Dacko S.G. The Advanced Dictionary of Marketing Putting Theory to Use
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utility 550
KEY INSIGHTS
In making choice decisions, consumers seek to achieve maximum utility.
However, as this may involve higher sacrifices which they may not be
able to afford, they may seek alternatives that are optimizing (choices
that achieve the most out of available resources) or satisficing (choices
that provide at least a satisfactory outcome—see satisficing). Different
utility models, such as the Stochastic Utility model (Chapman and Staelin
1982), the Reference Price model (Winer 1986), and the Random Utility
(RU) model (Baltas and Doyle 2001), have been proposed in the marketing
literature to explain choice behavior based on utility.
KEY WORDS Satisfaction, acquisition, consumption
IMPLICATIONS
Increasing perceived utility for consumers is an important challenge for
marketers. In evaluating alternatives and making choices among brands,
consumers use a number of different heuristics to arrive at optimal, if
not maximum, utility. A greater understanding of the utility concept
and its link with offering complexity, price, and value may therefore be
very beneficial in assisting the marketer’s efforts to provide attractive
offerings (e.g. offerings providing possession utility as well as place and
time utility) that fit the consumer’s choice criteria.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Vargo, S. L., and Lusch, R. F. (2004). ‘Evolving to a New Dominant Logic for
Marketing,’ Journal of Marketing, 68(1), 1–17.
Dellaert, B. G. C., and Stremersch, S. (2005). ‘Marketing Mass Customized Prod-
ucts: Striking the Balance between Utility and Complexity,’ Journal of Marketing
Research, 42(2), May, 219–227.
Wilkie, William L., and Moore, Elizabeth S. (1999). ‘Marketing’s Contributions to
Society,’ Journal of Marketing, 63, Fundamental Issues and Directions for Market-
ing, 198–218.
Services Marketing
Pullman, M., and Moore, W. (1999). ‘Optimal Service Design: Integrating Marketing
and Operations Perspectives,’ International Journal of Service Industry Management,
10(2), 239–260.
Online Marketing
Breitenbach, Craig S., and Van Doren, Doris C. (1998). ‘Value-Added Marketing in
the Digital Domain: Enhancing the Utility of the Internet,’ Journal of Consumer
Marketing, 15(6), 558–575.
BIBLIOGRAPHY
Chapman, Randall G., and Staelin, Richard (1982). ‘Exploiting Rank Ordered Choice
Set Data within the Stochastic Utility Model,’ Journal of Marketing Research, 19(3),
August, 288–301.
Winer, Russell S. (1986). ‘A Reference Price Model of Brand Choice for Fre-
quently Purchased Products,’ Journal of Consumer Research , 13(2), September, 250–
256.
Baltas, George, and Doyle, Peter, 2001. ‘Random Utility Models in Marketing
Research: A Survey,’ Journal of Business Research, 51(2), February, 115–125.
551 utility theory
utility theory
DESCRIPTION
Theory or theories concerned with understanding, explaining and predicting
an individual’s choices and decisions in relation to the individual’s preferences,
values, and judgments of preferability, worth, or value.
KEY INSIGHTS
Utility theory emphasizes the numerical or quantitative representation
of an individual’s preferences, values, and judgments to provide insights
into choice and decision making. The theory provides a basis for the
development and evaluation of numerical models of an individual’s pref-
erences, preference–indifference relationships, decision alternatives, and
associated assumptions. In particular, the theory enables risk analyses
to be performed where such analyses involve the subjective views of
individuals about the benefits or personal utility associated with taking
certain risks.
KEY WORDS Choice, decision making, preference, values, judgment, utility
IMPLICATIONS
Strategic marketers seeking to develop numerical models of decision
making and choice involving risk may benefit from an understanding
of the concepts associated with utility theory. In addition, while there are
many variants of utility theory, a working knowledge of the rigorous and
commonly accepted modeling methods can enable marketers to more
clearly specify and articulate preferences, values, and judgments leading
to choices and decisions.
APPLICATION AREAS AND FURTHER READINGS
Marketing Modeling
Inman, J. Jeffrey, Dyer, James S., and Jia, Jianmin (1997). ‘A Generalized Utility
Model of Disappointment and Regret Effects on Post-Choice Valuation,’ Marketing
Science, 16(2), 97–111.
Eliashberg, Jehoshua, LaTour, Stephen A., Rangaswamy, Arvind, and Stern, Louis
W. (1986). ‘Assessing the Predictive Accuracy of Two Utility-Based Theories in a
Marketing Channel Negotiation Context,’ Journal of Marketing Research, 23(2), May,
101–110.
Turban, Efraim, and Metersky, Morton L. (1971). ‘Utility Theory Applied to Multi-
variable System Effectiveness Evaluation,’ Management Science, 17(12), August,
Application Series, B817–B828.
BIBLIOGRAPHY
Fishburn, Peter C. (1968). ‘Utility Theory,’ Management Science, 14(5), Theory Series,
January, 335–378.
V
validity
DESCRIPTION
A criterion in measurement research referring to the degree to which an
instrument measures what it is intending to measure.
KEY INSIGHTS
Validity measurement is one of the three standard measurement cri-
teria (in addition to reliability and sensitivity) that are drawn upon in
facilitating the conduct of high-quality research (Churchill 1979). There
are a number of different validity measures used in marketing research,
including those referred to by the following terms:
A priori validity—see face validity (below).
Concurrent validity—a type of criterion validity in that it is validity based on
the degree to which a measurement approach predicts an outside
criterion, or established standard against which other things can be
compared and evaluated, where such criterion measures are obtained
at the same time as the measurement.
Consensual validity—the degree to which there is agreement of validity
among a knowledgeable community or group of individuals.
Construct validity—the degree to which a measurement approach actually
measures the underlying theoretical construct it is supposed to be
measuring.
Content validity—based on expert judgment, the degree to which a
measurement scale contains items which experts consider to be
representative of that which is to be measured.
Convergent validity—validity that is based on hypotheses and
examinations of the overlap between different measurement
approaches which are presumed to measure the same construct.
Criterion validity—validity based on the degree to which a measurement
approach predicts an outside criterion, or established standard against
which other things can be compared and evaluated.
Discriminant validity —also known as divergent validity, discriminant
validity is the opposite of convergent validity as it is validity based on the
degree to which the construct fails to correlate with other
theoretically distinct constructs.
Divergent validity—see discriminant validity (above).
553 validity
Ecological validity—the degree to which the settings, methods, and
materials used in a study approximate the larger, real-life situation
that is being studied.
External validity—the degree to which the results of the findings of a
study are generalizable in that they are relevant to subjects and
settings beyond those used in the study.
Face validity—also called a priori validity, the degree to which, by the face
of it, a measure seems to make sense in that it looks like it is going to
measure what it is intended to measure on the basis of reason as
opposed to experience.
Factorial validity—a form of construct validity (see above) established
through factor analysis where multiple measurement approaches
purported to be measuring the same constructs are factor analyzed to
determine the degree to which they share common variance and thus
can be said to be tapping into the same underlying construct.
Incremental validity—the degree to which a measure is able to explain or
predict a phenomenon of interest, relative to other measures having
the same purpose.
Internal validity—the degree to which an experiment is able to
demonstrate a causal relationship between two variables, i.e. that
‘cause’ precedes ‘effect’ in time, ‘cause’ and ‘effect’ are shown to be
related, and there is a lack of alternative explanations (e.g. problems
in the research design) for the relationship observed between the two
variables.
Nomological validity—the degree to which the correlation between a
measure and another related construct behaves as expected in
theory, in that a construct predicts measures of other constructs
from the perspective of a formal theoretical network of
relationships.
Population validity—the degree to which the findings of a study are
generalized from the sample to the larger population.
Predictive validity—a type of criterion validity in that it is validity based on
the degree to which a measurement approach predicts an outside
criterion, or established standard against which other things can be
compared and evaluated, where such criterion measures are obtained
at a time after the measurement.
Statistical validity—the degree to which appropriate choices are made
concerning the statistical methods and tests used in relation to the
measurement approach and the nature of the data collection
process.
Trait validity—the degree to which a construct and its measures
are in accordance with theory only at the level of a single trait or
distinguishing characteristic (i.e. theory that does not consider the
interrelationships of constructs within a nomological network).
KEY WORDS Measurement, intended measurement, marketing research
validity 554
IMPLICATIONS
A greater knowledge of all measures of validity can clearly be beneficial
in assisting the marketing researcher with designing, implementing, and
evaluating marketing research—whether one’s own or those of others—
for appropriate usability by the marketer. While some measures of valid-
ity may be potentially more of an issue in quantitative research and
others more of an issue in qualitative research, understanding better the
many different perspectives on measurement validity further allows the
marketing researcher to conduct tradeoffs in the selection and use of a
wide range of marketing research approaches.
APPLICATION AREAS AND FURTHER READINGS
Marketing Research
Peter, J. P. (1981). ‘Construct Validity: A Review of Basic Issues and Marketing
Practices,’ Journal of Marketing Research 18, 133–145.
Loyd, B. H., and Gressard, C. (1984). ‘Reliability and Factorial Validity of
Computer Attitude Scales,’ Educational and Psychological Measurement, 44, 501–
505.
John, George, and Reve, Torger (1982). ‘The Reliability and Validity of Key
Informant Data from Dyadic Relationships in Marketing Channels,’ Journal of
Marketing Research, 19(4), Special Issue on Causal Modeling, November, 517–
524.
Ruekert, Robert W., and Churchill, Gilbert A. (1982). The Reliability and Validity of
Alternative Measures of Channel Member Satisfaction. Madison: Graduate School of
Business, University of Wisconsin-Madison.
Spiro, Rosann L., and Weitz, Barton A. (1990). ‘Adaptive Selling: Conceptualization,
Measurement, and Nomological Validity,’ Journal of Marketing Research, 27(1), Feb-
ruary, 61–69.
Netemeyer, Richard G., Durvasula, Srinivas, and Lichtenstein, Donald R. (1991).
‘A Cross-National Assessment of the Reliability and Validity of the CETSCALE,’
Journal of Marketing Research, 28(3), August, 320–327.
Perreault, William D., Jr., and Leigh, Laurence E. (1989). ‘Reliability of Nominal
Data Based on Qualitative Judgments,’ Journal of Marketing Research, 26(2), May,
135–148.
Green, Paul E., and Srinivasan, V. (1990). ‘Conjoint Analysis in Marketing: New
Developments with Implications for Research and Practice,’ Journal of Marketing,
54(4), October, 3–19.
Malhotra, Naresh K. (1981). ‘A Scale to Measure Self-Concepts, Person Concepts,
and Product Concepts,’ Journal of Marketing Research, 18(4), November, 456–
464.
Peter, J. Paul, and Churchill, Gilbert A., Jr. (1986). ‘Relationships among Research
Design Choices and Psychometric Properties of Rating Scales: A Meta-analysis,’
Journal of Marketing Research, 23(1), February, 1–10.
Winer, R. S. (1999). ‘Experimentation in the 21st Century: The Importance of
External Validity,’ Academy of Marketing Science, 27(3), 349–358.
BIBLIOGRAPHY
Gilbert A. Churchill, Jr. (1979). ‘A Paradigm for Developing Better Measures of
Marketing Constructs,’ Journal of Marketing Research, 16(1), February, 64–73.
Heeler, Roger M., and Ray, Michael L. (1972). ‘Measure Validation in Marketing,’
Journal of Marketing Research, 9, November, 361–370.
Brewer, M. (2000). ‘Research Design and Issues of Validity,’ in H. Reis and C. Judd
(eds.), Handbook of Research Methods in Social and Personality Psychology. Cambridge:
Cambridge University Press.
555 value
value
DESCRIPTION
What something is perceived to be worth.
KEY INSIGHTS
The value of an offering, as perceived by a consumer, is the estimation of
the merit of the offering in terms of money, quality, or any other measure
of worth. For example, value can be assessed in terms of the offering’s
perceived benefits in relation to its price or perceptions of actual quality
in relation to expected quality. The notion of value provides a basis for
most marketing approaches. For example, it strongly links to relationship
marketing, where providing superior value to the customer is the way
to establish and maintain long-term relationships. If the ultimate aim
is to enhance customer loyalty, value-adding attempts have to be cus-
tomer oriented, rather than focused only on investing more on product
development (Ravald and Groenroos 1996). Shareholder value is also an
important outcome achievable through value chain analysis, for example
(see value chain analysis).
KEY WORDS Worth, perceived value, added value
IMPLICATIONS
Adding value to products and services entails not only improving cus-
tomers’ perceived value through increasing benefits, but also working to
reduce costs or customer-perceived sacrifices (Monroe 1991). Such a view
suggests that marketers’ firms may benefit in pursuing cost leadership in
combination with differentiation strategies aimed at providing value to
the firm’s customers.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Ravald, A., and Groenroos, C. (1996). ‘The Value Concept and Relationship Market-
ing,’ European Journal of Marketing, 30(2), 19–30.
Retail Marketing
Dawar, Niraj, and Parker, Philip (1994). ‘Marketing Universals: Consumers’ Use of
Brand Name, Price, Physical Appearance, and Retailer Reputation as Signals of
Product Quality,’ Journal of Marketing, 58(2), April, 81–95.
Services Marketing
Devlin, J. F. (2000). ‘Adding Value to Retail Financial Services,’ International Journal of
Bank Marketing, 18(4–5), 222–232.
Business-to-Business Marketing
Anderson, J. C., and Narus, J. A. (1998). ‘Business Marketing: Understand What
Customers Value,’ Harvard Business Review, 76(6), 53–67.
Eggert, A., and Ulaga, W. (2002). ‘Customer Perceived Value: A Substitute for
Satisfaction in Business Markets?’ Journal of Business and Industrial Marketing,
17(2–3), 107–118.
Online Marketing
Breitenbach, C. S., and Van Doren, D. C. (1998). ‘Value-Added Marketing in the Dig-
ital Domain: Enhancing the Utility of the Internet,’ Journal of Consumer Marketing,
15(6), 558–575.
value-based marketing 556
Consumer Behavior
Zeithaml, Valerie A. (1988). ‘Consumer Perceptions of Price, Quality, and Value: A
Means–End Model and Synthesis of Evidence,’ Journal of Marketing, 52 (July), 2–22.
BIBLIOGRAPHY
Wood, L. M. (1996). ‘Added Value: Marketing Basics?’ Journal of Marketing Manage-
ment, 12(8), 735–755.
Monroe, Kent B. (1991). Pricing: Making Profitable Decisions. New York: McGraw Hill.
value, characteristics theory of see characteristics theory
value-based marketing
(also called customer value marketing)
DESCRIPTION
A marketing approach that involves the pursuit of marketing strategies and
tactics that provide a high degree of meaningful value and satisfaction to
customers as well as achieving improved business leverage.
KEY INSIGHTS
Value-based marketing entails a strategy that focuses on ongoing analysis
of the company, the competition, and the customer, observing oppor-
tunities to deliver superior value to customers based on the company’s
niche competencies. The approach recognizes that the firm must also
be responsive to changes in the competitive environment, where the
firm strives to remain competitive with sustainable advantages, while
providing consumers with credible offerings that are value based. As
such, the company’s value proposition becomes a primary organizing
force for doing business and creating shareholder value.
KEY WORDS Value, ongoing analysis
IMPLICATIONS
Value-based marketing emphasizes the need for marketers to consistently
develop and implement marketing approaches that are of high value
in multiple stakeholders—to the organization and its employees, to the
organization’s shareholders, and to customers. A greater understanding
of value-based marketing approaches may therefore be potentially bene-
ficial to marketers involved in any area of marketing, including strategy
development, brand management, pricing, and marketing communica-
tions, as it may assist with the identification and pursuit of high-value
marketing initiatives from multiple perspectives.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Walters, D., and Lancaster, G. (1999). ‘Value-Based Marketing and its Usefulness to
Customers,’ Management Decision, 37(9), 697–708.
Doyle, P. (2001). ‘Shareholder Value-Based Brand Strategies,’ Journal of Brand Man-
agement, 9(1), 20–31.
Marketing Management
Webster, F. E. (1994). Market Driven Management. New York: John Wiley & Sons, Inc.
557 value chain analysis
BIBLIOGRAPHY
Doyle, P. (2000a). ‘Value-Based Marketing,’ Journal of Strategic Marketing, 8(4), 299–
310.
Doyle, Peter (2000b). Value-Based Marketing: Marketing Strategies for Corporate Growth
and Shareholder Value. New York: Wiley.
Davidow, W. H., and Malone, M. S. (1992). The Virtual Corporation. New York: Harper-
Collins.
value chain analysis
DESCRIPTION
Anin-depthscanofafirm’s valuechainactivitiesandfunctionsaimedat abetter
understanding of areas of improvement towards higher levels of efficiency and
effectiveness.
KEY INSIGHTS
A value chain analysis is a method for decomposing the firm into
strategically important activities and understanding their impact on
cost behavior and differentiation (Hergert and Morris 1989, Porter
1985). Activities analyzed may include primary activities associated with
inbound and outbound logistics, operations, marketing and sales, and
service, as well as support activities associated with firm infrastruc-
ture, human resource management, technology development, and
procurement.
KEY WORDS Value, organizational activities, strategic analysis
IMPLICATIONS
A marketer’s examination of the firm’s value chain allows it to opti-
mize its activities economically, efficiently, and effectively, where the
interdependencies between activities in the chain, buyers and sellers, as
well as between the different strategic business units are analyzed and
coordinated. As this entails better management of market-based assets,
incorporation of value chain analyses into the firm’s marketing strategy
development and evaluation processes may ultimately act to increase
shareholder value.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Day, G. S., and Wensley, R. (1988). ‘Assessing Advantage: A Framework for Diagnos-
ing Competitive Superiority,’ Journal of Marketing, 52, 1–20.
International Marketing
Fitter, R., and Kaplinsky, R. (2001). ‘Who Gains from Product Rents as the Coffee
Market Becomes More Differentiated? A Value-Chain Analysis,’ IDS Bulletin, 32(3),
69–82.
Business-to-Business Marketing
Kothandaraman, P., and Wilson, D. T. (2001). ‘The Future of Competition: Value-
Creating Networks,’ Industrial Marketing Management, 30, 379–389.
Online Marketing
Amit, R., and Zott, C. (2001). ‘Value Creation in E-business,’ Strategic Management
Journal, 22(6–7), 493–520.
value proposition 558
Marketing Education
Elloumi, F. (2004). ‘Value Chain Analysis: A Strategic Approach to Online Learning,’
in Theory and Practice of Online Learning, Athabasca: Athabasca University Press, 61–
92.
BIBLIOGRAPHY
Hergert, M., and Morris, D. (1989). ‘Accounting Data for Value Chain Analysis,’
Strategic Management Journal, 10(2), 175–188.
Porter, Michael E. (1985). Competitive Advantage. New York: The Free Press.
value marketing see enlightened marketing
value pricing see pricing strategies
value proposition
DESCRIPTION
An element of a firm’s marketing strategy that is a definable statement which
spells out what value a firm’s offering provides a buyer and user of the offering.
KEY INSIGHTS
The value proposition of a firm’s offering is ultimately that which it
provides to its customers. As such, the value proposition is not limited
to an offering’s functional benefits but can include benefits which are
social, emotional, or self-expressive, for example.
KEY WORDS Proposed value, value provision, benefits
IMPLICATIONS
As part of the firm’s marketing strategy, the value proposition of an offer-
ing should also strive to be consistent with the overall business strategy
(Lawler 2005) and the firm’s overall value proposition. Marketers should
seek to develop value propositions that not only highlight important
consumer needs and wants but also take into consideration the firm’s dis-
tinctive competencies, resources, capabilities, and limitations and assist
with the firm’s efforts to achieve a competitive advantage that is sustain-
able. In support of its effective delivery in the marketplace, marketers
should ensure that the firm’s value propositions are also communicated
effectively throughout the organization.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Kaplan, R. S., and Norton, D. P. (2000). ‘Having Trouble with your Strategy? Then
Map it,’ Harvard Business Review, 78(5), 167–176.
Marketing Management
Srivastava, R. K., Shervani, T. A., and Fahey, L. (1999). ‘Marketing, Business
Processes, and Shareholder Value: An Organizationally Embedded View of Mar-
keting Activities and the Discipline of Marketing,’ Journal of Marketing, 63(SPI/1),
168–179.
Online Marketing
Porter, M. E. (2001). ‘Strategy and the Internet,’ Harvard Business Review, 9(3), 62–79.
559 variety effect
Services Marketing
Lovelock, Christopher H. (1991). Services Marketing. Englewood Cliffs, NJ: Prentice
Hall.
Webster, Frederick E. (1979). Business-to-Business Marketing: Industrial Marketing Strat-
egy. New York: Wiley.
Levina, N., and Ross, J. (2003). ‘From the Vendor’s Perspective: Exploring the Value
Proposition in IT Outsourcing,’ MIS Quarterly, 27(3), 331–364.
BIBLIOGRAPHY
Aaker, David A. (2005). Strategic Market Management. New York: John Wiley & Sons,
Inc.
Lawler, Edward E., III (2005). ‘Creating High Performance Organizations,’ Asia Pacific
Journal of Human Resources, 43(1), 10–17.
variability see service characteristics
variable costs see cost
variable proportions, law of see diminishing returns, law of
variety effect
DESCRIPTION
Any effect where the existence and availability of product or brand variety
results in an increased benefit to consumers.
KEY INSIGHTS
Consumers of a particular product or brand may benefit from another
firm’s new product or brand introduction when such an introduction
provides the consumer with consumption variety. Given the availability
of variety, a consumer may periodically choose the new alternative to
experience diversity in consumption where, previously, all consumption
experiences were the same. At the same time, the availability of variety
may also act to enhance consumer perceptions of current products or
brands as well as potentially give consumers greater satisfaction with the
overall set of products or brands for which there is increased variety.
KEY WORDS Product variety, brand variety, consumer benefit
IMPLICATIONS
Marketers should strive to understand through research how and to what
extent expanded product or brand variety, whether offered by competi-
tors or within a firm, may lead to an increase in particular consumer
benefits. For example, increased variety may lead to expanded consump-
tion from a product category while in other instances the effect may be
greater consumer satisfaction with one or more of the alternatives within
a particular category.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Hausman, J. A., and Leonard, G. K. (2002). ‘The Competitive Effects of a New
Product Introduction: A Case Study,’ Journal of Industrial Economics, 50(3), 237–264.
Chernev, A. (2003). ‘When More Is Less and Less Is More: The Role of Ideal Point
Availability and Assortment in Consumer Choice,’ Journal of Consumer Research,
30(2), 170–183.