Value Chain, Primary Activities and Support Activities of the System Approach

Value chain


The value chain is a tool proposed by Michael E. Porter (1985) for identifying methods of creating more customer value. According to him, value chain is a set of inter-linked value-creating activities performed by an organization. These activities begin with inputs, go through processing and continue up to outputs marketed to customers. The value chain identifies two types of activities that can create value and cost in a business. They are shown in following figure:

Value Chain Analysis

Primary Activities

They consist of following five activities:
  1. Inbound logistics: It is the activity of bringing materials into the business. It consists of receiving and storing raw materials; material handling, stock control, material, transport etc.
  2. Operations: It is the activity of converting raw materials into finished products; manufacturing, packaging, assembling, testing etc.
  3. Outbound logistics: It consists of order processing and physical distribution; collect, store and distributes products to customers.
  4. Marketing and sales: It consists of pricing, promotion and selling products to satisfy customer needs.
  5. Service: It consists of installation, repairs, spares and training. These activities help to enhance and maintain value of product.


Support Activities

The support activities of the value chain are as follows:
  1. Procurement: It involves all the activities related to processes for purchasing inputs.
  2. Technology development: It involves all the activities related to acquiring new technologies and research and development for innovation.
  3. Human resource management: It involves all the activities related to acquisition, development, utilization and maintenance of human resources.
  4. Infrastructure: It involves all the activities related to infrastructure building, such as strategic planning, quality control, accounting, finance, information management, organization design etc.
The value chain analysis identifies separate activities performed to produce, market, deliver and support a product. The firm’s task is to examine its costs and performance in each value-creating activity and to look for ways to improve it. The firm should estimate its competitors’ costs and performances as benchmarks against which to compare its own costs and performance.
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How a marketing firm can benefit from the adoption of the system approach?

System


A system is made of components and their interrelationship. It is a set of units with relationship among them. In other word, a system is a network of interrelated and interacting components to achieve desired goals. Regularly interacting group of activities forming a unified whole is known as system. Solar system, natural system, economic system, political system, educational system, marketing system are some of the examples of systems. Their parts and sub systems interact with each other in order to achieve common objectives or goals.
According to J.A. Morton –“A system is an integrated assembly of specialized parts acting together for common purpose.”

 

According to Fremont E. Kast and James E. Rosenzweg –“A system is an organized, unitary whole composed of identifiable boundaries.”

 

According to S. A. Sherlekar –“A system is a set of interacting or independent components or groups co-ordinated to form a unified of objectives.”


Now we can conclude that a system is a set of objects together with the relationship among them and their objectives. It is consist of several sub-systems interact each other and work for common objectives. Problems arise in each sub-system affects the performance of whole system.

System can be of two types. They are as follows:
  1. Open system: In an open system, there are interactions between the system and its environment. Open system responds to change. All marketing organizations are open systems.
  2. Closed system: A closed system is one, which does not interact with its environment. It is self-sufficient entity. Automatic machinery system is an example of closed system

System Approach in Marketing


Simply, a system is made of components and their interrelationship. It is an integrated assembly of specialized parts acting together for common purpose. In this regards, a marketing system is a unified whole composed of interrelated and interacting parts to achieve desired objectives.
According to S. A. Sherlekar -“A system is a set of interacting or independent components or groups co-ordinated to form a unified of objectives. Likewise marketing system is also an integrated assembly of interrelated and interacting parts to achieve organization’s marketing objectives.”

According to W. J. Stanton –“Marketing system consists of two interacting elements – the marketing organization and its target market. These two elements are connected by two sets of flows. One the distribution of product/service to its customers in exchange for some kind of payment and the other flow is an information flow from the market to the organization.”

We can apply system approach in marketing. A firm’s marketing system is the set of significant institutions and flows that connect an organization to its market.
System approach in marketing can be made clear with the following figure:

System Approach in Marketing

Under the system approach, marketing is viewed as an organized and integrated effort to secure customer satisfaction and profit. Marketing itself is considered as a subsystem of economics, legal and competitive marketing system. The systems approach also integrates commodity, functional, institutional, and managerial approaches. It emphasizes the importance of the use of right information. Markets can be understood only through the study of marketing information. The system model (inputs-processing, output-feedback) places emphasis on the inputs of resources, outputs produced and it enables the determination of marketing programs to achieve those objectives. System approach to marketing includes the following factors. They are: objectives, inputs, processing, outputs, and feedback.
  1. Objectives: Objectives consist of profit matching products with markets, etc.
  2. Inputs: Inputs consist of capital, raw material, physical assets, human resource, information, machines and technology, management tools and in general, marketing mix elements.
  3. Processing: Processing consists of product planning and development, pricing, distribution and promotion.
  4. Outputs: Outputs consist of products, services, profit, customers’ satisfaction, social responsibility, goal integration etc.
  5. Feedback: Besides these, system approach also includes feedback which provides information to redesign inputs and processing.

Marketing is an open system. It interacts with environment. Definitely, system approach in marketing is used as an orderly method of dealing with marketing problems because it has many benefits. A marketing firm can get many benefits by using system approach in marketing.

Benefits of System Approach


We can apply system approach in marketing. A firm’s marketing system is the set of significant institutions and flows that connect an organization to its market. System approach to marketing has many benefits such as:

1. Synergistic effect


Synergistic is the combined effect of the components of a system that exceeds the sum of their individual effects. 2 + 2 = 5 is the result of synergistic effect. The systems approach in marketing generates synergistic effect. This idea has been well adapted in the marketing system where each sub-system works in close cooperation and coordination in order to achieve higher level results in terms of customer satisfaction or market share. Such-optimization is avoided because all sub-systems work efficiently in a coordinated manner.

2. Marketing effectiveness


By using systems approach in marketing a firm can efficiently coordinate and utilize the marketing resources. It helps to achieve marketing objectives. Under the system approach, all marketing activities and resources are efficiently utilized and coordinated. They look at the total picture and carefully design the marketing mix by giving needed importance to all the elements which definitely enhances the effectiveness or marketing.

3. Environmental adaptation


Marketing is an open system which interacts with its environment. In the interaction process it receives inputs form the environment in the forms of information, trends and resources and it also provides outputs to the environment in the forms of goods, services, ideas and experiences. Changing forces in the environment are carefully responded in designing the marketing program. By adopting systems approach, a firm can carefully consider the changing forces in the environment in designing marketing program. It helps to adopt environment changes.
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Relationship Marketing and Customer Development Process

Relationship Marketing


Marketers need to establish long-term relationship with customers. Relationship marketing is an act of building of long term mutually satisfying relationship with the different kinds of customers to earn and retain their long-term loyally because they are good partners in creating value. Relationship marketing’s focus in not on immediate sales; rather it is directed at building a large group of satisfied and loyal customers. Customer retention and winning back lost customer are the key strategy in relationship marketing. This marketing uses sustained long-term efforts in delivering value to the customers and profit to the firm.

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Now we can say that relationship marketing is a long-term partnership between marketers and customers in which both parties collaborate on identifying needs and developing as well as up-dating marketing mixed to satisfy needs. Besides these, in a competitive market, it is not enough to build relationship only with customers; it is
equally important to establish relationship with the vendors, intermediaries, and other influence groups.

Importance of Relationship Marketing

The major importance of relationship marketing can be listed as flows:
  • It maintains log term relationship with key customers.
  • It leads to develop loyalty and satisfaction, which in turn increases transactions with the same customers, again and again.
  • It supports for long-run business.
  • It focuses on customer retention. It can stop customers switching to another brand.
  • It results in positive image projection and enhanced brand equity on account of high degree of customer relation, loyalty and customer satisfaction.


Levels of Investment in Customer Relationship Building


A company needs to invest its time and money in building customer loyalty. How much should it invest in building loyalty so that costs do not exceed the gains? We need to distinguish different levels of investment in customer relationship building.

As following figure shows, the likely level of relationship marketing depends on the number of customers and the profit margin level.


Levels of Investment in Customer Relationship Building

  1. Basic marketing: The salesperson simply sells the product.
  2. Reactive marketing: The salesperson sells the product and encourages the customer to call if he or she has questions, comments or complaints.
  3. Accountable marketing: The salesperson phones the customer to check whether the product is meeting expectations. The salesperson also asks the customer for any product or service improvement suggestions and any specific disappointments.
  4. Proactive marketing: The salesperson contacts the customer from time to time with suggestions about improved product uses or new products.
  5. Partnership marketing: The company works continuously with its large customers to help improve their performance.

Most companies practice only basic marketing when their markets contain many customers and their unit profit margins are small. At the other extreme, in markets with few customers and high profit margins, most sellers will move toward partnership marketing. The best relationship marketing going on today is driven by technology. Companies are using e-mail, web sites, call centers, databases, and database software to foster continuous contract between company and customer.

Customer Development Process


The relationship marketing involves a long-term process of building satisfied and loyal customers. The process is explained below:
  1. Suspects: Most firms start from the pool of suspects. Suspects constitute of everyone who has the possibility of everyone who has the possibility of building the firm’s product or service.
  2. Prospects: From the pool of suspects the firm identifies customer groups who are mot likely to buy the product or service.
  3. First time users: They are those who buy a product for the first time. Then, the firm makes its maximum efforts to convert the first time customers into the repeat customers.
  4. Repeat customers: They are the first time customers who repeatedly buy the product or service. This group has the potential to be become loyal customers if the firm tries to build relationship in absence of the firm’s effort to build the relationship, the repeat customers may switch to competing firm’s product or service. They also move to the ex-customer pool.
  5. Clients: They are the loyal and satisfied customers who normally buy the firm’s product or service for a longer period of time. Firms need to work closely with clients so that they maintain long-term loyalty.
  6. Members: They are those clients who join membership programme to take advantage of benefits.
  7. Advocates: They are those clients who enthusiastically recommend the firm and its products and services to other prospects.
  8. Partners: The advocates may convert into partners, who work actively with the firm for mutual benefits.

There may be the possibilities, at each stage of customer development process, that some of the customers may become ex-customers, if they are dissatisfied. So, firm should try to satisfy the customers and to create strong customer loyalty.

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How can companies attract customers and retain them?

How can companies attract customers and retain them?

Traditionally, the focus of marketing has been on building new markets and attracts new customers. But it is not enough to be skillful in attracting new customers; the firm must keep them and increase their business. Now, firms are found giving more weight to attract customers and retain them. The key to customer retention is customer satisfaction. A highly satisfied customer stays loyal for long periods; buys more when the company introduces new product; talks favorably about the product and the firm; pays less attention to competitor’s advertisement and brands; is less sensitive to competitors price and other offers; provides ideas to the firm to improve the product; and the cost of servicing a loyal customer is lower than the cost of servicing a new.

Firms seeking to expand their market have to attract customers and retain them. For this, they have to spend considerable time and resources. They must develop several advertisements and places them in various indoor, outdoor, direct and display media that will reach new prospects. Advertising is the cheapest, fastest, and reliable medium to attract the new customers as well as current customers.

Besides these, customer retention can be done by the following methods:

1. Erecting High Switching Barriers


In order to make customer retained, the firm can erect high switching barriers. Switching may involve high capital costs, high search costs, and loss of attractive discounts for current customers. It could sometimes be wise to phone recent buyers and get information to what degree they are satisfied with the products and services.

2. Developing Relationship Marketing


Relationship marketing is best tool to retain the customers. Therefore, the firm needs to develop relationship marketing remembering customers between calls, building a personal reputation, improving customer relations, maintaining after sales services, providing solutions to their problems, etc. The firm takes steps to know and serve its customers better.

3. Customer’s Expectation


For the retention of the customer, it is also very necessary to set the customer’s expectation in prior state. The setting of customer’s expectation help to minimize the uncertainty level of offering your services to your clients. The expectation of the customers should be made developed as positive and delivering the services in the particular time. But sometimes, it may also lead to negative, if the delivery the services is not done in the particular time. Due to such negative expectations, the client/ customers may also cancel their order from the business.

4. Being the Expert


Now a days, the small business organization needs to be more dependent upon the services. So, being the expert in the particular services you are delivering surely help to retain the customers towards your services. The business organization should be trusted advisor for building customer loyalty and reduce customer churn.

5. Conduct Customer Surveys


In order to know the reactions of the customers towards the delivered services, it is also very necessary to conduct customer surveys. By conducting the surveys, the business organization can triggered out the weakness of the services and can turn into strength. The feedback of the customers also play great role because the information provided by the customers are very valuable for the services delivered in relation to the customers’ expectations.

6. Online Relationship


In the age of advanced communication technology, business can build online relationship with their clients very easily and building an online relationship is also taken as the way of retaining customers towards your services. Nowadays, there are a lot of social media networking sites that can connect millions of customers within your computer screen. It will be also better to create a social profile in some popular social networking sites like Facebook, LinkedIn, Twitter, Pinterest and many others. Majority of the people are engaged in these media.

7. Post-support Services


Selling huge quantity for a time is not the entire goal of your business. But selling for a long period of time and retain customers for long period of time is a most. For that, business companies should provide post-support services or post-sales services to the clients. By providing such services, customers become more loyal towards your services and continue to use your services.

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Value Creating Activities: Activities creating benefits and utilities to the customers

Value Creating Activities


Value creating activities refer to the activities cornering to create benefits and utilities to the customers. Value creating activities in marketing are very important. The major task of marketing is to create value to the customers. It needs to deliver value to the target customers. It should add maximum value to the customers. If a marketing firm creates value, it can run its business successfully. If not it may disappear from the market. In this reality, the marketing firm should perform value creating activities and deliver the maximum value to the customers for their satisfaction. For this, the firm can use value delivery network concept in marketing.

Value Delivery Network


To be successful a firm also needs to look for competitive advantage beyond its own operations, into the value chains of its suppliers, distributors, and customers. Many companies today have partnered with specific suppliers and distributors to create a superior value delivery network which is also known as supply chain. Value delivery network is building mutually beneficial relationship with key stakeholder to capture the value generated by the supply chain. This network is a set of participating companies or stakeholders who agree upon building mutually beneficial relationship among them for capturing the value generated by the supply chain. It involves partnering with key stakeholders to create superior supply chain.

The value delivery network for sugar can be shown in the following figure:

Value Delivery Network for Clothes

The participating firms of this network are fully aware of each other’s needs and priorities and are prepared in advance to deliver products and services at the right time at a low cost.
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Marketing is seen as the task of creating, promoting and delivering goods

Marketing is seen as the task of creating, promoting and delivering goods and services to consumers and business

Marketing is a term of common usage. In general view, it is related to buying and selling goods produced. But marketing is not only concerned with buying and selling of goods and services. It is that commercial process which attends and facilitates the movement of goods and services through the economy to enlarge and satisfy consumer need consistent with the corporation's fundamental objectives. In other words, marketing is an exchange process between producers and consumers, in which the producer matches a marketing offering (the product or service, plus its promotion, distribution, and price) to the wants and needs of the consumer.

Marketing is the business function that identifies customer's needs and wants, determines which target markets the organization can serve best, and designs appropriate products, services, and programs to serve these markets. However, marketing is much more than just an isolated business function. It is a philosophy that guides the entire organization. The goal of marketing
is to create customer satisfaction profitably by building value-laden relationships with important customers.

Definitely, marketing is seen as the task of creating, promotional and delivering goods and services to consumers and business. Following definitions help to explain it. 

According to E. Jeome McCarthy, "Marketing is the performance of activities that seek to accomplish an organization's objectives by anticipating customer or client needs and directing a flow of need-satisfying goods and services from producer to customer or client."
In the words of Stanton, Etzel and Walker, "Marketing is a total system of business activities designed to plan, price, promote and distribute want-satisfying products to target markets to achieve organizational objectives."
According to American Marketing Association, "Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals."
According to Philip Kotler, "Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others."

The above definitions emphasize that marketing focuses on activities to satisfy customer. Marketing consists of those activities which are associated with product, price, place and promotion. Marketing is an on-going process of discovering and translating consumer needs and wants into products service through planning, producing and creating demand, serving customer and business demand through planned physical distribution system and expanding markets in the face of keen competition under certain commitments.

Now, we can say that marketing is seen as the task of creating, promotional and delivering goods and services to consumers and business because these are the core function of modern marketing. It focuses on consumer and business needs, coordinates all the activities that will influence consumers and business firms and generates profit by satisfying them.
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Customer Satisfaction and Factor Determining Customer Satisfaction

Customer Satisfaction


Customer satisfaction is a post-purchase outcome where a customer compares the expected benefits with the actual benefit received from the use of product. If the performance of the product fails short of expectation; the customer is dissatisfied. If the performance matches the expectation, the customer is highly satisfied or delighted. Thus, customer satisfaction is a function of performance and expectations. It is the customer's perceived performance from the product in relation to the expectations. Customer expectations are formed by post buying experiences, advice from friends and relatives and marketing promotion and promises.

According to Philip Kotler, "Satisfaction is a person's feeling of pleasure or disappointment resulting from comparing a product's perceived performance in relation to his/her expectations."

Customers should be satisfied by the firm's offering: products and services. High customer satisfaction leads to high customer loyalty. It creates emotional bond of customer with the brand.

Factors Determining Customer Satisfaction


High satisfaction level is required to be created by marketing organizations in order to develop customer loyalty and retain the customer for a long period of time. For this, following factors can be used:
  1. Complaint and suggestion systems: A customer-centered organization makes it easy for customers to register suggestions and complaints. Some customer-centered companies are: P&G, General Electric, Whirlpool, etc. They establish hot lines with toll-free numbers. Companies are also using websites an e-mail for quick, two way communications.
  2. Customer satisfaction survey: Studies show that although customers are dissatisfied with one out of every four purchases, less than 5 percent will complain. Most customers will buy less or switch suppliers. Responsive companies measure customer satisfaction data, it is also useful to ask additional questions to measure repurchase intention and to measure the likelihood or willingness to recommend the company and brand to others.
  3. Ghost shopping: Companies can hire people to pose as potential buyers to report on strong and weak points experienced in buying the company's and competitor's products. These mystery shoppers can even test how the company's sales personnel handle various situations. Managers themselves should leave their offices from time to time, enter company and competitor sales situations where they are unknown, and experience firsthand the treatment they receive. A variant of this is for managers to phone their own company with questions and complaints to see how the calls are handled.
  4. Lost customer analysis: Companies should contact customers who have stopped buying or who have switched to another supplier to learn why this happened. Not only is it important to conduct exit interviews when customers first stop buying; it is also necessary to monitor the customer loss rate.
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Societal Marketing Concept and Relevancy in Socio-Economic Environment

Societal Marketing Concept


From the early stage of barter system to the present stage of globalization, various concepts of marketing have developed. They are: the production concept, the product concept, the selling concept, the marketing concept and the societal marketing concept.

Among them the societal marketing concept is an emerging concept. It is the newest of the five marketing management philosophies. The societal marketing concept holds that the firm should determine the needs, wants and interest of target markets. It should then deliver superior value to customers in a way that maintains or improves the customer's and the society's well-being. According to Philip Kotler, "The societal marketing concept calls for a customer orientation backed by integrated marketing aimed at generating customer satisfaction and long-run consumer welfare as the key to attaining long-run profitable volume."

The societal marketing concept evolved out of the movement of consumerism and environmentalism. This concept is whether the pure marketing concept is adequate in an age of environmental problems, resource shortages, rapid population growth, worldwide economic problems and neglected social services. It asks if the firm that sense, serves and satisfies individual wants is always doing what's best for consumers and society in the long-run. According to societal marketing concept, the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare. For example, large expensive automobiles may please their owners but increase air pollution, traffic congestion and parking problems; cigarettes and alcohol satisfy individual desires but create health and law and order problems; detergents ease housewives' laundry problems but destroy the quality of water when recycled for the purposes of irrigation and drinking. Such concerns and conflicts led to the societal marketing concept.

Relevancy of Societal Marketing Concept in the Current Socio-Economic Environment of Nepal

Nepal has experienced significant socio-economic changes over the last few decades. The supply-driven marketing where firms could sell whatever they supplied, is increasingly giving way to demand-driven marketing. Now a days, it is realized that customers and their needs are important in marketing. In this context, there is still a debate on the relevancy of the societal marketing concept in current socio-economic environment of Nepal.

On one hand, in the rural areas of the country the main problem is meeting consumers' basic needs. On the other hand, the urban areas have serious problems of environmental degradation, high level of population, severe problem of drinking water, and may other social problems. A large part of the problems in many cities of Nepal is attributable to irresponsible marketing by many firms. For example, the over use of plastic as packing and packaging material and the discharge of industrial waste in rivers has caused major problems in the cities. In this context, the environmental and consumer rights protection groups and various pressure groups should watch the activities of those firms that are seriously threatening the welfare of the Nepalese consumers as well as society in long-run. In this regard, Nepal Government has already enacted consumer protection act and environment protection act. Nepal's membership of World Trade Organization is likely to promote the societal marketing concept in Nepal. Various multinational companies are also helping to enhance societal marketing concept in Nepal.

But establishing the societal marketing concept in Nepalese marketing organizations is an extremely difficult task because it involves considerable planning; considerable persuasions; considerable educations; considerable reorganization and heavy investment.
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