Chapter05 110910013544 Phpapp02 PDF

Business
Market Chapter 5
Management
3rd edition
Managing Market
Offerings
Section III:
Creating Value
Copyright © 2009 Pearson Education

Business Market Management, 3rd edition Chapter 5-2
Publishing as Prentice Hall
Chapter 5: Managing Market
Offerings
Overview
 Some Conventional Thinking About Market

Offerings
 Constructing Flexible Market Offerings
 Value-Based Pricing
 Managing Market Offerings Across Borders
 Summary

Business Market Processes
Managing New Business
Market Offering Channel
Offerings Realization Management
Marketing Gaining
Sensing New
Business
Understanding Sustaining
Firms as Understanding Creating Delivering
Value Value Reseller
Customers Value Partnerships
Crafting
Market Managing
Guiding Principles Customers
Strategy
Regard Value as the Cornerstone
Focus on Business Market Processes
Stress Doing Business Across Borders
Accentuate Working Relationships & Business Networks

Overview
 The business market processes of 1) market
sensing, 2) understanding firms as customers,
and 3) crafting market strategy provide supplier
firms with an understanding of value
 Firms put this understanding of value to use in

creating value for the market segments and
customer firms that it has decided are of the
greatest value

Managing Market Offerings
Placing:
 products, services, programs, and systems
together in ways that create the greatest
value for targeted market segments and
customer firms
 Business’s challenge:
 construct offerings that uniquely leverage a
business’s resources to provide value

What is Market Offering?
The fundamental, functional performance a generic product
Core Product provides that solves a customer’s basic problem
Minimally Adds to the core product the least amount or number of

Augmented services, programs, or systems considered absolutely
Product essential
Adds to the core product those services, programs, and
Augmented systems a supplier offers to meet a broader set of customer
Product requirements and preferences, or to exceed customer
expectations
Encompasses any imaginable product change or service,

Potential
program, or system a supplier might create to add value or
Product reduce cost in ways that set it apart from others

Constructing Flexible Market Offerings
Formulate Create Value for
Assess Prepare to
Articulate Flexible Targeted
Customer Implement
Present Market Segments in the
Value Flexible
Market Offerings by Home Market
& Supplier Market
Offering Market
Cost Offerings
Segments
Apply
Value-Based
Pricing
Managing Market Offerings Across Border
Create Value for

Adapting Market Offerings Across Borders Targeted
Segments &
Customers in
Pricing Across Borders Other Country
Markets

I. Some Conventional Thinking
About Market Offerings

Tunnel Vision of Commodity
Markets
If you think you’re
in a commodity
market, you’re
thinking too
narrowly about
the market you’re
in.

Commodity Market
 Commoditization: Convincing
suppliers that no differences exists
among offerings
Business market mangers need to persuasively
demonstrate to customers that their offering is
different in valuable ways
 Commodity Magnet: inexorable pull on

a market towards commoditization

“Marketing Success Through
Differentiation--of Anything”
(Source: Theodore Levitt)
 There is no such things

as a commodity
 All goods and services

are differentiable

Understanding Commoditization
 Market offerings contain:
Supplementary services, programs, and
systems that enhance the core product/service
Provides additional value to customers

Understanding Commoditization
 Suppliers should:
Examine the differences between their
offerings and competitors
Consider the service and social benefits of the
offering
Gather data to understand competitors’ prices
Validate own market pricing
Gain estimates of their share of customer’s
business

Rebuilding Differentiation
Creating Knowledge Banks
Search for knowledge valuable for customers, but is difficult for them to
gain
Best practices database
Building Leveraging Expertise
Search for problems/nuisances that a number of customers experience
Offer solutions to solve/alleviate problems
Changing the Customer's Frame of Reference
Focus customer’s attention to total cost of product
Building Flexibility into their Market Offerings

Customers within a segment may be the same in many requirements,
but remain different in others
Services as Core Products in Market Offerings
Two View Points
 Services are  Differences between

fundamentally products and services
different are a matter of
1. Intangibility degree, and market
2. Inseparability of offerings fall along a
production and continuum of
consumption tangibility
3. Perishability
4. Heterogeneity

II. Constructing Flexible
Market Offerings

Augmenting Services, Programs, and Systems
Services
Fulfillment: Availability, assurance, emergency delivery, installation, training, maintenance,
disposal/recycling
Specification, testing & analysis, troubleshooting, problem-solving, calibration,

Technical: customer productivity improvement
Programs
Economic: Terms & conditions; deals, discounts, allowances & rebates/bonuses; warranty;
guaranteed cost savings
Advice & consulting, design, process engineering, product & process redesign,
Relationship: analysis of cost & performance, joint market research, co-marketing & co-promotion
Systems
Linking: Order management intranet, automated replenishment & vendor-managed inventory,
ERP, CMM
Information & design assistance intranet, expert systems, integrated logistics

Efficacy: management, assessment management, responsiveness systems

Constructing Flexible Market Offerings
Balancing 3 pervasive, conflicting marketplace
requirements:
1. Markets are becoming highly fragmented; customer
requesting and getting more customized offering
2. Customers uncompromising in demand for lowest
price or lowest total cost
3. Purchasers take quality as a given and few
meaningful differences separate competing
products

The Concept of Flexible Market
Offerings
Standard
Bundles/ Designed to meet the needs of the “average customer”
Packages:
Vanilla: Offered across all segments
Bare minimum of products or services that all segment

Naked Solutions: members uniformly value
Offered separately for those segment members that value

Options: them
Mass Capability to offer individually specified products or

Customization: services on a large scale: Elicitation, Flexibility, Logistics

Flexible Market Offering
 Composed of a few well-chosen naked solutions
 each wrapped with well-chosen options
 supplier makes choices prior to offering them to

customer
 Akin to modularity and commonality in product

design

Articulate the Present Market Offering
for Each Market Segment
 Take stock of how firm is doing business by
detailing current market offerings for each
segment
 Supplier managers can gain at least three
different insights from this process:
 true breadth of the market offering
 the arbitrary nature of charges
 lack of variation across segments

Baxter Healthcare Market offerings to Two Segments:
Transactional and Strategic Hospital Customers Segment
Marketing Offering Element Transactional Customer Strategic Customer
Product returns Standard Standard
Services
Technical assistance Standard Standard

Single point-of-contact Not offered Standard
Future disease incidence forecast Not offered Option
Price deals Standard Standard

Programs
Corporate customer bonus Not offered Standard

Executive perspectives Not offered Standard
Consolidated purchase report summary Not offered Standard
ACCESS Program Not offered Option

Baxter Corporate Consulting Not offered Option
ASAP order entry system Standard Standard
Systems
COMDISCO Technology Assessment Not offered Standard

Value Link stockless inventory program Option Option
COMDISCO asset management system Option Option

Assess Customer Value and Supplier Cost
 Measuring Customer Value
Cost-in-Use Studies: document
incremental cost savings
 Coming to Grips with Service Costs
ABC Techniques (activity-based-costing)
Time Equations
 The Payoff from Value Assessment
Identify & eliminate value drains
CVM process (Customer Value Management)

Formulate Flexible Market Offerings
by Market Segment
 Strategic alternatives for each service
element:
Do not market the service
Market it as standard—no charge
Market it as an option with a charge

Flexible Market Offering Strategy Matrix
Service Element Deployment

Service Element Market as
Status Do Not Market “Standard” Market as “Option”
Existing “standard” Prune from standard Retain in standard Recast as surcharge

service offering offering option
Existing “optional” Enhance standard Retain as value-added

Discontinue option
service offering option
Augment standard Introduce as value-

New service Keep on shelf
offering added option

Reevaluating Existing Standard Services
 Keep the standard offering as “naked” as
possible
 Only services, programs, and systems that

all firms within a segment highly value
should be standard

Reevaluating Existing Standard Services
 Prune or recast services

Look for seldom used services
Surcharge options for infrequently performed
services (training, installation, retrofitting)
Recast services as valued-added options
Customers pay in full or in part for options with
“bonus dollars”

Reexamining Optional Services
Reexamine existing optional services to
determine whether they should be:
1. discontinued,
2. used to enhance the standard offering, or
3. continued as an option

Building Flexibility with New Services
Sources of new services:
Focus on cost structures and strategic priorities
of key customers
• Innovate new services to assist customers in
lowering their costs or improving performance
• Enhance standard offerings with new services
• Add new services to standard offering to thwart or
stymie competitors
• Offer new elements separately as “value-added”
value-added
options

Pricing Implications
Pricing is based on the supplier’s strategy
for each market segment
 Customers may value certain standard services; but
only affordable to supplier if it has all of the
customers’ business
 Offering services separately provides flexibility to both
the customer and the supplier

Implement Flexible Marketing
 Option Menu  Tailored Package
 Transparent to the  Keeps the flexible
customer market offering
 List of all optional opaque to customers
elements • Salesperson develops
a list of specifications
and crafts an offering
based on a menu of
options known only to
the salesperson

Branding Market Offerings
 Promised value delivered to targeted customers
 Means of differentiating this value from other
market offerings
 make intangible benefits tangible
 build differentiation in near-commodity markets
 achieve identity and preference with customers’
customers
 differentiate market offerings with same or similar
core product but augmented with services, programs,
and systems

Branding
Ingredient Branding Strategy
Applicable when the customers’ customer
who is receiving the significant value are
consumers
Brand-building focused primary on customers’
customers
• Example: Intel Inside®

Brand Building
Use brand building initiatives to reinforce the
distinctive character of each brand and the
value it delivers to its target customers
Acer’s ability to sustain multiple brands in
global markets

Anticipate Implementation Problems
 Minimize implementation problems
by:
 Understanding customer requirements
 Shaping customer expectations
 Manage service and pricing
expectations
 Be relentless in communicating the
value story to customers

Breaking Away from the Pack
 Guarantee outcomes based on service
 24-Hour Shipment Guarantee
 Guaranteed Cost Savings Program
 Turn discussions to services and away from price
 Going against industry standard can be first step
toward industry paradigm shift and rule changes
 Be disciplined, operating within the imposed
structures of the flexible market offerings

III. Value-Based Pricing

Value-Based Pricing
“In most firms prices are determined by
intuition,
opinions,
rules of thumb,
outright dogma,
top management’s higher wisdom,
or internal power fights.” --Hermann Simon

Value-Based Pricing
Focuses on where within this range to position the

Pricing
market offering and how to shift the range itself and the
Strategy
supplier’s relative position within it
Pricing Focus on shifting the supplier’s position within the

Tactics existing price range and are often transitory in nature
Transaction Focuses on realizing the greatest net price for each

Price individual order

Traditional Pricing Approaches
Cost-Plus Pricing: Competitive-Based
Knowledge of own costs Pricing: Set price in
plus a percentage relation to competition’s
 Cost: cost of goods, prices
variable costs, and full  Supplier managers
costs essentially give control of
their marketing strategy to
 Plus: supplier’s target competitors
profit  Supplier with largest
market share usually
provides price leadership

An Approach to Value-Based Pricing
 Value-Based Pricing: Price should be

set in relation to a market offering’s value
 Fundamental Value Equation:
(Value – Price ) > (Valuea – Pricea)

f f

42
Value-Based Pricing Model
(Value – Price ) > (Valuea – Pricea )
f f
(Value – Value ) > (Price – Price )

f a f a
∆Valuef,a > (Pricef – Pricea )
Pricef < Pricea + ∆Valuef,a

-43
Value-Based Pricing Framework
Cost f,a Price a Value a Value f
Rs./Unit
0
Customer
Incentive (Į) Incremental
Profit for
Value
Offering a To Purchase
(∆ Value f,a)
Offering a
Pricing Strategies
Penetrating Pricing Skimming Pricing
Strategy: overall Strategy: overall
profit earned by selling a profits earned by selling
larger number of units at fewer units at a higher
a lower profit per unit profit per unit
Pricing strategy can only be understood within

the context of the business unit’s market strategy
for each segment
Pricing Strategy
 Factor supporting pursuit of a pricing strategy:
 Market size
 Forecasted growth
 Significance of any learning effects
• Experience curve
• Market knowledge
 Anticipated reaction by present or potential competitors
 How persuasively demonstrable the value proposition is

IV. Managing Market Offerings
Across Borders

Adapting Market Offerings Across
Borders
Firms progress through 3 phases:
Phase I: Initial foreign market entry
Phase II: Local or national market expansion
Phase III: Global rationalization

Phase I
 Market offering varies little from home market
 Attention centered on pinpointing the closest
match
“60% of U.S. companies
that do business in only one foreign
country do business in Canada.”
--Pankaj Ghemawat

Phase II
 Attempt to broaden base in each
country market by gaining greater market
penetration
 Tailor market offerings to the unique, local
market requirements
 Emphasis shifts from export of strategy to
development on a country-by-country basis

Phase III
 Global Rationalization
Managing market offerings across
borders becomes paramount
Think global, act local
Transnational capabilities:
• manage across national boundaries
• retain local flexibility while achieving global
integration

Providing Transnational Market Offerings
Adaptation
AAA
Triangle
Aggregation Arbitration

Making a Global Strategy Work
 Excel in one or two of the A’s
 Evaluate which country markets are most
significant and interesting
 Lead Country Model: product carefully tailored
to the dominant and distinct needs of individual
national markets
 Face to customer must remain local
 Goal: regarded as a local company in every
country market it participates

Pricing Across Borders
Pricing in Local Markets
Price relative to local competitors
Incremental value of market offering
varies across its country markets
Perceived superior value relative to local
market offering is a critical factor in initial
foreign entry
Dumping: accepting a lower price than in the
home market

Pricing Across Borders
Harmonizing Pricing Across Borders:
 Customers that operate across borders
increasingly expect unified pricing
 Cross-border arbitrage forces supplier to confront
widely varying prices across countries
 Pricing Bandwidth: pricing within each country market
is within a agreed-upon range
 Web-based electronic commerce may compel supplier
to move to a single price
 Fluctuating currency exchange rates add complexity

IV. Summary

Summary
 Managing market offerings is the process of putting products, services, programs,
and system together to create the greatest value for targeted segments and
customers
 Business market managers need to rethink and have a true understanding of the
extent of commoditization
 Market offerings are changing and are moving closer to the center of the tangibility
continuum
 Flexible market offerings provide naked solutions consisting of offering elements that
all segment members highly value
 Business market managers should pursue value-based pricing, selecting a price for
the feasible range defined by what the customer is willing to pay
 How market offerings are adapted across borders depends on their firm’s stage of
international market development
 Flexible market offerings prove useful in constructing transnational offerings

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc.



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Business

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 Some Conventional Thinking About Market

Copyright © 2009 Pearson Education

Regard Value as the Cornerstone

Focus on Business Market Processes

Stress Doing Business Across Borders

Accentuate Working Relationships & Business Networks

 Firms put this understanding of value to use in

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Minimally Adds to the core product the least amount or number of

Encompasses any imaginable product change or service,

Copyright © 2009 Pearson Education

Managing Market Offerings Across Border

Create Value for

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

 Commodity Magnet: inexorable pull on

Copyright © 2009 Pearson Education

 There is no such things

 All goods and services

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Building Flexibility into their Market Offerings

 Services are  Differences between

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Specification, testing & analysis, troubleshooting, problem-solving, calibration,

Information & design assistance intranet, expert systems, integrated logistics

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Vanilla: Offered across all segments

Bare minimum of products or services that all segment

Offered separately for those segment members that value

Mass Capability to offer individually specified products or

Copyright © 2009 Pearson Education

 supplier makes choices prior to offering them to

 Akin to modularity and commonality in product

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Technical assistance Standard Standard

Price deals Standard Standard

Corporate customer bonus Not offered Standard

ACCESS Program Not offered Option

COMDISCO Technology Assessment Not offered Standard

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Market it as standard—no charge

Market it as an option with a charge

Copyright © 2009 Pearson Education

Service Element Deployment

Existing “standard” Prune from standard Retain in standard Recast as surcharge

Existing “optional” Enhance standard Retain as value-added

Augment standard Introduce as value-

Copyright © 2009 Pearson Education

 Only services, programs, and systems that

Copyright © 2009 Pearson Education

 Prune or recast services

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education