Faculty of Social Sciences and Business Studies Business School
Master’s Thesis, Health and Business Satu Koponen (279336) 24 May 2019 CUSTOMER PERCEIVED VALUE IN SERVICE DESIGN OF A DIGITAL PRODUCT
ABSTRACT
UNIVERSITY OF EASTERN FINLAND Faculty of Social Sciences and Business Studies Master’s Program in Health and Business
KOPONEN, SATU: Customer perceived value in service design of a digital product Master’s Thesis: 63 pages
Supervisor: Outi-Maaria Palo-oja May 2019
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Key concepts: Digitalization, digital learning, customer perceived value, service design
The purpose of this study is to examine how service design can be used in a commercialization process of a digital product and find out a perceived value of a digital product which can be used as a competitive advantage. The research question of the study is: “How can the customer perceived value of a digital product be defined by service design?”
The study is a qualitative case study. The case organization is a Finnish learning game company with established market in Finland and future prospects to expand the market abroad. The theoretical framework examines previous theories for customer perceived value and service design, drawing conclusions based on previous literature. Relevant academic literature supports the framework of the study and forms a solid theoretical background around the topic. The empirical part of the research was carried out by collecting data by semi-structured interviews and observations. End users of the product were interviewed, as well as people in charge of making the purchase decision towards acquiring the product.
The empirical evidence complements the theoretical framework and highlights the significance of customer perceived value in product commercialization efforts. Service design is demonstrated as a functioning tool for collecting end user data. The key results of the study indicate that the customer perceived value of a digital product is achieved mainly by attributes relating to product or service itself. Customer perceived value related to service process or relationships has secondary value but amongst decision makers these attributes play a more significant role.
The research contributes to academic literature by studying service design, digital services and customer perceived value in the same context from a new perspective, whereas previous literature has discussed these concepts mainly in separate studies. Methodological contribution of the research is discovered in finding similarities in qualitative interviewing techniques and service design, which was demonstrated during the research. Practical contribution of the study gives suggestions for case company’s commercialization process on how to utilize customer perceived value as a key component in their marketing efforts.
Prospects for future study could include a research on customer perceived value from a pricing perspective, giving a new outlook to the topic. The company could also benefit from a larger scale service design project with wider and more versatile group of respondents, also using different service design tools in the research could be beneficial.
TIIVISTELMÄ
ITÄ-SUOMEN YLIOPISTO
Yhteiskuntatieteiden ja kauppatieteiden tiedekunta Kauppatieteiden laitos
Health and Business
KOPONEN, SATU: Asiakkaan kokema arvo digitaalisen tuotteen palvelumuotoilussa Pro gradu –tutkielma: 63 sivua
Tutkielman ohjaaja: Outi-Maaria Palo-oja Toukokuu 2019
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Avainsanat: Digitalisaatio, digitaalinen oppiminen, asiakkaan kokema arvo, palvelumuotoilu Tutkimuksen tavoitteena on tutkia, miten palvelumuotoilua voidaan käyttää digitaalisen tuotteen kaupallistamisprosessissa ja löytää digitaalisen tuotteen asiakkaan kokema arvo, jota voidaan käyttää kilpailuetuna. Työn tutkimuskysymys on: ”Kuinka digitaalisen tuotteen asiakkaan kokema arvo voidaan määrittää palvelumuotoilun avulla?”
Tutkimus on kvalitatiivinen tapaustutkimus. Tutkimuksen kohteena oleva organisaatio on suomalainen oppimispeliyritys, jolla on vakiintunut markkina-alue Suomessa ja tulevaisuuden tavoitteena laajentaa markkinoita ulkomaille. Teoreettinen viitekehys tutkii asiakkaan koetun arvon ja palvelumuotoilun aikaisempia teorioita ja vetää johtopäätöksiä aikaisempaan kirjallisuuteen pohjautuen. Aiheeseen liittyvä akateeminen kirjallisuus tukee tutkimuksen viitekehystä ja muodostaa vankan teoreettisen taustan aiheen pohjustamiseksi. Tutkimuksen empiirinen osa toteutettiin keräämällä tietoa puolistrukturoitujen haastatteluiden ja observoinnin avulla. Haastateltavina olivat palvelun loppukäyttäjät sekä tuotteen ostamisesta vastuussa olevat henkilöt.
Empiiriset tutkimustulokset täydentävät teoreettista viitekehystä ja korostavat asiakkaan kokeman arvon tärkeyttä kaupallistamisyrityksissä. Palvelumuotoilu havainnollistetaan toimivana työkaluna loppukäyttäjätiedon hankkimisessa. Keskeisimmät tutkimustulokset osoittavat, että asiakkaan kokema arvo saavutetaan lähinnä tuotteen tai palvelun ominaisuuksien avulla. Palveluprosessin ja yrityssuhteiden muodostama asiakkaan kokema arvo on toisasteisessa roolissa, mutta tuotteen ostamisesta vastuussa olevien henkilöiden keskuudessa näillä osa-alueilla on suurempi merkitys.
Tutkimus täydentää akateemista kirjallisuutta tutkimalla palvelumuotoilua, digitaalisia palveluita ja asiakkaan kokemaa arvoa samassa kontekstissa uudesta näkökulmasta, aikaisemman kirjallisuuden perehtyessä lähinnä yksittäisten käsitteiden tarkasteluun. Tutkimuksen menetelmällinen kontribuutio muodostuu havainnoimalla yhtäläisyyksiä laadullisen haastattelumenetelmän ja palvelumuotoilun menetelmien välillä. Käytännön kontribuutio antaa ehdotuksia tutkimuksen kohteena olleelle yritykselle tuotteen kaupallistamiseen ja asiakkaan kokeman arvon hyödyntämiseen markkinoinnin apuna.
Aiheeseen liittyvä jatkotutkimus voisi keskittyä asiakkaan kokemaan arvoon hinnoittelun näkökulmasta. Yritys hyötyisi myös laajemmasta palvelumuotoiluprojektista, jossa kohderyhmä olisi laajempi ja jossa käytettäisiin apuna palvelumuotoilun eri työkaluja.
TABLE OF CONTENTS
1 INTRODUCTION ... 6
1.1 The purpose of the study... 7
1.2 Key concepts and structure of the thesis... 8
1.3 Case organization... 10
2 THEORETICAL BACKGROUND ... 12
2.1 Digitalization and digital learning ... 12
2.2 Perceived value of services ... 15
2.3 Service design ... 21
2.4 Service design process ... 23
2.5 Theoretical framework of the study ... 27
3 METHODOLOGICAL APPROACH ... 30
3.1 Qualitative case study ... 30
3.2 Case description ... 32
3.3 Data collection ... 34
3.3.1 Interviews ... 38
3.3.2 Observations ... 40
3.4 Empirical data ... 41
3.5 Analysis of the data ... 42
4 RESULTS OF EMPIRICAL ANALYSIS ... 44
4.1 Areas of excellence ... 46
4.2 Areas of improvement ... 49
4.3 Factors contributing to decision making... 50
4.4 Summary of the research results ... 53
5 CONCLUSION AND REFLECTION ... 55
5.1 Summary of the study ... 55
5.2 Key contributions... 56
5.3 Evaluation of the research ... 57
5.4 Prospects for future study ... 58
5.5 Current situation ... 59
REFERENCES ... 60
1 INTRODUCTION
The comprehensive school in Finland consists of nine grades, years 1 to 9, aged 7 to 15 year old children. The teaching follows the curriculum defined by the Finnish national board of education.
The current foundation for the curriculum was set in 2014 which has been followed in all comprehensive schools in Finland since 2016. This curriculum has acknowledged the changes in the modern learning environment and is now understanding the versatility of digitalization in learning and digital literary as an essential skill. (Opetushallitus 2014.) This is turn has raised the interest of digital learning industry and its possibilities in education.
Digitalization is a growing phenomenon also among service providers and digitalization in learning is an emerging field of service in education. My research is looking at commercialization of digital learning games from a service design perspective, distinguishing the customer perceived value and its significance in the process. This is an area which has only recently raised the interest of researches and therefore provides an excellent starting point and platform for an interesting study.
Regardless being a fairly new concept, service design has been studied widely, but digital services and their service design has not yet received much attention on the research field. I am contributing towards the existing academic discussion by combining the different aspects of the study under one context and by reflecting the existing academic research against the conclusions from the empirical material which is based on user experiences. The practical relevance of the study gives recommendations to the case company based on the research results.
I am researching the topic from the viewpoint of customer perceived value, which can be used to measure the value the customer is experiencing when using the product or service (Grönroos 1982;
Zeithaml, Parasuraman & Berry 1990). The digital learning games and the related perceived value have not been studied previously from the service design perspective, hence the study is relevant and timely and aims to produce valuable information for the case company. The service design is discussed as one of the key concepts but is also demonstrated in practice as the qualitative interviewing closely follows the guidelines of interviewing as a service design tool. The results of the study will offer useful knowledge about different stakeholders of the company, as well as the user experience of the end product, and respectively will help with tailoring the product further into more commercial product with international potential.
The research is a qualitative case study (Eriksson & Kovalainen 2018). The empirical data was collected by interviews from end users and people in charge of making the purchasing decision for the product, as well as by observing teacher training sessions. The empirical data was analyzed by a qualitative content analysis and the results of the analysis were reflected against the theoretical background and existing models about the topic.
The findings were categorized following viewpoints by Saunila, Rantala and Ukko (2007) who distinguished three types of customer value in the digital services: value related to product or service, value related to service process and value related to relationships. The results of the study indicate that in digital services, value related to product or service is seen as the most significant feature adding value to the customer. Value related to service process and value related to relationships plays a more important role when considering and making a purchase decision.
1.1 The purpose of the study
My research topic was chosen in co-operation with the case company through existing connections and also based on my own interest in the subject. The research was done in collaboration with the learning game company which offers the digital learning game platform as their product and service they offer. The study aims to contribute towards existing knowledge about digital services and service design but also provide a new outlook on the subject, covering areas that have not been studied before. The research brings forth new information on commercialization of a digital service from a service design perspective, where customer perceived value is seen essential in the development process.
My research question is: “How can the customer perceived value of a digital product be defined by service design?” The aim of my study is to produce valuable data to help the case company to identify the main strengths and weaknesses of their product in order to ease their transition towards a profit seeking company with international potential. Customer perceived value is used to identify the key components which customers appreciate and place high importance on. To clarify the research question and to get more specific and reliable results, I have also specified two sub- questions to define and direct the research. My sub-questions are: “What is the customer perceived value of a digital product?“ and “What is service design of a digital product?” The sub-questions
aided me in understanding the research topic in more details and their simplicity guided me towards the main findings.
The study aims to capture the key points which are essential to the company in order to succeed in the digital market. The importance of different stakeholders is highlighted by providing an outlook of various groups involved the development and utilization of the digital product. The theory part of the research will aid in understanding the research phenomenon and is used as a base for data analysis. The research will provide more understanding to the topic, as well as give a new outlook by providing new end user information as research data and hence analyzing completely new information which has not been studied before. Practical user experiences have been used as a main source for data collection. The methodological part of the research consists of interviews to different stakeholders and viewing them against the literature and existing models.
The practical contribution of the research enables companies to identify the perceived value of the product. Research data and its analysis will aim the company in identifying the essential product attributes which can be used in their future marketing and product development, as well as aid the transition towards international profit seeking company. My aim is to clarify he benefits of using end user experience as a tool in identifying strengths and possible drawbacks of a digital product by 1) defining stakeholders involved who hold the essential information that can be useful in the process 2) assessing how can the company use this information when developing its product and extending its markets outside of the current market area 3) defining what is the perceived value that the end users experience when buying or using the product.
1.2 Key concepts and structure of the thesis
The key concepts in this study are digitalization, digital learning, perceived value of services and service design. In this section, I briefly explain each of these concepts which will be further elaborated in chapter 2 based on previous literature and research.
Digitalization is the process of changing from analogue to digital form (Schreckling & Steiger 2016, 3). In business, digitalization is one of the biggest trends changing the way companies operate, having an impact on all areas of organizations’ operating environments. Digitalization is
considered to bring value to the business, as well as help in finding new emerging business opportunities. (Rowles & Brown 2017, 7.) Digitalization has been acknowledged as a way to make organizations more suitable to the rapidly changing business environment and a as a tool to compete with the highly competitive markets (Rowles & Brown 2017, 7; Parviainen, Tihinen, Kääriäinen & Teppola 2017). The study focuses on the possibilities of digitalization in a learning game industry.
Perceived value of service has been defined as the value the customer receives when using a specific service (Grönroos 1982; Zeithaml et al. 1990). Different models have been identified as tools to measure perceived value, which will be demonstrated in the following chapter. The study draws from previous literature of perceived value, aiming to identify the tools to find the perceived value of the case company’s product. Perceived value places importance on customer satisfaction, though different models aim to identify the perceived value by different methods, the emphasis is always on customer satisfaction (Grönroos 1982; Zeithaml et al. 1990).
Service design is a valuable tool in shaping existing services and in discovering new business opportunities. The aim of service design process is to identify the factors which bring value to the customer and also to the company itself. The purpose of service design is to bring designing knowledge into business service development, in order to increase the value of the services (Tuulaniemi 2011, 13, 96). According to Andreassen, Kristensson, Lervik-Olsen, Parasuraman, McColl-Kennedy, Edvardsson and Colurcio (2015), customer satisfaction and quality of the service need to be emphasized and combined with service innovation, which can be done by successful service design process. Customer who uses the services is seen as the core of all services and plays a major role in service design process (Tuulaniemi 2011, 71). My research aims to study how service design can be used as a tool in defining customer perceived value in a digital learning game industry. Service design is growing in popularity and has established itself as both a practice and an academic discourse. It has been proven to bring value to the organizations through careful planning and considering different aspects of stakeholders, commercialization and marketing.
Previous findings indicate that service design creates practical tools for user engagement and service innovations. (Miettinen & Valtonen 2013, 7.)
1.3 Case organization
My case study is conducted in collaboration with a digital learning game company. The organization started as a research project by a Finnish university in 2004 and at the time of the research, the project employed 16 people. The company is a newly established company which is in charge of commercialization and marketing of digital games, employing 6 people. The learning games are currently being used in 700 schools all over Finland with approximately 7 000 teachers and 95 000 pupils as end users.
Currently the games are free of charge for the schools in Finland but the initial training sessions for the teachers are chargeable. The future plan for the organization is to divide the company into two operations; the learning analytics center operating in Finland and the games remaining free of charge in Finnish schools, whereas the company has been established to commence the marketing, export and internationalization of the digital learning games.
The project has been concentrating heavily on research in Finland with almost non-existing marketing and promotion. The users have increased more or less by recommendations by other users and schools. The game platform and the company are now facing a new era with marketing the learning game abroad. With their internationalization plans, the company’s long-term goal is trying to reach also the poor children around the world, who might not have a possibility to go to school during the day.
It is interesting to do research in this turning point of the case company’s business. Where the game platform has received extremely positive feedback in the Finnish schools, it has still been free of charge. Does this change when the service becomes chargeable? What is the value of the product the customers are happy to pay for? What are the possible challenges? Although the product and service will have to be modified at least at some level when entering market areas abroad, my research is concentrating on the customer perceived value of the product, which can be assessed regardless of its location.
I have structured the thesis as follows: The first part of the thesis is the theoretical framework consisting of prior research on the topic. In the second part I present the methodology used, the methods for data collection and data analysis. The third part explains the findings based on the
empirical study. Final part concludes the key contributions, evaluation of the research and suggestions for future research as well as gives a short description of the current situation in the case company.
2 THEORETICAL BACKGROUND
The key concepts of my study are digitalization, digital learning, perceived value of services and service design. In this chapter, I will define the key concepts based on previous research and literature on these topics. There is a vast amount of academic research available about digitalization, service design and perceived value of services, regardless digitalization and service design being fairly new concepts, but all these concepts have been rarely discussed jointly. This study aims to fulfil this research gap and will also contribute to existing research and literature by giving a new perspective on using service design as a tool in commercialization of digital services.
2.1 Digitalization and digital learning
Digitalization is still one of the biggest trends in business which has had a major impact on society and business world. Previous literature about digitalization has already acknowledged digital technologies providing organizational innovation within companies leading to convergence and productivity (Yoo, Boland, Lyytinen & Majchrzak 2012). More recently, based on previous definitions, Parviainen et al. (2017, 64) explained digitalization as “changes in ways of working, roles, and business offering caused by adoption of digital technologies in an organization, or in the operation environment of the organization”. According to Parviainen et al. (2017) digitalization process affects organizations at process level, organizational level, business domain level and society level.
Digitalization often brings value to the services as well as new business opportunities. According to Rowles and Brown (2017, 7), digital transformation is needed to make organizations more suitable to the radically changing business environment. Parviainen et al. (2017) argue that neglecting digitalization could threaten the companies in losing out in the competitive markets. As well as having an effect on the company’s business operations, digitalization is also essential in finding new business opportunities. Further to this, Parviainen et al. (2017) identified three different viewpoints to organization’s digitalization (Figure 1):
1) Internal efficiency – improved ways of working inside the company
2) External opportunities – new business opportunities (new services, customers etc.) 3) Disruptive change - changes in the operation environment
Figure 1. Digitalization impact (Parviainen et al. 2017, 66)
Digitalization can also bring major challenges to businesses. Companies often start the digitalization process by transforming their products or services into digital form. Based on previous research, Nylén and Holmström (2015), identify five key areas for managing digital product and digital service innovation:
1. Digital services must provide a rich user experience
2. Companies need to define the value proposition of their digital service
3. New user behaviors and contexts must be identified for opportunities and innovations 4. The requirement for new skills needs to be evaluated to support innovation
5. Assessing time and space for improvisation in the digital technology is essential
Digitalization has changed the traditional way of operating in the business world. There are now more choices available for customers worldwide and the digital sales are giving more and wider options for the end users where to choose from. This creates many possibilities for companies, but
also threats and challenges, especially in a form of new competition on the business market.
Digitalization has created new trends, needs and problems which bring new possibilities for the companies operating in their specific area. It is essential to recognize whether the company is providing products and services that customers want to buy now, and in the future. Understanding the changing needs of the customers is highlighted in the era of digitalization more than before.
(von Zansen, Haapanen & Syrjänen 2017, 62-63.)
As the case company in my research operates in a digital learning environment focusing on gamification, digital learning and gamification are briefly introduced here. Many digital gamification companies seem to have acknowledged the key areas identified by Nylen and Holmström (2015) and grasped the context of innovation in business. They have created new opportunities for their businesses by providing a rich user experience and by bringing new value to customers, for example by introducing new innovative ways to learning in digital form.
For companies, digital learning opens up new business opportunities which customers hardly knew to expect for. Peters (2000) specified the concepts of autonomous and heteronomous learning as two different types of digital learning. In autonomous learning, teacher or the programme developer dominates the learning process, whereas heteronomous learning is more interactive, students playing a major role in the learning situation. Commonly, digital learning industry has discovered new innovative ways to learn in a form of gamification. Digital games are interactive platforms which respond quickly to the actions of the player and give relevant and accurate feedback. As digital games can adapt to the skill levels of the player it is easy to modify a practice so that all the levels and abilities enjoy an engaging and challenging learning experience. The performance feedback is one of the essential factors of digital games and learning. By providing constructive but encouraging feedback, the digital platform provides a multifunctional learning system which encourages learning and sustains motivation. (Whitton 2014, 145-148.) According to Whitton (2014, 3), “Games – digital and traditional – can provide a way in which to move focus of our schools, colleges and universities to more active, experiential and student-centered models of teaching, learning and assessment.” Regardless of hugely positive experiences from digital learning, it is understood that it is not appropriate for every situation and all types of educational situations and will not appeal to all learners.
Whitton (2014, 189) argues that in the near future the evident and expected changes in the field of games and learning will be 1) Students moving from game players to game makers, 2) Educational games adopting lower production values and 3) Shifting the focus from games as entertainment to appreciating the value of playfulness in learning. Designing their own games promotes students’
creativity and problem-solving skills and learning emerges by experimentation. The major challenge is in the traditional way of separating work and play and changing the attitude towards accepting play and gamification as ways of accelerating learning. According to Rowles and Brown (2017, 107), joy and playfulness are still often seen as binaries and not acceptable as ways of learning with many. Sometimes digital learning may face resistance as learning new often involves getting out of your comfort zone which needs more effort and using more resources. Creating a learning environment where change and learning new learning techniques is encouraged, is seen as an important step in making digital learning more acceptable as a tool for learning development.
More recent discussion has raised interest towards evaluating the technology usage and gamification in learning (e.g. Lai & Bower, 2019) and its effects on motivation, satisfaction and study results. Yet this is an interesting topic to study, this research focuses mainly on the commercialization and value creating factors of the digitalization and related games, rather than educational aspects.
2.2. Perceived value of services
The aim of the research is to identify the perceived value of a digital product. Service quality has been acknowledged as a key factor in business operations (Grönroos 1982; Zeithaml et al. 1990), but recently more and more emphasis is placed on the customer perceived value. Unlike perceived quality, customer perceived value can be identified as a value the customer experiences when using the product or service considered and can provide more comprehensive and valuable information to the service providers (Arslanagic-Kaljdzic & Zabkar 2017; Tuulaniemi 2011). Arslanagic- Kaljdzic and Zabkar (2017) suggest the perceived value being a multidimensional concept with three different value dimensions: functional, emotional and social. These bring satisfaction and loyalty as value outcomes. Perceived service quality has slightly different definitions in previous
literature (e.g. Grönroos 1982; Zeithaml et al. 1990) but all agree that the emphasis is on customer satisfaction.
Earlier research by Grönroos (1982, 58) already acknowledged the importance of customer perceived quality and stated two important factors: firstly, one needs to define how service quality is perceived by customers and secondly, one needs to determine how service quality is influenced and which resources and activities have an impact on service quality. Defining only the quality of the service alone is meaningless if these factors are not taken into account. Grönroos (1982) introduced a model to answer these two questions: customer places the perceived service against the expected service. As a result, the perceived quality of the service is defined in terms of expected service and perceived service as illustrated in Figure 2 below.
Figure 2. Perceived service quality (Grönroos 1982, 60)
The perceived value has been traditionally explained also as a ratio between perceived benefits and perceived price and it has been illustrated through different models. Below I will elaborate on Monroe’s model (1990) and SERVQUAL-model (Zeithaml et al. 1990). These models are most commonly used in literature when defining the perceived value. Monroe’s (1990, 88) model states that:
Perceived value = perceived benefits/ perceived price
According to Monroe’s model (1990), the relationship between the benefit the customer receives and the cost of acquiring the product or service is essential and successful businesses have recognized the importance of this relationship. In Monroe’s model, perceived price, sometimes referred to as perceived sacrifice, consists of total cost to the buyer, including any costs after the purchase (repairs, maintenance, support etc.) whereas perceived benefits consist of benefit and attributes the product or service brings to the customer.
Expected service
Perceived service Perceived
service quality
SERVQUAL-model (Zeithaml et al. 1990) identifies 5 gaps which contribute towards organization’s ability to deliver quality service: Management perception, Quality specification, Service delivery, Marketing communication and Perceived service quality.
According to SERVQUAL-model, the quality of service is defined by the gap between perceived delivery and expectations (Figure 3). There are five critical dimensions of perceived service quality, which are used to measure the same:
1) Reliability - The ability to perform the service
2) Assurance - Employee knowledge and courtesy to create trust and confidence 3) Tangibles - The physical facilities, equipment and personnel
4) Empathy - Company’s ability to provide attention to its customers
5) Responsiveness - Willingness and ability to provide prompt service to customers
Figure 3. SERVQUAL-model, perceived service quality, gap 5 (Zeithaml et al. 1990)
The SERVQUAL-model illustrates how the perceived value is created and why we must consider product or service quality and perceived value as distinct concepts and how important it is to distinguish the difference between these two. Monroe’s model (1990) and Servqual-model (Zeithaml et al. 1990) have influenced more modern models to emerge to measure customer
perceived value. For example, Kotler and Armstrong (2012) have further evolved customer perceived value to influence their value-based pricing model, which brings customer perceived value as a key component to pricing.
Commonly, digital services test the potential of their service by initially providing a free service to their customers, also in expectation to widen the customer base and market area. When the service becomes chargeable, it can affect the customer perceived value. This chapter explains the relation between product price, pricing and perceived value. Rowles and Brown (2017, 22-23) argue that people are still willing to pay a fee for a service over a free service, if the service provides added value. Often the basic service is free but the companies sell premium service which makes money, WordPress being one good example of a similar service. Kotler and Armstrong (2012, 316) have demonstrated customer perceived value by a value-based pricing model, where the product pricing is done according to customer perceived value, bringing a new aspect on the pricing field. Here the customer perceived value is highlighted and prioritized, instead of emphasizing the costs. Kotler and Armstrong (2012, 316) do not see the price as a sacrifice which decreases the customer perceived value, instead the price is set to a level which matches the customer perceived value and the organization proportions its pricing level accordingly. Figure 4 illustrates the value-based pricing principles.
Figure 4. Value-based pricing (Kotler & Armstrong 2012, 316)
In their model, the pricing process starts with the customer needs and value perception, instead of traditional cost-based pricing model where seller’s cost is the key to the pricing process. (Kotler &
Armstrong 2012, 315). While first assessing the customer needs and value perceptions, the model closely reflects the viewpoints of service design thinking.
Assess customer needs and value
perceptions
Set target price to match customer perceived value
Determine costs that can be
incurred
Design product to deliver desired value at
target price
Patterson and Spreng (1997) have discussed the importance of individual performance benefits on consumer’s perception of value and highlighted the importance of customer satisfaction when measuring perceived value. More recently and complementary to service design discussion, Tuulaniemi (2011, 30) has explained the value which the company or organization offers as a relation between the benefit the customer gains and the price of the service. If the customer feels they can gain what they want or solve a problem they have with the product or a service, they experience receiving value. Tuulaniemi (2011, 32-33) also acknowledges that the value of the service or the product is not directly related to its price. Cheap product or service can create more value than an expensive one, if the benefit the customer gains is experienced higher, hence value promise being one of the key foundations in business. It defines how the company differentiates itself from its competitors and how the company can offer its products or services to be so unique that the customer needs them. Customers create their impression of the value they receive based on their own expectations and the subjective experience they receive. The value which the customer brings to the company is measured by how often the customer uses the services the company offers, how much money they spend and how profitable the customer is to the company based of their actions.
The product or service encounters competition from other similar services on the market. By decreasing the market price or respectively increasing benefit, the company creates added value to the customer. Generating value is a basic function for every company or organization but added value can be a source of competitive advantage, which is simply done by decreasing price or increasing the benefit the customer experiences. One way to succeed in the competition is to expand what the company offers by bringing complete solutions to the customers, instead of one product or service only. (Tuulaniemi 2011, 37-40.)
Perceived value can also be viewed as a tool for commercialization. For the companies to survive in today’s competitive markets, it is essential to successfully commercialize the service idea. Zahra and Nielsen (2002, 377) define technology commercialization as “the process of acquiring ideas, augmenting them with complementary knowledge, developing and manufacturing saleable goods and selling the goods in a market”. Successful technology commercialization satisfies the customers’ needs by competitive price, speed, quality and attributes of the technology. Company’s internal human and technological sources are important in implementing a successful technology
and knowledge commercialization, whereas external sources can also be found conducive. (Zahra
& Nielsen 2002.)
Commercialization of knowledge has its own constraints. Transferring knowledge into commercial production and marketing activities need careful consideration of business opportunities.
Organization’s expertise and knowledge must be combined into coherent business solutions. It is also essential to find measures to cope with the decay of knowledge as time elapses. (Witt & Zellner 2005.) Saunila et al. (2017) have discussed the role of value in digital services. They propose that there are three types of customer value in the digital services: value related to product or service, value related to service process and value created to relationships.
The value related to the product or service is controlled by the customer, hence it is essential to realize the potential the customers have and which attributes affect their behavior the most. Here the customer needs strongly define the products or services and their customization. Services are tailored focusing on the specific needs of the customers and developed further based on the customer feedback allowing the company to improve the user experience and adding value to the service. The company can offer value by offering a variety of different products or services to be able to serve a wide ranges of customers with specific product needs. (Saunila et al. 2017.) If the value is related to service process, continuous development and product updates are bringing customer satisfaction and value. The organization needs to have knowledge in different areas and the customers benefit by obtaining all the solutions from only one provider. This in turn creates reliability between the customer and the service provider and hence long lasting customer relationships and business. If the value is related to relationships, reliability and company reputation are the value bringing factors. This is enhanced by openness and sharing information mutually throughout the process. Building networks and collaboration with partner organizations is essential and will build trust as the company can provide solutions even in areas where they don’t have expertise in. Customer is offered a complementary solution by the company and the customer satisfaction is maintained. (Saunila et al. 2017.) According to Kumar, Aksoy, Donkers, Venkatesan, Wiesel and Tillmans (2010), customers can provide value to companies not only through their transaction but also by their behaviour and whether they recommend other individuals to make a purchase. Kumar et al. (2010) also acknowledge the value of feedback from customers for any possible innovations or improvements.
Furthermore, for example Heinonen and Strandvik (2007) and Arslanagic-Kaljdzic and Zabkar (2017) have suggested more multi-dimensional ways to define perceived value. Heinonen and Strandvik (2007) introduced a new approach to value of services suggesting that evaluation of value is an individual aspect by each customer. If the service is experienced as better than similar competing service it is considered a benefit, otherwise it is considered as sacrifice. In other words, the same service performance can be seen either as a benefit or as a sacrifice, depending on the customer and their personal experience. This approach adopts a value-in-use perspective instead of traditional study on perceived value, considering customer activity and behavioral reactions being part of the process. (Heinonen & Strandvik 2007.) Arslanagic-Kaljdzic and Zabkar (2017) introduced findings which highlight the importance of emotional aspects of an individual related to perceived value. This in turn encourages the service providers investing in credibility and relationships with their customers. In this approach, the first essential step is to recognize who is the customer of the service considered. This is also closely related to the principles of service design, which is introduced in the following chapter.
2.3 Service Design
Shostack (1982) was one of the first authors to discuss service design by mentioning designing services being part of marketing and management disciplines. Since then the discussion has elaborated further and more discussion and research has raised service design as one of the major discussion topics when talking about succeeding in business. Mager and Sung (2011) define service design as being an approach which helps to develop a clear strategic position for the services the company offers. Service design focuses on the customer journey, including not only the service, but also the customer experiences before and after the service. (Mager & Sung 2011.) Also more recent research about service design process and tools has been introduced for example by Miettinen and Koivisto (2009); Miettinen (2011); Tuulaniemi (2011); Miettinen and Valtonen (2013) and Penin (2018).
Service design is an area of knowledge, which brings designing knowledge into service development to increase the value of the services. Service design helps organizations to observe the strategic possibilities of services in their area of business as well as develop already existing
services. (Tuulaniemi 2011, 13.) Service design is an operation which brings the needs and expectations of the users and the business goals of the service provider together, into functioning services. (Tuulaniemi 2011; Miettinen 2011.) Service design has been discovered to be a critical skill which the companies and organizations need to master for them to be able to compete in the increasingly demanding markets. Emphasis on customer satisfaction and quality service needs to be maintained alongside with service innovation which can be initiated by a successful service design. (Andreassen et al. 2015.)
The goal for service designing is to optimize the service experience for the customer to create as positive service experience as possible. Hence, the customer is playing a major role in the service design. It is a systematic way to develop the business of a company or an organization. The idea is to increase the value of the service in order to increase the amount of people using these services, as well as them willing to pay for these services. A good service will please the customer and increase customer loyalty. (Tuulaniemi 2011, 26-29.)
According to Tuulaniemi (2011, 71), customer as the person who uses the services, is the core of all services. However, the issue is not this unambiguous; digital services often include other elements as related products, such as training, upgrading and support, which are often used by people in different levels of the organization (Miettinen 2011, 22-23).The service cannot exist if there are not people present who use it. Companies need to understand the reality where their customers (service users) live and function and what are their expectations and needs. More importantly, they need to reflect on what are the values the customer’s decisions are based on. As the customer’s role is the most essential one, the design and planning of services is often done together with the customer and the organization in question. Service design offers variety of tools and models where the customer is planning the services in collaboration with the case company.
This new approach of designing together with the customer provides endless possibilities for innovative end user focused product development. (Miettinen 2011, 22-23.)
Designing services includes its own challenges and limitations. According to Zeithaml and Bitner (2000, 195-196), the major challenges are oversimplification, incompleteness, subjectivity and biased interpretation. Services are described and interpreted differently by different people and the opinions are influenced by personal experience and degree of exposure to the service. If oversimplification happens when describing services, words often simplify things and do not
always tell the whole truth. When there is incompleteness, the people taking part in service design might not necessarily know enough about the researched phenomenon. Anyone is biased by their personal experiences and to the degree they have used the services, hence the subjectivity. Also people understand and interpret words often differently if not explained thoroughly and are in danger of biased interpretation. Reflecting on the above mentioned challenges, it is important to remind that everyone involved in the service design process shares the same vision of the service and related aspects, this becomes even more relevant when designing new services that customers have never experienced before. (Zeithaml & Bitner 2000, 195-196.)
Service design can be a valuable tool in discovering new business opportunities as well as in shaping services to be strategically more rational, and at the same time bringing value to the customer. Service design helps in identifying how the organization can create more value to their customers and the company itself. The aim is to create and design services which delight customers, fulfill their needs and match the business goals the company has set. How to link the benefit for both parties, is often the most challenging part of services design. (Tuulaniemi 2011, 96, 103.) Service design is also an approach that can be used to improve existing services to be more useful, usable and effective (Miettinen & Valtonen 2013, 26-28).
2.4 Service design process
I will elaborate on the service design process as explained by Tuulaniemi (2011) and Penin (2018).
The service design process consists of the following parts as illustrated in Figure 5: Defining, Investigation, Planning, Service Production and Evaluation (Tuulaniemi 2011, 128).
Figure 5. Service design process (Tuulaniemi 2011, 128)
Defining Investigation Planning Service
Production Evaluation
Defining (starting out and pre-investigation)
In this briefing, the goals for the service design project are defined. The organization defines the goals for the development project, as well as defines the customer need the company is aiming to fulfill. Also the timetable and the budget is defined in the first stage. (Tuulaniemi 2011, 132.) The second stage takes a deep insight into the organization and its business goals. The business idea, strategy and mission are clarified. The service that is developed is then measured against the strategic goals of the organization. Key factors to be considered are financial profit, the number of potential customers, the costs involved in the process and the profit that will remain. Often benchmarking is used in this stage in order to understand the market situation and to get a comprehension of the competitors involved. (Tuulaniemi 2011, 138; Penin 2018, 174.)
Investigation (customer understanding and strategic planning)
One of the most critical stages of service design is to increase the understanding of the target market and potential customers (Tuulaniemi 2011; 142, Penin 2018, 198). The services are designed to meet users’ needs and expectations, so it is essential to recognize the end users’ motives.
(Tuulaniemi 2011, 142.) During this stage the company reflects on its competitive strategy and makes decision based on this. It is essential to discover the competitive advantages the company has over its competitors. One useful visual tool for the strategic planning phase is Business Model Canvas designed by Osterwalder and Pigneur (2010) which helps the company to define its business model and areas to be developed and focused on. How to reach the customer segments and how to deliver value for them is defined in the Channels building block (Osterwalder & Pigneur 2010, 26). Correct channels should be created after careful consideration, selecting channels that work best and are the most cost-efficient for the business considered. According to Osterwalder and Pigneur (2010), channels have five different phases which are defined as: awareness, evaluation, purchase, delivery and after sales. The company can reach its customers by its own channels or by partner channels, or a mixture of both.
The methods for service design investigation stage are carefully chosen according to company’s or organization’s area of operation and target market. In recent literature, Penin (2018, 198) defines this stage being “perhaps the most critical component for determining the validity and success of a service design project.” There are variety of methods and tools that are useful and the right approach is defined by the context and situation of the given project. Commonly, the service design
project is analysed by a landscape analysis, where previous surveys and research are used as background information for issues that are being investigated. (Tuulaniemi 2011, 145; Penin, 2018, 208.) After the initial landscape analysis, the most commonly used tools for gathering end user knowledge are: interviews, observations, self-documentation, online ethnography and involving target group in the planning stage (Tuulaniemi 2011, 146; Penin 2018, 211-215). This research will demonstrate interviews and observations as tools for gathering end user knowledge, as explained in chapter 3.3.
Planning (idea and concept, prototyping)
The object for this stage is to create solutions and ideas for the problem or the area of improvement.
The service concept is then based on these ideas and solutions. The service concept helps the company to get an overview of their service; who is target customer of the service, how does the service benefit the customer, how is the service used and what resources are needed to be able to accomplish it. After the concept, the service is prototyped, which means testing whether the concept functions as expected. According to Penin (2018, 258) prototyping is an essential part of service design, through which learning and decision making takes place. Different tools exist to aid the visualization of services design process. One of the tools is a Service Blueprint, which illustrates the service production, needed resources and how the customers are connected to the production model. (Tuulaniemi 2011, 182-196, 212.)
Service production and evaluation (piloting, launch and continuous development)
A critical stage in the service design process is the implementation of the service. The information gained throughout the process needs to be concretized to the customer. The service concept is first tested with the consumers giving an option to make adjustments when needed. After piloting the service is launched to a chosen target group and continuously evaluated and developed.
(Tuulaniemi 2011, 230-232, 240.)
The evaluation guarantees the competitiveness of the service. It is essential to set measures how the service is evaluated and how the customer satisfaction and interaction is measured. Another thing that can be measured is the brand and its conspicuousness, as well as measuring recommendations. Continuous development is then based on these measures. Service design should be seen as a continuous developmental process which carefully examines the changing business environment and consumer habits. (Tuulaniemi 2011, 241-215; Penin 2018, 280.)
Teixeira, Patrício, Nunes, Nóbrega, Fisk and Constantine (2012) have introduced another model called customer experience modelling (CEM) as a toolset for service designers. The aim is to understand the elements which shape customer experience and facilitate the process of service design. Teixeira et al. (2012) highlight the holistic nature of customer experience and all the actors involved in a customer journey. CEM aims to provide an approach where information from customer experience supports the early stage of service design. CEM introduces three models for this purpose: 1) Human activity modelling (HAM), 2) Customer experience requirements (CER) and 3) Multilevel service design (MSD) which are illustrated in Figure 6.
Figure 6. CEM concepts and their relationships (Teixeira et al. 2012, 367)
The multilevel service design define three levels of customer experience: 1) Value constellation experience, 2) Service experience level and 3) Service encounter experience level. Value constellation of the CEM model, considers all organizations which have an impact on the customer experience of a certain activity, even when indirectly. (Teixeira et al. 2012.) This in turn reflects the customer point of view from different levels than Tuulaniemi’s (2011) model. The service experience level focuses on a single service provider whereas at the service encounter experience level, each encounter with the service provider is addressed (Teixeira et al. 2012). All the components of CEM are able to capture different segments of customer experience for a valuable tool for service designers.
2.5 Theoretical framework of the study
The research question: “How can the customer perceived value of a digital product be defined by service design?” is studied through three separate concepts: digitalization, perceived value of services and service design. The theoretical framework of the study focuses on previous literature on these three concepts, which are discoursed separately but also bridged into closely related concepts as the research evolves further. Earlier discussions and literature on the topics has aided me in understanding the existing ideas and models behind perceived value and service design thinking, how the ideas have evolved in literature over time and how they can be used in practice as tools for commercialization of a digital service.
Digitalization has been acknowledged as a major trend in business, changing the way the companies operate. The digitalization process affects the organizations at four different levels:
process level, organizational level, business domain level and society level (Parviainen et al. 2017).
Digitalization brings value to services but also new business opportunities, often digital transformation being an essential step in making business more suitable to modern business environments (Rowles & Brown 2017, 7). There are more choices now available to customers, digitalization bringing more options where to choose from. This brings out more competition and other challenges, which are often challenging due to novelty of the business area (von Zansen et al. 2017, 62-63.) Gamification combined with digital learning is a new and not much researched area of digitalization, with wide and still partly unknown business possibilities and prospects.
Perceived service quality is highlighted as an essential concept in this study as is also used as a measurement in the methodological part of the research. SERVQUAL-model (Zeithaml et al. 1990) defines the perceived service quality by five critical dimensions: reliability, assurance, tangibles, empathy and responsiveness and how well the company is able fulfil these customer expectations.
Monroe (1990) illustrates perceived value as a ratio between perceived benefits and perceived price or sacrifice. Furthermore, perceived value has been investigated through value based pricing (Kotler & Armstrong 2012) and defined by different value types (Saunila et al. 2017). In this research, one major question for the case company is to know how to price their services correctly, after having a free service in Finland and now turning it into a chargeable service abroad. It is atypical that the product has not gone through a process of digitalization but has been digital since
its launch. Nevertheless, commercialization of the product still follows a typical route where a free or inexpensive service becomes chargeable. This change needs information about perceived quality and related perceived customer value that emerges. The pricing aspect in this research is investigated through value propositions and customer perceived value. Based on previous literature, I have identified the main factors which contribute to customer perceived value (Figure 7): customer expectations, product price, emotional aspects, reliability, product attributes and related service. The theoretical framework has further defined my study into researching the perceived customer value from three different viewpoints: value related to product or service, value related to service process and value related to relationships.
Figure 7. Factors contributing to customer perceived value
Service design is discussed in the theoretical part as an important concept and also later in the research as a methodological research tool. The literature review reveals that despite of service design being a fairly new concept, the same viewpoints and ideas have been present in the marketing literature for a longer period of time. The expansion of service design thinking has given
Perceived value Product attributes
Service
Expectations
Emotional aspects Reliability
Price
room for more ideas and concrete tools that have been found useful in finding out the customer views and values. The theoretical background of service design for this study consists of process and methods of service design (Tuulaniemi 2011; Penin 2018; Teixera et al. 2012) together with advantages, possibilities and challenges. These models illustrate the practicalities of service design and how its methods can facilitate the process of identifying the customer perceived value and competitive advantages of the product.
My research offers a new viewpoint to these topics by examining a company whose product has been digital from the beginning so it has not gone through a digitalization process. This research will concentrate on finding a customer perceived value of a digital product by service design methods, a digital learning game being a digital service which the case company offers. The product of the case company is considered a service, rather than a single product, due to the service concept where the service is provided in a digital game format, together with training and continuous support. The following chapter explains the details of my data collection methods and tools for data analysis.
3 METHODOLOGICAL APPROACH
This study is a qualitative case study. Individual interviews, group interview and observations constitute the data collection methods of the research. These multitude ways of collecting information from various sources have assisted me in understanding the research topic from different viewpoints and given me a possibility to study various aspects of the research. I have used a qualitative content analysis to organize and analyze the empirical data.
3.1 Qualitative case study
My study is a qualitative case study research with the case company. The case company in my research is a digital learning game company. Case study is suitable when you to understand the logic of a case, rather than create causes and explanations for it (Eriksson & Kovalainen 2008, 132;
Woodside 2010, 6). In the case study, the case to be researched is essential as the research question, research setting and data analysis are based on the case. The research setting for the case study needs to be carefully defined, research context playing a major role in the study. (Eriksson &
Koistinen 2005, 1, 7-8.)
The case study is investigated in its real-life context (Woodside 2010, 1; Myers 2009, 73; Yin 1994, 1). The context of my research is a digital learning environment consisting of different stakeholders using a specific digital learning game in their natural setting. The research context is where the key concepts of my study perceived value of services and service design are researched. The setting of my research is the case company with its different stakeholders; teachers, decision makers and people involved in running and promoting the company and its products and services. The stakeholders in my study have been researched in their natural setting, which means the interviews were conducted in a real life context (at school or work place) whereas my role as a researcher was not to control the interviews too much. Commercialization is a wider phenomenon in my study and my aim is to provide answers and viewpoints to the growing commercialization issues the case company is facing. The commercialization aspect is investigated by considering the case company’s plan to expand the market area abroad.
This case study research is an intensive case study, which aims to produce a unique and theoretically interesting case by explaining, interpretation and understanding. The goal is to produce contextual information from one case only, without making wider generalizations. The intensive case study wants to find out how a certain case is functioning the way it is. (Eriksson &
Kovalainen 2014; 15, Yin 1994, 5.) Generalization is not a purpose of a case study (Eriksson &
Kovalainen 2014, 34) and this research is concentrating on one company and one case only, not expecting to find out general information that can be used widely in other settings and contexts.
The case study approach can often be challenging due to the amount of material involved and often vague and unclear goals and research questions (Eriksson & Koistinen 2005, 43). This is the challenge I came across in my research; the material was vast and interesting but to define the goals and to find the relevant information was demanding. The research question was also changed several times during the study as the focus of the study shifted more from one area to another according to the empirical material I obtained. My original research question was “How does commercialization take place through service design?” but the final research question was defined to be “How can the customer perceived value of a digital product be defined by service design?”
as the customer perceived value inductively emerged as the main key concept after intensive study of the research material.
Most commonly, the qualitative research process includes the following steps: selecting research questions, selecting relevant sites and subjects, collecting relevant data, interpretation of data, conceptual and theoretical work, further specification and data collection and writing up findings and conclusions (Bryman & Bell 2011, 392-392). These are the steps I also followed in the empirical part of my research. Interviewing is part of the data collection and often provides the most useful part of the research data. Interviewing is probably the most widely used method in qualitative research. Whereas interviews are flexible, they are also time-consuming methods for data collection. Qualitative research focuses on words more than numbers and gives an in depth understanding between a theory and a research. Qualitative research, which is employing ethnography or participant observation, usually requires qualitative interviewing as a data collection method. (Bryman & Bell 2011, 389, 465.)
3.2 Case description
I gathered the essential company information by interviewing two representatives from the case company. Two people were present in the interview, one person had been involved in the development of learning games from the beginning and the other person is in charge of the commercialization and promotion of the learning games. The interview was organized as a joint interview so that the participants could comment and complete each other’s viewpoints. Below I will elaborate on the issues and viewpoints that were discussed during the interview.
The game platform was originally created from a need to make teaching programming easier and smarter by bringing automatization as part of teaching and hence maintaining motivation and easing teacher’s work load. The positive feedback has surprised its developers and they realized how much a platform like this has been needed. The functioning and progress has been even better than they had expected. The game has been used widely at Finnish schools and now the intention is to start export and expand business to the international market. The company has realized that the competition is hard. It is essential to build a product which clearly stands out from its competitors which requires a lot of work; in Finland it is easy to get into the school curriculum but it is challenging abroad. They have been building tools for marketing and sales; including how to use Finnish education and its reputation as a part of sales process. The company is keen to obtain the best possible tools for sales and acknowledges that it requires time as the product is not ready for export as it currently is.
The company has already created several leads but the biggest challenge they have is that the game platform is free of charge in Finland and it hasn’t been tested anywhere else. The challenge is how to set the price right. A lot of benchmarking has been done already and they are aware of the biggest competitors worldwide. The company recognizes that it is essential to get into the curriculum of a target country so that the product could be used regularly in school work and the statistics could be used effectively, instead of being just “fun extra”. Also extra challenge is to find out who makes the decision in each country or whether to approach the marketing through private schools which are more flexible in their decision making. They have considered that the best option might be to obtain a local partner in the target country, also thinking about the need to be able to know the
language of the target area. It is important to have a network locally and a partner who can push things forward. This also reduces the need to increase own personnel so rapidly.
The whole product needs to be re-branded for export by making changes in the layout appearance and other minor adjustments, adjusting to country-specific needs and different education systems.
This is the next step that needs to be done, together with translating the product into different languages. According to experts, Finnish expertise alone is not enough, you also need to consider what is good and functioning in the target country, and then combine these two. “There will be a lot of objection and we need to be humble enough to face it and be ready to give answers.” (Head of marketing)
According to the head of marketing, the value of the product comes by creating a service for parents who are worried that their children have too much “screen time”. To reduce this stress and to be able to make screen time a learning time, when the children would actually learn something when spending time on a screen, is a major strength. The whole concept is based on research and statistics which also brings value. If you can bring out something that is based on research, it will stand out.
The teacher will concretely see what actually happens; where the students fail and where they succeed, and there are tools to give feedback and encouragement and in turn increase the motivation. “We cannot fight against the technology but we can fight against what the content of it is.”(Head of marketing)
According to the game developer, the need for the learning game stems from teachers’ needs. The initial teacher training is voluntary and teachers decide whether they want to attend or not. School principals and education officials are the ones who make the decision and authorize the permit to attend the training. To date, the company has done only a minimum amount of marketing. Lack of resources is one major problem; how to look more commercial, what are the changes that need to be done in the material and the game platform: How to look good for the retailers who make the decision to buy? How to stand out from the competitors? “What we have is extremely good but it does not sell.” (Game developer)
The company representatives state that another strength is the variety of material and access to it to use as the teacher wants. Analytics and statistics is something that the competitors don’t really have, this is a major strength. Customization is presumably better than the competitors have, due to the volume of exercises available. Teacher training is something which also stands out from the
