chp.2- creating & delivering value

8/3/2019 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.

chp.2- creating & delivering value

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