value creation: sustainable competitive advantage - … creation(ug).pdf · value creation:...

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Value Creation:

Sustainable Competitive Advantage

MKTG902 Summer’2013 Harmancioglu 2

“If you're competing on price, you'll never achieve maximum

profitability. Instead, everyone's job must become value

creation.” -Jeff Thull, President & CEO of Prime Resource Group

“Never follow the crowd.”

-Bernard M. Baruch, stock-market speculator & political consultant


Roots of Competitive Advantage (CA)

Competitive Advantage (CA): An advantage over competitors gained by

offering consumers greater value than competitors.

Resources/

Capabilities

Sustainable

Competitive

Advantage

Superior

Performance

Inimitable

Superior Value

(Relative to

Competitors)

Unique

Distinctive

Advantage

Meaningful


What is CA? What is SCA?

• A CA is a position a firm attains that lead to above normal profits or a

superior financial performance.

• Sustainable CA (SCA) is an advantage that enables business to

survive against its competition over a long period of time.

• A key difference between CA and SCA is that the value-creating

processes and positions a firm may hold are non-duplicable and

inimitable when a firm possesses a SCA.

• To create an SCA, a strategy needs to be valued by the customers and

supported by assets and competencies that are not easily copied by

competitors.

2


Traditional Intangible Assets

Intellectual Property: Patents, trademarks, or creative work products,

typically with legal control of their use.

Adopen has patents for Perdefix. Arcelik owns 13% of all patents issued in Turkey.

Competency: Possessing specialized skills that differentiate a firm from its competitors.

Acibadem Hospital specializes in genetic diagnosis, eye treatment, and cord blood banking.

Brand: Having a powerful image and reputation with customers.

Zeki Triko has created a powerful brand through endorsing super models.

Resources and Capabilities



Customer Relationships

Reach: Possessing the ability to touch a large number of customers

BIM customers visit its stores two times more per month than they visit other retail markets (annual visitors more than 2 million)

Interaction: Having deep or frequent contact with customers.

Garanti Bankası, Backup Boyner and Mudo aim to provide their customers with the complete solution for their problems.

Insight: Possessing detailed knowledge about customers and their business problems.

Companies like Aygün Cerrahi, CelalBirsen has deep expertise in their fields.

Authority: Having the reputation as an expert in a given field.

Dimes is an expert in bottled juice production.


Strategic Real Estate

Value Chain Position: Occupying a uniquely advantaged position within the chain of suppliers, manufacturers, and consumers

Dell occupies a valuable position between computer manufacturers and end users of equipment

Market Position: Owning a strong relative position versus competitors

Intel Corporation became the dominant supplier of microprocessors for PCs, and was known for aggressive tactics in defense of its market position, esp. against AMD and Microsoft for control over the direction of the PC industry.

Portal: Controlling a gateway through which others must pass to access information, products, or services

Digiturk and D-Smart developed interactive program guides for TV.



Networks

Third-Party Relationships: Having unique relationships with key partners such as suppliers or current producers

Arcelik has a uniquely broad set of partners within its open innovation system.

User Community: Having a set of people who view themselves as part of a larger group defined by its relationship to your product

Aziz Yildirim converted fans and enthusiasts imto customers.


3


Information

Market Window: Having superior visibility into marketplace activity

Boyner has visibility into market dynamics.

Technical Know-How: Possessing deep, often proprietary, technical knowledge in an area of importance to customers

Feba Elektronik is a leading expert on recycling used technological products.

Software and Systems: Owning internally developed computer programs and databases with potential external value

Biletix provided the first online ticketing system in Turkey.

Resources and Capabilities Value Creation

“…it is the prospect of providing a customer with value that

gives the corporation purpose, and it is the satisfaction of

the customer’s requirements that gives it results.”

(Peter Drucker 1954, The Practice of Management)


Understanding Value

What is customer value?

Customer’s perception of the balance between the quality

of goods and services that a firm provides and the cost of

acquiring the product/service.

Note: Perceived Risks measured based on 0-1 scale

Customer Value = (1-Perceived Risks)*(Perceived Benefits – Perceived Lifecycle Costs)


Customer Costs Across the Lifecycle

Cost Example of Firm lowing cost

Price paid Amazon.com lowers purchase price with

the online purchase of books

Acquisition

costs

Acıbadem reduces costs with an

electronic patient reservation system

Usage costs Sealed Air reduces packaging labor costs

with AirCap

Maintenance

costs

Siemens lowers the cost of repair through

modular product design

Ownership

costs

Citibank Turkey works with customers to

create affordable loans and ownership

Disposal costs Profilo reduces disposal costs by allowing

trade-ins.

4


Customer Benefits

• Performance benefits: Function, innovation, design, fashion, style

• Price benefits: Best price for reliable quality

• Relational benefits: Service excellence,

tailored and integrated offerings/solutions

• Intangible meanings linked to tangible

qualities: these benefits can become

associated with individual brands and

the overall firm

• Once these benefit priorities are understood, other customer

characteristics can be used to segment the market


Customer Value

1. Customer analysis concerning likes, dislikes, use behavior, and lifestyle.

2. Competitor analysis of positioning strengths, weaknesses, and price.

3. Environmental analysis of factors impacting future demand.

4. Improve product benefits that add customer value and firm profit.

5. Seek a price point that delivers customer value.

6. Reduce cost.Relational

Benefits

Price

Benefits

Performance

Benefits

Total

Cost of

Purchase

Perceived

Benefits

Perceived

Costs

Customer

Value

Current Position

Relational

Benefits

Price

Benefits

Performance

Benefits

Total

Cost of

Purchase

Perceived

Benefits

Perceived

Costs

Customer

Value

New Position


Customer Value

Customer Value = (RELATIVE Perceived Benefits – RELATIVE Perceived Lifecycle Costs)

Relational

Benefits

Price

Benefits

Performance

Benefits

Total

Cost of

Purchase

Perceived

Benefits

Perceived

Costs

Customer

Value

Current Position VALUE MAP

Perceived Customer Benefits

Co

st o

f P

urc

hase

Inferior

Value

Superior

Value

Competitor A

Competitor B

Competitor C

Company

Fair Value Line


Customer Value

and Relative Performance

5


Customer Value

1. Customer analysis concerning likes, dislikes, use behavior, and lifestyle.

2. Competitor analysis of positioning strengths, weaknesses, and price.

3. Environmental analysis of factors impacting future demand.

4. Improve product benefits that add customer value and firm profit.

5. Seek a price point that delivers customer value.

6. Reduce cost.Relational

Benefits

Price

Benefits

Performance

Benefits

Total

Cost of

Purchase

Perceived

Benefits

Perceived

Costs

Customer

Value

Current Position

Relational

Benefits

Price

Benefits

Performance

Benefits

Total

Cost of

Purchase

Perceived

Benefits

Perceived

Costs

Customer

Value

New Position

Means-end chain analysis

provides insights into consumer’s

value priorities & drivers.


AttributesFunctional

ConsequencesPsycho-social

ConsequencesValues

Products Benefits Personal Goals

Means-End Chain

• A model that seeks to explain how products or services, as means, are linked to ends, which are a person’s values.

– Values: enduring beliefs that specific modes of conduct or end-states of existence are personally or socially preferable..

• Help us understand how values (general) guide behavior like consumer choice (specific).

What does it do?

What specific

function or problem is

addressed?

How does it make me

feel about myself in

relation to others?


Means-End Chain

• People find it difficult to identify functional & psycho-social consequences,

so we may not be able to derive a true means-end chain.

• First, have respondent list attributes of the product.

• Then, for each attribute, ask the respondent first why the attribute is

important, then why what they just responded is important.

• Follow this chain as far as the respondent will take it, probing them for

deeper levels of meaning.

By working backwards from goals and values, we can:

• Understand what customers want but can’t get from products they purchase.

• Evaluate if the product attributes are relevant to customers.


Means-End Chain Examples

Gillette Fusion

Lubrication strip Smooth shave Comfortable Relaxed

Five blades No five o’clock

shadowWell groomed Attractive

Socially acceptable Popular

AttributesFunctional

ConsequencesPsycho-social

ConsequencesValues

6


Lead Users

Urban and von Hippel (Mgt. Science, 1988) defined

lead users as those who display two characteristics:

1. They face needs that will be general in a marketplace –

but face them months or years ahead

2. They are positioned to benefit significantly by obtaining a

solution

The Lead User process (von Hippel 1976, 1977, 1978, 1986, 1989, etc.)

1. Identifying key areas and recruiting stakeholders to form LU study team.

2. Using experts to determine the trends that the users lead

3. Identifying and finding the most advanced users/customers

in the field

4. Developing the new product ideas that result


Conjoint Analysis

• An experimental research method that mimics real purchase situations

so that respondents reveal their unstated preferences & value systems

– Mirrors trade-offs that individuals make in the market place.

– When respondents are forced to make difficult tradeoffs, we learn what

they truly value.

• CA measures how buyers value components of a product bundle.

– Customers evaluate the whole product, not feature by feature nor benefit

by benefit

– CA measures relative values of attributes jointly rather than separately.

– The importance of product characteristics is inferred and not directly

measured.

– “Features CONsidered JOINTly.”


It will have a Destination (Bodrum or Cesme)

It will have Accommodations (at a Low or High Price)

The hotel will have Proximity to activities (Near Site or Away)

Conjoint Analysis Exercise

– Designing a Holiday Trip

Assume a travel company wants to develop a set of 4-night packages for a

spring break vacation. The packages differ by destination, hotel’s proximity

to activities, and room rate per night. Each package comes with free use of

all activities and access to entertainment. In designing the designing the

packages, there are trade-offs to consider, such as a high-priced room

near activities may not be as comfortable as a moderately priced room

away from the activities.

Your Role: You have been selected to be part of a survey panel, providing opinions

about several vacation packages. Please rank each package on the next slide.


$250

$300

$250

$300

$400

$450

$400

$450

At Site

At Site

Away

Away

At Site

At Site

Away

Away

Bodrum

Cesme

Bodrum

Cesme

Bodrum

Cesme

Bodrum

Cesme

A

B

C

D

E

F

G

H

Location Room Rate Proximity Your Ranking Ranking

8 = best

1 = least7

8

6

4

3

5

2

1

Step 1: Rank the Bundles

7


At Site

Away

from Site

$250

Bodrum Cesme

$300$400 $450

Step 2: Put rating scores into the appropriate cells

A B

C D

E F

G H


At Site

Away

from Site

$250

Bodrum Cesme

$300$400 $450

Step 3: Calculate Mean Scores for Location Attribute

XBodrum = _____ XCesme= _____

A

C

E

G

B

D

F

H


At Site

Away

from Site

$250

Bodrum Cesme

$300$400 $450

Step 4: Calculate Mean Scores for the Price Attribute

XLow = _____ XHigh = _____

B

D

F

H

A

C

E

G


At Site

Away

from Site

$250

Bodrum Cesme

$300$400 $450

Step 5: Calculate Mean Scores for the Site Attribute

XSite = _____ XAway = _____

A

C

E

G

B

D

F

H

8


Bodrum ______

Cesme ______

Lower $ ______

Higher$ ______

Site ______

Away ______

At Site

Away

from Site

$250

Bodrum

$300$400 $450

Step 2 Calculate Mean Scores for the Site Attribute

XFL = _____ XC = _____

At Site

Away

from Site

$250

Cesme

$300$400 $450

Step 3 Calculate Mean Scores for the Price Attribute

XLow = _____ XHigh = _____

At Site

Away

from Site

$250

Bodrum Cesme

$300$400 $450

Step 4 Calculate Mean Scores for the Site Attribute

XSite = _____ XAway = _____

Step 6: Transfer the means to

the following column

Bodrum

Cesme


Bodrum ______

Cesme ______

Lower $ ____

Higher$ ____

Site ______

Away ______

Step 7 Calculate the

absolute difference

within attributes

Step 8 Sum up the

differences within

attributes

Step 9 Calculate the

attribute difference as

a % of total differences

%

%

%

100%


Trade-offs in Product Choices

• Value system score for all eight choices

• Predict customers’ choice decisions among difference levels of

different attributes by comparing value gain vs. loss in the tradeoff.

– Question: Is a customer willing to exchange a better destination

(Cesme) with a better proximity (on-site)?


Markstrat Conjoint Output

• Utilities (shown above): Numbers reflecting desirability of different features (higher = more).

• Importances: Measure of how much influence each attribute has on people’s choices.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

0.00 5.00 10.00 15.00 20.00

100 177

254

331

Price

6

2238

54

Power

6 14 22 30

Max Freq

6 7 89

Design

CONJOINT ANALYSIS - UTILITY GRAPHS - SEGMENT OTHERS

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Three Firm Value Positions


What Value Leadership Requires:

• Superiority on 1 value vector and parity on other 2 vectors

– Points of parity = Measures up to other offerings

– Point of difference = Unique and relevant features and/or benefits


• Three reinforcing elements in the customer value proposition

What Value Leadership Requires:


Increase Value by Changing the Competitive Profile

Value Leadership

10


Value Leadership & Business Model

• Align the business model to make the value proposition

possible and sustainable

The value proposition is the “position” of advantage

The business model is the “source” of that advantage


Let’s look at ZARA…


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