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Service Quality - a Tool of Value Based Marketing

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Service Quality - A tool of Value Based Marketing

by Mr. N.S.Padmanabhan , Ms. Deepthi Sankar and Dr. Sibu C Chithran


Modern years have witnessed an excess of new management approaches for improving organizational performance: total quality management, empowerment, reengineering, Kaizen, team building, and so on. Many have thrived but quite a few have failed. Often the cause of failure was performance targets that were unclear or not properly aligned with the ultimate goal of creating value. Value-based management (VBM) tackles this problem directly. It provides a specific and definite metric - value - upon which an entire organization can be built. The thinking behind VBM is simple. The value of a company is determined by its discounted future cash flows. Value is created only when companies invest capital at returns that exceed the cost of that capital. VBM extends these concepts by focusing on how companies use them to make both major strategic and everyday operating decisions. Value-Based Management marries the quality, educational and participation aspects of Total Quality Management and Open Book Management, with the equity and ownership concepts underlying employee stock ownership plans (ESOPs). Properly implemented, it is an approach to management that supports a company's overall goals, analytical techniques, and management processes to focus management decision making on the key drivers of value.


Value Based Management is the management approach that ensures that corporations are run consistently on value .i.e maximizing share holder value. Value Based Management includes creating, managing and measuring value. It entails managing the balance sheet as well as the income statement, and balancing long- and short-term perspectives. Value-based management can best be understood as a marriage between a value creation mindset and the management processes and systems that are necessary to translate that mindset into action. Taken alone, either element is insufficient. Taken together, they can have a huge and sustained impact.

VBM is a business philosophy and management system for competing effectively in the global marketplace, based upon the inherent value, dignity and empowerment of each person-particularly each employee, customer and supplier. As a customer-focused "service" philosophy, Value-Based Management (VBM) is built upon a shared set of core values. As a management system, VBM offers a logical framework for designing a company's structures and processes to instill an ownership culture that enables the organization to carry on its mission most effectively.

Value-Based Management calls for a new philosophy of leadership. It holds that an "authentic" leader sees him- or herself as a teacher, as well as the ultimate servant. A true leader is one who empowers others to realize their hidden potential, not one who rules by fear or refuses to be accountable to others. A well-designed Value-Based Management system sharpens and crystallizes the leader's philosophy around a set of universal moral principles. Through a participatory, company-wide process, these principles are refined and embedded within the organization, laying the foundation for an ongoing ownership-sharing culture.

The Basic Elements of Value-Based Management

Value-Based Management can also be described as an ethical framework for succeeding in business. As such, VBM balances moral values with material values. VBM's three components of value are realized in:

1. A foundation of universal moral values, starting with the intrinsic value of each person-each employee, customer and supplier.

2. Success in the marketplace based on delivering maximum value-higher quality at lower prices-to the customer.

3. Rewards based on the value people contribute to the company-as individuals and as a team, as workers and as owners.

Value Based Marketing

Value Based Marketing is a management system for marketing to maximise its financial contribution.

Value -Based Marketing: The Occidental Approach

In the occidental concept of value-based marketing, value refers to customer's perceived value (CPV), i.e., the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering and the perceived alternatives. CPV is thus based on the difference between what the customer gets and what he gives for different possible choices. Customer value is, therefore, customer's assessment of the overall capacity of a product or service to satisfy his needs. The concept of value - based pricing is based on the philosophy of CPV.

Value Based Marketing: The Oriental Approach

According to the oriental concept, there are three components of a consumer as under:

1. Physical

2. Mental

3. Spiritual

The mind reacts through body and is the decision maker. The consumer ultimately buys what is decided by his mind. He doesn't buy a product but it's utility to satisfy his three primary needs, namely, physical, mental and spiritual. Thus, an impure product may cause health problems,



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