What is the Value in Business Markets?

1. Monetary terms: dollar per unit, euros

per liter…

2. Economic, technical, service and social

Benefits: Net benefit

3. Exchange: what a customer firm gets in

exchange for the price it pays.

When does a value change?

a. when Customer’s price changes

as functionality or performance

remain the same.

b. Functionality or performance

changes as price remains the

same.

Customer incentive to purchase

Customer incentive to purchase is

the difference between value and

price.

Business market Process

“A collection of activities that

takes one or more Kinds of input

and creates an output that is of

Value to the Customer.

Can you describe how to use the busi-

ness product/ service?

-Used to manufacture other products

-Become part of other products

-Aid in the normal operations of an or-

ganization

-Are acquired for resale without change

in form.

What are customer drivers? -Are Factors that influence your decision -Offering (tangible +intangible)< price: =Tangible: Product + service +revenue (Eg. Automated, Accurate, quick, safe, good service) =Intangible: Knowledge and benefits (Qual-ity=taste, prestige, trendy). Business success: i.e. increase market

share and loyalty while maintaining/im-

proving profitability.

What are the main steps to evaluate/measure offering alternatives? 1. Identify market offering and next-best alternative 2. List all value and price elements the market offering delivers (all bene-fits And/or cost elements that a market offering provides or affects in the customer’s Usage system. These benefits and cost elements may be technical, economic, service or social in nature) 3. Categorize difference of value and price elements relative to next-best alternative in terms of: 1.Points of Parity, 2.Points of Difference 3.Points of Contention 4. Focus on points of difference. Points of contention may surface 5. Write word equations for each quantifiable point difference. 6. Gather data and assumptions

Customer Value analysis To be successful, businesses need useful and practical ways to

• capture customer needs • measure how well they’re satisfying those needs compared to the competition • Build action plans to be able to deliver this value

Customer Value Assessment Process (3 steps below)

Market Sensing: generating knowledge

about the market that individuals in busi-

ness use to inform and guide their decision

making.

.

Knowledge Management: processes and sup-

porting systems firms use to gather know-how,

best practices, and learning that potentially has

value elsewhere in the firm, convert them into a

form that can be readily found and understood,

and then made accessible for reuse more broadly

within the firm.

Market Segmentation: Partitioning a market into

groupings of firms that have similar requirements

and preferences for market offerings within each

grouping and relatively different requirements

and preferences between groupings

Measurable?-Can the size, growth, and market

potential of a segment be measured?

Profitable?-How profitable is the marketing ef-

fort likely to be? What is the payoff from each

segment?

Accessible?-Can segments be identified and

reached successfully?

Actionable?-Can effective marketing and sales

programs be formulated for attracting and serv-

ing the segment?

Market Potential: identifies the maximum units of a defined product

or service capable of being purchased within a geographic area during

a designated time period

Total Market Demand: a prediction of the actual number of units that

will be purchased. 4 steps to determine TMD.

1.Define the market,

2. Divide total industry demand into its main components,

3. Forecast the drivers of demand in each segment and project how

they are likely to change,

4. Conduct sensitivity analyses to understand the most critical assump-

tions and to gauge risks to the baseline forecast

Knowledge about competitors used in:

1)Crafting their own market strategy, 2)Anticipating competitor’s reactions

to their strategy, 3)Deciding what reactions to make in response to competi-

tor's action in the market

Value Assessment: work process of obtaining an estimate of the

worth in monetary terms of some present or proposed market offer-

ings or elements of it.

Phase 1-Conceptualize Value

Phase 2-Formulate and Substantiate value prop-

osition

Phase 2- to both formulate and substantiate the VP

it is important to be able translate.

Phase 2

Role of customer feedback

-Can remedy problems and retain a customer’s

business

-Provides early warning of changing customer re-

quirements and preferences

Feedback from three distinct customers:

New Customers, Established Customers and Cus-

tomers that recently stopped doing business

Overall Customer Satisfaction: represents a cu-

mulative evaluation of a firm’s market offering,

rather than a person’s evaluation of a specific

transaction

Understanding Firms as Customers: process of

learning how companies rely on a network of sup-

pliers to

-add value to their offerings

-integrate purchasing activities with those of

other functional areas and outside the firms

-make purchase decision

Purchasing: process of acquiring resources and

capabilities for the firm from outside providers

Purchasing Orientation: philosophy that guides

managers who make purchasing-related decisions

and delineates their domain and span of influence

Buying orientation

Central Pursuits:

-Obtain the best combination deal: price, qual-

ity, and supplier availability

-Maximize power over suppliers

-Avoid Risk whenever possible

Procurement orientation

Firm seeks to increase productivity through:

-Improving quality

-Reduced total cost of ownership

-Cooperating with suppliers

Total cost of ownership:

applies activity-based costing (ABC) concepts

and methods to quantify all expenses related to

the use of a product or service apart from price.

Learning the Customer’s Purchase

Process

Straight Rebuy: a problem or need

that is recurring or continuing re-

quirement. Buyers have experience

in the area.

New Task: a perceived problem or

need that is totally different from

previous experience. Buyer need

significant amount of info.

Modified rebuy: decision makers

feel there is benefit of reevaluation.

(Eg. Dissatisfaction with the sup-

plier)

The buying Organization, What are the roles in a buying center?

How do the organizational forces linfluence

the buying process

1. Type of organization

2. Size of organization

3. Structure of organization

4. Organization culture and procurement strat-

egy

Crafting a Market Strategy:

-Studying how to exploit a

business’s resources to

achieve short-term and long-

term marketplace success

-Deciding on a course of ac-

tion

-Flexibly updating it as learn-

ing occurs

Operational effectives: is defined as performing similar activities better than rivals perform them. Strategy: is defined as the creation of a unique and valuable position involving a different set of

activities

Core competence:

something a firm

does particularly

well.

Distinctive compe-

tence: something a

firm does better

than competitors.

Resource-based view

Resources are anything that generate greater value for a firm. Eg. Technical know-how

equipment, staff and capital.for a resource to

be a source of competitive advantage it has to pass 5 market tests; 1. Inimitability (how difficult the resource is to copy or the length of time of copying it) 2. Durability (How long the resource will last) 3. Appropriability (To what extent competitor can capture the value) 4. Substitutability (To what extent different resources can provide same performance) 5. Competitive superiority (How does the re-source compare to competitors’)

Options for market strategy

Defensive: Aim to retain present cus-

tomers and strengthen what already

strengths.

Offensive: Aim to gain new customers

and focus on own weaknesses

Alternative: composite of both

Fundamental value-based strategies, know where your business stands in

this model

Product Leadership:

-Relentless pursuit of innovation

Customer Intimacy:

Segmenting and targeting markets and tailoring offerings to match demands

of those niches

Operational Excellence:

-Providing customers with reliable products or services at competitive prices

and delivered with minimal difficulty

Core Competencies

Determining firm’s core competencies:

1. Provide potential access to a wide variety of market

2. Make significant contribution to the perceived customer benefits of the

end-product

3. Difficult for competitors to imitate.

Constructing Strategy

What do we know: Review recent per-

formance, Gather essential market info,

Construct scenarios

What do want to accomplish? Setting

goals(longer term strategic direction)

and objectives(near-term more measura-

ble standards)

Customer Value proposition

How will we do it:

Develop an Action Plan(Translates the mar-

ket strategy into the coordinated activities

and specific resources the firm will use to at-

tain what it wants to accomplish)

-Develop a Sales and Marketing Program

-Take Stock of Implementation Skills

-Learn and Adapt

Steps to create value for targeted segment?

Market offering

-Core product

-Minimally augmented

products

-Augmented product

-Potential Product

Flexible market offering

Service element deployment is important as it allows

choices to be made

Implement flexible marketing

Option Menu: The option menu approach makes

the flexible market offering transparent to the

customer by listing all optional elements. The cus-

tomer has the primary responsibility for tailoring

the market offering to its perceived requirements. Tailored Package: keeps the flexible market offer-

ings unexpressed to customers. Working with the

customer, the salesperson develops a list of speci-

fications and then crafts an offering based on a

menu of options than only she sees.

Branding Strategy

A brand is a descriptor of the promised value

that a market offering delivers to target cus-

tomers and a means of differentiating this

value from that of other offerings.

Business types

Product business

-No supplier insecurity

-No buyer insecurity

-Single transition

-Market segmentation

=Commodity market: Product business in

markets with low level of innovation

-Strong competition-price policy important

-Product differentiation hard to achieve

Pricing

Specialty market: Products

business in markets with low

level of standardization.

-Market can be shaped with

innovative offers

Price:

-Pricing power is considera-

bly larger

Limited comparability of

products, no direct compa-

rable market price.

-Large scope of settingprice-

value pricing

Willigness to buy

The buying organization determines ist wil-

ligness to pay

Project Business

-Passive acquisi-

tion

-Active acquisi-

tion behavior

-handover project to

owner

-settlement of punch

list

-Manage claims

for change

-Provide agreed

performance

Negotiation

Team:

-who is negoti-

ating

-How to nego-

tiate

-what is nego-

tiated()tech-

nical aspects.

Quotation

phase: Sub-

phases(budg

et inquiry,

budget ten-

der, Firm in-

quiry, Firm

tender)

OEM Business(Original Equipment Manufacturer):

a company whose products are used as compo-

nents in another company’s product

-Supplier insecurity

-Buyer insecurity

-Re-buy

-Individual buyer

Characteristics of OEM

-Long-term r/ship, customer becomes dependent.

-substitution of business partner is difficult

-Long-term interdependency

How can you manage the busi-

ness relations?

1. Entering business r/ship

2. Sustaining business r/ship

3. Termination of business/ship

Supplier selection

-Innovation potential

-Customer integration potential

-Flexibility potential

Market activities in the selection

phase

-Adapting concepts: Alignment of

customer’s requirement

-other concepts:Active influence

of customer needs by sharing

own ideas.