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This report evaluates the concept of value based marketing and the strategic pathway and its relevance to Cornelius. This report also sorts out the way for innovation and discusses the possibility of disruptive innovation in Cornelius, a leading chemical

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SID: 0915636   MARKETING MANAGEMENT (BD415031S)

CONTENTS

1.Introduction

2.Strategic Pathway

i.Need for value based marketing

ii.Market sensing

iii.Market choices and targets

iv.Customer value : what we have got to offer? Does we make difference?

v.Strategic Relationships and networks: To deliver the strategy effectively

3.Strategic Pathway- Cornelius

4.Innovation - Cornelius

5.Disruptive Innovation in Cornelius

6.Conclusion

7.Bibliography

  1. Introduction

Cornelius, a leading chemical distributor in United Kingdom and Ireland, was founded in 1935 and operates in business to business (B2B) market. Cornelius operates in market space with consumer needs related to personal care, cosmetics, health and food, pharmaceuticals, textiles, adhesives, plastics and etc. This report evaluates the concept of value based marketing and the strategic pathway and its relevance to Cornelius. This report also sorts out the way for innovation and discusses the possibility of disruptive innovation in Cornelius.

  1. Strategic Pathway

        Cornelius is facing a tough time from the increased demands of customers, unpredictability of markets, impact of globalisation, corporate social responsibility and effect of new business models emerging among competitors. Amidst these circumstances, it is important to understand the objective of going to market. The way to decide if the strategy the company follows is perfect is to understand the areas, segments or markets where the company is active, the products and services the company offers, competitive advantage the company has over its competitors, the speed that the company has in maintaining competitive advantage and the way the company profits are.

  1. Need for value based marketing

‘The essential idea of marketing is offering customers superior value. By delivering superior value to customers, management can in turn deliver superior value to shareholders.’                                                                        ---Peter Doyle (2000).

image05.jpg

Fig (1).  The Strategic pathway.

Source: Adapted from Piercy, ‘Market-led strategic change – Transforming the process of going to    

Market’, 2009.

The challenge many companies face today is to build and sustain loyalty among customers. Customers are now expecting transparency and the fault-finding customer demands continuous improvement and quality. This leads the company to develop a value based marketing strategy to retain customers and focus in enhancing shareholder value.  The important elements of strategic pathway are market sensing, choosing targets, valuing customer strategy and positioning, establishing strategic relationships and networks. This can be interpreted in a Fig (1).

  1. Market sensing

It is important for any company to understand the marketplace, identify value creating opportunities, gain competitive advantage over competitors, understand the customer and deliver value better than the competitor. The companies, who know more, understand more, and fill the gap between customer expectations and the company offerings, are among the best performing companies. Davenport (2007) states that fast moving businesses will have a strong awareness of its present and future status and are good at scanning information.  It is also important to focus on the customers closely and if any, grab the opportunities.

Piercy (2009, pp. 25-27), states that the first step is to identify the environment where the company is in, the size of the environment and the time frame for the evaluation of the company. Then one needs to analyse the current developments, list out the important events and need to analyse the effects of events on the business. Secondly, the events should be represented in the model with probability of occurrence of events against effect of event on the company.

            Probability of the event occurring

                                          High              Medium           Low

image06.png

Fig (2).  Frame work for market sensing

Source : Adapted from Piercy, ‘Market-led strategic change – Transforming the process of going to

                Market’, 2009.

The model is categorised into: Utopia- where the effects of events likely to happen are good; Field of dreams – where the effects of unlikely events are good; danger – where the effects are threatening and are more likely to happen; future risks – effects that are undesirable and may not occur; and, things to watch – where the probability is neutral and effects are neutral. This model helps in sensing the outside customer and the competitor’s edge in the market. It is important to focus on the area where the company’s understanding is weak, the critical aspects of business environment, areas of grabbing the opportunities and understanding the risks, improving the sensing process through ‘out of box’ thinking and gathering viewpoints from line management and cross functional teams.

  1. Market choices and targets

After the process of market sensing, the vital component of planning and designing of effective market strategy is to analyse the competitive box; define segments and targets for the products and services; find the market place for competing; and, choose the position to concentrate upon as shown in fig(3).

image08.jpg

Fig (3).  Strategic market choices and targets.

Source : Adapted from Piercy, ‘Market-led strategic change – Transforming the process of going to

                Market’, 2009.

Piercy (2009, pp.268-270) states that the managers tend to draw the ‘usual suspects’, who are familiar and compete in the same technology, product and services with the same customer base in the competitive box as competitors. There is a necessary that managers understand the challenges set by the reshaped and redefined markets by focussing on the new competitors, new business models and new customers as depicted in fig(4).

image09.jpg

Fig (4).  Trap of competitive box

Source : Adapted from Piercy, ‘Market-led strategic change – Transforming the process of going to

                Market’, 2009.

Product – customer matrix helps us in identifying the products and services going in to the market and the different types of customers in the market. The products may seem different and meet different needs for a particular customer. This helps to view the market size, product by product, customer by customer and market share in the competing market as shown in fig(5).

image10.jpg

Fig (5):  The product - customer matrix diagram.

Source: Adapted from Piercy, ‘Market-led strategic change – Transforming the process of going to

               Market’, 2009.

This evaluation provides the basis for segmentation, dividing the market into group of buyers who constitute logical targets - by area, age, lifestyle and industry. An extended model of segmentation gives the distinction between strategic and operational issues, and focuses on implementation by examining internal and external marketplace. It is important not only to consider the attractiveness of a segment but also to look at how it fits the capability of the company.

The next step is to find the place to be located in the market. The main idea behind market and segment choice is to find the spaces where there is no competition. Kim (2000) states that the major decline for many companies have come because of their interpretation of direct competition with rivals for the market share. Successful companies should explore new markets and reinvent the existing ones. To create a successful strategy for creating a new market place the company should focus on substitute industries, redefine the buyer group, emphasize on complementary products and services.

It is vital not only to choose attractive market and enter early into it, but also to make a timely exit from the market where there is no scope of profitability. The market position that we take depends on what we do and the value proposition.

  1. Customer value : what we have got to offer? Does we make difference?

Deep market sensing and smart choice of targeting gives a chance to understand what drives the value of the customer and will help us to offer the value that customers expect. The third component in the strategic pathway is to expose the value we offer to the customer.

Market mission gives a clear picture of what we want to be, where to stand for in this market, how we enhance customer value. The mission statement should be in such a way that it reflects the core competencies, intent to provide customer value and sustain it. The main sources of superior customer value are the capabilities, skills and resources. The company should focus on doing things different from the competitor and strive hard to provide commitment and service to the customer.

The difficult issue to discuss is the competitive differentiation, which provides a distinctive value in the customer’s point of view, better than the value offered by alternatives. Michael Porter (2008, pp.78-93) in his theory of generic strategies stated that we can compete on broad or narrow scope, but we can be either a differentiator or price leader.

image11.png

Fig (6):  The Porters Generic Strategies.

Source: Adapted from Piercy, ‘Market-led strategic change – Transforming the process of going to

               Market’, 2009.

It is vital to understand our core competencies, capabilities and sort out the competitive edge we have got. The critical part of the business strategy which connects the company to the customers, is the value proposition. To gain praise from the customer, the main focus should be in offering competitive price, customer believed quality, lead time and on time delivery for the purchase of products.

  1. Strategic Relationships and networks: To deliver the strategy effectively

The final component of strategic pathway is building or maintaining strategic relationships and networks with customers, competitors and co-workers, to deliver the strategy effectively. The issue after identifying the market and segment, where we are going to deliver the value proposition is to understand the relationships. It is important to stress and maintain on the following strategic relationships:

image12.jpg

Fig (6):  The Porters Generic Strategies.

Source: Adapted from Piercy, ‘Market-led strategic change – Transforming the process of going to

               Market’, 2009.

Customer relationship:  Need to understand the way to establish relationship with the customer and compare the customer’s relationship with the attractiveness he/she has with the company.

image13.png

Competitor relationship: Tracing out the profile of the competitors like goals, strategic assumptions, strategies and capabilities; and identifying unknown competitors in the market. It is important to know from where the new competitors will come, potential new entrants such as firms in one sector entering other sectors like retail firms getting into financial markets, and the danger from substitute products that meet customer needs. The way to make sure that we are getting there is: to understand the competition, include presently existing and expecting companies to get in, making sure that our value proposition giving us a specific positioning in the market.

Collaborator relationships: This kind of relationship increases dependency of the organisation on others and suggests the risk involved, for which market strategy has to be developed. This is important because in distribution channel, we see lot of failures in supply or blockages. The collaborative relationships can be of type outsourcing, partnership, Alliance and ownership. In collaboration, we should look for the goals like advantages in strategy and marketing, cost efficiency and profit stability.

Co-worker relationships: It is important to understand the importance to deliver the customer expected value proposition. There is a need to analyse the employee/manager’s capability in understanding the strategy and goals.

3. Strategic Pathway- Cornelius

As stated by the manager of Cornelius at Anglia Ruskin University, Cornelius operates in a business to business environment and its business model can be stated as

image00.png

image04.pngimage03.pngimage01.pngimage02.png

I guess Cornelius had a good market sensing in placing itself in the distribution market place, and differing from other distributors by setting up a technical centre. The company is in ‘danger’ zone, where the high probability strategies will have irreversible effects on the company. As there is a vast competition in the market space, in my view, the company should increase the flow of information between the employees on what is happening outside the company. The employees should be participated in active decision making and consensus should be taken on the strategies developed.

image14.png

Cornelius sorted out its competitors in industry, cosmetics and health and safety sectors. There is competition which may not be from the same industry or technology, and may come from new competitors. The company thoroughly focussed on the same customers, which its competitors did, instead of thinking differently in finding the gaps in the competitor’s business. This made life difficult for the company. As Cornelius is in different business sectors, it finds difficult to understand and take the opinion of every customer on each product it supplies. The company has over 70 employees in total, 30 out of them are in sales, executing operations in UK and North Ireland. Recently Cornelius entered Poland, concentrating on one of its major customer, Avon dealing with 2300 customers in the overall market. I guess, this is a good move by the company to concentrate on the customers.

I guess, the mission statement, “Together, we will create innovative solutions through experience, technical know-how and by valuing our relationships”, though concentrates on the customer value, leaves behind the area where it is operating. Until and unless the customer knows the area where the company operates, it is difficult to gain the interest from the customer.

As Cornelius is a low budgeted company, I guess it has a narrow competitive scope and it should focus on its strategy rather than focussing on the cost/leadership strategy. It should concentrate on the accurate delivery of the goods to the customers and sort out the ways to achieve competitive differentiation in the segments it operate. The vital aspect of business, evaluating customer’s satisfaction in Cornelius is done by encouraging customers to give their comments, which may not be true.

Cornelius has a good rapport with its major customer Avon, and extended its business even to Poland to retain them. Important challenge for a small company like Cornelius is to maintain relationship with competitors or collaborators. If the company tries to get collaborated with its competitor like Univar, we may not even see a trace of Cornelius after collaboration. Before designing the strategy, Cornelius should carefully analyse the competitor’s business, their strategies and their speed of implementation. I guess the customer may find the business attractive, but will not stick to the company because of entry of new competitors or low priced offer from competitors. Cornelius’s strategic relationships are depicted in the following figure.

image15.jpg

Cornelius, with its employees spread across the sectors, might some time face a problem of miscommunication. The company allots certain budget to the sales employee to bargain with the customer. This may boost the employee confidence, but will not always lead to success. I guess, the technical centre offers no use, its waste to invest on that.

I don’t think the top level will better understand the customer needs. They are the sales executives who will have the genuine feedback from the customer. The employees must come with either sustaining or disruptive innovations. The top management should also think about the ideas that came from bottom level and should have a try with a little investment. Finally, customer value is the ultimate deciding factor for the business.

  1. Innovation - Cornelius

Innovation is a phenomenon where one starts with a problem and finds the solution or generates a solution and researches on problems they solve. Innovation must be linked to the strategy and the linked strategy should provide sustainable growth. Michael Porter (1995) points out that a company can only outperform its rivals only if it creates a difference that leads to deliver superior customer value or creates the same customer value at cheaper price or both.

 Cornelius can outperform its rivals only if offers extraordinary customer value company and builds a difference in its approach. This process of maintaining difference, maintaining competitive edge and delivering superior customer value exhibits the need of innovation. Now-a-days the markets are described by terms: revolution – the ways the markets operate, the competitive sources, the strategies successful companies follow; reinvention – the creation of new business models to achieve superior customer value and to maintain competitive edge; and renewal – the change in the strategies. The priority is not the temporary high performance, but the strategy to sustain in critical situations.

The failure to innovate has mainly come from three reasons: (1) concentrating on major customers; (2) supplying goods and services that have no effect or satisfy or meet the needs of the end customers; and (3) misguided financial analysis. True innovation guides to superior customer value. Day (2007) estimated that the minor innovations make 80-85% of company’s development. The useful aspects of radical change are changing the way the company operates, forces driving companies to compete themselves, companies pioneering the change, developing new ideas, and collaborating or shifting management.

Cannibalisation is an act where some companies compete with its own products and prices in the market before the competitor concentrates or affects its customer base. This is because of thinking too much or finding the gaps in its business. This may sometimes help in delivering excellent service or may lead to competitor’s success. Company like Cornelius should maintain the price balance between its principals (suppliers) and the end customers as there is a danger of Principal going directly to the customer by household delivery.

Radical, non-linear innovation is the only way to sustain in this hyper competitive market where the margins are going down. For example, Chan Kim (1998) and Renne Mauborgne (1998) stated from a major research on 100 major new businesses that 86% of them are of ‘me-too’ type, launched businesses with little enhancements generated only 39% of profits, whereas the remaining 14% of launches generated 62% of profits. Except technical centre, Cornelius has been following a me-too approach in distribution industry. They also stated that between 1975 and 1995, 60% of the fortune 500 companies disappeared because of the innovation in businesses, focusing in improving the existing ones.

image07.jpg

Figure (7): Pioneer – Migrator - Settler Map

Source: Adopted from Kim, W.Chan and Renee Mauborgne, ‘Value innovation: The Strategic Logic of High              Growth’, Harvard Business Review, January/February 1997, pp. 102-112.

The really high performed companies are those which achieve value innovation. These companies not only just imitate the competitors or strive for competitiveness but also focus on new value for customers. The innovation linked to customer value determines the real growth.  A company can assess the listing of its products and services in ‘Migrator - Settler’map.

Cornelius is the ‘me-too’ region and is facing a tough competition. Competitors like Univar, Bladgen, Croda and Gee Lawson are large in size and have a solid revenue back up to sustain critical situations. In order to achieve competitive strategy these companies may expand their marketing costs and this may eventually lead to the decline of Cornelius. I guess the growth potentials are mild in Cornelius because of some reasons: Little revenue, small company, distributed with little staff and less number of ware houses. In order to reduce the cost on rentals or lease, there is a need to have company owned warehouses, which may further increase the financial burden on Cornelius.

Schmitt (2007) stated that there is a need of big innovative ideas to succeed and stay unbeaten. This leads to overcome the barriers of true innovation like narrow mindedness and risk antipathy. Now-a-days in many companies emphasize on separate division called ‘ideas culture’ and are interested in collaboration with other companies instead of depending on itself. Cornelius, entirely owned by its employees has to emphasize on new ideas to make difference in its market.

Company like Procter & Gamble have got solution for one of its problem through Crowd- sourcing, where people have stated their views and suggestions. Increase in global network like internet, cheap telecoms and interactive software helps in ‘open source’, collaboration and sharing of ideas instead of depending on its own research and development team. Cornelius should concentrate on its small customers and try to get feedback from them and get suggestions from them such that the company can deliver superior value. The company should have a good rapport with the Principals and the distribution channels such that the products and services are delivered within the specified time. I guess if the company like Cornelius it is good to be acquired by a lage company which is not in distribution industry but want to expand in the same industry.

Because of huge competition in distribution market, there is a need for Cornelius to identify and implement the growth opportunities efficiently and quickly than the rivals. The company should focus on bringing the product quickly into the products into the market. Concentrating on social responsibility may drag clients towards Cornelius like providing cost effective, recyclable goods.

  1. Disruptive Innovation in Cornelius

           Disruptive innovation creates new markets or reshapes the existing markets by applying new set of values. It offers convenient, cheap, accessible and affordable improvement in the product or service to the customers who are ignored by the industry leaders. Invest little as we do not know whether the strategy we have implemented will be received fairly by the customers, as there is a failure rate of 75% in earlier innovations. The strategy should be flexible and should be able to iterate back and restructure the strategy. This will also help in understanding the customer better. Disruptive Innovation suggests one to look at the customers who are demanding less and who are not consuming anything at all. As the customers couldn’t explain their problems, it is important to carefully observe these customers.

Disruptive Innovation in Cornelius might help them from gaining some momentum in this competitive distribution market. I think the company should focus in marketing electronic goods like personal computers and electronic goods as well. With a strong sales force, Cornelius has a capacity to approach any company and make a deal. The deal should be in such a way that it should be able to deliver the product directly to the consumer from supplier in time.

Instead of depending on the contemporary products, Cornelius should keep an eye on the latest innovations from companies like Dell, HP, and Apple etc., and try to grab the opportunity in delivering the products directly to the customer or consumer. Try to get to them and make a deal for some margin for promoting, as this will also reduce their distribution costs. This will not cost Cornelius more. Once the deal is done on a product, market the product online, so that it reaches the consumers like pamphlets and news papers. Apart from this keep contacting customers like Argos, PCworld and Currys instead of them going directly to the manufacturers. One major drawback these customers like Currys and PCWorld have is the delay they make in replacing or providing services to the delivered goods. As Cornelius is trying to close down the technical centre, I suggest them to hire 2 to 3 technical persons to provide support to the products delivered. The marketing should be in such a way that it should state that the product will be replaced or serviced within specific days. I think this might catch some attention. Personally, I think of replacement or service period before going for a product. Approach universities and provide some good deals for students, which no one has done till now. Concentrate not in the entire country, but on a single region.

6.. Conclusion

The strategy that has Cornelius followed takes the customer value into account. As it is a small distribution company with immense competition, it should focus on small customers and gain their interest. The company should improve its delivery times and try to expand its warehouse space.  I guess the concept of disruptive innovation works in the case of Cornelius, if implemented with selecting a high expectation product from a known company.

  1. Bibliography

  1. Piercy, Nigel F., 1990. Tales from the Marketplace: Stories of Revolution, Reinvention and Renewal, Oxford: Butterworth - Heinmann.

Piercy, Nigel F., 2009. Market -Led Strategic Change – Transforming the Process of Going to Market, Oxford: Butterworth – Heinmann.

  1.  Doyle, Peter, 2000. Value-Based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value, Chichester: John Wiley.
  2. Davenport, Thomas H. And Jeanne G. Harris., 2007. Competing on Analytics: The New Science Of Winning, Boston, MA: Harvard Business School Press.
  3. Kim, W.Chan and Renee Mauborgne., January/February 1997. ‘Value innovation: The Strategic Logic of High Growth’, Harvard Business Review, pp. 102-112.

Kim, W. Chan  and Mauborgne, Renee., August 11 1998. ‘Pioneers Strike It Rich’, Financial Times’, p.11.

  1. Porter, Michael E., 1985. Competitive Advantage: Creating and Sustaining Superior Performance, New York: free Press.

Porter, Michael E., January 2008. ‘The Five Competitive Forces That Shape Strategy’, Harvard Business Review, pp. 78-93.

Porter, Michael E., November/December 1995. ‘ What is Strategy’, Harvard Business Review, pp.61-78.

  1. Schmitt, Bernd H., 2007. Big Think Strategy: How to leverage Bold Ideas and Leave Small Thinking Behind, Boston, MA: Harvard Business School Press.
  2. http://en.wikipedia.org/wiki/Disruptive_technology
  3. http://www.cornelius.co.uk/

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