Saturday, September 13, 2014

Business Strategies Should Create Value For Customers, Collaborators and The Company







The graphic above, used in Alexander Chernev's Marketing Plan Handbook, is an illustration of how optimal value is created for business strategy. As the graphic suggests optimal value is created when a strategy provides adequate value for the company providing a product or service, adequate value for the customer and adequate value for any collaborators facilitating the interaction between the customer and the company.

As the graphic suggests, the optimal value that insures strategic success provides success for all three participants: customers, collaborators and the company providing the service or product. Also as the graphic suggests an increase in optimal value for one of the participants can mean a reduction in the value for the other participants. For example a strategy that has too much focus on the customer can reduce the ability of the company to survive by putting undue negative pressure on profit margins.

Collaborators can be critical to the success of a business strategy, particularly when outsourcing is a key component of a strategy.  A company utilizing collaborators must be mindful of the value the collaborator is receiving from the execution of the business strategy. If the collaborator isn’t receiving adequate value then the entire business strategy may be in jeopardy.

In the graphic the best outcome is achieved when the optimal value for each of the three participants have the greatest overlap.  In other words, as the black area of overlap grows the value of the three participants increase and the value circles for each participant are more congruent. As the overlap of optimal values for each of the participants increases so does the overall value of the business strategy.

This outcome may be akin to a “Blue Ocean Strategy” where businesses seek new business opportunities where the competition is small or nonexistent. Southwest Airlines accomplished this through a focus on short airline trips that the major airlines were not structured to service. This strategy provided high value for the short distance travel customer and collaborators such as secondary airports in metro areas. The significant value provided to customers and collaborators provided significant value to the Company, Southwest Airlines.  The value circles for all three participants in this scenario are more congruent, providing greater value for the participants.

This graphic also supports the research on disruptive innovations. Disruptive innovations occur when a company business strategy focuses on providing products and product improvements for their most profitable customer segments. This results in a growing set of customers who no longer need or want all of the attributes provided by the company’s products. So in graphic terms the focus is increased on the optimal value of the company at the expense of the optimal value for the customer. For the short term the collaborators’ optimal value may be served at least adequately. Overtime, the overlap between the company and customer optimal value circles decreases. This can lead to new market entrants providing products that more nearly fit customer needs and provide optimal customer value. This can lead to disruptions in the market and cause industry leaders to fall to the new market entrants.

When developing business strategies, it is important to consider customers, the company and collaborators. Strategies that provide scenarios where customers, collaborators and the company values are more congruous will create the greatest value for all and result in the best chances for both long and short-term success.

Strategies that focus too much on one of the three will decrease the value for the other participants. This will result in scenarios where one or more participants will be on the look out for situations that will provide better value. This can result in new market entrants creating market disruptions.


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