MKTM028 Strategic Marketing Value….. Week 6 Dr Stephen Castle Dr Elizabth Kim Iain Bromley

Learning Objectives: To understand what is value To appreciate value is personal Explore ways to create value To appreciate the importance of Porter’s Value Chain and Buttle’s CRM Value Chain

What is value? 1.Accounting: The monetary worth of an asset, business entity, good sold, service rendered, or liability or obligation acquired. 2.Economics: The worth of all the benefits and rights arising from ownership. Two types of economic value are (1) the utility of a good or service, and (2) power of a good or service to command other goods, services, or money, in voluntary exchange. 3.Mathematics: A magnitude or quantity represented by numbers. 4.Marketing: The extent to which a good or service is perceived by its customer to meet his or her needs or wants, measured by customers’ willingness to pay for it. It commonly depends more on the customer's perception of the worth of the product than on its intrinsic value. www.businessdictionary.com

Peter Doyle’s view Doyle (2000) “The essential idea of marketing is offering customers superior value. By delivering superior value to customers, management can in turn deliver superior value to shareholders. Indeed, this formula – customer value creates shareholder value – is the fundamental principle of capitalism.”

What is value based marketing?

Understanding Value “Value is the customer’s perception of the balance between benefits received from a product or service and the sacrifices made to experience those benefits” Buttle 2009 Therefore: Value = Benefits Sacrifices

Determining Customer Value and Satisfaction Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all the benefits and costs of an offering and the perceived alternatives

The search for customer value The danger of making assumptions “we know what our customers want” “bung in some customer service” “just make it cheaper” or, perhaps, take customer value seriously?

The search for customer value Value as rational cost/benefit analysis Value migration value migrates from one attribute feature to another different people buy different value Customer value is complex, multi-dimensional, unstable and idiosyncratic, but it is what matters

Value-driven strategy Value has become the central focus of strategy (because there is no choice) The key issue is now value innovation (in the customer’s terms) But value does not have a single meaning e.g., operational excellence vs. customer intimacy vs. product leadership (Treacy and Wiersema, 1995)

The Discipline of Market Leaders Operational excellence develop teams, run them together optimise systems integrate internal and external activities aim for highest customer service Product leadership direct the portfolio of activities create flexible and robust structures nurture talent Customer intimacy assemble, integrate and retain talented people co-ordinate expertise build and foster deep relationships Treacy and Wiersema (1995)

The four support activities Value-chain analysis Inbound logistics Operations Outbound Marketing and sales Service The five primary activities The four support activities Firm’s infrastructure Human resource management Technology development Procurement M A R G I N Porter (1985)

The Marketing Value Chain (Gronholdt and Martensen, 2006) Marketing Performance Measures Marketing actions Mental consumer results Behavioural consumer results Marketing results Financial results Brand awareness Perceived quality Perceived differentiation Perceived value Customer satisfaction Recommendation

The Marketing Value Chain (Gronholdt and Martensen, 2006) Marketing Performance Measures Marketing actions Mental consumer results Behavioural consumer results Marketing results Financial results Customer loyalty Customer retention Churn rate Complaints Share of wallet

The Marketing Value Chain (Gronholdt and Martensen, 2006) Marketing Performance Measures Marketing actions Mental consumer results Behavioural consumer results Marketing results Financial results Sales (volume, value) Sales trends Share (volume, value) Number of customers Availability Price premium

The Marketing Value Chain (Gronholdt and Martensen, 2006) Marketing Performance Measures Marketing actions Mental consumer results Behavioural consumer results Marketing results Financial results Profit GM Profitability Cash flow CLV Shareholder

Strategy & Implementation The attractiveness of opportunities open to the organisation is highly dependent on the effective use of resources available to exploit them. Strategies that are not built on resource strength are unlikely to get off the ground or be sustainable in the long-term.

The resource –based view Do we look outwards toward the market or inward toward our resources & capabilities? Does the generation of sustainable competitive advantage reconcile the two? The attractiveness of markets will depend in part on the resources available to build a strong competitive position.

Resource utilisation Brand reputation Customer relationships Effective distribution networks Intellectual property NPD/Service development Competitive position

Isolating mechanisms The creation & defence of a competitive position into the future……………….. 1 – The competitive position is likely to be a complex interplay of different elements. 2 – After identification, can you acquire the resources? 3 – How do you keep reinventing yourself?

Dynamic Capabilities……. “ The capacity of an organisation to purposefully create, extend or modify its resource base.” (Helfat et al 2007.) This view recognises that as markets change, become more globally integrated, new forms of competition emerge and new technologies are employed, firms cannot rest on their existing capabilities alone (Winter 2003)

The resource portfolio Hooley et al. (2012)

Developing and exploiting resources Hooley et al. (2012) Adapted from Homel and Prahalad (1994)

Creating & exploiting marketing assets Customer based & reputation assets Supply chain assets Internal or marketing support assets Alliance-based assets

Who says satisfied customers will be loyal? (Piercy 2000) Customer Loyalty High Low SATISFIED STAYERS HAPPY WANDERERS High Customer satisfaction HOSTAGES DEALERS Low

Returns from customer satisfaction High Repeat purchase rates Low Not at all satisfied Very satisfied Customer satisfaction level Buttle (2004)

Relationship marketing is seductive Do organisations want a relationship with all customers? Do all customers want a relationship with us?

So what’s in it for the company? Customer retention: marketing costs reduced better customer insight revenue and profit stream reliability How many customers do we want?

Customer retention and customer volume Year Company A (5% churn) Company B (10% churn) Existing customers New Total customers 2009 1000 100 1100 2010 1045 1145 990 1090 2011 1088 1188 981 1081 2012 1129 1229 973 1073 2013 1168 1268 966 1066

The CRM Value Chain The four support activities Leadership and culture The four support activities Data and information technology Customer People Processes The five primary activities Manage the customer lifecycle profitability Value proposition development Customer portfolio analysis Customer intimacy Network development (Buttle, 2004)

Customer portfolio analysis Analysis of: actual customers potential customers To identify customers: you want to serve in the future which will drive profitability

of the selected customers Customer intimacy Establish the: identity, profile, characteristics requirements, expectations, preferences of the selected customers

Network Development Identify network members who help create and deliver the value proposition Brief and manage relationships within the network…… …..external partners and internal contributors (employees)

Value proposition development Identify sources of customer value Create a proposition and experience that meets customer expectations

Manage the customer lifecycle Encourage customers up the loyalty ladder through: process: customer acquisition, retention and development measuring performance of the CRM strategy structure: organisation to manage customer relationships

Segmenting markets by customer relationship requirements Type of relationship customer wants with supplier Short-term/ transactional Long-term Close relationship Relationship seekers Relationship exploiters Closeness wanted by customer in supplier relationship Arm’s length transactional customers Loyal buyers Distant relationship

Value-based marketing Customer loyalty High Low High Value-based marketing Relationship marketing Customer sophistication Transactional marketing and selling Brand marketing Low

Learning Objectives: To understand what is value To appreciate value is personal Explore ways to create value To appreciate the importance of Porter’s Value Chain and Buttle’s CRM Value Chain