Principles of Management PDF

PRINCIPLES OF MANAGEMENT P A R T 1: E X T E R N A L E N V I R O N M E N T - P E R S P E C T I V E O F V A L U E C R E A T I O N SESSION 1 DEFINING MANAGEMENT MANAGE...

PRINCIPLES OF MANAGEMENT P A R T 1: E X T E R N A L E N V I R O N M E N T - P E R S P E C T I V E O F V A L U E C R E A T I O N SESSION 1 DEFINING MANAGEMENT MANAGEMENT DEFINITION Management is very hard to define. It is “what managers do”. It’s the attainment of organizational goals (= to reach goals) in an effective and efficient manner through planning, organizing, leading and controlling organizational resources (knowledge, people, money, materials). Effectiveness is the degree to which the organization achieves a stated goal. It is the ability to produce a better result, one that delivers more value or achieves a better outcome. Efficiency is the use of minimal resources to produce a desired volume of output. It is how you reach the goal. It is the ability to produce an intended result in the way that results in the least waste of time, effort and resources. Both are linked. You can’t be efficient without being effective. MANAGEMENT DIMENSIONS Plan: Defining strategic goals for future organizational performance and deciding on the tasks and resource use needed to attain them. Basically, this means a manager will have to prioritize the tasks to do in order to achieve his goal and decide how he will achieve them. Observe that he does not necessarily do it alone, depending on the management type (productivity-oriented or people oriented), he leaves more or less freedom to the people executing the tasks. Organize: Designing processes, assigning tasks and grouping tasks into departments; allocating resources and funds to departments for achieving strategic goals. = how the tasks will be achieved. Lead: Motivating departments, teams and employees to achieve the organization’s goals. If employees are not motivated, most of the time, it is the fault of the manager. Control: Monitoring activities and performance, keeping the organization on track towards its goals and making corrections and helping as needed, adapting strategies. READY TO BE A MANAGER? (In order to have better managers, Google defined eight good behaviors, in order of importance, for managers : be a good coach (provide constructive feedback, have regular one-on-ones), empower ( = responsabiliser) the team and don’t micromanage, express interests in team members’ success and personal well-being, be productive and results- oriented, be a good communicator and listen to the team, help your employees with career development, have a clear strategy for the team, have key technical skills.) → Human skills are by far more important than technical and conceptual skills. FROM INDIVIDUAL PERFORMER TO MANAGER From individual identity To manager identity Specialist: performs specific tasks Generalist: coordinates diverse tasks Gets things done through own efforts Gets things done through others' efforts An individual actor A network builder Works rekatively independently Works in a highly interdependent manner The main difference is that the manager relies on others to get things done. They essentially cooperate with things (rather than writing papers…). Therefore, it doesn’t require the same skills. Individuals and specialists mostly need technical skills while managers principally need conceptual skills about the companies (understanding how people and resources are linked) and human skills (for collaborating). MANAGEMENT SKILL SET Conceptual: The cognitive ability to see the organization as a whole and the relationship among its parts. Human: The ability to work with and through other people and work effectively as a group member. Technical: The understanding of and proficiency ( = compétence) in the performance of specific tasks. DO YOU REALLY WANT TO BE A MANAGER? Being a manager implies: - Workload increase (up to 70 hours a week) - Supervise former peers (quite difficult because, sometimes, you’re chosen among peers and you have to manage ex-colleagues) - Responsibility over others - Caught in the middle (you’re no longer an individual, but you’re not the boss: it is a difficult position, you have other bosses that can give you tasks). CAUSES OF MANAGER FAILURE Fail is about ineffective conceptual and human skills. A manager can also fail because of his skills. It concerns an ineffective communication, a poor work relationships/interpersonal skill, a person job mismatch (= décalage), a fail to clarify performance expectations, a failure in breaking old habits quickly, a lack of personal integrity, being unable to develop cooperation ot to motivate others, attitude problems, a lack of resources… The most common causes of failures are human skills. Example: Oil spill in the Gulf of Mexico. An explosion occurred on an oil rig operated by BP. Eleven people were killed in the blast (= explosion) and oil began to leak from the ocean floor. The manager of BP downplayed the spill (= a minimisé). He received much criticism for various statements he had made during the spill, for example by saying “I’d like my life back”. He was widely condemned for his comment which was perceived as selfish. It’s a bad choice of words for a manager, as so many people and animals died. → Problems of communication and attitude. MANAGERS ACTIVITIES They like leading others, networking and leading innovation. They dislike controlling subordinates, handling paperwork and managing time pressure (= gérer la pression du temps). CLASSIFYING DIFFERENT MANAGEMENT MODELS (1) PRODUCTIVITY CENTRIC ORIENTATION "Workers can be retooled like machines (humans = machines), their physical and mental gears (= engrenages) recalibrated for better productivity. It means they can be seen without any regard to their feelings and interests." Frederick Taylor. It includes: SCIENTIFIC MANAGEMENT (TAYLORISM) Scientific management is a theory of management that analyzes and synthesizes workflows. Its main objective is improving economic efficiency, especially labor productivity. It was one of the earliest attempts to apply science to the engineering of processes to management. Scientific management is sometimes known as Taylorism after its pioneer, Frederick Winslow Taylor. In 1909, Taylor published "The Principles of Scientific Management." In this, he proposed that by optimizing and simplifying jobs, productivity would increase. He also advanced the idea that workers and managers needed to cooperate with one another. This was very different from the way work was typically done in businesses beforehand. A factory manager at that time had very little contact with the workers, and he left them on their own to produce the necessary product. There was no standardization, and a worker's main motivation was often continued employment, so there was no incentive to work as quickly or as efficiently as possible. Taylor believed that all workers were motivated by money, so he promoted the idea of "a fair day's pay for a fair day's work." In other words, if a worker didn't achieve enough in a day, he didn't deserve to be paid as much as another worker who was highly productive. And he applied the scientific method to study the optimal (= more efficient) way to do any type of workplace task. He found that by calculating the time needed for the various elements of a task, he could develop the "best" way to complete that task. By measuring each of your changes (example: change an angle, put materials in a specific way) as an experiment and measuring the result, you develop the best training for a worker. Your plan should be designed so that no one is waiting without doing useful work, money incentives,... o The best management is true science, resting upon clearly defined laws, rules and principles. o Replacing the rule of thumb (= a method of procedure based on experience and common sense not on science or exact measurement) by scientific methods and precise procedures (he majors how much time it took for the workers to do a task and change the place, the angle... to be faster) o Selecting, training, teaching and developing the workman o Work planning o Eliminating work interruptions. o Wage incentives (= incitations salariales). Incentive → people work better! → increase productivity He didn’t really care about intellectual abilities and focused more on physical abilities. Even if scientific management allowed us to understand the importance of selection and training, it neglected the social context, diversity and variance among individuals. Today, it is known that a company will perform better by keeping its employees happy and by taking their ideas for innovation. He didn’t care about the feedback of the employees, often precious in a company to improve working conditions and efficiency. Henry Ford and the introduction of the assembly line. Characterized by o Mass production o Affordable products Henry Ford was the first one to make assembly lines. He offered a new way of manufacturing a large number of vehicles. What made this assembly line unique was the movement element. Henry Ford remarked that the use of the moving assembly line allowed for the work to be taken to workers rather than the worker moving to and around the vehicle. It increased efficiency a lot (better use of time and resources) because, as seen earlier, each worker’s task was optimized, simple and repetitive. Moreover, this allowed costs to be cut a lot, so that cars were available for everyone (mass production). This is a great example of scientific management; everything being calculated for a better production and thus a better profit. “A customer can have a car painted any color he wants as long as it’s black. “: this is not a customer-centric quote. Only fast-drying black paint allowed for "full-speed" assembly and reduced costs. The Model T only came in black because the production line required compromise so that efficiency and improved quality could be achieved. Ford wanted to produce the most automobiles in the least amount of time and didn’t see the car as an expression of individuality of the customer. We achieved a semi/complete automation today. Everything is robotorized. The Gantt chart A Gantt chart is a type of bar chart that illustrates a project schedule. This chart lists the tasks to be performed on the vertical axis, and time intervals on the horizontal axis. Modern Gantt charts also show the dependency (i.e., precedence network) relationships between activities. This is a powerful tool of the scientific management method. The magic triangle of project management (the three big constraints) is a tool that enables project managers to visualize the three competing variables existing within every project: time, cost, and scope (l’étendue du projet). The project manager’s main task is to balance these three constraints in order to keep their projects within budget and on schedule while still meeting the requirements of the project scope. Legacy of scientific management : Careful study of tasks and jobs Lack of social context Impact of compensation on performande Variance among individual Importance of selection and training Ignored ideas and suggestions of workers BUREAUCRATIC ORGANAZIATIONS (MAX WEBER) Bureaucracy is an organizational structure that is characterized by many rules, standardized processes, procedures and requirements, number of desks, meticulous division of labor and responsibility, clear hierarchies and professional, almost impersonal interactions between employees” In addition, in a bureaucratic organization, selection and promotion only occur on the basis of technical qualifications. It is a vertical organization (Everyone has a boss which speaks to his boss…).  - Separation of management and ownership: personal benefits for managers as owners - Impersonal, rational management - Clearly defined authority, responsibility and rules - Written records for continuity - Promotion based on competence (rather than who you know) → equal treatment - Today: endless rules and red tape. It is old school. Today, things are changing to a more interconnected way where the boss is closer to his team The opposite of a bureaucratic organization: bossless companies Working for a bossless company, i.e., a company where instead of managers telling employees which projects, they should work on, employees themselves initiate new or join the existing projects, can sound like a dream to most of us. - Negotiate responsibilities with peers - Everyone can decide on budget - Individual is responsible for acquiring tools to do work - No titles, no promotions - Salary decisions are peer-based (collectively taken) MANAGEMENT SCIENCE The field was initially an outgrowth of applied mathematics, where early challenges were problems relating to the optimization of systems which could be modeled linearly, i.e., determining the optima (maximum value of profit, assembly line performance, or minimum of loss, risk, costs, etc.) of some objective function with quantitative measures. It’s a more mathematical and scientific approach, productivity-oriented... - Complex problems of modern warfare (war requires sometimes to optimize supply chains for example) - Mathematics, statistics, other quantitative techniques to decision making and problem solving - Forecasting (= prévision), inventory management, linear programming, simulation - Along with computerization trend (tendance de l’informatisation) (2) PEOPLE-CENTRIC ORIENTATION NB: Blue-collar workers are working class people who perform manual labor. White-collar workers do intellectual work (office workers). "The development, strengthening, and multiplication of socially minded businessmen is the central question of business." Wallace B. Donham  Counter movement: facilitating and empowering employees rather than controlling, informal organization (cliques, informal networks). They are more autonomous. Human relations: satisfying basic needs of employees as key in increasing productivity (human treatment) Insights based on the Hawthorne Studies (1924-1932) showed that productivity can be increased by better lighting (people work harder and are likely to be more concentrated), regular breaks (more productive in- between), showing concern and monetary incentive. This example shows that fulfilling human needs is of course better for everyone. Participants knew they were under study, so that can be a bit biased. Human resources: dairy farm view - contented cows give more milk: You basically try to fulfill Maslow’s pyramid and go further than basic needs. The idea behind it is like a cow. The more feeded they are, the more milk they will give. The happier people are, the more efficient they will be. Managers focus on higher level needs. Basic needs are essential to be fulfilled to keep employees, to make them motivated and happy to go to work. For example, companies can add facilities like gyms and restaurants to keep people at work for longer. Behavioral sciences: sociology, psychology, economics (matrix organization, self-managed teams) Contingency (= urgence) view: there is no one best way, every situation is unique. EVOLUTION OF MANAGEMENT APPROACHES Good managers are not productivity oriented. People-centered managers become more and more popular and tend to be the best way to improve productivity. Talking, empowering and understanding people is essential. Management principle Productivity-centric People-centric Overseeing work Controller Enabler Accomplishing tasks Supervising individuals Leading teams Managing relationships Conflict and competition Collaboration Leading Autocratic Empowering Objective Maintaining stability Mobilizing for change Oversee = superviser; enabler = facilitateur; empowering = responsabilisant RELATIONSHIP WITH ORGANIZATIONAL STRUCTURE An organizational strategy involves the establishment of a structure for planning and coordinating resources and activities, in order to efficiently and effectively transform inputs into outputs. An organizational structure involves a vertical dimension, which consists of designating formal reporting relationships (= relations hiérarchiques formelles), defining the span (=envergure) of control of managers, and identifying individuals into departments, as well as a horizontal dimension, involving interactions to coordinate processes and workflows across departments and business units. To accomplish the overall goals of the organization, top management needs to decide on the ideal combination of the vertical and the horizontal structural approach. A predominantly vertical structural approach is associated with centralized decision making, formal hierarchical reporting systems, clearly defined authority and responsibility, standardized rules and regulations, and individual, routine tasks. This approach was dominant during the Industrial Revolution, emphasizing efficiency and productivity in a low-cost leadership strategy. Vertical organization structure is a pyramid-like top-down management structure. These organizations have clearly defined roles with the highest level of leadership at the top, followed by middle management then regular employees. Decision making often works from top to bottom, but work approval will work from bottom to top. Those structures define a clear chain of command. However, as decision-making authority resides with upper-level managers in a vertical structure, it does not allow for rapid responses to problems and opportunities that arise due to competitors’ actions, environmental changes or customer demand shifts. In addition, in a rapidly changing environment, the key assets of an organization shift from tangible resources to information and knowledge held by employees, hence employees must be empowered to share knowledge and make decisions. In response, organizations are increasingly shifting away from the traditional vertical structure towards a more flexible, horizontal approach. The horizontal structural approach is associated with a differentiation strategy, decentralized decision making, few formal reporting systems and rules, shared tasks, teamwork, and employee engagement, talking with peers. Horizontal organizational structure is a flat management structure. Organizations with these structures often have few managers with many employees, and they allow employees to make decisions without needing manager approval. Providing employees with autonomy often helps employees feel empowered and motivated, increasing their connection to the company and its goals. The relaxed structure of horizontal organizational structures also often naturally encourages collaboration. (3) SYSTEM-CENTRIC ORIENTATION "Pull a thread (= un fil) here and you’ll find it’s attached to the rest of the world." Nadeem Aslam This is kind of a mix between the two previous orientations. Basically, everything is related. Example: You can not let people do whatever they want, otherwise, it will be disorganized, and you won’t have a high productivity. The same as if your employees are not happy, they will not be 100% efficient. Example: The first loop is increasing profit: Ads increase sales and profits. However, this additional sales means additional cost with production etc. (Of course, this does not mean the ad should not be done as most often, the additional cost will be in the variable cost which is lower than the increase in revenue.) Ecosystems In an ecosystem, there is usually one orchestrator that makes sure all participants are aligned and collaborate to achieve a shared goal. This ‘keystone’ organization needs to make sure value generation and capturing is well distributed among the ecosystem collaborators. There are interdependencies between elements. United Nations SDGs SDGs (Sustainable Development Goals) are global goals of peace and prosperity It needs to think about global goals and their effect on each other. It must be verified that an improvement on one dimension doesn't badly impact other goals.  Conclusion: Productivity is always more scientific and quantitative. This leads to a possible proof of increase in productivity. Once this has been optimized, other qualitative incentives can increase productivity, but everything is linked and you must be sure, you have measured all the consequences. TODAY, IN THE NEWS Workplace surveillance: how your boss is spying on you. There exists software that companies are using to monitor their workers. Employers can track mouse clicks, listen to conversations… These surveillance technologies increased during the pandemic when managers were no longer able to keep an eye on workers. Good because employees work but what about trust, privacy, happiness and pressure? There is a risk of decreasing productivity. Goldman Sachs: during Covid, when it was not mandatory for people to come to the office, they offered free coffee so that people came. However, once it was mandatory again to come to the office, they took the free coffee away to reduce costs. This was a good decision to reduce costs but can have a negative impact on workers and reputation. NB: Currently, because of the energy crisis, workers save energy bills if they don’t stay at home for work. In the US, because of the high price of gasoline, people prefer to stay at home. Work from home or going to work depends on the cost of gasoline or cost of heating, etc. Amazon: monitors activity. For example, it tracks how often employees offer item replacements. It is productivity-centric as it measures things. Quiet Quitting: quiet quitting refers to opting out of tasks beyond one's assigned duties and/or becoming less psychologically invested in work. Employees do exactly what the job requires, nothing more. Chit-chat: making more of an effort to chit chat with colleagues can reap big rewards (= grosses récompenses). Interactions are essential. Caesar’s entertainment: enormous amounts of data on customer behavior are gathered and analyzed. Customers are treated as numbers. It helps in productivity. Marketing is thus more scientific activity and experiments are used to fine-tune (affiner) the marketing actions. Tricks casinos use to keep you spending your money: playing with chips rather than money, no clocks inside, free alcohol, free food and stays, restricted outside view, bathrooms near the end, loyalty programs ( = programmes de fidélité)... Management is all about psychology.  VALUE PERSPECTIVE: UNDERSTANDING VALUE (THE 5C'S) A manager must understand the value of his company, (at a smaller scale, his department, or project(s)) and find a way to maintain it. Once it has been understood, he can organize his resources in an efficient and effective way. The internal organization will be the second part of this course. Understanding the value corresponds to the External management. The 5C's of marketing are a commonly used situation analysis technique used to help marketers make informed business decisions. The "5 C's" stand for Company, Customers, Competitors, Collaborators, and Context. A 5C analysis will help you evaluate the most important factors facing your business. 5C Analysis is a marketing framework to analyze the environment in which a company operates. It can provide insight into the key drivers of success, as well as the risk exposure to various environmental factors. (1) CONTEXT ANALYSIS The STEEPLE is a strategic planning tool that helps evaluate the external environment. This model considers the factors in the broader context in which the company operates, into the areas that may affect a business, but where the business exercises either no or limited control. The figure provides some detailed elements to consider for each factor. This is a very frequently used model in business, especially when considering international expansion. Examples of factors : Social: The changes in culture and demographics. Arising from customers. - Different generations : 1946-1964 Baby Boomers (increase in the birth rate) 1961-1980 Gen X 1981-2000 Gen Y (Millennials) 2001-2010 Gen Z (Centennials) since 2010 Gen Alpha → Customer needs are evolving with generations. - Household composition: depending on the composition of their household, workers should have different benefits and treatments. As a manager, you may have to offer different support for customers.  Technology: Factors arising from the development of technology - Industrial revolutions: from steam engines to current connected technologies. - Vertical farm (the practice of growing crops in vertically stacked layers): enables to optimize plant growth and production - Digitalization: GAFAM (Google-Amazon-Facebook-Apple-Microsoft) are the five most popular and publicly traded US tech companies. There is also NATU which stands for the 4 new big emblematic companies of digital disruption: Netflix, Airbnb, Tesla and Uber. - E-shopping: BPost used to be a monopoly on communication but with digitalization, it dropped a lot. Hopefully, e-shopping has developed but Bpost now must compete with other foreign companies (like UPS). It isn’t a monopoly anymore. Economical: The Macro-economic factors such as exchange rates, business cycles. - Inflation increases all costs a lot and is due to the increase in the price of resources. Prices of products have thus to be increased. Retailers must ask customers for extra money. Competitiveness of Belgian companies will decrease because of inflation in Belgium but not in exporting countries (??). - Exchange rates change. Dollar is now valued more than the Euro. The US is stronger economically. It is more expensive for us to buy in the US and less expensive for Americans to buy in Europe. - Because of globalization, it is now possible to serve customers in any place. Of course, trade with neighboring countries is much older than that but it has been facilitated by digitalization.  Environmental : - The Sustainable Goals (SDG’s) - Patagonia: Patagonia’s founder (clothing company) decided that all profits will be used to help fight climate change. Companies must consider their impact on the environment. Political: The role of the State and the political forces such as the government. - Ukraine war: it has a huge impact on energy and inflation. In fact, as grain production was great in Ukraine, the war led to food crises in some parts of the world. - Ease of doing business index: it is an indicator of how easy it is to do a business depending on the country. The index depends on administration, taxes, how easy it is to start a business, to get credits, to get electricity, to deal with construction permits… Legal: Legal and regulatory constraints or changes (to the law). - GDPR = General Data Protection Regulation.It is a legal framework that sets guidelines for the collection, the protection, and processing of personal information from individuals who live and outside of the European Union (EU). - PSD2 = PSD2 is a European regulation for electronic payment services. It seeks to make payments more secure in Europe, boost innovation and help banking services adapt to new technologies. The regulation will mandate stronger requirements for online transactions using multi-factor authentication (MFA). And to provide better service and enhanced innovation to customers, third-party services will be able to access accounts through an application programming interface (API) if customers give consent. Ethical: There exists a corruption perception index. It ranks countries "by their perceived levels of public sector corruption (= dishonest or illegal behavior especially by powerful people). Perception of corruption is good in Europe, makes it more difficult to make business (2) COMPANY ANALYSIS The company section focuses on many of the internal factors related to the marketing and sales of your products and services. A company analysis may help you better understand what you do so you can see how your business operates and as a result affects the lives of your customers or fits in the larger market  The profit equation A very basic but fundamental perspective of the firm concerns the profit equation. Profit can be broken down into different elements. A company can work on each element (increase market share, market size, or margin to increase profits and decrease fixed cost). Profit = Revenue - Cost = Product Unites x Price - (Fixed + Variable costs) = Market Share x Market Size x Margin - Fixed Costs NB: Margin is sales minus the cost of goods sold. For example, if a product sells for $100 and costs $70 to manufacture, its margin is $30. Stated as a percentage, the margin percentage is 30% (calculated as the margin divided by sales). It means that for every $1 of revenue the company earns $0.3. Market Share is the portion of a market controlled by a particular company or product. Reading the profit equation from left to right BS from right to left gives an indication of where a company’s priorities are: - From left to right is when a company is trying to increase market share, market size, and potentially price. The focus needs to be on innovation. - From right to left is when a company is trying to maximize profit by decreasing fixed and variable costs, it is in a cost-cutting mode, which rarely provides a sustainable competitive advantage. Application: It’s more profitable for Apple to shift to services (Apple Music, Apple Fitness, Apple News, iCloud…) because of the 70% margin, compared to only 36% margin for products (Iphone, Ipad, Mac…). The Business Model Canvas A business model canvas is a visual representation of a business model, highlighting all key strategic factors. In other words, it is a general and complete overview of the company's workings, customers, revenue streams and more. Example: Netflix Business Model (9 important components). Netflix targets us in different ways, following demand.  Porter’s Value Chain (within a company) Harvard professor Michael Porter’s value chain can be used to analyze the activities of a company. A distinction is made between a company’s primary activities (bottom of the figure: relate directly to the physical creation, sale, maintenance and support of a product or service) and its support activities (top of the figure). A company usually obtains a competitive advantage based on the primary activities. It is also of interest to note here that Value Chain is a concept that refers to the value generation within one company, whereas this term is often used to refer to value generation across different sets of companies (see next ‘C: collaborator’). A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. It is a useful strategic management tool. It works by breaking an organization's activities down into strategically relevant pieces, so that you can see a fuller picture of the cost drivers and sources of differentiation, and then make changes appropriately. In other words, it is the value a comppany adds from the raw material it has, (or initial devices...) to the assembly of all this. For Coca-Cola, we notice that secondary activities are centralized at headquarters and primary activities are taken care of locally. (3) COLLABORATOR ANALYSIS Collaborator analysis is useful to understand how your collaborators are related to your company between each other, also used to see where you can leave a collaborator and do the task yourself. Value System As a follow up to the Value Chain within a company, different value chains can be orchestrated to deliver value to the end customer, this is referred to as a Value System. This is all the value chains from the raw materials to the value delivered to the customer. As companies work together over time, they develop relationships with so-called partners. When one company takes over the activities of another company in the value system, we talk about vertical integration. Vertical integration refers to an expansion strategy where one company takes control over one or more stages in the production or distribution of a product. Both strategies are undertaken by a company in order to consolidate its position among competitors. - Backward integration = a type of vertical integration that's considered an “upstream” business move. It involves a company expanding backward by purchasing and controlling earlier stages of the supply chain. This allows them to control the raw materials needed to create the final product.  Example: Apple that starts making Graphical Processing Units (= own chips) instead of acquiring them from a supplier. - Forward integration = a type of vertical integration, when a strategic acquirer moves “downstream”, which means that the company becomes closer to interacting directly with its end customers (sales, distribution). Example: Nike that starts to sell and distribute products directly to the end consumer. Apple also opens its own stores. Companies want indeed more control. (4) CUSTOMER ANALYSIS Journey The customer journey map is a tool to visualize the experience of interacting with your brand from the customer's point of view. This map is critical because it forces you to look at how your customers experience your brand. It includes all the phases buyers go through from the moment they identify their need until they acquire a product or service to satisfy it. Of course, this isn’t linear, and customers can go back and forth. Types of buying situations: Habitual decision making (same shop, same product), limited problem solving (same shop, different product / different shop, same product), extended problem solving (new shop, new product). Analysis Conducting a customer analysis may help you better understand the role your products play in the public sphere and how to best adjust your business’ image to meet your goals. Research and record information about your current and potential customers to better understand who they are and what they want. As Steve Jobs said, "Get closer than ever to your customers. So close that you tell them what they need well before they realize it themselves.3 Market Research = étude de marché The purpose of market research is in the first place to better understand the customer’s jobs to be done, which refers to the need for which they “hire” a company’s market offerings. Market research is the process of determining the viability of a new service or product through research conducted directly with potential customers. The Value Proposition Canvas shown here provides a straightforward template to understand the gains (They are all the benefits your customer expects or wishes, whether they are functional, emotional, social or financial) and pains (everything that annoys customers while they are performing their jobs-to-be-done, such as negative experiences and emotions, risks involved, financial costs, mistakes, and consequences).related to how (potential) customers are currently getting the job done. Value Proposition Canvas is a business model tool that helps you make sure that a company’s product or service is positioned around customers’ values and needs. To understand your customer, you need to do market research. This will allow them to understand why they buy a product from your company and not for another one. Example: McDonald’s milkshake. It is not necessary to add flavors and tastes. People buy it as a banana or a Snicker, just to pass time and avoid boredom on the road. Example: Mapping of consumer needs and benefits involving chocolate consumption Application of customer analysis: Bekaert Value system Bekaert operates in: - Production of rod wire, zinc and PET - Production of core brassiere wire - Production of bra underwire (= armatures) - Design and production of bras - Seel bras to the end customer Social Media Monitoring taught them that customers were not satisfied about underwire bras and the fact that they squeak a lot. → They put new bras on the market, after having eliminated the squeaking. Conclusion: A powerful way of analyzing customer needs and pain points is through social listening and web search analysis. The manufacturer identified a need for non- squeaking underwire in bras by observing end consumer social media posts. This led it to develop a new steel wire with a new value proposition that was sold at higher prices and bigger volumes to underwire makers and lingerie producers. (5) COMPETITOR ANALYSIS Conducting a competitor analysis may allow you to see how much competition you have in your market and determine what ways you can outperform your opponents ( = adversaires). Competition is broad but basically, it is about the companies that offer a similar product (Samsung View VS Apple) or a substitute (Car VS train). Porter’s Five Forces Porter’s 5 forces model was originally developed for assessing the competitiveness (and attractiveness) of a market, but it can be applied at the level of a particular company as well. Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. The traditional industry competitors are the 1st (central) force. Then there are new entrants and substitutes to consider. For instance, for car manufacturers, Tesla may be considered a new entrant, whereas a substitute for the car may be the train or bicycle. Porter’s 5 forces also include the vertical value system (see previous “C”). The bargaining (=négociation) power of suppliers relates to whether the suppliers are powerful, which may be the case when there are limited alternatives in the market (how unique these inputs are, and how much it would cost a company to switch to another supplier. The fewer suppliers to an industry, the more a company would depend on a supplier.) Bargaining power of buyers (Ability that customers have to drive prices lower or their level of power: it is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a company to find new customers  or markets for its output) is usually small for individual consumers, but in B2B markets a firm may be dealing with big and powerful customers. NB: B2B = business model in which the companies involved create products and services for other businesses and organizations. Example: Apple chose to make its own GPU. The company Imagination Technologies lost half of their annual revenue (coming before from Apple). Example: Jumbo is a new supermarket. Its low prices and its location can attract shoppers from Aldi. SWOT analysis It is one of the most widely used tools in business planning. It is a framework used to evaluate a company's competitive position and to develop strategic planning. SWOT (strengths, weaknesses, opportunities, threats) analysis assesses internal and external factors, as well as current and future potential. Tools for internal analysis includes business model canvas and porter’s value chain and tools for external analysis includes STEEPLE and porter’s 5 forces. As part of SWOT analysis, it is important to also prioritize the element in each of the categories. Also, the next step is crucial, which is to develop a confrontation matrix. This matrix allows you to analyze each different combination of strength, weakness, opportunity, and threat. By doing this the aim is to identify the most important strategic issues the organization is facing.  SESSION 2 VALUE PERSPECTIVE: CREATING VALUE Value creation is the process a company uses to make its product valuable to the client, to make it fulfill their needs.. Example: The BicMac Menu at Mc Donald’s currently costs 8.9 euros. What would you agree to pay for this product? In general, the more expensive it is, the less likely people are to buy… but the maximal acceptable price varies within the group. There’s indeed a huge variability based on the group of people, that constitutes different segments in the market. Variability of the value between different people, sometimes even in an apparently homogeneous group. Example: The pregnancy test segments the market in two large groups: those who want to be pregnant (the lucky women) and those who are afraid to be pregnant (the anxious women). (1) MARKET SEGMENTATION A market segment is a group of customers that share one or more similar characteristics. Customers within one segment are expected to respond in a similar way to the marketing mix (see 4P’s). The goal is to identify segments that are internally similar (homogeneous), but that may differ from other segments (heterogeneous). It’s essential to know who you are targeting as expectations vary. “If you’re not thinking segments, you’re not thinking. To think segments means you must think about what drives customers, customer groups, and the choices that are or might be available to them.” - T. Levitt “I will know when our businesses are doing a good job when they can articulate who we should not sell to.” - C. Lillis SEGMENTATION VARIABLES (Characteristics of people that are used to determine if the people are similar) include Demographic variables: age, gender, race, ethnicity, education, occupation, family size, religion, social class Example: Needs vary between generations. Their shopping behavior also varies. The millennials (generation Y: 1981-2000) are more likely to buy on the internet and get delivered at home. Psychographic variables : motives, lifestyles, personality attributes Example: The Big Mac. The price we agree to pay is based on personality and habits. Example: Jumbo introduced new checkouts, for single customers, who want to chit chat with the cashiers, but also fast lines for busier people. It follows the need. Geographic variables: region, urban/rural, city size, country size, state size, market density, climate Example: Sugar levels in Coca-Cola and other sodas vary across countries (range of 7g between Thaïland and Canada). Behavioristic variables: end use, volume usage, benefit expectations, price sensitivity, brand loyalty… Example: Cecemel has different packaging for different needs/uses. (2) SELECTION OF TARGET MARKETS Selection of a target market (or target markets) is part of the overall process known as S-T-P (Segmentation→Targeting→Positioning). Before a business can develop a positioning strategy, it must first segment the market and identify the target (or targets) for the positioning strategy. Target market represents a group of individuals who have similar needs, perceptions, and interests. They show inclination towards similar brands and respond equally to market fluctuations. Marketers must understand the needs and expectations of the individuals to create its target market. Some segments like young generations are often targeted because they are the customers of the future. Targeting can be done by assessing 4 criteria, for which information can be gathered through market research. Criteria include - Market segment size and growth - Potential share of market (value and volume) - Competitive intensity (see Porter 5 forces) - Company fit While you want the first two criteria to be as high as possible, competitive intensity is preferably low. Finally, it is important to evaluate the fit with the overall company strategy, which feeds into Positioning. (3) POSITIONNING “The act of designing the company’s and product’s image so that it occupies a distinct and valued place in the target customers’ minds.” Positioning is the key step in between understanding the needs of customer segments and developing a market offering. Positioning refers to the place that a brand occupies in the minds of the customers and how it is distinguished from the products of the competitors and different from the concept of brand awareness(=conscience). In order to position products or brands, companies may emphasize the distinguishing features of their brand(what it is, what it does and how, etc.) or they may try to create a suitable image through the marketing mix. Positioning relates closely to the direction in which the profit equation is read, from left to right (focus on innovation) or from right to left (focus on reducing costs). Another way to put this, is what is the strategic priority of the company, which we will discuss next. PORTER'S GENERIC STRATEGIES The Generic Strategies can be used to determine the direction (strategy) of your organization. Michael Porter uses 4 strategies that an organization can choose from. He believes that a company must choose a clear course to be able to beat the competition. Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. There are four generic strategies, either lower cost, differentiated, or focus. A company chooses to pursue one of two types of competitive advantage, either via lower costs than its competition or by differentiating itself along dimensions valued by customers to command a higher price. A company also chooses one of two types of scope, either focus (offering its products to selected segments of the market) or industry-wide, offering its product across many market segments. Some firms fail to effectively pursue one of the generic strategies. A firm is said to be stuck in the middle if it does not offer features that are unique enough to convince customers to buy its offerings, and its prices are too high to compete effectively based on price. Cost Leadership: Minimizing the costs incurred in providing value (product or service) to a customer or client. Differentiation: This means making one's product unique or special, compared to other competitors or substitute products in the market. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. Focus: The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serve them to the exclusion of others. Cost focus means minimizing costs in a focused market. Differentiation means an orientation toward differentiation from other competitors/products within a focused market. Examples: Colruyt is the Lowest Prices store of Colruyt Group. Colruyt is cost leadership. The group has clearly low- cost positioning. BioProduct focuses on differentiation (only organic products). Solucious is a B2B market. It is a supplier of food products for professionals (schools, hotels, restaurants…). They sell a small variety of products. It is cost focused. CRU has a small product range. It pursues differentiation (very expensive products, but of higher quality). It illustrates the fact that the same company can have different branches to position in different segments. Carrefour is stuck in the middle. It doesn’t have a clear marketing direction. However, we note that this classification is not absolute, it depends on the individual perception. Some companies can also have different branches that all have a different positioning. STRATEGY PRIORITY = Further refinement of generic strategy of differentiation. Operational excellence (= cost focus): providing customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience. It’s about being efficient. Examples: Colruyt and Dell (Looking at Porter's Generic Strategies DELL follows a cost leadership strategy – best value for the best price. They achieve to increase their market share through charging lower prices while still being profitable because of their effective direct sales model). Product leadership (=differentiation focus): offering customers leading-edge products and services that consistently enhance the customer's use or application of the product, thereby making rivals’ goods obsolete Examples: Delhaize (making available the freshest products), Apple (Apple is globally the strongest player in product leadership. Apple is often first to market with innovative products, products of consistently high quality, with which the company responds to the latest trends and developments), Nike...  Customer intimacy: segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches. It is a business strategy that seeks to understand specific client needs to deliver the 'best total solution. Examples: Any bakery (They know your name, what you’ll have as a bread…) or IBM (IBM developed a hybrid design-engineering-based method which synthesized deep customer analysis and rapid product and service changes. On the other hand, Apple doesn’t care much about the customers), Ikea. What about Amazon? Companies normally must choose one of those strategies, but it’s evolving. Amazon tries to mix the strategies. They are determined to offer both world-leading customer experience and the lowest possible prices. Intimacy with customers is made based on a data-driven approach. Amazon can make suggestions on your purchase (based on what you've already bought…). Because of digitalization, one may not have to choose only one focus strategy. COMPANY STATEMENTS A mission statement is used by a company to explain, in simple and concise terms, its purpose(s) for being. It is usually one sentence or a short paragraph, explaining a company's culture, values, and ethics. Different types of company statements can be distinguished. Too often, companies mix up the three types of statements and come up with one large and complex text. While all three statements should be aligned, they are tailored towards a different target audience. Vision: describes the big picture of the future and how the company will shape and change the world. This is important for all stakeholders. It is a strategic message. It defines the organization’s purpose in terms of guiding values. Mission: describes purpose and rationale of the company and is important for employers. It is an operational message. Positioning: Focuses on the customer’s view. It emphasizes the differences to the competition. It is important for customers. It is a psychological message. Positioning is competitive. It’s the angle of attack. In this sense, it is tightly linked with customer targeting (what’s in it for them), competitors (who you are competing against,) and your reason for being the best choice (your point of difference). Nike Apple Tesla Microsoft Amazon Netflix Aldi RESOURCE-BASED VIEW “The act of designing the company’s and product’s image so that it occupies a distinct and valued place in the target customers’ minds.” Strategy is about having resources. The resource-based view (RBV) is a managerial framework used to determine the strategic resources a firm can exploit to achieve sustainable competitive advantage. RBV proposes that firms are heterogeneous because they possess heterogeneous resources, meaning firms can have different strategies because they have different resource mixes. Tangible resources (capable of being perceived especially by the sense of touch): Land-location, buildings, machinery, equipment and capital Intangible resources (having no physical existence): Brand reputation, trademarks, skills, capabilities, intellectual property, know-how. Resource-based theory suggests that resources that are valuable, rare, difficult to imitate, and nonsubstitutable best position a firm for long-term success. These strategic resources can provide the foundation to develop firm capabilities that can lead to superior performance over time. To obtain a sustainable competitive advantage, bundles of resources should be: - Valuable: Resources help to reduce cost or increase differentiation. - Heterogeneous: Resources differ across companies (perfect competition) - Immobile: resources cannot be (easily) replicated (usually, intangible resources are harder to copy in the short run) Example: Different EV technology strategies. Different strategies: some outsource everything, some make everything. Tesla has a lot of control. VALUE PERSPECTIVE: DELIVERING AND CAPTURING VALUE (4P'S) (1) PRODUCT/SOLUTION 3M's periodical table of technology platforms allows its engineers to mix and match technologies to easily explore new possibilities and quickly create new products. NB: 3M = Minnesota Mining and Manufacturing There are multiple competences (roots) that can be combined into the core product (trunk). The leaves then go to different enterprises and businesses. The portfolio illustrates the same. Many skills can be combined to bring products to the market. NB: The portfolio is a collection of the products, services, and achievements of the company. FRAMEWORKS TO MANAGE A PRODUCT PORTFOLIO Product-Market Matrix It is a two-by-two framework used by management teams and the analyst community to help plan and evaluate growth initiatives. In particular, the tool helps stakeholders conceptualize the level of risk associated with different growth strategies. Based on whether the products (horizontal axis) or markets (vertical axis) are existing/new, four growth strategies can be distinguished. o Market penetration Existing product/market combination, low risk, e.g., through communicating or decreasing price. It is the concept of increasing sales of existing products into an existing market. Penetration means having more market shares. Example: Coca-Cola with famous football players on → way to attract customers o Market development: Existing product on a new market, medium risk, e.g., international expansion, B2C => B2B Example: Coca-Cola launching Fuze Tea in Europe (while it already exists in the USA). It’s an example of internationalization. Example: B2B => B2C, two different strategies. Nespresso used to sell only to businesses as customers didn’t have proper machines at home. There are now different products for business and customers. Example: B2C => B2B. Steve Jobs was not interested in the B2B market (selling huge amounts of computers at lower prices for staff members of a business). New CIO opened connections to B2B markets.  NB: B2B stands for business-to-business, referring to a type of transaction that takes place between one business and another. B2C stands for business-to-consumer, as in a transaction that takes place between a business and an individual as the end customer. o Product development: new product on an existing market, medium risk, e.g, BMW introducing a new car or Apple a new computer Example: Coca-Cola selling Coca Cherry and other new tastes. o Diversification: New product on a new market, high risk, e.g., a bank expanding into entertainment services Example: Wonolo: on-demand staffing platform that connects companies with a workforce network for short-team, last-minute jobs. Wonolo’s online platform enables companies to instantly post and manage jobs to handle labor demands, unlike rigid and fixed staffing models. Workers have the flexibility to access the Wonolo app and accept available jobs wherever and whenever they want to work. Example: Tesla and its new solar panels integrated into roof tiles. Example: Diversification of Samsung’s market, at first a noodles business. It shifted where opportunities were. Growth-Share Matrix Introduced by the consultants of the Boston Consulting Group, the growth-share matrix enables evaluating the product portfolio. It is dynamic, products can move from one position to the other. Obviously, the best place to have your product is as a “Star,” with a product having a high market share in a rapidly growing market. By investing a lot in products in this phase, the hope is to maintain the strong market share position such that the product becomes a “Cash Cow.” As the name indicates, products in this category generate a lot of cash inflow for the company, which it must invest in “Stars” and in “Question Marks” that show potential. They are a starting point for most businesses. Question marks have a potential to gain market share and become stars, and eventually cash cows when market growth slows. The least favorable position to be in is “Dogs” and companies in this situation may consider divesting the product line if it no longer reaches the break-even cash level (se débarasser du produit s’il n’atteint plus le seuil de rentabilité). However, chances are if it is a very competitive market, competitors are also considering divestment (se dessaisir), which may turn “Dog” products for many into “Cash Cows'' for few. In summary, it is important for a company to maintain a balanced portfolio and monitor their situation constantly. Example: Apple: Star = phone; Cash cow = computer ; Question Marks = Service, Apple Watch, Dog = IPod NB: Market Share = the portion of a market controlled by a particular company or product. Market growth rate = the predicted percentage growth for your industry over a defined period. (2) PRICE TRADITIONAL PRICING APPROACHES Cost-plus pricing is the practice by a company of determining the cost of the product to the company and then adding a percentage on top of that price to determine the selling price to the customer. - assumes that cost structure is known - does not allow for dynamic pricing - Why should that impact the price customers pay? Competition-based pricing is the process of strategically selecting price points for your goods or services based on competitor pricing in your market. - cede control of critical aspect - follow price leader - what are the price customers pay? Example: CostPlus Drug Company is focused on the pharmacy distribution of drugs with stated goal to lower the prices for generic drugs by removing middlemen (=intermédiaires) and by moving to a cost-plus pricing strategy. They have a total transparency about prices (in terms of markup (percentage on top of the cost product), additional cost of checkout…) Why do you pay this price? Example: Colruyt is cost leadership. Competition-based pricing? Black prices are their best prices (compared to similar products in other supermarkets). Red prices are for promos. Value-based pricing Instead of these two traditional approaches, a company can adapt a value-based pricing approach, based on the application in which the customer uses your product Example: Coca-Cola at the supermarket costs 0.4 €, 1.45€ at a gas station on the highway and up to 4€ in hotels and restaurants. CUSTOMER VALUE Value is the worth in monetary terms of the economic, technical, service, and social benefits (-costs) a customer receives in exchange for the price it pays for a market offering. Cost is the sum of all expenses associated with the acquisition, use, and disposal or recycling of a market offering (product and/or service). Features of an offering → Benefits of an offering → What the offering is worth in the customer’s application? Example: Value Calculator for nutrition of cows : The Young Stock (= bétail) Improvement Tool gives you an indication how milk replacers from Nutrifeed can profit your business compared to feeding raw milk to your calves (=veaux). We compare a product and an alternative. CUSTOMER VALUE MODEL A customer value model is a data-driven representation of the worth, in monetary terms, of what a company is doing or could do for its customers. How to build it? Example: based on Audi cars (1) LIST ALL VALUE AND PRICE ELEMENTS FOR OFFERING NB: Cost is typically the expense incurred for making a product or service that is sold by a company. Price is the amount a customer is willing to pay for a product or service. Pas vraiment ce qu’on fait dans le tableau VALUE PRICE BENEFITS COSTS + List price (in the catalog) + options + taxes (= additional costs for the customer) - Volume discount (if a manager buys lots Status, safety, speed, comfort Insurance, parking, fuel, towing of cars for its company), cash discount (if (=remorquage), maintain you buy direct) (2) DETERMINE INCUMBENT OR NEXT BEST ALTERNATIVE Who else is trying to sell similar products? Here, it concerns other car brands, such as BMW, Mercedez… (3) EVALUATE POINTS OF PARITY, CONTENTION AND DIFFERENCE Point of parity: a value element for which both suppliers’ offerings provide roughly the same level of benefits and costs Point of contention: both suppliers claim their offering is superior in terms of a value element, yet there is insufficient evidence to prove or disprove either claim Point of difference: one supplier’s offering is clearly and demonstrably superior in terms of a given value element (4) RELEVANT POINTS OF DIFFERENCE We identify what is relevant to the customer and what is not. (5) WORD EQUATION FOR EACH RELEVANT VALUE AND PRICE ELEMENT Through a word equation, value elements can be made explicit and subsequently quantified (expressed in monetary worth). For instance, consider two companies that each offer large-format, document reproduction systems: Company A (alternative) and F (feature). A point of difference between the 2 was the number of paper jams (=bourrages papier) a customer would experience each day. Company F claims to offer an improvement relative to the incumbent company A (= next best alternative). How can it express this relative point of difference in words to then calculate the monetary worth? What is the annual monetary worth of reducing the number of paper jams? Paper jam cost savings B, A = (paper jams/day * minutes to fix jam) A - (paper jams/day * minutes to fix jam) F 60 minutes/hour *operate wages/hour*annual workdays !"#∗%&'(& Units check : [ )*'(∗ !"# ] * [€/heure] * [jour] = € NB: operate wage per hour = salaire horaire de l’opérateur NB: An explicit assumption made was that if operator hours could be reduced, the Engineering Department would reassign the operator to other value-adding tasks. (6) LIST NON-QUANTIFIABLE ELEMENTS AS PLACEHOLDERS For a car, it could take the form of comfort. (7) CREATE A VALUE MODEL SPREADSHEET Value in use = what the customers gain with your product. It represents the superior benefits in excess of costs and price, the $ , that a customer firm gets from purchasing and using your firm’s market offering rather than a competitor’s. VIUfa = (Vf - Va) - (Pf - Pa) with Vx = value and Px = price. Value-in-Use Price (VIU Price) is the indifference price at which the customer firm would have no preference between your market offering or a competitor’s. VIU Pricefa = Pa + (Vf -Va) Indeed, companies won’t change technologies or equipment if the value gained is not greatly superior to their existing technologies. If Pf = VIU Pricefa -> VIUfa = 0, no gain for the customer. If Pf < VIU Pricefa -> VIUfa > 0, gain for the customer. (8) VALUE PROPOSITION Five Value Propositions - More [value] for More [price] - More for the Same - More for Less - The Same for Less - Less for Much Less Green value propositions are of course better. Customers have an interest in buying the product. A value proposition in marketing is a concise statement of the benefits that a company is delivering to customers who buy its products or services. It serves as a declaration of intent, both inside the company and in the marketplace. CASE 1 Zeus Laser Technologies, Inc. Developed by James Anderson, and James Narus Since its founding in 1964, Zeus Laser Technologies, Inc. has had a distinguished history of applying innovative and leading-edge technologies to staid applications in traditional industries. In July 2005, it was preparing to introduce a revolutionary new product, the Precision 2000 Laser Drill. Manufacturing firms can use the laser drill in machining operations to create holes in materials such as steel, aluminum, and iron. Precision 2000 is particularly effective in metalworking job-shops for unusual and highly demanding applications. Zeus engineers designed the Precision 2000 to replace conventional, mechanical drills. Grand Lakes Manufacturing (GLM) currently produces the top selling mechanical drill for these applications, the GLM 7Z84. Zeus marketing research analysts have gathered information on competitive prices and total cost of ownership. Here are their key findings. The GLM 7Z84 is currently priced at $50,000 per unit. Historical records show that the GLM 7Z84 has a useful life of about 5 years. Preventative maintenance on the GLM 7Z84 averages $5,000 per year and annual cost of repair parts is around $3,000. As a functioning machine tool, the GLM 7Z84 uses $2,500 of lubricants and $4,000 of metal working fluids each year. Because the GLM 7Z84 punctures and scars metal, customers frequently incur “re-working” charges. These typically come to $5,000 per year. Customer firms consider these re-working costs to be low relative to other mechanical drills currently on the market. Based on activity-based costing studies, Zeus analysts believe that the GLM 7Z84 contributes around $500,000 in net profits before taxes per year to job-shops from metalworking businesses. Based on internal laboratory testing results, Zeus engineers are confident that the Precision 2000 will have a useful life of 10 years. Because the Precision 2000 is a complex device, engineers estimate that preventative maintenance costs will average $7,000 per year and repair parts $5,000 per year. However, because of the accuracy of the laser, no reworking is anticipated. It also does not require either machining lubricants or metal working fluids. Perhaps most importantly, Zeus engineers estimate that job shops employing the Precision 2000 can complete more work than the GLM 7Z84 in the same time period resulting in $5,500 of additional net profit before taxes per year (i.e., above and beyond the $500,000 in profits generated by the GLM 7Z84 for a job-shop). Critically, this estimated additional profit does not take into account the potential cost savings described above. Zeus engineers believe that energy and overhead costs associated with the Precision 2000 and GLM 7Z84 will be roughly identical; however, GLM managers will likely dispute such claims vigorously. To achieve its typical 20% profit margin, Zeus would have to set a cost-plus price of at least $125,000 per unit. Marketing research studies have shown that few job-shop owners are familiar with laser technology and its application benefits. According to historical data, no job shop has ever paid more than $150,000 for machine tools for this category of applications. Analysts anticipate strong resistance to switching technology. Zeus has always sold its products directly to customer firms. It maintains a highly trained technical sales force well versed in product knowledge. Account reps crisscross the U.S. annually giving onsite demonstrations of new products and seminars in process improvement. Question: Develop a Customer Value Model for the Precision 2000. (To simplify your calculations for this question, please disregard the “time value of money”.) VALUE PRICE BENEFITS COSTS GLM: $ 50 000 / 5 = 10 000$ per year GLM: $ 500 000 profits GLM: $ 5000 (maintenance) (5 years = lifetime) + $ 3000 (repair) = annual price of the alternative Z: $ 505 000 + $ 2500 (lubricants) (20% margin) + $ 4000 (metal working fluids) Z: $ 125 000 / 10 = 12 500$ per year + $ 5000 (re-working charges) = $ 19 500 (10 years = lifetime) $ = $ 5500 Z: $ 7000 (maintenance) (We divided by useful time) + $5000 (repair) = $ 12 000 GLM is the feature product and Zeus Laser Drill is the alternative. Zeus engineers designed the Precision 2000 to replace conventional, mechanical drills such as GLM. Parity? Needs both quite equivalent costs of maintenance and repair. Both used to create holes in materials such as steel and aluminum. Contention? Energy and overhead: Zeus engineers believe that energy and overhead costs associated with the Precision 2000 and GLM will be roughly identical; however, GLM managers will likely dispute such claims vigorously. No sufficient evidence to prove the claim. Difference? No lubricants and metalworking fluids needed for Zeus laser drill. Because of the accuracy of the laser, no retouching is anticipated. Lifetime of the Zeus drill is twice that of traditional GLM. Zeus drill has a better accuracy, thus particularly effective in metalworking job-shops for unusual and highly demanding applications. f = feature = Zeus and a = alternative = GLM VIUfa = (Vf - Va) - (Pf - Pa) = (505 500 - 500 000) + (19 500 - 12 000) - (12 500 - 10 000) = $ 10 500 value induced. VIU Pricefa = Pa + (Vf -Va) = (5500 + 7500 + 10 000) = $ 23 000 → * 10 for the total price per unit = $ 230 000 = indifference price at which the customer firm would have no preference. Below this price, the customer has an interest in buying Zeus drill (thus OK for $ 125 000). Even if few job-shop owners are familiar with laser technology and its application benefits, they must believe those numbers, and so be free to switch technology. (3) PROMOTION & COMMUNICATION ( 1 ) It is important to understand the characteristics of communication media and how to classify them Communication media can be characterized by their level of personality and the number of cues they use. A sensory cue is a statistic or signal that can be extracted from the sensory input by a perceiver (touching, smelling, tasting…). Examples: Written news and advertising are impersonal (same for everyone) whyle internet may be very personal. Moving images on TV include sensory cues. A visioconference involves more sensory cues than any communication by phone. A conference is personal and can include many sensory cues, as well as a face-to-face meeting (with even more sensory cues!). Personal/Impersonal There are two primary ways marketers reach customers. Impersonal advertising represents the textbook definition of advertising: persuasive communication that uses paid media placement to promote a product or service. The second way to reach customers is directly. Direct promotion is referred to as personal advertising. It involves face-to-face contact with customers. Example: Trade fairs are personal. Those are large gatherings in which different companies in a particular field or industry show their products to possible customers. Companies can meet at events, and much more for B2B companies where companies can meet their business consumers. After a reunion, companies used to spend time in a Belgian Beer Cafe to meet the partners from all over the world. NB: In the figure, those are all objectives of the trade fair. Cues It’s much more difficult to include sensory cues in image advertising. Somes companies, such as Coca Cola, achieve to insert sound you can hear as a consumer only with the image (you hear the opening of the Coca Cola bottle). Reynaers company is a European developer of aluminum products for the building sector. They adjust what you see with the use of goggles that can switch the color of the aluminum you see through the glasses. Those face- to-face contact with customers include many sensory cues. New communication media during the Covid Crisis Audi created a virtual background for video conferencing (advertising purpose), people wore Mickey masks (or other branded masks). Those communication media include many sensory cues as well.  Characterization of social media Social media might be personal, impersonal and contain a few or many cues. Actually, it depends on how you use them (use of private messages? What social media do you use?). For instance, Twitter used to be limited on the number of characters by post and is not really made for posting pictures and videos. It contains less sensory cues than TikTok or Instagram. Moreover, A personal social network is an online platform that allows users to stay in touch with personal connections in a shared social space. That definition rules out platforms like Twitter where users don’t necessarily know each other, as opposed to platforms focused on existing personal connections. Social media can be used in different ways. It completely changes the way companies used to communicate. Companies are indeed shifting their advertising budget to social media. Social media features o Open or closed access (closed = only available in companies). o User profile pages with limited visibility o Users connect with others in online social networks (based on family ties, friendships, interest groups, professional relationships, acquantaines…; companies/brands and celebrities/influencer; peer-to-peer or aspirational connections) o Social networks are visible to connections o Users generate and exchange content o Users interact through services and applications Example: Facebook. First reserved for students at the university of Harvard, it then opened up to other American universities before becoming accessible to all in September 2006. It has 2 billion users. It’s really a social media because you can see the connections of your connections, that differs from whatsapp where you cannot see connections. ( 2 ) Organizations need to think of what they are trying to achieve and what communication media are appropriate for their objectives. Marketing communication objectives are long-term goals where marketing campaigns are intended to drive up the value of your brand over time. The first common marketing communication objective is to increase awareness, let the people know your company and products. Once it’s done, the client must understand that he has a certain need so that he considers purchasing. The figure aims to show that many consumers enter the market at first. They are the potential consumers, but in the end, only the loyal consumers stay and adopt the product. As a manager, you must create interest, so that consumers are invested and more likely to adopt the product. Communication media will thus go from impersonal to more personal, and from few sensory to more sensory cues. Therefore, the cost/impact per contact basis generally goes up as well.  Generate awareness Brand awareness is the measure of how memorable and recognizable a brand is to its target audience. Establishing brand awareness is a powerful marketing strategy that leads consumers to develop an instinctive preference towards a brand and its products. How to do so ? o Inbound marketing is a strategic approach to creating valuable content that aligns with the needs of your target audiences and inspires long-term customer relationships. Your customers are your customers because you provide solutions to their problems. Inbound marketing is based on a content creation strategy that attracts visitors to your website and blog, to convert them into leads and then conclude them into customers. Whose objective is to generate the interest of prospects by offering them interesting content adapted to their position in the purchasing process. Inbound marketing therefore serves to offer a unique experience based on the profile and behavior of each prospect. Methodology: Different types of content are created and then “Published” on the company’s Content Hub (a curated collection of branded content on a specific topic or subject). This content is optimized for search engines and links are made to this content hub on “Outposts,” such that traffic is generated. It is important to get traffic on the company website because that is where (potential) customer activity (and interest) can be tracked. Traffic on the website can help to track the behavior of the customers, identifying the pages they visit and what they are interested in. NB: Search engine optimization is the process of optimizing your website to increase the quality and quantity of traffic from a search engine results page. It is important because it ensures that your website shows up for users on search engine results pages when they search key terms for your specific industry and the services that you offer. Efforts drive organic, unpaid traffic to your website. You can pay Google to be more reachable or you can make simple advertisements. o Viral campaigns Viral means quickly and widely spread or popularized especially by means of social media a viral video. It is spread from one person to more than one per viewer. Viral marketing relies on an audience to generate the message of a product or service. Marketing is considered “viral” when it reaches the point where it's being shared by the public at large rather than just its target audience.  NB: Plutchik identified eight primary emotions, which he coordinated in pairs of opposites: joy versus sadness; trust versus disgust; fear versus anger and anticipation versus surprise. Intensity of emotion and indicator color increases toward the center of the wheel and decreases outward. Example: Audi video. Emotions that fit into the surprise and anticipation of Plutchilk’s wheel, as well as interest and amazement. Negative emotions were less commonly found in high viral content than positive emotions. The emotions of admiration and joy were very commonly found in highly shared content. Supporting Evaluation: Content Marketing = develop and curate content that is valuable, relevant and consistent (with respect to the need of the customer) and distribute it to a clearly defined audience with the objective of supporting profitable customer action (attract, engage and retain an audience). Goals : o Showing authority/expertise in the field (“thought leadership”) o Engagement with (potential) customers on their terms o Lead generation and nurturing Example: The Furrow magazine. The Furrow was first established by John Deere Company in 1895 as “A Journal for the American Farmer.” The goal of the magazine remains the same: to tell stories that people enjoy reading and provide them with knowledge that they can apply in their operations, and so to build trust with farmers and help them (rather than selling something)... Product Trial Product trial is described as the consumer's first usage experience with a company's brand or product that is most important in determining brand attributes and the intention to make a purchase. Consumers can test the benefits and promises of the product. Example: Cisco gives the impression of a real meeting. QUEL RAPPORT ? o Cisco provides the routers and switchers that enable internet connections. In addition, it sells hardware, software, and security that run on top of the internet. The TelePresence product is a form of very high-end videoconferencing, sometimes called videoconferencing “on steroids.” o The meeting participants see each other in true life size, the table seems to continue at the other end, and furniture is the same at both sides. As a result, the participants are immersed in the environment and forget they are not physically co-located. In sum, it replaces a face-to-face meeting that may require extensive travel, which, in the US, is often through flying in- between cities. o Instead of an actual flight, this boarding pass gives access to a TelePresencemeeting. In the “Please be aware” box, the different nuisances (or ‘pains’) of flying are ridiculed. In the “Reason for TelePresence meeting” box, the different benefits of connecting with remote colleagues while saving time and cost are highlighted. o Trade fair attendees could then experience an actual TelePresence meeting if they handed in this boarding pass. This is an important step, because it is one of the products that you need to “see it to believe it.”  MINI CASE: MOSAIC PODCAST Agriculture Company Drives Social Engagement with 'Serial'-Inspired Podcast Context: Mosaic sells products that aren’t very flashy. Descriptions of its crop nutrition products include phrases like “potassium oxide,” “nutrient removal” and “bushel per acre average.” Mosaic and marketing communications agency Broadhead chose to break through the monotony of scientific jargon and the noise of the internet using a podcast and an engaging social media campaign. Goals Educate the audience about the importance of crop nutrition Be a leader in the field More entertaining way of advertising Reach the target audience during harvest season: share photos of their harvest and yield related information on social media (50% farmers are on social media) Simply information and make it easy to understand for audience Actions Podcast concept by brainstorming what is popular Get into the farmer’s mindset at harvest time: Mosaic’s consumer is looking at the yield monitor and thinking about what they could do differently the following year. Employees were casted as characters for the podcast. They became fictional characters of the “Great Yield Mystery”. Podcast begins with a death; however, it’s not who died, but what: one farmer’s crop yield. The community is introduced as the narrator tries to solve the mystery of the low yield. Results Mosaic exceeded its social media engagement goal by 379% 2000 downloads and 2 millions media impressions Success: deliver technical information in such a clever way: Balance between technical content and entertaining storytelling Audience could relate to characters and storyline: the audience lives in rural America, so the storyline was written in such a way, tiding the audience’s lifestyle. Besides video, a microsite was created with case files to get the audience involved and solve the mystery. Questions 1. What were the key success factors for this campaign? Get farmers involved (use characters they can identify to), create a mystery to get them interested to solve it, audience lifestyle relating to the rural American storyline, delivering technical content in an entertaining way, getting in the farmer’s mindset at the right time (harvest time). 2. What different communication tools were leveraged and how? Use of social media and the internet 3. How do you evaluate the results of the campaign? By number of likes on social media, downloads and media impressions, number of visits on the website (4) PLACE & CHANNEL To understand why place is so important, let’s consider a market with multiple suppliers (firms) and consumers. There are many interactions possible (9 in this example). The more the stakeholders, the higher the complexity. We could also introduce an intermediary to simplify relationships. Indeed, each interaction involved interaction costs. Example: As a consumer, when going shopping, we don’t need to go to all physical stops to get the goods. MEDIUM & CHANNEL A medium is primarily used to communicate information to consumers, while a channel involves the opportunity to complete a transaction—to sell and deliver merchandise. However, the difference is blurring (e.g., social media: you can start to increasingly start doing transactions. It is both.). Single channel: using one single channel to transact (e.g, only physical stores or only e-commerce). It refers to the relationship between a customer and an organization that takes place through a single channel, such as email, text message, web page, or mobile app. Multi-channel: using multiple channels to transact, but each journey remains separate (no integration). It implies the use of multiple platforms for communicating with customers, such as online, on mobile devices, in a physical store. For example, Amazon has physician bookstores besides the online shop. Cross-channel: using multiple channels to transact and enabling customers to switch among them along the journey (integration operations). You can start with one channel (e.g receiving a voucher by email, and they go to the retail outlet). Omni-channel: putting the customer central and enabling seamless and synchronized channel usage. There’s a full integration so that everyone knows where the customer is in the cycle of transaction. We’re turning more and more to omnichannel today. Example: Ikea works with a mobile app. IKEA creates an omni channel shopping experience from favorite items in the app. You can start shopping on the website. Then, on the mobile app, you can check if products are available at the nearest stores. In the store, you can use the app to find out more information about the product. VALUE CREATION-CAPTURE “One-stop” shop: you like, as a customer, to go to only one place (reduces the transaction cost). Breaking bulk: Breaking bulk is the process of dividing up a large shipment/production of goods into smaller, more manageable quantities for each consumer. This can be helpful for retailers because it allows them to stock and sell the products they receive more easily. It also helps to keep inventory levels low, which can save on storage costs. Holding inventory: It’s the expectancy. When you go to the retailer, you’ll be able to find your favorite product (milk, toilet paper) because you know there's inventory at the retailer. Information brokering and advice: You may not have all the required expertise to buy. You can get some advice at the retailer. Financial services: offering credit facilities or stage payments to suitable, creditworthy customers. This allows shoppers to spread the cost of a product, making it easier to afford. It concerns B2B markets, as well as B2C, such as Carrefour (when you buy expensive electronics for instance). First, the tee shirt costs 10$ to make for the manufacturer. The manufacturer adds a price on it when selling it to the wholesaler (person whose business is buying large quantities of goods and selling them in smaller amounts, for example to shops). It adds a small price on it and they sell it to the retailer. They had some value to the product, for instance with people giving advice at the store. Through those principle of price increase, the different parts have been compensated for the value they provide. CHANNEL OFFERING Products offered Those are the characteristics of the products that a retailer offers: o Each different product item is called a stock-keeping unit (SKU). It is a number that retailers assign to products to keep track of stock levels internally. o Variety (also called breadth) is the number of product categories a retailer offers. o Assortment (also called depth) is the number of different items offered in a product category. Example: Bike specialists have a large variety of bikes and a large assortment. There are many options to choose on the bike. Decathlon sells bikes, also a variety and have a limited assortment (only their own brand). DreamsLan is a children's store. It only has one type of bike, and quite a large assortment. Different outlets have different varieties in one type of product. As a manufacturer, it is important to think about how you are positioning, who you are competing… o Product packaging + label (information you provide to the consumer).  Example: Delhaize turned to more ecological packaging, not made of plastic anymore. They also label their product. Indeed, every person has their own values healthy products, environment friendly products) but there’s so much information on the product. Nutriscore (score ABCD) simplifies it, rather than looking at the level of fat. Labels can also give information about where it comes from, how it’s produced. Services offered For instance, services can be the presence of someone that helps you make a selection. Depending on the type of retailer, you may have one. To take the example of a bike, a bike may need to be repaired at the retail shop. It is what Decathlon is doing for a few times. Services are really a way to differentiate. Example: Ikea does nice things in this area. You can pick (it’s already made available on point and time -click and connect), have a delivery at home, or even get your product assembled. There’s also an area for kids such that the parents can spend more time in the store itself. Store location and opening hours A big part of positioning includes the location. For example, the opening of a pick up for food just next to a gasoline pump. Those gas stations are sometimes open 24h a day. Store design and product display The store design is another consideration. It includes the way you move around: the e