Marketing and Customer Value

The task of any business is to deliver customer value at a profit. A company can win only by fine-tuning the value delivery process and choosing, providing, and communicating superior value to increasingly well-informed buyers.

1. THE VALUE DELIVERY PROCESS

The traditional—but dated—view of marketing is that the firm makes something and then sells it, with market­ing taking place during the selling process. Companies that take this view succeed only in economies marked by goods shortages where consumers are not fussy about quality, features, or style—for example, basic staple goods in developing markets.

In economies with many different types of people, each with individual wants, perceptions, preferences, and buying criteria, the smart competitor must design and deliver offerings for well-defined target markets. This realization inspired a new view of business processes that places marketing at the beginning of planning. Instead of emphasizing making and selling, companies now see themselves as part of a value delivery process.

We can divide the value creation and delivery sequence into three phases.² First, choosing the value is the “homework” marketers must do before any product exists. They must segment the market, select the appropri­ate target, and develop the offering’s value positioning. The formula “segmentation, targeting, positioning (STP)” is the essence of strategic marketing. The second phase is providing the value. Marketing must identify specific product features, prices, and distribution. The task in the third phase is communicating the value by utilizing the Internet, advertising, sales force, and any other communication tools to announce and promote the product. The value delivery process begins before there is a product and continues through development and after launch. Each phase has cost implications.

2. THE VALUE CHAIN

Harvard’s Michael Porter has proposed the value chain as a tool for identifying ways to create more customer value.³ According to this model, every firm is a synthesis of activities performed to design, produce, market, deliver, and support its product. Nine strategically relevant activities—five primary and four support activities— create value and cost in a specific business.

The primary activities are (1) inbound logistics, or bringing materials into the business; (2) operations, or converting materials into final products; (3) outbound logistics, or shipping out final products; (4) mar­keting, which includes sales; and (5) service. Specialized departments handle the support activities—(1) procurement, (2) technology development, (3) human resource management, and (4) firm infrastructure. (Infrastructure covers the costs of general management, planning, finance, accounting, legal, and government affairs.)

The firm’s task is to examine its costs and performance in each value-creating activity, benchmarking against competitors, and look for ways to improve. Managers can identify the “best of class” practices of the world’s best companies by consulting customers, suppliers, distributors, financial analysts, trade associations, and the media to see who seems to be doing the best job. Even the best companies can benchmark, against other industries if necessary, to improve their performance. GE has benchmarked against P&G as well as developing its own best practices.⁴

The firm’s success depends not only on how well each department performs its work, but also on how well the company coordinates departmental activities to conduct core business processes.⁵ These processes include:

• The market-sensing process—gathering and acting upon information about the market
• The new-offering realization process—researching, developing, and launching new high-quality offerings quickly and within budget
• The customer acquisition process—defining target markets and prospecting for new customers
• The customer relationship management process—building deeper understanding, relationships, and offer­ings to individual customers
• The fulfillment management process—receiving and approving orders, shipping goods on time, and collect­ing payment

Strong companies are reengineering their work flows and building cross-functional teams to be responsible for each process.⁶ Ford established a cross-functional team to help reduce water usage per vehicle by 30 percent.⁷ AT&T, LexisNexis, and Pratt & Whitney have reorganized their employees into cross-functional teams; cross­functional teams operate in nonprofit and government organizations as well.⁸

A firm also needs to look for competitive advantages beyond its own operations in the value chains of suppli­ers, distributors, and customers. Many companies today have partnered with specific suppliers and distributors to create a superior value delivery network, also called a supply chain.

3. CORE COMPETENCIES

Companies today outsource less-critical resources if they can obtain better quality or lower cost. The key is to own and nurture the resources and competencies that make up the essence of the business. Many textile, chemical, and computer/electronic product firms use offshore manufacturers and focus on product design and develop­ment and marketing, their core competencies. A core competency has three characteristics: (1) It is a source of competitive advantage and makes a significant contribution to perceived customer benefits; (2) It has applica­tions in a wide variety of markets; and (3) It is difficult for competitors to imitate.

Competitive advantage also accompanies distinctive capabilities or excellence in broader business processes. Wharton’s George Day sees market-driven organizations as excelling in three distinctive capabilities: market sensing, customer linking, and channel bonding.⁹ In terms of market sensing, Day believes tremendous opportu­nities and threats often begin as “weak signals” from the “periphery” of a business.¹⁰ He suggests systematically developing peripheral vision by asking three questions related to learning from the past, evaluating the present, and envisioning the future.

Businesses may need to realign themselves to maximize core competencies. Realignment has three steps: (1) (re)defining the business concept or “big idea”; (2) (re)shaping the business scope, sometimes geographically; and (3) (re)positioning the company’s brand identity. Peabody Energy implemented a new global organizational structure—creating geographic business units in the Americas, Australia, and Asia—to reflect its growing global footprint.¹¹ Changes in business fortunes often necessitate realignment and restructuring, as Panasonic and other Japanese technology and electronic companies found.¹²

PANASONIC As Panasonic approaches its 100th anniversary in 2018, it faces unprecedented difficulties, notably a massive loss of roughly $19 billion over 2011 and 2012. For years, its “Ideas for Life” positioning had fueled innovation, generating successful products like its rugged Toughbook notebook computers. Its television sets and other home electronics ran into trouble, however, when the economy stalled just as consumers began to treat flat-screen LCD televisions as a commodity. Further, a strong yen and high manufacturing costs in Japan made it difficult for Panasonic to compete on price. Anti-Japanese sentiment from a territorial dispute proved a stumbling block in China. Finally, the acquisition of Sanyo in 2009, designed to help the company sell more green-energy products, was disappointing. A major restructuring by new presi­dent Kazuhiro Tsuga in fall 2012 scaled back manufacturing in Japan, abandoned the mobile phone market overseas, and cut back investment in solar panels and rechargeable batteries. Tsuga emphasized that Panasonic will streamline business units and emphasize profit, not just revenue growth.

4. THE CENTRAL ROLE OF STRATEGIC PLANNING

Only a select group of companies have historically stood out as master marketers (see Table 2.1). These compa­nies focus on the customer and are organized to respond effectively to changing needs. They all have well-staffed marketing departments, and their other departments accept that the customer is king. They also often have strong marketing leadership in the form of a successful CMO (see “Marketing Memo: What Does It Take to Be a Successful CMO?”).

To ensure they execute the right activities, marketers must prioritize strategic planning in three key areas: (1) managing the businesses as an investment portfolio, (2) assessing the market’s growth rate and the company’s position in that market, and (3) establishing a strategy. The company must develop a game plan for achieving each business’s long-run objectives.

Most large companies consist of four organizational levels: (1) corporate, (2) division, (3) business unit, and (4) product. Corporate headquarters is responsible for designing a corporate strategic plan to guide the whole enter­prise; it makes decisions on the amount of resources to allocate to each division as well as on which businesses to start or eliminate. Each division establishes a plan covering the allocation of funds to each business unit within the division. Each business unit develops a strategic plan to carry that business unit into a profitable future. Finally, each product level (product line, brand) develops a marketing plan for achieving its objectives.

The marketing plan is the central instrument for directing and coordinating the marketing effort. It operates at two levels: strategic and tactical. The strategic marketing plan lays out the target markets and the firm’s value proposition, based on an analysis of the best market opportunities. The tactical marketing plan specifies the marketing tactics, including product features, promotion, merchandising, pricing, sales channels, and service. The complete planning, implementation, and control cycle of strategic planning is shown in Figure 2.1. Next, we con­sider planning at each of the four levels of the organization.

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.