Transcript How to create growth opportunities? - E

How market-driven
management generates
shareholder value ?
Professor J.J. Lambin
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OUTLINE
1. What is market-driven management?
2. How to create customer value?
3. How customer orientation leads to
growth opportunities?
4. How customer value generates
shareholder value?
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1. What is market-driven management?
Is “market-driven management” really different from traditional
marketing management ?
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THE AMBIGUITY OF THE TERM
“MARKETING”
• Literally, ‘marketing’ means the process of going to
the market.
• The term places the emphasis on the “selling and
promotional” activities of the commercialisation
process.
• Thereby, the importance of the “strategic thinking”
activities tends to be underestimated.
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THE MARKET ORIENTATION CONCEPT
Three Components
• CULTURE
• ANALYSIS
• ACTION
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THE MARKET ORIENTATION CONCEPT
Three Components
•
CULTURE
A business philosophy at the core of a social market economy
system,…
…. emphasising the process of customer value creation,…
…. as the best way for the firm to achieve its objectives of profit
and growth.
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THE MARKET ORIENTATION CONCEPT
Three Components
•
CULTURE
•
ANALYSIS
The strategic brain of the firm,…
…used to identify profitable customer activity arenas in which
to compete.
(strategic marketing)
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THE MARKET ORIENTATION CONCEPT
Three Components
•
•
CULTURE
ANALYSIS
•
ACTION
The commercial arm of the firm…
...used to conquer the target market segments
(operational marketing)
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THE MARKET ORIENTATION CONCEPT
Three Components
• CULTURE
A state of mind .
Corporate business philosophy.
• ANALYSIS
A set of analysis tools to understand the market.
Strategic marketing.
• ACTION
A set of selling instruments (the 4Ps)
Operational marketing
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MARKET-DRIVEN MANAGEMENT
Who is in charge ?
Components
Managerial role
Organizational
position
Culture
A corporate
business
philosophy
Top management
Analysis
The strategic
brain
Strategic business
units
Action
The commercial
arm
The marketing
function
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THE MARKET DRIVEN MANAGEMENT
Conditions of application
• LIBERTY OF CHOICE
Individual choice determines what is rewarding.
• COMPETITIVE EXCHANGE
Competition is the regulating mechanism.
• SOCIAL COLLECTIVE PREFERENCES
Externalities must be taken into account by the firm.
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STRATEGIC MARKETING
Two approaches
• RESPONSE STRATEGIC MARKETING
Find wants and fill them
Innovations are “market pull”.
• CREATIVE STRATEGIC MARKETING
Find new ways to fill existing wants.
Innovations are “supply-push”.
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THE ROLE OF STRATEGIC MARKETING
MARKET
ANALYSIS
Cross-functional
co-ordination
R&D
ACTIVITIES
Unfilled
needs & wants
New product
ideas
Is it feasible ?
(response marketing)
Is there a need ?
(creative marketing)
STRATEGIC
MARKETING
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EXAMPLES OF DISRUPTIVE INNOVATIONS
IN MATURE MARKETS
• The furniture market with Ikea.
• The shoe market with Geox (ventilated soles) and Mephisto
(shock absorber)
• The airline market with, Virgin-Express, EasyJet, Ryan Air,…
• The liquid food packaging market with Tetrapak.
• The Kinepolis concept in the movie theater market.
• The digital photography market with Sony, HP, Kodak,…
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The Key Market Actors
The General Case
DISTRIBUTORS
COMPETITORS
CUSTOMERS
(user, buyer, payer)
STAKEHOLDERS
PRESCRIBERS
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The Market viewed as an Eco-system
Competitors:
direct and substitutes
Other customers:
licensees,
aggregators,...
Prescribers
Other
stakeholders
Manufacturers:
direct customers
Intermediaries:
agents, wholesalers,
retailers, ...
End
customers
Suppliers
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MARKET-DRIVEN MANAGEMENT (MDM)
Its role in the firm
For a firm operating in a market economy, the role of
MDM is to design and promote, at a profit, valueadded solutions to people and organisations
problems.
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2. How to create customer value?
Refer to customer’s generic needs and
to the customer mental virtual market
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THE VALUE APPROACH
FROM THE CUSTOMER VIEWPOINT
• What the customer buys and considers “value” is not
the product, but the “result” or the service provided by
the product.
• The result sought by customers correspond to a
generic need which is stable over time.
• Technologies are fast changing, while generic needs
remain unchanged.
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WHAT BUSINESS ARE WE IN ?
Examples of generic need definitions
•
We (Tetrapak) are selling ”liquid food conservation" solutions (...and not
carton containers).
•
We (Automatic Systems) are selling "access control" solutions (...and
not gates and doors).
•
We (General Motors) operate in the “personal mobility” market arenas
(…and not simply in the car market).
•
We (IBM) are selling “global networking capabilities” ( ...and not only
personal computers).
•
We (BP) are selling “integrated energy assurance” (… and not simply
oil, gas and lubricants).
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THE CONCEPT OF
VIRTUAL MARKET
1.To achieve the generic result sought, customers engage in
different activities, directly or indirectly related to the desired
outcome.
2. A “mental virtual market” regroup all the activities undertaken by
customers to achieve a specific generic result.
3. Thus, a virtual market represents an end-to-end temporal
sequence of logically related activities in the cognitive space of
customers.
.
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THE VIRTUAL MARKET OF KODAK
Generic need: “managing and sharing memories”
Previous Kodak
Involvement
with customers
Take
photos
Edit
photos
Archive
photos
0rder
merchandise
With photos
0rder
prints
Make fliers
cards, brochures
Make prints
yourself
Put prints
in photo album
Create
Electronic album
Share prints
with family
friends
Source: Sawhney and others, 2004
Email
photos
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EXAMPLE OF
THE DANISH LEGO COMPANY(1)
• Consider Lego, the Danish toy company, In 1995, it had a
worldwide construction –toy market share of 72%, in Europe its
market share in that category was over 90.
• But children were spending more spare time with computers,
video games and television than with traditional toys.
• So while Lego had been gaining market shares, toys in general
and construction toys in particular had been losing their share of
children’s spare-time activities
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EXAMPLE OF
THE LEGO COMPANY (2)
• The need addressed by Lego, the Danish toy company, is
“family edutainment”…. (education-entertainment) and not
construction-toy market.
• The generic need is defined as “...having fun and exercising the
mind”
• The Lego virtual market is a convergence of toys, education,
interactive technology, software, computers and consumer
electronics.
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CHARACTERISTICS OF
A VIRTUAL MARKET
1. In a virtual market, the activities generally cut across traditional
industry and product-market boundaries and are not
necessarily in the core business of the firm.
2. Virtual markets absorb a higher proportion of customer
spending than a specific product-market, and represents a
higher market potential.
3. Internet information technology makes the objective of
addressing virtual markets achievable.
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EXAMPLE OF
VIRTUAL MARKET (1)
• To achieve the “home ownership” generic
need, customers might engage with
contractors, realtors, insurance companies,
mortgage firms, removal companies, telecom,
interior designers, …
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EXAMPLE OF
VIRTUAL MARKET (2)
• In the “personal mobility” virtual market, in
addition to car ownership, related activities
cover car maintenance, car insurance,
roadside assistance, emergency services
dispatch, route support, stolen vehicle
location, ….
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FROM THE “VIRTUAL MARKET”
TO THE “META MARKET”
A meta-market is created when the cognitive
associations between these activities are
reproduced in the physical market place,
thereby streamlining customer activities and
providing them with seamless experience.
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CREATING THE META-MARKET
“The home ownership virtual market “
The cognitive space of the potential customer
Information
search and evaluation
Negotiation
Negotiationand
and
financing
financing
The purchase decision
Insurance
Insuranceand
and
maintenance
maintenance
Repairs
and and
Renovation
Reselling
value
decoration
Need of the
Need ofpotential
the potential
customer :
customer
To buy a new car
Home ownership
Real estate
Cars builders
agencies
Banks, mortgage
Car dealers
firms
Insurance
Insurance
companies
and
brokers
brokers
Painters
and
Financing
interiors designers
Removal
Garages and
companies
mechanics
The industry
global supply
supply
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META-MARKETS
Managerial implications
1. Do not define your reference market in terms of product categories.
(cars, metallic gates, detergents, toys…)
2. Refer to the result or the generic outcome customers want to achieve.
(personal mobility, access control, home care, edutainment,…)
3. Identify all the activities that, from the customer point of view, are part
of the virtual market.
4. Create the reference “meta market” by reproducing in the physical
market place the mental associations made by customers.
5. Present the “total solution” customers seek.
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BENEFITS OF
THE META-MARKET CONCEPT
1. The concept is perfectly aligned on the customer views and therefore
facilitates communication.
2. The revenue potential of a meta-market is always larger than the
discrete product-market.
3. It enables the firm to offer a “total solution” to customers thereby
building exclusivity, loyalty and trust.
4. It helps identifying “growth opportunities” in activities directly or
indirectly related to the core service.
5. It helps identifying who are the indirect (or substitute) competitors.
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3. How customer orientation leads
to growth opportunities?
Analyze the customer activity cycle
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THE ACTIVITY CHAIN CONCEPT
• A virtual market is a sequence of logically,
directly or indirectly, related activities
customers engage in to achieve a specific
outcome.
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THE ACTIVITY CHAIN CONCEPT
• Pre, or before: when customers are deciding
what to do to get the result desired.
• During: When customers are doing what they
decided on.
• Post, after: when customers are maintaining
the result, reviewing, renewing, extending,
upgrading and updating
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THE PRIMARY ACTIVITY CYCLE
Before:
customer is deciding what to do
Post:
Customer is keeping
it going
CustomerActivity
cycle
Source: Vandermerwe, 2000
During:
Customer is doing it
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STRUCTURE OF THE ACTIVITY CHAIN
• PRIMARY ACTIVITY CHAIN
A sequence of logically and directly related activities
customers engage in to achieve a specific outcome.
(Visiting a car dealer on the car ownership chain is a primary activity)
• ADJACENT ACTIVITY CHAINS
A sequence of logically but indirectly related activities
engaged by the customer in its search of the problem solution.
(seeking car insurance quotes is a complementary activity that falls in a adjacent
chain)
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The Growth Opportunity Matrix
Adding new
activities
1. Primary chain
extension
3. Adjacent chain
broadening
How ?
Type of growth
Reconfiguring
existing activities
4. Adjacent chain
reconfiguration
2. Primary chain
reconfiguration
Primary
activity chain
Adjacent
activity chain
Where ?
Focus on growth
Source: Sawhney and others, 2004
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1.
PRIMARY ACTIVITY CHAIN EXTENSION
“Moving along the customer activity chain
by adding new services”
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THE CUSTOMER ACTIVITY CYCLE
Search for value gaps
Before:
customer is deciding what to do
Value Gap
Post:
Customer is keeping
it going
CustomerActivity
cycle
During:
Customer is doing it
Value Gap
Source: Vandermerwe, 2000
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PRIMARY ACTIVITY CHAIN EXTENSION
•
Can services be added that precede the sale of the
core product?
•
Can services be added that follow the sale of the
core product?
•
Can services be added to accompany the product?
•
Can the product be augmented with network based
services?
•
Can the product be updated with services ?
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The Dutch Construction Group Heimans N.V:
Before:
Customer is deciding what to do
Value gap:
Project development
Post:
Customer is keeping
it going
Customer
Activity
cycle
During:
Customer is doing it
Core business:
Construction
capacity
Value gap:
Maintenance
activities
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2. PRIMARY ACTIVITY CHAIN
RECONFIGURATION
Changing the structure of the primary chain
by shifting the boundary between the activities
performed by the customer and by the firm."
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2. PRIMARY ACTIVITY CHAIN
RECONFIGURATION
•
•
•
•
•
Can customer burdens involving customization be
reduced?
Can customer burdens involving product storage
be reduced?
Can process expertise be leveraged?
Can customers’ inventory control and stocking
processes be replaced?
Can processes unrelated to customers core
competences or strategic objectives be taken over?
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3. ADJACENT ACTIVITY CHAIN
BROADENING
Introducing new services, not typically part
of the primary chain, but closely associated
with it.
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3. ADJACENT ACTIVITY CHAIN
BROADENING
•
Can products become platform for embedded
services?
•
Can the existing customer base be “rented”?
•
Can the existing customer interface be leveraged?
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4. ADJACENT ACTIVITY CHAIN
RECONFIGURATION
Taking charge of activities in an adjacent
chain.
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4. ADJACENT ACTIVITY CHAIN
RECONFIGURATION
•
Can services be added to integrate complementary
customer activities?
•
Can services be added to leverage the brand?
•
Can services change the way customers acquire
products?
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MANAGING THE RISKS
Three types of risk
1.
CAPABILITY RISK
2.
MARKET RISK
3.
FINANCIAL RISK
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1. CAPABILITY RISKS
•
•
Can we execute and deliver?
Do we have the organizational culture to sell
services?
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2. MARKET RISKS
•
Will customers adopt the service provided?
•
Are we credible as a service provider among our
customers base?
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3. FINANCIAL RISKS
•
Can we make money?
•
Is the initial cost of development not too high?
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4. How customer value generates
shareholder value?
Analyze the customer response chain
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Customer value triggers a chain of effects
Perceived
value
Satisfaction
Trust
Affect
LOYALTY
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TRUST AND AFFECT
• TRUST
The willingness of the customer to rely on the ability
of the brand to perform its stated function.
• AFFECT
A brand’s potential to elicit a positive emotional response
as a result of its use.
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LOYALTY
BEHAVIORAL AND ATTITUDINAL
• PURCHASE LOYALTY
Repeated purchases of the brand
• ATTITUDINAL LOYALTY
A dispositional commitment in terms of some
unique value associated with the brand
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The Satisfaction-Loyalty Relationship
PURCHASE LOYALTY
100%
Highly competitive market
Low switching costs
Many substitutes
50%
0%
1
2
3
4
5
SATISFACTION
1 = completely dissatisfied
5 = completely satisfied
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Impact on the Economic Performance
Customer value
(utilitarian and hedonic)
Brand
trust
Purchase
loyalty
Market
share
Brand
affect
Attitudinal
loyalty
Relative
price
Brand strengths
(differentiation and
share of voice)
Source. Chaudhuri and Holbrook,
2001
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NET PROFIT CONTRIBUTION (NPC)
NPC =
Market
Market
x share x
demand
Price
- Variable
cost
per unit
per unit
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- Marketing
expenses
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NET PROFIT CONTRIBUTION (NPC)
Strategies to
target the virtual
market
NPC =
Strategies to
increase value
for customers
Market
Market
x share x
demand
Price
- Variable
cost
per unit
per unit
Strategies to
increase
market share
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- Marketing
expenses
Strategies to
increase marketing
efficiency
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CONCLUSIONS
1.
Market-driven management implies culture,analysis and
action. In the global economy, being action-oriented in not
enough.
2.
Customers are looking for the total solution of their problems
and the firm should target the customer mental reference
market .
3.
Referring to customer mental virtual markets offer to the firm
attractive growth opportunities.
4.
Customer value generates satisfaction, trust and loyalty,
thereby creating shareholder value.
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BIBLIOGRAPHY
•
J.J. Lambin (2000), Market-driven Management, London, Palmgrave Macmillan.
See also the Russian translation, Saint Petersburg, Piter 2004.
•
S. Vandermerwe, (2000), “How Increasing Value to Customers Improves
Business Results”, Sloan Management Review, Fall.
•
A.Chaudhuri and M.B. Holbrook, (2001), “The Chain of Effects from Brand Trust
and Brand Affect to Brand Performance: the Role of Brand Loyalty”, Journal of
Marketing, Vol.65, April.
•
M. Sawhney, S. Balasubramanian and V.V: Krishnan,(2004), “Creating Growth
with Services”, Sloan Management Review, Winter.
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