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Creating and Sharing Value: The Cornerstone of Business Marketing Management

Creating and Sharing Value: The Cornerstone of Business Marketing Management. James A. Narus, Ph.D. Babcock Graduate School of Management Wake Forest University Suite 150, One Morrocroft Centre Charlotte, NC 28211-3551 USA +1.704.365.6717 (telephone) +1.704.365.3511 (fax)

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Creating and Sharing Value: The Cornerstone of Business Marketing Management

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  1. Creating and Sharing Value:The Cornerstone of Business Marketing Management

  2. James A. Narus, Ph.D. Babcock Graduate School of Management Wake Forest University Suite 150, One Morrocroft Centre Charlotte, NC 28211-3551 USA +1.704.365.6717 (telephone) +1.704.365.3511 (fax) jim.narus@mba.wfu.edu (e-mail)

  3. Thinking About Value Valueis the worth in monetary terms of the net economic, technical, service, and social benefits a customer receives in exchange for the price it pays for a market offering.

  4. Thinking About ValueBasic Considerations In general, customer firms pay pricenow and gain valuelater.

  5. Fundamental Value Equation VA - PA > VB - PB where, • V = the net benefits (i.e., benefits minus cost-of-use) associated with a supplier’s market offering • P = the net price a customer firm pays for a supplier’s market offering

  6. Understanding Customer ValueBasic Considerations A customer’s incentive to buy (CIB) or the market driving force is: VA - PA A customer will prefer offering A when: VA - PA > VB - PB If suppliers and/or customers don’t understand value, CIB reduces to: PA < PB

  7. Customer Value Management Tailor Market Offerings Conceptualize Value Profit from Value Provided Formulate Value Propositions Substantiate Value Propositions Transform Sales Force to Value Merchants

  8. Customer Contribution to Profitability Customer Willingness to Pay Cost to Serve Customer Gain a Price Premium Secure a More Profitable Mix of Business Grow a Greater Share of Customer’s Business Eliminate Value Drains & Value Leaks Profit from Value ProvidedThe Profit Strategy Pyramid

  9. Goals Strategies Gain a Price Premium Solutions Customer Willingness to Pay Secure a More Profitable Mix of Business Multiple Single Sourcing Grow a Greater Share of Customer’s Business Bundles Cost to Serve Customer Eliminate Value Drains & Value Leaks Transaction Process Management Profit from Value Provided

  10. Profit from Value ProvidedDefinitions • Solution – a complementary group of products and/or services engineered to meet customer requirements and sold for a premium price. • Multiple Single Sourcing – contract to exclusively provide most profitable solutions to one customer location. • Bundle – an unrelated group of products and/or services consolidated for a customer and sold at a discounted price. • Value Drain – a feature or benefit which costs the supplier more to provide than the customer is willing to pay. • Value Leak – customer processes that needlessly increase the cost of doing business.

  11. Profit from Value ProvidedAcademic Research Questions • How can firms maximize customer contribution as a function of the type of working relationship? • Should customer contribution strategies vary as a function of relationship life cycle? • When should a supplier strive to reduce a partner’s total cost of ownership versus enhancing their revenue streams? • Under what conditions is it more profitable to sell bundles versus solutions? • When should a supplier seek to improve the value-added by a customer’s product versus reducing the customer’s operating costs?

  12. Profit from Value ProvidedPotential Academic Hypotheses H1: For collaborative accounts, solutions and multiple single sourcing strategies will yield greater customer contribution to profitability than bundles and transaction process management strategies. H2: For transactional accounts, bundles and transaction process management strategies will yield greater customer contribution to profitability than solutions and multiple single sourcing strategies.

  13. Profit from Value ProvidedPotential Academic Hypotheses H3: During the exploration phase of the relationship life cycle, bundles and transaction process management strategies will yield greater customer contribution to profitability than solutions and multiple single sourcing strategies. H4: During the maintenance phase of the relationship life cycle, solutions and multiple single sourcing strategies will yield greater customer contribution to profitability than bundles and transaction process management strategies.

  14. References • James C. Anderson, Nirmalya Kumar, and James A. Narus, Value Merchants, Boston, MA: Harvard Business School Press, 2007). ISBN-13: 978-1-4221-0335-7. • James C. Anderson, James A. Narus, and Wouter van Rossum, “Customer Value Propositions in Business Markets,” Harvard Business Review, (March 2006): 90-99. • James C. Anderson and James A. Narus, “Selectively Pursuing More of Your Customer’s Business”, MIT-Sloan Management Review, (Spring 2003): 42-49. • James C. Anderson and James A. Narus, “Business Marketing: Understand What Customers Value,” Harvard Business Review, (November-December 1998): 5-15.

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