Marketing and Customer value

 Marketing involves satisfying customers’ needs and wants

 Task of any business is to deliver customer value at a profit

 The economy is hypercompetitive and buyers are increasingly rational

 The buyers have abundant choice

 A company can win only by fine tuning the value delivery process

 The company has to choose, provide and communicate superior value

The Value Delivery Process

 Traditional view of marketing : “Firm makes something and then sells it”

 Marketing takes place in the second half of the process

 The firm knows what to buy and market will buy enough units to
produce profits

 This view holds good in such economies marked by product shortages

where consumers are not fussy about quality, features and style
The Value Delivery Process

 Traditional view of business process will not work in economies where people
face abundant choices

 The mass market is actually splintering into numerous micro markets

 Each has its own wants, perceptions, preferences and buying criteria

 The “Smart Competitor” must design and deliver offerings for well defined target
markets

 This belief is at the core of the new view of business processes

 This view places marketing at the beginning of the planning process

 Instead of emphasizing marketing and selling, these companies see themselves

as part of a value delivery process
TRADITIONAL PHYSICAL PROCESS SEQUENCE

 Make the product

1. Design product
2. Procure
3. Make

 Sell the product

1. Price
2. Sell
3. Advertise/Promote
4. Distribute
5. Service
VALUE CREATION AND DELIVERY SEQUENCE

 Choose the value

1. Customer segmentation
2. Market selection / focus STRATEGIC MARKETING
3. Value Positioning

 Provide the value

1. Product development
2. Service development
3. Pricing
4. Sourcing & Making
5. Distributing and Servicing TACTICAL MARKETING

 Communicate the value

1. Sales force
2. Sales Promotion
3. Advertising
The Value Chain

 “Michael Porter” of Harvard has proposed the value chain as a tool for identifying
ways to create more customer value

 According to this model every firm is a synthesis of activities performed to

design, produce, market, deliver and support its product

 Value chain identifies nine strategically relevant activities that create value and
cost in a specific business

 These value creating activities consist of five primary activities and four support
activities
The Value Chain : PRIMARY ACTIVITIES

1. Cover the sequence of bringing materials into the business (Inbound Logistics)

2. Converting them into products (Operations)

3. Shipping out final products (Outbound Logistics)

4. Marketing them to customers (marketing and sales)

5. Providing the service to customers (Service )

The Value Chain : SUPPORT ACTIVITIES

1. Procurement

2. Technology Development

3. Human Resource Management

4. Firm Infrastructure

 Several departments, for example, may do procurement and hiring

 The firm’s infrastructure covers the costs of general management, planning,

finance, accounting, legal and government affairs
The Value Chain

 Task of a firm is to examine the cost and performance in each value and look for
ways to improve it

 The firm should estimate its competitors’ costs and performances as benchmarks
against which it can its own costs and performance

 The firm can go further and study the “best of class” practices of the world’s
best companies

 The firms success will greatly depend on how well each department performs its
work and coordinates various departmental activities to conduct the core
business processes
The Core Business Processes

 The market sensing process : All the activities involved in gathering market
intelligence, disseminating it within the organization, and acting on information

 The new offering realization process: All the activities involved in researching,
developing, and launching new high quality offerings quickly and within budget

 The customer acquisition process: All the activities involved in the defining target
markets and prospecting for new customers

 The customer relationship management process: All the activities involved in

building deeper understanding, relationships and offerings to individual
customers
 The fulfillment management process: All the activities involved in receiving and
approving orders, shipping the goods o time and collecting payment

Strong companies develop superior capabilities in managing and linking their core
business processes
The Core Competencies
 A company needs resources to carry out its core business processes viz. labour
power, machines, information and energy

 Traditionally, companies owned and controlled most of the resources that

entered their businesses

 This situation however is changing

 Outsourcing of less critical resources if they can be obtained at better quality and
lower cost

 Key is to own and nurture the resources and competencies that make up the
essence of business

Example: Nike does not manufacture its own shoes. Other Asian manufactures more
competent. Nike nurtures its superiority in shoe design and merchandising
The Core Competency has three characteristics

1. It is a source of competitive advantage. It makes a significant contribution to

perceived customer benefits

2. It has applications in a wide variety of markets

3. It is difficult for competitors to imitate

• Competitive advantage also accrues to companies that possesses distinctive

capabilities
• Core competencies refer to those areas of special technical & production
expertise
• Distinctive capabilities tend to describe excellence in broader business processes
 Holistic marketing orientation can also provide insight into the process of
capturing customer value

 One conception is ,”Integrating the value exploration, value creation and value
delivery activities”

 Purpose : “Building long term, mutually satisfying relationships and co-prosperity

among key stakeholders”

 Holistic marketers succeed by managing a superior value chain that delivers a

high level of product quality, service and speed

 They achieve profitable growth by expanding customer share, building customer

loyalty and capturing customer lifetime value
THE HOLISTIC MARKETING FRAMEWORK IS DESIGNED TO ADDRESS THREE KEY
MANAGEMENT QUESTIONS

1. Value Exploration : How can a company identify new value opportunities?

2. Value creation: How can a company efficiently create more promising new
value offerings?

3. Value delivery: How can a company use its capabilities and infrastructure to
deliver the new value offerings efficiently?
VALUE EXPLORATION
 Value flows within and across the markets that are themselves dynamic and
competitive

 Hence companies need a well defined strategy for value exploration

 Developing a strategy requires an understanding of the relationships and

interactions among three spaces

1. Customer’s cognitive space : This reflects existing and latent needs and includes
dimensions such as need for participation, stability, freedom and change

2. The company’s competence space : This can be described in terms of breadth –

broad versus focused scope of business; and depth- physical versus knowledge
based capabilities

3. The collaborator’s resource space: This involves horizontal partnerships , where

companies choose partners based on their ability to exploit related market
opportunities and vertical partnerships
VALUE CREATION

 Value creation skills are required to exploit a value opportunity

 Marketers need to
- Identify new customer benefits from the customer’s view
- Utilize core competencies from its business domain
- Select and manage business partners from its collaborative network

 To craft new customer benefits marketers must understand what the customer
thinks about, wants, does and worries about

 Marketers must also observe who customers admire, who they interact with and
who influences them

 Business realignment may be necessary to maximize core competencies

MAXIMIZING CORE COMPETENCIES

This involves three steps

1. Redefining the business concept (The big idea)

2. Reshaping the business scope (The line of business)

3. Repositioning the company’s brand identity (How customers should see the
company)

• Example : Kodak - Sales from its traditional core business of film, camera,
paper and photo development have sagged

• Customers have abandoned film cameras for increasingly cheaper digital

equipment, products and services
VALUE DELIVERY

• This involves substantial investment in infrastructure and capabilities

• The company must become proficient in CRM, internal resource management

and business partnership management

• CRM allows company to discover who their customers are, how they behave and
what they need and want

• To respond effectively the company requires internal resource management to

integrate major business processes

• Finally business partnership management allows the company to handle complex

relationships with its trading partners to source, process and deliver products
• Successful marketing requires companies to have capabilities to understand
1. customer value
2. delivering customer value
3. capturing customer value and
4. sustaining customer value

• Senior management priorities have to be addressed to in improving marketing

• Handful of companies turn out to be master marketers : Procter & gamble, HUL,
NIKE, McDonalds etc

• This is because of strategic planning processes

• PLANNING
1. Corporate planning
2. Division planning
3. Business planning
4. Product planning

• IMPLEMENTING
1. Organizing
2. Implementing

• CONTROLLING
1. Measuring results
2. Diagnosing results
3. Taking corrective action
• Divisions and business units prepare their plans by preparing statements of
mission, policy, strategy goals

• This is the framework prepared by the headquarters within which divisions and
business operate

• Some corporates give their business units lot of freedom to set their own sales
and profit goals and strategies

• Others set goals for their business units bus let them develop their own
strategies
All Corporate Headquarters undertake four planning activities

1. Defining the corporate mission

2. Establishing strategic business units

3. Assigning resources to each business SBU

4. Assessing growth opportunities