Value Added Marketing Analysis Essay Example

associated with the product itself. While this approach adds value and holds merit in positioning products and services in such a manner, customers generally do not perceive significant differentiation among various companies' offerings, particularly when considering their complete range of products and services.

In today's market landscape, there is a growing parity in customers' perception of different products and services available.In the present market, even if a supplier possesses cutting-edge technology or a highly valuable product, their main competitors are likely to offer similar offerings. If they do not initially have such offerings, it will not take long for them to catch up and eliminate any competitive advantage the original supplier had. This has resulted in most suppliers having similar products with comparable customer value, creating a level playing field. Consequently, many suppliers become frustrated as their product and service offerings struggle to stand out in the market. This frustration arises from mistakenly focusing on product-based differentiation rather than implementing true Value-Added Strategies.

It is crucial for companies operating in today's business landscape to recognize that relying solely on product-oriented strategies no longer provides a sustainable competitive advantage over time. Instead, companies should emphasize the implementation of Value-Added Strategies that establish connections between organizations at an organizational level rather than merely at the product level. Accomplishing this involves creating value through fostering cross-functional department relationships and integrating inter-company systems and processes.

When effectively incorporated into marketing strategy, these value-added approaches can generate long-term competitive advantages that are challenging for competitors to replicate easily.The size of a company does not determine its ability to execute a value-added strategy. For instance, consider a seal manufacturer and its larger competitor, a

global company with six times more revenue. Despite the competitor's advantage in size, they are unable to pursue a similar strategy due to their management and company culture prioritizing product-based differentiation by offering discounted prices on a wide product line. However, the revenue gap between the two seal suppliers has narrowed to less than four times because of the Value-Added supplier's increased market share.

The Total Value Proposition is composed of both Value-Added and Added-Value. While different definitions exist for these terms in various business books, there is still no clear and concise definition that is tangible and easy to explain. In simple terms, a supplier's total value proposition consists of the value its products (Added-value) bring to customers and the value that the supplier's organization brings (Value-Added) to those same customers. This can be represented as the combination of product value plus organizational value.

United Parcel Service (UPS) serves as an example of a company that utilizes Value-Added strategies effectively. UPS excels in understanding and applying information and communications technology, surpassing even successful telecommunications suppliers.This expertise was recently beneficial in dealing with one of UPS's largest global accounts. Pup's Global Account Manager (GAME) discovered that Siemens in Germany was planning to build a new manufacturing facility and needed technical specifications for a tender. The Siemens division did not possess telecommunications expertise, so they sought assistance from an external consultancy. UPS GAME offered their own consultants to write the specifications at no extra cost to Siemens. This resulted in saving Siemens over $600,000 in consultancy fees.

Moreover, UPS increased their account share in Siemens by more than 80% in the following year. They also achieved significant sales growth

in various divisions of Siemens by pursuing similar value-added strategies.

British Sugar Ltd, a UK-based company, successfully differentiated their sugar from competitors by focusing on other sources of value within their organization. Instead of concentrating on their product, they leveraged their expertise in environmental consultancy, which they had developed over the years.

Many of British Sugar's customers in the food processing industry faced challenges in treating environmental waste resulting from sugar and food processing. As part of their strategy, British Sugar offered their environmental consultancy to six strategically important customers at no extra cost.All six customers accepted the offer and were able to reduce costs in their businesses from day one. Some customers found that they no longer needed to pay external consultants for certain services and even decided to no longer maintain an internal environmental consulting department of their own.

In addition, they also chose to sell their excess electricity capacity to a select group of six customers. British Sugar, who relies heavily on electricity as a major cost driver, had acquired a power generation company during the deregulation of the electric utility industry in the UK. They soon realized that they had more capacity than they needed for their own operations.

Instead of selling the excess capacity for profit, the executive management offered it to the same group of strategic customers at cost, without any additional charges. This cost was 70% lower than the industry's lowest wholesale price. It was estimated that this excess capacity could meet approximately 25-35% of these customers' electricity needs at their facilities in the UK.

When presented with the opportunity to purchase electricity at a significantly reduced price, all six customers expressed interest.

This interest was particularly strong due to their positive experience with British Sugar assuming responsibility for environmental consultancy within their companies. British Sugar stood to benefit greatly from this arrangement.Not only did all six customers exclusively give their business to British Sugar, but British Sugar also managed to sell its sugar at a higher price. Moreover, British Sugar gained significant control over its position in the sugar industry by requiring a presence in each facility that consumed their electricity. Consequently, all locations consuming British Sugar's electricity had to accommodate a British Sugar office. This arrangement is highly beneficial for suppliers practicing strategic or global account management as it helps them expand and maintain control in the long term.

Some argue that British Sugar could have made a small profit by slightly increasing the price of its electricity. However, if they offered it at a 50% discount compared to the lowest wholesale price instead of 70%, these customers would still be interested in purchasing electricity from them. Nonetheless, there are two potential risks involved. Firstly, if British Sugar were to charge above their actual costs, they would be obligated by UK regulatory law to create and submit various reports regularly to the government. This would result in additional internal expenses and the need for more staff in new departments.The issue of diverting management's focus away from their main business of sugar towards a new and unfamiliar industry like electricity would be problematic. It would be difficult for British Sugar to compete successfully in the long term without expertise in such a complex industry. In order to do so, they would have to shift their primary driving forces

from being a sugar manufacturer and marketer to becoming a full-time electricity generator and marketer. However, attempting to do both ventures would likely jeopardize the success of both. Thus, British Sugar's management was unwilling to take such a risky step.

The question of whether all Value-Added Contributions will eventually become part of the standard product offering and eliminate any previous competitive advantage is often asked. The answer is both yes and no. In free competition, competitors will always try to diminish or eliminate any significant advantage one competitor may have. When a value-added contribution becomes common among competitors, it becomes an expected part of the standard product offering - known as value-expected. One example is supplier managed inventory (SIMI) or vendor managed inventory (VIM), where the supplier manages the customer's inventory.
Initially, this service provided a competitive advantage for many suppliers in various industries. However, it eventually became a standard offering and an essential component of a supplier's product. To prevent a value-added contribution from becoming value-expected, a company can recommend additional value-added contributions before the customer even considers them.

Often, suppliers are reactive in providing Value-Added Contributions to customers. This is usually because a competitor already offers the same contribution and has a competitive advantage. In such cases, other suppliers want to minimize their competitor's advantage and match their contribution. Alternatively, customers may ask or demand an additional service from a supplier to save costs.

However, this scenario can be problematic as customers may easily substitute one supplier's contribution for another. To establish a balanced relationship with customers, suppliers should propose unique Value-Added Contributions that customers have not considered. They can engineer these contributions to reduce substitutability and

maintain a favorable relationship with their customers.

The most efficient way to ensure that a Value-Added Contribution cannot be replaced by the customer is by integrating it systemically between the supplier and the customer's various functional departments and business operations.A suggestion was made for a flour and baking ingredient manufacturer to merge their transportation logistics functions with a major commercial bakery in North America. This merger would result in significant cost reductions for both companies. The flour supplier had a strong reputation for its excellent transportation logistics. When delivering raw materials to the bakery, some of the supplier's trucks would return empty to their facilities. Similarly, after dropping off finished goods at customers' locations, the bakery's trucks would also return empty. By combining the transportation-scheduling functions of both companies and leveraging the supplier's expertise in logistics planning, they were able to save millions of dollars annually in operating costs. To maintain control over their business within the customer's operations, the supplier implemented the Value-Added Contribution system and integrated it into both companies' processes. Relying solely on this contribution could potentially give competitors access to key information and personnel that they do not have, so having proprietary access allows the supplier to pursue proactive integrations of systems and processes within the customer's organization.Through the implementation of a deliberate and strategic Supplier Alliances strategy, the supplier can develop multiple linkages and integrations that effectively hinder potential competitors from entering the customer's business. Additionally, these linkages serve as obstacles for customers seeking to replace the supplier with another option, resulting in increased difficulty and expenses.