Papers in Brief (VII): Patala et al. (2016): Sustainable value propositions: A framework and implications for industrial technology suppliers

[Note: This is the seventh post in our “Papers in Brief” series. This series offers a special service as it explains the core ideas of chosen research papers in a nutshell.]

Papers in Brief (VII) by Samuli Patala

Patala, S; Jalkala, A; Keränen, J; Väisänen, S; Tuominen, V. & Soukka, R. (2016, in press): Sustainable value propositions: A framework and implications for industrial technology suppliers, Industrial Marketing Management, http://www.sciencedirect.com/science/article/pii/S0019850116300232

Advances in sustainable purchasing place demands on firms to evaluate and demonstrate the sustainability of their products and services (Ramirez et al. 2014). In this paper, we coin the term sustainable value proposition, develop a process framework for building sustainable value propositions, and illustrate its application with two technology-intensive products.

Conventional methods and frameworks for developing customer value propositions suggest that it is critical to quantify the benefits provided to the customer and tailor the value proposition to the unique customer’s needs (Anderson et al. 2006). However, there is a lack of knowledge on how to integrate environmental and social considerations into the value proposition, even though these aspects have an increasing effect on customers’ purchasing decisions (Kotler, 2011; Papista & Krystallis, 2013).

Life cycle thinking offers various tools that can be used to assess the impacts of an industrial offering over its life cycle. Standard life cycle assessment (LCA) can be used to assess environmental impacts, life cycle costing can be used for measuring economic impacts, while societal LCA tools are also being developed to assess social impacts (Guinee et al. 2011). Life cycle thinking can be applied in for example assessing investment decisions or changes to an industrial process. This study utilizes life cycle thinking as a marketing tool in order to develop sustainable value propositions which demonstrate economic, environmental and social benefits.

Through two case studies, we examine the development of sustainable value propositions in two industry sectors: metallurgical and automotive. Based on the two case studies, we propose a process framework for developing sustainable value propositions with the aid of life cycle thinking. The process framework can be applied to demonstrate and evaluate the economic, environmental and social value of industrial products and services. The framework is pictured in Figure 1. The framework comprises 1) identification of potential impacts, 2) identification of key value creation mechanisms, 3) choosing key indicators, 4) life cycle modelling, and 5) life cycle value demonstration.

patala_et-al

Figure 1. Proposed framework for sustainable value proposition development

Identification of potential impacts refers defining the current and future key benefits of the product or service. This involves recognizing all of the features of an offering which can potentially provide value by creating gains or decreasing losses in the economic, environmental and social dimensions.

Identification of key value creation mechanisms refers to uncovering the elements of the of the customer’s processes, where the supplier’s offering can create value, or prevent losses where problems exist. Suppliers must also try to ascertain the type of impacts a customer values and thus customize the value proposition to the customer’s needs. This requires determining the unique value drivers of the target customer and assessing competing offerings to determine the favorable points of difference.

Choosing key indicators involves determining the relevant economic, environmental and social indicators that can quantify the value provided by the offering, and measuring their baseline. This determines the scope of the life cycle modeling which is a vital part of the LCA process.

Life cycle modeling refers to the quantification of the indicators in the economic, environmental and social dimensions which involves establishing a baseline for the key indicators and analyzing the resulting impacts over the life cycle of the offering. In our analysis, we also found that the life cycle modeling phase should include the recognition of potential trade-offs between the different dimensions of sustainable value.

Demonstrating life cycle value refers to determining the total value-in-use that results from the offering (i.e. the total value realized for the customer). In the context of customer value propositions, this can be accomplished by integrating the direct economic benefits, and derivative economic benefits of reduced environmental and social impacts, as well as the benefits provided to the wider society. In our case studies we found three different methods for demonstrating the derivative customer value of environmental and social benefits. Monetization refers to calculating the value of the benefits in monetary terms, for example by using carbon prices to valuate CO2 emissions. Certification refers to seeking a certification or ecolabel to symbolize the sustainability. Lastly, risk assessment refers to calculating the potential risks which can be decreased for the customers for improved environmental and social sustainability.

The main contribution of our research is a framework that industrial technology suppliers, purchasers and third parties can apply when developing and evaluating value propositions from the perspective of sustainability. Marketers will face the questions of how to build sustainable value propositions, while purchasers face the question of how to evaluate competing value propositions. Our paper contributes to the growing field of sustainable marketing by offering guidelines on how to integrate sustainability with the marketing and purchasing of technology-intensive products, as well as to the literature on customer value propositions by demonstrating their development in practice.

References

Anderson, J., Narus, J. & Van Rossum, W. (2006). Customer value propositions in business markets. Harvard Business Review, May 2006, 90-99.

Kotler, P. (2011). Reinventing Marketing to Manage the Environmental Imperative. Journal of Marketing, 75, 132-135.

Papista E. & Krystallis, A. (2013). Investigating the Types of Value and Cost of Green Brands: Proposition of a Conceptual Framework. Journal of Business Ethics, 115(1), 75-92.

Ramirez, E., Gonzalez, R.J., Moreira, G.J., (2014). Barriers and bridges to the adoption of environmentally-sustainable offerings. Industrial Marketing Management, 43(1), 16–24.

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