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The Market Value Process
Market Value Partners help organizations build and sustain competitive market advantage. Using the Market Value Process we provide organizations with a proven methodology for rigorous market analysis. This results in a clear and actionable market strategy.
The Concepts Behind "The Market Value Process"
Market Value Partners believe that to truly create superior shareholder value it is important for an organization to precisely define and focus on superior value to customer in chosen market segments.
The Value of Market Maps
Developing a market strategy via the "Market Value Process" provides an analytical approach for measuring market opportunities and challenges. Without this analytical approach, concepts such as customer value become extremely fuzzy. In contrast, the visual impact of the 'Market Value Maps' gives an organization a record of their market value-creation decisions along with valuable market insights.
The Theory Behind A Successful Market Strategy Process
Step 1: Define Your Market(s)
A company wins customers by creatively identifying differences in particular type of customers' needs (price, product, and non-product needs). Recognizing the different discreet needs of different customers is the first step towards delineating different market sectors. This will enables an organization to stake claim on the most lucrative sectors of the market, matching corporate capabilities to the market requirements. This provides the logistical focus for marketing program execution.
A significant amount of effort is be spent in examining the chosen market definitions. It's not wise to shortchange the amount of time spent on creative market segmentation. All too often organizations keep this effort brief and perfunctory. This is probably because the imaginative process of defining markets is sometimes perceived as frustrating. There is sometimes a feeling that organizations are thrashing and not necessarily getting anywhere. This is deceptive. The reality is that this is some of the most important "Marketing Work" an organization can do if the result is a strong and creative market segmentation that leads to successful marketing program direction and subsequent market share gain.
Because strategies uniquely deliver value to specific markets, getting market definition wrong means getting everything else in the process misdirected.
Step 2: Envision Market Evolution with Scenarios
Once an organization has defined its markets by uncovering differences in price, product and non-product needs, the next issue is to envision how these markets will evolve over time. To do this, the organization should create scenarios that help the organization imagine the different ways in which key trends may unfold. Looking at various market evolutionary possibilities is far richer than relying on a detailed forecast for a single "official future" that reflects an organization's traditional thinking and become obsolete or unlikely before the ink is dry on the business plan. With MVP's value maps, the scenarios are dynamic, easily updated, and flexible, so that your plan never ends up on the bookshelf. These scenarios enable an organization to think about how the price, product, and non-product sensitivities in the chosen markets may potentially evolve.
In coming up with market scenarios, the organization should first determine the greatest uncertainty that the market faces (whether competitive or environmental). Often the greatest uncertainty is the future "quality-sensitivity" of the market (i.e. the slope of the 'market wants' line - please see the charts attached below as reference). The organization then needs to identify the drivers of this uncertainty. In the case of the quality sensitive market, the driver is the timing, source, and magnitude of the next major breakthrough that improves the innovating company's market share.
Successful organizations envision alternative futures and have a strategic response ready to meet whatever future actually materializes.
Step 3: Determine Whether a Particular Market Will Reward Your Specific Investment
THE degree to which a market is attractive and promises to reward an investment depends on the fit between the direction the market is headed and the organization's core competencies. This process also helps an organization prioritize the markets for investment.
Step 4: Deliver Quality Through Product and Non-Product Benefits
The Market Value Process is used to measure and map how an organization's customers perceive its quality relative to the competition's quality. Quality is defined as the precision with which the product meets the customer's product needs. Quality is the "basket of needs", product and non-product. We consider both the product and non-product dimensions of quality in detail. We will work with the extended management team to measure and map the relative quality an organization offers in each chosen market.
Defining Market Objectives and Developing Marketing Strategies
In developing a strategy for a particular market, an organization identifies several possible objectives for its position in that particular market. The obvious possibilities are to gain, or hold market shares. Each objective is usually associated with a particular level of investment in human and capital resources relative to the competition.
The process enables an organization to build a strategy for deploying the resources needed to attain the desired objective by market. To gain share an organization would typically put in motion an aggressive set of actions to improve its product and non-product quality. The theory is that improved pricing and improved product quality will offer customers superior value and delivery higher shareholder value to the vendor.
Customer Value Maps
As a start to understanding the "Customer Value Maps" we've included a map that is relatively easy to understand. As seen below in Exhibit 1, we've mapped a theoretical market where customers are equally sensitive to quality and price. In this simple market model, if a product is improved by x amount, the customers would be willing to pay x amount more for the product. Price versus Quality (product and non-product needs) are balanced.
This means that if a competitor is offering a package of " product and non-product quality" that is 10 percent above average, the market will accept a price that is 10 percent above the market average. The equal rate that customers are willing to make product a forty-five degree line that is called the 'Market Wants' line.
Exhibit 1 - A Customer Value Map
There are of course different dynamics to markets. For example, a innovation-sensitive market where customers attach twice as much importance to innovative features or services as they do to price. In this type of market, customers are prepared to "pay up" for quality. The high slope of the "market wants" line reflects the pleasant reality that customers are prepared to reward every unit in quality (features improvement, etc.) with a price increase of two units. In this case the market is prepared to reward a quality package that is 10 percent above average with a price that is 20 percent above average.
2 A Customer Value Map
A price sensitive market has an opposite dynamic. In a price sensitive market as seen in Exhibit 3, customers attach twice as much importance to price as they do to quality. The low slope of the "market wants" line reflects the unpleasant reality of a "commodity market" in which customers are prepared to accord every unit in quality increase with only a half a unit in price increase. The market is now prepared to accord only a 5 percent price premium to a quality package that is 10 percent above the average.
Exhibit 3 A Customer Value Map
High-slope markets are quality sensitive markets, and low-slope markets are price sensitive markets.
The slope of the "market" line is of course not static. It changes over time, often in discontinuous ways. Usually what changes the market slope is innovation in product and non-product quality. Major technological innovations can create a very high slope market because customers are often willing to "pay significantly" for innovation. And of course, as the pace of product innovation slows, the market becomes increasingly price-sensitive, as customers are usually unwilling to "pay up" for stale technology or services.
Now let's take one last look at a value mapping exercise.
As you see in Exhibit 4, we have mapped four different companies and indicated which companies are in a gain share versus a market share mode. The Market Value process enables companies to visualize their market position and take actions to strategically optimize their market position.
Exhibit 4 Customer Value Map
The discussions generated from the Market Value Process are extremely helpful to organizations that are setting strategic and tactical marketing direction. If you would like more information about the Market Value Process, please contact Dennis Bruno at firstname.lastname@example.org.
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