Customer value creation in a natural resource-scarce environment: the role of market knowledge in adaptation and sustainability

Résumé

With the ongoing concern about the depletion of natural resources, companies and their marketers are increasingly interested in finding ways to adapt their business processes to the scarcity of natural resources. How companies can do so is, however, still not clear, indicating the lack of understanding of how to incorporate insights from the natural environment into the companies’ primary business function which is essential to create customer value. This thesis argues that lessons on how to adapt business processes to resource scarcity can be drawn from pastoralists who for centuries have been able to maintain their livestock breeding and fattening business despite the persistent scarcity of natural resources. Pastoralists use primarily natural pasture and water resources for breeding and fattening their livestock in ways that meet the needs of their buyers. Pastoralists however see themselves faced with a persistent scarcity of natural resources due to the arid and semi-arid climatic condition of their region. The aim of this thesis is therefore to draw lessons from pastoralists on how they manage to adapt their customer value creation process to the scarcity of natural resources. To achieve its aim, the thesis answers the following four research questions: (1) How do pastoralists adapt the customer value creation to the scarcity of natural resources? (2) How do natural resource adaptation capabilities of pastoralists influence customer value creation in a resource-scarce time? (3) How does the level of natural resource scarcity that pastoralists experience influences the business performance contributions of adaptation capabilities and market knowledge? (4) Does market knowledge impact the sustainable use of natural resources, and if so, how? The questions are empirically addressed in a qualitative study that develops the conceptual framework (Chapter 2) as a basis for a set of quantitative studies (Chapters 3-5) to test (parts of) the framework and challenge its underlying assumptions.

A qualitative study identifying and conceptualizing natural resource adaptation (Chapter 2) provided the answer to the question of how the process of creating customer value can be adapted to the scarcity of natural resources. When pastoralists are confronted with an actual or predicted scarcity of natural resources, they can adapt their customer value-creating processes by leveraging three types of adaptation capabilities: matching value propositions (adjusting the value proposition to customers), natural resource deployment (making efficient and effective use of available natural resources), and managing customer expectations (interacting and communicating customers to create an appropriate level of value expectations in their mind). These capabilities intervene sequentially in the customer value creation process, respectively at the value defining, developing and delivering stages. The findings indicate that natural environmental knowledge about actual and predicted resource scarcities enables pastoralists to develop these adaptation capabilities and that the deployment of these capabilities in the customer value creation process is fostered by market knowledge. This implies that to develop and leverage these capabilities, companies need to develop their knowledge about the market as well as the natural environment. For this to happen, marketing must be seen as a learning process, not only about markets but also about the natural environment.

To examine the impact of natural resource adaptation capabilities on customer value creation, the thesis provides two empirical studies__ a cross-sectional dataset from 120 Ethiopian pastoralists during a natural resource-scarce time (Chapter 3) and a three-wave panel dataset from the same pastoralists at relatively distinct resource availability conditions (Chapter 4). In Chapter 3, the findings show that market knowledge has a strong positive effect on the three natural resource adaptation capabilities: matching value propositions, natural resource deployment and managing customer expectations. The matching value propositions and natural resource deployment capabilities were found effective in minimizing the impact of natural resource scarcity on the outcomes of the customer value creation. Product quality and quality of life were used as relevant outcomes of the pastoralists' customer value creation process. The results imply that adaptation capabilities that intervene at early stages in the customer value creation process are more effective in dealing with resource scarcities than those at later stages. The most likely explanation is that the three adaptation capabilities indeed intervene sequentially within the value creation process. If the resource scarcity is already overcome at earlier stages in the process, the adaptation capabilities in the subsequent stage become less important.

The question how the level of scarcity for natural resources influences the business performance abilities of market knowledge and adaptation capabilities is answered in Chapter 4___ a longitudinal study. The chapter builds on three movements of panel data collected at relatively distinct natural resource availability conditions. The focus is on the natural resource deployment capability because it relates to businesses’ ability to make use of available natural resources, which vary strongly across seasons for Ethiopian pastoralists. The results show that market knowledge has a stronger impact on natural resource deployment capability when resources are more constrained rather than abundant. This suggests that during resource-scarce times, market knowledge helps to minimize the decrease in product quality by enabling businesses to effectively leverage natural resource deployment capability. As such market knowledge invokes pastoralists to effectively allocate existing resources, avoid unnecessary usage of resources, and build slack resources (e.g. inventory and flexible resource access) as a precautionary measure. This in turn minimizes the impact of resource scarcity on customer value creation during resource-scarce times. Hence, the results imply that natural resource deployment capabilities enable businesses to cope with natural resource scarcity more effectively if they are empowered with a strong understanding of markets.

Chapter 5 tests an important assumption of the framework, namely that market knowledge complements the natural environmental knowledge, which enables pastoralists to sustainably use their common-pool natural resources. Common-pool natural resources are shared natural resources among a group of resource users where individuals in the group have no specific claim except the right to use. Pastoralists manage the use of key natural resources, natural pasture and water resources, through collective ownership as common-pool resources. This chapter is therefore test whether market knowledge could help pastoralists to sustainably use their common-pool natural resources. By doing so, the chapter provides answers to the question of how market knowledge impacts the sustainable use of natural resources using a common-pool resource dilemma experiment. We argue that common-pool resource users’ level of market knowledge influences their cooperation to the sustainable use of common-pool natural resources. This is because it influences their perceived benefits from the sustainable use of common-pool resources and the understanding of the potential consequences of resource degradation on the quality of products they produce and sell. This thesis shows that when resource conditions are good, resource users with more market knowledge are more likely to apply a lower grazing intensity to sustain their shared grazing lands. During resource scarcity, this effect is weaker. Furthermore, within-group variance in market knowledge harms group members’ decisions on sustainable resource use. Hence, in communities that experience increasing pressure from the global market economy, enhancing market knowledge is of vital importance to protect shared natural resources from depletion. Overall, this thesis shows that the customer value creation process can be adapted to natural resource scarcity by leveraging capabilities pertaining to matching value propositions, natural resource deployment and managing customer expectations at value defining, developing and delivering stages of the process, respectively. Market knowledge enables businesses to competitively create customer value in a resource-scarce environment by fostering the deployment of the adaptation capabilities in the value creation process. Market knowledge also encourages natural resource-users to cooperate to the sustainable use of natural resources in resource dilemma situations. By studying the role of market knowledge to the adaptation of value creation processes and sustainability, the thesis has enriched our understanding of adaptation capabilities that companies need to develop to deal with actual and predicted resource scarcities and thereby, maintain their value creation to customers while doing good to the sustainability of natural resources. In terms of lessons learned from pastoralists, companies can deal more effectively with natural resource scarcities if they guide their value-creation processes with combined insight from both markets and the natural environment.