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Value Chain Marketing: Inside-out Thinking

 

 

Value Chain for Marketing

[Editor’s note: This installment is part of an ongoing series. You can start at the beginning in order to follow its logical sequence.]

by Kenneth Rudich

Inside-out thinking concentrates on two facets in particular.

One is the revenue-generating power of the value proposition, and the other is the cost structure of the value chain.

This perspective reflects the influence of catering to owner, investor or stockholder interests.

Revenue-generating Power

Value Chain for MarketingRevenue-generating power refers not only to the sales potential of a product or service, but also the potential halo effect, wherein the encounter leaves customers feeling motivated to continue interacting with the enterprise or brand, in the present and the future.

They also may provide word-of-mouth promotion or be brand ambassadors.

Numerous considerations coincide with this concept. The foremost of them is the product or service price.

While price predominantly hinges on what the market will bear, other factors may include business operating costs, competitive forces and return on investment expectations. It also may be impacted by external forces that either constrain or boost consumer confidence, ability or willingness to buy.

The halo effect opens the door to further revenue growth from various tactics already known and others still to be discovered. The enterprising nature of the for-profit arena compels such innovation.

Many of the current tactics are as familiar to consumers as they are to providers. A few examples include actions like:

—pursue an increase in sales by expanding into new markets (retain repeat customers plus add new customers);

—raise prices, cross-selling, up-selling;

—boost purchase frequency or volume;

—couple value-added support services with a product (or vice versa);

—cultivate a branded product line or product mix.

Then too there are plenty of short-term, incentive-based tactics like discounts, contests, specials, bundling, incentive packages, sales events, limited time offers, loss leaders and more.

Any number of these can yield higher profits and/or larger profit margins.

Cost Optimization

Value Chain MarketingThe second facet of inside-out thinking is organized around managing the cost structure of the value chain.

The overarching objective is to prevent costs from biting into revenue more than is reasonable or necessary.

The focus is on cost optimization tied to business outcomes, which differs from simple cost cutting for the sake of reducing expenses in a specific area or function.

For instance, if savings in one metric of the value chain adversely affects the performance of another metric, it’s a sign of isolated cost cutting as opposed to cost optimization, and it’s clearly counterproductive within the bigger scheme of things.

Cost optimization attempts to evaluate the situation from a broader utility perspective, which may or may not involve cost cutting.

Finance reporter David Gelles gave an example of this in a profile about private equity firm Vista.

He wrote: “Vista has acquired more than 110 companies and never lost money on an investment, according to people familiar with its performance. Instead of stripping out costs from the companies it acquires, Vista usually adds sales and engineering talent. And instead of searching for candidates with Ivy League degrees and prestigious internships, Vista looks for workers who have leadership potential and innate analytical abilities.”

This last has led to some unusual and counter-intuitive hires. One of Vista’s best software salesmen used to be a roofer. He went from making $22,000 and year to $240,000. Another hire, a former pizza delivery man, was offered a job paying $43,000 annually.

Optimization entertains two key concerns:

1. It seeks to maximize cost efficiencies that support or increase the revenue-generating power of the value chain. It’s about getting the biggest bang for the buck via a combination of cost savings, productivity improvements and actionable business intelligence.

2. It embraces the foresight to set aside revenue for re-investment in infrastructure maintenance and improvement, to seed innovation and to undergird future growth potential.

Some common tactics include:

—technology-aided productivity improvements (e.g., transactional, business platform, ecommerce, decision support and digital media technologies);

—document/map important processes and activities for standardization and replication;

—engage in planned re-use, re-purposing and joint-use of current assets;

—foster cross-functional collaboration and integration for achieving synergies;

—root out old inefficiencies and develop new ones;

—manage the distribution of costs on a holistic basis;

—consolidate functions, activities and processes to either streamline them or otherwise eliminate the waste of valuable resources.

Value Cahin for MarketingThe value chain approach endeavors to promote a broader, more sweeping vantage point for undertaking these activities.

It provides a framework for sharing a holistic view among relevant peers and stakeholders, to understand trade-offs and internally negotiate them, and to realize end-to-end alignment of activities and processes.

This is especially relevant in circumstances where an interdisciplinary approach offers the best hope for arriving at a complete solution — as opposed to a partial answer or functionally isolated response.

The data-driven analytics facilitate agility by bringing attention to priority matters as they arise — or even earlier, insofar as a global view of interdependent pieces and parts oftentimes will reveal potential problems before they turn into actual problems.

A proactive response can avert unnecessary expenses. A reactive but still timely response (zero to minimal lag time) can minimize additional costs or contain their possible escalation.

While the totality of this business decision-making process is an enterprise-wide responsibility, the modern day marketing function has all but inherited the role of facilitating, if not spearheading, this particular form of collaborative decision-making activity.

It must groom itself to be seen as a worthy partner for helping to bridge outside-in thinking with inside-out thinking, particularly as it pertains to its communications responsibilities — managing customer knowledge, insights and perceptions, both internally and externally. Marketing must aspire to assume a central role in shaping, instilling and solidifying an internal tendency toward enterprise-wide coordination..

In summary, inside-out thinking aims to optimize the return on investment produced by outside-in thinking, through both internal and external means.

This brings us to the reason why the outside-in inside-out dynamic is indeed dynamic; and why modern marketing is well-advised to take on the broader role described above.

Continue: Value Chain Marketing: Outside-in Inside-out Tension

Twitter: http://twitter.com/KenRudich
LinkedIn: http://www.linkedin.com/in/KenRudich
Email: ken@marketing-strategy-management.com

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