Company and Marketing Strategy: Partnering to Build Customer Relationships

1
Company and Marketing Strategy Partnering to
Build Customer Relationships
Chapter 1
Lecture 2
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Previewing the Concepts

• Explain companywide strategic planning and its
  four steps.
• Discuss how to design business portfolios and
  growth strategies.
• Explain marketings role in strategic planning
  and how marketing works with its partners to
  create and deliver customer value.
• Describe the elements of a customer-driven
  market-ing strategy and mix, and the forces that
  influence it.
• List the marketing management functions,
  including the elements of a marketing plan and
  discuss the importance of measuring/managing
  marketing ROI.

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Case Study
NASCAR Customer Driven Strategy

• NASCAR Today
• Popularity Second highest watched regular season
  sport on TV (18 million viewers). Seen in 150
  countries. No. 1 live spectator sport.
• The Fans 75 million young, affluent, family
  oriented fans 40 are female and fans are very
  passionate about NASCAR.
• The Payoff Fans spend nearly 700 a year on
  NASCAR-related items Fans are three times more
  loyal to sponsors than are fans of other sports.
  NASCAR generates 2 billion in merchandise sales
  annually and 555 million for TV broadcasting
  rights.

• How did they succeed?
• NASCARs Strategy Customer driven and
  single-minded in developing relationships via a
  blend of live racing, media coverage, and
  compelling Web sites. In-car TV coverage puts
  fans in the middle of the action. Web sites are
  both informational and entertaining. Content
  includes news, stats, standings, driver bios,
  online games, community discussions and more.
• Value Creation at Race Events Family-oriented
  atmosphere features RV parks next to the racing
  ovals, security guards to enhance safety, and
  drivers who are friendly and excellent role
  models. Plus, fans are encouraged to bring their
  own food.

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Strategic Planning

• The process of developing and maintaining a
  strategic fit between the organizations goals
  and capabilities and its changing marketing
  opportunities.

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The Mission Statement

• Corporate level
• Defining the company mission.
• Setting objectives and goals.
• Designing the business portfolio.
• Business unit, product, and market level
• Planning marketing and other functional
  strategies.

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The steps in the marketing process

• (1) analysing marketing opportunities
• (2) selecting target markets
• (3) developing the marketing mix
• (4) managing the marketing effort

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Figure 1.7 Influences on marketing strategy
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Market leader strategies
Market leader
Market challenger
Market follower
Market nicher
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Figure 1.8 The four Ps
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Four Ps or Four Cs

• Product
• Price
• Promotion
• Place

• Customer needs/wants
• Cost to the customer
• Communication
• Convenience

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Figure 1.9 An expanded model of the marketing
process
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Components of a strategic plan

• Business, Mission , vision , objectives-smart
• Strategic objectives
• Strategic audit
• SWOT analysis
• Portfolio analysis
• Objectives and strategies crafting
• Strategic choice and
• implementations and control

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• Why are firms different in their profitability?
• Industry Factors
• Competitive Forces
• Cooperative Forces
• Macro Environment
• Firm-Specific Factors
• Resources
• Activities
• Positions

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• Components of a Business Model

Industry Factors
influence
consistent with
Activities
Positions
Resources
Profitability
leve- rage
reduce
Costs
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• Fundamental of Business Modeling
• How to decide appropriate activities that
  constitute firms competitive advantage?
• Firm needs to identify its
• STRATEGY.

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• Strategic Management Framework

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• Strategy vs Operational Efficiency
• Strategy involves committing to undertake one
  set of actions rather than another and, in the
  process, creating a unique and valuable position
  that allows the firm to perform better than its
  competitors.
• It is about which activities to perform and
  which ones not to perform
• Operational Efficiency involves performing
  similar activities better than rivals do.
• Best practice is NOT strategic but operational.

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• Strategy Levels
• Corporate Strategy Creating value for the
  portfolio of businesses
• Business Strategy Creating value within each
  business (in the portfolio) so called,
  Competitive Strategy
• Functional Strategy The set of functional
  activities that a firm performs (operationally
  efficiently) in supporting of a businesss goal
  of attaining and maintaining competitive
  advantages

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• Corporate Strategy tradeoff b/w
• Low Synergy (Unrelated businesses) Financial
  advantage (Diversification)
• High Synergy (Related businesses) Know-how and
  Staffing advantage (Specialization)
• Business Strategy tradeoff b/w
• Low Price Cost-based advantage
• Premium Price Uniqueness-based advantage
  (Differentiation)
• Functional Strategy design and tradeoff b/w
  activities to create competitive advantage

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• Analyzing
• Planning
• Organizing
• Implementing
• Controlling

Mission Objectives/Goals Strategy Business
Modeling Performance Measures Actions
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• Mission
• Objectives/Goals
• Strategy
• Business Modeling
• Organizing
• Performance Measures
• Actions

Quantitative Indicators with Time frame,
e.g., -Market share 5 in 1 year -Cost
reduction 10 in 6 months -Increase CusSat
12 in 1 year
e.g., - Sales () - Mkt share () - Unit cost
(/unit) - Expense () - CusSat score (pt)
Strategy Implementation
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• Business Model
• The profit-oriented aspects of firms business
  strategy with the associated operational
  efficiency and implementation.
• The set of activities which a firm performs so as
  to offer its customers benefits they want and to
  earn a profit. It involves firms decision on
  which activities to perform, how to perform, and
  when to perform.

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• Components of a Business Model

Industry Factors
influence
consistent with
Activities
Positions
Resources
Profitability
leve- rage
reduce
Costs
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• Business Drivers

Context Models
Strategy Models
Performance Models
Change Models
Organizational Models
Marketing Models
Sector Analysis Model Stakeholder
Model 5-Forces Model
Value Chain Generic Strategy
Operating Structures Administrative
Technology Systems Corporate Cultures
Transition Management Contingency Models
(7s and Congruence Model)
Accounting Ratios Economic
Value Shareholder Value Balanced
Scorecard
Life Cycle Model Marketing Mix
Business Drivers
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• Context Models
• Suggest how company must adapt to environmental
  circumstances in order to function properly.
• Sector Model
• The overall pressure on company to act is driven
  by Economic, Technological, Social/Cultural, and
  Political Sectors.
• Economic Macro/Micro conditions
• Technology Product/Process trends
• Society/Culture Demographic forces
• Politic Legislative Regulatory constraints

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• Macro/Micro
• Condition
• Product/Process
• Trends
• Demographic
• Forces
• Legal/Regulatory
• Constraints

Economic Sector
Overall Pressure on Company to Act
Technological Sector
Socio/Cultural Sector
Political Sector
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• Stakeholder Model
• Describe the environment of the company in terms
  of specific groups of actors that have a stake
  in what the company does because they control the
  resources the company needs.
• Primary Stakeholders Customers, Employees, and
  Investors have greatest influence on the company
  performance.
• Secondary Stakeholders Regulators, and Pressure
  groups (e.g., public, activist)
• Companys performance is resulted from strong
  direct and indirect relationships among
  stakeholders.

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Employees
Customers
Investors
Company
Pressure Groups
Regulators
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• Five-Forces Model
• Companys performance has its roots in its
  structural position in an industry. To improve
  performance is to strengthen the position.
• Customers/Buyers Bargaining Power
• (Key Input) Suppliers Bargaining Power
• Substitute Products
• Competitive Rivalry Industry structure
• Potential New Entrants - Entry/Exit Barriers

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Substitute Products
Key Suppliers
Buyers
Rivalry Among Competing Firms
Potential New Entrants
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• Strategy Models
• Suggest ways firm can create tomorrows
  competitive advantages faster than competitors
  mimic the ones you possess today.
• Generic Strategy Model
• Alternative preferred way to compete in an
  industry and across industries.
• Low Cost Leadership
• Differentiation in value offerings
• Focus specific group of customers
• (Focus-Differentiation)

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The Mission Statement

• Questions the mission statement should answer
  include
• What is our business?
• Who is our customer?
• What do consumers value?
• What should our business be?
• Mission statements should be market oriented, not
  product oriented.

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The Mission Statement

• Should be realistic
• Should be specific
• Should fit the market environment
• Should be based on distinctive competencies
• Should be motivating

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Setting Firm Objectives and Goals

• The mission should be translated into supporting
  objectives for each level of management.
• Creates a hierarchy of objectives that are
  consistent with one another. For example
• Business objective Increase profits.
• Marketing objective Increase market share of
  domestic and international markets.

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Mission statements

• eBays mission is to provide a global trading
  platform where practically anyone can trade
  practically anything

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Desired characteristics of mission statements

• Realistic
• Specific
• Based on distinctive competencies
• Motivating

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Designing the Business Portfolio

• The business portfolio is the collection of
  businesses and products that make up the company.
• The company must
• Analyze its current business portfolio or
  strategic business units (SBUs)
• Decide which SBUs should receive more, less, or
  no investment and
• Develop strategies for growth and downsizing.

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What is a strategic business unit?

• A strategic business unit is a unit of the
  company that has a separate mission and
  objectives, and which can be planned
  independently from other company business.

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Strategic Business Unit (SBU)

• Strategic business unit
• A unit of the company that has a separate mission
  and objectives and that can be planned
  independently from other company businesses.
• An SBU can be a company division, a product line
  within a division, or sometimes a single product
  or brand.

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Portfolio Analysis

• Portfolio analysis
• Process by which management evaluates the
  products and businesses making up the company.
• Resources are directed toward more profitable
  businesses while weaker ones are phased out or
  dropped.

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Figure 3.2 The BCG growth-share matrix
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BCG Growth-Share Matrix

• Stars High-share of high-growth market.
• Strategy Build into cash cow via investment.
• Cash cows High-share of low-growth market.
• Strategy Maintain or harvest for cash to build
  STARS.
• Question marks Low-share of high-growth market.
• Strategies Build into STAR via investment if
  warranted, or reallocate financing and let slip
  into DOG status.
• Dogs Low-share of low-growth market.
• Strategies Maintain or divest.

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Problems with Matrix Approaches

• Several problems exist
• Can be difficult, time consuming, and costly to
  implement.
• Difficult to define SBUs and measure market share
  and growth rate.
• Focus is on current businesses gives little help
  with future planning.
• These problems have led to changes in the
  strategic planning approach used by firms.

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Figure 3.3 GEs strategic business-planning grid
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Figure 3.4 Product/market expansion grid
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Product/Market Expansion Grid

• Market penetration
• Existing markets, existing products
• Market development
• New markets, existing products
• Product development
• Existing markets, new products
• Diversification
• New products, new markets

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What is downsizing?

• Downsizing means reducing the business portfolio
  by eliminating products of business units that
  are not profitable or that no longer fit the
  companys overall strategy.

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Marketing plays a role in strategic planning

• Marketing provides a guiding philosophy
• Marketing provides inputs to strategic
  planners by helping to identify attractive
  market opportunities and by assessing
  the firms potential to take advantage of
  them
• Marketing designs strategies for reaching unit
  objectives

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Planning Marketing

• Marketing plays a key role in strategic planning
• Provides a guiding philosophy.
• The marketing concept
• Provides inputs to strategic planners.
• Designs strategies to reach objectives.

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Creating Customer Value

• Marketers must practice partner relationship
  management.
• Working with partners internally within the
  company can create an effective value chain.
• Working with external partners in the marketing
  system helps to form a superior value delivery
  network.

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Value chain

• A value chain is a series
  of departments that
  carry out value-creating activities to
  design, produce, market, deliver and support a
  firms products

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• Value Chain Model
• Companys performance can be improved by
  improving value-creating activities along a value
  chain.
• Primary Activities Inbound Logistics,
  Operations, Outbound Logistics, Marketing and
  Sales, and Services
• Support Activities Technology Development,
  Human Resources Management, Procurement, and Firm
  Infrastructure (General Administration)

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Technology Development
Margin
Human Resource Management
Procurement
Firm Infrastructure
Inbound Logistics
Operations
Marketing Sales
Outbound Logistics
Services
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Value Delivery Network

• Components include
• Companys value chain
• Each department is a link
• Distributors
• Suppliers
• Customers
• Improved performance in delivery value to
  customers is the goal.

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Customer-Driven Marketing Strategy

• Requires careful customer analysis.
• To be successful, firms must engage in
• Market segmentation
• Market targeting
• Differentiation
• Positioning

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Market Segmentation and Targeting

• Segmentation
• The process of dividing a market into distinct
  groups of buyers with different needs,
  characteristics, or behavior who might require
  separate products of marketing programs.
• Targeting
• Involves evaluating each market segments
  attractiveness and selecting one or more segments
  to enter.

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Differentiation and Positioning

• Differentiation
• Creating superior customer value by actually
  differentiating the market offering.
• Positioning
• Arranging for a product to occupy a clear,
  distinctive, and desirable place relative to
  competing products in the minds of target
  consumers.

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The Marketing Mix

• The set of controllable, tactical marketing tools
  that the firm blends to produce the response it
  wants in the target market.
• Product
• Price
• Place (distribution)
• Promotion

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The Marketing Mix

• Product
• Variety, features, brand name, quality, design,
  packaging, and services.
• Promotion
• Advertising, sales promotion, public relations,
  and personal selling.

• Place
• Channels, coverage, logistics, locations,
  transportation, assortments, and inventory.
• Price
• List price, discounts, allowances, payment
  period, and credit terms.

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The 4 Ps and the 4 Cs of the Marketing Mix

• 4 Ps Sellers View
• Product
• Price
• Place
• Promotion

• 4 Cs Buyers View
• Customer Solution
• Customer Cost
• Convenience
• Communication

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Managing the Marketing Effort

• Four marketing management functions
• Marketing analysis
• SWOT analysis is key.
• Marketing planning
• Create brand marketing plan.
• Marketing implementation
• Determine who, where, when, and how.
• Marketing control
• Evaluate results, take corrective action.

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What is a strategic audit?

• An external audit is a detailed examination of
  the markets, competition, business and economic
  environment in which the organisation operates.
• An internal audit is an evaluation of the firms
  entire value chain.

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Key financial statements in a strategic audit

• A balance sheet shows the assets,
  liabilities, and net worth of a company
  at a given time
• The operating statement shows company sales, cost
  of goods sold, and expenses during a given period
  of time

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The marketing plan

• Executive summary
• Current marketing situation
• SWOT analysis
• Objectives and issues

• Marketing strategy
• Marketing implementation
• Budgets
• Controls

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SWOT Analysis

• Strengths
• Internal capabilities that may help a company
  reach its objectives.
• Weaknesses
• Internal limitations that may interfere with a
  companys ability to achieve its objectives.

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SWOT Analysis

• Opportunities
• External factors that the company may be able to
  exploit to its advantage.
• Threats
• Current and emerging external factors that may
  challenge the companys performance.

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What are critical success factors?

• Critical success factors are the strengths and
  weaknesses that most critically affect an
  organisations success. They are measured
  relative to competitors.

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What is a marketing audit?

• A marketing audit is a comprehensive, systematic,
  independent and periodic examination of a
  companys environment, objectives strategies and
  activities to determine problem areas and
  opportunities and to recommend a plan of action
  to improve the companys marketing performance.

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Brand/Product Marketing Plan

• Executive summary
• Current marketing situation
• Analysis of threats and opportunities
• Objectives for the brand
• Marketing strategy
• Action programs
• Marketing budget
• Controls

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Marketing Implementation

• Turns marketing plans into marketing actions by
  addressing
• Who
• Where
• When
• How

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Marketing strategy

• Marketing strategy is the logic
  by which the company hopes to create
  customer value and achieve profitable
  relationships
• Segmentation and targeting
• Differentiation and positioning

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Marketing mix
Product
Place
Price
Promotion
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Figure 3.5 Return on marketing
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Marketing Department Organization

• Functional organization
• Each marketing activity is headed by a functional
  specialist.
• E.g., sales manager, advertising manager,
  marketing research manager, etc.
• Geographic organization
• Sales and marketing people are assigned to
  specific countries, regions, and districts.

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Marketing Department Organization

• Oroduct management organization
• One person given responsibility for complete
  strategy and marketing program for a single
  product.
• Market or customer organization
• Manager responsible for particular market or
  customer.
• Combination organization
• Uses some combination of the previous four
  approaches.

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What is marketing control?

• Marketing control is the process of measuring and
  evaluating the results of marketing strategies
  and plans, and taking corrective action to ensure
  that marketing objectives are attained.

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Marketing Control Process

• Set goals
• Measure performance
• Evaluate performance
• Take corrective action

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Marketing Control Process

• Operating control
• Evaluates performance against the plan and takes
  corrective action.
• Strategic control
• Evaluates whether strategies match opportunities.
• The marketing audit is major tool.

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Return on Marketing

• Return on marketing investments is assessed using
  one or more methods
• Standard marketing performance measures
• Brand awareness, sales, market share
• Customer-centered measures
• Customer acquisition, customer retention,
  customer lifetime value

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• Customer Value and Positioning
• Customer Value is created in 2 ultimate forms
• Lower Cost
• Superior Product (Differentiation)
• Profitability S
• Differentiation Low
  Cost
• T
• Market Share

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• Differentiation With Low Cost
• Path T, firm cannot do either well in contrast
  with Path S, where firm can do both well because
• Nature of technology In some cases allows cost
  reduction and differentiation to rest on the same
  activities. E.g., Intel chip smaller and faster
• Lower cost does not mean indifferentiated.
  E.g., Low cost airline is also different in other
  aspects, e.g., more flights, etc.
• Rate of technology change and imitation rate
  Both are generally high which results in short
  period of being differentiated. Thus to survive
  firm must operate at low cost as well.
• Competitive advantage If comes from owning
  valuable, rare, and inimitable resources, allows
  firm to be able to differentiate and operate at
  low-cost.

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• Making More Valuable Products
• Standard ways of delivering value include
• Product Features Physical
• Brand Name Reputation Psychological
• Network Externalities Some products such as
  Software are more valuable when more customers
  use them. Metcalfes Law value of network size ?
  n2 to nn where n is of nodes on the network
• Timing The first to introduce product
• Location Availability, Accessibility, Location
  reputation
• Service Before/After-sale service
• Product Mix One-stop shopping. Amazon carried
  16 million items at its website as of May 1999

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• Sources of Revenues and Market Targets
• Targeting the right customers with the right
  value.
• Many market targets have more than one sources of
  revenue, some of which may be more profitable
  than others.

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• Sources of Revenue
• Understanding its markets sources of revenues,
  especially the profitability of each source,
  enables firm to
• be able to make better choices about which
  activities to perform.
• better position itself to understand the threats
  a technological change can pose to it.

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• Example Sources of income
• Credit Card business
• Merchant fee (charge on vendors)
• Intercharge (charge on different card issuers for
  using through banks EDC)
• Interest income (charge on cardholders
  outstanding balance)
• Annual fee
• Other charges like late fee, high balance fee,
  etc. (was prohibited in Thailand 3 years ago)

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• Taxonomy of Revenue Sources and Revenue Models
• Direct Product/Service Sales product sales
• After-Sales Service complex products, in some
  cases more profitable than product sales (auto
  dealer, computer network, etc.)
• Indirect Content Sales advertising revenue
• Product Financing interest charges and other
  fees for install payment
• Collect-early, Pay-later Financing return on
  investment using firms credit on suppliers,
  Dell-Direct Model
• Royalties on Intellectual Property up-front fee
  and/or per-unit charge

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• Revenue Models
• Production Model simple produce and sell model
• Subscription Model customer pays a flat fee for
  the right to use the product for a period of time
  whether she uses it or not. E.g., rent, flat-rate
  phone service, etc.
• Fee-for-Service Model customer pays for only
  service she uses.
• Markup Model firm buys a product and resells it
  to the customer at a markup price.
• Commission Model brokerage fee, firm acts as a
  mediator/match maker/or broker.
• Advertising Model firms product can perform a
  function of a media for other firms to advertise
  their products on. E.g., ATM slip, bank
  statement, building surface, internet banner,
  club magazine, etc.

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• Targeting Customers
• Mass Market . Market Segments ,Individual
  Customers
• Activities Customer Target
• of Firm Mass Market Market
  Segment Individuals
• Needs and One-to-all One-to-segment One-to-one
  
• Preferences marketing marketing
  marketing
• Identification
• Value creation Mass Mass
  production Customization
• and delivery production Mass customization
  Mass
• Approach customization

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• Market Segments
• Business Segments
• Consumer Segments

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• Business Segments
• Benefits
• Timing of Needs lead users, e.g., latest
  technology mobile, fashion from the catwalk, etc.
• Industry different industrial customers demand
  differently
• Customer Size large and small customer, e.g.,
  institutional vs individual customers, more
  frequently-fly passengers, etc.
• Geography

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• Consumer Segments
• Demographics
• Psychographics
• Behavior
• Geography
• Multidimensional Segmentation

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• Mapping Value into Targeted Markets
• (Positioning)
• Matching targeted customers needs and firms
  offerings (position)
• Evolution of Targets
• More sophisticated and smart
• More variety of tastes
• Technological change alters preferences

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• Designing Activities for Profitable Business
  Model
• Activities that firms perform to offer value
• Choice of activities
• How to perform them
• When to perform them
• Frameworks
• Business System
• Value System

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• Business System
• Sequence of activities that firm performs to
  produce products.
• Ex. Automobile involves key activities
• Design
• Purchase components
• Assemble
• Market
• Distribute

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• Generic Business Systems
• Value Chain
• Value Network
• Value Shop
• Outsourcing

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• Value Network
• Firm acts as a mediator (intermediary) between
  the clients and performs value-adding activities.
  
• A firm and the clients that it mediates make up a
  network call Value Network, a property of Network
  Externality.
• Ex. Financial institutions mediates between
  surplus units (like depositors, investors) and
  deficit units (like borrowers, issuers)

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• Value Shop
• Firm decides which activities are needed to
  fulfill customers demand. The business whose
  value is created this way is called a Value Shop.
• Hospital, Consulting business, Universities, and
  etc. involve variety of clients with different
  needs and thus require a business system that
  offers flexibility in meeting those needs.
• Ex. Hospital has different kinds of clients
  (patients) who demand different treatments. It is
  a hospital (by a doctor) who decides which
  activities are required to respond those needs.

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• Outsourcing
• From outsourcer to outsourcee When will
  outsourcer outsource its value activities to the
  outsourcee? Depends on
• Outsourcees capabilities
• Outsourcees market power
• Outsourcers integrative or architectural
  capability (ability to coordinate)
• Criticalness of activitys underpinning
  capability (activities critical to firms
  competitive advantage will not be outsourced)

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• Ex. eBay decided to outsource its back end
  internet activities to 2 companies Abovenet and
  Exodus. These 2 companies would be responsible
  for the
• maintenance and performance of web servers,
  database servers, internet routers, and other
  technologies that were critical to the
  availability of eBays site for trading. Has eBay
  done right?
• First, identify eBays Competitive Advantage
• Network Size and Brand Name
• Then check
• Outsourcees capability Both are specialists. ?
• Market power There are many and eBay picked 2.
  ?
• Integrative capability Keeping website up does
  not require much integration. ?
• Criticalness of activities Learning how to run a
  website is not critical to the eBays competitive
  advantage. ?

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• Value System
• (Supply Chain and Vertical Linkage)
• Value System The chain that stretches from end
  customers to the firm to its suppliers to their
  own suppliers and so on.
• Ex. Value system for market of PC microprocessors
• Semiconductor Microprocessor Computer
  Distributors Computer
• Equipment Makers Makers
  Users
• Manufacturers
• Applied Intel Dell Retail stores
  Business
• Material AMD HP Consumer
• Motorola IBM
• Gateway
• Upstream Downstream

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• Vertical Integration
• Vertical Integration (VI) Producing ones input
  or disposing of ones output (perform more
  activities along the value system)
• Backward VI Firm is vertically integrated into
  the upstream market.
• Forward VI Firm is vertically integrated into
  the downstream market.
• Tapered integration Firm produces only some of
  the quantity of the input that it needs and buys
  the rest of the input from outside suppliers.

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• Strategic Alliance
• Instead of backward vertical integration where
  firm produces its own input another way is to
  form Strategic Alliances or Strategic
  Collaboration where 2 or more firms agree to
  combine their resources to carry out a project.
• Strategic Alliances can be formed for a specific
  time and/or specific operations.
• Ex. Joint Venture collaboration creates a
  separate legal entity.

103

• Which Activities to Perform and NOT to
• Activities are chosen from
• Business System Activities
• Value Chain choose activities at each stage
• Value System Activities
• Value Added Process integration choice
• Activities to perform must strengthen firms
  competitive advantage. Any criteria?

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• Activities to Perform
• Must have the potential to enable a firm to
• Attain and maintain the right position
• Take advantage of industry factors
• Better build and exploit its resources
• Keep its costs low irrespective of whether the
  firm pursues a low-cost or differentiation
  strategy
• The criteria for ensuring firms competitive
  advantage.

105

• 1. Attain Maintain the Right Position
• Offer Superior Value Activities should be
  consistent with the type of value the firm offers
  customer
• Ex. Southwest Airline, the most profitable
  low-cost airline in the US, offers low cost value
  hence its activities to ensure low fare to
  customer include offer no meal, operate largely
  from uncongested airports, etc.
• Air Asia can save ticket reservation cost
  through internet system.
• Coca-Cola offers differentiation value then
  activities performed are aimed to create Brand
  Equity.

106

• Attain Superior Position Activities to address
  negative aspects of the industry.
• For example, if suppliers are powerful firm may
  decide to eliminate by integrating backward. If
  distributors are powerful firm may bypass them by
  innovation.
• Ex. Dell at the beginning had little bargain
  power over PC dealer. Dell bypassed the dealer
  channel by offering through internet.
• Air Asia with no dealer network employed
  internet for ticket reservation.
• Heineken bypasses Singha and Chang monopoly
  power of distribution by channeling through
  modern trade and through restaurant channel by
  push girls.

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• Take Advantage of Industry Factors Critical
  industry factors must be identified and
  exploited.
• Ex. Airline industry capacity utilization is
  critical. Plane should not be sitting at a
  terminal but rather should be flying. By choosing
  to fly out of uncongested airports, Southwest
  planes can land and take off more quickly.
• PCs short shelf-life is critical. So if they
  sit on dealers shelves too long they will be
  obsolete. Dell build-to-order attributes take
  advantage of this characteristic.
• Banks transaction cost over Teller counters is
  critical (about 7 Bt./transaction) but with a
  mass number of customers who make basic
  transactions, bank then offers e-Banking,
  m-banking including e-branch with no tellers.

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• Build and Exploit Resources and Capabilities
  Resources that are scarce, difficult to imitate,
  and can make unusually high contribution to the
  value that customers perceive in a firms
  product.
• Ex. Honda Motor has a reputation for making
  high-performance, reliable engines. Honda
  develops and sells cars, motorcycles, lawn
  mowers, etc. that have reliable engines.
• 7-11 having developed the largest store network
  nationwide now expands its business from everyday
  grocery to counter services.
• Keep Costs Low Firms operational efficiency
  must be achieved inevitably.

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• Activities NOT to Perform
• Each time firm chooses one activity it is
  forgoing another activity to undo is costly
• Firm has limited resources choosing one
  activity some of its resources are tied up in
  that activities Opportunity Cost
• Firm may delegate some activities to other firms
  that are more specialized in performing that
  activities - Outsourcing

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• How to Perform Activities
• After deciding which activities to perform (doing
  the right things) firm is to decide how to
  perform them (doing things right).
• Process the patterns of interaction,
  coordination, communication, and decision making
  that a firm uses to perform the activities that
  transform its resources into customer value and
  position the firm to appropriate the value.

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• The appropriate processes are chosen in response
  to...
• Business System Activities
• Choose processes for each activity at each stage
• Cross-Functional and Cross-Firm Processes
• Process involves more than one stage of business
  system, and sometimes more than one firm or
  country.

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• Process to Implement
• Like choosing which activities to perform, the
  criteria for choosing processes to implement must
  have the potential to enable a firm to
• Attain and maintain the right position
• Take advantage of industry factors
• Better build and exploit its resources
• Keep its costs low irrespective of whether the
  firm pursues a low-cost or differentiation
  strategy

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• Business System Activities
• If firm chooses to perform activities in every
  stage of business system (else, outsourcing)
• RD
• Product Design
• Manufacturing/Operations interact with
  suppliers work closely or fight over cost, etc.
• Marketing/Sales
• Distribution to own channels or not or whether
  to develop new channels
• Customer Services/Support

114

• Cross-Functional and Cross-Firm Processes
• If processes involve more than one stage of
  business system
• TQM get things right the first time and keep
  improving.
• Benchmarking inside and outside industry
• Business Process Reengineering rethinking the
  whole system

115

• When to Perform Activities
• First-Mover Advantage
• Windows of Opportunity
• Timing Options in each business system
  activities

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• Conclusions
• Business modeling involves which, how, and when
  activities are to perform.
• Started by firms competitive strategy
  value-rendering activities are designed.
• Processes to perform activities then are
  immediate.
• Taking right timing to perform.

117

• Case Example Wal-Mart vs Kmart
• (both founded in 1962 Wal-Mart has become the
  world largest company while Kmart has filed for
  bankruptcy)
• Wal-Marts strategy is on locating store in the
  small towns.
• Kmarts strategy is on locating store in the
  cities.

118

• Resources and Capabilities Analysis
• Resources or Assets both tangibles and
  intangibles
• Capabilities Competences or firms ability to
  transform its resources into customer value and
  profit.

119

• Assessing the profitability potential of
  resources VRISA Analysis
• (Customer) Value Does the resource provide
  customers what they value?
• Rareness (Uniqueness) Are you the only one with
  that capability? If not, are you better or worse
  than competitors?
• Imitability Is it easy for other firms to
  acquire the resources?
• Substitutability Are there any other resources
  that can offer the same value to customers?
• Appropriability Can you make money from it?

120

• Examples Wal-Marts Location in Small Towns
• Attributes Key Question Answer
• Value Does Wal-Marts location in
  Yes, customers can buy
• small towns provide customers low-cost
  merchandise
• what they value? close to home.
• Rareness Is Wal-Mart the only one
  with Yes, its price are lower
• this resource? If not. Is it better? than
  competitors.
• Imitability Is it easy for other firms to
  No, it is hard for others to
• acquire Wal-Marts location come in and
  build similar
• advantage? stores and distn centers.
• Substitutability Can other resources offer
  Yes, for some products
• customer the same value? via
  e-commerce.
• Appropriability Does Wal-Mart make money Yes,
  there are few rivals,
• from its location in small and Wal-Mart has
  power
• towns? over suppliers.

121

• Examples Pfizers Knowledge for making Lipitor
• Attributes Key Question Answer
• Value Does Pfizers knowledge of Yes, Lipitor
  reduces bad
• making Lipitor drug give cholesterol in many
• customers what they value? customers.
• Rareness Is Pfizer the only one with No, but
  Pfizers Lipitor is
• this resource? If not. Is it better? better
  than competitors.
• Imitability Is it easy for other firms to No,
  Pfizer holds patent
• acquire Pfizers knowledge? for its Lipitor
  that will exclude others imitation.
• Substitutability Can other resources offer Yes,
  but so far Pfizers
• customer the same value? Lipitor offers the
  best
• benefit.
• Appropriability Does Pfizer make money Yes,
  suppliers and
• from its knowledge of making customers have
  not
• Lipitor? been very powerful..

122

• Examples Southwest Airlines Network of
  Uncongested Airports
• Attributes Key Question Answer
• Value Does Southwests network of Yes,
  passengers can select uncongested airports
  provides from more frequent flights,
• customers what they value? low price, on time,
  and
• a lot of parking spots.
• Rareness Is Souhtwest the only one with Yes,
  Souhtwest has largest
• this resource? If not. Is it better? network
  with uncongested
• airports (largest slots).
• Imitability Is it easy for other firms to No, it
  is difficult to replicate
• acquire Souhtwests network Souhtwests
  complete advantage? network.
• Substitutability Can other resources offer No, it
  is hard to offer what
• customer the same value? Souhtwests complete
• network can provide.
• Appropriability Does Souhtwest make money Yes,
  suppliers customers
• from its network? do not have much power.

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• Competitive Consequences of Resource
  Characteristics
• Characteristics of Resources Competitive
  Advantage
• V R I S A Consequence
• ? ? ? ? ? Sustainable C. A.
• ? ? ? ? ? Temporary C. A.
• ? ? ? ? ? Temporary C. A.
• ? ? ? ? ? Temporary C. A.
• ? ? ? ? ? Competitive parity
• ? ? ? ? ? Competitive
  disadvantage

124

• Executing a Business Model
• Structure organizational structure firm uses to
  effect differentiation, integration, and
  coordination functional, M-form, matrix,
  project, and network
• Systems and Processes performance measures,
  rewards, and information flows.
• systems spell out how the performance of
  individuals, groups, etc. is monitored.
• People culture and types of people
• Environment

125

• What are left for further studies
• Innovation, Sustainability, and Change
• Analyzing the Costs of Business Model
• Analyzing the Sources of Profitability and
  Competitive Advantage in a Business Model (7 Cs)

126
Rest Stop Reviewing the Concepts

• Explain companywide strategic planning and its
  four steps.
• Discuss how to design business portfolios and
  growth strategies.
• Explain marketings role in strategic planning
  and how marketing works with its partners to
  create and deliver customer value.
• Describe the elements of a customer-driven
  market-ing strategy and mix, and the forces that
  influence it.
• List the marketing management functions,
  including the elements of a marketing plan and
  discuss the importance of measuring/managing
  marketing ROI.