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

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 takes a decision. For customers, all Products and Services is actually a value delivery. It is out & out a value game.

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 Value Is 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

Am I Getting My Moneys Worth?

Components of Customer Value Intangible Tangible Values Functional value Values

Economic value
Convenience value

Social value Prestige/status value Sentiment value Belief value

Sensory/aesthetic value
Service (people) 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

Components of Customer Value- Tangible Value

Functional Value: Ability to meet the given need, or Utility. 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.

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.

Marketing Mix, the tool kit

1. 2.

3.
4. 5.

The firm can enhance value by adjusting any of the elements of the marketing mix Increasing the functionality of the product Reducing the price Giving better service support Giving customer easy access to the product Offering better communication

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

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

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 Value Creation. Product no more cerates a value. The Consumer participates actively in co-creating the value & the Product is just an outcome. The consumers Home, Sites & Kitchen have become the Labs where the products are developed and decided. Thus Value is embedded within the Products.

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 of features. More than 3,000 people participated. As a result, Fiat was able to capture valuable insight into the likes and dislikes of a targeted consumer group, test different design 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, America Online, Cisco Systems, Dell, eBay, Yahoo! and other electronic commerce innovators are partnering with their customers to co-create value and, indeed, are capturing greater value than either party could have created independently. Co-creation is also leading 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

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 he would have come out with a faster Horse instead of a car. Google no one thought it would be so handy and part of our life. Cell Phones Initially were not accepted so well. Most people may not initially understand the benefits, specially the early & late majority.

Traditional View of Marketing

Whatever the firm produces, marketing will help sell it. In this process marketing assumes the last part in 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.

Value creation and delivery process

Choose the value segment

Provide the value segment

Communicate the value segment

Value Delivery Process

1. 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 is developed and continues even after the product is delivered.

Value Chain
The value chain is a tool for identifying ways to create more customer value because every firm is a synthesis of primary and support activities performed to design, produce, market, deliver, and support its product.

Value Chain
Michael 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 support activities. 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: Procurement Technology Development Human resources management Firm infrastructure (accounts, legal, finance etc.)

Integration of Functions

The firms task is to examine its costs and performance in each activity & 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.

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 process gathering market information and quick dissemination. New-offering realization process researching, developing, high quality offers Customer acquisition process Customer relationship management process Fulfillment management process receiving the orders and shipping the goods on time

Companies reengineering their workflows and building cross functional teams

At Xerox customer 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

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

Companies which have successfully created value

Procter and Gamble, South west Airlines, Nike, Wal-Mart stores, Barnes and noble U.S Club Med, Nokia, Virgin Europe Sony, Toyota, Samsung, Infosys, LG, Tata - Asia

Strategic Planning for Marketing

I.
II.

Corporate Planning Strategic Business Unit Planning

I. Corporate Headquarters Planning Activities

Define the corporate mission Establish strategic business units (SBUs) Assign resources to each SBU Assess growth opportunities of SBUs

1. Mission statement

To define its mission, companies must address Peter Druckers classic questions, What business are we in Who are our customers What is of value to the Customer Mission statement - clear message to managers, employees and customers

Good Mission Statements

Focus on limited number of goals Stress major policies and values

Define major competitive spheres

Take a long-term view Short, memorable, meaningful

Major Competitive Spheres

Industry
Geographical Vertical channels Market segment Products

Competence

Competitive spheres

Industry Industrial market (DuPont), consumer market (Dow) Products 2 wheeler segment (Honda motorcycle and Scooter ) Competence Technology (Japan NEC) Market segment Baby (Johnson & Johnson)
Vertical it is the number of channel levels (Ford owned glass factories, rubber plantation) Geographical Multinational (Unilever)

Cadbury India

To attain leadership position in the confectionery and food drinks market of India

Britannia

Our mission is to make every Indian a Britannia Customer

Google

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

eBay We help people trade anything on earth. We will continue to enhance the online trading experiences of allcollectors, dealers, small businesses, unique item seekers, bargain hunters, opportunity sellers, and browsers.

Mission statements may change over timeto take advantage of new market conditions
Amazon.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 of good

Defining the Business: Product Orientation vs. Market Orientation

Company
Xerox Columbia Pictures Encyclopedia Britannica Carrier

Product
We make copying equipment We make movies We sell encyclopedias We make air conditioners and furnaces

Market
We improve office productivity We entertain people We distribute information We provide climate control inside homes

Examples of Business definitions

When Reliance Industry entered the telecom business, the leaders of the corporation did not say that they are entering the telephone business. Instead, Dhirubhai Ambani, the founder leader stated that We are entering the communication business

Kingfisher Airlines We are in the aviation hospitality business

2. Concept of strategic business unit

This concept is relevant to multiproduct, 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

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

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 , personal accessories and precision engineering Titan management says that the segregation has paid of in a big way

Illustrations of an SBU

Blue star is in the business of air conditioning and refrigeration. To make better sense out of its planning, blue star restructured its businesses into six SBUs air conditioning and refrigeration special projects, air conditioning projects, packaged air conditioning, room air conditioners, commercial refrigeration and central air conditioning services

3.Assigning resources to each SBU

BCG Matrix - A tool for business portfolio management
HIGH Market Growth rate LOW Question mark Cash trap/ dog

STAR

Cash cow

HIGH LOW Relative Market Share

BCG Matrix

Star A 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 of additional 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 mark An SBU that has a low share in a high growth market, the organization must decide whether to spend more financial resources to build it into a star Cash trap Cash 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. Assessing the growth Opportunities - The Strategic Planning Gap

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)

Intensive growth

The product-market expansion grid is the most useful framework for detecting new intensive growth opportunities.

Strategies Suggested by Ansoffs ProductMarket Expansion Grid

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 Pacific Northwest, then through out North America and then across the Globe

Starbucks

Further starbucks followed the product development strategy that led to new instore merchandise like CDs, high speed internet facility Finally starbucks pursued diversification into grocery store aisles with Frappuccino bottled drinks, Starbuck brand Ice cream and purchase of Tea retailer Tazo

Integrative growth

Sales and profits can be increased with backward, forward or horizontal integration with in the industry. Backward integration acquire one or more of the suppliers Forward integration Enter distribution, wholesale and retail Horizontal integration Acquire one or more of the competitors

Diversification
It is possible when a company finds a highly attractive new industry where it can leverage its strengths.

II. The Business Unit Strategic Planning Process

SWOT Analysis
The overall evaluation of Companys Strengths, Weakness, Opportunities and threats are called SWOT analysis

Strengths Weaknesses Opportunities Threats

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

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 these oppotunities

Opportunity threat profile developed by a

passenger car firm entering Indian market
Environmental factor Macro Environment Opportunity There is political stability in the country though the days of single party rule are over. Economic reforms have come to stay. On the whole political environment is investment friendly and enterprise supportive Burgeoning middle class, double income, nuclear families with more disposable income. Increased urbanization Threat Since multiparty, coalition governments have become the order of the day, the policy environment lacks dynamism and boldness. Time and opportunities are often lost due to the constant demand for consensus Rapid changes in consumption habits and lifestyle impose a degree of vulnerability on corporate

POLITICAL ENVIRONMENT

SOCIAL ENVIRONMENT

Opportunity threat profile developed by a

passenger car firm entering Indian market
Environmental factor Economic environment Opportunity Economic reforms, liberalization and globalization carry good opportunities, Collaboration with foreign firms possible, Services sector having high growth rate Threat Liberalization and encouragement to foreign investment has made passenger car industry highly competitive. Petroleum products are becoming more scarce and costly Those who cannot compete in technology are vulnerable The legal process is rather slow. Labour law being stringent, exit for entrepreneurs is difficult

Technology

Import of technology has been liberalized Indias legal system is by far sound, fair and open

Legal Environment

Opportunity threat profile developed by a

passenger car firm entering Indian market
Environmental factor Natural Environment Opportunity Generally conducive. Availability of raw material is ensured Threat Though availability of the main raw material steel is no problem, cost competitiveness is lacking. Productivity has to improve compared to international standards Liberalization has taken away the protection enjoyed by domestic players. For new entrants too competition is a major factor to reckon with

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

Opportunity threat profile developed by a

passenger car firm entering Indian market
Environmental factor Consumer demand Opportunity 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 Those who command the best technology have the scope to stay on top Threat Consumers are becoming more choosy while buying cars. The look for styling, comfort etc, in addition to fuel efficiency

Technology

More investment and effort in R&D and technology are required

Goal Formulation and MBO

Goals 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

Area where objectives must be set

GROWTH investment, assets, revenue, profits, market capitalization PROFITABILITY Return on investment, Earnings per share PRODUCTIVITY Resource utilization, cost savings, reducing defect rate TECHNOLOGY AND R&D modernisation, innovation HUMAN RESOURCES SOCIAL RESPONSIBILITY Commitment to public welfare

Corporate objective Example of Reliance Industries

1.

2.
3. 4. 5.

6.

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 2007 2012 as follows: Sales revenue should grow at a minimum of 20 % p.a 25% CAGR would be achieved in return on net worth Shareholder value of Reliance would be doubled by the year 2012 Company will choose best in class technology in all its business 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 There will be investment toward enhancing the expertise of staff

Corporate Strategy statement -ITC

Planning period 2007 to 2012 Corporate objectives By 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 corporate turnover from the current 52% Net profit should grow at a minimum of 22% p.a Business product / market position tobacco & 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

Corporate Strategy statement -ITC

1. 2.

3. 4.

Growth Vector Expansion 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 In cigarettes Strength in tobacco farming, strong brands, 60% market share In hotels and tourism New Alliance with US star wood Hotels which will be used to strengthen the Welcomgroup chain. Separate positioning for semi luxury segment Fortune park chain In packaging The leading supplier status to cigarettes and luquor industries In paperboard and specialty papers A tree to textbook company vertically integrated from wood to paper. An international alliance will also be sought for the Badrachalam brand

Corporate Strategy statement -ITC

In Agri-business Overall 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 confectionery A wide spectrum of value added food products staples, spices, cooking pastes, snack foods, biscuits, ready to eat foods In branded apparel Clout of the brand Wills and exclusive retailing In FMCG products in luxury, perfumes, colognes, personal cares French collaboration and expertise

Porters Generic Strategies

Overall Cost Leadership

Differentiation
Focus

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 to travel at a short notice

Strategic Alliances to create a Global strategic network

Star 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

Categories of Marketing Alliances

Product or Service Alliances
Promotional Alliances Logistics Alliances

Pricing Collaborations

Categories of Marketing Alliances

Product or service alliance Hindustan lever joined with PepsiCo for marketing iced tea in bottles Promotional alliance P&G has used the endorsement of Bombay dyeing for promoting Aerial washing powder Logistics Transport corporation of India and Mitsui company of Japan offers logistics services Pricing collaborations Hotels and airlines, credit card and petroluem products

Program formulation and implementation

Activity based cost accounting Whether the marketing program justifies the cost Nurture all stakeholders Employee satisfaction better products customer satisfaction repeat business higher profits McKinsey and company have defined the 7 S of successful business Strategy, structure, system Hardware of success Style, skills, staff and shared values Software

Feedback and control

The market environment keeps constantly changing Once an organization fails to respond to the changes in the environment, it becomes increasingly hard to capture the lost position Check on revenue and customer feed back are important control measures

Marketing plan

Executive summary and table of contents The 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 analysis This section presents relevant background on sales, costs, market, competitors and various forces in the macro and environment. Strengths and weakness are also studied. Marketing strategy Defines the mission, marketing and financial objectives. The manager then decides the product lines competitive positioning Financial projections It includes a sales forecast, an expense forecast and break even analysis

Implementation controls It spells out the goals and budget for each month or quarter, so management can review each periods result and take corrective action

Marketing Debate
What good is a mission statement?
Take a position: 1. Mission statements are critical to a successful marketing organization. or 2. Mission statements rarely provide useful marketing value.

1. What are the tangible and intangible values that 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 at at a business unit level?

Important questions