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Value Chain Management: The Pricing Strategy
Introduction
Most companies in the world of capitalism always want more. They want more profit, more shareholder value, and more market share, among others. The realizations of these objectives have been attained through the successful initiation, development and management of a variety of factors that include value chain management in most instances. Indeed, the effective development and management of customer value has become a major priority for all organizations of all sizes in the different industries and markets. The reasons for this are certainly clear; strong customer value management are positively correlated with customer loyalty and profits. However, the efficient management of customer value can present challenges, especially in the case where managers are unable to accurately evaluate and assess their value chain management in terms of particular strengths and weaknesses objectively.
One major limitation that has been presented in both academic and empirical literature is on how to deal with the multifaceted issue of products development and multi-channel branding, especially where there is the need for reliance on professional retail distributors engaged in the sale and distribution of competing products. The adoption value chain management has been advanced as presenting numerous challenges and implications to the marketing context, and thus enlarging the complexity of marketing decisions. This report analyzes a possible growth scenario for companies, namely market development in order to provide a theoretical and empirical conceptualization of how an organization can ultimately develop its products through effective and informed pursuit of the key constructs of value chain management and market performance as employed in value chain management strategies.
Value chain management
According to (Lawson, 2003), value chain management (VCM) is the integration of all resources starting with the vendor and integrate information, materials, labor, facilities, logistics, etc. into a time-responsive, capacity-managed solution that maximizes financial resources and minimizes waste. A whole cocktail of factors has been presented as forming the basis for the adoption of value chain management including costs reductions in transactions, reduced growths in demands, competitive strategies and differentiations, changes in customers behaviours among others (Lawson, 2003).
The questions of how to manage these in an integrated context has however been presented as presenting several challenges. This becomes especially poignant when the said retailers are professionals who are engaged in the sale and distribution of similar and/or competing products. The choices as to whether to rely on such competing distributors (retailers) differentiate the products or focus on products branding is a bottleneck facing majority of companies in the world today. This will essentially call for clear understanding and employment of key concepts and postulates of value chain management and the expected overall performance, in light of product development.
Customer value (value attributes)
Brand has been advanced as a fundamental part and parcel of customer value in competitive environment. In fact, it has been pointed at as the central reason behind the preference of a product over another. The generic value chain management for a brand have been advanced as either focus driven or value driven. The definition of a brand in this subtext will refer to as an identifiable product, service, person or a place, augmented in such a way that the buyer or user perceives relevant, unique added values that match their needs most closely (Chermatony and MacDonald, 2002). The maintenance of sustained value added attributes to be derived from a value chain management in the development of brand is in essence the key to competitiveness.
According to Kapferer (2003), brands are a direct consequence of the strategy of market segmentation and product differentiation. This point has been buttressed by Brassington and Pettit (2000) who have pointed out that branding act as a means of linking items within a product line or emphasising the individuality of product items . Other definitions have been advanced in literature but the key concurrence has been the emphasis on uniqueness and value provision to the customers in a more efficient manner. This in essence will give rise to competitiveness in the market or industry sector. As Fukuda (2003) has noted, the key to success lies in finding a competitive advantage that others find hard to copy or imitate. Indeed, academic and empirical literature is of the opinion that companies that develop brands with a strong customer franchise to be sufficiently insulated from any promotional strategies by the competitors. According to the author, this has been the reason why it makes sense for a supplier to invest heavily in order to create strong or even global recognition and preference for its brand name.
Several definitions of competitive advantage have been advanced in literature, but the most appropriate one in the context of this paper is the one presented by Grant (2003) who asserts that when two or more firms compete within the same market, one firm posses a competitive advantage over the rivals when it earns (or has the potential to earn) a persistently higher rate of profit. In essence, this means that a firm that outperforms the others in the primary goal of performance-profitability-has competitive advantage. A reference back to the branding generic model of firms can be made, where the question of whether firms are branding strategies is cost driven or value added arises.
According to Fukuda (2003), brands succeed because they are positioned to capitalize on their unique characteristics which, in one or more aspects, their rivals find hard to emulate and hence their competitive advantages. This competitive advantage gives it a basis for outperforming competitors because of the value that firms are able to present to the customers. According to Chermatony and MacDonald (2002) consumers may perceive value in brands when it costs less for them to buy as contrasted with competing brands offering similar benefits-costs driven benefits-and/or when they have unique benefits that offset their premium prices-value added brands. From an organizations point of view, the options presented are on whether to pursue a cost-driven or value-added competitive advantage in the support of either a broad or narrow approach to the target markets.
It has been demonstrated that there are four different quadrants within which a firm will devise its generic brand strategies. The focus on costs strategy ideally reflect a company whose success is entirely reliant on a set of clearly defined group of purchasers often at the expense of a focus on a much broader set. As Kapferer (2003) has noted, any temptations to add new features that may appeal to a closely group are resisted since the marginal gains incur significant costs. Broad cost branding appeals to a broad range of industries and are structured around the tenets of economies of scale (Chermatony and MacDonald, 2002). Broad differentiation on the other hand is focused on creating value for buyers and communicating this. In this regard, heavy costs are incurred in achieving a value added positioning and while attempts are made to hold down costs through more effective ways of production. Finally, the focus on differentiation is to a large extent addresses a particular group of clients and any products or services are strictly focused on the needs of this group.
From the above analysis, it can be adjudged that organizations can adopt two broad strategies by either focusing on costs driven or value added strategies in their branding initiatives both aimed at providing best value to customers. However, it should be noted that the choice on what strategy to adopt is dictated to a large extent by the strength of the particular brand. The assessment of a particular brands strengths or weakness has been carried out through the employment of Kellers brands report card, which has been pointed out as a useful tool in delineating the characteristics of winning brands in the world.
Keller (2000) has noted that most managers have the problem of being able to step back and assess their brands particular strengths and weaknesses. According to Keller (2000), ten characteristics are inherent in all of the worlds top brands and there is the need for managers to systematically assess how they can grade their brands performance against each of the ten characteristics. In this way, an organization can effectively delineate how the brand will perform in the market against the constraints of market dynamics and competition. By developing this report card, an organization can identify the areas that need improvements, the specifics where the brand is strong, and the particular brands configurations and hence the identification of the various brands strengths and weaknesses (Keller, 2000). Subsequent decisions on brands extensions, multi-branding or the development of new brands, and indeed the multi-channel branding choices can then be anchored on a fulcrum of informed basis.
One of the most important characteristic of a top brand is its ability to deliver the benefits that customers truly desire. According to Keller (2000), the reason why customers prefer a certain brand as opposed to another is because the collection of attributes, brand image, services, and the many other tangible and intangible factors create an attractive whole that customers truly desire and identify with. Another attribute is the relevance of the brands. In strong brands, brand equity is tied both to the actual quality of the product or service and to the various intangible factors. These attributes may encompass the user imagery, usage imagery, the type of personality the brand portrays, the feeling the brand tries to elicit in customers and the type of relationship it seeks to build in its customers (Keller, 2000).
Pricing
The pricing strategy is the next important attribute and should ideally be focused on the pursuit of a strategy that is based on customers perception of value. As has been noted in both academic and empirical literature, majority of organizations are faced with the problems of finding the right blends between the attributes of products quality, design, features, costs and prices. As noted by Keller (2000), many managers are usually averse to how price can and should relate to what customers thinks of a product and therefore either charge too much or too little for a product. How a brand is positioned in the market constitutes another important element. In most cases, brands are well positioned within the tenets of occupying particular niches in the customers minds (Keller, 2000). Keller has advised that most successful brands keep up with competitors by creating points of parity in those areas where competitors are tying to find an advantage while at the same time creating points of difference to achieve advantages over competitors in some other areas.
According to Grant (2003), selling brands should also be consistent and will entail striking a balance between continuity in marketing activities and the kind of change needed to stay relevant. In this regard, it is important that a brands image is never lost within the cacophony of marketing efforts that confuse customers through conflicting messages and inappropriate price fixing strategies (Grant, 2003). The pricing strategy and hierarchy should also make sense given that most companies may have several or different types of competition in the market. Maintaining sound boundaries becomes a crucial aspect here as overlapping two brands here may present untoward challenges.
Cycle-time responsiveness is the next customer value in chain management that entails the need for use of and coordination of a full repertoire of marketing activities in order to build the customer satisfaction. This is because timely products and services delivery mixes and matches helps perform a number of brand related functions, including but not limited to the enhancement or reinforcement of consumers awareness of brands and its image (Keller, 2000).
The next attribute is the need for managers to fully develop an understanding of chain wide resource optimization. Managers should appreciate the totality of all their resources and avoid restricting themselves to the traditional forms of resources but ensure optimal time and resource use for customer satisfaction. Such elements as the different perceptions, believes, attitudes, and behaviours customers associate with the brands whether created intentionally by the company or not can only be maximized to the benefits of a product through best practices in resource optimization within the chain wide business operations.
When an organization is confident about the customers likes and dislikes as well as the core attributes and associations that are interlinked with the brand, a well grounded framework can be ascertained as regards whether any given action will dovetail nicely with the brand or will result in conflicts. This will go hand in hand with the 9th postulate that a brand is given proper support which is sustainable. This is because sustainability of all aspects of product brand enhancement cannot only be achieved through chain wide resource optimization. According to Keller (2000)
Realizing that the supply chain has more steps than existed in the traditional vertical model in which a single firm integrated many supply chain processes and functions within a single organization, the profit margins of each step have become smaller as firms became disintegrated in order to focus on one or only a few core competencies. An organization must monitor the sources of resources largely attained through good and frequent use of in-depth accounts audits and on-going brand tracking studies.
The building of a strong brand will entail maximizing on the above discussed issues. Thus, if a business is to excel in its ventures, it is of pre-emptive importance that the above factors are all considered and given the significance that they deserve. This will essentially entail paying cognizance to the constructs of value chain management that excel at delivering the benefits the customers truly desire, relevance, price strategy, brand positioning, brand consistency, brand portfolio, brand equity, brands understanding, proper brand support and finally, value chain management monitoring. These constructs can be employed towards the delineations of the value chain management in devising what better ways to customer satisfaction in the expected development and performance of a brand in a given market or industry setting. The choices to be made should conversely be reliant on an assessment of the value chain management strengths or weakness within the contexts of the widened markets or industrial frameworks. Customer value analysis is best achieved by the aspects of both quality and product factors as illustrated below.
Design Processes
The dynamics of changing demographics and consumer purchasing patterns, coupled with ever stronger competition, are putting increased pressure on businesses to adopt cutting edge technologies to meet the growing demands of the consumer in inventory management, capacity management, quality management and customer relationship management. This has impacted a lot on the in most businesses who have to devise new avenues for driving customer relations and develop distinct competencies that will ensure for their survival. Basically the adoption of these operations processes to meet customer values has brought with them a number of benefits both to the customers and the businesses banks. The scale of operations has improved, businesses have reported increases in the delivery of customer values and have also recorded decline in general costs.
In the analysis of the banking industry, customer relationship management through the application of advanced (CRM) tools has demonstrated commendable effectiveness. To facilitate them in realizing their objectives and missions, integrated IT solution called Customer Relationship Management (CRM) is finding a wide acceptance and application in many companies. Mathew, Cindy and Beatrize (1999), illustrate that to go a step further in the creation of added values, some banks are also taking in account their customers expectations and try to offer services which can help them increase their end service or product delivery
According to Mathew, Cindy and Beatrize (1999), customer relation management is a business philosophy that touches upon many independent parts of the organization. This business philosophy is one of the driving factors upon which the company success is based. In this endeavor, this business culture is inculcated in all the employees to ensure that the customer is not only satisfied but also retained. Mathew, Cindy and Beatrize (1999), further highlights that, to speed Customer acquisition, increase customer satisfaction and retention, and the company profit, it is necessary to develop a customer centric business model linking back and front office around the three pillars that are Sales, Marketing and Services
Available literature abides on the fact that to achieve an effective CRM, this IT solution needs to be technologically integrated in operation system of a bank. In addition, it requires constant customer repository to share information in sales, marketing and service departments in the company. The exploitations of economies of scale and scope were thought to be at the heart of dictating an industry structure characterized by concentration, centralization and adoption of new technologies. Banking services have not been left behind in their quest to satisfy the demands of the customer in the achievement of customer satisfaction and convenient online banking services. A general understanding on how firms can benefit from customer relationships remains critical for both the marketers and researchers. Prior literatures on the CRM banking have focused on the ability of banks to avail secure online services to the customers
Business organizations compete on the basis of price and quality. In this respect, the model of total quality management is particularly relevant in its emphasis on the interconnectedness between the different process chains in an organization. When it comes to the practice of total quality management, different departments have to coordinate their functions in order to achieve migration to the targeted changed state. For example, if the marketing department is planning to undertake customer relationship management programs, then it has to communicate its needs to the human resources department in order to develop the right training program for learning and growth. This calls for the strategic management of inventory, capacity and quality managements. Under the traditional management model, the marketing department might devise its own curriculum for the training program. Under total quality management however, human resource officials are also involved in the process. This involvement gives the human resources employees exposure to the marketing activities of strategic value. Therefore, this creates the basis for cross-functional training which equips human resource officials with skills of great strategic value to organizational competitiveness. Involving the human resource department in a wide variety of organizational activities is one of the means of transforming HR into a strategic, value adding function.
As mentioned before, the competitive advantage of an organization has to be sustainable in order for it to get any value out of it. The three generic strategies of differentiation, cost minimization and niche marketing do not have the ability to achieve sustainability because these strategies can be easily copied by competing organizations. Therefore, the source of the competitive advantage has to be long term and this is where the potential strategic value of HR comes in. It involves the taking of keen cognizance of the best practices in the management inventory, capacity and quality managements. The importance of managing human resources in order to create a sustainable competitive advantage stems from the fact that when the competitive advantage arises from certain elements of the organizational culture, it is sustainable because competing organizations cannot copy those elements in the short term. Building a certain organizational culture such as proper and leaner management practices in the inventory, capacity and quality managements is a long term process and it is the responsibility of HR managers to ensure that values, attitudes and beliefs that are the building blocks of that culture contribute to the strategic focus of the organization. In this respect, the central function of HR in maintaining an organizational culture aligned to the strategic focus of the company is one of the most critical aspects of the organizational processes.
Conclusion
The challenge involved in linking value chain management (VCM) to organizational development is to create a quantifiable framework for measuring impact, effectiveness and efficiency. The concept of measuring the impact of managing chain activities is comparable to that of measuring the return on investment of certain decisions in other areas such as marketing and finance. Measuring effectiveness is related to the extent that the actions and the capacities of employees in certain functions are affected by value chain management (VCM) programs Efficiency measures the level of value chain management activities that are attainable given a certain level of investment. Therefore, the challenge for the top management in transforming value chain management into a strategic, value-added function of organization development is to link the three concepts of impact, effectiveness and efficiency under the framework of organizational resources and processes. This adds value to the existing practices in marketing or finance by organizing the talent pools in each of these areas to maximize the value of resource constraints.
In other words, managing value chain adds strategic value to organization development. In order to develop a sustainable competitive advantage, organizations must combine value chain management (VCM) with organization development so that an effective framework for managing change can be developed. In the highly competitive world of todays business environment, the top leadership in a company must build an organizational structure that is built to last. This involves strategically aligned organization development. However organization development addresses only the structural issues of managing change. The human side must be addressed as well. Customer satisfaction and brand loyalty must remain the primary focus.
Poor inventory, quality and customer relationship management are the primary reasons behind the failures of most value chain management projects. In order to address this issue, the process of value chain management (VCM) must be brought into the strategic framework. Because of the fast changing business environment, organizations must maintain the process of managing change. It is in this context that the partnership between the various levels of management becomes feasible. The application of this partnership facilitates integration between business strategy and value chain management (VCM) strategy.
References
Brassington, F. and Pettitt, S. 2000. Principles of Marketing 2 edition. Essex: Pearson Education Limited.
Chernatony, L. and McDonald, M. 2002. Creating Powerful Brands: in Consumer, Service and Industrial Markets, 2 nd edition. Oxford: Butterworth- Heinemann.
FIA Forward Analytics, 2006. Customer Value Analysis. Web.
Fukuda, K. 2003. Effects of Brand Awareness on Choice for a Common, Repeat-Purchase Product. Journal of Consumer Research, 17: 141- 148.
Grant, R. 2003. Contemporary Strategy Analysis: concepts, techniques, applications, 4th edition. Oxford: Blackwell publishing.
Kapferer, J. (2003). Strategic Brand Management: creating and sustaining brand equity long term, 2 edition. London: Kogan Page
Keller, K.L 2000. Conceptualizing, Measuring, and Managing Customer-Based Brand Equity. Journal of Marketing, 57, 1-22.
Lawson, K. 2001. Commercials That Name Competing Brands. Journal of Advertising Research, 16: 7-14.
Mathew, W., Cindy, B. and Beatrize, K. 1999, Service Quality in the Banking Sector: The Impact of Technology on Service Delivery. William and Wilkins.
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