VALUE DELIVERY PROCESS
The traditional view of marketing is that the firm makes something and then sells it. In this view, marketing takes place in the second half of the process. The company knows what to make and the market will buy enough units to produce profits. Companies that subscribe to this view have the best chance of succeeding in economies marked by goods shortages where consumers are not fussy about quality, features, or style â€“ for example, with basic staple goods in developing markets.
The traditional view of the business process, however, will not work in economies where people face abundant choices. There, the â€œmass marketâ€? is actually splintering into numerous micro markets, each with its own wants, perception, preferences, and buying criteria. The smart competitor must design and deliver offerings for well-defined target markets. This belief is at the core of the new view of business processes, which places marketing at the beginning of planning. You can see this in action at your local mall. In the struggle to grow, retail chains are creating spin offs that appeal to ever smaller micro markets:
Gymboree, a 530-store chain, sells childrenâ€™s clothing to upscale parents. Since there are not enough parents making more than $65,000 per year to support even to stores, Gymboree has created Janie and Jack, a chain selling upscale baby gifts. Hot Topic, a chain that sells rock-band-inspired clothes for teens, recently launched Torrid to give plus-size teens the same fashion options. Womenâ€™s clothing store Ann Taylor spawned Ann Taylor Loft, with lower-priced fashions, and Chicoâ€™s, a chain aimed at women in their forties and fifties, begat Pazo, for slightly younger working women.
Instead of emphasizing making and selling these companies see themselves as part of a value delivery process.
The process consists of three parts. The first phase, choosing the value, represents the â€œhomeworkâ€? marketing must do before any product exists. The marketing staff must segment the market, select the appropriate market target, and develop the offeringâ€™s value positioning. The formula â€œsegmentation, targeting, positioning (STP)â€? is the essence of strategic marketing. Once the business unit has chosen the value, the second phase is providing the value. Marketing must determine specific product features, prices, and distribution. The task in the third phase is communicating the value by utilizing the sales force, sales promotion, advertising and other communication tools to announce and promote the product. Each of these value phases has cost implications. An example of Nike is given below to give an idea of these phases.
Critics of Nike often complain that its shoes cost almost nothing to make yet cost the consumer so much. True, the raw materials and manufacturing costs involved in the making of a sneaker are relatively cheap, but marketing the product to the consumer is expensive. Materials, labor, shipping, equipment, import duties, and suppliersâ€™ costs generally total less than $25 a pair. Compensating its sales team, its distributors, its administration, and its endorsers, as well as paying for advertising and R&D, adds $15 or so to the total. Nike sells its product to retailers to make a profit of $7. The retailer therefore pays roughly $47 to put a pair of Nikes on the shelf. When the retailerâ€™s overhead (typically $30 covering personnel, lease, and equipment) is factored in along with a $10 profit, the shoe costs the consumer over $80.