Generate Customer Value
by Raj Srivastava
central task of management, we argue, is to identify, measure,
develop, and leverage the firm's market-based assets to increase
that market-based assets arise from the commingling of the firm
with entities in its external environment. These relational and
intellectual market-based assets provide a company some of the
same advantages as other business assets - the ability to generate
cash flows and to sustain a superior competitive position in the
marketplace. Our question - how do these assets generate value?
Asset Value Tests
of the Resource Based View (RBV) of competitive advantage maintain
that an asset is more likely to contribute to value generation
when it satisfies the following four tests:
is convertible; if the firm can use the asset to exploit
an opportunity and/or neutralize a threat in the external environment,
then the potential to create and sustain value is enhanced.
is rare; if the asset is possessed by multiple rivals
then its potential to be a source of sustained value is considerably
is imperfectly imitable; if it is difficult for rivals
to imitate the asset, then the potential to sustain value is
does not have perfect substitutes; if rivals do not possess,
and it is difficult for them to develop strategically equivalent
convertible assets, then the potential to sustain value is considerable
central propositions for market-based assets can be stated:
The greater the value that can be generated from market-based
assets for external entities such as customer, channels, suppliers,
and other strategic partners, the greater their satisfaction
and willingness to be involved with the firm, and, as a consequence,
the greater the potential value of these marketplace entities
to the firm.
Market-based assets generate and sustain greater value for external
entities the more they satisfy the asset tests I mention
Shareholder value is created to the extent that the firm taps
or leverages these market-based assets to improve its cash flows.
vs. Intangible Assets
know that tangible balance sheet assets such as plant and
equipment, raw materials, supplies, inventory, and finished products
generate value because they can be bought and sold, Furthermore,
the value of these tangible assets ultimately is not just their
market or trade value, but also their value-in-use. Tangible assets
can be leveraged by an organization to:
Lower costs by enhancing productivity.
2. Enhance revenues through higher prices if, for example, the
raw materials and equipment lead to superior product functionality,
features and durability.
3. Serve as a barrier to entry or mobility barrier because others
must make similar investments.
4. Provide a competitive edge to the extent they make other
assets (e.g., employees) more valuable.
5. Provide managers with options, for example if the plant or
equipment can be shared across products
is important to recognize that market-based assets can
also be utilized in the same manner as tangible, balance sheet
assets. They can also be leveraged by the firm to:
Lower costs; superior relationships with and knowledge of channels
and customers lead to lower sales and service costs.
2. Attain price premiums; brand and channel equity lead to higher
3. Generate competitive barriers; customer loyalty and switching
costs render channels and customers less inclined to purchase
4. Provide a competitive edge; by making other resources more
productive (e.g., satisfied buyers are more responsive to marketing
5. Provide managers with options; for example, by creating trial
for brand and category extensions.
Long Term Sustainable Value
not only can market-based assets be used for much the same
purposes as tangible, balance sheet assets, they are more likely
to serve as a basis of long-run, sustained customer value
for three specific though related reasons:
Market-based assets are more likely to satisfy the four
asset value tests noted earlier.
They add to the value generating capability
of physical assets.
They are ideally suited to exploit the benefits
of organizational networks.
the Asset Value Tests
Is it Convertible?
Unless relational and intellectual assets are convertible
into customer value, the remaining asset tests are irrelevant.
Knowledge is perhaps the ultimate source of opportunity: it is
embedded in research and development; it guides product innovation;
it energizes marketing and sales. Relationships are now so widely
viewed as essential to opportunity creation that they are encapsulated
in what has become known as "relationship marketing." Further,
relationships with end-users can be exploited in building relationships
with other entities (e.g., distributors).
Is it Rare?
Knowledge and relationships are often rare, and in some cases,
may be unique. For example, some firms' ability to project the
future evolution of market sectors, using scenarios and related
tools, provides a unique insight into emerging opportunities,
how best to exploit these opportunities, what contingent strategies
should be developed, and how to monitor which "future" is emerging.
Such knowledge allows firms to exploit first-mover advantages,
to respond appropriately to the moves of competitors, and to avoid
the penalties associated with brash market moves.
Is it Inimitable?
The intangible nature of market-based assets renders relational
and intellectual assets extremely difficult to imitate. Knowledge
and relationships are socially complex and tacit phenomena. The
intimacy of relationships with channels and customers attained
by some firms such as Home Depot, Nordstrom and Johnson Controls,
has proved almost impenetrable by many rivals. Moreover, efforts
to replicate these assets often necessitate extensive investments
in marketing, sales, service and human resources development,
with little, if any, guarantee of success.
Is it difficult to Substitute?
Finally, knowledge and relationships present profound difficulties
to rivals seeking to develop direct substitutes, that is, assets
that allow them to pursue a similar strategy. If a firm possesses
truly unique knowledge of its customers, then a competitor must
either develop another form of knowledge (such as technology knowledge)
or another type of asset (perhaps a one-of-a-kind manufacturing
process) that will allow it to achieve the same marketing outcomes.
If, for example, the firm is using its distinct customer knowledge
to customize its solutions (Pine, 1993), then it may be extremely
difficult for rivals to develop substitute equivalent assets that
will allow them to customize their solutions.
Value to Tangible Assets
role and importance of market-based assets is further augmented
when we recognize how often they add to the value generating capability
of physical assets. For example, knowledge of customers' changing
tastes and buying criteria allows a firm to adapt its manufacturing
and engineering processes to produce products with the functionality
and features demanded by customers. Strong customer relationships,
manifested in channel and brand equity, allow human resources
to be committed to entrepreneurial activity such as developing
new products and extending existing product lines and customizing
existing solutions. Interestingly, a firm's market-based assets
can create value by exploiting not just the firm's own tangible
assets, but also the tangible assets of partner firms. Thus, a
manufacturing firm's relationship with a retailer (a market-based
asset), can be used to leverage the retailer's physical asset
(e.g., shelf space), to create value for the manufacturing firm.
Indeed, a strong argument can be made that relational and intellectual
assets are necessary to invigorate and unleash the customer value
generating potential embedded in tangible assets such as plant,
machinery, people and products. Without knowledge of and relationships
with external entities such as customers, channels, suppliers,
and other strategic partners, marketing capabilities inherent
in organizational processes such as new product development, order
fulfillment and speed to market (Day 1994) can be neither created
nor leveraged. Knowledge and relationships are essential sources
of these capabilities; and, they are in turn, extended and augmented
by the successful execution of these capabilities. Research has
provided evidence of conceptual quagmires and managerial conundrums
that ensue when researchers and managers fail to recognize that
knowledge and relationships not only undergird every form of distinctive
customer advantage, but are the essential building blocks of every
form of competence or capability.
market-based assets underlie benefits that can be derived from
"networks" or product ecosystems. As individual firms
increasingly become the node in an interconnected web of formal
and informal relationships with external entities, including suppliers,
channels, end-customers, industry and trade associations, technology
sources, advertising agencies, universities, and in many instances,
even competitors, their capacity to generate, integrate and leverage
knowledge and relationships extends considerably beyond the resources
they own and control.
example, Intel's Pentium microprocessor's successful defense against
both DEC's Alpha and the IBM/Motorola/Apple PowerPC chips is in
part related to its network of users, OEM's, and software vendors.
Each network link allows customer value generation beyond what
could be created by the nodal firm alone or any other network
entity operating on its own. Therefore, a network can be viewed
as a coordinated set of knowledge sources and cooperative relationships.
of the role and importance of networked market-based assets are
widely evident. A firm's offerings to customers become stronger
when bolstered with superior service by members of the network
manufacturer can provide superior products that become even more
valuable when accompanied by outstanding service provided by its
dealers. A software publisher is likely to be more attentive to
a hardware manufacturer with a dominant buyer installed base.
And, the value of X-Box or Play-Station to kids depends largely
on the number of exciting interactive games that run on these
platforms. Collectively, networked producers of complementary
products are more valuable to buyers.
networked market-based assets help a firm create value over
and above that created by market-based assets individually. Thus,
the value of a network of market-based assets can be greater than
the sum of its individual components.
Thus we present a conceptual framework that links the contribution
of these assets to the financial performance of the firm, and
begins to suggest ways in which the value of marketing activities
can be identified, measured and communicated.
Market-Based Assets to Shareholder Value
get deeper into this in my next article...
Srivastava is the Executive Director of the Zyman
Institute of Brand Science, and Professor of Marketing at
Emory University’s Goizueta Business School. Contact him at email@example.com.
ideas presented here first appeared in "Market-Based Assets
and Shareholder Value: A Framework for Analysis," by Rajendra
K. Srivastava, Tasadduq A. Shervani, and Liam Fahey in Journal
of Marketing, January 1998, Vol. 62, #1, 2-18. The
paper was the recipient of: 1999 Maynard Award (Best Theoretical
Paper) 1999; the MSI/Paul Root Award (Best Practice Paper); and
the 1999 MSI Best Paper Award (for 1997 Working Paper Version
of this Paper). Related concepts were also discussed in "Resource-Based
View and Marketing" by Rajendra K. Srivastava, Liam Fahey and
Kurt Christianson in the Journal of Management, 2001, Volume 27,
777-802, (Special Issue on Resource-Based View Retrospectives)