Introduction
The growth and prosperity of any business organization depends on its commitment to value creation to its customers, employees and the investor. According to Backer (2008, p. 102), value on the part of the customer is the satisfaction they get after purchasing a given service.
This is usually demonstrated by the customer’s willingness to continue getting their services from the selected service providers. Bateson and Hoffman (1999, p. 97), on the other hand, define value as the ratio of quality to price of any given service.
The problem of measuring quality of a service influenced Bruhn and Georgi (2006, p. 90) to assert that value is a perception by the customer that some services are more valuable than others. Customers will always compare the services they get with the amount of money paid for the services.
For instance, if a customer thinks that he or she has paid more for a service, the service is perceived to be of a low value.
In this particular way of customers acting as the prime determinants of the value of a product or service, it sometimes becomes hard for organizations or individuals engaged in the manufacture of goods, or those extending services to consumers to be sure that what they produce would satisfy the consumers.
The existence of this blurred environment in the business world however does not warrant the producers or manufacturers to offer whatever they think they have to the consumers; but for organizations to remain in the business field, especially in times of high competition aimed at capturing the largest market share, the producers strive to ensure that there is the addition of value not only to consumers, but also to employees and shareholders.
Value creation for both, employees and customers, is a critical factor determining the growth of any business organization. This is usually done in line with the business organization’s interests of increasing returns on investment.
There exists a link between the customers, the employees, and the investors in such a way that the value creation for any one of these three groups cannot be achieved individually. In the service industry, value creation can be defined as the process of making services that may be demanded by the customer available.
With this in mind, this paper aims at critically analyzing and discussing the external factors that add value in the service industry with special reference to “The city of dreams” group of hotels.
Although it may be difficult to measure the value of a service, the utility a customer gets after purchasing a service can be used to determine the value of the service.
If a customer feels fully satisfied with a service and is ready to purchase the same service at the same price, such a service can be perceived to be of a high value. It is therefore the role of service industry employees to ensure that customers are fully satisfied with the type of services they offer.
The stiff competition in the service industry can be used to measure customer’s satisfaction with the services provided by a given industry. Customers are always rational and would wish to get maximum value for their money. In this case, customers will change service providers in the event that they are not satisfied.
A close analysis of customer’s behavior, including their willingness to continue purchasing services from a given provider and their comments, is a good measure of the value of services provided by a selected service provider.
Value creation in the service industry refers to the provision of services that customers will always consider as useful. It is the process of ensuring that customers get the maximum utility after purchasing a service. This paper will discuss the external factors that create value to the service industry.
To effectively cover this topic, the City of Dreams chain of hotels will be used as a case study. Different theories will be used to explain the concepts of external value creation in the organization.
Literature review
Introduction
Value creation in the competitive service industry is based on innovations made by the service provider in an effort in order to satisfy the unique needs of different customers. Service providers are currently facing the challenge of attracting and maintaining customers.
According to Kenyon (2009, p. 88), service providers can achieve this by understanding their customers and making efforts to satisfy their different needs. Companies should be unique in their service provision in order for them to survive the competition in the service industry.
According to Bowie (2008, p. 77), the ability of a company to innovate and deliver quality services depends on the potential of its employees. In this case therefore, service providing companies should use the commitment, expertise and talent of their employees to produce outstanding services for their customers.
Buttle (1997, p. 111) argues that value creation in a company cannot be achieved without employee motivation. He added that employees are directly involved in service provision and would therefore determine the success of the service industry. This therefore means that value creation in the service industry should begin with the employees.
Christopher, Payne and Ballantyne (2002, p. 63) argue that employees will feel valued when they are respected by the employer and are involved in making decisions for the business organization. In addition, Craven (2002, p. 99) says that employees can be motivated by good compensations for their work and good working environment.
He also asserted that employers should continue offering training opportunities to their employees in order to make them relevant with the most current working skills. The rationale behind creating value on the side of the employees is that it will improve the production levels of the company.
The aim of investors in starting a service company is to earn profits from their investments. In this case, therefore, value creation for the investor entails generating consistent returns on investment.
This is usually measured by the growth in revenue collection and the profit margins generated by the business organization. According to Dibb and Simkin (2001, p. 113), value creation for the investor is achieved after the business organization has realized a sustainable value for its customers.
Supporting this, Dibb, Simkin, Pride and Ferrell (2005, p. 75) provide that a business organization that aims at creating customer value will not only retain its customers but also attract new customers.
Factors influencing Pre and post purchase value creation
According to Grönroos (2007, p. 99), pre purchase value is based on the expectations of the customer. As indicated earlier, customers are always rational and would wish to get the maximum satisfaction for their money.
In this case, the customer makes a mental picture of the kind of utility they expect to get after purchasing a given service. Kasper, van Helsdingen and Gabbott M (2006, p. 115) argue that customer’s expectations are based on their past experiences.
However, this expectation may be influenced by the media through advertisements or interaction among the consumers themselves. Pre purchase value explains the reason why many people prefer getting their goods and services from companies with a good reputation.
Customers believe that if a company provided valuable services in the past, there is a high likelihood of it to provide the same services in future. Customers with this perception in mind will therefore place high pre purchase value on goods from established companies.
It should be noted that customers’ past experience can deceive their pre purchase value. This is based on the fact that companies keep on changing their services in line with the needs of their customers.
The current competition in the service industry has forced service providers to constantly review the quality of their services and make the necessary modifications as a strategy of remaining competitive in the market.
Advertisements from the media can also be exaggerated leading to over valuation of services by customers before purchasing them. According to Kandampully (2007, p. 100), advertisements are meant to lure customers to purchasing a given service from the provider who has funded the advertisement, and thus need not to be trusted.
For instance, if customers get a high satisfaction from a service after purchasing it with a lot of money, they term such a service as expensive. On the other hand, if customers get less satisfaction from a service that has coasted them less amount of money; they term such a service as having a discounted value.
According to Knox, Maklan, Payne, Peppard and Ryals (2003, p. 88), customers will always prefer best services with the best value, which are the services that give the customer a high satisfaction and cost them low prices.
Branding as Key Value Creation Strategies
The increasing competition in the service providing industry has lead to some companies using branding as a competing strategy. According to Kotler, Bowen and Makens (2010, p. 115), a strong brand gives a company solid market and a competitive advantage over its competitors.
A brand provides a bond between a company and its customers. Lovelock and Wirz (2007, p. 101) argue that a brand will determine how a company will be perceived in the market.
It not only teaches the target population about the services offered by a given company, but also gives a hint on how best the company offers its services. Chew (2009, p. 100) argues that customers consider the brand before and after they have purchased services. It also determines the pre purchase value of services.
Trust in a given brand is thus strengthened by the post purchase experience of the customer. For example, if a customer derives maximum satisfaction from consuming a certain brand, he or she will place a high value to the services associated with such a brand.
The brand will have created a bond between the company and the customer, thus creating value. In this case, the company can use the brand as an asset of creating value.
However, quality of a service is the perception in by the customer of the amount of utility the customer wishes to get for a certain amount of money. In this respect, the customer is expected to have a prior experience of consuming different services at different prices. This locks out customers who are purchasing a service for the very first time.
A research contacted by Mudie & Pirrie (2006, p. 99) indicates that a large percentage of customers place value on services based on brand. As indicated earlier in this paper, a brand creates a bond between the customers and companies.
It should however be noted that a brand will be successful after the services associated with the brand have provided maximum utility on the customer. A successful brand makes customers loyal to a company. This promotes growth and stability of a company due to the increased income generated by the sell of the services.
Consequently, the company gets empowered to create value to its workers by motivating them with good monetary incentives and training them still further. The value added to the employees will in return result into better services provided by the company for its customers.
This does not only increase customer’s confidence in consuming a certain brand but also attracts other customers. McColl-Kennedy (2003, p. 100) says that customers exchange their views on different services. In this respect, customers who have been fully satisfied after consuming a given brand of services will influence others into trying the brand.
According to McDonald and Payne (2006, p. 77), value creation is cumulative in the fact that a value created on one of the three parties involved in business leads to value creation to the other two parties. For instance, value created to the customers by a certain brand of services leads growth of the business organization.
The growth of a business organization creates value on the investor through increased profits. A business that realizes positive growth will eventually motivate its customers by paying them well, thus adding value to them.
Case study: The City of Dreams group of Hotels
The City of dreams group of hotels is among the most successful service providers in the world. This company has attained its status through the provision of high quality services to its customers. The convenience provided by this company has created confidence on the customers to constantly rely on its services.
For instance, the city of dreams chain of hotels provides a wide scope of services ranging from accommodation to catering. This company has established several outlets in many different places to ensure a wide coverage of the market.
An outstanding characteristic of the city of dreams chain of hotels is that it provides personalized customer services. The employees of this company ensure that all customer needs are catered for every time when a customer seeks the services of the company.
For instance, this group provides a wide rage of foods in their menu for customers to choose from. The rationale behind including so many foods in the menu is to cater for the different dietary requirements by different customers.
In addition, these groups of hotel provide customers with the option of ordering the food they wish to take in the case that the food is lacking in the menu.
In addition to providing high quality foods in their menu, the city of dreams hotels provide one of the most convenient accommodation arrangements in the world. The hotel has spacious self contained rooms that guarantee the comfort of their customers.
The rooms are inspected regularly to ensure that they are in good conditions. Cleanliness has been the priority of the City of Dreams group of hotels not only to the foods sold in the hotel outlets but also in the lodging.
The aim of the City of Dreams Company is to create value for its customers. This has led to the company providing outstanding services in the hotel sector. Consequently, customers have had confidence in using the services of the City of Dreams Company.
This confidence has made the company’s brand a success and created a strong bond between the company and its customers. As a result of customer loyalty, the company has recorded big profits from the sale of its services, thus adding value to the investor.
The money generated by the company has also enabled it to pay attractive salaries to its employees (Backer 2008, p. 100).
Conclusion and recommendations
External value creation is an important factor to be considered when planning for the growth of a business organization. It is the creation of satisfaction on the customers, employees and investors in a business organization.
Branding and good management are among the strategies that companies should employ when seeking for value addition. It is worth noting that well trained and motivated employees produce better performance. It is advisable that companies should start by creating value to its employees first.
There should be a balance between the company’s interests and the interests of both the customers and employees.
A company should employ good management of its human resource because this leads to value addition of all the parties involved in the business organization. Training of employees and focusing on customer satisfaction should be emphasized by the management.
The company should provide support services to its customers and modify its services in line with the demands of the customers. Customer behavior and feedback should be used to analyses the quality of services provided by the company.
The company should protect its brand by ensuring that other competitors do not use the brand to offer counterfeit services. Advertisements through the mass media can also be used to create value to a company.
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