six important conceptual progressions over time which allows us to identify which perspectives are compatible with S-D logic. Our observations and critique follows.
- Value propositions as supplier-crafted value for customers First, the early literature understood value proposition as a deliverable value offering to customers (Bower & Garda, 1985). This supplier-crafted value perspective involved a marketing offer or promise initiated and communicated by one party to another, thought to be of value to a customer, with the intent that it be accepted by the customer. The value proposition described the performance expected of the product, and its relationship to customer’s needs and the total cost to the customer. Later, Lanning (1998) suggested that the aim of a business is to create a value proposition for customers which is superior to any offered by a competitor. This conceptualization of value propositions challenged the then current strategic management approach inherent in Porter (1985) value chain, suggesting that instead of adopting a supplier-oriented approach, a value proposition should depict value from a customer perspective. However, this conceptualization retained vestiges of G-D logic because the supplier’s notion of customer value is assumed to be ‘embedded’ in the goods, supported by a persuasive supplier-to-customer communication mechanism.
- Value propositions as supplier-crafted generic strategies Second, value propositions have been discussed in the strategy literature, in terms of value disciplines. These influential authors argued that marketplace success is strongly influenced by the (implicit or explicit) generic value approaches that companies pursue. Treacy and Wiersema outlined three value disciplinary options which they argue are the underpinnings of market leadership. These are: operational excellence, involving providing products and services at the best price and with the least inconvenience to customers commensurate with operational effectiveness; customer intimacy, which involves deep understanding and then fulfillment of customer needs; and product leadership, which focuses on innovation and delivering unique value products. This perspective, given its generic aims is clearly aligned to Porter generic strategies. Later, Day, taking a resource based view, also outlined three generic value propositions for achieving market advantage, namely price value, performance value and relational value. These reflect a range of strategic choices available to the firm. The importance of both these approaches lies in their contribution to stimulating managerial and academic interest in ‘delivering value’ to customers. However, as high level generic strategies, they arguably deflect attention from individual customer-based strategies. They are also supplier-led, notwithstanding the intent to understand and fulfill customer needs.
- Value propositions for stakeholders other than customers Third, the literature on value propositions is mostly oriented to customer value propositions, reflecting the influence of Lanning and Michaels and Treacy and Wiersema. Thus, the focal firm anticipates a customer need, or interacts with customers to define a specific need, and then develops a solution to meet that need. However, some scholars have considered the needs of other stakeholders of the firm, for example, value propositions: to attract new employees; to improve firm–employee relationships in internal markets; to improve supplier and supply chain coordination; and to communicate to shareholders. In each of these contexts, the value proposition seeks to attract a specific target audience by understanding their requirements. However, these value propositions are all unilateral initiatives and developing them rests with the management of the focal company.
- Value propositions co-produced by suppliers and customers Fourth, marketing relationships can bring to the fore complex demand and supply tensions which might be resolved through co- produced value propositions. For example, Flint and Mentzer studied account managers working in ‘integrated value chains’. They argue that value propositions are more often co-produced than pre- packaged in advance by suppliers. This represents a major shift in the propositional logic of earlier authors. Flint and Mentzer conclude that knowledge collaboration across multiple enterprises means that a supplier’s value proposition will seldom be a final offer. They report that suppliers and customers engage in dialogue and work with the emergent “components of value propositions, which are then considered and modified to the satisfaction of both parties”. In other words, what is proposed is brought together by value chain partners by knowledge sharing before it is ‘exchanged’ or coordinated between them. Thus the value expected is not merely delivered, but is a consequence of mutual adjustment. While this is not necessarily an easy process to manage, it is likely to result in downstream benefits, or manifest as value-in-use in the language used in S-D logic.
- Reciprocal value propositions — equitable exchange highlighted Fifth, the concept of reciprocal value propositions represents a more recent development. Glaser claims that if participants in the value creating process recognize that their objectives are complementary rather than antagonistic, and carry this idea into negotiation, the value outcomes for all parties are likely to be enhanced. Value in this sense is not so much a strategy or a set of customer benefits but an all inclusive reckoning, where negotiation is the path by which participants share in the creation of value. Ballantyne and Varey point out that there can be no satisfactory relationship development unless exchange participants reciprocally determine their own sense of what is of value and communicate it to their counterparts. However, they go further, recommending a communication process that begins with the crafting by any party, not necessarily the supplier, of a reciprocal value proposition, directed to a counterpart, which makes explicit the benefits expected to be gained and given up. Of course, a firm can craft a reciprocal value proposition which may not be accepted. Those that are accepted take on the form of mutual promises. This means that in any proposed marketing exchange there will be at least two evaluators, and their value perspectives become linked in reciprocal promises. What is obvious is that each party is seeking an equitable exchange. Reciprocal value propositions may be informal in their communication which can lead to a simple transaction, or take the form of a negotiated co-created agreement with longer term relational consequences. As Vargo and Lusch have noted, “even if a firm does not want to extend or repeat patronage, it is not freed from the normative goal of treating the customer relationally”.
- Collaborating with customers to achieve customer solutions Finally, we examine whether the notion of customer solutions adds meaning to our review of the five perspectives on value propositions. Levitt’s insight that customers buy solutions rather than products has gained renewed attention in recent literature. This approach is especially important when the combined resources of several suppliers are needed to provide a profitable and integrated customer solution. For example, suppliers of sophisticated telecoms, IT solutions and aircraft engines may need to work effectively with several upstream suppliers. The literature suggests two main perspectives. First, product centric customer solutions, usually discussed as customized and integrated combinations of goods and services. Second, a relational process solutions approach proposed by Tuli, Kohli, and Bharadwaj which has a four-part plan for engaging with customers at every step in their own solution development processes. This approach starts with a requirements definition, and moves to customization and integration, then follows the deployment of the solution, and finally, post deployment support. Both these approaches can be aligned to S-D logic’s notion of co-creation of value (as a process) and resource integration (as an outcome) but each has a different degree of emphasis on customer involvement as part of the ‘solution’. Either way, supplier and customer collaboration and resource integration extends potentially from pre-sale to post-sale. Interestingly, value propositions are mentioned but it is not made clear if or how customers are involved in developing them.
In sum, the meaning of the term value proposition ranges from a pre-calculated customer value by suppliers to the crafting of generic firm-level strategies, and also to propositions covering stakeholder constituents other than those in customer markets. Also, from customer-oriented value propositions to integrated supply chains or stakeholder networks. All forms of value proposition focus on the specific experiences that a customer might value but elements of G-D logic remain embedded in much of the value propositional thinking, with much of the early literature especially emphasizing the delivery of value, rather than co-creation of value. The idea that a relational processes view of customer solutions is the embodiment of S-D logic’s co-creational aims is attractive but value propositions are not explicitly discussed by these authors.
These perspectives, in aggregate, are influential in arriving at a new understanding of reciprocal value propositions, seen through the contemporary lens of S-D logic. According to Vargo and Lusch, the intent of providing service for and in conjunction with another party is to obtain reciprocal service, and while it has not been fully elaborated in the S-D logic literature, this process logically begins with reciprocal value propositions. Vargo and Lusch have also suggested that the idea of one party producing value and another consuming it is a blind-spot legacy from industrial G-D logic, and so we recognize that value propositions can be initiated by any party. We also see value propositions as reciprocal promises of value, which aligns with contemporary communication literature on coordinated meaning making. Finally, we consider reciprocal value propositions as essential to formulating equitable exchange, and from that, a basis of trust for longer term relationships. This notion becomes especially intriguing in the context of customer solutions where a broadened stakeholder network of value propositions may be involved.
Evaluating these perspectives from an S-D logic orientation, we arrive at the following statement of principles for reciprocal value proposition. First, a potentially valuable proposition to a counterpart firm can be crafted in advance by any initiator (the observance of conventional supplier–initiator roles only acts as a constraint to innovation). Thus crafted, these value propositions become a starting point for negotiation, or an agenda for working together with participating stakeholders to create mutual benefits. Second, if the parties involved wish it, propositions can be co-created or co-evolved over time, with value being realized in use over time. We also see the need for establishing processes for dialogue and knowledge sharing in developing robust value propositions. Third, and this has not been clearly highlighted in the emerging S-D logic literature, the process of achieving propositional agreement with customers or other benefi- ciaries (by working together or negotiating) may be assessed by any participant to be of unique value in itself.
These value propositional principles align well with the strategic intent of the customer solutions perspective of Tuli et al, as well as systems selling and project marketing perspectives. However, Tuli et al suggest that, in practice, suppliers often ignore key steps in the relational processes needed to achieve customer solutions. This suggests to us that there are additional benefits to be gained from an interactive learning approach to creating reciprocal value propositions. All these perspectives align well with the process of gain-sharing as a practical application of the social norms of reciprocity.
3. Value propositions within S-D logic
Despite value propositions forming one of the central foundational premises (FPs) of S-D logic, there has been no detailed explanation of the concept from conceptualization through to modes of practice. That may be in part due to some ambiguity in the original formulation, despite some additional commentary and a reformulation of the original FP. This section examines the formal conceptualization and finds that ambiguity still exists.
The original FP7 read as follows: the enterprise can only make value propositions. What we infer from the original FP7 is that an enterprise can initiate value propositions but only a beneficiary can determine in use what is of value. ‘Value’ in this sense is not added (or deliverable) but assessed by someone other than the initiator. What is misleading is that FP7 still has an embedded G-D logic sensibility, with one party simply putting forward a proposal. There is no sense of reciprocity evident.
Vargo and Lusch then developed a reformulation which reads: the enterprise cannot deliver value, but only offer value propositions. This reformulation adds some clarity but in our view the designation ‘only’ remains and is misleading. Some additional insight is derived from Lusch, Vargo, and O’Brien who comment that, with S-D logic orientation, price as an exchange mechanism is “replaced with a value proposition created by both sides of the exchange”. We agree. In such cases a value proposition becomes multi-sided, or reciprocal. But this is not what FP7 says. Reciprocity would allow some role flexibility in who chooses to initiate or complete an offer, or work together with a counterpart to shape the value proposition. Working together may require additional resource inputs from participants but the risk of misunderstanding or later contractual default is logically reduced. Hence, we propose the following refinement of FP7: an enterprise can initiate or participate in developing value propositions as reciprocal promises of value but beneficiaries will always determine what is of value in their own terms.
In our proposed reformulation of FP7, a beneficiary’s value assessment begins with an assessment of the equity (fairness) of any reciprocal value proposition. Co-ordinating a reciprocal value proposition continues until the sequence of proposals and essential detail is seen to make sense from their respective points of view. This preliminary value assessment might also include the value of knowledge gained (prior to sale), as well as the expected value-in-use of any goods component, explicitly or implicitly adjusted for future risk of product failure, obsolescence, etc. Thus we see value creation being involved in a broader cycle of communicative interaction extending from pre-sale to post-sale within a buyer–seller relationship.
4. Adopting a stakeholder perspective for reciprocal value propositions
One complication in industrial markets is that value creation usually involves many companies and other actors where the links between them are interdependent and project tasks are not completely controlled by any one of them. It is argued that this systemic perspective is not widely understood by business firms, although the global financial market crisis of 2008–2009 initiated a rethink of the convention of firms acting as discrete entities and captive to the self-interested profit maximizing economic model. The view that firms are not unique controllers of their own fate fits well with the S-D logic emphasis on the reciprocity of service. For example, our contemporary internet environment favors a shift in business mindsets to accommodate the idea of the market as a network of social actors with economic interests, such that their communicative interactions have important economic consequences. According to Welch and Wilkinson, some firms are emerging as “participating, adaptive, sensing and learning organizations that have to respond to unforeseen and unforeseeable opportunities and problems”. This involves a shift in a firm’s strategic point-of-view to recognize the network of relationships in which they and their customers, suppliers, others institutions and their respective employees are embedded.
Such considerations raise the practical issues of: firstly, how reciprocal value propositions can be crafted; and, secondly, how they can be enacted to encompass a range of stakeholder interests. Our prior discussion suggests that value propositions should be 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; and, congruent with the relationship objectives set for a particular market. As to the second issue, the literature on stakeholders spans a number of disciplinary domains including strategic management and the general fields of marketing, including relationship marketing. Of these, we conclude that the relationship marketing literature is especially relevant, given the emphasis in S-D logic on relationships and also a firm’s network of stakeholder relationships.
We selected the Christopher et al ‘six markets’ relational framework (Fig. 2) for its good fit with the notion of relationally constructed value propositions. Each of the six market domains can be contextualized to include key stakeholder groups for any focal firm. Also this framework acknowledges the possibility of relationships spanning the market domains, giving rise to multiple actor roles.
Fig. 2. The six markets stakeholder model. Payne, Ballantyne and Christopher
The six markets model aims at broadening a firm’s market planning activity. It includes: customer markets, internal markets (existing employees), supplier and alliance markets, referral markets (a firm’s referral system and its advocates), recruitment markets (potential employees) and influence markets (the institutional stakeholder context in which the focal firm operates). This model was used in the field-based development of reciprocal value propositions described in the next section.
5. Crafting reciprocal value propositions: illustrative examples
In the absence of literature or examples of reciprocal sets of stakeholder value propositions we adopted a discovery oriented approach to exploring reciprocal value propositions, or what Gummesson terms ‘interactive research’.
The field-based work reported here comes from working with twelve mid-career executives to explore how value propositions might be developed and coordinated within their respective organizations and reciprocally with external counterparts. Each executive participated as part of a peer learning workshop. A range of companies operating in industrial sectors (some also operated in supply chain management and consumer markets) were represented. Over a three day period they received a briefing on strategy formulation and how to construct reciprocal value propositions, based on the premises detailed in Section 4. The six markets model was used by each participant for selecting key focal firm relationships and to identify a broad stakeholder value network. Participants were invited to craft two reciprocal propositions for each of the six market domains. These focused on what each executive considered important relationship development opportunities for their focal firm in these stakeholder market domains.
Structurally the project comprised a number of steps: first, a learning component (the briefing); then, an action component (an initial drafting of the propositions); next, back in their own firm context, a coordination component (reciprocally testing and reconciling value propositions with stakeholder counterparts); finally, a feedback component (reporting back results and sharing experiences with the original peer learning group). The executives worked on this project over a period of three months and had regular access to the project leader during this period. The results from workshop learning cycles over a number of iterations are the source of our case illustrations as to how such value propositions can be developed interactively and reciprocally in each of the six markets (see Table 1). No claim is made that these examples are exemplars of best practice, or generic propositions that can or should be used by any company. Each example is firm specific and therefore illustrative, rather than prescriptive.
The simplicity of the value propositions derived from our workshop groups is deceptive. The key element of reciprocity was structured by calling for propositions to be crafted in the form of: “If we …” (stated in terms of benefits promised for the beneficiary), “will you …” (stated in terms of the benefits expected for the focal company). What is important is the intent to offer something of value to another party and the subsequent creative conversations, dialogue and adaptations that follow from this initial expression. In other words, the guiding principle is that service is exchanged for service, and each party expects to get what they want by helping the other party get what they want.
Feedback from the executives involved in this project showed many of them found the task difficult but rewarding. They spent a substantial amount of time on the initial selection of key stakeholder constituents before beginning to craft the reciprocal value propositions. This task forced them to confront hidden constraints and interdependencies between their firm and other firms and institutions. This was reward enough for some as they gained insights that enabled them to begin to address and improve aspects of firm–stakeholder relations and the need for dialogue. However, many of the executives went further and were able to craft and implement their reciprocal value propositions, and also gain wide acceptance from their firm and stakeholder counter- parts. “Nobody had thought of that before” was a common response. Some gains in co-created value came from unexpected places. Some were substantial. One manager from a Government Taxation Agency was able as a consequence of implementing just one value proposition in the internal market to save more than US $1 million annually in unnecessary interdepartmental costs. Also, executives using the reciprocal value propositional planning framework experienced a shift in ideas about how value was co- created, evaluated, and possibly extended over time, thus breaking free from past transaction-bounded mindsets where traditional thought had become ossified and boundary reinforcing.
Reflecting on the crafting, formation and implementation of these case examples suggests the need for a strategic understanding in the manner of Mintzberg’s notion of emergent strategies. Strategy emergence recognizes that while strategic direction may indeed be set in place as part of a formal planning process, outcomes are the consequence of complex interactions which cannot be known in advance. Moreover, recent strategy-as-practice approaches signal a departure from the dominance of micro-economic theory and a return to examining the messy realities of business practice, where strategy is seen to be influenced by the tacit, adaptive accommodation that occurs in day by day social interaction in a business context — part of the recursive flow of activities in which strategy is accomplished. In other words, strategy-as-practice investigates how man- agers actually ‘do strategy’. From this perspective, strategy formation can involve many business actors interacting, not just designated strategists, to achieve actionable conclusions. The strategy-as-practice perspective integrates well with our concept of reciprocal value propositions, as both are grounded in patterns of communicative interaction, with the final form and content emerging through that communicative interaction.
Development of reciprocal value propositions might begin with an invitation to a counterpart to talk about mutual requirements. A draft reciprocal proposition could then be crafted by one party as a basis for promise-laden bargaining with the counterpart. This might lead to adjustments and agreement between the parties (if accepted) on the fairness of the expected reciprocal value as proposed, which will later be tested as value-in-use. Crafting a reciprocal value proposition in this incremental way allows attention to focus on the activity of proposing (as a process), as well as the objective of the proposition (as an expected outcome). This practice involves mutual appreciation of a kind that recognizes the evolutionary content of communicative interactions, their interpretation, and resulting choices of a course of action. This logic makes clear that a customer’s value determination at point of purchase is always provisional upon later experience. These considerations suggest the need to reassess some key fundamental marketing assumptions that constrain the development of reciprocal value propositions.
6. Reframing marketing assumptions for S-D logic
The case examples of value propositions shown in Table 1 were designed with the purpose of initiating interaction and co-creation of value with external and internal counterparts. Some involved an extended period of dialogue and the application of knowledge and skills. In such cases, the value to be derived is emergent in kind, rather than tightly specified in the original value proposition. In other cases, value propositions were crafted and firmed up through working cross-functionally within the focal firm and then firmed up with external counterparts. What is of note is that the mainstream perspective of exchange in marketing has an inbuilt transactional bias that exists in contradiction to more relationship oriented practices. This transactional perspective is traditionally associated with consumer marketing but we would suggest it can have residual influence in industrial marketing management as a mindset that unreflectively imposes time–place constraints on the application of value propositions. A mindset, in our terms, simply means shared cognitive assumptions or schemas that are habitual and seldom questioned. We highlight three such assumptions that we consider could create barriers for some firms in the crafting and communicating of reciprocal value propositions, as well as impacting on other related aspects of industrial marketing practice.
6.1. Adopting an interaction viewpoint on the meaning of exchange
First, exchange is marketing’s core concept and yet it is by no means clear what this term really means. The assumed nexus between marketing exchange and transaction owes much to the popularity of Kotler’s generic concept of marketing management. However, following Ford, once interaction is seen as an organizing framework for marketing and as the basis of all business activity, we can say that interaction is the enactment of exchange in many and varied forms, not just sale–purchase transactions. The time-logic of exchange thus becomes 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 relation- ships evolve. Seeing interaction this way also means that transactions are one important type of interaction within a service system. This time-logic includes various search activities initiated by upstream buyers, purchase negotiations with suppliers, 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 interactions, including value propositions and negotiated agreements as well as value-in-use determinations by various resource providers and integrators. Opening up marketing exchange to include a variety of interactions is the first mindset shift needed to support reciprocal value propositions.
6.2. From a supplier-dominant to an initiator–participant perspective
Second, marketing is never just what sellers do but it has become so attached to seller-dominant managerial perspectives that we may overlook that a market is a shared place or space for sellers, buyers, facilitators and other stakeholders to co-ordinate their activities in anticipation of desired outcomes. Today, ‘market’ interaction may take place within integrated networks of suppliers or customers working together. In some respects they may also be competing firm to firm. This pattern is particularly evident with the continuing convergence of digital telephony, computer and software technology. As a necessary corrective, we introduce to the marketing literature two commonsense terms familiar in the field of 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 begin the other way around. It is unduly restrictive of innovation to say that only a customer will initiate an enquiry or a seller a value proposition. That initiator and participant roles are routinely interchangeable in practice is the second mindset enabler needed in our exploration of value propositions and assumptions about allied communication roles.
6.3. From communication-as-transfer to communication-as-process
Third, marketers have been conditioned to see their communication role as message makers and message transmitters rather than as participants in an interactive communication process. This communication-as-transfer logic contains a unidirectional communication bias and is arguably a growing problem in an interactive internet-enabled world. The problem is that when communication is narrowly conceived as unidirectional transfers of information, from one business actor to another, there is no reflective time or space for examining the meanings of such communications at both business and personal levels. In the communication-as-transfer way of thinking, the supplier firm’s offerings are transmitted to customers as persuasive messages. Much of the consumer marketing and even customer relationship marketing (CRM) literature has become entrapped in this way of thinking. As an alternative logic, a communication- as-process orientation can extend communicative interaction over time and so it gathers its own relationship-specific history. Such communication can also take on a variety of modes appropriate to the particular context. For example, to communicate dialogically, the parties involved must intend to interact and learn together, and the “voice of the customer” is thus co-created. In other words, a statement of customer requirements emerges through a mutually creative co-constructed dialogue. This shift to understand- ing communication as an interactive process is the third mindset enabler needed in our exploration of the practice requirements for reciprocal value propositions.
Our challenge has been to bring these traditional marketing assumptions to the surface, inspect what is often taken for granted, and reflect on their status as enabling or constraining qualities. We argue in relation to crafting reciprocal value propositions, that the appropriate communication logic is process-oriented, interactive, dialogical and therefore knowledge generating. Also, our review suggests that a market constituted by initiators and participants better reflects current business realities. Finally, the constraints to innovation imposed by a rigid transactional view of marketing exchange are resolved simply by a cognitive reappraisal of the time-logic of exchange to accommodate all kinds of communicative interaction.
6.4. A platform for communicative interaction
The reassessment of these marketing assumptions leads us to consider the key elements of an effective business platform for interaction and communication. IMP researchers use the term interaction to indicate “a process that occurs between companies and which changes and transforms aspects of the resources and activities of the companies involved”. These processes may be unique and various. Thus sales and purchase transactions are only one part of a range of marketing and purchasing interactions between companies, and by extension, within networks of relationships. However, S-D logic recognizes the importance of sustaining relationships by focusing on the quality of the interaction experience at various contact points with a focal firm. We suggest a solid platform for evaluation of communicative interactions involves three connected stages:
- value propositions: an evaluation of efficacy of specific interactive episodes in the development of reciprocal value propositions between key actors;
- resource integration: an evaluation of specific integrative network linkages, for example, from procurement to customer delivery to ongoing service;
- value-in-use: an evaluation of the value of goods and other resources integrated by a counterpart into their own value creating processes. Because physical goods are a store of potential value, this may need a tracking study of a counterpart’s value-in-use over the lifetime of physical assets.
Such a platform provides structure for linking the development of reciprocal value propositions to the co-creation and improvement of reciprocal value over time. However, not all actors and not all processes need come under constant evaluation, and a periodic audit may be adequate for all but key counterparts.
We have explored how value propositions can be created with an S-D orientation and described how these propositions emerge from appreciation of the reciprocal positions and intentions of a focal firm and its counterpart(s). Reciprocal value propositions require initiators and participants who can anticipate the benefits, even when the actual form they will take is an emergent part of the value proposing process. Our case examples show how any initiator might develop a provisional but reciprocal view of what might be of value to the focal firm and to a counterpart. Bringing both sides of the propositional benefits together into the one communicative framework introduces discipline and rigor in practice. Also of note is that the initiator role is not permanently attached to suppliers or buyers, which allows for innovation, and response to the unexpected. With the use of a planning model such as the ‘six markets’, a wide range of key stakeholder interests can be mapped out and addressed.
We have also argued that collaborative interaction is the enactment of marketing exchange. This extended time-logic means that reciprocal value propositions can be seen as enablers of the value creating process, with potential for co-learning and co-development of new skills and knowledge along the way. Collaborating and
learning together with counterparts can become a key strategy for knowledge up-skilling in a complex industrial world in which dialogical communication has the potential for revealing new value creating possibilities. This fits well with the S-D logic notion that a firm’s competitive advantage is dependent on continuously updating its knowledge and competencies.
By way of comparison, a G-D logic orientation on marketing communication leads to unidirectional message making in which persuasive messages are crafted by sellers for mass broadcasting of what is of ‘value’ to a largely anonymous marketplace. This of course is not new. However, the ‘communication-as-process’ notion as discussed recognizes the knowledge generating power of interactive processes. We have argued that this interactive mindset is more suited to crafting and implementing innovative value propositions. It also aligns with the S-D logic view of Lusch, Vargo, and Malter who see marketing as a continuous learning process with a requisite communication shift to “conversation and dialogue as opposed to propaganda”.
It could be argued that reciprocal value propositions as discussed might stimulate strategies emergent from ‘bottom-up’ organizational levels, and we would not disagree with that. For example, a wide range of specialist inter-organizational actors could be involved in experimental projects that bring forth innovative, co-created solutions. We have used the term communicative interaction platform to signify the breadth of such practices. However, top-down strategies can also be enriched by bringing strategy and practice closer together in the ‘doing of strategy’. In other words, the common separation of strategy formulation and implementation enforces a set of procedural steps which make difficult the possibility of focused dialogue with counterparts to bring strategy into action. While formal planning processes have their place, reciprocal value propositions, crafted by business actors and their counterparts, can be a better mode of generating innovative practice.
In summary, we position reciprocal value propositions as a communication practice that brings exchange activities, relationship development, and knowledge renewal closer together. Yet further research exploring the development and application of value propositions is needed. First, there is a need for more detailed study of the adoption and use of value propositions within organizations. Case study research and action research strategies could explore co- creational approaches to proposition development over time where there is likely to be an ‘emergent value’ component. 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 a stakeholder network level as well as at individual focal firm to counterpart levels. Third, future research could examine market segment-specific value propositions (i.e., for a specific segment or key individuals). Finally, an important future research area is the investigation of how reciprocal value propositions might enable development of a communicative interaction platform between a firm and its stakeholder network to access knowledge about evolving business conditions, opportunities and constraints.