Marcos Fava Neves

Value Capture Trilogy: Differentiation

By Marcos Fava Neves (chinadaily.com.cn)
Updated: 2010-11-02 09:45

Continuing our trilogy on value capture, it means the complete understanding of the network of the analyzed company and the redesign of activities towards a temptative to increase margins and with this, have more value. I call this the "value capture trilogy", since in my understanding we have three major possibilities of doing this strategy. The first of the possibilities of capturing value was discussed in the first article, trying to reduce the cost (1) of the company to increase margins and value. The second possibility is via differentiation strategies (2). Finally, the third bundle of activities relate to collective actions (3). This second article of the value capture trilogy will deal with differentiation.

But how to do differentiation to capture more margins? The differentiation approach has 5 major possibilities, each of these with its own tools and ideas. The first is the integrated relationship approach, second is products/solutions, third is services/people, fourth is packaging and fifth is brand/image.

In an integrated relationship approach (1), a company should search for intimacy with clients being the first option to be considered. Establish the called "lock in" strategies where it does a complete package for clients that increase the switching costs to a different offer or company. In a relationship it is also important to offer performance to the buyer (value driven) being a unique solution that tries to simplify the buyer´s decisions process and costs.

In products/solutions (2), mostly in food markets we see products with aggregated nutrition components or attributes, like adding vitamins, minerals or other supplements. To launch innovative products for existing or new and booming markets (ex. pet food) is also a point to be considered. The amount of product in a package is a strategy, like products for smaller families or even individual portions. Ready to eat markets, products serving a complete meal (rice with beans inside the same package) and targeting new market segments (like nutra-ceutical and nutri-cosmetics) opens chances for value capture.

Another possibility is linked to innovations and products that expand the size of markets. Some companies when targeting younger generations are offering toys together with food of even other gifts to increase value and consumption. Products that search for ethnic food and new buying experiences face growth in the market. To take advantage of different special dates (Christmas, Valentine’s Day, Olympic Games or other events) is also an opportunity. There is the growing appeal of the "home made" and fresh, locally produced and other linkages to be established with consumers. Legal protections, like patents for innovation is also a strategy for value capture.

In services and people (3): a company should search for a faster, more reliable, "just in time" supply and another opportunity is looking at the buyer’s decision process, offering services that may reduce customer´s "fats" in buying, showing the numbers of benefits given to clients with this acquisition instead of acquiring from a competitor. In services a company may also try to set a standard to the industry and this may work as an entry barrier for competitors. Have the best and most trained people gives advantage in several businesses. All channel related strategies also have space here, offering locational convenience, presence at the point of sale and new distribution formats for the "on the go eating" segments and other types of buyers.

In packaging (4) there are also several possibilities and techniques, using different materials, beauty, practical, recyclable, transparent, arguments (health and welfare), shelf life, sustainability programs (packages recycling initiatives), packages with sounds and smells, to offer supply chain information at packages (traceability), information on how to use it, of social causes and life styles (slim people – fitness).

In brand and image (5) there are also well know strategies for increasing the value via improvements in the general brand and image of the company. To apply the traditional integrated communication strategies managing its brand and image in the best way possible in order to establish permanent "loyalty contracts" with buyers, receiving added value by the recognition given by consumers to the brand and image.

In this second article of the "value capture trilogy" I listed 5 working points for a company that wants to capture more value with differentiation. These 5 working points may be transformed in several opportunity questions to be answered by companies. To complete the "value capture trilogy", our last article will explore collective actions possibilities.

The author is professor of strategic planning and food chains at the School of Economics and Business, University of Sao Paulo, Brazil (www.favaneves.org) and international speaker.