Original Article                                 Extending the value chain – A                                 conceptual ...
Helm and Jones                       brand delivery to long-term value creation and competitiveness; and (3) to highlight ...
Extending the value chainprobably a firm’s overriding, long-term                               commercial exchanges between...
Helm and Jones                       recognises the connection between this and                           of short- term p...
Extending the value chainFigure 1:     The value chain.are conventionally seen as the firm’s                               ...
Helm and Jones                       VALUE AS CO-CREATED IN THE                                            offers is actua...
Extending the value chainBRAND DELIVERY AS A CRITICAL                                         conventionally represented w...
Helm and Jones                       Figure 2:     The brand value creation cycle.                       Figure 3:     Bra...
Extending the value chainand values. In a co-creation context,                                 a firm’s main sources of val...
Helm and Jones                       what those criteria actually are, and having                                   resear...
Extending the value chain(32) Bitar, J. and Hafsi, T. (2007) Strategizing through               (42) O’Higgins, E. (2007) ...
Copyright of Journal of Brand Management is the property of Palgrave Macmillan Ltd. and its content may notbe copied or em...
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Modulo 3.4 lectura_articulo value chain

  1. 1. Original Article Extending the value chain – A conceptual framework for managing the governance of co-created brand equity Received (in revised form): 19th May 2010 Clive Helm is a senior lecturer in Marketing and Business Strategy at the Westminster Business School and a Visiting Lecturer in Brand Management at the Copenhagen Business School. He also writes and undertakes research and consultancy in the area of strategic brand management, focusing particularly on issues in value creation through successful delivery of brand experience. Richard Jones is at the Department of Marketing at Copenhagen Business School, where he is also the coordinator of the MSc programme in Marketing Communications Management. His main areas of research are brand management, corporate branding and stakeholder relations. He has recently been a visiting scholar at Griffith University, Australia where he has been working with colleagues on a number of projects on corporate-level branding. His most recent research looks at safeguarding brand value and issues around the implementation of branding strategies at a managerial level; he is particularly interested in the interplay between branding, corporate strategy and innovation. ABSTRACT Successful brands are primary sources of a firm’s value and often its most valuable assets. Governance of the considerable equity in them is therefore a critical issue. At the same time, the notion of co-creation, in which value creation for firm, consumers and stakeholders derives from providing a uniquely differentiated and meaningful brand experience, suggests that firms’ capability to create long-term value comes not only from ownership of successful brands, but also from having the ability to consistently deliver the experience they promise. Co-creation therefore offers a whole new perspective on firms’ fundamental ability to create and safeguard long-term value and brand equity. This article briefly discusses the limitations of earlier models of firms’ value-creation capability when considered from this newer vantage point. Co-creation also implies that an organisation’s internal value chain is only one part of a larger system in which value is created by managing a virtuous cycle of stakeholder expectations, successful brand delivery, satisfaction and loyalty that combine to generate sustainable and superior industry returns. We thereforeCorrespondence: propose a conceptual framework that extends the value chain into this wider contextClive Helm and offers a more holistic perspective for managing the creation and governance ofDepartment of Marketing andBusiness Strategy, Westminster brand equity. The main implications of this framework are: (1) to draw attention toBusiness School, University ofWestminster, 35 Marylebone the risks of narrowly interpreted value chain analysis that ignores the need forRoad, London, NW1 5LS, UKE-mail: c.helm@wmin.ac.uk meaningful differentiation; (2) to emphasise the critical importance of successful © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589 www.palgrave-journals.com/bm/
  2. 2. Helm and Jones brand delivery to long-term value creation and competitiveness; and (3) to highlight the need to develop both a more sophisticated conceptualisation and also measures of brand experience quality that are fully consumer- and stakeholder-, rather than firm-centric. Journal of Brand Management (2010) 17, 579–589. doi:10.1057/bm.2010.19 Keywords: co-creation of value; brand experience; value chain INTRODUCTION deliver that experience so as to engage and build long-term relationships with them. In the competition between PCs and Co-creation therefore offers a whole Macs, we outsell Apple thirty to one. But new perspective from which to consider there is no doubt that Apple is thriving. the nature of firms’ fundamental ability to Why? Because they are good at providing create long-term value and brand equity. an experience that is narrow but complete, This article briefly reviews and discusses the while our commitment to choice often limitations of some earlier models and cri- comes with some compromises to the teria for assessing firms’ value creation capa- end-to-end experience. bility when considered from this newer (Steve Ballmer, Chief Executive, vantage point. Co-creation also implies that Microsoft, quoted in Rushe)1 a firm’s internal value chain, rather than Successful brands are primary sources of a being its source, is only one part of a larger firm’s present and future value and often system in which value is created by man- its most valuable assets.2–4 The equity in aging a virtuous cycle of stakeholder expec- such brands has been described as the tations, successful brand delivery, satisfaction ‘upstream reservoir’ that provides future and loyalty that combine to generate sus- cashflow.5 Managing the creation and gov- tainable and superior industry returns. We ernance of that value and equity is therefore therefore propose a conceptual model that a critical issue. extends and integrates the value chain into At the same time, the notion of co- this wider context and offers a more holistic creation has emerged in recent years in which perspective for managing the creation and value for both firm and consumers is seen governance of value and brand equity. We to be co-created in the meaningful experi- conclude that there are risks to competitive- ence that consumers derive from the inter- ness in relying on conventional performance action between themselves and a brand in criteria that may ignore the complex expec- which they play a participative role.6–9 As tations of increasingly empowered con- Gronroos10 puts it, ‘customers do not look sumers, and that there is a need for a much for goods or services, … but for solutions more sophisticated conceptualisation of that serve their own value generating proc- brand experience and measures of experi- esses’. From the co-creation standpoint, ence quality that are fully customer- and firms’ ability to create long-term value stakeholder-, rather than firm-centric. therefore appears to come not only from ownership of a brand that holds out the BRANDS AS KEY STRATEGIC offer of a distinctive and meaningful expe- RESOURCES rience to consumers and other stakeholders, The creation of superior value in an but also from being able to consistently industry from competitive advantage is580 © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589
  3. 3. Extending the value chainprobably a firm’s overriding, long-term commercial exchanges between nations orstrategic concern. According to strategic firms.15 However, there has also been a longmanagement theory, this is achieved when history of examining the value derived fromcompetitive position and internal processes managing intrafirm resources and activities,produce superior profitability in a way that going back to Adam Smith’s16 insights intocannot be replicated. Although most firms the advantages gained through specialisationcannot control the nature of the industry and the division of labour. Firms are seenthey are in, they can attempt to manage as entities that add value to inputs so as totheir activities to provide buyers with either produce outputs that are sold to make profitscomparable value more efficiently, or for distribution to owners and other inves-greater value through differentiation that tors. Some early twentieth century perspec-commands a premium.11 According to the tives also drew attention to the value resultingresource-ased view (RBV) of the firm,12–14 from superior productivity; Taylor’s17 prin-competitive advantage and superior returns ciples of ‘scientific management’, for example,derive from ownership of resources that are saw a direct relationship between efficientstrategic through being ‘inimitable’, ‘rare’ utilisation of asssets through the measurementand ‘valuable’. and standardisation of manufacturing proc- In mature industries, in which products esses, and increased profitability.tend towards commoditisation, differentia- As firms became larger and more diver-tion is often hard to achieve and much sified, a variety of more sophisticated toolsinnovation easy to copy, and successful such as Return on Investment, Activity-branding is probably one of the few means based Costing and Discounted Cash Flow,of achieving sustainable distinctiveness. among others, were developed to aid inThere seems little doubt that, as a legal making increasingly complex resource allo-property that signals a unique set of valuable cation decisions. In general, these tend tobenefits, a successful brand is, in terms of focus on returns on assets measured bythe RBV a strategic resource. The implica- financial criteria. More recently, however,tions of all this are well known; that such attention came to be drawn to the hazardsa brand can deliver superior long-term inherent in assessing the present and futurefuture profitability and cashflow, occupy a value of investments, or indeed whole busi-unique market position and ‘lock out’ com- nesses, on assumptions based on past per-petitors by virtue of its dominant market formance, an approach that is necessarilyshare. Brand management therefore con- retrospective and short term.18 In the 1980s,nects fundamentally with an organisation’s Rappaport,19,20 for example, suggested thatcore business strategy on three main counts; there were three main elements that shouldfirst, in achieving sustainable and valuably be considered in valuing a firm; long-termmeaningful distinctiveness; second, in the future cashflow, risk and competitive advan-creation of strategic resources that deliver tage, thus acknowledging a linkage betweenlong-term, superior value; and third, by future value-creating ability, changes in aforming entry barriers to competition. firm’s business environment and any stra- tegic resources it may own.EARLIER PERSPECTIVES ON Similarly, ‘Value-based Management’VALUE AND VALUE CREATION – (VBM) which, at its simplest, sees valueA BRIEF REVIEW being created when capital produces a returnEarly perspectives on value creation were that acceptably exceeds cost, also regardsconcerned with economists’ notions of future cashflow as the most important‘utility’ and the wealth resulting from measure of a firm’s future worth and © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589 581
  4. 4. Helm and Jones recognises the connection between this and of short- term profit has often been criti- a firm’s ‘value drivers’ – resources that cised more generally in that it can result in directly influence future earning capability.21 firms under pressure simply resorting to Although still financially oriented, VBM rapid cost cutting, divestment or reduction acknowledges more explicitly a relationship of investment in strategic resources, all of between a firm’s future value-creation capa- which may well destroy longer-term value.18 bility and its strategic resources and goals. More fundamentally, VBM seems to offer However, a criticism of such financially little help in identifying the nature of the based perspectives has been that they tend ‘strategic drivers’ from which the anticipated to see value creation mainly as a goal or value may actually flow. The Balanced outcome, while at the same time offering Scorecard and Marketing Dashboard could little insight into how value creation occurs also be criticised for either the vagueness or or where the source of any competitive the bias that managers may bring in choosing advantage on which it depends may actually performance criteria and targets that may be lie. In the 1990s, the Balanced Scorecard22 either short term or firm-centric rather than was one of the first frameworks to include strategic and genuinely customer oriented. non-financial criteria in assessing value- A published case study of a major recruit- creation ability. The Scorecard’s signifi- ment agency’s use of the Scorecard, for cance is that it implicitly connects current example, shows that the goal of ‘Increasing and future resources and the translation of Customer Value’ has in practice been trans- strategic goals into operational activities lated into the much simpler and quantifiable with future value creation, thereby taking operational target of ‘client retention’, while a more holistic view that is neither wholly the objective of ‘Achieving Operational retrospective nor economic. More recent Excellence’ has been modified to become, versions of the Scorecard assess perform- more prosaically, ‘to lower the cost base of ance in categories including ‘Customer’, the business’.24 ‘Internal Business Processes’ and ‘Innova- tion and Learning’. In attempting to con- DELIVERING VALUE TO THE sider both current performance and future MARKETPLACE: THE VALUE CHAIN value-creating competences, it exceeds Value chain analysis25 has long provided a earlier approaches in highlighting the rela- means for examining the value created tionship between strategic resources and within a firm’s activities so as to configure longer-term profitability. The Marketing them for strategic advantage (see Figure 1). Dashboard23 takes this further by incorpo- Functions that are non-core – those that rating a wider range of non-financial met- do not draw on strategic assets or capabili- rics in assessing value-creation capability. ties – may be beneficially outsourced to However, while VBM, the Balanced suppliers who can perform them more effi- Scorecard and Marketing Dashboards have ciently or effectively. Variants of the model offered newer frameworks for assessing have been developed for not just manufac- value creation, all have provoked debate turing but also service-based and network about their possible limitations. Although organisations that operate largely by man- VBM acknowledges a connection between aging a group of outsourced suppliers and future value and strategic resources, it could partners. be argued that, in practice, maximising The Value Chain offers a familiar frame- shareholder returns remains managers’ work for identifying value creation from overriding goal, probably to the exclusion strategic resources, insofar as the process of of wider strategic imperatives. The pursuit adding value is seen to occur within what582 © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589
  5. 5. Extending the value chainFigure 1: The value chain.are conventionally seen as the firm’s co-creation between firm and stakeholders,boundaries. But in locating value creation it seems that strategic management itself isin the interaction between the firm’s brand making something of a transition – fromand consumer, co-creation has offered a an almost scientific discipline, based onwider perspective and, indeed, challenged long-range projections and planning, to athe notion of where the firm’s boundaries more crafted and nuanced approach inmay actually lie.26–28 To consider value which longer-term strategic vision mergesbeing created from the ownership of stra- more closely with shorter-term tacticaltegic assets in terms of the RBV is clearly implementation in a process that is increas-a tautology, as one of the criteria the RBV ingly and more immediately market respon-demands for an asset to be strategic is that sive. In order to remain competitive, firmsit is, in itself, valuable. are developing more outward-looking, Traditionally, strategic management theory dynamic and interactive approaches to thehas advocated that competitiveness derives whole processes of production, marketingfrom the best alignment or fit between and product delivery. The necessity forresources and environment and from factors this is illustrated by the case of an Americansuch as access to superior resources or the car industry that spent many years buildingability to create entry or exit barriers.29 and developing relationships within itsUnderlying all this are assumptions of industry value constellations of suppliers and dis-homogeneity – that firms in a sector operate tributors throughout the 1980s and 1990s,along broadly similar lines and that industry only to find that the market it thought itcontexts are evolving but relatively stable.30 was serving had actually moved on.34 More recently, this ‘introverted’ stance Currently, successful brands such as Applehas been criticised in the strategy literature and Ryanair, while maintaining a strategicas being too static and appears to be giving vision of what their brands stand for,way to a view in which industry structures seem to maintain competitiveness by alsoare seen as more heterogeneous in a context constantly monitoring and sometimes rap-in which business environments are ever idly fine tuning their value propositions somore turbulent as a result of increasing as to be responsive to, or indeed drive,global competition, new technologies and what are sometimes subtle and unpredict-more complex and shifting customer able changes in consumer perceptions anddemands.31–33 Echoing the idea of value demand. © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589 583
  6. 6. Helm and Jones VALUE AS CO-CREATED IN THE offers is actually a complex mix of relevant MARKETPLACE tangible and intangible elements delivered It has been argued that many of the ideas and consumed across a wide range of touch- inherent in the co-creation paradigm are in points. Competing for value in the market- fact developments of the marketing concept place therefore becomes based on the ability that has always considered the source of to deliver an experience that is superior, but value to be found in successfully serving by criteria that customers themselves deter- market needs. In a market-oriented view, mine, perhaps in user-friendliness, aesthetics value is created when a buyer and a seller or hedonic qualities.39 The brand acts as a enter into what they see as being a mutu- signifier for this promised experience and ally beneficial exchange. Products are thus comes to act as a repository of what clearly valueless, no matter how cheaply Bourdieu40 has called cultural capital. Such produced, if no one is prepared to buy capital has enabled some long-established them, and it follows that a firm’s resources brands to stretch their franchise from core are only strategic and capable of delivering manufacturing into value-added entertain- superior value if a market also similarly ment businesses such as toy manufacturer values the outputs they are responsible for Lego, which successfully transferred its producing. The life of a strategic asset may proposition of creative play to theme parks, also be finite – environmental or techno- and breakfast cereal manufacturer General logical changes may render it obsolete. Mills, which built on its brands’ core values Arguably, this was demonstrated in the well- of wholesomeness and fun to open children’s known study by Peters and Waterman,35 amusement centres in American shopping which attempted to investigate the resources malls.41 Interestingly, a brand experience per- that contributed to the excellent perform- ceived as valuable need not necessarily be ance of a number of American Fortune 500 high quality if the price is low enough. companies. However, the fact that, only a Budget airline Ryanair has been subject to few years later, many of the firms examined much media comment for its level of cus- were performing anything but excellently, tomer service in terms of lack of compensa- apart from raising the question of whether tion for late flights and its policy of charging many of the resources uncovered were for extras that full price airlines provide for actually strategic, also goes to show how a free. In answering criticisms of possible pas- resource’s value may be dependent on how senger disturbance by the introduction of a well it serves market needs that are inevi- new in-flight mobile phone service, the chief tably liable to unpredictable change. executive Michael O’Leary replied, ‘If you Co-creation also highlights the value of want a quiet flight, use another airline. a firm’s outputs as being dependent on the Ryanair is noisy, full and we’re always trying quality of the total experience they provide, to sell you something’. However, its ruth- rather than on the narrower notion of lessly low-cost, low-price business model ‘product quality’. Experiential marketing delivers an overall value proposition and – the idea of brand as experience – embodies brand experience that, on balance, seems irre- the idea of consumption as a form of the- sistible to a significant segment of budget- atre in which the brand owner provides conscious travellers. As a result, Ryanair’s42 the stage on which consumers and other value-creation capability in its industry has stakeholders play out their value-seeking been unsurpassed – as at August 2006, by roles.36–38 Whether the branded offering is measures of operating and net profit margins primarily a good or a service is also less impor- per plane and per passenger, it was the most tant than the fact that the total experience it profitable airline in the world.584 © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589
  7. 7. Extending the value chainBRAND DELIVERY AS A CRITICAL conventionally represented within a firm’sCOMPONENT OF VALUE CREATION value chain is only part (see Figure 3).Co-creation has therefore highlighted suc- In this model, an organisation’s valuecessful and consistent brand delivery – the chain is part of a larger system of mutualcapability, as Aaker43 describes it, to deliver value-seeking and creation processes amongthe expected brand experience ‘with reli- firm, consumers and other stakeholders.ability’ – as a critical component of the Value is co-created through successfulvalue-creation process. In increasingly delivery of the expected brand experiencecompetitive markets, consumers are increas- in the context of demand created by a dis-ingly intolerant about any gap between tinctive and meaningful brand promise.what a brand promises and the experience The firm’s value-generating resources areit actually delivers, and can usually easily thus aligned to meet consumers’ value-go elsewhere.44 seeking processes in the virtuous cycle of Brand delivery is both spatial and tem- consumer satisfaction and loyalty, which isporal. The spatial dimension is the sum of the result of successful fulfilment of brandall the experiences offered across the whole promise and expectations. Value for thespectrum of delivery and communication firm manifests itself as the superior revenue,touchpoints, whereas the temporal dimen- returns on investment and store of brandsion acknowledges that brand encounters equity created by achieving this consistentlytake place throughout the whole consumer and building relationships with those con-journey from initial awareness through sumers and stakeholders. Consumers andconsumption to post-purchase decision stakeholders seek value through personal ormaking. If expectations are repeatedly ful- collective need fulfilment that underpinsfilled in both dimensions, consumers their aspirations that can be considered tobecome loyal and both they and the brand be transformational – representing at bestowner derive the value from the long-term what they would ultimately like to achieverelationship, thereby completing the vir- or become. More rationally, consumers andtuous cycle of brand value creation shown stakeholders accept that some aspirationsin Figure 2. may not actually be fully attainable; these are therefore translated into a more realisticTOWARDS A MORE HOLISTIC set of lower-level expectations that theVIEW OF CREATION AND brand is actually anticipated to deliver, andGOVERNANCE OF BRAND EQUITY by which they critically assess its perform-– EXTENDING THE VALUE CHAIN ance.A co-creation perspective therefore sug-gests that a conventional interpretation of MAIN IMPLICATIONSa firm’s value chain – as a primarily one- In a co-creation context, we suggest thatway delivery system of goods and services this framework has three main implicationsto a largely passive marketplace, in which for managing the creation and governancevalue derives from ownership of internal of value and brand equity.strategic resources – offers only a partial andlimited picture of the value-creation (1) It draws attention to the risks of a narrow,process. We therefore propose a conceptual cost minimising, interpretation of conventionalframework that offers a more holistic view value chain analysis: The first is to drawfor managing the co-creation and govern- attention to the risks inherent in a narrowlyance of value and brand equity, as an inter- interpreted, conventional value chain anal-linked system, of which the set of activities ysis that focuses simply on the value gained © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589 585
  8. 8. Helm and Jones Figure 2: The brand value creation cycle. Figure 3: Brand equity governance: A value co-seeking and co-creation system model. from minimising an organisation’s costs. for a deeper understanding of their needs, Such an approach, while offering a threshold perceptions of experience quality and the level of competitiveness, is not sufficient to criteria they themselves use to assess it. This capture the value available from delivering finds echoes in the recent services literature experiences to consumers, which are per- in which Buttle,45 for example, has pointed ceived as distinctive and meaningful. out that a limitation of service delivery Although the value chain can highlight quality models such as SERVQUAL may strategic resources in areas such as product be that they fail to take into account the design, brand management or distribution complex and changing nature of current that may contribute to successful experi- and future customer expectations. Lages ence delivery, the model suggests that this and Fernandes46 have also suggested the is only part of the story: creating and deliv- need for further development in service ering distinctiveness and meaning to con- delivery modelling that accommodates sumers and stakeholders implies the need more fully customers’ own sets of needs586 © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589
  9. 9. Extending the value chainand values. In a co-creation context, a firm’s main sources of value are its brandresources are only value generating if con- promise and quality of experience, thensumers judge the experience they deliver these are, by their nature, extrinsic andto be superior – and it is they, after all, dynamic – they lie in the perceptions ofwho increasingly decide what ‘superior’ customers and are subject to change beyondmeans, and therefore how valuable the the firm’s control; indeed, co-creation hasexperience ultimately is. raised a whole debate about where the brand itself actually exists and who actually(2) It emphasises the critical role of brand expe- owns and controls it. Brand owners mayrience delivery to the process of creating and safe- well be unaware of the sometimes complexguarding value and brand equity: The second and subtle means by which consumers areimplication, mentioned earlier, is to empha- assessing the experiences they deliver. As asise the critical role of brand delivery to the result, they risk losing competitiveness ifprocess of creating and safeguarding brand they set organisation-centric success criteriaequity, and the need for capability in deliv- that ignore the expectations of customersering the expected experience consistently. who are key participants in the value-crea-In practice, this is not easy to achieve and tion process. Although there have beenthe literatures on both brand and services recent advances in developing non-finan-delivery have long recognised the gap that cial performance measures for assessingcan lie between consumer expectations and customer satisfaction and brand deliverythe reality they experience.47–49 Further- quality, we would argue that co-creationmore, because of the growing number of implies an urgent need for a more sophis-brand variants, channels and strategic part- ticated conceptualisation of brand experi-ners involved, delivering a coherent expe- ence and tools and metrics that take a viewrience both spacially and temporally across of brand experience that is fully customera whole network of touchpoints is becoming and stakeholder oriented, based on deeperan increasingly complex and difficult task. insights into their own expectations andAccording to a report by consultancy Inter- perceptions of what constitutes experiencebrand, ‘Strict adherence to brand standards ‘quality’.creates brands with customer impact – butfew companies have been able to secure CONCLUSIONconsistent compliance across their organisa- In his seminal 1986 book, ‘The Marketingtions’.50 Imagination’, Theodore Levitt51 stated something probably now long considered(3) It highlights the need to develop both a more obvious, but still fundamental; ‘The essencesophisticated conceptualisation and measures of of competition … is differentiation: pro-brand experience delivery quality that are truly viding something different and providing itconsumer- and stakeholder- rather than firm- better than your competitor. The problemcentric: A third implication is to highlight has always been in defining what is meantthat many of the criteria and measures that by ‘better’. Co-creation offers an answerfirm’s currently use to assess their perform- from a perspective in which competitiveance are essentially firm-centric – they tend advantage derives from delivering a brandto take an inward-looking view in which experience that is better according to theperformance goals are set and assessed criteria that customers and stakeholderslargely according to standards considered themselves, rather than the firm, determine.important by managers within the firm. It also emphasises the importance to com-However, from a co-creation standpoint, if petitiveness of knowing and understanding © 2010 Macmillan Publishers Ltd. 1350-23IX Brand Management Vol. 17, 8, 579–589 587
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