Value The Key to Differentiation The Central Idea in Strategy © 2009: James H. Biteman, DBA

What is Value? Value is what the end consumer pays for Value is what differentiates Value is created by the activities of the firm Value is co-created by all members of a value chain

Value Relationship VALUE VALUE CHAIN END CONSUMER Linked Activities What the consumer pays to receive

Which is More Valuable?

Who Is Your Customer? If you manufacture women’s clothing, who is your customer? Label owners? Wholesalers? Large Retailers?

Who Is She? Young, Professional, Affluent Desires fashion Adds to clothes she already has Served by retail / brand owner (Limited, GAP)

What is Value? Different Better Exactly what I want

Value is Different – Examples Women’s Clothing: In apparel, value is style Wal*Mart: In mass merchandising, value is certainty

Wal*Mart’s Customer Family shopping Daily use items Values convenience Does not want uncertainty

What is Value at Wal*Mart? Right brands/products Adequate selection Everything I need The best price

Wal*Mart’s Strategy Stores are not “interesting” Would introduce uncertainty Staple items only Desired brands Adequate selection Always available Good prices (not the lowest) No specials

Women’s Clothing Female professional Appearance is important Limited resources / time Adds to an existing wardrobe Wants to look right May not know if item is right until she sees Shops to keep wardrobe “fresh”

Competing Brands – Customers Gap, Inc. – “Old Navy” Limited – “The Limited,” “Victoria’s Secret” Abercrombie & Fitch

Li & Fung – Hong Kong Value chain coordinator Sourcing agent for brand owner/retailer Contracting agent for manufacturer Builds margin Value of apparel is in style The right item At the right price In the right place At the right time (no “breakage”)

What is Value? Value is what the end consumer pays for Value is what differentiates Value is created by the activities of the firm Value is co-created by all members of a value chain