Tag: Cost Control and Management Accounting Osmania University b.com Notes

Value creation is the primary aim of any business entity. Creating value for customers helps sell products and services, while creating value for shareholders, in the form of increases in stock price, insures the future availability of investment capital to fund operations. From a financial perspective, value is said to be created when a business earns revenue (or a return on capital) that exceeds expenses (or the cost of capital). But some analysts insist on a broader definition of “value creation” that can be considered separate from traditional financial measures. “Traditional methods of assessing organizational performance are no longer adequate in today’s economy,” according to ValueBasedManagement.net. “Stock price is less and less determined by earnings or asset base. Value creation in today’s companies is increasingly represented in the intangible drivers like innovation, people, ideas, and brand.”

When broadly defined, value creation is increasingly being recognized as a better management goal than strict financial measures of performance, many of which tend to place cost-cutting that produces short-term results ahead of investments that enhance long-term competitiveness and growth. As a result, some experts recommend making value creation the first priority for all employees and all company decisions. “If you put value creation first in the right way, your managers will know where and how to grow; they will deploy capital better than your competitors; and they will develop more talent than your competition,” Ken Favaro explained in Marakon Commentary. “This will give you an enormous advantage in building your company’s ability to achieve profitable and long-lasting growth.”

The first step in achieving an organization-wide focus on value creation is understanding the sources and drivers of value creation within the industry, company, and marketplace. Understanding what creates value will help managers focus capital and talent on the most profitable opportunities for growth. “If customers value consistent quality and timely delivery, then the skills, systems, and processes that produce and deliver quality products and services are highly valuable to the organization,” Robert S. Kaplan and David P. Norton wrote in their book Strategy Maps: Converting Intangible Assets into Tangible Outcomes. “If customers value innovation and high performance, then the skills, systems, and processes that create new products and services with superior functionality take on high value. Consistent alignment of actions and capabilities with the customer value proposition is the core of strategy execution.”

Steps:

Create A Company Succession Plan

Most companies do not have a formal company succession plan. Company succession planning differs from personal or family succession planning, as it focuses on forming the next generation team of key managers and employees in a company.

Don’t Forget Qualitative Factors

Quantitative factors such as changes in revenues, gross and net margins, operating cost, etc. are easy to identify and therefore easy for owners to focus their attention on. However, companies with above-average valuations excel in both quantitative and qualitative factors. Don’t overlook areas like:

• Planning
• Leadership
• Sales management
• Marketing management
• People management
• Operations management
• Financial management
• Legal management

Take a Retirement Account Perspective

Company value creation is an ongoing process, which includes:

• Creating or expand recurring revenue streams,
• Increasing expected future revenue growth rate,
• Increasing returns on existing assets,
• Discontinuing poor performing activities,
• Reducing non-cash excess working capital,
• Creating or expand barriers to entry,
• Reducing company specific risk

A value growth professional can help you think about your business as an investor as well as an owner.

Protect Existing Value

For most companies, 75% of company value is in its intangibles. Some of those intangibles are trade secrets, intellectual property, proprietary methods and/or software, customer relationships, etc. Business owners should identify key value drivers, then takes steps to protect those key value drivers, which will protect company value.

Most business owners limit their actions to protect company value to obtaining hazard insurance, worker’s compensation insurance, and liability insurance. There are other ways to protect company value, including:

• Obtaining patent protect
• Requiring employees sign intellectual property assignment agreements
• Requiring employees sign non-disclosure and non-compete agreements
• Executing buy-sell agreements will all company owners
• Acquiring life insurance to support buy-sell agreements
• Purchasing business interruption insurance
• Monitoring and taking actions to limit the loss of brand reputation

Create Customer Value

The traditional notion of customer value, where benefits minus cost equal customer value, may seem simple but can be much more complicated in practice. Customer benefits and cost can be both direct and indirect, as can be customer value. Moreover, the right set of customer benefits can create barriers to entry and/or competitive advantages.

Many business owners argue that customer value is created by providing consumers with the lowest price, highest quality, and best service. Unfortunately, those three factors are often at odds with one another. Instead, consider adopting a customer-centric approach, taking into account factors like:

• The value drivers of your customers and would-be customers
• What customers feel about your product or service offering/delivery
• The cultural landscape of your target customers
• Your customers’ value proposition determinants
• How you can create a value-added experience for your customers
• When to create value through a collaboration with customers
• Measurements of customer value creation include increasing customer acquisition, satisfaction, retention, and add-on selling. Additionally, companies that can enhance their customer’s perception of the value of their products or services are likely to enjoy higher margins.

Plan Ahead

Business owners who don’t plan often find that they spend most of their time putting out fires. Planning allows company owners and managers an opportunity to set proactive goals and objectives for the intermediate future, as well as identify solutions for key business issues. A great starting point for long-term planning is to conduct analyses around issues like:

Why your company is relevant to existing and future customers

• Current market trends in your industry
• Why customers buy from you or don’t
• Current competitors and their competitive advantages
• Your company’s competitive advantages and weaknesses
• How you can build or reinforce barriers to competitors
• Existing bench strength to ensure your company has the right talent to achieved desired results

Monetary, functional and psychological value

Value in marketing, also known as customer-perceived value, is the difference between a prospective customer’s evaluation of the benefits and costs of one product when compared with others. Value may also be expressed as a straightforward relationship between perceived benefits and perceived costs: Value = Benefits – Cost.

The basic underlying concept of value in marketing is human needs. The basic human needs may include food, shelter, belonging, love, and self expression. Both culture and individual personality shape human needs in what is known as wants. When wants are backed by buying power, they become demands.

With a consumers’ wants and resources (financial ability), they demand products and services with benefits that add up to the most value and satisfaction.

The four types of value include: functional value, monetary value, social value, and psychological value. The sources of value are not equally important to all consumers. How important a value is, depends on the consumer and the purchase. Values should always be defined through the “eyes” of the consumer.

Functional Value: This type of value is what an offer does, it’s the solution an offer provides to the customer.

Monetary Value: This is where the function of the price paid is relative to an offerings perceived worth. This value invites a trade-off between other values and monetary costs.

Social Value: The extent to which owning a product or engaging in a service allows the consumer to connect with others.

Psychological Value: The extent to which a product allows consumers to express themselves or feel better.

Providing useful products and services for your customers can encourage sales, improve customer loyalty and grow your brand’s reputation. Regardless of your position within customer service, marketing, web design or more, there are many strategies you can employ to enhance customer value at your organization.

Creating value for customers means providing useful products and services that customers consider worthy of their time, energy and money. For customers to find value in a product or service, its perceived benefits need to outweigh its cost. Creating value means maximizing benefits within an acceptable price point.

Benefits and cost are the two key components of customer value. Benefits can include aspects like quality, popularity, accessibility, convenience and longevity. Increasing your benefits without increasing your cost can raise the value of your product or service for your customers.

Step 1:  Understand what drives value for your customers

Talk to them, survey them, and watch their actions and reactions. In short, capture data to understand what is important to your customers and what opportunities you have to help them.

After figuring this out, you need to separate the value-generating activities from the wasteful ones. There are 7 types of waste in Lean and they are categorized as necessary and pure. The former support the value adding activities while the latter can only damage your process.

Understanding and identifying the value that your company brings to your customers will help you keep great connections with them. This way, you will be also able to boost the profits that your business generates.

Step 2:  Understand your value proposition

The value customers receive is equal to the benefits of a product or service minus its costs.  What value does your product or service create for them? What does it cost them–in terms of price plus any ancillary costs of ownership or usage (e.g., how much of their time do they have to devote to buying or using your product or service?)

Step 3: Identify the customers and segments where are you can create more value relative to competitors

Different customers will have varying perceptions of your value relative to your competitors, based on geographic proximity, for example, or a product attribute that one segment may find particularly attractive.

Step 4:  Create a win-win price

Set a price that makes it clear that customers are receiving value but also maximizes your “take.” Satisfied customers that perceive a lot of value in your offering are usually willing to pay more, while unsatisfied customers will leave, even at a low price. Using “cost-plus” pricing (i.e., pricing at some fixed multiple of product costs) often results in giving away margin unnecessarily to some customers while losing incremental profits from others.

Step 5:  Focus investments on your most valuable customers

Disproportionately allocate your sales force, marketing dollars, and R&D investments toward the customers and segments that you can best serve and will provide the greatest value in return. Also, allocate your growth capital toward new products and solutions that serve your best customers or can attract more customers that are similar to your best customers.

The Quality option

Often the price and quality of a product align, certainly in the mind of the consumer, as the high price is often associated with high quality. But positioning a product based on its high quality or ‘luxury’ is different from positioning based on price. Often these brands do not communicate their price point, but instead high quality or prestige is the focal point of communication, to create a desire so customers want the product regardless of the price.

Note that luxury does not always mean better quality, but customers still believe it is better because of the reputation of the brand due to their long-term brand positioning strategies. For example, a $500,000 Rolls Royce car, the epitome of luxury, is likely to have a lower build quality than a $50,000 Hyundai.

Value option

Creation in marketing means that the company and client are happy with the value created from the product or service purchase. Also, anything that offers benefit is value, and different firms are the sources of different value.

The following is his list of how the marketer creates value:

• The marketer chooses prices that will create value in exchange.
• The marketer chooses the product features and services that will deliver value.
• The marketer chooses channels of distribution that create accessibility and convenience value.
• The marketer chooses messages that describe the value their offerings create.

The Pioneer

Market pioneering and competitive positioning strategy are fundamentally related. Positioning is a crucial strategic decision for pioneers or brands that compete with them because pioneers often dominate competition, sometimes for decades. Successful strategy design requires an understanding of how and why pioneers influence competition so greatly for so long.

A Narrow Product focus

Associating your brand/product with a specific use.

Conventional models of product positioning strategies center on catching the eye of consumers. While there is a wide range of options for brands to consider in product positioning, most can be broken down into one of three categories.

Differentiation: Sometimes, the uniqueness of a product can’t be duplicated, making it ideal for a differentiation strategy. An excellent example of a product easily differentiated is Barilla’s Pronto pasta. While the pasta aisle is competitive, Pronto offers a unique selling point in that it requires no draining. As such, this is the primary focal point that the brand highlights on its packaging to gain consumer attention.

Comparative: Comparative positioning strategies work by placing products right next to other brands to highlight their competitive edge. A typical example of this occurs when stores place a white label value brand next to a more expensive name brand product. Often, the label includes a “compare to X brand” statement to show the consumers that the products are similar, but the value brand offers a better price.

Segmentation: Sometimes, helping a product stand out requires focusing on multiple audiences with different needs, but with the same product. Consider a simple product like Bayer aspirin. The brand offers bottles of its tablets in the pharmacy aisle at the grocery store, but they also provide smaller, on-the-go packs for purchase at the convenience store. Through this, they target consumers buying bottles of medication for their households for use in the future, as well as travelers or individuals dealing with an immediate ache or pain they want to take care of right away.

Strategic positioning is focused on how an organization sets itself apart from the competition and delivers a benefit to target customers.

Strategic positioning is concerned with the way in which a business as a whole distinguishes itself in a valuable way from its competitors and delivers value to specific customer segments

Successful startups initially focus on how they plan to position themselves in the market. Strategic positioning refers to how powerful the brand is in the customers’ minds, what the company’s message is, and how the organization sees itself in the market.

Selling a great product or service isn’t enough to ensure a company’s success. Many times, inferior companies sell more products/services due to the way they have positioned themselves.

Startups have to create a unique positioning strategy that influences the customers’ minds to choose the organization’s product or service which can solve a problem.

Positioning influences the pricing, marketing, and sales strategy. To be successful, the strategy needs to make sense to different target groups of customers.

Unsuccessful positioning strategies focus on proving a company is better than the competition, rather than different.

The organization needs to tell a story about their unique brand and find the most effective ways to share that information with others. It’s important to maintain consistency and not deviate from the original story, as that is what initially gained customer loyalty in the first place.

Good positioning allows consumers to know why the organization’s product/service is preferable to the competition. In a growing market where consumer needs change every day, it’s essential to find a way to stand out.

Creating a branding and marketing strategy by utilizing the best messaging channels are part of employing this positioning strategy.

For example, a cosmetic company may buy a slot to run ads on television, employ a social media marketing strategy, and run ads in women’s magazines to convey a positioning message.

Researching and using the correct channels to market a product/service is the primary way to maintain a competitive edge and remind customers of who the organization is.

As a startup evolves and becomes more mainstream, it will have to reevaluate its positioning message. Staying in tune with the competition, customers, and the market will help an organization rework an outdated strategy.

While it’s helpful to reassess an older strategy to maintain a competitive edge, it’s important to maintain the same underlying theme regardless of evolving markets or circumstances.

Reworking an entire brand is akin to starting over once a business has already established itself as legitimate. It’s best to tweak and add on to a positioning strategy to remain competitive, rather than revamp the entire message.

There is a reason why customers put their trust in the organization in the first place. Don’t lose that trust by abandoning the original strategic positioning message completely.

Ensuring Brand Awareness Through Strategic Positioning

Without regularly reminding customers of who the business is and what they do, it’s impossible to find new clients and maintain the current ones.

Utilizing a positioning message as a tool to remind customers why they need to act is one of the more consistent requirements of running a business. With the right message and the marketing strategies to convey it, businesses can build brand awareness over time.

Loyal customers tend to recommend a known brand to friends and family. Before long, an organization’s brand is not just built through marketing efforts, but through word-of-mouth.

However, continuing to remind customers of the organization’s value is essential to maintain this brand awareness. This is particularly true in an evolving market with a growing list of competitors.

Strategic positioning therefore reflects the choices that you make with respect to two things:

1) The kind of value that your products and services will offer to target consumers (the products’ “Value Proposition”), and

2) How that value will be created differently from other companies (which is characterized through your business’s “Value Chain”).

Strategic positioning makes choices about how a business will “deliberately” protect core profits from industry forces and retain a profitable position in the market.  Based on our discussions about business strategy, there are only three ways to do that:

• By offering differentiated value, that is, through products and services that are both unique and valuable to target consumers (a “Differentiation Strategy”).
• By lowering prices well below competing alternatives (a “Price Leadership” strategy).
• Striking an effective combination of both differentiation and low prices.

Notice that we say “Lower prices” and not “Lower costs” since they are, obviously, different things.

While costs are the result of choices that a company makes in its Value Chain, price on the other hand is a “Decision” that comes out of a positioning strategy and is usually established based on the relative price of a set of competing solutions.

The challenge for executives when it comes to a business’s strategic positioning is in continually finding a “Profitable” but “Defensible” position in a marketplace, either through a differentiated offer, lower prices or a combination of both, where the company can maximize returns to shareholders for every dollar they invested in that business.

As a result of the dynamics and complexity of markets and competition, this market position (which classic strategists call a “Competitive Advantage”) becomes a bit of a moving target (a fast-moving one in some industries), making strategic positioning more like a “Process” to continually adjust the perception of your business’s products and services in the minds of your target customers.

The process to find and defend a profitable market position can be described in four different steps:

Market segmentation: Find effective ways to classify customers and slice the market into groups that share common characteristics that make them approachable through the same value networks.

Choose target markets: Based on your segmentation of the market and your value proposition research, select the segments that you are going to target within those markets.

Craft your market positioning strategy: Make decisions about how you will position your products with the selected target consumers, which can be done through product features and benefits, pricing, sales, distribution and promotion efforts.

Monitor and adjust: Once your strategy has been deployed, measure the traction you get with your target consumers and the performance of your marketing efforts, validating previous assumptions and adjusting your market positioning preferences accordingly as new information becomes available.

As the battle for customer loyalty intensifies, brands are the source of distinction that attracts attention, define offerings, build loyalty, and deliver an organization’s unique value proposition. In the age of the customer, developing a differentiated brand is a purposeful process where insight, intuition, and inspiration combine to help transform brands from ordinary to extraordinary.

Simply stated, a brand positioning strategy conveys how customers, prospects, and other important stakeholders perceive a company and its products/services. This relates to launching a new brand as well as repositioning an existing brand. Positioning brands in their chosen markets and categories, with the goal of becoming indispensable in customer’s lives, is often seen as a path from awareness to loyalty.

In marketing, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer’s associated payment (or other value-transfer).

Customer Value Management was started by Ray Kordupleski in the 1980s and discussed in his book, Mastering Customer Value Management. A customer value proposition is a business or marketing statement that describes why a customer should buy a product or use a service. It is specifically targeted towards potential customers rather than other constituent groups such as employees, partners or suppliers. Similar to the unique selling proposition, it is a clearly defined statement that is designed to convince customers that one particular product or service will add more value or better solve a problem than others in its competitive set.

Whether pursuing a rebranding strategy or seeking to position a new product launch, this strategic statement should be developed by combining “outside-in” and “inside-out” perspectives. The dual approach of outside-in and inside-out ensures the resulting strategy is compelling, differentiated, credible, and taps into a profound and contemporary need of the category within which the business operates.

Mark De Leon’s value proposition will provide convincing reasons why a customer should buy a product, and also differentiate your product from competitors. Gaining a customer’s attention and approval will help build sales faster and more profitably, as well as work to increase market share. Understanding customer needs is important because it helps promote the product. A brand is the perception of a product, service or company that is designed to stay in the minds of targeted consumers. Customers often use “Mental shortcuts” to make purchase decisions, meaning that they rely on brand familiarity to make faster decisions.

An Inside-Out Approach to Positioning

The inside-out approach is a corporate strategy that relies on the core competencies of the organization to drive change, product development, and innovation as opposed to external influences such as market, competition, and consumer preferences. The inner strengths and capabilities guide the belief that the company will produce a sustainable advantage.

Inside-out means to develop from the brand’s perspective and with insights generated around the brand, their business, and competitors. The approach facilitates an enthusiastic, brand-driven culture within the organization.

The assertion by inside-out strategists is that getting buy-in from employees leads to a more authentic and inherent process of communicating outward and the company achieves greater efficiencies and adapts more quickly to changing circumstances.

Although inside-out companies claim they do not ask customers for their opinions, successful companies (and their CEO’s) have a keen awareness of their customers, allowing them to combine their inside-out strategy with a deep understanding of their customers’ needs, challenges and lifestyles. With its power to get millions of people to stand in line for hours in the bitter cold just to buy a phone, Apple is an example of an inside-out mindset.

The Benefits ladder

The Benefits Ladder may be simple but it’s still a very effective tool for summarising how the basic product-level benefits and features of a brand ladder up to and align with the emotional benefits. By starting with the product and working your way up you can begin to piece all the different parts together, ensuring that they align and most importantly match the values from the customer’s point of view:

• Product: The product or service being sold
• Product features: The quality, details or function
• Product benefits: The implicit or explicit claims of superiority
• Customer benefit: The product benefit’s reward. How does it make the customer feel? What does it enable them to do?
• Emotional benefit: The emotional feeling that binds the brand and target audience via shared values and beliefs

The Outside-In Approach

The belief that customer value creation is the key to success guides the outside-in approach which aims to prototype and develop iteratively with the help of consumers. Perspective sometimes referred to as ‘voice of the customer’ is often obtained through market research. However, other more direct activities, such as social listening, can also provide this valuable strategic insight and represent the voice of the customer.

With an outside-in mindset (as opposed to inside-out) the key word is ‘need,’ not ‘product,’ and building value around the customer, and the customer’s wants and needs. Companies are immersed in the minds of their customers, looking for ways to increase demand. Often, the requirements they define haven’t been identified yet by the customers themselves. A sustainable growth strategy begins with understanding the difference between what you offer and what people need, which don’t always turn out to be the same.

Typically, an outside-in organization asks itself:

• Where are the available growth markets for our business?
• How can we tap into an opportunity that is available?
• What are the trends and how should we address them?
• How can we better serve the needs of the market?

It’s about discovering a brand’s authentic and unique motivations that make it connect with people in a way that competitors can’t. This provides what differentiates a brand and, most importantly, why consumers will relate to it. Over a decade later, Dove’s immensely successful brand campaign, Real Beauty, is still widely acclaimed by marketing and brand strategy consulting experts. Since 2004, the brand has been empowering women to feel confident in their skin, regardless of their age, shape, or color.

Defining why you exist independently from your product and how your reason for being is relevant for audiences both internal and external starts inside-out and is then complemented outside-in. Recently, brands began shifting from talking about themselves, their products and services (inside-out) to facilitating customer needs beyond their offerings (outside-in).

The combination of the outside-in and inside-out perspectives leads to competitive advantage. Whether inside-out or outside-in, having deep insights about the customer experience are crucial for innovation. Organizations who know their customers are better positioned to meet their needs. This leads to more satisfied customers and lowers costs to meet those needs.

The Elements of Value

What customers value in a product or service can often be hard to define as both emotional (e.g. wellness or nostalgia) and functional (e.g. reducing cost or making money) benefits are sometimes given equal importance by the customer.

Business infrastructure

A business infrastructure plan creates a road map that is used to start and run a company. This road map consists of a three part plan: daily operations, processes, and employees. Each component of the business infrastructure should be created and analyzed independently of the others. The plan should act as a stand-alone resource for the way the business is to grow and progress well into the future.

Provides:

• A solid foundation.
• A replicable platform.
• A model and a formula that makes each time you do something easier than the time before.
• Consistency in your delivery of customer value.
• Economies of scale.

Collaborator Networks

A collaborative network is a network consisting of a variety of entities (e.g. organizations and people) that are largely autonomous, geographically distributed, and heterogeneous in terms of their operating environment, culture, social capital and goals, but that collaborate to better achieve common or compatible goals, and whose interactions are supported by computer networks. The discipline of collaborative networks focuses on the structure, behavior, and evolving dynamics of networks of autonomous entities that collaborate to better achieve common or compatible goals. There are several manifestations of collaborative networks, e.g.:

• Virtual enterprise (VE).
• Virtual Organization (VO).
• Dynamic Virtual Organization.
• Extended Enterprise.
• VO Breeding environment (VBE).
• Professional virtual community (PVC).
• Business Ecosystem.
• Virtual manufacturing network

Human capital

Human capital is a concept used by human resource professionals to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education, to name a few. Companies can invest in human capital, for example, through education and training, enabling improved levels of quality and production.

The term human capital refers to the economic value of a worker’s experience and skills. Human capital includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality. As such, it is an intangible asset or quality that isn’t (and can’t be) listed on a company’s balance sheet. Human capital is perceived to increase productivity and thus profitability. The more investment a company makes in its employees, the chances of its productivity and success becomes higher.

Intellectual property

Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The most well-known types are copyrights, patents, trademarks, and trade secrets. The modern concept of intellectual property developed in England in the 17th and 18th centuries. The term “intellectual property” began to be used in the 19th century, though it was not until the late 20th century that intellectual property became commonplace in the majority of the world’s legal systems.

The main purpose of intellectual property law is to encourage the creation of a wide variety of intellectual goods. To achieve this, the law gives people and businesses property rights to the information and intellectual goods they create, usually for a limited period of time. This gives economic incentive for their creation, because it allows people to benefit from the information and intellectual goods they create, and allows them to protect their ideas and prevent copying. These economic incentives are expected to stimulate innovation and contribute to the technological progress of countries, which depends on the extent of protection granted to innovators.

The intangible nature of intellectual property presents difficulties when compared with traditional property like land or goods. Unlike traditional property, intellectual property is “Indivisible“, since an unlimited number of people can “Consume” an intellectual good without it being depleted. Additionally, investments in intellectual goods suffer from problems of appropriation: a landowner can surround their land with a robust fence and hire armed guards to protect it, but a producer of information or literature can usually do very little to stop their first buyer from replicating it and selling it at a lower price. Balancing rights so that they are strong enough to encourage the creation of intellectual goods but not so strong that they prevent the goods’ wide use is the primary focus of modern intellectual property law.

Strong Brands

A brand is strong when it condenses the peak performances of a company and makes them tangible over a long period of time, and credibly presents its uniqueness at all brand touchpoints. For instance, BMW conveys “Joy (of Driving)” in every interaction whether in the car itself, on the web site, or in the company’s own BMW museum.

Strong brands have clear brand core values, an unequivocal positioning, and a long-term brand strategy. Consistent brand management with the help of brand rules ensures that the brand strategy is consistently applied in operative business. This helps to prevent a brand from overstepping its credibility limits.

A brand strategy always has a content component and a style component that both have to be implemented so that the brand can always be clearly recognized by its brand messages and its brand style. In short: Strong brands give consumers a clear image of the brand and what it stands for.

Strong brands are therefore desirable and highly attractive. This has diverse positive effects on corporate success:

• The customer’s price sensitivity is substantially lower, so the brand strength is reflected in profitability and profit margin.
• They attract the right employees and ensure that the company has an excellent position in the crucial fight for the best talent.
• They are beacons for all relevant decisions. In ever more complex market environments, they provide logical orientation.

Benefit:

• Better customer recognition
• Higher customer loyalty
• More word of mouth
• Higher employee motivation
• Higher advertising effectiveness
• Higher applicant quality
• Lower price sensitivity

Established Customer base

The customer base is the group of customers who repeatedly purchase the goods or services of a business. These customers are a main source of revenue for a company. The customer base may be considered the business’s target market, where customer behaviors are well understood through market research or past experience. Relying on a customer base can make growth and innovation difficult.

Companies with a customer base consisting mainly of large companies may increase their customer base by pursuing small and mid-size companies.

As companies grow their customer base, and gain experience satisfying them, their customers grow accustomed to that business accomplishing a certain task for them. The company or product’s brand name may even correlate with the task the customer uses it for. Xerox, Kleenex, and Band-Aid are some extreme cases of brand-names being used as the generic name of the product itself. In fact, as long as customers are continually satisfied with their purchases, the act of going to that company’s brand to accomplish a specific task becomes habitual.

Repeat buyers and users are also useful for further reasons, as they are the source of “word of mouth” advertising. Studies have shown that customer satisfaction with a brand leads to more purchases, from both the same and new customers. A satisfied customer expresses their enjoyment in the product, or even shows a friend the product and has them try it out, and a dissatisfied customer may speak against a product or not mention it at all. Of course, the core consumer is the main spreader of the company’s brand name, and the more they use and like what they consume, the more those that surround them will gain interest and then potentially become customers themselves.

Synergistic offerings

The term synergistic is derived from synergy, which refers to the benefit that results from the merger of two agents who want to achieve something that neither of them would be able to achieve on their own. The term is mostly used in mergers and acquisitions (M&A), where two companies merge to form one company that can generate more revenues or streamline the two companies’ operations and save on costs.

Marketing synergy

Marketing synergy refers to the marketing benefits that two parties in an M&A transaction may enjoy when promoting their products and services. These synergies include information campaigns, marketing tools, research and development, as well as marketing personnel.

Revenue synergy

When two companies merge, they often become synergistic by virtue of generating more revenues than the two independent companies could produce on their own. The merged company may gain access to more products and services to sell through an extensive distribution network.

Access to Scarce resources and Capital

The resources that we value time, money, labour, Tools, Land, and Raw materials exist in limited supply. There are simply never enough resources to meet all our needs and desires. This condition is known as scarcity.

Scarcity refers to a basic economics problem the gap between limited resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible. Any resource that has a non-zero cost to consume is scarce to some degree, but what matters in practice is relative scarcity. Scarcity is also referred to as “paucity.”

Natural resources can fall outside the realm of scarcity for two reasons. Anything available in practically infinity supply that can be consumed at zero cost or trade-off of other goods is not scarce. Alternatively, if consumers are indifferent to a resource and do not have any desire to consume it, or are unaware of it or its potential use entirely, then it is not scarce even if the total amount in existence is clearly limited. However, even resources take for granted as infinitely abundant, and which are free in dollar terms, can become scarce in some sense.

Take air, for example. From an individual’s perspective, breathing is completely free. Yet there are a number of costs associated with the activity. It requires breathable air, which has become increasingly difficult to take for granted since the Industrial Revolution. In a number of cities today, poor air quality has been associated with high rates of disease and death. In order to avoid these costly affairs and assure that citizens can breathe safely, governments or utilities must invest in methods of power generation that do not create harmful emissions. These may be more expensive than dirtier methods, but even if they are not, they require massive capital expenditures. These costs fall on the citizens in one way or another. Breathing freely, in other words, is not free.

Targeting strategy is a strategy for selection of potential customers the company/ organization can sell its products/services to. Targeting is done to a specific target group as there are various segments in any market. Most firms do not select all the segments in a market to operate and choose one or few of the identified segments through targeting. As mentioned earlier, targeting is this process of selection made on the basis of attractiveness of the segment.

STP marketing strategy is an important way of doing business, where its stands for market segmentation, targeting and positioning. Targeting is the processes of identifying the important target market and target audience which a company wants to sell its products to. Any product or service would not be of utility of every person. And hence companies must be focused on whom they want to target. A good targeting strategy helps a company have focused sales growth, enhanced promotional strategy, build strong customer loyalty etc. Hence, targeting strategy is the backbone for any marketing firm.

Target Attractiveness

Sales Criterion: Using this method, the business allocates its resources to target markets based on historical sales patterns. This method is especially useful when used in conjunction with sales conversion rates. This method is used in retail. A disadvantage of the method is that it assumes past sales will remain constant and fails to account for incremental market potential.

Distance Criterion: Under this approach, the business attempts to define the primary geographic catchment area for the business by identifying people who live within a predetermined distance of the business. For a retailer or service-provider the distance might be around 5 km; for domestic tourist destination, the distance might be 300km. This method is used extensively in retailing.

Interest Survey Methods: This method is used to identify new business potential. Primary research, typically in the form of surveys, identifies people who have not purchased a product or service, but have positive attitudes and exhibit some interest in making a purchase in the short-term. Although this method overcomes some of the disadvantages of other methods, it is expensive even when syndicated research is used.

Chain ratio and indexing methods: This method is used in marketing of branded goods and retail. It involves ranking alternative market segments based on current indices. Widely used indices are the Category Index and Brand Index. The Category Index measures overall patterns within the product category while the Brand Index calculates a given brand’s performance within the category. By dividing the Category Index by the Brand Index, a measure of market potential can be obtained.

Target Compatibility

Consumer compatibility is the overall metric that measures the value consumers place on your brand. It shows how effective your consumer-brand relationship is. This is not a new concept; for years loyalty programs have helped measure consumer compatibility.

Brand Loyalty

As you most likely know, brand loyalty is essential to measure. While you probably already measure the loyalty of consumers to your brand through loyalty programs, you might not know that you can use brand loyalty for competitive intelligence as well.

Through location data, you can measure how loyal consumers are to your competitive set versus your own brand. Then, you can identify the least loyal competitor consumers or the most likely to switch loyalties and target them for competitive conquesting.

Brand Affinity

Finally, it’s important to consider the complete offline consumer journey in your consumer compatibility analysis. In addition to understanding how consumers are interacting with your own brand, it can be helpful to know where else your consumers shop and what their offline interests are.

If you see that your consumers are avid Dunkin’ fans and often visit the Dunkin’ near your brand location, you could develop an ad campaign with messaging that plays on that shared interest. Brand affinity can reveal opportunities for co-marketing like this that you might not have considered before.

Visit Frequency and Time of Visit

In addition to dwell time, you need to evaluate how frequently consumers are visiting your stores. Are they one-time shoppers or are they returning to your stores time and time again?

You can gain insights like these through location data, which reveals not only how often consumers visit your stores but also which times are most popular for visits. This information can inform marketing activations and promotions for your brand, especially when you pair it with demographic attributes of your consumers.

Once target segments are identified, the marketing manager selects a targeting strategy that will be the best fit for reaching them. Targeted marketing enables the marketing and sales teams to customize their message to the targeted groups of consumers in a focused manner. The targeting strategy is where the marketing mix comes together to create the right offer and marketing approach for each target segment.

One for all strategy

Any one size fits all marketing strategies will not be able to make sure that all of these people belonging to different demography are targeted. Hence, the ideal marketing campaigns are those which are tailored to target specific groups of people.

One size fits all makes sense as a lean startup option because you can funnel limited resources toward a specific product or service instead of spreading them too thin. By not offering customization, you only need to have one manufacturing line set up, and fewer variables to customize means fewer opportunities to mess up an order. This allows you to feel comfortable with the process before you expand your offerings.

In terms of services, following a one-size-fits-all approach can help you create stable, flat-rate pricing and develop a service routine. For example, if you offer manicures, it’s easier to perform the same process for the same price on all nails rather than giving a custom quote for people with long nails, short nails, missing fingers, etc.

Cons of One-Size-Fits-All Products and Services

You may not want to offer a one-size-fits-all product or service if each customer in your industry has widely different expectations. People do not want to pay for what they don’t need, and you run the risk of making customers feel overcharged if you only offer one type of service package or an overly customized product.

In addition, a lack of customization can leave you at a competitive disadvantage if other businesses in your niche have moved away from the one-size-fits-all option. You’ll end up leaving customers on the table who know they can get what they want from someone else.

A one-size-fits-all approach does not allow you to use the “Good, better, best” pricing strategy to upsell more robust products and services. Diversifying your products and services also opens you up to additional revenue streams.

Customizing Your Services or Products

Startups usually follow a one-size-fits-all approach on a temporary basis until the business has enough financial stability to offer customization. For example, you can produce a limited run of products in different colors to discover which ones resonate best with your audience before scaling up production. In terms of services, consider developing upgraded add-on services that are optional but recommended for a full experience. Creating “bronze,” “silver” and “gold” service packages can also allow customers to choose what best fits their needs.

If you’re stumped about how to proceed, do a little competitor research to see how they have organized their services or customized their products. Read public reviews to find out if their customers are happy with those options or wishing for something different.

One for each strategy

One-to-one marketing (also sometimes written as 1:1 marketing) is a strategy that relies on getting to know the individual choices made by a customer, and then tailoring marketing outreach to each customer differently based on those choices. It’s an approach that is not used to get the customer’s attention, but to keep their attention and their business.

Customization: the company doesn’t learn the preferences of each customer, but instead gives the individual customer the ability to customize the product to their own tastes. A good example of this strategy is a computer retailer that offers a basic platform of a laptop and then gives the customer the ability to tailor many of the laptop’s features (processor, memory storage, loaded programs) to their own tastes and needs. Many online news websites use the same strategy by allowing visitors to pick and choose the types of news stories (international, political, financial, etc.) they want shown most prominently on the site.

Personalization: the company learns the personal preferences and tastes of each consumer and customizes its marketing plan to them. Amazon.com is known for perhaps the most successful 1:1 personalization strategy, recommending products based on past purchases and interests.

Marketing Strategies

“Suggestions for You” Marketing: Online marketing companies like Amazon and Netflix have become masters at collecting, storing, and interpreting customers’ click history on their sites. They take that information and create a specialized marketing plan just for each customer, with recommendations on the next book to read or the next movie to watch.

The Personal Touch: Few things make a bigger impression on a consumer than personal attention and appreciation. The best coffee shop baristas know what Joe’s order is the minute he walks through the door, and that keeps him coming back. Investment bankers are expert 1:1 marketer. They get to know their clients’ personalities and investment preferences and priorities, as well as what level of risks they’re willing to take.

Preferred-Customer Marketing: Many retailers now offer a no-cost “Club membership” to consumers. Club membership gives the customer incentives in the form of lower prices or frequent-purchase rewards. In order to earn those incentives, the customer must check-in with their membership ID. This allows the company to track all items purchased during each visit. Once retailers know each customer’s shopping patterns and preferences that a particular club member buys a lot of cereal and prefers Cheerios, for example they can send out personalized coupon mailers to that member with savings on Cheerios and other preferred items.

While identifying your target groups, you must, first and foremost have a clear definition of what your product/service is and how you are planning to advertise it in the market. If its a product, understand its core value and why it makes a differentiation when compared to its competitors. If you are offering a service, identify how to touch-base with your audience groups and solve their pain points.

The people who you think is the most beneficial for your product/service Who are the decision makers for your product/service? Are you targeting VP’s, CMO’s, managers or individuals? Have a clear picture of who you want to reach out for your service.

How can you solve their pain-points Your product/service has to have an impact on these audience groups. Identify with a competitive analysis what issues these audiences might be facing and how you can provide a value proposition. 

Geographical locations Segment your audience groups based on their geographical locations. This helps you identify independent pain points and target a cost-effective solution to these groups.

Size of organization and industry and seniority levels of your ideal profile By identifying the ideal size of your target organization, you can make an informed decision that helps you reach out to the right person at the right time with a right value proposition.

What’s your differentiator All organizations, big or small look for something worthwhile partnering with you? This means, your differentiator should be strong, but not too overwhelming. By segmenting your audience groups according to their location, size and seniority levels of targets, you actually provide a stronger value proposition to these groups.

Factors To Help You Define Your Target Market

Determine what problem your company solves

People don’t buy products. They buy solutions to their problems. That’s why so many marketing professionals recommend highlighting the benefits of your product, not its features. Instead of emphasizing how good your product or service is, you should show your potential customers how you will make their lives (or their business profits) better.

Develop a profile of your most profitable current customers

Who are your current customers? Why do they buy from you?

Think about the characteristics and interests they have in common; which ones bring in the most business? Once you have a good idea of who buys your products now, you can expand upon it and figure out who else could benefit from what you’re offering.

Monitor and continuously learn from the competition

Check out who your competitors are targeting, and see if you can glean some insights from that.

Don’t go after the exact same market (the goal is to stand out, after all!), but see if what they are doing can give you some additional ideas about niche markets to target.

Analyze your product or service

We recommend making a list of features your product or service has and reframing them as benefits.

Who would be after these benefits? Whose problems are you really solving? Who really needs the solution or solutions your business offers?

Choose specific demographics to target

Demographics are used to identify population segments by specific characteristics, like:

• Age
• Location
• Gender
• Income level
• Education level
• Marital status
• Occupation
• Ethnic background, etc.

Using demographics can be a great starting point for small and large business alike. They can help you figure out who is likely to actually buy your product or service and can aid in putting together the building blocks of a great marketing plan.

Consider the Psycho-Graphics of your target market

Psychographics are some of the more personal characteristics of your target, including:

• Personality
• Attitudes
• Values
• Interests/hobbies
• Lifestyles
• Behavior

They will help you determine how your product fits into your target market’s lifestyle:

• How (and when) do they use your product?
• What features are the most appealing to them? Why?
• What types of media does your target turn for information and entertainment? Do they read newspapers, search for information online, attend particular events?

Considering these factors will allow you to build a more focused marketing plan that works with the specific behaviors, interests and lifestyle choices of your target market.

Evaluate your marketing investment over time

Sometimes we all need to take a step back and see if the market we have zeroed in on is actually the one that will bring us the ROI we are looking for.

Before you jump into creating Facebook ads and calling up trade shows, consider these questions:

• Are there enough people who fit my chosen criteria?
• Will my target audience see the need for my product or service?
• Can my target audience actually afford what I’m offering? How can I do anything to help them afford it (like offering payment plans)?
• Will I actually reach my target audience with my message? If it’s not as easy as launching a Facebook ad campaign, am I prepared to deal with the difficulties that arise?
• Do I really understand what drives my target audience to make decisions? What actually makes them press the “Buy” button?

1. Develop a true vision.

Vision is an abstract word that means different things to different people. Classically, a vision or vision statement is a snapshot into the future. It should include aspirations of what type of company you want to be, and, unlike a mission statement, articulates what success looks like in clear terms (customers, markets, volume, etc.).

2. Define Competitive advantage.

At the essence of strategy is identifying how a company can deliver unique value to its customers. In many sectors of the economy, companies are stuck in a sea of sameness. A well-thought-out business strategy should consider how a company can create space from competition in its service offering, pricing model, delivery system and more.

3. Define your targets.

One of the most significant barriers to growth is poor targeting. Absent of very specific targets, companies suffer from unclear messaging and thus misalignment between sales and marketing. Defining niches and specialties allows companies to focus resources (of course, some companies are generalists by design).

Clear target markets give a company the ability to create an integrated sales and marketing approach, where marketing enables sales productivity. Sales and marketing plans are executed more effectively when targets are tight.

4. Focus on systematic growth.

As one of our Vistage member clients says, “A thriving company is a growing company.” It is only through growth that companies can afford to invest in things like technology, the best people and new equipment. The strategic plan should identify in which segments a company will grow and in what proportion, so that the product mix yields a specific net margin result.

Only after coming to such conclusions could a company know how much it can afford in terms of capex, overhead expenses and so on.

5. Make fact-based decisions.

Strategy is a garbage in, garbage out exercise. Executives often complain about a lack of good data, but we consistently find information that is useful in the formation of strategy.

We once worked with a Vistage member who was trying to quantify the value of various segments served. By accessing the public records of a nearby port, we were able to quantify actual shipments of merchandise by potential customers.

6. Think long term.

In the face of constant change, planning horizons are shorter than they used to be. However, only thinking quarter to quarter is a trap that may rob companies of their ability to see around the bend. Best-in-class companies create processes designed to treat strategy as an annual cycle rather than a one-time, static event.

7. But, be nimble.

Companies can think long term and still be nimble. For example, a critical component of strategy is an external forces analysis. Companies should be evaluating long-term external forces, and adapting based on new information (meeting regularly-perhaps quarterly) to pivot.

Jeff Bezos of Amazon holds a strategy meeting every Tuesday to keep it front and center with his management team.

8. Be inclusive.

To be nimble, companies are including different people in their strategy than in the past. At a time when companies are hiring more millennial employees, there is greater transparency. While I am never one to advocate that companies open their books (as that is a personal decision for the entrepreneur), there is certainly movement toward more inclusion and transparency.

Deciding who to include in strategy formation is a critical selection. We recommend business owners include people they can trust and that can think strategically.

9. Invest time in pre-work.

If you want your managers to take strategy seriously, make them conduct research and prepare relevant information in advance of your strategy meetings.

10. Measure your results and execute excellently.

Every strategy should be actionable. Companies that are best-in-class:

• Have a strategic action plan that they track often (usually monthly).
• Promote common ownership of the plan across executives and departments.
• Utilize key performance indicators (KPIs) that are predictive and align directly with the strategic plan.
• Have cascading goals that reach every department and resonate with employees so they understand how their role contributes to the greater good.
• Set up their corporate calendar to promote productive meetings, and establish a performance management cycle that supports cascading goals and objectives to every employee.
• Rinse and repeat their strategy cycle every year.

Top-down business model generation

During Business Process Management trainings, people often ask me about the best modeling technique: How to model a process model? Where do I begin? Top-down or bottom-up process? Questions that many of you have asked yourselves when beginning to design a process model. In this blog I would like to take you along with me to the world of top-down or bottom-up modeling. Let me start by clarifying some frequently used terms. Then, I will share several personal experiences and my preferred method of working.

Before elaborating on the complete process model in terms of work processes and process steps, I want to mention a couple of items the process designer should pay close attention to.

First, the designer should always determine what the aim of the process is, and which customer the process will be targeting. We determine the modeling goal and ask ourselves: Why are we making this process model? And Who is the customer?

Second, determine the process scope. Where does the process start and end? The start is the input of the process and is often called the ‘start trigger’. The end of the process is the output, or the result, and is referred to as the ‘end trigger’.

Next, the designer should determine which enablers the process has. The enablers are the actors that works with and in the process. For example roles or systems.

Finally, should any preconditions applicable to the process be taken into account? Keep in mind legislation or internal guidelines. The process model should adhere to each of these preconditions or guides.

How to start modeling

After having looked into the items above, the process model can be further worked out. We can distinguishes two modeling methods to design a model. The first modeling method is top-down, where we work from work process to process steps. The second modeling method is bottom-up, where we work from the process steps “upwards” by clustering the step in work processes. Both methods are describing how to design a process model.

Top-down process modeling

The top down method is often used by process designers who need a total and broad overview of the process model. In complex organizations this method will reduce the complexity of the process. The top-down modeling method we first defining the work process (number 2 in de figure top-down method) of the process model after having modeled the start and end-trigger (number 1 in the figure top-down method). As soon as we have modeled the highest level of the model, we can begin modeling a level below that. Each of the work processes in the different process steps is being modeled according to the related declaration and data carriers (number 3 in the figure top-down method). The other work processes will be developed in a similar manner. Next, we will determine which process steps need to be developed into a work instruction level. Finally, each process step will be assigned its role and possible system. As you can tell with this type of modeling, we start from the top with the work process and slowly work our way downwards towards the bottom level. To design with the top-down method we make a stratification within the model. In this way the process designer is able to structure the process model.

Strategy

Top-down organizations don’t involve subordinates in planning. Instead, the owner generates the company vision, mission, strategic goals and plans and then communicates these to the ranks below. The front line translates goals into daily action to achieve the desired results. It’s important for owners to remember that a strategic course cannot be chosen properly without a grounding in the company’s accumulated experience; mining the first-hand knowledge of subordinates helps ensure wise goals and plans. This bottom-up context in making a budget plan, for instance, helps an owner incorporate practical information that could have been overlooked.

Justification

The top-down approach unifies a company behind one purpose, direction, command and standard, dictated from above and spread throughout the organization. This offers several advantages. It allows a business to reliably give customers the same experience or product. Standardized products and services can be rolled out on a grand scale and more cheaply than non-standardized goods, and standardization facilitates quality control. Unity of command, meanwhile, allows a company to avoid confusion in a crisis. With its clear lines of authority, the top-down approach encourages obedience.

Structure

The company’s organizational structure assembles employees into departments to facilitate work and resource sharing. Choices lead to organizational characteristics such as ordered or creative. Owners usually establish a formal structure when employee ranks have grown enough to demand organization. Based on a strong management hierarchy, the structure that best matches the top-down approach is the functional organizational structure. It segregates employees by function all the accountants and their tools work in one department, for instance. In the functional structure, departments each have a manager who is supervised, all the way up the ladder to the owner.

Pitfalls

By emphasizing management, the top-down approach de-emphasizes employees, who become passive. Without control, they have little room to show initiative or creativity. Because approvals must climb the chain of command, top-down businesses respond slowly to market challenges. In an unstable or dynamic environment, the top-down approach cannot stay apace with nimble rivals based on teams and employee empowerment.

Bottom-up business model generation

The bottom-up method is used by process designers that design a process model throughout their substantive knowledge. A process model can also be modeled according to the bottom-up method, by first defining each of the process steps in the model. Beginning with the start-trigger (number 1 in the figure bottom-up method), the designer will develop each of the process steps until the end-trigger is reached (number 2 in the figure bottom-up method). The process steps are further developed in a declaration and are saved on the relevant data carriers. Once each of the process steps between start and end-trigger have been completely developed we can begin introducing a structure within the model. We begin by grouping the process steps, which will further along again be grouped in a work process (number 3 in the figure bottom-up method). This modeling method is working from the bottom to upwards, starting with the grouping of the process steps and only then introducing a particular structure (grouping of the process steps into work processes at the highest level).