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Company and Marketing Strategy: Partnering to Build Customer Relationships

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Title: Company and Marketing Strategy: Partnering to Build Customer Relationships


1
Company and Marketing Strategy Partnering to
Build Customer Relationships
Chapter 1
Lecture 2
2
Previewing the Concepts
  • Explain companywide strategic planning and its
    four steps.
  • Discuss how to design business portfolios and
    growth strategies.
  • Explain marketings role in strategic planning
    and how marketing works with its partners to
    create and deliver customer value.
  • Describe the elements of a customer-driven
    market-ing strategy and mix, and the forces that
    influence it.
  • List the marketing management functions,
    including the elements of a marketing plan and
    discuss the importance of measuring/managing
    marketing ROI.

3
Case Study
NASCAR Customer Driven Strategy
  • NASCAR Today
  • Popularity Second highest watched regular season
    sport on TV (18 million viewers). Seen in 150
    countries. No. 1 live spectator sport.
  • The Fans 75 million young, affluent, family
    oriented fans 40 are female and fans are very
    passionate about NASCAR.
  • The Payoff Fans spend nearly 700 a year on
    NASCAR-related items Fans are three times more
    loyal to sponsors than are fans of other sports.
    NASCAR generates 2 billion in merchandise sales
    annually and 555 million for TV broadcasting
    rights.
  • How did they succeed?
  • NASCARs Strategy Customer driven and
    single-minded in developing relationships via a
    blend of live racing, media coverage, and
    compelling Web sites. In-car TV coverage puts
    fans in the middle of the action. Web sites are
    both informational and entertaining. Content
    includes news, stats, standings, driver bios,
    online games, community discussions and more.
  • Value Creation at Race Events Family-oriented
    atmosphere features RV parks next to the racing
    ovals, security guards to enhance safety, and
    drivers who are friendly and excellent role
    models. Plus, fans are encouraged to bring their
    own food.

4
Strategic Planning
  • The process of developing and maintaining a
    strategic fit between the organizations goals
    and capabilities and its changing marketing
    opportunities.

5
The Mission Statement
  • Corporate level
  • Defining the company mission.
  • Setting objectives and goals.
  • Designing the business portfolio.
  • Business unit, product, and market level
  • Planning marketing and other functional
    strategies.

6
The steps in the marketing process
  • (1) analysing marketing opportunities
  • (2) selecting target markets
  • (3) developing the marketing mix
  • (4) managing the marketing effort

7
Figure 1.7 Influences on marketing strategy
8
Market leader strategies
Market leader
Market challenger
Market follower
Market nicher
9
Figure 1.8 The four Ps
10
Four Ps or Four Cs
  • Product
  • Price
  • Promotion
  • Place
  • Customer needs/wants
  • Cost to the customer
  • Communication
  • Convenience

11
Figure 1.9 An expanded model of the marketing
process
12
Components of a strategic plan
  • Business, Mission , vision , objectives-smart
  • Strategic objectives
  • Strategic audit
  • SWOT analysis
  • Portfolio analysis
  • Objectives and strategies crafting
  • Strategic choice and
  • implementations and control

13
  • Why are firms different in their profitability?
  • Industry Factors
  • Competitive Forces
  • Cooperative Forces
  • Macro Environment
  • Firm-Specific Factors
  • Resources
  • Activities
  • Positions

14
  • Components of a Business Model

Industry Factors
influence
consistent with
Activities
Positions
Resources
Profitability
leve- rage
reduce
Costs
15
  • Fundamental of Business Modeling
  • How to decide appropriate activities that
    constitute firms competitive advantage?
  • Firm needs to identify its
  • STRATEGY.

16
  • Strategic Management Framework

17
  • Strategy vs Operational Efficiency
  • Strategy involves committing to undertake one
    set of actions rather than another and, in the
    process, creating a unique and valuable position
    that allows the firm to perform better than its
    competitors.
  • It is about which activities to perform and
    which ones not to perform
  • Operational Efficiency involves performing
    similar activities better than rivals do.
  • Best practice is NOT strategic but operational.

18
  • Strategy Levels
  • Corporate Strategy Creating value for the
    portfolio of businesses
  • Business Strategy Creating value within each
    business (in the portfolio) so called,
    Competitive Strategy
  • Functional Strategy The set of functional
    activities that a firm performs (operationally
    efficiently) in supporting of a businesss goal
    of attaining and maintaining competitive
    advantages

19
  • Corporate Strategy tradeoff b/w
  • Low Synergy (Unrelated businesses) Financial
    advantage (Diversification)
  • High Synergy (Related businesses) Know-how and
    Staffing advantage (Specialization)
  • Business Strategy tradeoff b/w
  • Low Price Cost-based advantage
  • Premium Price Uniqueness-based advantage
    (Differentiation)
  • Functional Strategy design and tradeoff b/w
    activities to create competitive advantage

20
  • Analyzing
  • Planning
  • Organizing
  • Implementing
  • Controlling

Mission Objectives/Goals Strategy Business
Modeling Performance Measures Actions
21
  • Mission
  • Objectives/Goals
  • Strategy
  • Business Modeling
  • Organizing
  • Performance Measures
  • Actions

Quantitative Indicators with Time frame,
e.g., -Market share 5 in 1 year -Cost
reduction 10 in 6 months -Increase CusSat
12 in 1 year
e.g., - Sales () - Mkt share () - Unit cost
(/unit) - Expense () - CusSat score (pt)
Strategy Implementation
22
  • Business Model
  • The profit-oriented aspects of firms business
    strategy with the associated operational
    efficiency and implementation.
  • The set of activities which a firm performs so as
    to offer its customers benefits they want and to
    earn a profit. It involves firms decision on
    which activities to perform, how to perform, and
    when to perform.

23
  • Components of a Business Model

Industry Factors
influence
consistent with
Activities
Positions
Resources
Profitability
leve- rage
reduce
Costs
24
  • Business Drivers

Context Models
Strategy Models
Performance Models
Change Models
Organizational Models
Marketing Models
Sector Analysis Model Stakeholder
Model 5-Forces Model
Value Chain Generic Strategy
Operating Structures Administrative
Technology Systems Corporate Cultures
Transition Management Contingency Models
(7s and Congruence Model)
Accounting Ratios Economic
Value Shareholder Value Balanced
Scorecard
Life Cycle Model Marketing Mix
Business Drivers
25
  • Context Models
  • Suggest how company must adapt to environmental
    circumstances in order to function properly.
  • Sector Model
  • The overall pressure on company to act is driven
    by Economic, Technological, Social/Cultural, and
    Political Sectors.
  • Economic Macro/Micro conditions
  • Technology Product/Process trends
  • Society/Culture Demographic forces
  • Politic Legislative Regulatory constraints

26
  • Macro/Micro
  • Condition
  • Product/Process
  • Trends
  • Demographic
  • Forces
  • Legal/Regulatory
  • Constraints

Economic Sector
Overall Pressure on Company to Act
Technological Sector
Socio/Cultural Sector
Political Sector
27
  • Stakeholder Model
  • Describe the environment of the company in terms
    of specific groups of actors that have a stake
    in what the company does because they control the
    resources the company needs.
  • Primary Stakeholders Customers, Employees, and
    Investors have greatest influence on the company
    performance.
  • Secondary Stakeholders Regulators, and Pressure
    groups (e.g., public, activist)
  • Companys performance is resulted from strong
    direct and indirect relationships among
    stakeholders.

28
Employees
Customers
Investors
Company
Pressure Groups
Regulators
29
  • Five-Forces Model
  • Companys performance has its roots in its
    structural position in an industry. To improve
    performance is to strengthen the position.
  • Customers/Buyers Bargaining Power
  • (Key Input) Suppliers Bargaining Power
  • Substitute Products
  • Competitive Rivalry Industry structure
  • Potential New Entrants - Entry/Exit Barriers

30
Substitute Products
Key Suppliers
Buyers
Rivalry Among Competing Firms
Potential New Entrants
31
  • Strategy Models
  • Suggest ways firm can create tomorrows
    competitive advantages faster than competitors
    mimic the ones you possess today.
  • Generic Strategy Model
  • Alternative preferred way to compete in an
    industry and across industries.
  • Low Cost Leadership
  • Differentiation in value offerings
  • Focus specific group of customers
  • (Focus-Differentiation)

32
The Mission Statement
  • Questions the mission statement should answer
    include
  • What is our business?
  • Who is our customer?
  • What do consumers value?
  • What should our business be?
  • Mission statements should be market oriented, not
    product oriented.

33
The Mission Statement
  • Should be realistic
  • Should be specific
  • Should fit the market environment
  • Should be based on distinctive competencies
  • Should be motivating

34
Setting Firm Objectives and Goals
  • The mission should be translated into supporting
    objectives for each level of management.
  • Creates a hierarchy of objectives that are
    consistent with one another. For example
  • Business objective Increase profits.
  • Marketing objective Increase market share of
    domestic and international markets.

35
Mission statements
  • eBays mission is to provide a global trading
    platform where practically anyone can trade
    practically anything

36
Desired characteristics of mission statements
  • Realistic
  • Specific
  • Based on distinctive competencies
  • Motivating

37
Designing the Business Portfolio
  • The business portfolio is the collection of
    businesses and products that make up the company.
  • The company must
  • Analyze its current business portfolio or
    strategic business units (SBUs)
  • Decide which SBUs should receive more, less, or
    no investment and
  • Develop strategies for growth and downsizing.

38
What is a strategic business unit?
  • A strategic business unit is a unit of the
    company that has a separate mission and
    objectives, and which can be planned
    independently from other company business.

39
Strategic Business Unit (SBU)
  • Strategic business unit
  • A unit of the company that has a separate mission
    and objectives and that can be planned
    independently from other company businesses.
  • An SBU can be a company division, a product line
    within a division, or sometimes a single product
    or brand.

40
Portfolio Analysis
  • Portfolio analysis
  • Process by which management evaluates the
    products and businesses making up the company.
  • Resources are directed toward more profitable
    businesses while weaker ones are phased out or
    dropped.

41
Figure 3.2 The BCG growth-share matrix
42
BCG Growth-Share Matrix
  • Stars High-share of high-growth market.
  • Strategy Build into cash cow via investment.
  • Cash cows High-share of low-growth market.
  • Strategy Maintain or harvest for cash to build
    STARS.
  • Question marks Low-share of high-growth market.
  • Strategies Build into STAR via investment if
    warranted, or reallocate financing and let slip
    into DOG status.
  • Dogs Low-share of low-growth market.
  • Strategies Maintain or divest.

43
Problems with Matrix Approaches
  • Several problems exist
  • Can be difficult, time consuming, and costly to
    implement.
  • Difficult to define SBUs and measure market share
    and growth rate.
  • Focus is on current businesses gives little help
    with future planning.
  • These problems have led to changes in the
    strategic planning approach used by firms.

44
Figure 3.3 GEs strategic business-planning grid
45
Figure 3.4 Product/market expansion grid
46
Product/Market Expansion Grid
  • Market penetration
  • Existing markets, existing products
  • Market development
  • New markets, existing products
  • Product development
  • Existing markets, new products
  • Diversification
  • New products, new markets

47
What is downsizing?
  • Downsizing means reducing the business portfolio
    by eliminating products of business units that
    are not profitable or that no longer fit the
    companys overall strategy.

48
Marketing plays a role in strategic planning
  • Marketing provides a guiding philosophy
  • Marketing provides inputs to strategic
    planners by helping to identify attractive
    market opportunities and by assessing
    the firms potential to take advantage of
    them
  • Marketing designs strategies for reaching unit
    objectives

49
Planning Marketing
  • Marketing plays a key role in strategic planning
  • Provides a guiding philosophy.
  • The marketing concept
  • Provides inputs to strategic planners.
  • Designs strategies to reach objectives.

50
Creating Customer Value
  • Marketers must practice partner relationship
    management.
  • Working with partners internally within the
    company can create an effective value chain.
  • Working with external partners in the marketing
    system helps to form a superior value delivery
    network.

51
Value chain
  • A value chain is a series
    of departments that
    carry out value-creating activities to
    design, produce, market, deliver and support a
    firms products

52
  • Value Chain Model
  • Companys performance can be improved by
    improving value-creating activities along a value
    chain.
  • Primary Activities Inbound Logistics,
    Operations, Outbound Logistics, Marketing and
    Sales, and Services
  • Support Activities Technology Development,
    Human Resources Management, Procurement, and Firm
    Infrastructure (General Administration)

53
Technology Development
Margin
Human Resource Management
Procurement
Firm Infrastructure
Inbound Logistics
Operations
Marketing Sales
Outbound Logistics
Services
54
Value Delivery Network
  • Components include
  • Companys value chain
  • Each department is a link
  • Distributors
  • Suppliers
  • Customers
  • Improved performance in delivery value to
    customers is the goal.

55
Customer-Driven Marketing Strategy
  • Requires careful customer analysis.
  • To be successful, firms must engage in
  • Market segmentation
  • Market targeting
  • Differentiation
  • Positioning

56
Market Segmentation and Targeting
  • Segmentation
  • The process of dividing a market into distinct
    groups of buyers with different needs,
    characteristics, or behavior who might require
    separate products of marketing programs.
  • Targeting
  • Involves evaluating each market segments
    attractiveness and selecting one or more segments
    to enter.

57
Differentiation and Positioning
  • Differentiation
  • Creating superior customer value by actually
    differentiating the market offering.
  • Positioning
  • Arranging for a product to occupy a clear,
    distinctive, and desirable place relative to
    competing products in the minds of target
    consumers.

58
The Marketing Mix
  • The set of controllable, tactical marketing tools
    that the firm blends to produce the response it
    wants in the target market.
  • Product
  • Price
  • Place (distribution)
  • Promotion

59
The Marketing Mix
  • Product
  • Variety, features, brand name, quality, design,
    packaging, and services.
  • Promotion
  • Advertising, sales promotion, public relations,
    and personal selling.
  • Place
  • Channels, coverage, logistics, locations,
    transportation, assortments, and inventory.
  • Price
  • List price, discounts, allowances, payment
    period, and credit terms.

60
The 4 Ps and the 4 Cs of the Marketing Mix
  • 4 Ps Sellers View
  • Product
  • Price
  • Place
  • Promotion
  • 4 Cs Buyers View
  • Customer Solution
  • Customer Cost
  • Convenience
  • Communication

61
Managing the Marketing Effort
  • Four marketing management functions
  • Marketing analysis
  • SWOT analysis is key.
  • Marketing planning
  • Create brand marketing plan.
  • Marketing implementation
  • Determine who, where, when, and how.
  • Marketing control
  • Evaluate results, take corrective action.

62
What is a strategic audit?
  • An external audit is a detailed examination of
    the markets, competition, business and economic
    environment in which the organisation operates.
  • An internal audit is an evaluation of the firms
    entire value chain.

63
Key financial statements in a strategic audit
  • A balance sheet shows the assets,
    liabilities, and net worth of a company
    at a given time
  • The operating statement shows company sales, cost
    of goods sold, and expenses during a given period
    of time

64
The marketing plan
  • Executive summary
  • Current marketing situation
  • SWOT analysis
  • Objectives and issues
  • Marketing strategy
  • Marketing implementation
  • Budgets
  • Controls

65
SWOT Analysis
  • Strengths
  • Internal capabilities that may help a company
    reach its objectives.
  • Weaknesses
  • Internal limitations that may interfere with a
    companys ability to achieve its objectives.

66
SWOT Analysis
  • Opportunities
  • External factors that the company may be able to
    exploit to its advantage.
  • Threats
  • Current and emerging external factors that may
    challenge the companys performance.

67
What are critical success factors?
  • Critical success factors are the strengths and
    weaknesses that most critically affect an
    organisations success. They are measured
    relative to competitors.

68
What is a marketing audit?
  • A marketing audit is a comprehensive, systematic,
    independent and periodic examination of a
    companys environment, objectives strategies and
    activities to determine problem areas and
    opportunities and to recommend a plan of action
    to improve the companys marketing performance.

69
Brand/Product Marketing Plan
  • Executive summary
  • Current marketing situation
  • Analysis of threats and opportunities
  • Objectives for the brand
  • Marketing strategy
  • Action programs
  • Marketing budget
  • Controls

70
Marketing Implementation
  • Turns marketing plans into marketing actions by
    addressing
  • Who
  • Where
  • When
  • How

71
Marketing strategy
  • Marketing strategy is the logic
    by which the company hopes to create
    customer value and achieve profitable
    relationships
  • Segmentation and targeting
  • Differentiation and positioning

72
Marketing mix
Product
Place
Price
Promotion
73
Figure 3.5 Return on marketing
74
Marketing Department Organization
  • Functional organization
  • Each marketing activity is headed by a functional
    specialist.
  • E.g., sales manager, advertising manager,
    marketing research manager, etc.
  • Geographic organization
  • Sales and marketing people are assigned to
    specific countries, regions, and districts.

75
Marketing Department Organization
  • Oroduct management organization
  • One person given responsibility for complete
    strategy and marketing program for a single
    product.
  • Market or customer organization
  • Manager responsible for particular market or
    customer.
  • Combination organization
  • Uses some combination of the previous four
    approaches.

76
What is marketing control?
  • Marketing control is the process of measuring and
    evaluating the results of marketing strategies
    and plans, and taking corrective action to ensure
    that marketing objectives are attained.

77
Marketing Control Process
  • Set goals
  • Measure performance
  • Evaluate performance
  • Take corrective action

78
Marketing Control Process
  • Operating control
  • Evaluates performance against the plan and takes
    corrective action.
  • Strategic control
  • Evaluates whether strategies match opportunities.
  • The marketing audit is major tool.

79
Return on Marketing
  • Return on marketing investments is assessed using
    one or more methods
  • Standard marketing performance measures
  • Brand awareness, sales, market share
  • Customer-centered measures
  • Customer acquisition, customer retention,
    customer lifetime value

80
  • Customer Value and Positioning
  • Customer Value is created in 2 ultimate forms
  • Lower Cost
  • Superior Product (Differentiation)
  • Profitability S
  • Differentiation Low
    Cost
  • T
  • Market Share

81
  • Differentiation With Low Cost
  • Path T, firm cannot do either well in contrast
    with Path S, where firm can do both well because
  • Nature of technology In some cases allows cost
    reduction and differentiation to rest on the same
    activities. E.g., Intel chip smaller and faster
  • Lower cost does not mean indifferentiated.
    E.g., Low cost airline is also different in other
    aspects, e.g., more flights, etc.
  • Rate of technology change and imitation rate
    Both are generally high which results in short
    period of being differentiated. Thus to survive
    firm must operate at low cost as well.
  • Competitive advantage If comes from owning
    valuable, rare, and inimitable resources, allows
    firm to be able to differentiate and operate at
    low-cost.

82
  • Making More Valuable Products
  • Standard ways of delivering value include
  • Product Features Physical
  • Brand Name Reputation Psychological
  • Network Externalities Some products such as
    Software are more valuable when more customers
    use them. Metcalfes Law value of network size ?
    n2 to nn where n is of nodes on the network
  • Timing The first to introduce product
  • Location Availability, Accessibility, Location
    reputation
  • Service Before/After-sale service
  • Product Mix One-stop shopping. Amazon carried
    16 million items at its website as of May 1999

83
  • Sources of Revenues and Market Targets
  • Targeting the right customers with the right
    value.
  • Many market targets have more than one sources of
    revenue, some of which may be more profitable
    than others.

84
  • Sources of Revenue
  • Understanding its markets sources of revenues,
    especially the profitability of each source,
    enables firm to
  • be able to make better choices about which
    activities to perform.
  • better position itself to understand the threats
    a technological change can pose to it.

85
  • Example Sources of income
  • Credit Card business
  • Merchant fee (charge on vendors)
  • Intercharge (charge on different card issuers for
    using through banks EDC)
  • Interest income (charge on cardholders
    outstanding balance)
  • Annual fee
  • Other charges like late fee, high balance fee,
    etc. (was prohibited in Thailand 3 years ago)

86
  • Taxonomy of Revenue Sources and Revenue Models
  • Direct Product/Service Sales product sales
  • After-Sales Service complex products, in some
    cases more profitable than product sales (auto
    dealer, computer network, etc.)
  • Indirect Content Sales advertising revenue
  • Product Financing interest charges and other
    fees for install payment
  • Collect-early, Pay-later Financing return on
    investment using firms credit on suppliers,
    Dell-Direct Model
  • Royalties on Intellectual Property up-front fee
    and/or per-unit charge

87
  • Revenue Models
  • Production Model simple produce and sell model
  • Subscription Model customer pays a flat fee for
    the right to use the product for a period of time
    whether she uses it or not. E.g., rent, flat-rate
    phone service, etc.
  • Fee-for-Service Model customer pays for only
    service she uses.
  • Markup Model firm buys a product and resells it
    to the customer at a markup price.
  • Commission Model brokerage fee, firm acts as a
    mediator/match maker/or broker.
  • Advertising Model firms product can perform a
    function of a media for other firms to advertise
    their products on. E.g., ATM slip, bank
    statement, building surface, internet banner,
    club magazine, etc.

88
  • Targeting Customers
  • Mass Market . Market Segments ,Individual
    Customers
  • Activities Customer Target
  • of Firm Mass Market Market
    Segment Individuals
  • Needs and One-to-all One-to-segment One-to-one
  • Preferences marketing marketing
    marketing
  • Identification
  • Value creation Mass Mass
    production Customization
  • and delivery production Mass customization
    Mass
  • Approach customization

89
  • Market Segments
  • Business Segments
  • Consumer Segments

90
  • Business Segments
  • Benefits
  • Timing of Needs lead users, e.g., latest
    technology mobile, fashion from the catwalk, etc.
  • Industry different industrial customers demand
    differently
  • Customer Size large and small customer, e.g.,
    institutional vs individual customers, more
    frequently-fly passengers, etc.
  • Geography

91
  • Consumer Segments
  • Demographics
  • Psychographics
  • Behavior
  • Geography
  • Multidimensional Segmentation

92
  • Mapping Value into Targeted Markets
  • (Positioning)
  • Matching targeted customers needs and firms
    offerings (position)
  • Evolution of Targets
  • More sophisticated and smart
  • More variety of tastes
  • Technological change alters preferences

93
  • Designing Activities for Profitable Business
    Model
  • Activities that firms perform to offer value
  • Choice of activities
  • How to perform them
  • When to perform them
  • Frameworks
  • Business System
  • Value System

94
  • Business System
  • Sequence of activities that firm performs to
    produce products.
  • Ex. Automobile involves key activities
  • Design
  • Purchase components
  • Assemble
  • Market
  • Distribute

95
  • Generic Business Systems
  • Value Chain
  • Value Network
  • Value Shop
  • Outsourcing

96
  • Value Network
  • Firm acts as a mediator (intermediary) between
    the clients and performs value-adding activities.
  • A firm and the clients that it mediates make up a
    network call Value Network, a property of Network
    Externality.
  • Ex. Financial institutions mediates between
    surplus units (like depositors, investors) and
    deficit units (like borrowers, issuers)

97
  • Value Shop
  • Firm decides which activities are needed to
    fulfill customers demand. The business whose
    value is created this way is called a Value Shop.
  • Hospital, Consulting business, Universities, and
    etc. involve variety of clients with different
    needs and thus require a business system that
    offers flexibility in meeting those needs.
  • Ex. Hospital has different kinds of clients
    (patients) who demand different treatments. It is
    a hospital (by a doctor) who decides which
    activities are required to respond those needs.

98
  • Outsourcing
  • From outsourcer to outsourcee When will
    outsourcer outsource its value activities to the
    outsourcee? Depends on
  • Outsourcees capabilities
  • Outsourcees market power
  • Outsourcers integrative or architectural
    capability (ability to coordinate)
  • Criticalness of activitys underpinning
    capability (activities critical to firms
    competitive advantage will not be outsourced)

99
  • Ex. eBay decided to outsource its back end
    internet activities to 2 companies Abovenet and
    Exodus. These 2 companies would be responsible
    for the
  • maintenance and performance of web servers,
    database servers, internet routers, and other
    technologies that were critical to the
    availability of eBays site for trading. Has eBay
    done right?
  • First, identify eBays Competitive Advantage
  • Network Size and Brand Name
  • Then check
  • Outsourcees capability Both are specialists. ?
  • Market power There are many and eBay picked 2.
    ?
  • Integrative capability Keeping website up does
    not require much integration. ?
  • Criticalness of activities Learning how to run a
    website is not critical to the eBays competitive
    advantage. ?

100
  • Value System
  • (Supply Chain and Vertical Linkage)
  • Value System The chain that stretches from end
    customers to the firm to its suppliers to their
    own suppliers and so on.
  • Ex. Value system for market of PC microprocessors
  • Semiconductor Microprocessor Computer
    Distributors Computer
  • Equipment Makers Makers
    Users
  • Manufacturers
  • Applied Intel Dell Retail stores
    Business
  • Material AMD HP Consumer
  • Motorola IBM
  • Gateway
  • Upstream Downstream

101
  • Vertical Integration
  • Vertical Integration (VI) Producing ones input
    or disposing of ones output (perform more
    activities along the value system)
  • Backward VI Firm is vertically integrated into
    the upstream market.
  • Forward VI Firm is vertically integrated into
    the downstream market.
  • Tapered integration Firm produces only some of
    the quantity of the input that it needs and buys
    the rest of the input from outside suppliers.

102
  • Strategic Alliance
  • Instead of backward vertical integration where
    firm produces its own input another way is to
    form Strategic Alliances or Strategic
    Collaboration where 2 or more firms agree to
    combine their resources to carry out a project.
  • Strategic Alliances can be formed for a specific
    time and/or specific operations.
  • Ex. Joint Venture collaboration creates a
    separate legal entity.

103
  • Which Activities to Perform and NOT to
  • Activities are chosen from
  • Business System Activities
  • Value Chain choose activities at each stage
  • Value System Activities
  • Value Added Process integration choice
  • Activities to perform must strengthen firms
    competitive advantage. Any criteria?

104
  • Activities to Perform
  • Must have the potential to enable a firm to
  • Attain and maintain the right position
  • Take advantage of industry factors
  • Better build and exploit its resources
  • Keep its costs low irrespective of whether the
    firm pursues a low-cost or differentiation
    strategy
  • The criteria for ensuring firms competitive
    advantage.

105
  • 1. Attain Maintain the Right Position
  • Offer Superior Value Activities should be
    consistent with the type of value the firm offers
    customer
  • Ex. Southwest Airline, the most profitable
    low-cost airline in the US, offers low cost value
    hence its activities to ensure low fare to
    customer include offer no meal, operate largely
    from uncongested airports, etc.
  • Air Asia can save ticket reservation cost
    through internet system.
  • Coca-Cola offers differentiation value then
    activities performed are aimed to create Brand
    Equity.

106
  • Attain Superior Position Activities to address
    negative aspects of the industry.
  • For example, if suppliers are powerful firm may
    decide to eliminate by integrating backward. If
    distributors are powerful firm may bypass them by
    innovation.
  • Ex. Dell at the beginning had little bargain
    power over PC dealer. Dell bypassed the dealer
    channel by offering through internet.
  • Air Asia with no dealer network employed
    internet for ticket reservation.
  • Heineken bypasses Singha and Chang monopoly
    power of distribution by channeling through
    modern trade and through restaurant channel by
    push girls.

107
  • Take Advantage of Industry Factors Critical
    industry factors must be identified and
    exploited.
  • Ex. Airline industry capacity utilization is
    critical. Plane should not be sitting at a
    terminal but rather should be flying. By choosing
    to fly out of uncongested airports, Southwest
    planes can land and take off more quickly.
  • PCs short shelf-life is critical. So if they
    sit on dealers shelves too long they will be
    obsolete. Dell build-to-order attributes take
    advantage of this characteristic.
  • Banks transaction cost over Teller counters is
    critical (about 7 Bt./transaction) but with a
    mass number of customers who make basic
    transactions, bank then offers e-Banking,
    m-banking including e-branch with no tellers.

108
  • Build and Exploit Resources and Capabilities
    Resources that are scarce, difficult to imitate,
    and can make unusually high contribution to the
    value that customers perceive in a firms
    product.
  • Ex. Honda Motor has a reputation for making
    high-performance, reliable engines. Honda
    develops and sells cars, motorcycles, lawn
    mowers, etc. that have reliable engines.
  • 7-11 having developed the largest store network
    nationwide now expands its business from everyday
    grocery to counter services.
  • Keep Costs Low Firms operational efficiency
    must be achieved inevitably.

109
  • Activities NOT to Perform
  • Each time firm chooses one activity it is
    forgoing another activity to undo is costly
  • Firm has limited resources choosing one
    activity some of its resources are tied up in
    that activities Opportunity Cost
  • Firm may delegate some activities to other firms
    that are more specialized in performing that
    activities - Outsourcing

110
  • How to Perform Activities
  • After deciding which activities to perform (doing
    the right things) firm is to decide how to
    perform them (doing things right).
  • Process the patterns of interaction,
    coordination, communication, and decision making
    that a firm uses to perform the activities that
    transform its resources into customer value and
    position the firm to appropriate the value.

111
  • The appropriate processes are chosen in response
    to...
  • Business System Activities
  • Choose processes for each activity at each stage
  • Cross-Functional and Cross-Firm Processes
  • Process involves more than one stage of business
    system, and sometimes more than one firm or
    country.

112
  • Process to Implement
  • Like choosing which activities to perform, the
    criteria for choosing processes to implement must
    have the potential to enable a firm to
  • Attain and maintain the right position
  • Take advantage of industry factors
  • Better build and exploit its resources
  • Keep its costs low irrespective of whether the
    firm pursues a low-cost or differentiation
    strategy

113
  • Business System Activities
  • If firm chooses to perform activities in every
    stage of business system (else, outsourcing)
  • RD
  • Product Design
  • Manufacturing/Operations interact with
    suppliers work closely or fight over cost, etc.
  • Marketing/Sales
  • Distribution to own channels or not or whether
    to develop new channels
  • Customer Services/Support

114
  • Cross-Functional and Cross-Firm Processes
  • If processes involve more than one stage of
    business system
  • TQM get things right the first time and keep
    improving.
  • Benchmarking inside and outside industry
  • Business Process Reengineering rethinking the
    whole system

115
  • When to Perform Activities
  • First-Mover Advantage
  • Windows of Opportunity
  • Timing Options in each business system
    activities

116
  • Conclusions
  • Business modeling involves which, how, and when
    activities are to perform.
  • Started by firms competitive strategy
    value-rendering activities are designed.
  • Processes to perform activities then are
    immediate.
  • Taking right timing to perform.

117
  • Case Example Wal-Mart vs Kmart
  • (both founded in 1962 Wal-Mart has become the
    world largest company while Kmart has filed for
    bankruptcy)
  • Wal-Marts strategy is on locating store in the
    small towns.
  • Kmarts strategy is on locating store in the
    cities.

118
  • Resources and Capabilities Analysis
  • Resources or Assets both tangibles and
    intangibles
  • Capabilities Competences or firms ability to
    transform its resources into customer value and
    profit.

119
  • Assessing the profitability potential of
    resources VRISA Analysis
  • (Customer) Value Does the resource provide
    customers what they value?
  • Rareness (Uniqueness) Are you the only one with
    that capability? If not, are you better or worse
    than competitors?
  • Imitability Is it easy for other firms to
    acquire the resources?
  • Substitutability Are there any other resources
    that can offer the same value to customers?
  • Appropriability Can you make money from it?

120
  • Examples Wal-Marts Location in Small Towns
  • Attributes Key Question Answer
  • Value Does Wal-Marts location in
    Yes, customers can buy
  • small towns provide customers low-cost
    merchandise
  • what they value? close to home.
  • Rareness Is Wal-Mart the only one
    with Yes, its price are lower
  • this resource? If not. Is it better? than
    competitors.
  • Imitability Is it easy for other firms to
    No, it is hard for others to
  • acquire Wal-Marts location come in and
    build similar
  • advantage? stores and distn centers.
  • Substitutability Can other resources offer
    Yes, for some products
  • customer the same value? via
    e-commerce.
  • Appropriability Does Wal-Mart make money Yes,
    there are few rivals,
  • from its location in small and Wal-Mart has
    power
  • towns? over suppliers.

121
  • Examples Pfizers Knowledge for making Lipitor
  • Attributes Key Question Answer
  • Value Does Pfizers knowledge of Yes, Lipitor
    reduces bad
  • making Lipitor drug give cholesterol in many
  • customers what they value? customers.
  • Rareness Is Pfizer the only one with No, but
    Pfizers Lipitor is
  • this resource? If not. Is it better? better
    than competitors.
  • Imitability Is it easy for other firms to No,
    Pfizer holds patent
  • acquire Pfizers knowledge? for its Lipitor
    that will exclude others imitation.
  • Substitutability Can other resources offer Yes,
    but so far Pfizers
  • customer the same value? Lipitor offers the
    best
  • benefit.
  • Appropriability Does Pfizer make money Yes,
    suppliers and
  • from its knowledge of making customers have
    not
  • Lipitor? been very powerful..

122
  • Examples Southwest Airlines Network of
    Uncongested Airports
  • Attributes Key Question Answer
  • Value Does Southwests network of Yes,
    passengers can select uncongested airports
    provides from more frequent flights,
  • customers what they value? low price, on time,
    and
  • a lot of parking spots.
  • Rareness Is Souhtwest the only one with Yes,
    Souhtwest has largest
  • this resource? If not. Is it better? network
    with uncongested
  • airports (largest slots).
  • Imitability Is it easy for other firms to No, it
    is difficult to replicate
  • acquire Souhtwests network Souhtwests
    complete advantage? network.
  • Substitutability Can other resources offer No, it
    is hard to offer what
  • customer the same value? Souhtwests complete
  • network can provide.
  • Appropriability Does Souhtwest make money Yes,
    suppliers customers
  • from its network? do not have much power.

123
  • Competitive Consequences of Resource
    Characteristics
  • Characteristics of Resources Competitive
    Advantage
  • V R I S A Consequence
  • ? ? ? ? ? Sustainable C. A.
  • ? ? ? ? ? Temporary C. A.
  • ? ? ? ? ? Temporary C. A.
  • ? ? ? ? ? Temporary C. A.
  • ? ? ? ? ? Competitive parity
  • ? ? ? ? ? Competitive
    disadvantage

124
  • Executing a Business Model
  • Structure organizational structure firm uses to
    effect differentiation, integration, and
    coordination functional, M-form, matrix,
    project, and network
  • Systems and Processes performance measures,
    rewards, and information flows.
  • systems spell out how the performance of
    individuals, groups, etc. is monitored.
  • People culture and types of people
  • Environment

125
  • What are left for further studies
  • Innovation, Sustainability, and Change
  • Analyzing the Costs of Business Model
  • Analyzing the Sources of Profitability and
    Competitive Advantage in a Business Model (7 Cs)

126
Rest Stop Reviewing the Concepts
  • Explain companywide strategic planning and its
    four steps.
  • Discuss how to design business portfolios and
    growth strategies.
  • Explain marketings role in strategic planning
    and how marketing works with its partners to
    create and deliver customer value.
  • Describe the elements of a customer-driven
    market-ing strategy and mix, and the forces that
    influence it.
  • List the marketing management functions,
    including the elements of a marketing plan and
    discuss the importance of measuring/managing
    marketing ROI.
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