Winning Customer in The Market Place

virtual Value Chain

• A physical value chain consist procurement of raw materials, operations, delivery,

sales and marketing and service. Information technology has changed the way we
look at the value chain. Information technology has introduced concept of virtual
value chain.
• Importance of Virtual Value Chain
• The concept of a virtual value chain was devised looking at current internet
penetration. It provides addition to existing value chain.
• Information technology helps in holistic view of physical value and making it
efficient and effective.
• Today’s information systems are capable of capturing information from every part
of the value chain. This information is utilized to optimize performance at each
stage.
• This enhanced experience can be through new product and services, thus
generating more revenue to the company.
 Virtual Value Chain

“Information as a source of value”

• Virtual Value Chain is a business model for the information service industry
developed by jefferey F. Rayport and Johh J. Sviokla
“Examines and transitions to the information –based business model”
Control of business
i-Almost all business are controlled by factors of production and distribution process
but
Ii-Some business have outsourced.
Porter’s value chain activities
The primary activities of Michael Porter's value chain are
1-inbound logistics,
2-operations,
3- outbound logistics,
4-marketing and
5- sales, and service
 Value Chain
Inbound Logistics
The first function of the value chain comes with inbound logistics.
Companies need a way to receive and store the raw materials needed to
create their product, as well as a means to distribute the materials. The
more efficient the inbound logistics are, the greater the value generated
at the first state of the value chain.
Operations
The next stage of the value chain comes via operations. Operations takes
the raw materials seen from the inbound logistics and creates the
product. Naturally, the more efficient the operations of a company is, the
more money the company saves, providing more overall value.
Outbound Logistics
After the product is completed, the next function of the value chain is the
outbound logistics. This is where the product leaves the actual
production center and is shipped to the various wholesalers, distributors
or even to the final consumer himself.
 Virtual Value Chain

Marketing
Marketing and sales is the fourth function of the value chain. This is how consumers learn about the
product -- through marketing and sales. Advertising costs are a part of this function of the value
chain, as well as any other costs incurred in getting the word out about the created product.

Service and after sales service

The final function of the value chain is service. Service covers many areas, ranging from any actual
installation needs to customer service handling after the sale of the product. This function also deals
with any training needed to use the product safely and correctly. Having a strong service component
in the supply chain provides customers with needed support, thereby increasing the value of the
product.

Support activities of the Value Chain Analysis

Support activities within the Porter’s Value Chain Analysis assist the primary activities and they form the
basis of any organization. In the figure dotted lines represent linkages between a support activity and a
primary activity. A support activity such as human resource management for example is of importance
within the primary activity operation but also supports other activities such as service and outbound
logistics.
Organization and Firm infrastructure
This concerns the support activities within the organization that enable the organization
to maintain its daily operations. Line management, administrative handling, financial
management are examples of activities that create value for the organization.
Human resource management
This includes the support activities in which the development of the workforce within an
organization is the key element. Examples of activities are recruiting staff, training and
coaching of staff and compensating and retaining staff.
Technology development
These activities relate to the development of the products and services of the
organization, both internally and externally. Examples are IT, technological innovations
and improvements and the development of new products based on new technologies.
These activities create value using innovation and optimization.
Procurement
These are all the support activities related to procurement to service the customer from
the organization. Examples of activities are entering into and managing relationships
with suppliers, negotiating to arrive at the best prices, making product purchase
agreements with suppliers and outsourcing agreements. Organizations use primary and
support activities as building blocks to create valuable products, services and
 Steps of Virtual Value Chain
• Gather: Information age has helped digitization of information. Proliferation of information
is higher than ever before. The internet provides data and information about markets,
economies, government policies, etc. Companies gather information relevant to them as a first
stage in the virtual value chain.

• Organizing: Information gathered in the first stage of the virtual value chain is in form of
text, data tables, video, etc. The challenge in the second stage is to organize the gathered
information in a way to retrieve easily for further analysis.

• Selection: In the third stage of virtual value chain, organizations analyze captured
information to add value to customers. Organizations develop better ways of dealing with
customers, product delivery, etc. using information.

• Synthesization: In the fourth stage of virtual value chain, organizations synthesize the
available data. The data reaches the end user in the desired format.

• Distribution: The last stage of the virtual value chain is delivery of information to the end
user. In a physical value chain, products are delivered to customers, in the virtual value chain
this is replaced by a digital product. For example, digital movie streaming of movies
compared to mail delivery of DVD. Therefore, today’s businesses are also known as
 Stages of the value adding information process

Businesses implement value-adding information by using the three stages of the

Rayport and Sviokla model:
• Visibility—By using information, businesses learn the ability to view
physical operations more effectively. This means that the foundation for the
virtual value chain is used to co-ordinate the activities of the physical value
chain. Furthermore, with the assistance of IT, it is then fully possible to plan,
implement, and assess events with greater precision and speed.
• Mirroring capability—Businesses recreate their once-physical activities for
virtual ones by producing a parallel value chain in the market space. In other
words, the business moves the value-adding activities from the marketplace
to the virtual market space.
• New customer relationships—Businesses present value to the customer by
new means and in new fashions. IT creates value in the market space. The
new relationship between business and customer is based on IT. This implies
that products and services are presented by IT and part of these products and
services are in the form of bits.
 Relevance
• Relevance to the business world
• The virtual value chain offers a view that encompasses the entire network
along with its employment of IT.
• The VVC model has a relationship to the supply chain and the goal of that
relationship is to produce materials, information and knowledge for the
market.
• IT maintains the relationship among the members of the chain. The VVC
model does not indicate any shifts in the market, or how and when the
customer’s needs will change.
• New technological developments in IT are drastically changing the way
businesses operate. Virtual business’s internal and external relationships are
managed by IT and value adding and generation of ideas are relying more
and more on IT.
• This trend has led to a different approach to value chain thinking. Using this
approach Mary Cronin separates the VVC into three elements: inputs from
supplier, internal operations, and customer relations.
 Relevance
• 1-The inputs from supplier element focuses on the Internet and how it can add
value to the business’ acquisition activities. In other words, businesses use the
Internet to find different suppliers quickly (effective) and for different purposes
(efficient).
• 2-The internal operations element encompasses events which are based on the
effective procurement and distribution of information within the business. It is
essential that businesses can emulate this model because of the large role
information plays in the business world. With use of the Internet, the business can
procure and distribute information globally with relative ease and low cost
• 3-The customer relations element applies information directly from the customers’
needs and attitudes about the product or service to add value. The Internet
provides the direct information about the customer’s needs and attitudes. The
Internet is also used to distribute information about the products and services to
the market (i.e. electronic catalogues). Following the distribution, Forums
and Discussion groups collect the necessary information about the products and
services that the business provides.
 Five Principles

1. Law of digital Assets .

Digital assets, unlike physical ones are not used up in their consumption.
2. New Economies of Scale.
Redefines economies of scale allowing small companies to achieve low unit cost for
product and service.
3. New economies of scope
Business can redefine economies of scope by drawing a single set of digital assets
to provide value across market.
4. Transaction cost compression
Transaction along the VVC are lower than their counterparts on PVC and they
continue to decline sharply.
5. Rebalancing supply and demand
The world of business increasingly demands a shift from supply-side to demand-
side thinking
 Classification of Services

1-Degree of involvement of customer

-people processing
-possession procession
-mental stimulation
2-Service tangibility
- high tangible
-tangible+ Intangible
-high intangible
3-Skill and expertise
-professional
-non-professional
4-Business orientation
-not for profit
-commercialization
5-End user
-consumer product
-Business to business
-industrial
Organization / Customer Relationships
Type of relationship between the service
organization and the customer

Nature of service Membership No formal relationship

delivery relationship

Continuous delivery college enrollment police protection

system Insurance Radio station, public
Banking Highway
Telephone Subscription Stadium
Electricity

Discrete Transactions Transit pass, Pay phone,

Long-distance phone Car rental,
calls Restaurant
Wholesale buying club Movie theater
Public transport
 Customization and Judgment
Extent to which service characteristics are
customized

Extent to which customer High Low

contact personnel
exercise judgment in
meeting individual
customer needs

High Taxi service, Preventative health

Surgery programs
Plumber Education (large class)
Real estate agent Family restaurant
Low Hotel service Public transportation,
Telephone service Fast food restaurants
Retail Banking Movie theaters
Nature of Demand & Supply
Extent of demand fluctuations over time
Extent to which Wide Narrow
supply is
constrained
Peak demand Could use increases in Must decide whether to seek
can usually be demand outside of peak cont. growth in demand &
met without a periods capacity or maintain status
major delay Electricity, quo
Telephone Banking,
Natural gas Insurance
Hospital maternity unit Legal services, Dry clean etc.

Peak demand Must try to smooth demand A growing organization that

regularly exceeds to match capacity- must both may need temporary
capacity stimulate and discourage demarketing until capacity
demand can be reach to meet current
Tax preparation needs
Passenger transportation Fast-food restaurant Movie
Hotels theater
Gas station
 Service Delivery
Availability of service outlets

Nature of interaction Single Site Multiple Site

between customer and
service organization

Customer goes to Theatre Bus service,

service organization Barbershop Fast food chain

Service organization Taxi service Mail deliver

comes to customer Ambulance Health camp

Customer and service Credit card company Broadcast network

organization transact at Local t.v. station Telephone company
arms length (mail or e- ATM counter
communications)
 Conclusion
• Service sector is growing competitive due to the partial or complete deregulation of
several service industries
• Due to the competitive development of service sector more effort is inevitable for
survival
Limitaitons
• These matrixes are only for providing a guideline for service companies to become more
aware about their customers and the type of service they provided
• It does not provide a clear outline, how to make a specific service strategy?.
• Every service in every market is different and unique.
• The customer need and market trend are always changing
Interesting
Langeard et al (1981) Stated that “Importance of recognizing that the service sector ,
especially in the USA is becoming increasingly competitive”

Eris and Roering (1981) Believe that “The differences that lie between goods and service have
no meaning full implication”.
 Management implications
• Nature of the service act:
– Answers questions such as:
A) Does the customer need to be physically present?
B) Does the customer need to be mentally present during service
delivery?
• C) In what ways is the target of the service act “modified” by the
receipt of the service?
• How does the customer benefit from the “modifications?”
• Managers of service organizations may be able to identify
opportunities for alternative, more convenient forms of service
delivery
• Organization / Customer Relations
Membership relationships:
• Company knows who its current customers are, their addresses, their
preferences, their opinions on the service provided
• May be offered discount rates in return for continuous patronage
• Allows for better decisions in regard to pricing
 Management implications
• Level of Customization & Judgment
1-Most senior managers have come up through operations and, therefore, may require
executive education programs to given them the necessary perspective on
marketing to make balanced decisions
2-Customization is not necessarily important for success – sometimes the image of
customization is enough.
3-Customers like to know in advance what they are buying
• Demand and Supply
• What is the nature for the demand and supply for the service?
• What is the nature of demand fluctuation? does it have a predictable cycle?
• What are the causes of fluctuation? If cause are customer, can service be changed?
(part time worker, outsourcing)
• What opportunity exist in mkt. fluctuation?
• Finished services cannot be inventoried
• Demand exceeds supply on a particular day = excess business may be lost
• Demand and supply imbalances are not found in all services

• Difficulties
• Finished services cannot be inventoried
• Demand exceeds supply on a particular day
 Management implications

Determining the appropriate strategy:

1) What is the typical cycle period for these demand fluctuations?
Predictable- demand varies by hour of the day, day of week/month, season of
year
Random- no apparent pattern to demand fluctuations
2) What are the underlying causes of these demand fluctuations?
Customer habits or preferences- could marketing change these?
Actions by third parties- employers set working hrs. hence marking Efforts
might be directed at those employers
Mode of delivery
– Customer has to come to the service
– Service comes to customer- when target of the service is immovable
– Increasing the number of outlets