Marketing and Customer Value

Customer Value is the sum total of benefit that customers will accrue from a service or product in relation to its cost. The Customer Value Proposition (CVP) would be the total amount of benefits offered by the seller in return of payment for the goods or services.

It is a defined statement that is formulated to convince customers that this particular product will add more value than competitor’s product. Conceiving and delivering excellent customer value is most essential for all kinds of business organizations in today’s competitive business environment.

Delivering value requires a deep insight into the art of value creation, by choosing the best value for its customers and delivering that value in an effective and efficient manner.

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Value Delivery Process

Marketing was taking place during the selling process. As different individuals have specific wants, perceptions, preference and buying criteria, a smart company must design and deliver offerings for well defined target markets.

This inspired a new view that marketing should take place at the beginning of planning. Companies instead of emphasizing on making and selling, should now see themselves as a value delivery process.

Value Creation and Delivery sequence should be divided into three phases are:

First Phase

Before any product comes into the market, marketer must segment, target the market and develop the offerings value positioning.

Second Phase

Marketer must identify the specific features of product, price and distribution.

Third Phase

In the third phase marketer must communicate the value of the product through various means. The value delivery process begins before the product exists, continues through development and after launch. Each phase has cost implications.

Core Competencies

C. K. Prahlad and Gary Hamel” were the first to establish this business concept in 1990. According to them, it is a unique set of skills and resources that a company is able to utilize more effectively and efficiently than its market competitors. In a nutshell, core competencies are what make a company stands out from the crowd.

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Strategic Planning

Strategic Planning is a systematic process of predicting the long term goals of an organisation and identifying the best approach for achieving it. Preparing effective marketing strategies requires understanding of the strategic planning process corporate policies, objectives, and business plans.

A strategic plan defines the organisations strategy. The existing situation and possible opportunities need to be analysed to determine the right direction for the organisation. This has to be done along with the firm’s competencies, its competitive advantage, its weaknesses, and the business that they want to be in.

Strategic plan, where the most significant decisions are taken, helps keep firms well ahead of competition and to realise its mission in the long run as well as the firm’s well–being and growth.

Stages of Strategic planning process

The strategic planning process is a systematic approach that organizations use to define their strategies, make decisions, and allocate resources to achieve long-term objectives. While specific models and terminologies might vary, the following are the common stages involved in the strategic planning process

• Defining the business
  
• Defining the mission statement
  
• Setting up Strategic Business Units (SBUs)
  
• Environmental scanning
  
• Strategy formulation

Defining the Business

Defining the firm’s business is the focal point of strategic planning. It is a crucial factor that enables the firms in selecting appropriate opportunities for leading the firm in the right direction. Management experts Peter Drucker and Theodore Levitt stressed on the basic questions which every firm needs to find answers to. That has to be done on a continuous basis.

What business are we in ? Whom do we intend to serve ? Do we accurately define our business ? Do we know our customers ? What brings us to this particular business ? What would be the nature of this business in future ? What business would we like to be in future ? What are our basic strengths and competencies to pursue the current business or enter into a desired business ?

The Strategic Planning, Implementing and Controlling Process

Once the business is defined, the next step
would be to define the organisation missions.

Defining the Mission Statement

A mission statement defines the purpose of the company’s existence. The mission statement should be able to guide the actions of the organization, set its overall objectives, provide a route map, and guide decision–making. The mission provides a framework, on the basis of which the company’s strategies are formulated.

Every organisation develops its unique mission statement which it communicates to its stakeholders, so that they can understand the purpose of firm’s existence.

A common mission statement provides a sense of integration within the organisation and emphasises focus on realising the organisational goal. Mission statements are again guided by the vision of the organisation. Vision is what the organisation wishes to achieve over a period of time, say in two decades.

Examples of Mission statements

“McDonald’s vision is to be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.”

“Amazon’s vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.” Apple is dedicated to making innovative, high–quality products. Ideally Mission statements should focus on fewer goals and should.

define firms major areas needing focus. Mission statements usually remain unchanged over a period of time and would generally be changed only when it loses its credibility or significance.

Corporate objectives of the firm are guided by its mission statements. Once the mission statement has been defined, the organisation can then plan to set up its Strategic Business Units (SBUs).

Setting up of Strategic Business Units (SBUs)

SBUs are essentially for multi–product organizations. SBU can be defined as an independent organizational unit, small enough to be flexible and large enough to have a control over most of its activities and decisions. A SBU can also be called a profit center or responsibility center that concentrates on a particular product offering for a particular market segment. They typically have an independent marketing plan, competition analysis, and marketing campaign, though they may be a part of a larger business organization.

Generally SBU’s would display the following characteristics

• It could be a set of businesses which can operate separately from the rest of the organisation.
  
• It has its own competition.
  
• It has separate manager who is responsible for the overall functioning, decision making, strategic planning, performance and profit management of the firm.

Once the strategic business units are set, the organisation would go in for the environmental scanning to find out the opportunities and threats that existing, as well to uncover the strengths and weaknesses that lie within the organisation.

Environmental Scanning

No firm can function in isolation; it operates in an environment known as the business environment, consisting of various factors that influence the business policies and decisions. The business environment can be divided into : Internal environment and External environment.

Internal environment are internal to the firm and would consist of the factors such as internal policies of the firm, the management, its employees etc.

An external environment would be external to the firm and would consist of factors such as the competitors of the firm, market, consumers, technology, government policies etc. The external environment can be further divided into micro and macro environments. The overall environment has a significant impact on the strategies of an organisation, many times the changes in the environment determines.

or leads to changes in its strategic plans. The external and internal environment when scanned thoroughly reveals available opportunities, hidden threats, its own weaknesses and competitiveness/ strengths. Once the environmental scan is carried out, the firm is in a position to formulate its strategies.

Strategy Formulation

Organizations have a hierarchy of interrelated strategies, with different strategies formulated for different levels of the organization.

• Corporate Strategy
  
  
• Business Unit Strategy
  
  
• Functional Strategy

Corporate Strategy

Is concerned with meeting the stakeholder expectations and delivering value to the stakeholders, mainly influenced by investors in the organisation and acts as a guideline for strategic planning throughout the organisation. Corporate strategy is often incorporated in a “mission statement”.

Business Strategy

Is more concerned with the functioning and competitiveness of a business for a particular market. It would usually be concerned with strategic decisions regarding the choice of products, delivering customer value, gaining competence, finding and exploring or generating new opportunities.

Functional strategy

Is concerned with how each functional area is organized to deliver the corporate and business–unit level strategic direction. Under functional strategy we would concentrate on marketing strategy.

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Marketing Planning

The marketing planning process steps are:

• Goal setting.
  
  
• Scanning the market environment and analyzing of market opportunities.
  
  
• Internal scanning.
  
  
• Developing Marketing Objectives.
  

Goal setting

As mentioned earlier, marketing strategy is derived from the business strategy as well as the corporate strategy. Marketing objectives would be set according to the goals that have been set at the higher hierarchies.

For example

If the corporate objective of the firm is to maximise the market share then the marketing objective would also focus on achieving the same objectives.

Scanning the Market environment for finding opportunities and threats

The major reason market scan is done is to find the opportunities and threats that exists in the environment. The scanning done in strategic planning and marketing planning are almost similar.

The major difference being that the marketing scanning involves scanning the environment of a specific business unit with a specific business purpose, whereas environmental scanning under strategic planning would entail the overall environment of the organization.

The business unit would analyses the environment and gather marketing information. It would also assess opportunities existing in the environment, study consumer behavior and product in question. A vital aspect in environmental scanning is to understand the competition and all factors on competition.

Other than the competition itself, there are other important factors too that shape the competition. Porter in his article (1979) has suggested five major forces that shape and decide the nature and intensity of competition.

• Existing competition
  
  
• Threat of new entrants
  
  
• Threat of substitute products
  
  
• Bargaining power of customers
  
  
• Bargaining power of suppliers
  

The intensity of competition depends on the size of the entrants, bigger the new entrants, the more intense would be the competition. A threat of substitute products with an improvement in its performance or price differentiation can change the industry’s competitive scenario.

Collusion of customer groups can gain considerable bargaining power as to exert pressure on the organization regarding quality, price and output of the products. The same would hold true for suppliers where the sources of supply are limited and product supplied are specialized in nature.

Internal Scanning

Internal scanning is done to analyses the firm’s competencies and weaknesses. The firm needs to find where its competitive advantages.

lies, whether it’s the product design, service or distribution. This evaluation is required in order to ascertain how equipped a firm is to face the market competition.

Developing Marketing Objective

The next step is formulation of marketing objective. The broad outline of marketing objectives would be derived from the corporate objectives of the related business. Corporate strategy would have already defined the direction for each business. Once the marketing planning is done, the next step would be developing the contents of a marketing plan.

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Marketing Plan

A Marketing Plan is a brief summary of objectives and recommendations. It may be part of an overall business plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of no or little use.

The Contents of a marketing plan are:

Executive Summary

It is a brief summary of major objectives and recommendations, giving the management an overall view of the major purpose of the plan. (Table of content would follow the executive summary).

Situational Analysis

It portrays the significant data on sales, costs, profits, markets, competitors etc. This data is further used for doing the SWOT analysis (Strength, Weaknesses, Opportunities and Threats).

SWOT Analysis

The management needs to evaluate the opportunities in SWOT analysis and any factors affecting achievement of objectives.

Objectives

This stage outlines the financial and marketing objectives like sales volume, market share, profitability etc.

Marketing Strategy

Here the target segments are defined for whom the market offering is focused on. The products positioning is planned with the help of input received from related functional areas such as purchase, finance, sales departments.

Action Program

(The operational marketing plan itself, for the period under review) the marketing program is specified which would be used to achieve the set objectives.

Financial Forecast

It would generally be the overall budgeting – on the revenue side the sales forecast and average price would be depicted, on the expense side it would show the estimated expenses. The difference between revenue and expenses would be the estimated profit.

Controls

This final stage of the marketing plan would outline controls for monitoring the implementation of the plan. There would be a periodic review of the results and corrective measures would be recommended as required.

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Formulating Marketing Strategy

The marketing strategy would be a proper outline of the game plan of the organization.

Main elements involved in formulating the marketing strategy are

• Selecting the Target Market
  
• Formulating the Marketing Mix

The essence of marketing strategy of a firm is felt from its target market and marketing mix. The target market would be to whom the firm intends to cater and the marketing mix would determine how the products will be offered to the target market.

Selecting Target Market

Target market is the market that one would want to cater to. Selecting the target market is a significant part of developing a marketing strategy.

Marketing Mix

Can be defined as the effective combination of the Ps of marketing to formulate a unique selling proposition for the product. Every firm would have a different combination of the marketing mix as per its individual requirements.

Marketing Mix can be defined as the effective combination of the Ps of marketing to formulate a unique selling proposition for the product. Every firm would have a different combination of the marketing mix as per its individual requirements.

Marketing Mix is also known as the 4 Ps of Marketing – Product mix (eg, frozen foods along with a variety of fresh fruits), Place mix (eg, chain of whole–sellers, retailers, along with events), Price mix (eg, extra filled packs, say 20% extra, along with special promotional price for trials) and Promotion mix (eg, above–the–line, say TV, along with below–the–line promotions, say direct mail or events).

Additional 3 Ps of marketing applicable to services – Physical evidence, People and Process Every business due the difference in its nature and situation uses different marketing strategy styles, which ever best suits them. There are four broad strategy types which are used by firms as follows :

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Types of Marketing Strategies

There are some marketing strategie :

Market Leader Strategy

Market leader strategy is also known as offensive or confrontation strategy. Generally employed by firms who are currently not the leaders in the market but aspires to be the market leader. The firm tries to expand his market share by using all the marketing mix elements, the target of attack would be the market leader.

The firm tries to expand its market and increase its consumer base by offering competitive prices, superior service, improving quality of products,enhancing features of its existing products, finding new uses of existing products or by entering newer market segments.

The firm tries to expand its market and increase its consumer base by offering competitive prices, superior service, improving quality of products,enhancing features of its existing products, finding new uses of existing products or by entering newer market segments.

Market Challenger – Marketing Strategy

This strategy would focus on gap analysis. The gap analysis can be done by comparing the performance of competitors existing products in the market with the actual expectation of the consumers regarding the product.

The firm can then strive to bridge the gap by providing products as per customers’ expectation leading higher customer satisfaction levels. In this strategy, competitors’ weaknesses are taken as opportunities for the firm.

Niche Market – Marketing Strategy

Niche markets are small differentiated markets where no other firms have thought of entering into. Generally these markets are too small to attract large number of competitions. Niche may serve some specific customer or some specific area. Eg., companies focused on adventure sports, trekking; or travel companies concentrating on a specific segment of pilgrims.

Market Follower – Marketing Strategy

The market follower depends on its competitors to identify markets. As a follower, the firm needs to be keen on its competitor’s weaknesses and try improving on them. This marketing strategy saves the firm on cost arising from having to carry out research because it only has to work on its competitors weaknesses to better its products.

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FAQ