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

 

 

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

As the outside-in inside-out dynamic unfolds, a tension evolves, and it requires a relative state of equilibrium to keep it at bay.

Even then it’s a tentative, almost paradoxical state, because there’s a constellation of factors involved, and they’ll either closely ally or differentially compete. It’s the value chain equivalent of having an angel on one shoulder and a devil on the other, where the former seeks a semblance of balance while the latter threatens to disturb it.

This dynamic makes equilibrium difficult to build, hard to sustain and easy to lose.

The Equilibrium Hurdle

A struggle to obtain equilibrium, or a stumble after it’s achieved, tends to produce the burdensome treadmill of pouring precious energy into putting out fires.

There’s no shortage of circumstances in which this can happen. Here’s a small sampling:

—the right idea for a value proposition can quickly turn into the wrong idea when a disruptive force impinges on it;

—even without a disruptive force, the initial swell of enthusiasm for a value proposition can dwindle over time as competitive forces start to catch up or even surpass it;

—outside-in value could be fine in terms of revenue-generating power, but inside-out mismanagement of resources or funds can undermine the outlook for an outcome that reflects its true value;

—an unpopular move from the inside-out perspective can rub consumers wrong and tarnish the value of an otherwise good outside-in proposition;

—a high outside-in value perception can conceal inside-out mistakes for a short while, but sooner or later the unacceptable truth is bound to emerge and bring about trouble;

—an overzealous cost cutting initiative can drive an otherwise good value proposition into the ground.

However it happens, the fallout from disequilibrium promises grief, whether for an individual career or the enterprise as a whole.

Equilibrium Lost

Value Chain for MarketingConsider the slippery slope Whole Foods faces after it fell out of equilibrium.

In late January 2016, CNN Money published an article by Paul R. La Monica in which he reported, “Kelly Bania of BMO Capital Markets slashed her rating and price target for Whole Foods after conducting a survey of more than 1,000 Whole Foods customers. Her findings do not bode well for the company.

More than 70% of the respondents told Bania that they had not noticed any changes in prices in Whole Foods over the past three months — even though the company has touted its efforts to lower prices to be more competitive with supermarkets.

In other words, the perception of Whole Foods being a place where you spend your Whole Paycheck remains.”

And then it gets really dicey. ‘…only 24% of customers said organic products at Whole Foods were “definitely” higher quality than organic food at grocery stores. Fifty-four percent of those surveyed said the quality of the food was “sometimes” better at Whole Foods while the remaining 22% said “not at all.”

“This poses an uphill battle for Whole Foods,” Bania pointed out in her report, “as we believe mainstream consumers find it difficult to differentiate the quality of organics.”

Some analysts suggest this perceptual gap could result in the exodus of once loyal customers searching for a better price-quality combination, and that it could end up to be a serious blow for the company.

They also say it appears consumers have neither forgotten nor forgiven the probe in which Whole Foods was accused of overcharging by wrongly pricing previously weighted goods, which reportedly happened in New York City, Los Angeles, Santa Monica and San Diego. The company agreed to a financial settlement in each case.

Value Chain for Marketing Worries

Value Chain Marketing Woes

To make matters worse yet, CNN Money then heaped another helping of troublesome news on top of Bania’s revelations.

‘More recently, Whole Foods has a new concern: allegations from the Food and Drug Administration (FDA) about “serious violations” at one of the company’s food preparation facilities in Everett, Mass,’ the story disclosed.

In his article, La Monica states, “The company’s defiant stance may be rubbing consumers the wrong way too. Whole Foods co-CEO John Mackey told investors last July that he felt the company was being unfairly singled out by regulators and the media.”

This mounting string of detrimental circumstances has taken a dramatic toll on its Wall Street standing, where “Whole Foods stock is now selling for Half Price. It has lost about 50% of its market value since the end of 2013.”

Not so long ago, Whole Foods was being held up as a premier purveyor of healthy organic products — but now, not so much.

Until or unless it can muster a remedial strategy — perhaps its own unique version of a memorable marketing moment, something comparable in magic and ingenuity to Apples’ “1,000 Songs in Your Pocket” roll out of the iPod — the future remains a question mark.

Inside-out Extremism

Value Chain for MarketingAt another company, a high level executive gained widespread notoriety after exhibiting inside-out extremism.

It happened when Turing Pharmaceuticals CEO Martin Shkreli hiked the price of Daraprim, a parasite-fighting medication, by more than 5,000% overnight.

In exploiting the company’s strategic cornering of the market, a near monopoly position due to low market demand (approximately 10,000 people a year use it) preventing competitors from finding it attractive, he ignited a media storm that led to him being painted as the “Most Hated Man in America.”

According to Google News, over 3,600 dedicated articles sprang up on the heels of this controversial move.

And even though the company quickly canceled the price hike and Shkreli “resigned,” none of the upheaval apparently convinced him to alter his stance.

During a follow-up interview, he was absolutely clear about his rationale for enacting the brash decision.

“My shareholders expect me to make the most profit,” Shkreli asserted, a theme he reiterated several times. “That’s the ugly, dirty truth.”

“I’m going to maximize profits,” he professed. “That’s what people [in healthcare] are afraid to say.”

The only mistake, he contended, was that he didn’t raise the price high enough.

Value Chain Equilibrium

If nothing else, these two examples — and countless others of a similar ilk — argue in favor of trying to keep the outside-in inside-out tension at bay.

We’ll explore this topic in greater detail later. But for now, let’s move onward to the next introductory topic for the generic value chain approach to marketing.

Continue: Value Chain Marketing – Modular Design Thinking

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

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