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Value Creation:
Sustainable Competitive Advantage
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“If you're competing on price, you'll never achieve maximum
profitability. Instead, everyone's job must become value
creation.” -Jeff Thull, President & CEO of Prime Resource Group
“Never follow the crowd.”
-Bernard M. Baruch, stock-market speculator & political consultant
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Roots of Competitive Advantage (CA)
Competitive Advantage (CA): An advantage over competitors gained by
offering consumers greater value than competitors.
Resources/
Capabilities
Sustainable
Competitive
Advantage
Superior
Performance
Inimitable
Superior Value
(Relative to
Competitors)
Unique
Distinctive
Advantage
Meaningful
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What is CA? What is SCA?
• A CA is a position a firm attains that lead to above normal profits or a
superior financial performance.
• Sustainable CA (SCA) is an advantage that enables business to
survive against its competition over a long period of time.
• A key difference between CA and SCA is that the value-creating
processes and positions a firm may hold are non-duplicable and
inimitable when a firm possesses a SCA.
• To create an SCA, a strategy needs to be valued by the customers and
supported by assets and competencies that are not easily copied by
competitors.
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Traditional Intangible Assets
Intellectual Property: Patents, trademarks, or creative work products,
typically with legal control of their use.
Adopen has patents for Perdefix. Arcelik owns 13% of all patents issued in Turkey.
Competency: Possessing specialized skills that differentiate a firm from its competitors.
Acibadem Hospital specializes in genetic diagnosis, eye treatment, and cord blood banking.
Brand: Having a powerful image and reputation with customers.
Zeki Triko has created a powerful brand through endorsing super models.
Resources and Capabilities
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Resources and Capabilities
Customer Relationships
Reach: Possessing the ability to touch a large number of customers
BIM customers visit its stores two times more per month than they visit other retail markets (annual visitors more than 2 million)
Interaction: Having deep or frequent contact with customers.
Garanti Bankası, Backup Boyner and Mudo aim to provide their customers with the complete solution for their problems.
Insight: Possessing detailed knowledge about customers and their business problems.
Companies like Aygün Cerrahi, CelalBirsen has deep expertise in their fields.
Authority: Having the reputation as an expert in a given field.
Dimes is an expert in bottled juice production.
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Strategic Real Estate
Value Chain Position: Occupying a uniquely advantaged position within the chain of suppliers, manufacturers, and consumers
Dell occupies a valuable position between computer manufacturers and end users of equipment
Market Position: Owning a strong relative position versus competitors
Intel Corporation became the dominant supplier of microprocessors for PCs, and was known for aggressive tactics in defense of its market position, esp. against AMD and Microsoft for control over the direction of the PC industry.
Portal: Controlling a gateway through which others must pass to access information, products, or services
Digiturk and D-Smart developed interactive program guides for TV.
Resources and Capabilities
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Networks
Third-Party Relationships: Having unique relationships with key partners such as suppliers or current producers
Arcelik has a uniquely broad set of partners within its open innovation system.
User Community: Having a set of people who view themselves as part of a larger group defined by its relationship to your product
Aziz Yildirim converted fans and enthusiasts imto customers.
Resources and Capabilities
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Information
Market Window: Having superior visibility into marketplace activity
Boyner has visibility into market dynamics.
Technical Know-How: Possessing deep, often proprietary, technical knowledge in an area of importance to customers
Feba Elektronik is a leading expert on recycling used technological products.
Software and Systems: Owning internally developed computer programs and databases with potential external value
Biletix provided the first online ticketing system in Turkey.
Resources and Capabilities Value Creation
“…it is the prospect of providing a customer with value that
gives the corporation purpose, and it is the satisfaction of
the customer’s requirements that gives it results.”
(Peter Drucker 1954, The Practice of Management)
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Understanding Value
What is customer value?
Customer’s perception of the balance between the quality
of goods and services that a firm provides and the cost of
acquiring the product/service.
Note: Perceived Risks measured based on 0-1 scale
Customer Value = (1-Perceived Risks)*(Perceived Benefits – Perceived Lifecycle Costs)
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Customer Costs Across the Lifecycle
Cost Example of Firm lowing cost
Price paid Amazon.com lowers purchase price with
the online purchase of books
Acquisition
costs
Acıbadem reduces costs with an
electronic patient reservation system
Usage costs Sealed Air reduces packaging labor costs
with AirCap
Maintenance
costs
Siemens lowers the cost of repair through
modular product design
Ownership
costs
Citibank Turkey works with customers to
create affordable loans and ownership
Disposal costs Profilo reduces disposal costs by allowing
trade-ins.
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Customer Benefits
• Performance benefits: Function, innovation, design, fashion, style
• Price benefits: Best price for reliable quality
• Relational benefits: Service excellence,
tailored and integrated offerings/solutions
• Intangible meanings linked to tangible
qualities: these benefits can become
associated with individual brands and
the overall firm
• Once these benefit priorities are understood, other customer
characteristics can be used to segment the market
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Customer Value
1. Customer analysis concerning likes, dislikes, use behavior, and lifestyle.
2. Competitor analysis of positioning strengths, weaknesses, and price.
3. Environmental analysis of factors impacting future demand.
4. Improve product benefits that add customer value and firm profit.
5. Seek a price point that delivers customer value.
6. Reduce cost.Relational
Benefits
Price
Benefits
Performance
Benefits
Total
Cost of
Purchase
Perceived
Benefits
Perceived
Costs
Customer
Value
Current Position
Relational
Benefits
Price
Benefits
Performance
Benefits
Total
Cost of
Purchase
Perceived
Benefits
Perceived
Costs
Customer
Value
New Position
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Customer Value
Customer Value = (RELATIVE Perceived Benefits – RELATIVE Perceived Lifecycle Costs)
Relational
Benefits
Price
Benefits
Performance
Benefits
Total
Cost of
Purchase
Perceived
Benefits
Perceived
Costs
Customer
Value
Current Position VALUE MAP
Perceived Customer Benefits
Co
st o
f P
urc
hase
Inferior
Value
Superior
Value
Competitor A
Competitor B
Competitor C
Company
Fair Value Line
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Customer Value
and Relative Performance
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Customer Value
1. Customer analysis concerning likes, dislikes, use behavior, and lifestyle.
2. Competitor analysis of positioning strengths, weaknesses, and price.
3. Environmental analysis of factors impacting future demand.
4. Improve product benefits that add customer value and firm profit.
5. Seek a price point that delivers customer value.
6. Reduce cost.Relational
Benefits
Price
Benefits
Performance
Benefits
Total
Cost of
Purchase
Perceived
Benefits
Perceived
Costs
Customer
Value
Current Position
Relational
Benefits
Price
Benefits
Performance
Benefits
Total
Cost of
Purchase
Perceived
Benefits
Perceived
Costs
Customer
Value
New Position
Means-end chain analysis
provides insights into consumer’s
value priorities & drivers.
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AttributesFunctional
ConsequencesPsycho-social
ConsequencesValues
Products Benefits Personal Goals
Means-End Chain
• A model that seeks to explain how products or services, as means, are linked to ends, which are a person’s values.
– Values: enduring beliefs that specific modes of conduct or end-states of existence are personally or socially preferable..
• Help us understand how values (general) guide behavior like consumer choice (specific).
What does it do?
What specific
function or problem is
addressed?
How does it make me
feel about myself in
relation to others?
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Means-End Chain
• People find it difficult to identify functional & psycho-social consequences,
so we may not be able to derive a true means-end chain.
• First, have respondent list attributes of the product.
• Then, for each attribute, ask the respondent first why the attribute is
important, then why what they just responded is important.
• Follow this chain as far as the respondent will take it, probing them for
deeper levels of meaning.
By working backwards from goals and values, we can:
• Understand what customers want but can’t get from products they purchase.
• Evaluate if the product attributes are relevant to customers.
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Means-End Chain Examples
Gillette Fusion
Lubrication strip Smooth shave Comfortable Relaxed
Five blades No five o’clock
shadowWell groomed Attractive
Socially acceptable Popular
AttributesFunctional
ConsequencesPsycho-social
ConsequencesValues
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Lead Users
Urban and von Hippel (Mgt. Science, 1988) defined
lead users as those who display two characteristics:
1. They face needs that will be general in a marketplace –
but face them months or years ahead
2. They are positioned to benefit significantly by obtaining a
solution
The Lead User process (von Hippel 1976, 1977, 1978, 1986, 1989, etc.)
1. Identifying key areas and recruiting stakeholders to form LU study team.
2. Using experts to determine the trends that the users lead
3. Identifying and finding the most advanced users/customers
in the field
4. Developing the new product ideas that result
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Conjoint Analysis
• An experimental research method that mimics real purchase situations
so that respondents reveal their unstated preferences & value systems
– Mirrors trade-offs that individuals make in the market place.
– When respondents are forced to make difficult tradeoffs, we learn what
they truly value.
• CA measures how buyers value components of a product bundle.
– Customers evaluate the whole product, not feature by feature nor benefit
by benefit
– CA measures relative values of attributes jointly rather than separately.
– The importance of product characteristics is inferred and not directly
measured.
– “Features CONsidered JOINTly.”
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It will have a Destination (Bodrum or Cesme)
It will have Accommodations (at a Low or High Price)
The hotel will have Proximity to activities (Near Site or Away)
Conjoint Analysis Exercise
– Designing a Holiday Trip
Assume a travel company wants to develop a set of 4-night packages for a
spring break vacation. The packages differ by destination, hotel’s proximity
to activities, and room rate per night. Each package comes with free use of
all activities and access to entertainment. In designing the designing the
packages, there are trade-offs to consider, such as a high-priced room
near activities may not be as comfortable as a moderately priced room
away from the activities.
Your Role: You have been selected to be part of a survey panel, providing opinions
about several vacation packages. Please rank each package on the next slide.
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$250
$300
$250
$300
$400
$450
$400
$450
At Site
At Site
Away
Away
At Site
At Site
Away
Away
Bodrum
Cesme
Bodrum
Cesme
Bodrum
Cesme
Bodrum
Cesme
A
B
C
D
E
F
G
H
Location Room Rate Proximity Your Ranking Ranking
8 = best
1 = least7
8
6
4
3
5
2
1
Step 1: Rank the Bundles
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At Site
Away
from Site
$250
Bodrum Cesme
$300$400 $450
Step 2: Put rating scores into the appropriate cells
A B
C D
E F
G H
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At Site
Away
from Site
$250
Bodrum Cesme
$300$400 $450
Step 3: Calculate Mean Scores for Location Attribute
XBodrum = _____ XCesme= _____
A
C
E
G
B
D
F
H
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At Site
Away
from Site
$250
Bodrum Cesme
$300$400 $450
Step 4: Calculate Mean Scores for the Price Attribute
XLow = _____ XHigh = _____
B
D
F
H
A
C
E
G
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At Site
Away
from Site
$250
Bodrum Cesme
$300$400 $450
Step 5: Calculate Mean Scores for the Site Attribute
XSite = _____ XAway = _____
A
C
E
G
B
D
F
H
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Bodrum ______
Cesme ______
Lower $ ______
Higher$ ______
Site ______
Away ______
At Site
Away
from Site
$250
Bodrum
$300$400 $450
Step 2 Calculate Mean Scores for the Site Attribute
XFL = _____ XC = _____
At Site
Away
from Site
$250
Cesme
$300$400 $450
Step 3 Calculate Mean Scores for the Price Attribute
XLow = _____ XHigh = _____
At Site
Away
from Site
$250
Bodrum Cesme
$300$400 $450
Step 4 Calculate Mean Scores for the Site Attribute
XSite = _____ XAway = _____
Step 6: Transfer the means to
the following column
Bodrum
Cesme
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Bodrum ______
Cesme ______
Lower $ ____
Higher$ ____
Site ______
Away ______
Step 7 Calculate the
absolute difference
within attributes
Step 8 Sum up the
differences within
attributes
Step 9 Calculate the
attribute difference as
a % of total differences
%
%
%
100%
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Trade-offs in Product Choices
• Value system score for all eight choices
• Predict customers’ choice decisions among difference levels of
different attributes by comparing value gain vs. loss in the tradeoff.
– Question: Is a customer willing to exchange a better destination
(Cesme) with a better proximity (on-site)?
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Markstrat Conjoint Output
• Utilities (shown above): Numbers reflecting desirability of different features (higher = more).
• Importances: Measure of how much influence each attribute has on people’s choices.
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
0.00 5.00 10.00 15.00 20.00
100 177
254
331
Price
6
2238
54
Power
6 14 22 30
Max Freq
6 7 89
Design
CONJOINT ANALYSIS - UTILITY GRAPHS - SEGMENT OTHERS
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Three Firm Value Positions
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What Value Leadership Requires:
• Superiority on 1 value vector and parity on other 2 vectors
– Points of parity = Measures up to other offerings
– Point of difference = Unique and relevant features and/or benefits
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• Three reinforcing elements in the customer value proposition
What Value Leadership Requires:
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Increase Value by Changing the Competitive Profile
Value Leadership
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Value Leadership & Business Model
• Align the business model to make the value proposition
possible and sustainable
The value proposition is the “position” of advantage
The business model is the “source” of that advantage
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Let’s look at ZARA…
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