2. creating and delivering value (1)

7/31/2019 2. Creating and Delivering Value (1)

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Creating and delivering Customer

Value

Man is guided by the idea of utility in his purchase

decisions. He will select a product that offers him

the maximum utility for the money he parts with.

More often the buyer seeks much more to utility.

He seeks VALUE


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Addressing the Value Concept All buyers seek Value in all their purchases and they

look for it in the form of benefits.

Customer compares the Total Cost & Value

of all Competitors offers and before he takesa decision.

For customers, all Products and Services is

actually a value delivery. It is out & out avalue game.


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The Concept of Customer Value

Customer Value is the composite of tangible values as well as

intangible values.

Initially Perceived Value and Finally Delivered Value Initially Perceived Value

Initially perceived value, the outcome of mental evaluations

Blend of qualitative and quantitative yardsticks.

Final delivered ValueIs the difference between the total value from owning &

using the product and the total costs incurred in obtaining

it.

Challenge is to Fulfill Customers Initially Perceived Value


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Am I Getting My Moneys Worth?


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Components of Customer ValueTangible Values

Functional value

Economic value

Convenience value

Sensory/aesthetic value

Service (people) value

Intangible

Values Social value

Prestige/status value

Sentiment value

Belief value

The two categories not mutually exclusive; they overlap and blend

Intangible values are equally vital as tangible ones

A Consumers Profile Determines How He Perceives Value


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Components of Customer Value- Tangible

Value

Functional Value: Ability to meet the given need, orUtility. e.g Car- for transportation. Cell make a

phone call. Other characteristics are quality, features,

durability etc.

Economic Value: Price advantage. Includes superior

profit making ability.

Convenience Value: Easy availability & easy to use.

Aesthetic Value: Look & Feel. Service Value: Quality of service, courtesy of

people.


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Components of Customer Value- Intangible

Value Social Value: Social acceptability or desirability.

Prestige/Status Value: Sense of self esteem.

Sentimental Value: Associated memories,

Sentiments. Belief Value: Confirms some deep stated beliefs.

Brand, Company Name : Takes time to build.

However most effective.


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Marketing Mix, the tool kit

The firm can enhance value by adjusting any of the

elements of the marketing mix

1. Increasing the functionality of the product2. Reducing the price

3. Giving better service support

4. Giving customer easy access to the product

5. Offering better communication


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Components of Customer Cost

Customer cost also consists of tangible and intangible components

Total of monetary cost plus psychic costs like time, energy,

and other botherations.

Value Delivery : Examples


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Nike Critics of Nike often complain that its shoes cost almost

nothing to make, yet the cost to the consumer is so much

Materials, labor, shipping, equipment, import duties,suppliers cost generally total to $ 25 per pair

Compensating the sales team, distributors, endorsers,

advertising and factoring the retail overheads makes it as

costly as $ 80 per pair But for the customer it is a brand that he is purchasing and

does not mind the cost


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Co-creating Value with the

Customer Value Creation process was a Exclusive Domain of

the firm now it is a Joint effort.

Now the market is seen as a forum of ValueCreation.

Product no more cerates a value. The Consumerparticipates actively in co-creating the value & theProductis just an outcome.

The consumers Home, Sites & Kitchen havebecome the Labs where the products are developedand decided. Thus Value is embedded within theProducts.


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Example of Co Creation When Italian automaker Fiat wanted to test new design concepts for its Punto, it

invited potential customers to visit the Fiat Web site and select from an array offeatures. More than 3,000 people participated. As a result, Fiat was able to capturevaluable insight into the likes and dislikes of a targeted consumer group, test differentdesign concepts at low cost and design a car far more reflective of customer

preferences. For their part, customers got a car closer to what they actually wanted.What Fiat has discovered is a new way to create value.

It's in good company: These days, Wall Street darlings like Amazon.com, AmericaOnline, Cisco Systems, Dell, eBay, Yahoo! and other electronic commerce innovatorsare partnering with their customers to co-create value and, indeed, are capturinggreater value than either party could have created independently. Co-creation is alsoleading to a rebirth of customer loyalty, a fragile concept in a world where customers

are only a mouse click away from a better deal.

Colleges, co create the course with the industry


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Customer Driving In some product categories you need to be

Customer Driving rather than Customer Driven e.g.Technology Products.

Henry Ford said, if he had to listen to people hewould have come out with a faster Horse instead ofa car.

Googleno one thought it would be so handy and

part of our life. Cell PhonesInitially were not accepted so well.

Most people may not initially understand thebenefits, specially the early & late majority.


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Traditional View of Marketing Whatever the firm produces, marketing will

help sell it.

In this process marketing assumes the last partin the value chain.

This works in the case of shortage of goods.

Make the Product: Design, Procure,

Manufacture Sell the Product: Price, Advertise &

Promote, sell, deliver the service.


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Value creation and delivery process

Choose the value segment

Provide the value segment

Communicate the value segment


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Value Delivery Process1. Choosing the Value (Strategic Marketing) (STP)

Customer segmentation Market selection process

Value positioning

2. Provide Value (Tactical Marketing) Product or Service development

Pricing

Sourcing

Marking

Distributing

Servicing

3. Communicating Value (Tactical Marketing) Sales force Sales promotion

Advertising

So in this model the value delivery process begins before the product isdeveloped and continues even after the product is delivered.


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Value ChainThe value chain is a tool for identifying

ways to create more customer value

because every firm is a synthesis ofprimary and support activities performed

to design, produce, market, deliver, and

support its product.


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Value ChainMichael Porter of Harvard proposed the value chain as a tool for

identifying ways to create more customer value.This value chain consists of 5 main activities and 4 supportactivities.

1. Primary Activities:

Inbound activities (brining materiel inside)

Operations (converting them into final Product)Outbound activities (shipping the final product)

Marketing & Sales

Servicing

2. Support Activities:

ProcurementTechnology Development

Human resources management

Firm infrastructure (accounts, legal, finance etc.)


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Integration of Functions

The firms task is to examine its costs and performance in eachactivity & compare the cost and performance of the competitor as

a benchmark. Firm should compare itself against the best of the

breed company as a benchmark, to achieve excellence.

Strong companies integrate the business processes of various

departments together to improve their core business processes.This is evident in most area, like new product introduction,

customer acquisition and retention, customer relationship

management.

Also the firms success depends upon how well it integrates with

its partners and supply chain. E.g. Wall Mart. Successful

companies have strong cross functional teams to ensure greater

synergy and efficient operations. E.g. the shipping, delivery,

billing, installation, services and collection departments working

together.


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A firms success depends not only on how well each

department functions but also on how it co ordinates

its core business processes

Market-sensing processgathering market

information and quick dissemination.

New-offering realization processresearching,developing, high quality offers

Customer acquisition process

Customer relationship management process Fulfillment management processreceiving the

orders and shipping the goods on time


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Companies reengineering their workflows and

building cross functional teams

At Xeroxcustomer operations group links sales,

shipping, installation, service and billing so these

activities smoothly flow into one another AT&T, Polaroid, Motorola, Siemens, Tata steel

are other organizations who have re organized

their employees into cross functional teams

To be successful, a firm also needs to look for

competitive advantages by partnering with

specific suppliers and distributors to create value


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Concentrating on core competencies to deliver

value

Companies now focus more on Core

competencies and outsource the less critical

areas if they can get better quality or price.

It serves as a..

A source of competitive advantage

Applications in a wide variety of markets Difficult to imitate


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Companies which have successfully

created value Procter and Gamble, South west Airlines,

Nike, Wal-Mart stores, Barnes and noble

U.S

Club Med, Nokia, VirginEurope

Sony, Toyota, Samsung, Infosys, LG, Tata

- Asia


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Strategic Planning for MarketingI. Corporate Planning

II. Strategic Business Unit Planning


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I. Corporate Headquarters Planning

Activities

Define the corporate mission

Establish strategic business units (SBUs)

Assign resources to each SBU Assess growth opportunities of SBUs


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1. Mission statement To define its mission, companies must

address Peter Druckers classic questions,

What business are we in Who are ourcustomers What is of value to the

Customer

Mission statement - clear message tomanagers, employees and customers


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Major Competitive Spheres

Industry

Products

Market

segment

Geographical

CompetenceVertical

channels


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Competitive spheres IndustryIndustrial market (DuPont), consumer

market (Dow)

Products2 wheeler segment (Honda motorcycleand Scooter )

CompetenceTechnology (Japan NEC)

Market segmentBaby (Johnson & Johnson) Verticalit is the number of channel levels (Ford

owned glass factories, rubber plantation)

GeographicalMultinational (Unilever)


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Cadbury India

To attain leadership position in the confectioneryand food drinks market of India


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Britannia

Our mission is to make every Indian a BritanniaCustomer


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Google

Our mission is to organise the worlds informationAnd to make it universally acceptable and useful


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eBay

We help people trade anything on earth.

We will continue to enhance the onlinetrading experiences of allcollectors,

dealers, small businesses, unique item

seekers, bargain hunters, opportunity

sellers, and browsers.


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Mission statements may change over timeto

take advantage of new market conditionsAmazon.com changed its mission from being the

Worlds largest online book store to the worlds largest

Online store

ebay changed its mission from running online auctions

for collectors to running online auctions for all kinds ofgood


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Defining the Business:

Product Orientation vs. Market Orientation

Company Product Market

Xerox We make copying

equipment

We improve office

productivity

Columbia

Pictures

We make movies We entertain

people

Encyclopedia

Britannica

We sell encyclopedias We distribute

informationCarrier We make air conditioners

and furnaces

We provide climate

control inside

homes


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Examples of Business definitionsWhen Reliance Industry entered the telecom business,

the leaders of the corporation did not say that they are

entering the telephone business. Instead, DhirubhaiAmbani, the founder leader stated that We are

entering the communication business

Kingfisher AirlinesWe are in the aviation hospitality

business


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2. Concept of strategic business unit This concept is relevant to multi-

product, multi business corporations

An SBU is a group of related business

that can be treated as a unified entity for

the purpose of strategic planning


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Characteristics of SBUs It is a single business or collection of

related businesses

It has its own set of competitors

It has a leader responsible for strategic

planning and profitability

General Electric has classified its business into 49 strategic business units.

The purpose of identifying SBUs is to develop separate strategies and

assign appropriate funding


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Illustrations of SBU Titan - For Titan industries watches is the major

business. Sometime back it entered the branded jewellery

business, personal accessories and precision engineering.

In a major re-organisation, Titan management structured

its entire operations into 5 Strategic Business Unitss

Titan watches, Sonata watches, Tanishq , personalaccessories and precision engineering

Titan management says that the segregation has paid of in

a big way


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Illustrations of an SBU Blue star is in the business of air conditioning and

refrigeration.

To make better sense out of its planning, blue starrestructured its businesses into six SBUs air

conditioning and refrigeration special projects, air

conditioning projects, packaged air conditioning,

room air conditioners, commercial refrigerationand central air conditioning services


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3.Assigning resources to each SBUBCG Matrix - A tool for business portfolio management

STAR

Cash cow

Question

mark

Cash trap/

dog

HIGH

LOW

HIGH LOW

Relative Market Share

MarketGrowth

rate


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BCG Matrix

StarA star needs a great deal of financial resources because of rapid

growth. When growth slows it becomes cash cows and becomes

important generators of cash for the organization.

Cash cow-They produce a lot of cash for the organization but since

the market isnt growing, they dont require a great amount ofadditional financial resources for growth and expansion. As a result

the organization can use the cash they generate to satisfy current debt

or support SBUs in need of cash

Question markAn SBU that has a low share in a high growth

market, the organization must decide whether to spend more financialresources to build it into a star

Cash trapCash trap is a business which has low share in a market

which has low growth rate. It may generate just sufficient cash to

sustain itself or be dependent on other SBUs

4 A i h h O i i Th


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4. Assessing the growth Opportunities - The

Strategic Planning Gap


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Filling the Strategic planning gap Identify opportunities to achieve further growth

within current businesses (intensive

opportunities) Identify opportunities to build or acquire

businesses that are related to current businesses

(integrative opportunities)

Identify opportunities to add attractive

businesses unrelated to current businesses

(Diversification growth)


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Intensive growth The product-market expansion grid is the

most useful framework for detecting new

intensive growth opportunities.


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Strategies Suggested by Ansoffs Product-

Market Expansion Grid


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Starbucks Starbucks starting to serve gourmet coffee

in their outlets was a market penetration

strategy

The market development strategy marked

the next phase of growth. Starbucks applied

the success formula of Seattle to PacificNorthwest, then through out North

America and then across the Globe


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Starbucks Further starbucks followed the product

development strategy that led to new in-

store merchandise like CDs, high speedinternet facility

Finally starbucks pursued diversification

into grocery store aisles with Frappuccinobottled drinks, Starbuck brand Ice cream

and purchase of Tea retailer Tazo


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Integrative growth Sales and profits can be increased with backward,

forward or horizontal integration with in the

industry. Backward integrationacquire one or more of

the suppliers

Forward integrationEnter distribution,

wholesale and retail

Horizontal integrationAcquire one or more of

the competitors


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DiversificationIt is possible when a company finds a highly

attractive new industry where it can

leverage its strengths.


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II. The Business Unit Strategic Planning

Process


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SWOT AnalysisStrengths

Weaknesses

Opportunities

Threats

The overall evaluation of

Companys Strengths,

Weakness, Opportunitiesand threats are called

SWOT analysis


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Strength and Weakness analysis

Checklist for performance

1. Marketing

Company reputation, Market share, Customer satisfaction, Customer

retention, product quality, Service quality, price, distribution,promotion, innovation effectiveness, Geographical coverage

2. Finance

Availability of capital, cash flow, financial stability

3. Organization

Visionary, dedicated employees, entrepreneurial orientation, Flexible or

responsive

4. Manufacturing

Facilities, economies of scale, capacity, technical manufacturing skill


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Surveying the external environment A business unit must monitor macro and

micro environmental factors that affect its

ability to earn profits

Good marketing is the art of finding,

developing and profiting from theseoppotunities


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Opportunitythreat profile developed by a

passenger car firm entering Indian marketEnvironmental factor Opportunity Threat

MacroEnvironment

POLITICAL

ENVIRONMENT

There is political stability

in the country though the

days of single party ruleare over. Economic

reforms have come to

stay. On the whole

political environment is

investment friendly and

enterprise supportive

Since multiparty,

coalition governments

have become the order ofthe day, the policy

environment lacks

dynamism and boldness.

Time and opportunities

are often lost due to the

constant demand forconsensus

SOCIAL

ENVIRONMENT

Burgeoning middle class,

double income, nuclear

families with more

disposable income.

Increased urbanization

Rapid changes in

consumption habits and

lifestyle impose a degree

of vulnerability on

corporate


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passenger car firm entering Indian marketEnvironmentalfactor

Opportunity Threat

Economic

environment

Economic reforms,

liberalization and globalization

carry good opportunities,Collaboration with foreign

firms possible, Services sector

having high growth rate

Liberalization and

encouragement to foreign

investment has madepassenger car industry

highly competitive.

Petroleum products are

becoming more scarce and

costly

Technology Import of technology has beenliberalized

Those who cannot competein technology are

vulnerable

Legal

Environment

Indias legal system is by far

sound, fair and open

The legal process is rather

slow. Labour law being

stringent, exit forentrepreneurs is difficult


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passenger car firm entering Indian marketEnvironmentalfactor

Opportunity Threat

Natural

Environment

Generally conducive.

Availability of raw material is

ensured

Though availability of the

main raw materialsteel

is no problem, costcompetitiveness is lacking.

Productivity has to improve

compared to international

standards

Micro

Environmental

factor

Industry

Competition

Demand will go up further

when government policies,

especially excise rates, help

bring down the price of cars.

The industry is in a real growth

phase

Liberalization has taken

away the protection

enjoyed by domestic

players. For new entrants

too competition is a major

factor to reckon with


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passenger car firm entering Indian marketEnvironmental

factor

Opportunity Threat

Consumerdemand

Large consumer base, growing urban

middle class, double income families,two people going out for job creating

greater need for personal transport.

Consumer no longer see it as a luxury

but as utility. Demand is constantly on

the rise for especially for small

compact cars

Consumers are

becoming morechoosy while buying

cars. The look for

styling, comfort etc,

in addition to fuel

efficiency

Technology Those who command the best

technology have the scope to stay on

top

More investment and

effort in R&D and

technology are

required


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Goal Formulation and MBOGoals are objectives that are specific with respect to

magnitude and time

Units objectives must be hierarchical

Objectives should be quantitative

Goals should be realistic

Objectives must be consistent


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Area where objectives must be set GROWTHinvestment, assets, revenue, profits, market

capitalization

PROFITABILITYReturn on investment, Earnings per

share

PRODUCTIVITYResource utilization, cost savings,

reducing defect rate

TECHNOLOGY AND R&Dmodernisation, innovation

HUMAN RESOURCES

SOCIAL RESPONSIBILITYCommitment to public

welfare


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Corporate objectiveExample of Reliance

Industries Reliance industries driven by good performance in petrochemicals

and oil refining businesses crossed $ 25 billion in annual sales in

2007, a 30% growth over the previous year.

Reliance set its corporate objectives for 20072012 as follows:1. Sales revenue should grow at a minimum of 20 % p.a

2. 25% CAGR would be achieved in return on net worth

3. Shareholder value of Reliance would be doubled by the year 2012

4. Company will choose best in class technology in all its business

5. Best of attention would be given to community health, safety and

environmental protection consistent with the companys position as

signatory of Global Voluntary Responsibility Care initiative

6. There will be investment toward enhancing the expertise of staff


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Corporate Strategy statement -ITC Planning period2007 to 2012

Corporate objectivesBy 2012 the annual sales income should be

double of the present level of Rs.19500 crore

Non cigarette portfolio should bring in 60% of the net corporateturnover from the current 52%

Net profit should grow at a minimum of 22% p.a

Business product / market positiontobacco & cigarettes, Hotels and

tourism, packaging and printing, paperboards and specialty papers,

agri-business, packaged food and confectionery, branded apparel,FMCG products

In all these products the entire national market and lucrative foreign

markets will be targeted


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Corporate Strategy statement -ITC Growth VectorExpansion of cigarettes through intensification

Expansion in hotel business by capacity expansion through acquisition,

alliances, start ups, and by entering into new market segments like semi

luxury and executive class

Competitive advantage and synergy

1. In cigarettesStrength in tobacco farming, strong brands, 60% market share

2. In hotels and tourismNew Alliance with US star wood Hotels which will

be used to strengthen the Welcomgroup chain. Separate positioning for semi

luxury segmentFortune park chain

3. In packagingThe leading supplier status to cigarettes and luquor industries

4. In paperboard and specialty papersA tree to textbook companyvertically

integrated from wood to paper. An international alliance will also be sought

for the Badrachalam brand


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Corporate Strategy statement -ITC In Agri-businessOverall low margin characteristics of the business

to be made up by value addition and better prices. Strength in rice

exports, soya and leaf tobacco

In packaged food and confectioneryA wide spectrum of valueadded food productsstaples, spices, cooking pastes, snack foods,

biscuits, ready to eat foods

In branded apparelClout of the brand Wills and exclusive retailing

In FMCGproducts in luxury, perfumes, colognes, personal cares

French collaboration and expertise


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Porters Generic Strategies

Overall Cost Leadership

Differentiation

Focus


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Online air travel industry provides a good example Lowestfare is pursuing a low cost strategy

Travelocity is pursuing a differentiation strategy by offering the most

comprehensive range of services to the traveler

Last minute is pursuing a niche strategy by focusing on clients who need totravel at a short notice


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Strategic Alliances to create a Global strategic

networkStar Alliance statistics

Member Airlines: 25

Number of aircraft: 3,740 Number of employees: 458,332

Passengers per year: 586.60 million

Sales Revenue (in US$): 169.70 billion

Daily departures: 19,534 Number of airports: 1,071

Number of lounges: 954

Countries served: 171


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Categories of Marketing Alliances

Product or Service Alliances

Promotional Alliances

Logistics Alliances

Pricing Collaborations


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Categories of Marketing Alliances Product or service allianceHindustan lever joined with

PepsiCo for marketing iced tea in bottles

Promotional allianceP&G has used the endorsement of

Bombay dyeing for promoting Aerial washing powder

LogisticsTransport corporation of India and Mitsui

company of Japan offers logistics services

Pricing collaborationsHotels and airlines, credit card

and petroluem products


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Marketing plan Executive summary and table of contentsThe marketing plan should open

with an executive summary for senior management with the main goals and

recommendations. A table of contents explains the layout of the report

Situation analysisThis section presents relevant background on sales, costs,

market, competitors and various forces in the macro and environment.

Strengths and weakness are also studied.

Marketing strategyDefines the mission, marketing and financial objectives.

The manager then decides the product lines competitive positioning

Financial projectionsIt includes a sales forecast, an expense forecast and

break even analysis Implementation controlsIt spells out the goals and budget for each

month or quarter, so management can review each periods result and

take corrective action


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Important questions

1. What are the tangible and intangible valuesthat customers seek in a product?

2. Explain the value delivery process?

How has Tata endeavored to create value for

Its customers through Nano?

3. What is the characteristics of a good mission

statement?

4. Explain the Strategic planning process atat a business unit level?

2. creating and delivering value (1)

Documents