MODULE II
STRATEGIC FORMATION
Value Chain Analysis
“The purpose of
business is to create
and keep a
customer.”
-Peter Drucker
Marketing and Customer value
Marketing involves satisfying customer’s
needs and wants.
The task of any business is to deliver
customer value at a profit while being
socially responsible.
In a hypercompetitive (too
competitive) economy with increasingly
rational (sensible) buyers faced with
abundant choices,
a company can win only by fine-tuning
the value delivery process and
choosing, providing, and
communicating superior value.
MARKETING AND CUSTOMER VALUE
HYPERCOMPETITION
ABUNDANT CHOICES RATIONAL BUYER
VALUE DELIVERY PROCESS
COMMUNICA
CHOOSING TING
PROVIDING THE
VALUE
The value delivery process
The traditional view of marketing is that
the firm makes something and then
sells it.
In this view, marketing takes place in
the second half of the process.
Companies that subscribe to traditional
marketing view have the best chance of
succeeding in
economies marked by goods shortages
where consumers are not fussy about
quality, features or style.
VALUE DELIVERY PROCESS
MAKE PRODUCT SELL PRODUCT
DISTRIBUTE
PRODUCT
PROCURE
PROMOTE
DESIGN
SERVICE
MAKE
PRICE
SELL
TRADITIONAL PHYSICAL PROCESS SEQUENCE
This traditional view of the business
process, however,
will not work in economies where people face
abundant choices.
The “mass market” is actually
splintering (breaking) into numerous
micro markets,
each with its own wants, perceptions,
preferences, and buying criteria.
The smart competitor must design and
deliver offerings for well-defined target
markets.
This realization inspired a new view of
business processes that places
marketing at the beginning of planning.
CUSTOMER
SEGMENTATION
MARKET FOCUS
VALUE
CHOOSE THE VALUE
POSITIONING
PRODUCT
DEVELOPMENT
STRATEGIC MARKETING
SERVICE
DEVELOPMENT
PRICING
SOURCING
MAKING
PROVIDE THE VALUE
DISTRIBUTING
SERVICING
SALES FORCE
TACTICAL MARKETING
VALUE DELIVERY PROCESS (Cont.)
VALUE CREATION & DELIVERY SEQUENCE
SALES
VALUE
PROMOTION
ADVERTISING
COMMUNICATE THE
The value delivery process
Marketing and Customer Value
The value delivery process
Instead of emphasizing making and
selling,
companies now see themselves as part
of a value delivery process.
The value creation and delivery
sequence can be divided into three
phases.
Choosing the Value
The first phase, choosing the value, represents
the “homework” marketing must do before any
product exists.
The marketing staff must segment the market,
select the appropriate target market,
and develop the offering’s value positioning.
The formula “segmentation, targeting,
positioning (STP)” is the essence of
strategic marketing.
Providing the Value
Once the business unit has chosen the value,
the second phase is providing the value.
Marketing must determine specific product
features, prices, and distribution.
Communicating the value
The task in the third phase is communicating the
value by utilizing the :
sales force,
sales promotion,
advertising, and other communication tools to
announce and promote the product.
Each of these value phases has cost implications
(significance).
It is also the case that the value delivery process
begins before there is a product and
continues while it is being developed and
after it becomes available.
London Business school’s Nirmalya Kumar has put
forth a “ 3Vs” approach to marketing:
(1) define the value segment or customers (and their
needs);
(2) define the Value proposition; and
(3) define the value network that will deliver the
promised service.
Dartmouth’s Frederick Webster views
marketing in terms of
(1) value-defining processes such as market
research and company self-analysis;
(2) value-developing processes including
new-product development, sourcing strategy,
and vendor selection; and
(3) value-delivering processes such as
advertising and managing distribution.
THE VALUE CHAIN
Michael porter of Harvard has proposed
the
Value chain as a tool for identifying
ways to create more customer value.
Firm – Synthesis (combination) of activities
performed to design, produce, market,
deliver and support its products
Identifies 9 strategically relevant
activities that create value and cost
5 Primary Activities
4 Secondary Activities
THE VALUE CHAIN
SUPPORT ACTIVITIES
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
M
A
RG
TECHNOLOGY DEVELOPMENT
IN
PROCUREMENT
MARKETING
IN
OPERATIONS
LOGISTICS
INBOUND
SERVICE
OUTBOUND
RG
LOGISTICS
& SALES
MA
PRIMARY ACTIVITIES
Part 1: Marketing Value and Customer Value
The primary activities
are inbound logistics or bringing materials into
the business;
operations or converting them into final
products;
outbound logistics or shipping out final
products;
marketing them, which includes sales; and
servicing them.
The support activities-
procurement,
technology development,
human resource management, and
firm infrastructure-
are handled in specialized departments.
The firm’s infrastructure covers the costs of
general management (functional dept.),
Planning (objectives, resources),
finance,
accounting,
legal, and
government affairs.
The firm’s task is to examine its costs and
performance
in each value-creating activity and to look
for ways to improve it.
Managers should estimate their
competitors costs and performances as
benchmarks
against which to compare their own
costs and performance.
Marketers should go further and study
the “best of class” practices of the
world’s best companies.
For example, Wal-Mart has superior strength in its
stock replenishment(fill up) process.
As Wal-Mart stores sell their goods, sales information
flows via computer not only to Wal-Mart’s
headquarters, but also to Wal-Mart’s suppliers, who
ship replacement merchandise to the stores almost at
the rate it moves off the shelf.
The idea is not to manage stocks of goods, but flows
of goods, and Wal-Mart has turned over this
responsibility to its leading vendors in a system
known as vendor-managed inventories (VMI).
CORE BUSINESS PROCESSES
MARKETING SENSING PROCESS
Gathering, Disseminating & Acting On Market
Intelligence Information.
NEW OFFERING REALIZATION PROCESS
Researching, Developing & Launching new offerings
CUSTOMER ACQUISITION PROCESS
Defining target market & Prospecting new customers
FULFFILLMENT MANAGEMENT PROCESS
Receiving orders, Shipping & Collecting payments
Traditionally, companies’ owned and
controlled most of the resources that
entered their businesses –
labour power, materials, machines,
information and energy – but this
situation is changing.
Many companies today outsource less-
critical resources if they can obtain
better quality or lower cost.
India has developed a reputation as a
country that can provide ample
outsourcing support.
Nike, for example. Does not manufacture
its shoes, because certain Asian
manufacturers are more competent in this
task;
instead Nike nurtures its superiority in
shoe design and merchandising, its two
core competencies.
At a retail in-store level, merchandising
refers to the variety of products
available for sale and
the display of those products in such a
way that it stimulates interest and
entices customers to make a purchase.
Merchandising
Merchandising
Design – CR Safari
Cristiano Ronaldo
CORE COMPETENCIES
THREE DISTINCT CHARACTERISTICS:
SOURCE OF COMPETITIVE ADVANTAGE
WIDE RANGE OF PRODUCTS
DIFFICULT TO IMITATE
(1) Competitive advantage makes a
significant contribution to perceived
customer benefits.
Intel® Core™ i7 Extreme Processor
Dominate your gaming competition with the ultimate
desktop processor.
Thin. Light. Goes the Extra Mile.
Windows* tablets with Intel® Atom™ processors are here.
(2) It has wide variety of products in the market
Tablet Processors
Laptop Processors
Desktop Processors
Server Processors
Motherboards
Server boards
Chipsets
(3) It is difficult for competitors to
imitate.
HOLISTIC MARKETING ORIENTATION
Addresses 3 Management questions
How can a company identifies new market
opportunities?
How can a company efficiently create more
promising new value offering?
How can a company use its capabilities and
infrastructure to deliver the new value?
HOLISTIC MARKETING (cont.)
Integration of Value Exploration, Value
Creation and Value Delivery for long term
mutually satisfying relationships & co-
prosperity with key stake- holders.
A Holistic (interconnected) Marketing
Orientation And Customer Value
Holistic Marketing
Key Activities:
(A). Value Exploration
(B). Value Creation
(C). Value Delivery
(A). VALUE EXPLORATION:
Finding new value opportunities is a matter of
understanding the relationships among three
spaces:
(1) the customer’s cognitive space;
2) the company’s competence space;
3) the collaborator’s resource space.
(1) the customer’s cognitive (knowledge)
space;
The customer’s cognitive space based on
needs.
2) the company’s competence space;
We can describe the company’s
competency space in terms of focusing
on companies capabilities.
An organizational capability is a “firm’s
capacity to deploy resources for a
desired end result.”
3) the collaborator’s resource space.
The collaborators’ resource space
includes horizontal partnerships,
( Mergers)
with partners chosen for their ability to
exploit related market opportunities,
and
vertical partnerships, with partners who
can serve the firm’s value creation.
(B). VALUE CREATION:
Value-creation skills for marketers include
identifying new customer benefits from the
customer’s view;
To create new customer benefits,
marketers must understand
what the customer thinks about, wants,
does, and worries about and
observe whom customers interact with,
and who influences them.
utilizing core competencies from its
business domain; and
selecting and managing business
partners from its collaborative
networks.
(C). VALUE DELVERY:
Delivering value often means making
substantial (large in amount)
investments in infrastructure and
capabilities.
The company must become
proficient(expert) at
1. customer relationship management,
2. Internal resource management, and
3. Business partnerships management.
1. Customer relationship management
allows the company to discover who its
customers are, how they behave, and
what they need or want.
2. Internal Resource Mgmt.
To respond effectively, the company
requires internal resource management
to integrate major business processes
eg: (NPD, production, logistics &
distribution).
3. Business partnership Mgmt.
Finally, business partnership
management allows the company to
handle complex relationships with its
trading partners to source, process and
deliver products.
