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How market-driven management generates shareholder value ?

How market-driven management generates shareholder value ?. Professor J.J. Lambin. OUTLINE. What is market-driven management? How to create customer value? How customer orientation leads to growth opportunities? How customer value generates shareholder value?.

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How market-driven management generates shareholder value ?

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  1. How market-driven management generates shareholder value ? Professor J.J. Lambin Moscow - December 2004

  2. OUTLINE • What is market-driven management? • How to create customer value? • How customer orientation leads to growth opportunities? • How customer value generates shareholder value? Moscow - December 2004

  3. What is market-driven management? Is “market-driven management” really different from traditional marketing management ? Moscow - December 2004

  4. THE AMBIGUITY OF THE TERM “MARKETING” • Literally, ‘marketing’ means the process of going to the market. • The term places the emphasis on the “selling and promotional” activities of the commercialisation process. • Thereby, the importance of the “strategic thinking” activities tends to be underestimated. Moscow - December 2004

  5. THE MARKET ORIENTATION CONCEPTThree Components • CULTURE • ANALYSIS • ACTION Moscow - December 2004

  6. THE MARKET ORIENTATION CONCEPTThree Components • CULTURE A business philosophy at the core of a social market economy system,… …. emphasising the process of customer value creation,… …. as the best way for the firm to achieve its objectives of profit and growth. Moscow - December 2004

  7. THE MARKET ORIENTATION CONCEPTThree Components • CULTURE • ANALYSIS The strategic brain of the firm,… …used to identify profitable customer activity arenas in which to compete. (strategic marketing) Moscow - December 2004

  8. THE MARKET ORIENTATION CONCEPTThree Components • CULTURE • ANALYSIS • ACTION The commercial arm of the firm… ...used to conquer the target market segments (operational marketing) Moscow - December 2004

  9. THE MARKET ORIENTATION CONCEPTThree Components • CULTURE A state of mind . Corporate business philosophy. • ANALYSIS A set of analysis tools to understand the market. Strategic marketing. • ACTION A set of selling instruments (the 4Ps) Operational marketing Moscow - December 2004

  10. MARKET-DRIVEN MANAGEMENT Who is in charge ? Moscow - December 2004

  11. THE MARKET DRIVEN MANAGEMENTConditions of application • LIBERTY OF CHOICE Individual choice determines what is rewarding. • COMPETITIVE EXCHANGE Competition is the regulating mechanism. • SOCIAL COLLECTIVE PREFERENCES Externalities must be taken into account by the firm. Moscow - December 2004

  12. STRATEGIC MARKETINGTwo approaches • RESPONSE STRATEGIC MARKETING Find wants and fill them Innovations are “market pull”. • CREATIVE STRATEGIC MARKETING Find new ways to fill existing wants. Innovations are “supply-push”. Moscow - December 2004

  13. MARKET ANALYSIS R&D ACTIVITIES Cross-functional co-ordination Unfilled needs & wants New product ideas Is it feasible ? (response marketing) Is there a need ? (creative marketing) STRATEGIC MARKETING THE ROLE OF STRATEGIC MARKETING Moscow - December 2004

  14. EXAMPLES OF DISRUPTIVE INNOVATIONS IN MATURE MARKETS • The furniture market with Ikea. • The shoe market with Geox (ventilated soles) and Mephisto (shock absorber) • The airline market with, Virgin-Express, EasyJet, Ryan Air,… • The liquid food packaging market with Tetrapak. • The Kinepolis concept in the movie theater market. • The digital photography market with Sony, HP, Kodak,… Moscow - December 2004

  15. STAKEHOLDERS The Key Market Actors The General Case DISTRIBUTORS COMPETITORS CUSTOMERS (user, buyer, payer) PRESCRIBERS Moscow - December 2004

  16. The Market viewed as an Eco-system Competitors: Other customers: licensees, direct and substitutes aggregators ,... Prescribers Other stakeholders Manufacturers: direct customers Intermediaries: agents, wholesalers, retailers, ... End Suppliers customers Moscow - December 2004

  17. MARKET-DRIVEN MANAGEMENT (MDM)Its role in the firm For a firm operating in a market economy, the role of MDM is to design and promote, at a profit,value-added solutions to people and organisations problems. Moscow - December 2004

  18. 2. How to create customer value? Refer to customer’s generic needs and to the customer mental virtual market Moscow - December 2004

  19. THE VALUE APPROACHFROM THE CUSTOMER VIEWPOINT • What the customer buys and considers “value” is not the product, but the “result” or the service provided by the product. • The result sought by customers correspond to a generic need which is stable over time. • Technologies are fast changing, while generic needs remain unchanged. Moscow - December 2004

  20. WHAT BUSINESS ARE WE IN ?Examples of generic need definitions • We (Tetrapak) are selling ”liquid food conservation" solutions (...and not carton containers). • We (Automatic Systems) are selling "access control" solutions (...and not gates and doors). • We (General Motors) operate in the “personal mobility” market arenas (…and not simply in the car market). • We (IBM) are selling “global networking capabilities” ( ...and not only personal computers). • We (BP) are selling “integrated energy assurance” (… and not simply oil, gas and lubricants). Moscow - December 2004

  21. THE CONCEPT OFVIRTUAL MARKET 1.To achieve the generic result sought, customers engage in different activities, directly or indirectly related to the desired outcome. 2. A “mental virtual market” regroup all the activities undertaken by customers to achieve a specific generic result. 3. Thus, a virtual market represents an end-to-end temporal sequence of logically related activities in the cognitive space of customers. . Moscow - December 2004

  22. THE VIRTUAL MARKET OF KODAK Generic need: “managing and sharing memories” Previous Kodak Previous Kodak Involvement Involvement Take Take with customers with customers photos photos Edit Edit Archive Archive photos photos photos photos 0rder 0rder 0rder 0rder merchandise merchandise prints prints With photos With photos Make fliers Make fliers Make prints Make prints cards, brochures cards, brochures yourself yourself Put prints Put prints Email Email in photo album in photo album Share prints Share prints photos photos Create Create with family with family Electronic album Electronic album friends friends Source: Sawhney and others, 2004

  23. EXAMPLE OF THE DANISH LEGO COMPANY(1) • Consider Lego, the Danish toy company, In 1995, it had a worldwide construction –toy market share of 72%, in Europe its market share in that category was over 90. • But children were spending more spare time with computers, video games and television than with traditional toys. • So while Lego had been gaining market shares, toys in general and construction toys in particular had been losing their share of children’s spare-time activities Moscow - December 2004

  24. EXAMPLE OF THE LEGO COMPANY (2) • The need addressed by Lego, the Danish toy company, is “family edutainment”…. (education-entertainment) and not construction-toy market. • The generic need is defined as “...having fun and exercising the mind” • The Lego virtual market is a convergence of toys, education, interactive technology, software, computers and consumer electronics. Moscow - December 2004

  25. CHARACTERISTICS OF A VIRTUAL MARKET 1. In a virtual market, the activities generally cut across traditional industry and product-market boundaries and are not necessarily in the core business of the firm. 2. Virtual markets absorb a higher proportion of customer spending than a specific product-market, and represents a higher market potential. 3. Internet information technology makes the objective of addressing virtual markets achievable. Moscow - December 2004

  26. EXAMPLE OF VIRTUAL MARKET (1) • To achieve the “home ownership” generic need, customers might engage with contractors, realtors, insurance companies, mortgage firms, removal companies, telecom, interior designers, … Moscow - December 2004

  27. EXAMPLE OF VIRTUAL MARKET (2) • In the “personal mobility” virtual market, in addition to car ownership, related activities cover car maintenance, car insurance, roadside assistance, emergency services dispatch, route support, stolen vehicle location, …. Moscow - December 2004

  28. FROM THE “VIRTUAL MARKET” TO THE “META MARKET” A meta-market is created when the cognitive associations between these activities are reproduced in the physical market place, thereby streamlining customer activities and providing them with seamless experience. Moscow - December 2004

  29. CREATING THE META-MARKET “The home ownership virtual market “ The cognitive space of the potential customer The cognitive space of the potential customer Negotiation and Negotiation and Insurance and Insurance and Renovation and Repairs and Information Information The purchase decision The purchase decision financing financing maintenance maintenance Reselling value decoration search and evaluation search and evaluation Need of the potential customer Need of the potential customer : To buy a new car Home ownership Removal companies Real estate agencies Banks, mortgage firms Insurance brokers Painters and interiors designers Insurance companies Garages and Financing Cars builders Car dealers and brokers mechanics The industry supply The global supply Moscow - December 2004

  30. META-MARKETSManagerial implications 1. Do not define your reference market in terms of product categories. (cars, metallic gates, detergents, toys…) 2. Refer to the result or the generic outcome customers want to achieve. (personal mobility, access control, home care, edutainment,…) 3. Identify all the activities that, from the customer point of view, are part of the virtual market. 4. Create the reference “meta market” by reproducing in the physical market place the mental associations made by customers. 5. Present the “total solution” customers seek. Moscow - December 2004

  31. BENEFITS OF THE META-MARKET CONCEPT 1. The concept is perfectly aligned on the customer views and therefore facilitates communication. 2. The revenue potential of a meta-market is always larger than the discrete product-market. 3. It enables the firm to offer a “total solution” to customers thereby building exclusivity, loyalty and trust. 4. It helps identifying “growth opportunities” in activities directly or indirectly related to the core service. 5. It helps identifying who are the indirect (or substitute) competitors. Moscow - December 2004

  32. 3. How customer orientation leads to growth opportunities? Analyze the customer activity cycle Moscow - December 2004

  33. THE ACTIVITY CHAIN CONCEPT • A virtual market is a sequence of logically, directly or indirectly, related activities customers engage in to achieve a specific outcome. Moscow - December 2004

  34. THE ACTIVITY CHAIN CONCEPT • Pre, or before: when customers are deciding what to do to get the result desired. • During: When customers are doing what they decided on. • Post, after: when customers are maintaining the result, reviewing, renewing, extending, upgrading and updating Moscow - December 2004

  35. THE PRIMARY ACTIVITY CYCLE Before: customer is deciding what to do Post: Customer is keeping it going During: Customer is doing it Customer- Activity cycle Source: Vandermerwe, 2000

  36. STRUCTURE OF THE ACTIVITY CHAIN • PRIMARY ACTIVITY CHAIN A sequence of logically and directly related activities customers engage in to achieve a specific outcome. (Visiting a car dealer on the car ownership chain is a primary activity) • ADJACENT ACTIVITY CHAINS A sequence of logically but indirectly related activities engaged by the customer in its search of the problem solution. (seeking car insurance quotes is a complementary activity that falls in a adjacent chain) Moscow - December 2004

  37. The Growth Opportunity Matrix Adding new activities 1. Primary chain extension 3. Adjacent chain broadening How ? Type of growth 4. Adjacent chain reconfiguration 2. Primary chain reconfiguration Reconfiguring existing activities Primary activity chain Adjacent activity chain Where ? Focus on growth Source: Sawhney and others, 2004

  38. PRIMARY ACTIVITY CHAIN EXTENSION “Moving along the customer activity chain by adding new services” Moscow - December 2004

  39. THE CUSTOMER ACTIVITY CYCLE Search for value gaps Before: customer is deciding what to do Value Gap Post: Customer is keeping it going During: Customer is doing it Customer- Activity cycle Value Gap Source: Vandermerwe, 2000

  40. PRIMARY ACTIVITY CHAIN EXTENSION • Can services be added that precede the sale of the core product? • Can services be added that follow the sale of the core product? • Can services be added to accompany the product? • Can the product be augmented with network based services? • Can the product be updated with services ? Moscow - December 2004

  41. The Dutch Construction Group Heimans N.V: Before: Customer is deciding what to do Value gap: Project development During: Customer is doing it Customer Activity cycle Post: Customer is keeping it going Core business: Construction capacity Value gap: Maintenance activities Moscow - December 2004

  42. 2. PRIMARY ACTIVITY CHAIN RECONFIGURATION Changing the structure of the primary chain by shifting the boundary between the activities performed by the customer and by the firm." Moscow - December 2004

  43. 2. PRIMARY ACTIVITY CHAIN RECONFIGURATION • Can customer burdens involving customization be reduced? • Can customer burdens involving product storage be reduced? • Can process expertise be leveraged? • Can customers’ inventory control and stocking processes be replaced? • Can processes unrelated to customers core competences or strategic objectives be taken over? Moscow - December 2004

  44. 3. ADJACENT ACTIVITY CHAIN BROADENING Introducing new services, not typically part of the primary chain, but closely associated with it. Moscow - December 2004

  45. 3. ADJACENT ACTIVITY CHAIN BROADENING • Can products become platform for embedded services? • Can the existing customer base be “rented”? • Can the existing customer interface be leveraged? Moscow - December 2004

  46. 4. ADJACENT ACTIVITY CHAIN RECONFIGURATION Taking charge of activities in an adjacent chain. Moscow - December 2004

  47. 4. ADJACENT ACTIVITY CHAIN RECONFIGURATION • Can services be added to integrate complementary customer activities? • Can services be added to leverage the brand? • Can services change the way customers acquire products? Moscow - December 2004

  48. MANAGING THE RISKSThree types of risk 1. CAPABILITY RISK 2. MARKET RISK 3. FINANCIAL RISK Moscow - December 2004

  49. 1. CAPABILITY RISKS • Can we execute and deliver? • Do we have the organizational culture to sell services? Moscow - December 2004

  50. 2. MARKET RISKS • Will customers adopt the service provided? • Are we credible as a service provider among our customers base? Moscow - December 2004

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