Chp.2- Creating & Delivering Value
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Transcript of Chp.2- Creating & Delivering Value
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Creating and deliveringCustomer Value
Man is guided by the idea of utility in hispurchase decisions. He will select a productthat offers him the maximum utility for themoney he parts with. More often the buyerseeks 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 inthe 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 valuedelivery. It is out & out a value game.
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The Concept of Customer Value
n Customer Value is the composite of tangible values as well as
intangible values.
Initially Perceived Value and FinallyDelivered Valuen Initially Perceived Value
Initially perceived value, the outcome of mentalevaluations
Blend of qualitative and quantitative yardsticks.
nFinal delivered ValueIs the difference between the total value from owning & usingthe 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? Click to edit Master text stylesSecond level Third level Fourth level Fifth level
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Components of CustomerValueTangible
Values Functional value
Economic value
Convenience value
Sensory/aesthetic value
Service (people) value
Intangible
Values Social value
Prestige/status value
Sentiment value
Belief value
n The two categories not mutually exclusive; they overlap and blend
n Intangible values are equally vital as tangible onesn A Consumers Profile Determines How He Perceives Value
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Components of Customer Value-Tangible Value
Functional Value: Ability to meet the givenneed, or Utility. e.g Car- for transportation. Cell make a phone call. Other characteristics arequality, features, durability etc.
Economic Value: Price advantage. Includessuperior profit making ability.
Convenience Value: Easy availability & easyto use.
Aesthetic Value: Look & Feel.
Service Value: Quality of service, courtesy ofpeople.
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Components of Customer Value-Intangible Value
Social Value: Social acceptability ordesirability.
Prestige/Status Value: Sense of selfesteem.
Sentimental Value: Associatedmemories, Sentiments.
Belief Value: Confirms some deep stated
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Marketing Mix, the tool kit
The firm can enhance value by adjusting any ofthe 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 product5. Offering better communication
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Nike
Critics of Nike often complain that its shoes costalmost nothing to make, yet the cost to theconsumer is so much
Materials, labor, shipping, equipment, import
duties, suppliers cost generally total to $ 25 perpair
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 ispurchasing and does not mind the cost
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Determinants of Customer Cost
Psychological cost
Energy cost
Time cost
Monetary cost
Total customer cost
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Co-creating Value withthe Customer
Value Creation process was a ExclusiveDomain of the firm now it is a Joint effort.
Now the market is seen as a forum ofValue Creation.
Product no more cerates a value. TheConsumer participates actively in co-creating the value & the Productis just anoutcome.
The consumers Home, Sites & Kitchenhave become the Labs where the productsare developed and decided. Thus Value isembedded within the Products.
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Example of Co Creation
When Italian automaker Fiatwanted to test new design
concepts for its Punto, itinvited potential customersto visit the Fiat Web site and
select from an array offeatures. More than 3,000people participated. As a
result, Fiat was able to
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Traditional View ofMarketing
Whatever the firm produces, marketingwill help sell it.
In this process marketing assumes the lastpart in the value chain.
This works in the case of shortage ofgoods.
Make the Product: Design, Procure,Manufacture
Sell the Product: Price, Advertise &Promote, sell, deliver the service.
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Value creation anddelivery process
Choose the value segment
Provide the value segment
Communicate the value segment
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Value Chain
Michael Porter of Harvard proposed the valuechain as a tool for identifying ways to createmore customer value.
This value chain consists of 5 main activitiesand 4 support activities.1. Primary Activities:
Inbound activities (brining material inside)Operations (converting them into finalProduct)
Outbound activities (shipping the finalproduct)Marketing & SalesServicing
2. Support Activities:
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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 competitoras a benchmark. Firm should compare itself against the best ofthe 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 relationshipmanagement.
Also the firms success depends upon how well it integrates
with its partners and supply chain. E.g. Wall Mart. Successfulcompanies have strong cross functional teams to ensure greatersynergy and efficient operations. E.g. the shipping, delivery,billing, installation, services and collection departments workingtogether.
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Companies reengineering theirworkflows and building cross
functional teamsAt Xerox customer operations grouplinks sales, shipping, installation, serviceand billing so these activities smoothlyflow into one another
AT&T, Polaroid, Motorola, Siemens, Tatasteel are other organizations who have reorganized their employees into cross
functional teamsTo be successful, a firm also needs to lookfor competitive advantages by partneringwith specific suppliers and distributors tocreate value
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Concentrating on core
competencies to deliver valueCompanies now focus more on Corecompetencies and outsource the less criticalareas 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 havesuccessfully 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
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Important questions
at are the tangible and intangible valuest customers seek in a product?
xplain the value delivery process?ow has Tata endeavored to create value for
customers through Nano?
lain co-creating value with examples.