3.
The Product Value Process

Several attempts have been made during the years to describe the development process of products. But it is easy now to understand the shortcomings of those processes suggested during the static, 4P era of marketing. A viable way of describing the process is, however, to focus on the inherent development of value.

A description of the development of customer perceived value must always have the description of the customer perceived product in focus. The major problem has been the translation to producer or supplier activities. Here the "house of quality" (Quality Function Deployment, QFD) is one wellknown method. The QFD matrix cross relating product features and customer benefits however demonstrates an overrational belief in the buyer's capacity of evaluating a multitude of variables. Modern product development theory thus has taken its turn to simpler models.

There are other promising attempts to bridge the customer domain to those concerning a product developing company. It should be obvious at this stage, though, that the concept presented in this book offers a new and more viable approach, founded, as it is, on a model of the exchange of value between supplier and buyer.

The development process for a product can be described as a series of alternating analyses and syntheses (Suh 1990) while the product proceeds on its way from idea to the moment of selling. But, if we discuss the object of a value development process, we have to follow the product still further, into the hands of its buyer until the day it is used up.

The potential value being realized

Up to the instant of selling, the value added to the product, step by step, must be seen as a potential value. Once the product has been bought, its value is being realized by its buyer or user, instantly or gradually, until it is consumed.

The supplier creates a potential value, which is not realized until the product is sold and taken into use.

The development process of a product has always been, more or less, performed with customer benefits in mind. No manufacturer has probably ever started the development process without any reference to a market. The process suggested here, is based on the assumption, that the supplier is anxious to create a product as close to the buyer's needs as possible. It is also based on the assumption that the supplier is anxious to get as high a leverage as possible on his investments when creating the customer perceived value in his products. Consequently:

Every step in the development of the product, from "Conception" to "Product in Use," could and should be described and analyzed alternately in two ways: as the Supplier's Product and the Buyer's Product.

Development and production in parallel

The product is ready to be sold only when it is perceivable in its physical form and in the form of a metaproduct, which is a potential product value to the buyer in its own right. The two products have to be developed and produced in parallel, much along the lines of "concurrent engineering". The physical product has been manufactured, and distributed to the point of sale. An essential part of the "production" of the metaproduct has emerged from the application of industrial and engineering design, the designing of sales literature, the advertisements and press releases, etc., and realization is accomplished via their use in the communications process with the target group.

In the sales transaction the product is exchanged for money. At this stage, the value of the product is still not fully realized, as the product cannot be considered fully exploited until it is fully used up (which may take anywhere from a second to a human life span - or more). Furthermore, the meta value of the product may change during its consumption, owing to its quality, after sales service, consequent changes over time of brand value or corporate image, etc. All of this affects the sales and value of new products in the perception of this and other buyers.

The product Value Process (Linn1996)

The development process before sale should be seen as the creation of a value potential, and the process from the sales transaction onwards as the realization of the value, as perceived by the buyer/owner/user. How the product value develops during the time of use or ownership is decisive for repeat purchases and customer loyalty and for the way the user will influence the opinion of others (compare to the concept of Relation Marketing!).

The Customer Loop

The actual buyers are coming into the process at the Marketing stage. The meaning of it is that they become well aware of the product or brand, and thus are recruited to the evaluating audience. As members of this target group they are also potential buyers of the branded product, being aware of its meta value.

After buying the product the actual consumers, owners or users will realize its value. Being satisfied in the "product used" stage, they will be apt to buy the product again (repeat business). In doing so, they enter the "Customer Loop" of the Product Value Process. After completing the loop several times they are defined as "loyal customers". [Customer = one that buys from or patronizes a business, especially on a regular basis. (Webster's New Encyclopedic Dictionary 1993)]. Non-satisfied customers leave the Loop or never complete it.

The Customer Loop clearly shows the area of exerting "relation marketing" (Gummesson 1995) and also serves to illustrate the cost of attracting new prospects in comparison to keeping old customers in the Loop.

The complete Product Value Process

The Product Value Process thus contains several input sources for new product development (see fig.):

I Suggestions and demands from the market

II Trends perceived in the market

III Independently emerging ideas ­ innovations

The following steps outline how the enterprise transforms those inputs into descriptions of products to be conceived, constructed, produced, marketed, sold, put to use, and consumed. The boxes in the figure correspond to analysis steps, while the arrows are synthesis processes. The contents of the boxes may be seen as descriptions of what is demanded at each stage of development from the product, formulated according to the structure of both sides of the Transaction Model – the supplier's product as well as the buyer's product. We thus obtain six (or actually twelve) product formulations. The figures 1 – 6 refer to the product in each existence or development phase.

Between them we obtain a number of quality spans, indicated by the letters A ­ F. They describe the transition between the phases, its efficiency and thus the respective sources of costs for development and quality during the total life cycle of the product:

The Product Value Process demonstrates value development with a continuous model. The gaps shown, particularly those between people in various roles and functions, must be bridged to accomplish qualitatively good results along with the continuous development of products and their values. Otherwise quality deficiencies will appear, which may be seen as low efficiency or lack of proper communication over some gap.

The deficiencies accumulate with each step for a total quality deficiency as compared to the vision of the originator and the user's product. Also, actions taken at various steps can lessen the product's value significantly or signal incorrect product values. The result will be confidence crises, loss of customer loyalty, loss of competitiveness and a weakened market position, ending up in difficulties in pricesetting, profit opportunities and loss of market share.