Marketing

Product-Driven vs. Customer-Driven Characteristics Product-Driven

Customer-Driven

Focus

Products

Most valuable customers

Organization

One person responsible for product(s)

One person responsible for customer(s)

Strategy

Finding customers for products

Finding products for selected customers

Customer Interactions

Individual transactions

Continuity of relationship

Offering

Stand-alone products

Mass-customized, integrated packages

Measures of Success

Market share Product profitability Customer satisfaction

Share of customer Account/customer profitability Customer loyalty

Granularity of segmentation Segmentation Continuum

Mass Marketing

Traditional Segmentation

Vendor

Needs-Based Segmentation

MicroSegmentation

Relationship with Customer

One-to-One Marketing Partner

Key focus:

Product

Segment

Segment

Micro-segment

Customer

Market Segment:

One segmenthomogeneous market

Segments based on demographics, etc.

Segments based on psychographics, lifestyles, etc

Narrowly defined, high value segments

Segment of one

Product/ Service Offering:

One standard offering

Offerings modified to segment

Integrated offerings to segment needs

Integrated offerings to microsegment needs

Mass customization

Communication:

Broadcast marketing

Tailored messages

Tailored messages

Highly tailored messages

Dialogue marketing

Measure of Success:

Market share

Segment share

Segment share

Segment share

Share of customer

Attractiveness/Fit Matrix High Offering A

Offering C Attractiveness

Pursue Offering B

Consider Offering D Avoid

Low Low

Fit

High

Evolution of Organizing Around the Customer Great

Fully CustomerDriven

Ability to Deal with Customers Individually

CustomerDriven Matrix ProductDriven Matrix Process Driven Informal

Limited

Fully ProductDriven Embryonic

Mature Business Maturity

The Four Stages of Dialogue Marketing Awareness

Consideration

Preference

Sales/After Sales

Recognize Us

Know Us

Want to Use Us

Ongoing Relationship

Mass Communications

Dialogue Communications

Incentive Marketing

Client Communications

Goals: Raise Hands

Communicate

Convert

Keep Them Happy

Prioritizing and assigning fast tracks Customized mailing with fax-back Invitations to forums Sequential tactics/ mailing Customized aggregate responses Telephone follow-up

Sample products/ services Coupons/incentives Awards presentations Value/bundling pricing After-sale audits Credentials presentations

Public relations Web site Advertising 1-800-inbound telemarketing Speaking engagements Outbound mail Fax-back programs Public seminars Pre-qualification

Marketing Database

Loyalty programs Golf outings Newsletters Social events Thank you letters Birthday cards Creative events

Typical Customer Needs by Firm Size Critical Needs Top Corporate Accounts

Midsize Corporate Accounts Small Firms/ Individually Owned Businesses

Buying Behavior

Key Decision-Makers

Implications for Information Providers

Content breadth Unlimited usage Analysis / tools Technical support and training

High usage of flat rate services Multiple vendor relationships Focus on discounts for adding seats

Functional department heads (e.g., Market Data, IT)

Focus on growing existing accounts (more seats) Price competition for contract renewals High cost-to-serve

Specialized content Cost-effective solutions Technical support and training

Focus on limiting time required to screen vendors Limited coordination of individual product purchases

Senior executives of large end-user groups (e.g., analysis, heads of business groups)

Need for specialized products, customization and end-user training Early access to decisionmakers more important than price

Timely access to content when needed Cost control

Episodic Variability in usage levels Usage of free and low-cost resources

Owner Individual users with current project need

Demand for low-priced, flexible usage products Need for low-cost sales and customer service

Key Differentiating Factors among Customer Segments Key Differentiating Factor

Usage Behavior

Major Corporation Information Usage

Small Professional Firm Information Usage

Company size

Heavy and frequent usage

Only episodic usage

Frequency

Tailor content to specific customer needs

Limited need to sophisticated sorting or analysis

Customization Ability to “slice and dice” data Manipulation Geography Breadth of information needed

Usage Needs

Depth of information needed Timeliness

Information needed across all markets, states

Information specific to a state, region, or specialty subject area

Demand for wide array of in-depth information across multiple products, market segments

Demand for basic data, but ability to access more in-depth information, as needed

Instant and unlimited access to data, frequent updates

Timely access to data Single user, usually owner

Format

Demand for delivery via multiple platforms (e.g., internet, print)

User Multiple users Pricing flexibility and control

Willingness to Pay

Decision-maker

Largely price insensitive

Highly price sensitive

Willing to pay long-term fixed fee for unlimited usage

Desire to pay in installments or upfront

Functional department head makes buying decision

Need to estimate cost in advance Owner makes buying decision

Bridging the Divide between Demand and Supply: The Power of Continuous Differentiation High

Collaborators

Loyalty Networkers Collaboration planning, forecasting, and replenishment

Product data management Supplier visibility portal Vendor managed inventory

Supply Chain Collaboration (SCM)

Low

Strategic sourcing Vendor segmentation

Market Takers

i on t a nti sion egy re e r t ffe ic vi stra tectu i s D entr ork rchi u o c nu er- netw gy a i t m e n lo Co usto ativ hno C or tec ab n d l l Co ess a sin u B

Loyalists

Consumer product innovation POS data integration Customer visibility portal Trade promotion management Accounts/SKU planning and forecasting Customer segmentation

Customer Loyalty (CRM)

High

What is Your Future Demand and How does it Matter Today? Do you know future demand scenarios by: Customer and segment? Product and category?

DEMAND

POSITIVE

NEUTRAL

NEGATIVE

TODAY

TOMORROW

Do you know how each future scenario potentially could impact: Profitability of customers and segments? Profitability of product and categories? Supply chain processes, supplier relationships, and contracts? Human resources needs? Infrastructure requirements? Do you know what it all means for decisions that matter today on: Customer relationship management? Innovation management? Supply chain management? Human resources management? Business infrastructure investments?

A Framework for Accumulating Capabilities

Capability Relevant to Which Future Scenario? None

All (Core Strategy Elements)

Some (Contingent Strategy Elements)

Capabilities the company has already

Sell

Keep and maintain

Scale back

Capabilities the company does not have

Avoid

Acquire

Take real options

Strategic Flexibility: Core and Contingent Strategies FUTURE

CONTINGENT STRATEGIES

SCENARIO 1

CORE STRATEGY SCENARIO 2 PRESENT INDUSTRY CONDITIONS SCENARIO 3

SCENARIO 4

An Interactive Customer Management Approach Customer CT A ER T N I

UN DE

RS TA ND /PR ED ICT

CONSISTENT CUSTOMER EXPERIENCE Indirect

Direct Mail

Web/E-mail

Direct Sales

Teller

Agent

Call Center

Optimized interactions regardless of channel LE AR N

ZE Y AL N A

Interaction Management Sales, service, marketing risk, finance, channel, etc.

Mobile

New Approaches to Customer Segmentation Focus on customer potential Illustrative

Attractiveness of channel/customer

Invest

Maintain

Illustrative

High

Pioneers

Drive

Order management capabilities

High

Focus on customer sophistication

Exploit

Low

Order mgmt. optimizers

Traditionalists

In-store execution/ merch. optimizers

Low Low

High

Capability of customer to deliver value to the CP company

Low

High In store execution/ merchandising capabilities

Technical and Infrastructure Requirements for Integrated Insight Management

Data harmonization engine

Trade promotion data

Advertising plans

Data harmonization engine

Retailer data Retail POS

Retailer inventory

Competitive data Competitive data

Product hierarchy

Customer data

Syndicated and other data

Trade promotion data

Integrated data model

Data harmonization engine

Economic data

Shipment

Translating data into insights (Sophisticated data models and analytical techniques)

Internal data

Health and wellness

Leading indicator data

Weather

Syndicated data

Web-based data

Other market research

Needs and Attitudes of Similar Lifestage and Demographic Mix: Grocery Store Example Demographics

Lifestage

Needs

Attitudes

Woman, early 40’s, married, household income of $125,000

Two kids, working mom

Menu planning advice (low fat and value oriented), cooking club

Value shopper, prefers low fat products, enjoys cooking

Woman, early 40’s, married, household income of $125,000

Two kids, working mom

Ready-to-eat products, precooked entrees, home grocery delivery services

Convenience shopper, prefers organic foods, does not like to cook

Segmentation Impacts Strategy and Structure

Driving core business strategy How segmentation is used in development of strategy, evaluating and revising value propositions, and creating competitive advantage

Core business Strategic initiatives

Improving strategic initiatives How segmentation is used in financial planning, new product and service development, and analysis of individual initiatives

Operational structure

Optimizing organizational structure How segmentation results and customer understanding can be used to improve and modify organizational structures in order to better serve customers

Marketplace actions

Focusing marketplace actions How segmentation is used to improve and focus customer acquisition and retention efforts

Key Interactions between Design-to-Cost and Pricing Strategies Pricing Strategies

Design-to-cost considerations

+

Identify core and non-core functions. When combined with a pricing perspective, critical core functions are safeguarded and noncore functions are reduced or rationalized.

+

Build an optimal product portfolio by ensuring specifications are appropriate for customer segment and understanding the cost-price consequences and complexity of adding or subtracting functions.

Use volume-based pricing strategies to build market leadership in the early phase of the product life cycle.

+

Evaluate volume-pricing strategies against when costs might fall well below price. Good business models (internal and with suppliers) will minimize risks while increasing price freedom.

Manage and train the sales force to focus on value-based pricing.

+

Ensure the sales force does not “give away” cost reductions through cost-plus pricing.

Determine total cost (and benefit) of ownership and communicate business case. Position products by customer segment, determining options and upgrades; this includes price protection by entry-level products.

Core-Cost Analysis of an Auxiliary Control Unit •Offer choice of two different connection configurations, rather than providing both •Eliminate functions including: -Reset/on-off switch (circuit breaker) -Redundant DC input -Service outlet -Unused bus port 100%

32%

ILLUSTRATIVE

•Use thinner cable, simpler connections and main switch for three-phase version •Relax specifications for housing corrosion •Eliminate conformal coat 6%

•Get new price quotes from low-cost offshore supplier

5% 22%

•Use one board instead of two •Move cold-start-up function to system level

Current Cost

Function

Specification

Design

Manufacturing

35%

Supply

Core Cost

Steps for Developing Value-based Pricing Strategy 1 FIND THE VALUE CEILING Determine the most your customer will pay for a product or service using a threestep approach: 1) Create economic model of customer’s business 2) Determine bottomline impact 3) Outline business case for customers

2

CREATE CUSTOMER SEGMENTS

Use research to develop customer segments and prioritize them according to different criteria (such as economic impact, time to realize benefits) Tailor the offering to meet the specific needs of the customer segment

3 DETERMINE EQUITABLE SPLIT

4

DEVELOP PRICING STRUCTURE

Identify an acceptable return on investment for the customer

Use a variety of pricing mechanisms rather than just one

Identify the next-best alternative

Ensure that payments are linked to performance and customers pay for incremental value

Protect the core value of the offering

Consider other key points: keep the structure simple, track performance, align with market and brand, share the rewards, and establish controls to maintain integrity of the offering

Determining the Relative Value of a Product Size equals relative value

Lower overhead costs

Higher yield

Better appearance

Less maintenance and downtime Higher reliability

Low

MEASURABILITY

High

Illustrative

Long

TIME TO REALIZE VALUE

Short

Value can be Tied to Performance AREAS OF VALUE CREATION IN A CALL CENTER

Illustrative

Reduced operating costs

Quantifiable benefits

Increased revenues

Reduced working capital

KEY PERFORMANCE METRICS Agent handling time Number of calls completed automatically Average call length Average time for automated call Number of inbound calls that could lead to sales opportunities Number of outbound calls Conversion rate of outbound calls into sales

Overall benefits and value

Average revenue per sale

Improved customer satisfaction Intangible benefits

Ability to expand

Ability to offer new services to new customers

Number of collection calls First call resolution rate

The Objective in Pricing is to Search for Sustainable Price Ceilings PRICE CEILING

ENHANCED PRICING

Factors to consider…. VALUE-BASED PRICING COMPETITIVE PRICING COST-BASED PRICING

PRICE FLOOR

Determine fixed and variable costs Pinpoint bottlenecks and constraints Analyze inventory, quick response and forecast error rates Develop desired margin and discount policies

Determine life cycle position Assess competitor products and services Evaluate switching costs

Create economic model of customer’s business Determine bottom-line impact Outline business case for customer

Add features or services Offer bundled solutions Determine what customers value Assess performance and reliability improvement

Demand Management Deliver Over 40% of the Cost Benefit Price/Buy

Demand Driven

Supply Driven

100

35-41%

Opportunity %

80

60 8-10% 14-17%

40

20

20-22% 8-10%

0

Renegotiate Outsourced Contracts

Leverage Technology, Factor Costs and Scale

Reduce Complexity

Best Practices Transfer

Demand Management Through Pricing, Fit-for-purpose Solutions

Pricing Should Reflect Underlying Cost Drivers Support Organization Overhead Costs Definition: Costs involved in managing the service organization

Cost Characteristics: Typically fixed costs (e.g., People)

Examples: Management/CRM Budgeting/Pricing

SUPPORT STAFF AND INFRASTRUCTURE Direct Fixed Costs Rely on significant and highly inflexible systems and facilities One time reconstructing costs to turn off service Low marginal cost to serve additional units Stranded costs with reduced demand HRIS Infrastructure Telephone Infrastructure Data Network

Direct Variable Costs Definition

Characteristics

Examples

Rely upon flexible/ redeployable resources and infrastructure Costs can be impacted within 2-3 months based on fluctuations in demand for services Helpdesk Printing Long distance telephone usage

Pricing Research

Pricing Structures

Strategy

Equities business value proposition Client segmentation Profit center versus utilities

Pricing Levels

Bundling

Subscription versus pay per use versus custom models Bundled commissions versus commission sharing agreements versus hard dollars Current revenue and cost-to-serve per client Reference against client willingness to pay, cost -to-serve and competitive pricing

Segment-aligned bundles of product, pricing structures, and levels Balance of exclusivity in distribution with breadth of revenue base

Implementation

Revenue at risk versus market leadership Partnering with clients to set initial pricing

The Relationship Between Sponsorship Cost and Value SPONSORSHIP VALUE SPONSORSHIP COST Activation costs Cost of complementary marketing activities Advertising, promotion and client hospitality Rights fees Fees paid to rights holder, either in cash or value-in-kind products or services

Activation drives the value of association

Value of association Target customers associate sponsorship property with company or brand Brand image improves through “rub-off” effect resulting in favorable brand awareness and increased profitability Value of hard assets Event tickets and media assets

The Evaluation of Marketing Activation Strategies ACTIVATION PRACTICES SPONSORSHIP OBJECTIVES

TRADITIONAL

CURRENT

EMERGING

Image Increase brand awareness Improve customer loyalty Improve employee morale

Purchase advertisements in measured media Obtain celebrity endorsements

Link sponsorship with charity or philanthropy Engage in public relations activities

Develop original properties(company is sole sponsor) Establish interactive events for customers

Sales Increase market share Reduce customer churn Stimulate trial of new brand

Run sponsorship-themed promotions Launch themed product line Include sponsorship reference on packaging and displays

Showcase new products Sell products at event Conduct test marketing activities

Run internet based promotions(such as fantasy sports) Run activity based promotions(such as customers participate via online or mobile phone voting)

Client hospitality Reward loyal customers Accelerate contract negotiations Attract new customers

Provide tickets and access to premium hospitality venues Entertainment activities (gala events, invitationonly activities)

Showcase new products Demonstrate thought leadership

Create opportunities for customers to interact with celebrities

Customization Program Strategies Forms of Product Customization

RETAILER DIFFERENTIATION

Forms of Supply Chain Services Customization

Unique Formulation/Content

Bundled In-items Graphics and Labeling Multi-Packs Unique Size Display Unit SUPPLY CHAIN EFFECTIVENESS Inventory Management Special Handling

Dedicated In-Store Support Unique Routes to Market Collaborative Planning Premixed Pallets Special Pallets

IN-STORE MERCHANDISING EFFECTIVENESS

Examples of Retailer and Manufacturer Breakdowns

RETAILER BREAKDOWNS Short lead times for customized program development, resulting in rushed design-to-deliver timelines and higher costs (e.g., graphics) Poor forecasting for sales and orders, turn versus promotions Unkept volume commitments for shipments, especially for unique and retailer-branded merchandise In-store noncompliance with display/promotion on-floor setup and program duration Limited in-store labor for shelf restocking, especially for high-volume turn and promotional items

MANUFACTURER BREAKDOWNS Ineffective selection criteria for programs (e.g., in-scope formats, hurdle requirements) Insufficient collaboration across manufacturer customer teams, sales and marketing, and supply chain Opportunity  for Improved Poor forecasting for sales and orders, turn versus Collaboration promotions Low service levels from manufacturers, co-packers other suppliers (e.g., fill rate, on-time delivery) Product returns and unsaleables due to wrong product/volume shipped, damaged items, etc.

Shared Value Through Shelf-Centered Collaboration Strategic Capability Choices

Make Versus Buy

ConsumerDriven Supply

Menu Pricing

Category Management

Trade Promotions

Shopper Marketing

Innovation

Cross-Functional Customization Programs

Value Levers

SKU Rationalization Network Optimization Demand Segmentation Collaborative Planning Rapid Replenishment Packaging Standardization

ShelfBack

ShelfCentered Collaboration

Cost Inventory Sources of Value

Capital

Fees (e.g., co-pack graphic) Labor

ShelfForward

Right Assortment Right Price-Value Trade-offs Display Effectiveness Shelf Shopability In-Store Communications Funding Approach

Revenue Stock-Outs

Trial Trade-Up

Freight

Walk Away From Shelf Cross-Sell

Types of Choices for Shelf-Centered Collaboration

Type of Choice

Definition

“What we do”

Program prioritization: Select customization programs on which to focus based on vision for how to create value. Proactively focus resources on developing, testing and refining most effective customization programs. Weed out underperforming programs. Take into account unique characteristics of brand portfolio such as scale/share, relative profitability and growth.

“Where we do it”

Focus on winning customers: Understand how customers differ in terms of their future vision for in-store merchandising effectiveness and supply chain strategies. Prioritize investment in resources and collaborative efforts with customers that are driving profitable growth and that can serve as innovation laboratories for scaling up capabilities.

“How well we do it”

Improve execution and program management: Develop more systematic ways to manage the complexity associated with diverse customization programs. Establish guidelines and screening criteria. Develop clearer lines of authority and processes. Move down the learning curve.

Magnitude of Benefit

Disconnected Views of the Shopping Experience Demand generation

Browse and research

Transact

Fulfill

Service and support

Remarketing

What your customer sees “The coupons and offers I receive by mail have little to do with what I purchase, so I toss them”

“I can’t find clothing items that fit my particular lifestyle or needs”

“I can never find anyone to help me, and if I do, they can’t tell me whether a product is in stock or not”

“I wasn’t able to reserve an item from the web site and then go pick it up in the store”

“I was rushed off the phone and didn’t get all my questioned answered”

“I,m receiving three e-mails a week, and they all say something different”

Mass approach to marketing and promotions

Assortment planning doesn’t reflect customer needs

No access to inventory availability; staffing based solely on cost

Inventory management doesn’t span channels

Metrics reward reducing average call time

Separate marketing plans by division and channel

How you operate Gap

Good Experiences Encourage Customers to Become “Advocates” Demand generation

Browse and research

Transact

Fulfill

Service and support

Remarketing

“I can’t wait to receive my monthly newsletters in the mail and see the coupons and information just for me ”

“I can always find clothing that suits my tests and needs”

“The sales people are available and can easily tell me whether a product is in stock or not”

“I can reserve items or purchase items online and pick them up in the store”

“The service representative was friendly, and answered all my questions”

“I receive e-mails that provide me related offers for the store, catalog or web site”

Metrics include productivity and customer satisfaction goals

Marketing plans coordinated across channels

Common view Promotions and offers tailored to each customer segment

Assortment planning reflects market and customer needs

Inventory availability provided to associates; staffing balances cost with customer needs

Inventory management integrated across channels

Customer Focused Retail IT Architecture Financial and merchandise planning

Web

e-Mail

Kiosks

POS

Transactional history

Category, assortment and space planning Demand forecasting and replenishment

Phone

Catalog

Mobile

Cross channel correlation of all customer transactions

Enterprise data warehouse

Single view of the customer repository

Unified shopper view

Shopper analytics

Store operations and training

Customer order management Customer service management Customer and store fulfillment, DC, logistics operations

Promotions, events and markdowns Store and labor planning

Product lifecycle management and manufacturing

Supplier management and collaboration

Shopper insights

Transportation, fleet management Inventory management

Unified content management Catalog and call centre systems Customer relationship

Web channel systems and e-store

Store systems and devices

Inventory distribution

Merchandising

HR, financial and operations systems

Business administration

Store and channel operations

Seven Key Success Factors for a Channel Meeting consumers more effectively Aligning brand and channel strategy

Leveraging new channels and managing conflicts

Profitable revenue growth

Herding small retailers

Achieving global integration

Tighter collaboration with retail partners

Dealing with competition from retailers

OEM-Controlled Direct Channels Represent New Sales Avenues but may Alienate Retailer Relationships(Illustrative)

Brand building impact

High

OEM stores Large specialized retailers

flict n o C

Co

Large general retailers

li nf

ct Co

Online shop

Low Channel strength

Balanced Power balance

Size of bubble indicates revenue.

ict l f n

OEM online shop

Small retailers OEM strength High profits Low profits

Retailers’ Segmentation of Their Relationships with Consumer Electronics Manufacturers

Value of business

High

Niche player Narrow CE portfolio Loosely coupled supply chain Regular sales teams Innovation “on request”

Strategic partner High volume, broad CE product portfolio Tight supply chain integration required to manage volumes Account teams aligned with channels Continuous innovation

Non-strategic player Low volumes, narrow CE portfolio Little integration of business process Innovation often not required

Emerging player Low volumes, broadening product portfolio Still loosely coupled business process, integration required in future On watch list for innovations

Low Low

High Strategic importance

Analysis of Service Innovation Opportunity

Percentage of economic opportunity

Service model innovation

Key activities by type of service innovation Service transformation strategy Opportunity assessment Strategy alignment

Service growth innovation Integrated optimization

Traditional optimization Shared services

Performance improvement opportunity

Product to service strategy and enablement New offering definition and market testing Service sales transformation Service planning and product design integration Entitlement Call center/field deployment integration Policies and controls Traditional  Business process redesign view of  Optimization and commodity outsourcing Service opportunity Centralization and standardization Common infrastructure Service innovation opportunity

Service Leaders Define the “Service Chain” to Include All Functional Areas Involved in the Planning and Delivery of After-Sales Service Delivery functions

Planning functions

Service contact management

Warranty and technical support first line Level 2+ technical support Remote support management and service plan execution Self-service management Entitlement business rules and data quality Claims management and adjudication Warranty analytics Warranty terms management

Service strategy

Set overall service strategic intent Develop operating model parameters Define service levels across touch points Define enterprise integration model

Warranty management

Offering management

Service offering portfolio management (free and fee) Contracts management Services pricing strategy and management

Service parts Parts network design management Parts logistics

Service operations planning

Lead collaboration with product development Develop service treatment plans and performance plans Develop detailed requirements for service delivery

Service Technician training delivery/field Field resource utilization service Training

Analyze financial performance and root-cause Performance Analyze process performance and root-cause Perform routine reporting and feedback management Develop, track and update service metrics model

Parts planning

Parts pricing optimization Workforce scheduling

Network design

Reverse logistics

Reverse logistics planning Depot repair Return authorization

Stages for Innovating Service Operations

Stage0 Establish baseline

Stage1 Integrate the service chain

Stage2 Achieve service chain proficiency

Stage3 Optimize the service model

Enterprise Service Optimization

Sales Marketing

Service chain

Product development

Service Business Models Product-centric is typically the first type of service offered Product-centric

Professional services

Outsourcing/ alliances

Information services

Financial services

Service value proposition

After-sales support Warranty services Maintenance offerings

Problem solving expertise Functional or technology specializations

Lower salary and/or infrastructure cost Increased flexibility Reduced headcount

Information based services for: -Maintenance -Inventory Mgmt -Supply Chain -Trading

Financing for product purchases May include other financial services such as insurance, checking, loans, etc.

Operating model

Integrated product/ services delivery No separate services organization

Traditional leveraged engagement model Separate services organization New channels

Headcount transfer of client Technology transfer or updating Separate organization New channels

Remote monitoring devices Networked products

Separate financial services organization May pursue customers beyond product segment Data integration needed

Financials and metrics

Bundled with products Yearly fixed price of variable contracts

Fixed fee contracts Time and materials contracts

Multi-year, fixed contracts

Tiered, value-based pricing License fees

Recurring, feeand asset-based revenue Tied to interest rates

Compatibility, Leverage and Optimization in a Multichannel Activity System Customers Cross-channel shopping flows

Product testing

Dominant assortment

Buying

Highly informed sales associates Store-based channel

Online testing

Buying

Product knowledge

Online learning centers Catalog/Web channel

V Value levers (compatible across channels) A Activities (circle size indicates relative cost) Cross-channel leverage and optimization

Stages of Multichannel Retail Evolution

Stage0 Create presence Get up and running in new channel(s)

Stage1 Align fundamentals

Stage2 Achieve proficiency

Become adept Ensure basic value of foundational activities propositions are Integrate key in sync (e.g., customer-facing assortment, processes pricing)

Stage3 Leverage across channels

Exploit channelspecific capabilities Drive cross channel collaboration

Stage4 Optimize operating model

Optimize resource allocation at enterprise level Achieve permanent and repeatable cross-channel processes

Elements of a More Effective Sales Effort Strategically focusing the sales effort

Redesigning the sales process

Where is the opportunity? -Customer segmentation and understanding -Customer valuation -Product mix and pricing

How should the sales force spend its time? -Sales productivity -Selling process -Sales roles

What is required to win? -Competitive position/benchmarking -Segment –driven sales approaches -Total channel portfolio strategy -Sales strategy linked to the corporate agenda

How should the overall effort be planned? -Strategic sales planning -Account planning -Optimizing the number of sales and service personnel -Geography and coverage -Shared or duplicate functions

Enabling and motivating the sales force How should the sales force be organized? -Roles and reporting structure -Autonomy vs. control -Developing the required selling competencies -Recruiting and retention How should the sales force be motivated? -Compensation/incentives and performance measurement How should the sales force be enabled? -Information/technology -Sales support system -Organizational alignment -Training and coaching

Common Triggers for a Review of the Sales Effort Stalled revenue growth or lost market share

Increase in lost sales opportunities Slowing growth rates

Change in corporate strategy

Value migrating to different markets Need to shift or expand scope of activities

Change in sales approach

Change from a product-focused to consultative sales approach Need for more “hunters” vs. “farmers”

Changing customer priorities

Frequent customer requests for services not offered Customers lost to competitors who offer a different product/service mix

Significant increase in sales targets

Senior management mandate Investor dissatisfaction

High or growing sales costs

High sales expenses as a % of revenues Low average sales representative productivity

Competitor moves

Entry of a new player or competitor making an acquisition Increased competitive intensity

Merger or acquisition

New acquisition requires combining sales forces

Downsizing/cost-cutting

Sales force or company-wide downsizing

Change in leadership

New sales or business unit head seeks new vehicle for growth

Alternative Future Scenarios

Customer

Preferences

Individualistic highly proactive Local flavors World of extremes Proactive customers driven by highly Individualistic “super shoppers” armed personalized value systems and strong with ubiquitous information access  desire for “authenticity” Integrated, global supply chains Thriving regional and local players Dominant megaretailers coexisting High level of innovation in products, with channels and services focused specialists Resurgence of intermediaries Widespread failure of mid-tire retailers and brands that fail to differentiate Fragmented, Consolidated, local, global, highly Nature and scope of industry disconnected integrated Behind the walls Sameness sells Customer focus on personal relationships 70% global market share held by 3-5 and privacy megascale competitors Highly fragmented competition with no Price-conscious customers satisfied by truly dominant players generic mass market offerings Extremely localized and “gated” Traditional shopping channels dominate Niche players remain small and scarce shopping behaviors Customers unaware of and uninterested in choice Homogenous, passive, accepting

Retail Strategic Positioning Framework Self-expression

Needs alignment

Basic needs

Opportunist Basis of competition Product appeal, in-store experience, organizational agility The shopper says: “It’s exciting to shop here” “Great product” “It’s cool; it’s me”

Lifestyle Basis of competition Prestige, superior service, customer intimacy, enthusiasm The shopper says: “They know what I want” “They help me to be me”

Mass value Basis of competition Price, selection, convenience, sales, operating efficiency The shopper says: “I’m getting a good deal” “I can get everything I need” “It’s quick and convenient”

Solver Basis of competition Relevant solutions, partner network, reliable delivery The shopper says: “I trust them” “They solve my problems” “I can’t do it anywhere else”

Products

Solutions Selling proposition

Applying Systematic Intelligence to Retail operations Customer, operational and competitive data 11 110 0 0 0 1 1 10 10 01 0 1 00 1 0 01 10 0 01 0 1 1011 01 10 0 1 0 0 1

Advanced analytics

Business insight

Refined business actions

Optimized operations Merchandising Assortment planning Pricing and promotions

Stores Store design and presentation Employee management

Supply Chain Demand forecasting Inventory management Warehouse management

Competitive Sales Force-Key Characteristics Strengthened Role

Efficient coordination mechanisms Better linkages to marketing and supply chain

Focus Selling to right accounts High value added activities

Improved capabilities Clear decision rights Aligned activities

Decentralized decision making Profit-based incentives

Efficient Resource Allocation Promotions Merchandising activities

 Analytical tools to understand effectiveness at a retailer-specific level

Five Elements of an Integrated, e-Enabled Demand Chain Customer Feedback and Learnings CUSTOMER ACQUISITION

COLLABORATION

CUSTOMER CHOICE

TRANSPARENCY

SPEED

VALUE CAPTURE

ORDER GENERATION

ORDER ACQUISITION

ORDER FULLFILLMENT

USAGE SUPPORT

CUSTOMER RETENTION

Communicate within the organization, sharing information across the demand chain Establish “conversation” with your customers and leverage customer data to provide insights Listen to customers and work with them to meet their needs Create user-communities of customers around your products Personalize the customer experience Allow-customer controlled delivery, creating tailored offerings and relationships Customize marketing programs, pricing and communications Be open in sharing information with customers Show how prices and fees reflect differences in cost-to-serve Let your customer understand how you really work Respond quickly to customer needs-even anticipating them, where possible React in real time Introduce new products and turn around customized proposals faster than the competition Be aware of and measure customer lifetime profitability Distinguish between higher-value and lower-value customers Handle customer segments differently (tire) based on differences in potential value Incent each part of the demand chain to encourage value-creating behavior Communicate to each customer how they share in the value they create

Misalignment of Incentives in a Traditional Demand Chain OVERALL GOAL

Volume Pricing Mix Cost-toserve Margin Leakage

NATURAL TENDENCY Customer Acquisition

Order Generation

Order Capture

Order Fulfillment

Usage Support

Retention

Typical Pitfalls in Process Design PITFALL MISSED PROCESS OVERLAPES AND GAPS

“GOLD-PLATED”

HOW TO AVOID Conduct end-to-end process walkthroughs Stage weekly cross-team meetings to discuss process boundaries Integrate teams to identify overlaps and gaps Design to meet the value proposition but don’t overdo it Understand the cost impacts of “nice-to-haves” versus “need-to-haves”

TAKES TOO LONG

Integrate IT staff members into process teams Schedule regular updates on process design Set deliverable timelines that enforce cooperation

OUT OF STEP WITH CUSTOMER NEEDS OR BUSINESS STRATEGY

Focus on the customer, not the internal politics Ensure strategy and value proposition are well-communicated Schedule periodic reviews to ensure process design supports customer needs, the overall strategy and the value proposition Adjust business model as appropriate for operating, technical and regulatory constraints

Creating Differentiated Service High

Differentiated service

Customer expectations generally exceeded “Best-in-class” service standards achieved Highly innovative product development Targeted market focus Superior knowledge of customer requirements

Improved service

Emphasis on service quality, but “best-in-class” performance standards not achievable across the board High level market segment focus

Value Created for Clients

Basic service

Minimal post-sales support Customer service organization managed as a cost center Little or no market focus

Low Building a Foundation

Understanding Customers

Establishing Client Relationships

Service ethic/vision Service standards Service processes Service leadership Service skills

Focus groups Surveys Customer interviews Complaint management

Target marketing Loyalty programs Tailored service offerings Multi-skilled service representatives

Service Delivery Processes

Sales & Activation Direct Sales Core Service Delivery Processes

Billing & Collections Billing and Detailed Charging

Indirect Sales Credit Verification Service Activation/ Deactivation

Payment Processing and Collections

Post-Sales Support Walk-in Service

Customer Feedback

Inbound/Outbound Call Center Service

Client Retention Marketing Analysis

Technical Service and support

Crediting

Customer Feedback

Tariffing and Price Discounting

Customer Interfaces

Loyalty Programs Service Improvement

Improving Operational Capabilities Strategic Imperatives

Business Processes Sales and Activation Billing and Collections Post-Sale Support Customer Feedback Customer Interfaces

Organizational Structure Skill Requirements Accountability Roles and Responsibility Interdepartmental Coordination Training Career Development Performance Standards Measurements Objectives Accountability Improvement Recognition

Enabling Information Technology Billing and Customer Care Systems Call Center Applications Information Mgmt. and Data Warehousing

Importance of the Brand to Company Success “Booz Allen Wolff Olins Brand Sophistication Ladder” “Brand-guided Companies”

92%

“Brand-agnostic Companies”

97% Important

55% Very 72% Important 48% 28%

5 years ago

Today 5 years from now

Minor contribution of the brand to the success of the company Focus on costs, process optimizationless on clients requirements

“Emerging Brand Companies” Significant importance of the brand in securing market share and in realizing a price premium Partly alignment of brand with strategy Consistent brand understanding within the company

Profound customer insight Strong alignment of brand values with strategy, company processes and the organization Sophisticated brand control tools

Increasing brand affinity relevance, complexity

Strategic Management of a Brand

Step 1: Company Strategy

Company Strategy

Company goals Product/service strategy Positioning

Brand Proposition Detailed Proposition with Rational and Emotional Benefit

Step 2: Brand Concept Step 3: Translation of Brand into Operations

Brand Values

Brand proposition Rational benefit Emotional benefit Brand values

Align Constituents of the Business to Brand Marketing & Distribution

R&D

Marketing Mix Products Distribution Price Communication

Operations

Supply Chain

Admin.

Culture

How Brand Equity Analysis Works Determine which equity elements actually influence customer choice (illustrative)…….. Company Estimated share of choice Level 1: Valuation Determine the relative value of product configuration and brand equity

40%

20%

Product configuration value

Level 2: Equity elements Determine brand equity elements, the driver of brand value Level 3: Subgroup impacts Determine impact on profile of improving image at item level

Competitor 1

Customer orientation Customer advocacy +

Superior service +

Competitor 2

Competitor 3

30%

10%

Brand Equity Value

User identity

Arrogant -

For smart people +

Trustworthy products Innovation +

Multi-Disciplinary Brand Spending Approach

Procurement efficiency

Mix effectiveness

Buying more exposure for the same money

Spending on exposure with the greatest elasticity

Message alignment

Experience alignment

Influencing the perceptions that drive behavior

Reinforcing communication with reality

Optimizing for Brand Building, not Just for Sales High

Magazines

Online

Increase allocation/ Explore efficiency improvement

Leverage/ Increase allocation

Newspapers

Television

Explore effectiveness further

Improve effectiveness/ Reduce allocation

Effectiveness: Incremental impact on consideration

Low Low

Efficiency: Gross ratings points per unit cost

High

Brand Strategy

Importance to consumers

High

Brand brilliance Second-tier private brand Higher price and better quality Still adhere to local standards

Play big Sophisticated and profitable brands Highest quality Product innovation is critical to differentiation

Low-cost role player Best price with acceptable quality Adhere closer to local brands and standards

Service leader Transform products and transactions to life-needs relationships with consumers

Low Low

High Degree of leverage with retailers

Pressures on the Customer’s Value Chain

Competitors put pressure on price

Purchased materials

Sales price

Internal operations

Margin

Offering to end user

Price/ Cost

Manufacturer must lower its prices

Internal efficiency must go up

End user wants more value

Three Generations of Service Strategy

First Generation

Second Generation

Third Generation

Nature of service

Functionality

Performance guarantee

Total business solution

Manufacturer’s income

You-pay-as-I-perform

You-pay-as-you-consume

Split-the -gains

Parties involved

Manufacturer and customer

Manufacturer, customer, and intermediary

Multiple parties

Risk-bearing party

Customer

Manufacturer and intermediary

All parties, shared

Customer’s motivation

Focus less complexity Higher efficiency

Lower risk

Higher revenues

Changing Success Factors

Area

Product Provision

Service Provision

Protection of know-how

Intellectual property rights

Customer information

Investment priorities

Manufacturing infrastructure

Delivery infrastructure

Pricing strategy

Cost-plus pricing

Value pricing

Focus of alliances

R&D/ manufacturing alliances

Finance/ delivery alliances

Company culture

Merchandising mind-set

Problem-solving attitude

The Product Development Process

Determine customer needs

Analyze competitors’ products

Develop product specification

Develop supply chain

Ramp up Production

Do product and process development

Test market production

Develop marketing strategy

Survey available technology Main process

Supporting process

Launch Product

Train sales force

Three Dimensions of Product Quality Lost sales poor Product image Potential market share (100%)

Purchase again; recommend good to others

Product value poor Lost sales(future)

good

good Purchase

Consider purchase

Product satisfaction poor Lost sales

Actual market share (x%)

Branding: The Next Source of Competitive Advantage Examples of Clear Brand Positioning Volvo Safety Price Product Image Channel

Price Product Image Channel

Moderate to high price Heavy, with special features Family images High-service dealers

Nike Limitless Performance High price Innovative technical features “3D” personalities Specialty stores

VISA

Wall-Mart

Ubiquity/Access

Good Deals

Free to consumers Simple transactions Busy and exciting lifestyles Thousands of merchants

Lowest cost enormous selection of everyday goods Family and “ordinary” people Large “plain” stores

Rolls Royce Luxury Extremely high price Weight, wood, leather “Unspoken” imagery Small dealer network

BMW Quality Engineering High price Quality engineering Stylish, high-quality presentation “Elite” dealerships

Solutions Focus on Value Beyond a Simple Basket of Products and Services INDUSTRY

Truck manufacturing

TRADITIONAL PRODUCT

+

VALUE-ADDED SERVICES

=

TRADITIONAL VALUE PROPOSITION

SOLUTION VALUE PROPOSITION

“We can help you reduce your lifecycle transportation costs”

Trucks

Financing Service

“We sell and Service trucks”

Aerospace fasteners

Application/ design support

“We sell high performance fasteners”

“We can reduce your operational costs”

Utilities

Electricity

Energy asset maintenance

“We provide electricity reliability”

“we can help you reduce your total energy costs”

Chemicals

Lubricants

Usage and application design Lubricant analysis

“We sell a wide range of lubricants”

“We can increase your machine performance and up-time”

Drugs

Product support Outcomes-driven information database

“We sell pharmaceuticals”

“We can help you better manage your patient base”

Aerospace components

Pharmaceuticals

Product Versus Solutions Orientation FROM Product focused “Filling white space” Doing it alone Product economics Known as outsider selling it Product push Relationship built on personal trust Individual to individual Centrally driven Market/top down “One size fits all” process Functional process Intuitive & judgmental decision making Functional & fragmented IT

Rigid organizational boundaries Functional owners Bosses Position authority Individual, transactional measurement

TO STRATEGIC ORIENTATION

Customer focused Dominating markets that matter Relying on alliances and partnerships Customer economics

CUSTOMER ORIENTATION

Working as an insider Driving for customer pull Relationship built on team competency & trust Team to team

INNOVATION ORIENTATION

Innovation & application at the front line with the customer Replicated & applied market wide centrally

CAPABILITY ORIENTATION

MANAGEMENT ORIENTATION

Tailored to customer End to end in sync with customer-cross functional, cross product & cross business processes Analytical capability at front line (e.g., risk-based pricing) Integrated view & accessibility Value-added networks Strategists, architects, consultative service providers Coaches, team builders, guardians of the flag Recognition based on value-added Team performance measurement

The Evolution of Customer Solutions

CUSTOMER VALUE PROPOSITION

BEYOND 2000

1980s

1990s

EFFICIENT SELL

CROSS-SELL

CUSTOMER SOLUTIONS

Product functionality and pricing

One step convenience and bundled pricing value

Results and outcome

The Solutions Spectrum CUSTOMER SOLUTIONS SPECTRUM Single Product Types of Solutions

Narrow

Solution Customization

Standard

Single Product Standard Solutions

Single Product Custom Solutions

Multiple Product Standard Solutions

Multiple Product Custom Solutions Broad Range Tailored

Solution Integration Across solution types Stand-alone Across product lines/ Stand-alone businesses

Integrated Fully Integrated

Example Evolution from Multiple Products to Communications Solution PRODUCT

BUNDLE

SOLUTION

Discrete Products, Multiple Providers and Platforms

Direct Products in Single Bundle, Single Provider and Multiple Delivery Platforms

Single Provider Solution, Integrated Delivery Platforms

IP Services (news, mail, etc.) High-Speed Data Access Long Distance

IP Services (news, mail, etc.) High Speed Data Access

Wireless Local Vertical Services

Long Distance Wireless Local Vertical Services

Local Voice Local Voice Multiple customer interfaces Limited cross-product discounting Discrete separation of voice and data services Disparate network infrastructure

Single points of contact Bundled discounts driven by volume

Communications Solution Application independent (voice/ video & data) Distance insensitive (Local & LD) Untethered solutions (wireless) Pricing value enabled by superior platform economics Low-cost entry into adjacent markets Obliteration of service boundaries

Four Sources of Value Creation SOURCES OF INCREMENTAL VALUE CREATION

EXAMPLES

Reduced material usage costs (e.g., yields) Reduced process and/or transactional cost (e.g., inventory) Improved agility to market shifts (e.g., volume, mix) Improved convenience

Utility Co: reduce energy costs Fastener Co: reduce installation labor Auto parts supplier: assemble modules/ subsystems to order to improve throughput, quality and cost Telecom: consolidated billing

Free up capital from non-core activity Manage asset performance

Digital Documents Co: services and manages network of linked copiers and printers to better leverage the assets Logistics Provider: provides inventory management capabilities and facilities Financial Services: portfolio management

MARKET EXPANSION

Innovate new products Co-market to stimulate demand

Consumer Good Co: optimize category management

RISK MANAGEMENT

Take on price and volume risks Manage technology

Utility Co: guarantee against weatherdriven volume shifts Computer Co: guarantee “up-time” or software upgrades

USE/APPLICATION AND OPERATING PERFORMANCE

ASSET MANAGEMENT

Examples of New People Capabilities Required in a Solutions Business Area

“Product” Focused

ROLE

Working alone and controlling the show

Leading cross-functional teams

Narrow range (but deep)

Broad market knowledge

One-on-one Functional purchasing Personal trust

Multiple (team) Multiple levels (e.g., CEO/ CFO) and functions Trust in team competency

ANALYTHICAL SKILLS

Less advanced

More advanced business building

SELLING SKILLS

Transactional Sell “widgets”

Relationships Consultative Solutions

Functional (e.g., sales)

Cross-functional experience Across the value chain

PRODUCT KNOWLEDGE

CUSTOMER RELATIONSHIP

BACKGROUND

“Solutions” Focused

The “World of Extremes”-a Polarizing Marketplace

Growth and perceived customer value

“Bell curves”

Customers seek low cost for basic goods with low emotional investment Mega players capture market share by delivering “good enough” value at very low prices

Undifferentiated competitors fade into irrelevance

Customers seek greater “personal value” when purchasing goods with high emotional importance Differentiated specialists build profitable niches by delivering relevant value to targeted groups of customers

“Well curves” Mass

Competitive spectrum

Specialized

Understanding Today’s Multidimensional Shopper Consumer Value Systems are Increasingly Complex and Vary by Product/ Need Category, Shopping Occasion and Other Factors

Self-actualization Esteem o Pr

Survival

ct u d

Value system

Price

+

Quality

Service

+

+

Conveni Product + ence benefits

Entertainment

Security

+

Politics

+

+

Ethics ???

Shopping occasion

Value =

ed

n Co

ry

ce n e ni e v

S R So elf-e ep Dis le c lu tio xpre nis ove s s hm r y ns io n en t

Social

e /n

t ca

o eg

Mapping Elements that Impact Each Decision Stage

Incubation stage Consideration time Just looking Waiting for the right time

Product selection

Living with it

Incubation stage Putting it off

Trigger stage

Target decision: Choice of retailer

Looking for a durable product Preparing to buy

Shopping and purchase stage

Post-purchase expectations stage