Principles of Management - Session 3 Delivering and Capturing Value - Part 2

Promotion/Communication  Communication 1. Understand the characteristics of communication media and how to classify them. 2. Organizations need to think of what they are trying to achieve and what communication media are appropriate for their objectives....

Promotion/Communication  Communication 1. Understand the characteristics of communication media and how to classify them. 2. Organizations need to think of what they are trying to achieve and what communication media are appropriate for their objectives. 33  1. Characterizing communication media Many sensory cues Video-conferencing Television ad Face-to-face 360° video ad Hologram Impersonal Personal Newspaper/Radio ad Telephone, e-mail Few sensory cues (Adapted from Hoffman & Novak, 1996) 35 Impersonal, Few sensory cues 36 Impersonal 37  Personal Sell products Generate Relationship sales building leads Trade Launch and test new Fair Monitor competition product Reinforce Employee corporate motivation image 38  1. Characterizing communication media Many sensory cues Impersonal Personal Few sensory cues (Adapted from Hoffman & Novak, 1996) 39 Few => Many Sensory Cues 40 41 Many Sensory Cues: Mixed Reality 42 New Communication Media in the Corona Crisis 43  Characterizing Social Media? Many sensory cues Impersonal Personal Few sensory cues (Adapted from Hoffman & Novak, 1996) 44  Social Media Features Open or closed access User profile pages with (limited) visibility Users connect with others in online social networks Based on family ties, friendships, acquaintances, interest groups, or professional relationships Companies/brands and celebrities/influencers Peer-to-peer or aspirational connections Social networks are visible to connections Users generate and exchange content (User Generated Content - UGC) Users interact through services and applications 45 46  Communication 1. Understand the characteristics of communication media and how to classify them. 2. Organizations need to think of what they are trying to achieve and what communication media are appropriate for their objectives. 47 2. Communication Objectives Target Market Segments Media characteristics Awareness Potential customers Generally speaking, communication media will go from impersonal to personal Interest and from few sensory to many sensory cues. As a Evaluation consequence, the cost/impact per contact basis generally Trial goes up as well. Adoption Customers Personal nature Cost Sensory cues Impact Loyal Customer Base (Adapted from: Anderson and Narus) 48 Generating Awareness & Interest: Inbound Marketing The inbound marketing process starts from the red circle: different types of content are created and then “Published” on the company’s Content Hub. 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. 49 (Source: First 10 www.smartinsights.com) Generating Awareness & Interest: Viral Campaigns 50 51 Wheel of Emotions 52 (Source: Libert and Tynski 2013; Robert Plutchik Wheel of Emotion)  The emotions that make campaigns go viral 1. Emotions that fit into the surprise and anticipation segments of Plutchik’s wheel were overwhelmingly represented, specifically amazement and interest 2. Negative emotions were less commonly found in high viral content than positive emotions. 3. The emotions of admiration and joy were very commonly found in highly shared content (Source: Libert and Tynski 2013) 53 2. Communication Objectives Target Market Segments Media characteristics Awareness Potential customers Generally speaking, communication media will go from impersonal to personal Interest and from few sensory to many sensory cues. As a Evaluation consequence, the cost/impact per contact basis generally Trial goes up as well. Adoption Customers Personal nature Cost Sensory cues Impact Loyal Customer Base (Adapted from: Anderson and Narus) 54  Supporting Evaluation: Content Marketing = develop and curate content that is valuable, relevant and consistent and distribute it to a clearly defined audience – with the objective of supporting profitable customer action. Goals: Showing authority/expertise in the field (“thought leadership”) Engagement with (potential) customers on their terms Lead generation and nurturing 55 Content Marketing 56 57  Emotional connection through storytelling Narrative structure of a story: Temporal sequence of events (beginning, middle, end) Characters/protagonists Causality among events => Story plot Important factors driving engagement: Emotional appeals and dramatic intensity Perceived authenticity Mental imagery Climax and moral gist (lesson learned) (Source: Dessart & Pitardi, 2019) 58 Mini case: Mosaic Podcast 59 2. Communication Objectives Target Market Segments Media characteristics Awareness Potential customers Generally speaking, communication media will go from impersonal to personal Interest and from few sensory to many sensory cues. As a Evaluation consequence, the cost/impact per contact basis generally Trial goes up as well. Adoption Customers Personal nature Cost Sensory cues Impact Loyal Customer Base (Adapted from: Anderson and Narus) 60  Product Trial: Cisco 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. Shown on the picture below is its TelePresence product. This is a form of very high-end video-conferencing, sometimes called video-conferencing “on steroids.” As the picture shows, 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. Instead of an actual flight, this boarding pass gives access to a TelePresence meeting. 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. 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.” 61 62 Place/Channel Supplier firm Customer firm Supplier firm Customer firm Supplier firm Customer firm 64 Supplier firm Customer firm Supplier firm Customer firm Supplier firm Customer firm 65 Supplier firm Customer firm Supplier firm Intermediary Customer firm Supplier firm Customer firm 66 67  Definitions 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). Single-channel: using one single channel to transact (e.g, only physical stores or only e-commerce) Multi-channel: using multiple channels to transact, but each journey remains separate (no integration) Cross-channel: using multiple channels to transact and enabling customers to switch among them along the journey (integration operations) Omni-channel: putting the customer central and enabling seamless and synchronized channel usage (© Retailing Management, McGraw Hill Education)  Value Creation-Capture “One-stop” shop Breaking bulk Holding inventory Information brokering and advice Financial services 70 (© Retailing Management, McGraw Hill Education)  (Physical) Channel offering 1. Products offered 2. Services offered 3. Store: location, opening hours, design (© Retailing Management, McGraw Hill Education)  Products offered Each different product item is called a stock-keeping unit (SKU) Variety (also called breadth) is the number of product categories a retailer offers. Assortment (also called depth) is the number of different items offered in a product category. (© Retailing Management, McGraw Hill Education) Product Variety and Assortment Services Services Services Product Labeling Product Packaging Location & Opening Hours Store Design Store Design Store Design  Distribution Intensity Maximal intensity Selective (criteria) Exclusive (only one type of retailer) Geography  E-commerce  Control  Conflict 84 Channel conflict 85 86 Price  Traditional pricing approaches Cost-plus pricing: assumes that cost structure is known does not allow for dynamic pricing why should that impact the price customers pay? Competition-based pricing: cede control of critical aspect follow price leader what is the price customers actually pay? 90 91 93 Price Level (Test-Achats, 2019)  Third approach: Value-based pricing Instead of the two traditional approaches, a company can adapt a value-based pricing approach, based on the application in which the customer uses your product 96  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. Costs = 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 97 98 99 Example VALUE CALCULATOR: FrieslandCampina 101 Customer Value Model  Building a Customer Value Model 1. list all value and price elements for offering 2. determine incumbent or next best alternative 3. evaluate points of parity, contention, and difference 4. assess relevant points of difference 5. write a word equation for each relevant value and price element 6. list non-quantifiable elements as placeholders 7. create a value model spreadsheet, specifying data and assumptions 8. state your value proposition 103 104  1. List value and price elements VALUE PRICE Benefits Costs 105 2. Determine incumbent or next best alternative 106  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 107 4. Relevant points of difference Relevant to Not relevant to Customers Customers Points of Parity Points of Contention Points of Difference 108  5. Word equation Through a word equation, value elements can be made explicit and subsequently quantified (expressed in monetary worth) Example: Consider two companies that each offer large-format, document reproduction systems: Company A and F A point of difference between the 2 is the number of paper jams 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? 109  5. Word equation What is the annual monetary worth of reducing the number of paper jams? Paper Jam Cost SavingsF,A = [(paper jams per day x minutes to fix jam)A – (paper jams per day x minutes to fix jam)F] / 60 minutes per hour x operator wages per hour x annual work days An explicit assumption made is that if operator hours can be reduced, the Engineering Department would reassign the operator to other value-adding tasks. 110 6. List non-quantifiable elements as placeholders 111  7. Value model spreadsheet Value Elements € Amounts Cost Savings €xxxx Benefits (revenue/profit enhancements) €xxxx TOTAL VALUE €XXXX Placeholders ( +, –, or ?) Price Elements Initial Price Difference €xxxx Adjustments (+ or –) €xxxx DIFFERENTIAL PRICE €XXXX Value-in-Use €XXXX 112  Value-in-use Value-in-Use (VIU) 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) 113  Value-in-use 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) 114  Value models across segments Element Segment 1 Segment 2 Segment 3 Value element 1 $ $ $ Value element 2 $ $ $ Total Value $ sum $ sum $ sum Differential price (per year) $ $ $ Total Value-in-use (per year) $ end total $ end total $ end total 115 8. Value proposition (cf. Positioning) Five Value Propositions: More [value] for More [price] More for the Same More for Less The Same for Less Less for Much Less (Philip Kotler) 116 Customer Value Model – Exercise: Zeus Case 117  Building a Customer Value Model 1. list all value and price elements for offering 2. determine incumbent or next best alternative 3. evaluate points of parity, contention, and difference 4. assess relevant points of difference 5. write a word equation for each relevant value and price element 6. list non-quantifiable elements as placeholders 7. create a value model spreadsheet, specifying data and assumptions 8. state your value proposition 118  This Session Defining a business model and go-to- market approach (4 P’s) to Deliver value: Product Promotion Place Capture value: Price 120 Willem Standaert, PhD Associate Professor HEC Liège [email protected] Willem Standaert 121