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MSQ 16,3 SERVICE LEADERS Values-based service brands

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0960-4529.htmMSQ16,3SERVICE LEADERSValues-based service brands:narratives from IKEA230Bo Edvardsson and Bo EnquistService Research Center, Karlstad University, Karlstad, Sweden, andMichael HayIKEA North AmericaAbstractPurpose – The purpose of this paper is to present a model for values-based service brands groundedin values-based service management. In undertaking this task, the paper addresses two researchquestions: “What is the role of values in creating customer value and corporate identity?” and “Howcan values and corporate identity be communicated to customers and thus contribute tocustomer-perceived service value?”.Design/methodology/approach – Based on five narratives from a value-driven company, IKEA,the paper proposes a model of values-based service brands in action. The model is based oninterpretations of how IKEA manages and communicates values in practising values-based servicemanagement.Findings – The study distinguishes four types of “values” in the example of IKEA: economic, social,environmental, and communication-based. These are incorporated into the model.Originality/value – This is the first study of the role of values-based service brands in creatingvalue in use for customers.Keywords Value added, Brands, Customer service management, Corporate identityPaper type Research paperManaging Service QualityVol. 16 No. 3, 2006pp. 230-246q Emerald Group Publishing Limited0960-4529DOI 10.1108/096045206106634711. IntroductionBrands are among the most fundamental and enduring assets of a firm (Martin et al.,2005). However, in services-management research, little attention has been devoted tothe question of how a perception of value-in-use can be communicated to customersthrough values-based service brands. The importance of communicating values inbusiness is illustrated in the contemporary utilisation of such approaches as “corporatesocial responsibility” (CSR) (Zadek, 2004; Kotler and Lee, 2005) and “triple bottom-linethinking” (Elkington, 1997, 2001) to create stakeholder value (Post et al., 2002). Inaccordance with these approaches, companies try to avoid aligning themselves withnegative values – for example, environmental pollution or exploitation of cheap labour(especially child labour) –which can result in negative publicity and value beingdestroyed. Rather, companies strive to be associated with attractive values – forexample, high ethical standards in dealing with employees and customers,contributing to society, and applying recycling principles whenever possible.Vargo and Lusch (2004a, b) stressed value-in-use for the customer. In accordancewith a service-centred view, Vargo and Lusch (2004a) argued that value is defined byand co-created with the customers, rather than being embedded in output, in definedproducts or service attributes. According to this view, value is perceived by thecustomer on the basis of value-in-use, and value creation through service is describedin terms of linked activities and interactions provided as solutions to customerproblems (Edvardsson et al., 2005a, b).The present paper argues that corporate values also bring value-in-use tocustomers. Excellent companies are distinguished from average companies by values,and not merely by logical, value-for-money outcomes and cognitive assessments(Johnston and Clark, 2001).The aim of the paper is thus to present a framework for values-based service brandsgrounded in values-based services management. The focus is on how values arecommunicated and bring value-in-use to customers. The new model is based on aliterature review and an interpretation of how one particular values-based firm, IKEA,nurtures and communicates values in its customer relationships. IKEA is the largestfurniture retailer in the world (Kotler, 1999), and has a growing global business. IKEAcorporate identity is determined by a strong culture based on well-defined companyvalues.In pursuing the aim described above, the paper addresses two research questions:(1) What is the role of values in creating customer value and corporate identity?(2) How can values and corporate identity be communicated to customers and thuscontribute to customer-perceived service value?The paper is structured as follows. First, the study presents a literature review andtheoretical framework for describing and understanding values-based service brands.Second, the study presents five narratives describing how IKEA communicatescompany values in creating total customer value. The paper then relates its empiricalfindings to previous research and suggests a model for values-based service brands,values-based management, and corporate image. Finally, the paper discusses theresearch contribution, managerial implications, and suggestions for future research.2. Theoretical frameworkTo attract and retain customers, and thus make a profit, companies are constantlysearching for new and better ways of creating value for customers and differentiatingtheir market offerings (Shaw and Ivens, 2002; Bendapudi and Leone, 2003). However, ithas been argued that technical and functional qualities are not enough; attractivevalues also form part of a favourable customer experience (Cronin, 2003; Sherry, 1998).This view is in accordance with Mano and Oliver’s (1993) study of utilitarianconsumption judgments and hedonic consumption judgments. In a similar vein, theconcept of “value-in-use” (Vargo and Lusch, 2004a, b) has been extended from atraditional focus on cognitive evaluations to include evaluations of values and serviceexperiences. Brands are used to communicate these values to the customer.Brands and service brandsThe essential role of brands is to differentiate a product or service from others insatisfying a given customer need. As Kotler and Keller (2005, p. 274) observed:These differences may be functional, rational, or tangible – related to product performance ofthe brand. They may also be more symbolic, emotional or intangible – related to what thebrand represents.Value-basedservice brands231MSQ16,3232Keller (2000) identified ten attributes in the world’s strongest brands – for example,that the brand excels at delivering the benefits consumers truly desire; that the pricingis based on consumers’ perceptions of value; that the brand is consistent; and that thebrand is given proper and sustained support.“Brand equity” is the value added to products and services by a brand, and isreflected in the way that consumers think, feel, and act with respect to the brand. AsKotler and Keller (2005, p. 276) observed:Brand equity is an important intangible asset that has psychological and financial value tothe firm.According to Aaker (1991), brand identity is particularly important for building brandequity. Ind (2004) stress the importance of “living” the brand – which has to do with“living up to” norms and values in various ways – for example, how employeesinteract with customers, how internal relationships are conducted, and howrelationships with suppliers and partners are maintained. According to this view,the culture forms a basis for the “living brand”.Brands thus communicate the values of an organisation to customers to create adistinct and favourable image. A service brand can often equate with the wholecompany, which implies that the service becomes the corporate image (Rindell andStrandvik, 2005).Hatch and Schultz (2001) have argued that the three essential elements of vision,culture, and image must be aligned in a successful branding strategy. Visionrepresents senior management’s aspirations for the company; culture refers to thevalues, behaviours, and attitudes that reflect how employees feel about the companythey are working for; and image is the outside world’s impression of the company –not only the impression of customers, but also that of other stakeholders (including themedia and the shareholders).Values, value-creation, and total customer value´Ramırez (1999) has noted that the concept of “value” has been studied since at least thetime of the ancient Greeks. Moreover, “moral value” and “economic value” were part ofthe curriculum of moral philosophy until the eighteenth century, when economicsbecame a field of study in its own right. Since then, a division has arisen between theeconomic aspects of value and the ethical aspects of value. On the economic side, valueis usually expressed in terms of utility. On the ethical side, it is essentially about´individual judgment. As Ramırez (1999, p. 50) has observed:Judgments of what is true, beautiful, and/or good, and the values these supposedly express,led to notions like “scale of values” and “values system”, differentiating one culture fromanother.The present study argues that it is important for a “value-driven firm” (Gummesson,1999) to create meanings. These meanings are concerned with collective identity(Castell, 1997). To create meaning among customers, it is also important for firms to´co-create, assess, and communicate value in association with their customers (Ramırez,´1999; Prahalad and Ramaswamy, 2004). Ramırez (1999) argued for “valueco-production”. He claimed that a value co-production framework provides a helpfulvocabulary for understanding the organisational and inter-organisational systems thatcan make competitive offerings available.Gummesson (1999, pp. 99, 104) discussed the concept of a “green relationship” andthe fact that firms that subscribe to “green values” can be seen as “value-driven firms”.Gummesson (1999) provided the example of the retailer “Bodyshop”, whose founder inthe UK, Anita Roddick, has spoken about societal responsibilities (in which sheincluded environmental improvements).Berry (1999) studied service companies that had been successful in the long term,and concluded that values and employee commitment provide energy and direction tosuch organisations. Value and values are co-produced with the customers as well aswith the other stakeholders.The differences between the economic “logic of value” and the ethical “logic ofvalues” can be summarised as shown in Table I – which is based on a case study ofIKEA (Edvardsson and Enquist, 2002).In their case study of IKEA, Edvardsson and Enquist (2002) demonstrated that astrong service culture – based on the “logic of values” – made sense inside thecompany and created meaning outside it. This culture was a driving force in creatingvalue for customers. The case study showed that an economic logic of value-creation –focused on quality, time, and price – should be supported by an ethical logic of valuesif corporate strategy and competitive advantage are to be established and maintained.As a former chief executive officer (CEO) of IKEA observed: “IKEA is a commercialcompany, but there is a social side to our vision and our business idea” (Edvardssonand Enquist, 2002).The concept of “value” thus has both a moral dimension and an economicdimension.Value-basedservice brands233Values-based management, corporate identity, and service brandIn the complex contemporary environment, it can be counter-productive to attempt tocontrol a business from a financial perspective alone. For this reason, values-basedmanagement (Pruzan, 1998; Elkington, 2001) has been discussed for some years, andPruzan (1998), in particular, has argued for a move from “management control” tovalues-based management and values-based accountability.The value logicThe logic of valuesHomo economicusEconomic calculationsFocus on economic utilityCommercial and financial focusQuality, time, and priceFocus on the structural and process aspects of theformal organizationFocus on business and service productionprocessesHomo sociologicusEthical and social calculationsFocus on ethical and social benefitsSocial and human focusIdeals and trustFocus on values and meanings as culturalexpressionsFocus on cultural processes and sensemakingTable I.The value creation logicand the logic of values ofIKEAMSQ16,3234Values-based management is premised on a stakeholder perspective of leadership,responsibility, and ethics (Pruzan, 1998) incorporating the concept of a “triple bottomline” (Elkington, 1997). The notion of a “triple bottom line” includes three aspects ofsustainability: economic, social, and environmental (Zadek, 2001). In this context,Elkington (2001, p. 50) has argued that:Successful companies tend to: have strong, positive, values-driven cultures; make lastingcommitment to learning and self-renewal; continually adapt, using both internal and externalfeedback; build strategic alliances with internal and external partners, customers andsuppliers; be willing to take risks and experiment; and have a balanced, values-basedapproach to targeting and measuring performance.Service brands can also benefit from being values-based. Berry (1999) developed aservice-branding model, which differed from a goods-branding model in that humanperformance was seen to play a critical role in building the brand in labour-intensivebusinesses such as services. In this context, Simones et al. (2005) focused on corporateidentity and argue that identity forms the basis for brands and that values are a keycomponent of corporate identity. As Simones et al. (2005, p. 153) observed:Creating a strong corporate identity and image is a way for companies to encourage positiveattitudes towards their organization.Such an identity can be viewed as a vehicle by which a company’s character isconveyed to customers and other stakeholders. Brand identity has thus been referred toas the brand’s distinctive “fingerprint” (Upshaw, 1995). Aaker (1996, p. 68) definedbrand identity as:[. . .] a unique set of brand associations that the brand strategist aspires to create or maintain.Simones et al. (2005, p. 156) emphasised that the core component of brand identity is“[. . .] its ‘soul’, brand values and underpinning beliefs”. In a similar vein, Ind (2004,p. 13) argued that:[. . .] a corporate brand is more than just the outward manifestation of an organization – itsname, logo, visual presentation. Rather it is the core of values that defines it.The same values are also vital when it comes to directing a company’s activities (deChernatony, 1999). In service organisations, brand can play an important role inmaking the service tangible. As Berry (2000, p. 18) noted:Strong brands enable customers to better visualize and understand intangible products. Theyreduce customers’ perceived monetary, social, or safety risk in buying services, which aredifficult to evaluate prior to purchase.Keller (1999) emphasised that the way in which a brand is communicated andexplained is critical to the employees’ internalisation of the brand. Corporatecommunication can be orchestrated by a sustainable corporate story (Van Riel, 2000).Berry and Bendapudi (2003) talked about “clueing-in customers” and demonstratedhow the corporate story of the Mayo Clinic in the USA involved sending the rightsignals through “clues in people”, “clues in collaboration”, and “clues in tangible”.Haeckel et al. (2003) also observed that delivering the brand is connected withcommunicating the core values of the company.In summary, three categories of “values” emerge from the literature:(1) economic values that are related to quality, price, and cost (that is, “value formoney” from the perspective of the customer);(2) environmental values that are connected with ecological protection,improvements, and responsibility; and(3) social values that are connected with ethical and community responsibilitiesand benefits.To analyse value-in-use for the customer, the present paper utilises a dialectic betweenthe logic of value creation and the logic of values (Edvardsson and Enquist, 2002). Inwhat follows, corporate stories are used to illustrate values-based management –which is taken to include the creation of corporate identity and integrated marketingcommunication.3. Values-based narrativesResearch designThe empirical context for the narratives that follow is the large furniture retailer,IKEA, whose culture, concept, and approach to business are documented elsewhere(Edvardsson and Enquist, 2002; Normann and Ramirez, 1998; Kling and Goteman,2003; Brown-Humes, 2003).Five narratives were selected for presentation here:(1) “Democratic design” (narrated by Michael Hay, co-author of the present paper);(2) “Chuck out the chintz” (narrated by Michael Hay, co-author of the presentpaper);(3) “Outlooking” (narrated by Michael Hay, co-author of the present paper);(4) “Code of conduct (IWAY)” (derived from The IKEA Way – Social andEnvironmental Responsibility (IKEA, 2003)); and(5) “Boycotts are not the solution” (derived from The IKEA Way – Social andEnvironmental Responsibility (IKEA, 2003)).Taken together, these narratives reveal how IKEA builds a values-based service brandand maintains values-based service management. The first two narratives describeexternal marketing activities whereas the other three are directed towards employeesand partners forming the basis for the service culture and corporate identity.Narrative 1: “Democratic design”The narrative. In 1995, outside the Milan Design Fair, which is the most prestigious´exhibition fair in the world for elite furniture designers, a sign proclaimed: “Il designdemocratico” [“Democratic Design”]. The sign pointed to a building that housed theIKEA exhibition outside the fair.In developing the notion of “democratic design”, Ingvar Kamprad, the founder ofIKEA, had asked: “Why must well-designed furniture always be so expensive? Why dothe most famous designers always fail to reach the majority of people with their ideas?”In his view, well-designed products were only for the rich and privileged; the multitudeValue-basedservice brands235MSQ16,3236of people with less money, were excluded. Furniture was no exception. Kamprad’s ideawith IKEA is to offer a wide range of home furnishings of good design andfunctionality at a price low enough to be affordable to most people. This is a“democratic idea” that had originated from IKEA’s roots in the poor farming˚communities of the County of Smaland in Sweden.The three dimensions of “democratic design” are form, functionality, and low price.No other furniture manufacturer is producing designed home furnishings that featuredall three of these elements. With respect to the third dimension – low price – IKEAdesigners are always asked to use design to decrease prices, not increase them. Ineffect, the price tag is “designed” first, beginning with a decision on what price themajority of people can afford to pay. A production line is then designed to producefurnishings that satisfied the other two dimensions. To achieve this, designers work onthe factory floor with production staff, rather than in a prestigious office in a distantcity.The proclamation of “democratic design” at the Milan Design Fair in 1995 provokedoutrage among organisers of the fair, designers, and furniture companies. In contrast,members of the public flocked to the IKEA exhibition, the Italian media provided muchpublicity, and consumers visited IKEA’s stores in unprecedented number to buy“democratically designed” furnishings.Interpretation. This narrative reveals that the notion of “democratic design” wasdriven by a combination of social values (reaching out to the majority of people); andeconomic values (low price relative to good functional quality).The values of IKEA revealed in this narrative are:.a “down-to-earth” approach: as exemplified by the designer working on thefactory floor, rather than being located in a prestigious office in a distant city;.respect and responsibility: as exemplified in its “democratic approach” to themajority of people; and.innovative thinking: as exemplified by its integration of form, functionality, andlow price.Narrative 2: “Chuck out the chintz”The narrative. In 1997, St Luke’s was a small (but energetic) advertising agency inLondon (UK). St Luke’s was asked by IKEA to undertake a radical change in IKEA’simage in the UK. The agency’s marketing analysis revealed that 60 per cent of themarket was traditionally minded and disliked anything foreign and new, includingIKEA. A smaller proportion (30 per cent) of the market was more innovative, andmight like IKEA. The remaining 10 per cent were undecided. St Luke’s strategy was toinduce the “traditional” 60 per cent of the market to dislike IKEA to an even greaterdegree, induce the 30 per cent to like IKEA to a greater degree, and induce the 10 percent of undecided to make a decision.The main barrier was style. Many people who lived in small terraced homes coveredtheir walls and floors (and even their toilet seats and toilet-paper holders) withflowery-patterned coverings – commonly referred to as “chintz”. Many people alsofilled their already crowded homes with fake antiques – another form of “chintz”. StLuke’s launched a television advertising campaign with the slogan: “Chuck out thechintz”. This advocated a more “modern” style that would give people a new identityand change the homes of Britain. Blue-and-yellow waste-disposal “skips” were placedin the streets for people to discard their “chintz”.The campaign had the desired effect. IKEA was transformed from being a strangeforeign company to being a fashionable name that reached into the private lives ofBritons in their homes. The television commercials ran only once, but for yearsafterwards people referred to the slogan “chuck out the chintz”, and associated it withIKEA.Interpretation. This narrative again reveals that IKEA is driven by social values.The values of IKEA revealed in this narrative are:.informality: that IKEA represents a modern and casual style; and.respect: providing people with a new identity and changing the homes of Britain.It should also be observed that these values were communicated in a particular mannerthat challenged the established views and habits of the people. There seems to bedistinct set of values behind the way in which the values were communicated.Narrative 3: “Outlooking”The narrative. As noted above, IKEA “designs” the price tag first. The companydecides how much a product should cost to make it affordable the most consumers.The product is then designed to achieve this low price while maintaining excellentfunction and good quality. The designer works on the factory floor to find the bestsolution at the best price.An example of this process was the company’s “LACK” range, which was initially adoor produced by a manufacturer in Poland. The door was placed horizontally on atrestle to become a table. It was then cut into pieces to produce shelves. These were thensubdivided into coffee tables. The pieces were then placed horizontally and vertically tobecome bookshelves. The resulting “board-on-frame” construction used only 30 per centof the energy and materials required to produce tables. Moreover, it could be packed flat,was light, and saved space in transport. This combination of qualities was consideredenvironmentally friendly, and the product was placed in IKEA stores.The price to the consumer of a “LACK” table is now only about 30 per cent of itsoriginal price in 1990. The production volume in the past 15 years has increasedapproximately ten-fold.Interpretation. This narrative again reveals that IKEA is driven by a combination ofeconomic values (low price in relation to quality) and environmental values (savingresources). This narrative also reveals the company’s willingness to challengeestablished views.The values of IKEA revealed in this narrative are:.cost consciousness: by emphasising resource saving;.simplicity: in manufacturing, distribution, and use (which is a driver of lowcosts);.innovative thinking: with the low price posing a challenge that provokes smartsolutions; and.responsibility: for the environment.Value-basedservice brands237MSQ16,3238Narrative 4: “Code of conduct (IWAY)”The narrative. In 2000 IKEA established a code of conduct (known as “IWAY”) for themanufacture of its products. The code of conduct requires its producers to manufactureproducts under acceptable working conditions utilising suppliers who, themselves,take responsibility for the environment.The experience of Nicolae Borsos, an IKEA supplier in Romania, demonstrates theway in which the code of conduct operates. In 1999, with IKEA’s help, Borsos bought arun-down furniture factory in the town of Nehoiu. Since then, an investment programhas increased profitability and improved conditions for the factory’s 680 employees.

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