Value Creation Strategies for Business Survival in Tough Markets

The Challenge of Today's Economic Environment

Within today's turbulent economy — marked by quickly changing national priorities and reduced political cooperation — there is real chaos being wreaked on the federal landscape (Neumark, Muz, & National Bureau of Economic Research, 2014). Nearly every agency grapples with increasing performance mandates, reduced risk tolerance, and lower budgets. From this environment arise smaller opportunities, compressed margins, and lower labor rates. Because of these pressures, many businesses fail. What can companies do to survive the pitfalls of current market conditions? They need to create value.

Creating Customer Value: The Amazon Example

Companies and businesses aim to provide value for their customers through additional services and benefits. For example, Amazon.com, Inc. gives customers an excellent return policy in which the company pays for return shipping, and if a customer is unhappy with their product, they can receive a full refund (Davis, 2016). Furthermore, Amazon makes it easy for customers to reach a customer service agent quickly, whether online or over the phone. Such ease of communication creates intangible value. Customers appreciate the ability to easily contact a company with a concern or issue. By providing excellent customer service, Amazon creates loyalty among its existing customer base. "With Prime, Echo, and its ever-broadening Web Services business, Amazon is slowly but surely becoming the world leader in delivering on its brand promise: being the 'Earth's biggest selection' and being the 'Earth's most customer-centric company'" (Davis, 2016).

That loyalty translates to higher rates of purchases and higher profits. While it costs resources to maintain excellent customer service, Amazon takes into consideration how much revenue would be lost without that added value. These trade-offs must be considered when running a successful business. While some initiatives can and should be implemented to generate value, expenses and available resources must also be examined to avoid potential pitfalls. A determination must also be made as to whether the added value is sufficient to generate long-term profit.

For example, value = Contribution / Cost (Schiuma, 2011). When a product or service has a lower cost and higher contribution to customers, it is highly valuable. Cost can be viewed from two perspectives: cost to the customer or cost to the company. Customer service is often free to the customer but can be costly to the company. Customer service is something many companies strive for because by addressing customer needs, a company offers its highest contribution (Schiuma, 2011).

Outsourcing as a Value Creation Strategy

To maintain customer service quality while minimizing expense, companies like Microsoft sometimes outsource their customer support to employees in countries such as India — a trend seen across many companies in the United States. "An increasing number of firms are outsourcing customer support to external service providers. This creates a triadic setting in which an outsourcing provider serves end customers on behalf of its clients" (Wuyts, Rindfleisch, & Citrin, 2015).

In fact, this has become a prevalent practice given the growing need to address customer concerns both online and by phone. Customers want the convenience of solving their problems through chat or email, and so companies must fund this kind of service. Since it can be delivered remotely, companies look to countries where employee wages are considerably lower than in developed nations like the United States. This creates value for companies because they can maintain their desired level of customer service while keeping expenses low.

Research findings reveal that customer-focused providers achieve higher levels of customer need fulfillment, though this effect is contingent on their capacity to serve end customers effectively. In particular, customer-focused providers more effectively fulfill customer needs when clients and providers share close relational ties, when clients also have a high level of customer focus, and when end customer needs exhibit a low degree of turbulence (Wuyts, Rindfleisch, & Citrin, 2015, p. 40).

Conclusion: A Multi-Step Path to Competitive Advantage

Value creation is a multi-step process. It involves the use of various resources and the implementation of multiple measures to ensure that companies provide a product or service that increases customer loyalty and, in turn, increases profits. Companies may elect to outsource portions of their workforce to reduce costs while maintaining the same level of excellent service. To achieve this, companies must prioritize effective leadership and an ongoing means of evaluating employee work performance.

When companies achieve this kind of customer-centric vision while also reducing expenses, they may attain a level of success comparable to Amazon.com. Amazon has delivered a level of customer service for years that few companies match. This has allowed the company to maintain its position as a leading online retailer and even expand into other ventures, such as developing and selling its own products. Although it may be difficult to achieve this level of value creation, companies should nonetheless focus on it as the competitive advantage needed to stay afloat in turbulent times.

References

Davis, S. (2016, July 14). How Amazon's brand and customer experience became synonymous. Forbes. Retrieved from https://www.forbes.com/sites/scottdavis/2016/07/14/how-amazons-brand-and-customer-experience-became-synonymous/

Dudycz, T., Osbert-Pociecha, G., & Brycz, B. (2016). The essence and measurement of organizational efficiency. Springer.

Mahajan, G. (2016). Value creation: The definitive guide for business leaders. SAGE Publishing India.

Neumark, D., Muz, J. E., & National Bureau of Economic Research. (2014). The "business climate" and economic inequality.

Schiuma, G. (2011). Managing knowledge assets and business value creation in organizations: Measures and dynamics. Business Science Reference.

Wuyts, S., Rindfleisch, A., & Citrin, A. (2015). Outsourcing customer support: The role of provider customer focus. Journal of Operations Management, 35, 40–55. doi:10.1016/j.jom.2014.10.004