Transformation of managerial economic thinking in global turbulence via customer value-based orientation Summary

In this article the modern approaches to a problem of increase of value creation efficiency for companies, customers and society are studied as based on introduction of business-models and related to forming economic competence of a manager in the age of turbulence. The theoretical background of customer value orientation in shaping of organization's strategy is studied with a sign of meeting interests of the stakeholders via corporate social performance. Conclusions are drawn taking into consideration the credibility gap existing between business and society in post crisis times concerning necessity of refocusing the strategic thinking from enhancing of the shareholder's value to increasing of the customer value of the company's products as the main determinant of sustainable growth; also practical proposals are made.

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It is known that socio-economic transformations are always connected with the changes of economic consciousness of people. Exactly a human economic behaviour forms economic relations both on micro- and on macro level as well. As changes in a cultural sphere are always more slow, than in economic and institutional, economic behaviour of citizens of any country usually does not fit the situation, as it was stressed by Akerlof and Shiller [1], specifying on existence of causal relations between the recent financial crisis and non-rationality of economic conduct of milliards of people all over the world. Economic development of a country is being mediated by the «productivity» of economic conduct of its citizens, which manifests in entrepreneurship, tax, financial spheres and attitude toward corruption. The social consequences of financial crisis also ruined relations between business and society. Special emphasis given to the social and ethics aspects of activity and shortage of consumers' trust direct organizations to raise efficiency of strategic decision-making. Progress is achievable by introduction of focusing at a consumer approach, which building partnership with customer and helps the organization to retain consumers. The approach so gives to the management transparent and clear direction toward financial efficiency of organization. Today's understanding of role of business in solution of social problems raised doubts concerning ethics of its frank profit orientation. The soul-searching set ground for both researchers and experts not only to revise the influence of corporate social responsibility on financial effectiveness, but to reconsider the financial capability of strategies of providing of social efficiency of activity for a firm as well. Thereupon backbone of managerial economic thinking transformation makes clear understanding of customer value of a product that is in fact exactly the value precepted by a customer, and provides the firm a link between its efforts in the field of social responsibility and financial results. It is the customer's evaluation of perception of value that determines efficiency of activity of a firm in long-range outlook, and its ability to survive. Today the applied aspects in research of economic conduct on the basis of integration of knowledge in the spheres of economy and management are especially important.

In our times the fundamentals of theory of customer value of a product have been actively used by many authors in applied economic disciplines [2-8]. Magomedov [9, 78] determines the customer value of a product in accordance with its possibility to provide satisfaction of a specific need of a particular group of customers (segment), and estimates the customer value as the highest price which a customer is ready to pay for the product without any regret for.

Problems of business' responsibility for development of the society attracted attention of such outstanding scientists as Drucker [10], Porter and Kramer [11], Freeman [12]. Friedman [13] stressed at connection between responsibility of business and its profitability. Also the problems of social responsibility of business in details and specific aspects of relations between social efficiency and strategy of organization were studied fundamentally by Bechetti, Hasan and Ciciretti [14], Maas [15], Wood [16]. Conception of corporate social responsibility as «responsibility of firms for their influence on society», as it was determined by the European Commission in 2011, is a manifest of recognition of its practical and strategic capability [17].

Researchers investigated the general issues of relations of business with the related parties and elements of mechanism forming corporate social responsibility in the context of organization management. Taking in consideration the diversity and contribution of the researches in realm of corporate social responsibility, it is important to state that the need to substantiate potential influence on increase of customer value of its particular means aimed to help society and ecosystem to solve actual problems still remains.

It is necessary to study the theoretical basis of customer value-based orientation to development of organization strategy in accordance with principle of respect for interests of wide spectrum of stakeholders as it is applied to realization of means of corporate social responsibility in business practice.

Customer determinations of the value can be grouped as following:

  • Value is low price;
  • Value is what I want from a product;
  • Value is quality which is got in exchange for price paid;
  • Value is what I get in exchange for what I lose.

Rockefeller [7, 43] explained that the customer value is determined in accordance to perception of a potential buyer as he evaluate benefits from acquisition of the new product to be higher than his expected losses related to acquisition and consumption of this product. Thus the value of product as it is perceived by a customer can be delineated as following: Perceived Value = Perceived Benefits - Perceived Sacrifices

The modern approach in strategic management is to focus upon customers that have two implications for strategic decision making. First, it suggests that a firm can establish partner relationship with customers and enhance its ability to retain a customer. Obviously, customers vote their money for the best of accessible value propositions. Second, here in the concept of «customer» it is necessary to include buyers, end and intermediate users, distributors, internal users and employees which use the result of the previous stages of production, and also all, who possibly get any benefit or loss from the consumption of products offered to the market by the firm. Thus customer value is the result of subjective evaluation which is carried out taking into account opinions of stakeholders.

The concept of comparative customer value is used in research on problems of managerial economics and management to underline taking into consideration of total losses of a customer (including all possible charges and losses) and existence of competitive products and services (substitutes). By the word "comparative" attention is drawn to that fact that a customer elects the method of satisfaction of his need not in isolation, instead, the choice is made relative to reference next best alternative product. So value perceived by any class of customers is the result of strategy. It is clear that in use the objective and well founded determination of value from the management's point of view is insignificant as compared with subjective and "inexpert" evaluation of a customer in accordance with his own perception of value. To help managers to incorporate customer viewpoint in strategy shaping activities means to essentially enhance managerial economic competence through clear understanding concept of perceived value as the degree to which a potential buyer feels that the gains of a particular offer exceed his personal possible losses associated with its adoption and consumption or use. An "ideal" product or the "lowest price" product are not winning proposals, because a customer carefully weighs both expected benefits and possible losses, related to acquisition and consumption of every alternative, thus different combinations of levels of benefits and losses can create feeling of the same level of value of a means satisfying his need.

Thus, possible grouping of alternative methods to provide customer value of a product are the following:

  • • Proposal of a product with high price and prominent characteristics in comparison with reference product consisting in superior technology, quality, construction or implementation, exclusive comfort, saving of maintenance charges and so on. These prominent properties can be supported also by the stimuli that do not depend from this product directly, nevertheless are capable to affect the decision to buy. Among the stimuli is reputation of a producer, manufacturing country, opinion of an independent expert, well known brand. Losses that are not tied to the product price (establishment charges, introduction in an action, service, and exploitation, replacement of the product and cost of the special training) in this case also are higher than related to acquisition and consumption of reference product. At a glance this method can be described as big gain for big price;
  • • Proposal of a product that in comparison with the reference provides for a lower price and at lower nonprice losses provides extra properties along with some indirect stimuli which characterize the proposal advantageously. At a glance this method can be described as extraordinary value;
  • • Proposal of a product of "me too" sort, that is expansion of assortment line or successful imitation of known brand. The price of the product and other charges of customer are substantially low in comparison to reference product. At a glance this method can be described as comparable benefits for considerably less losses.

The applied aspects of customer value for a successful management was underlined by Drucker [10], being confident that the only one true goal for a business is creation of customer. That a firm thinks about own products is not important, especially for the future or for success. What a customer thinks about the purchase, in what he sees its value, here that has a significance, determining sense of the business, its direction and capability for success. Thus consumer value is one of crucial determinants of market success or failure for a product and for a firm itself.

Customer value-based orientation to strategy shaping consists in attracting the consumers using the following methods:

  • By reinforcement of relation between benefits and value;
  • By extraordinary value proposal;
  • By reduction of link between sacrifice and value.

In recent literature academicians underline that because globalization and technology are the main forces that created a new level of so called "interlocking fragility" in the world economy that is why modern business is entering a strange age of turbulence, which creates the same impact on us as natural turbulence [18; 19]. That laid the foundation of postulate that continuous turbulence bringing chaos, risk, and uncertainty, is now to be understood as the normal condition of industries, markets, and companies; the most important consequences of turbulence are vulnerability and opportunity [6; 18; 20]. Thus, if modern managers would not react to such a significant influences transforming economic thinking at all, that will result in their failure to ensure defence means against risk and uncertainty from the one side, and to use opportunities given by the situation, - from the other.

Usually, at the time of instability the firms tend to act cautiously, reducing innovative activities and marketing, and place high emphasis on survival. The most significant consequence is that investments will be suspended to „quiet" future. To solve the problem of business development on background of tides in business activity with the permanent threat of chaos in global economy, managers must reject the conservative notion that any slump is preceded by growth, and vice versa. Obviously, successful transformation of managerial systems and strategic thinking must be directed by sound understanding of logic of the firm, the way it operates and how it creates value for its stakeholders [21, 103], that is known in literature as a concept of business-model [2; 21¬27]. Being based on clear understanding of customer and his perceptions of benefits and sacrifices, in accordance with economic logic of providing value at acceptable costs, a particular business-model represents the "content, structure and governance of transactions, designed so as to create value through the exploitation of business opportunities" [2, 511]. According to this definition, content of transactions consists of products and information, resources and capabilities; structure characterizes the participants of exchange, their relations and selected method of implementation of operations; governance is characterized as control of flows of information, resources and products, legal form of a firm and stimuli which are relevant for the participants.

Obviously that today it is a customer who remains a key figure for any organization as a source of its practical income. The credibility gap that still exists between business and society ruins to a certain extent its energies undertaken to recuperate from the recent crisis. On the other hand such a problem generates opportunities of a new sort related to introduction of corporate social efficiency into strategy shaping.

Corporate social efficiency is defined as configuration of principles of social responsibility, processes, and also policies, programs and results that are measurable and are used by business-organization in its relationships with society [16, 692]. In accordance with these social and ecological initiatives as potential determinants of business value are directly tied with corporate social efficiency. Corporate social efficiency relates to the result of actions taken by organizations in order to strengthen their positive influence on society [15, 7].

Thus, as stimuli, intentions and products are related to producers, so the influence is related to direct customers and other interested parties (stakeholders). Influence should be determined as influence of organizations on society in economic, social and environmental spheres; stakeholders are groups or individuals, that are considered to be influenced notably by activities, products or services of an organization, or they are capable to affect ability of organization to realize its strategies successfully [15, 8].

Possible instruments to provide positive social influence for an organization are grouped as following:

  • Philanthropy and related activities (donations; volunteering of employees; ensuring of collection of donations that customers are interested to make for third parties; charity events; promotion for social services and so on;
  • Introduction of relevant methods or practices enhancing control of level pollution of the environment; reducing energy consumption; ensuring observance of employees' rights; debar the firm from deceptive advertising; investing in safety and protection of labour and so on;
  • Changing product's characteristics properly (organic ingredients; superb quality; reduced energy consumption; debar from particular ingredients and so on).

As far as perception value by a consumer is affected by of external factors related to his environment, so far his receptivity to particular social and ecological problems depends on level of education, intellectuality or life experience. Thus in customer perception of benefits is possibly to emphasize such aspects as benefits which tied to a customer directly, and also benefits which tied not only to him as well. Such explanation gives us prove to divide the benefits offered as benefits getting of that by a customer does not require, or requires to engage in a third party. For example, organic food is marked out through proposition of benefits that are tied to the consumer personally and do not require bringing in any third parties to get. The consumption of organic food allows to a particular customer to build the unique status and to realize his own attitude demonstrating indifference toward environment to the audiences important for him. So via acquisition of these products a customer is able to display his own social responsibility and to live in accordance with ethics principles. It is clear that for the customer actual receiving of the mentioned benefits is related to engagement of a third party.

Applying principles of customer value-based orientation into practice of strategic thinking it is expedient to take into consideration the fact that philanthropy and introduction of particular business practices are sources of benefits, receiving of which for the customer is mediated through a third party, then via changing characteristics of the product it is possible to strengthen perceived attractiveness of proposed combination of benefits, which are got by the customer as directly and with participation of the interested persons as well. It is important that consumers tend to evaluate higher the benefits which they are able to get directly. That is why consumer value of a product, the benefits of which are related to some ecological and social aspects and perceived as almost equal to that offered by a reference product, versus losses (price, for example) that are substantially higher, then losses associated with alternative proposal, will be lesser regardless great success achieved by its producer in the field of social responsibility. The needed shift in managerial thinking is towards providing of synergy for the set of means of corporate social responsibility in order to build so-called responsible brand which is actually able to promote perception of benefits by customers as consequences of social initiatives of the organization.

It is important to pay relevant attention to such instruments of corporate social responsibility as social investments, social partnership, corporate communications and social accounting which will help to prevent conflicts of interests with stakeholders, and also will be instrumental in reducing of transaction costs, profitability increase [12; 13], and sustainable development. Customers' awareness about social responsibility of the organization and their positive attitude toward results, attained by it in this sphere, are capable to add to its products such perceived benefits, as positive and improving reputation. As for specific progress achieved by the firm, it will be capable to save operating costs, increase sales and reach notable customer loyalty enhancement, reduce fluctuation of personnel, promote personnel loyalty and motivation. In external environment it will result in reduced pressure of supervisory organs, facilitation of access to investment resources and improvement of financial indexes of the firm.

Although during previous three decades the competitiveness construction of world business confidently rested upon strategy, today attention of CEO of prominent companies is shifted onto conception of business-model, its invention, introduction, modification, innovation. For the age of global turbulence managers need not only these new structural blocks, but also new economic thinking as well. Taking into consideration probability of drastic and unexpected changes, the best turn of strategic thinking on its move towards ensuring sustainable development of business is to direct main efforts not only on rapidity of reaction and protection of areas that are sources of problems, but also on taking advantages framed in change.

Moving focus in strategic thinking from increase of shareholders value towards respect of interests of wide spectrum of stakeholders is of current importance. The problem is important today because it is actually impossible to ensure sustainable wealth growth for a firm's owner without increase of its product's value perceived by customers. So customer as the source of its practical income is the key figure for any organization. The deficit of trust that still exists in relations with society hinders business in its efforts to back up from the recent crisis, giving at the same time variety of opportunities to be drawn into activities associated with corporate social efficiency.

Corporation's strength should be enhanced through philanthropy and related activities, including support to undeveloped regions, initiatives tailored to homeless populations and their urgent needs and support preventing and end homelessness, promotion of educational programs and so on.

As for key determinants of success concerning corporate management achievements are possible via reduction of bonus payments to top management; in sphere of providing of equal opportunities it is stay of women or representatives of national minorities at top positions; in the sphere of improvement of relationships with personnel it is enhancement of programs of defence of health and labour protection; in the field of ecology it is increase of sales contribution from innovative products, that provide energy-savings or propose related to ecology benefits; as for defence of human rights sphere strong positions should be achieved through initiatives establishing of relationships with the certain categories of people with special needs.

Most of a firm's efforts must be directed at its product. The criteria of firm's strength are quality including introduction of long-term, detailed and complex program of quality, innovations and researches, and the purpose for its mission that serve products tailored to indigent populations.It is possible to fill up the gap between managerial practice and its theoretical base formed with managerial economics by special attention to economic thinking of a manager and directions of forming his economic competence as basis of economic conduct which will be instrumental in growth of efficiency of management in the age of turbulence.


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Autor: Zagorniak N.B., Ph.D. in Economics, MBA, National Academy of Internal Relations, Ukraine


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