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Creating and delivering Customer
Value
Man is guided by the idea of utility in his purchase
decisions. He will select a product that offers him
the maximum utility for the money he parts with.
More often the buyer seeks much more to utility.
He seeks VALUE
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Addressing the Value Concept All buyers seek Value in all their purchases and they
look for it in the form of benefits.
Customer compares the Total Cost & Value
of all Competitors offers and before he takesa decision.
For customers, all Products and Services is
actually a value delivery. It is out & out avalue game.
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The Concept of Customer Value
Customer Value is the composite of tangible values as well as
intangible values.
Initially Perceived Value and Finally Delivered Value Initially Perceived Value
Initially perceived value, the outcome of mental evaluations
Blend of qualitative and quantitative yardsticks.
Final delivered ValueIs the difference between the total value from owning &
using the product and the total costs incurred in obtaining
it.
Challenge is to Fulfill Customers Initially Perceived Value
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Am I Getting My Moneys Worth?
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Components of Customer ValueTangible Values
Functional value
Economic value
Convenience value
Sensory/aesthetic value
Service (people) value
Intangible
Values Social value
Prestige/status value
Sentiment value
Belief value
The two categories not mutually exclusive; they overlap and blend
Intangible values are equally vital as tangible ones
A Consumers Profile Determines How He Perceives Value
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Components of Customer Value- Tangible
Value
Functional Value: Ability to meet the given need, orUtility. e.g Car- for transportation. Cell make a
phone call. Other characteristics are quality, features,
durability etc.
Economic Value: Price advantage. Includes superior
profit making ability.
Convenience Value: Easy availability & easy to use.
Aesthetic Value: Look & Feel. Service Value: Quality of service, courtesy of
people.
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Components of Customer Value- Intangible
Value Social Value: Social acceptability or desirability.
Prestige/Status Value: Sense of self esteem.
Sentimental Value: Associated memories,
Sentiments. Belief Value: Confirms some deep stated beliefs.
Brand, Company Name : Takes time to build.
However most effective.
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Marketing Mix, the tool kit
The firm can enhance value by adjusting any of the
elements of the marketing mix
1. Increasing the functionality of the product2. Reducing the price
3. Giving better service support
4. Giving customer easy access to the product
5. Offering better communication
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Components of Customer Cost
Customer cost also consists of tangible and intangible components
Total of monetary cost plus psychic costs like time, energy,
and other botherations.
Value Delivery : Examples
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Nike Critics of Nike often complain that its shoes cost almost
nothing to make, yet the cost to the consumer is so much
Materials, labor, shipping, equipment, import duties,suppliers cost generally total to $ 25 per pair
Compensating the sales team, distributors, endorsers,
advertising and factoring the retail overheads makes it as
costly as $ 80 per pair But for the customer it is a brand that he is purchasing and
does not mind the cost
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Co-creating Value with the
Customer Value Creation process was a Exclusive Domain of
the firm now it is a Joint effort.
Now the market is seen as a forum of ValueCreation.
Product no more cerates a value. The Consumerparticipates actively in co-creating the value & theProductis just an outcome.
The consumers Home, Sites & Kitchen havebecome the Labs where the products are developedand decided. Thus Value is embedded within theProducts.
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Example of Co Creation When Italian automaker Fiat wanted to test new design concepts for its Punto, it
invited potential customers to visit the Fiat Web site and select from an array offeatures. More than 3,000 people participated. As a result, Fiat was able to capturevaluable insight into the likes and dislikes of a targeted consumer group, test differentdesign concepts at low cost and design a car far more reflective of customer
preferences. For their part, customers got a car closer to what they actually wanted.What Fiat has discovered is a new way to create value.
It's in good company: These days, Wall Street darlings like Amazon.com, AmericaOnline, Cisco Systems, Dell, eBay, Yahoo! and other electronic commerce innovatorsare partnering with their customers to co-create value and, indeed, are capturinggreater value than either party could have created independently. Co-creation is alsoleading to a rebirth of customer loyalty, a fragile concept in a world where customers
are only a mouse click away from a better deal.
Colleges, co create the course with the industry
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Customer Driving In some product categories you need to be
Customer Driving rather than Customer Driven e.g.Technology Products.
Henry Ford said, if he had to listen to people hewould have come out with a faster Horse instead ofa car.
Googleno one thought it would be so handy and
part of our life. Cell PhonesInitially were not accepted so well.
Most people may not initially understand thebenefits, specially the early & late majority.
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Traditional View of Marketing Whatever the firm produces, marketing will
help sell it.
In this process marketing assumes the last partin the value chain.
This works in the case of shortage of goods.
Make the Product: Design, Procure,
Manufacture Sell the Product: Price, Advertise &
Promote, sell, deliver the service.
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Value creation and delivery process
Choose the value segment
Provide the value segment
Communicate the value segment
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Value Delivery Process1. Choosing the Value (Strategic Marketing) (STP)
Customer segmentation Market selection process
Value positioning
2. Provide Value (Tactical Marketing) Product or Service development
Pricing
Sourcing
Marking
Distributing
Servicing
3. Communicating Value (Tactical Marketing) Sales force Sales promotion
Advertising
So in this model the value delivery process begins before the product isdeveloped and continues even after the product is delivered.
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Value ChainThe value chain is a tool for identifying
ways to create more customer value
because every firm is a synthesis ofprimary and support activities performed
to design, produce, market, deliver, and
support its product.
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Value ChainMichael Porter of Harvard proposed the value chain as a tool for
identifying ways to create more customer value.This value chain consists of 5 main activities and 4 supportactivities.
1. Primary Activities:
Inbound activities (brining materiel inside)
Operations (converting them into final Product)Outbound activities (shipping the final product)
Marketing & Sales
Servicing
2. Support Activities:
ProcurementTechnology Development
Human resources management
Firm infrastructure (accounts, legal, finance etc.)
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Integration of Functions
The firms task is to examine its costs and performance in eachactivity & compare the cost and performance of the competitor as
a benchmark. Firm should compare itself against the best of the
breed company as a benchmark, to achieve excellence.
Strong companies integrate the business processes of various
departments together to improve their core business processes.This is evident in most area, like new product introduction,
customer acquisition and retention, customer relationship
management.
Also the firms success depends upon how well it integrates with
its partners and supply chain. E.g. Wall Mart. Successful
companies have strong cross functional teams to ensure greater
synergy and efficient operations. E.g. the shipping, delivery,
billing, installation, services and collection departments working
together.
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A firms success depends not only on how well each
department functions but also on how it co ordinates
its core business processes
Market-sensing processgathering market
information and quick dissemination.
New-offering realization processresearching,developing, high quality offers
Customer acquisition process
Customer relationship management process Fulfillment management processreceiving the
orders and shipping the goods on time
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Companies reengineering their workflows and
building cross functional teams
At Xeroxcustomer operations group links sales,
shipping, installation, service and billing so these
activities smoothly flow into one another AT&T, Polaroid, Motorola, Siemens, Tata steel
are other organizations who have re organized
their employees into cross functional teams
To be successful, a firm also needs to look for
competitive advantages by partnering with
specific suppliers and distributors to create value
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Concentrating on core competencies to deliver
value
Companies now focus more on Core
competencies and outsource the less critical
areas if they can get better quality or price.
It serves as a..
A source of competitive advantage
Applications in a wide variety of markets Difficult to imitate
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Companies which have successfully
created value Procter and Gamble, South west Airlines,
Nike, Wal-Mart stores, Barnes and noble
U.S
Club Med, Nokia, VirginEurope
Sony, Toyota, Samsung, Infosys, LG, Tata
- Asia
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Strategic Planning for MarketingI. Corporate Planning
II. Strategic Business Unit Planning
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I. Corporate Headquarters Planning
Activities
Define the corporate mission
Establish strategic business units (SBUs)
Assign resources to each SBU Assess growth opportunities of SBUs
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1. Mission statement To define its mission, companies must
address Peter Druckers classic questions,
What business are we in Who are ourcustomers What is of value to the
Customer
Mission statement - clear message tomanagers, employees and customers
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Major Competitive Spheres
Industry
Products
Market
segment
Geographical
CompetenceVertical
channels
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Competitive spheres IndustryIndustrial market (DuPont), consumer
market (Dow)
Products2 wheeler segment (Honda motorcycleand Scooter )
CompetenceTechnology (Japan NEC)
Market segmentBaby (Johnson & Johnson) Verticalit is the number of channel levels (Ford
owned glass factories, rubber plantation)
GeographicalMultinational (Unilever)
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Cadbury India
To attain leadership position in the confectioneryand food drinks market of India
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Britannia
Our mission is to make every Indian a BritanniaCustomer
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Our mission is to organise the worlds informationAnd to make it universally acceptable and useful
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eBay
We help people trade anything on earth.
We will continue to enhance the onlinetrading experiences of allcollectors,
dealers, small businesses, unique item
seekers, bargain hunters, opportunity
sellers, and browsers.
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Mission statements may change over timeto
take advantage of new market conditionsAmazon.com changed its mission from being the
Worlds largest online book store to the worlds largest
Online store
ebay changed its mission from running online auctions
for collectors to running online auctions for all kinds ofgood
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Defining the Business:
Product Orientation vs. Market Orientation
Company Product Market
Xerox We make copying
equipment
We improve office
productivity
Columbia
Pictures
We make movies We entertain
people
Encyclopedia
Britannica
We sell encyclopedias We distribute
informationCarrier We make air conditioners
and furnaces
We provide climate
control inside
homes
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Examples of Business definitionsWhen Reliance Industry entered the telecom business,
the leaders of the corporation did not say that they are
entering the telephone business. Instead, DhirubhaiAmbani, the founder leader stated that We are
entering the communication business
Kingfisher AirlinesWe are in the aviation hospitality
business
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2. Concept of strategic business unit This concept is relevant to multi-
product, multi business corporations
An SBU is a group of related business
that can be treated as a unified entity for
the purpose of strategic planning
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Characteristics of SBUs It is a single business or collection of
related businesses
It has its own set of competitors
It has a leader responsible for strategic
planning and profitability
General Electric has classified its business into 49 strategic business units.
The purpose of identifying SBUs is to develop separate strategies and
assign appropriate funding
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Illustrations of SBU Titan - For Titan industries watches is the major
business. Sometime back it entered the branded jewellery
business, personal accessories and precision engineering.
In a major re-organisation, Titan management structured
its entire operations into 5 Strategic Business Unitss
Titan watches, Sonata watches, Tanishq , personalaccessories and precision engineering
Titan management says that the segregation has paid of in
a big way
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Illustrations of an SBU Blue star is in the business of air conditioning and
refrigeration.
To make better sense out of its planning, blue starrestructured its businesses into six SBUs air
conditioning and refrigeration special projects, air
conditioning projects, packaged air conditioning,
room air conditioners, commercial refrigerationand central air conditioning services
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3.Assigning resources to each SBUBCG Matrix - A tool for business portfolio management
STAR
Cash cow
Question
mark
Cash trap/
dog
HIGH
LOW
HIGH LOW
Relative Market Share
MarketGrowth
rate
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BCG Matrix
StarA star needs a great deal of financial resources because of rapid
growth. When growth slows it becomes cash cows and becomes
important generators of cash for the organization.
Cash cow-They produce a lot of cash for the organization but since
the market isnt growing, they dont require a great amount ofadditional financial resources for growth and expansion. As a result
the organization can use the cash they generate to satisfy current debt
or support SBUs in need of cash
Question markAn SBU that has a low share in a high growth
market, the organization must decide whether to spend more financialresources to build it into a star
Cash trapCash trap is a business which has low share in a market
which has low growth rate. It may generate just sufficient cash to
sustain itself or be dependent on other SBUs
4 A i h h O i i Th
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4. Assessing the growth Opportunities - The
Strategic Planning Gap
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Filling the Strategic planning gap Identify opportunities to achieve further growth
within current businesses (intensive
opportunities) Identify opportunities to build or acquire
businesses that are related to current businesses
(integrative opportunities)
Identify opportunities to add attractive
businesses unrelated to current businesses
(Diversification growth)
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Intensive growth The product-market expansion grid is the
most useful framework for detecting new
intensive growth opportunities.
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Strategies Suggested by Ansoffs Product-
Market Expansion Grid
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Starbucks Starbucks starting to serve gourmet coffee
in their outlets was a market penetration
strategy
The market development strategy marked
the next phase of growth. Starbucks applied
the success formula of Seattle to PacificNorthwest, then through out North
America and then across the Globe
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Starbucks Further starbucks followed the product
development strategy that led to new in-
store merchandise like CDs, high speedinternet facility
Finally starbucks pursued diversification
into grocery store aisles with Frappuccinobottled drinks, Starbuck brand Ice cream
and purchase of Tea retailer Tazo
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Integrative growth Sales and profits can be increased with backward,
forward or horizontal integration with in the
industry. Backward integrationacquire one or more of
the suppliers
Forward integrationEnter distribution,
wholesale and retail
Horizontal integrationAcquire one or more of
the competitors
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DiversificationIt is possible when a company finds a highly
attractive new industry where it can
leverage its strengths.
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II. The Business Unit Strategic Planning
Process
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SWOT AnalysisStrengths
Weaknesses
Opportunities
Threats
The overall evaluation of
Companys Strengths,
Weakness, Opportunitiesand threats are called
SWOT analysis
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Strength and Weakness analysis
Checklist for performance
1. Marketing
Company reputation, Market share, Customer satisfaction, Customer
retention, product quality, Service quality, price, distribution,promotion, innovation effectiveness, Geographical coverage
2. Finance
Availability of capital, cash flow, financial stability
3. Organization
Visionary, dedicated employees, entrepreneurial orientation, Flexible or
responsive
4. Manufacturing
Facilities, economies of scale, capacity, technical manufacturing skill
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Surveying the external environment A business unit must monitor macro and
micro environmental factors that affect its
ability to earn profits
Good marketing is the art of finding,
developing and profiting from theseoppotunities
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Opportunitythreat profile developed by a
passenger car firm entering Indian marketEnvironmental factor Opportunity Threat
MacroEnvironment
POLITICAL
ENVIRONMENT
There is political stability
in the country though the
days of single party ruleare over. Economic
reforms have come to
stay. On the whole
political environment is
investment friendly and
enterprise supportive
Since multiparty,
coalition governments
have become the order ofthe day, the policy
environment lacks
dynamism and boldness.
Time and opportunities
are often lost due to the
constant demand forconsensus
SOCIAL
ENVIRONMENT
Burgeoning middle class,
double income, nuclear
families with more
disposable income.
Increased urbanization
Rapid changes in
consumption habits and
lifestyle impose a degree
of vulnerability on
corporate
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Opportunitythreat profile developed by a
passenger car firm entering Indian marketEnvironmentalfactor
Opportunity Threat
Economic
environment
Economic reforms,
liberalization and globalization
carry good opportunities,Collaboration with foreign
firms possible, Services sector
having high growth rate
Liberalization and
encouragement to foreign
investment has madepassenger car industry
highly competitive.
Petroleum products are
becoming more scarce and
costly
Technology Import of technology has beenliberalized
Those who cannot competein technology are
vulnerable
Legal
Environment
Indias legal system is by far
sound, fair and open
The legal process is rather
slow. Labour law being
stringent, exit forentrepreneurs is difficult
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Opportunitythreat profile developed by a
passenger car firm entering Indian marketEnvironmentalfactor
Opportunity Threat
Natural
Environment
Generally conducive.
Availability of raw material is
ensured
Though availability of the
main raw materialsteel
is no problem, costcompetitiveness is lacking.
Productivity has to improve
compared to international
standards
Micro
Environmental
factor
Industry
Competition
Demand will go up further
when government policies,
especially excise rates, help
bring down the price of cars.
The industry is in a real growth
phase
Liberalization has taken
away the protection
enjoyed by domestic
players. For new entrants
too competition is a major
factor to reckon with
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Opportunitythreat profile developed by a
passenger car firm entering Indian marketEnvironmental
factor
Opportunity Threat
Consumerdemand
Large consumer base, growing urban
middle class, double income families,two people going out for job creating
greater need for personal transport.
Consumer no longer see it as a luxury
but as utility. Demand is constantly on
the rise for especially for small
compact cars
Consumers are
becoming morechoosy while buying
cars. The look for
styling, comfort etc,
in addition to fuel
efficiency
Technology Those who command the best
technology have the scope to stay on
top
More investment and
effort in R&D and
technology are
required
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Goal Formulation and MBOGoals are objectives that are specific with respect to
magnitude and time
Units objectives must be hierarchical
Objectives should be quantitative
Goals should be realistic
Objectives must be consistent
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Area where objectives must be set GROWTHinvestment, assets, revenue, profits, market
capitalization
PROFITABILITYReturn on investment, Earnings per
share
PRODUCTIVITYResource utilization, cost savings,
reducing defect rate
TECHNOLOGY AND R&Dmodernisation, innovation
HUMAN RESOURCES
SOCIAL RESPONSIBILITYCommitment to public
welfare
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Corporate objectiveExample of Reliance
Industries Reliance industries driven by good performance in petrochemicals
and oil refining businesses crossed $ 25 billion in annual sales in
2007, a 30% growth over the previous year.
Reliance set its corporate objectives for 20072012 as follows:1. Sales revenue should grow at a minimum of 20 % p.a
2. 25% CAGR would be achieved in return on net worth
3. Shareholder value of Reliance would be doubled by the year 2012
4. Company will choose best in class technology in all its business
5. Best of attention would be given to community health, safety and
environmental protection consistent with the companys position as
signatory of Global Voluntary Responsibility Care initiative
6. There will be investment toward enhancing the expertise of staff
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Corporate Strategy statement -ITC Planning period2007 to 2012
Corporate objectivesBy 2012 the annual sales income should be
double of the present level of Rs.19500 crore
Non cigarette portfolio should bring in 60% of the net corporateturnover from the current 52%
Net profit should grow at a minimum of 22% p.a
Business product / market positiontobacco & cigarettes, Hotels and
tourism, packaging and printing, paperboards and specialty papers,
agri-business, packaged food and confectionery, branded apparel,FMCG products
In all these products the entire national market and lucrative foreign
markets will be targeted
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Corporate Strategy statement -ITC Growth VectorExpansion of cigarettes through intensification
Expansion in hotel business by capacity expansion through acquisition,
alliances, start ups, and by entering into new market segments like semi
luxury and executive class
Competitive advantage and synergy
1. In cigarettesStrength in tobacco farming, strong brands, 60% market share
2. In hotels and tourismNew Alliance with US star wood Hotels which will
be used to strengthen the Welcomgroup chain. Separate positioning for semi
luxury segmentFortune park chain
3. In packagingThe leading supplier status to cigarettes and luquor industries
4. In paperboard and specialty papersA tree to textbook companyvertically
integrated from wood to paper. An international alliance will also be sought
for the Badrachalam brand
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Corporate Strategy statement -ITC In Agri-businessOverall low margin characteristics of the business
to be made up by value addition and better prices. Strength in rice
exports, soya and leaf tobacco
In packaged food and confectioneryA wide spectrum of valueadded food productsstaples, spices, cooking pastes, snack foods,
biscuits, ready to eat foods
In branded apparelClout of the brand Wills and exclusive retailing
In FMCGproducts in luxury, perfumes, colognes, personal cares
French collaboration and expertise
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Porters Generic Strategies
Overall Cost Leadership
Differentiation
Focus
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Online air travel industry provides a good example Lowestfare is pursuing a low cost strategy
Travelocity is pursuing a differentiation strategy by offering the most
comprehensive range of services to the traveler
Last minute is pursuing a niche strategy by focusing on clients who need totravel at a short notice
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Strategic Alliances to create a Global strategic
networkStar Alliance statistics
Member Airlines: 25
Number of aircraft: 3,740 Number of employees: 458,332
Passengers per year: 586.60 million
Sales Revenue (in US$): 169.70 billion
Daily departures: 19,534 Number of airports: 1,071
Number of lounges: 954
Countries served: 171
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Categories of Marketing Alliances
Product or Service Alliances
Promotional Alliances
Logistics Alliances
Pricing Collaborations
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Categories of Marketing Alliances Product or service allianceHindustan lever joined with
PepsiCo for marketing iced tea in bottles
Promotional allianceP&G has used the endorsement of
Bombay dyeing for promoting Aerial washing powder
LogisticsTransport corporation of India and Mitsui
company of Japan offers logistics services
Pricing collaborationsHotels and airlines, credit card
and petroluem products
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Marketing plan Executive summary and table of contentsThe marketing plan should open
with an executive summary for senior management with the main goals and
recommendations. A table of contents explains the layout of the report
Situation analysisThis section presents relevant background on sales, costs,
market, competitors and various forces in the macro and environment.
Strengths and weakness are also studied.
Marketing strategyDefines the mission, marketing and financial objectives.
The manager then decides the product lines competitive positioning
Financial projectionsIt includes a sales forecast, an expense forecast and
break even analysis Implementation controlsIt spells out the goals and budget for each
month or quarter, so management can review each periods result and
take corrective action
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Important questions
1. What are the tangible and intangible valuesthat customers seek in a product?
2. Explain the value delivery process?
How has Tata endeavored to create value for
Its customers through Nano?
3. What is the characteristics of a good mission
statement?
4. Explain the Strategic planning process atat a business unit level?