Chapter 4- Creating Value: The Core

Question 1

The Core?

Answer 1

Strategies first, Test, having a distinctive value proposition.

Question 2

Competitive advantage?

Answer 2

A difference in relative price or relative costs that arises because of the differences in the activities being performed.

Question 3

Your value chain?

Answer 3

Must be specifically tailored to deliver your value proposition

Question 4

A value proposition?

Answer 4

That can be effectively delivered without a tailored value chain will not produce a sustainable competitive advantage

Question 5

The tailored value chain?

Answer 5

Is porters second test and it’s neither obvious or intuitive

Question 6

Strategy means?

Answer 6

Deliberately, choosing a different set of activities to deliver a unique mix of value

Question 7

If all rivals produce the same way, distribute the same way, service, the same way, and so on, they are, importers terms,?

Answer 7

They are competing to be the best, and not competing on strategy

Question 8

What is the first test?

Answer 8

A distinctive value proposition

Question 9

The value proposition?

Answer 9

The value proposition is the element of strategy that looks outward at customers at the demand side of the business

Question 10

A Value proposition reflects?

Answer 10

A value proposition reflects choices about the particular kind of value. The company will offer, whether those choices have been made consciously or not.

Question 11

Porter defines the value proposition as the answer to three fundamental questions. What are those three questions?

Answer 11

Which customers are you going to serve?

Which needs are you going to meet?

What relative price will provide acceptable value for customers and acceptable profitability for the company?

Question 12

Which customers?

Answer 12

What end-users?

What channels?

Question 13

Which needs?

Answer 13

Which products?

Which features?

Which services?

Question 14

What relative price?

Answer 14

Premium?

Discount?

Question 15

The value proposition is?

Answer 15

The value proposition is the element of strategy that looks outward at customers, at the demand side of the business. The value chain focuses internally on operations. Strategy is fundamentally integrative, bringing the demand and supply sides together.

Question 16

Which customers? Which customers did Walmart focus on?

Answer 16

Walmarts segmentation was based on geography. While Walmarts competition focused on big cities and metropolitan areas like New York, Walmart chose to focus on isolated rural towns with populations between 5000 and 25,000.

Question 17

What was Walmarts key strategy?

Answer 17

Walmarts key strategy was to put good size stores into little one horse town’s which everybody else was ignoring.

Question 18

How did progressive, the Ohio based auto insure, build a strategy around its customers, in which the industry was largely avoiding?

Answer 18

For about three decades, progressive thrived, by choosing to serve what the industry called non-standard drivers, those more likely to be involved in accidents, and to file, insurance claims, motorcycle owners, for example, or motorist with drunk driving records. With few alternatives, nonstandard buyers typically had a little bargaining power.

Question 19

How did Edward Jones a wealth management business? Choose its customers?

Answer 19

For 30 years, Edward Jones has focused on customers defined not by how much money they have, but on their attitude towards investing. Jones serves conservative investors, who delegate financial decisions to a trusted advisor. In terms of the five forces, this customer segment has been less price, sensitive, and more loyal. As often happens, each of these value propositions targeted a customer group, overlooked, or avoided by the industry.

Question 20

In insurance, for example, USAA has been a stellar performer with a value proposition aimed at?

Answer 20

Aimed at low risk customers. Here’s what is essential, finding a unique way to serve your chosen segment profitably

Question 21

In many cases which leg in the triangle will serve as the primary decision that leads to the other two legs in the triangle?

Answer 21

Choosing the need, the company will serve is the primary decision that leads to the other two legs of the triangle in many cases. Here, strategy is built on a unique ability to meet a particular need or a subset of needs. Often that ability arises from the specific features of a product or service. Typically, value propositions, based on needs a pill to a mix of customers who might define traditional segmentation. Instead of belonging to a clear, demographic category, The companies customers will be defined by the common need or set of needs. They share at a given time.

Question 22

The enterprise value proposition is based on a simple insight, what is that simple insight?

Answer 22

The simple inside is renting. A car meets different needs at different times.

Question 23

What did hurts and its followers in the industry build their business around?

Answer 23

Travelers people away from home on business or on vacation

Question 24

What did enterprise car rental recognize and it’s industry?

Answer 24

It recognize that a sizable minority of rentals, roughly 40 to 45% occur in the renters home city. If your car is stolen, for example, or damaged in an accident, you will need a rental. In such cases, your insurance company might cover the cost, usually with contractual limits on the price it will pay. About a third of enterprises revenues come from insurers. Other occasions, prompt home city rentals as well, for example, when a car has a mechanical failure, or when a child is home from school on vacation. And all of these users home city car rentals tend to be more price sensitive the business or vacation travelers. Enterprise crafted the unique value proposition that meets these needs.

Question 25

What is enterprise car rentals unique value proposition that they have crafted?

Answer 25

Enterprise crafted a unique value proposition to meet these needs, reasonably priced, convenient, home city rentals. Compared with Hertz and Avis, enterprise has chosen to serve a different need at a different relative price. Enterprise starts with the specific need it serves. Enterprise has made a different choice about the value proposition triangle. Enterprises customer base would confound traditional market, segmentation by demographic characteristics.

Question 26

How is Zipcar pursuing a different path to uniqueness in home city car rentals? What is its value proposition?

Answer 26

Zip cars, value proposition targets, yet another kind of customer with a different kind of need. Zipster‘s as the companies members are called, are often people who choose not to own a car, but who occasionally need to use one. Zipcar allows them to rent a car for time periods as short as an hour. Zipcar offers an interesting and complex mix of values, extreme convenience in vehicle, pick up and drop off, extreme flexibility in the rental., Clear, all inclusive pricing that includes insurance and gas, and the intangible cool factor associated with the fast growing brand. Because this company is in an early work in progress stage, it will undoubtably continue to test the boundaries of its value proposition, and to make adjustments to it as it learns.

Question 27

Percent value propositions, relative price is the primary leg of the triangle. Give an example of I have some situation’s where relative price is the value proposition?

Answer 27

Some value propositions target customers who are overserved, and hence over priced by other offerings in the industry. The company can win these customers by eliminating unnecessary cost, and meeting just enough of their needs. At the product level, think about the difference between a bare-bones cell phone, and a more expensive, feature laden, smart phone, or customers are overserved, the lower relative price is often the dominant leg of the triangle. Conversely, some value propositions target customers who are underserved and hens, under priced by other offerings in industry, customers who choose NetJets instead of flying first class on a commercial airline, for example, want an enhanced service, and are willing to pay a steep premium for it.

Question 28

What airlines are a good example of an area where the needs are overserved?

Answer 28

Southwest airlines

Question 29

In the beginning, what was Southwest original idea?

Answer 29

To start an airline the charge is just a few bucks and has lots of flights every day instead of what the other guys are doing and charging a lot of bucks and having just a few flights each day that’s it in a nutshell

Question 30

What is Southwest airlines value proposition?

Answer 30

Very low prices coupled with very convenient service. Southwest airlines, is the most successful, and the most emulated airline in the world and it has thrived. My meeting just enough of its customers needs at dramatically lower prices. Southwest is going to be one of the worlds leading airlines, both in size and in profitability. It is done so, with a value proposition that for three decades was radically different from other airlines.

Question 31

Who did Southwest Airlines consider to be their greatest competition?

Answer 31

South west looked at their competition as being ground, transportation, and not other airlines

Question 32

What is an example of a company that demonstrates one needs or underserved?

Answer 32

Aravind eye hospital

Question 33

How did Aravind Eye Hospital identify a large population with a dramatically underserved need?

Answer 33

Millions of Indians suffer from preventable blindness because they can’t afford cataract surgery. Starting with just 11 beds and three doctors, Aravind has become the worlds largest provider of eyecare in the world, performing about 300,000 surgeries a year, at least 2/3 of them for free.

Question 34

What are Aravinds two extraordinary value propositions?

Answer 34

One is aimed at affluent customers who want the best eyecare money can buy. These customers want to be seen by state of the art doctors in state of the art facilities, and they are willing to pay the going market rate for such advanced medical care. The second is for those who can’t afford to pay, and who would otherwise become blind. Aravin offers them site, and the independence it goes with it. The medical care is identical to that provided to the pain, patients, same doctors, same operating rooms. The hotel function for room and board is vastly stripped down. But the price is stripped down even further all the way to zero.

Question 35

The first test of strategy is?

Answer 35

The first test of strategy is whether your value proposition is different from your rivals. If you were trying to serve the same customers and meet the same needs and sell at the same relative price, then, by porters definition, you don’t have a strategy.

Question 36

In most businesses, there are many different possible configurations of the?

Answer 36

Of the value proposition triangle. Some companies serve virtually all customers in the market, but only me a specific need or cluster of needs. Other companies serve a more focus customer base, but aim to meet more of those customers needs. Some companies deliver high value at a premium price. Others, enabled by their efficiency, offer a low relative price.

Question 37

The first test of a strategy is whether your value proposition is different from your rivals. If you were trying to serve the same customers and meet the same needs and sell at the same relative price, then, by porters definition, you don’t have a strategy. But you are doing what?

Answer 37

You are competing to be the best

Question 38

What is considered the second test when it comes to strategy?

Answer 38

A tailored value chain

Question 39

If you’re trying to describe a strategy, what is a natural place to begin?

Answer 39

A natural place to begin is with the value proposition. It’s intuitive to think of strategy in terms of the mix of benefits aimed at meeting customers needs.

Question 40

The second test of strategy is often overlooked because it is not intuitive at all. What is the second test?

Answer 40

A distinctive value proposition, Porter explains, will not translate into a meaningful strategy, unless the best set of activities to deliver. It is different from the activities performed by rivals.

Question 41

Name three companies who is value propositions were built around serving a distinct customer?

Answer 41

Walmart Progressive Edward Jones

Question 42

Explain Walmarts major activity choices that reflects their chosen, segment, and how those choices are different from those made by rivals who are serving different customers?

Answer 42

First, Walmart, while other discounters chose to put stores in the large metropolitan areas, Walmart invested in small-town locations, where the nearest city was probably a 4 Hour Dr. away. Walton knew this train well. He rightly bet that if his stores could match or beat those city prices, people would shop at home. Moreover, many of Walmarts markets were too small to support more than one large retailer. this was a powerful barrier to entry. By being first, Walton was able to preempt competitors and discourage them from entering Walmarts territory, allowing the company time to hone the enduring sources of its competitive advantage, it’s ability to provide to every day, low prices in markets across the country and beyond.

Question 43

Progressives target customer posed a special challenge. What was that special challenge?

Answer 43

Progressive needed a different value chain from the industry standard one. First, progressive tackled risk assessment in a different way, building a massive database with more granular indicators that better predicted the profitability of accidents. It use this data to spot a good risk in polls that looked like bad drivers to other insurers. For example, among drivers cited for drinking, those with children were least likely to reoffend, among motorcyclist, Harley owners, aged 40+ or likely to ride their bikes, less often. Progressive used information like this to set prices so that even the worst customers could be profitable. Progress as competitive advantage, then started with relative price for comparable risk.

Question 44

What was progresses competitive advantage?

Answer 44

It started with relative prize for comparable risk, and they went after the bad driver niche. Second, since accidents were likely, progressive, focused on minimizing their cost once they occurred. The faster claims were settled, for example, the more money progressive could say. Last time meant fewer lawsuits. Progressives value chain accomplish this in a number of ways. Most dramatically, and adjuster equipped with a company van, and a laptop could go directly to the accident scene and issue a check on the spot. This was not common practice in the industry. Progressive competitive advantage, then, also had a component of lower relative cost.

Question 45

What is Edward Jones‘s tailored value chain?

Answer 45

Edward Jones is Taylor value chain, is conservative individual investors, who want a trusted advisor to make financial decisions for them. Trust is built through personal, face-to-face relationships. To that end, Joneses invest in conveniently located offices, and lots of them, in small towns, suburbs, and strip malls. Each office has just one financial advisor, a model unique in the industry. Jones is prefers to hire from outside the industry, looking for advisers with both community and entrepreneurial spirit. It spends heavily on training new hires in its conservative product line, mostly blue chip investments, and it’s buy and hold philosophy. Joneses pays a prize for these activities tailored to its chosen customer. It further goes revenue from more frequent trading or more exotic investments with higher margins. Its training and its occupancy cost are high relative to other brokerage firms. but these activities create value for Joneses, chosen customers, who are willing to pay a large premium, $100 per trade, versus eight dollars for low, priced brokers, for Joneses, trusted personal touch.

Question 46

What is Aravind’s value chain?

Answer 46

The original inspiration for Aravind came from, McDonald’s. Dr. V. Wanted to produce cataract surgeries as efficiently and as consistently as McDonald’s produced hamburgers. He designed a system that does just that. Essentially, while a surgeon is operating on one patient, the next patient is already prepped on the table behind him. When one operation and, the surgeon simply turns around and starts the next one. Not a minute of the skilled surgeons valuable time is lost. Everyone in the operating room, including the surgeon, is trained to follow a standardized procedure. Every step in the process is carefully integrated to produce an efficient whole.

Question 47

What does Aravind track?

Answer 47

Aravind tracks costs, time, and results, even post surgical outcomes, all of which can be traced back to a specific doctor, and the data used to help them improve their performance.

Question 48

Name the two reasons on how Aravind has gotten doctors to buy into its business model?

Answer 48

Dr. V has built an organization that offers to powerful non-monetary rewards. One is its commitment to professional development and excellence. Consider, for example, the extensive training it provides, and it’s a professional affiliations. The second is an appeal to selfless, service, and compassion. this is an an organization on a mission.

Question 49

Explain explain in one sentence what Aravinds competitive advantage is?

Answer 49

It’s competitive advantage is that it provides quality eyecare at a price everyone can afford, and it’s tailored value chain, turns that promise into a strategy

Question 50

Name some of Southwest airlines tailored value chain?

Answer 50

Southwest employees, go to the extra mile. They were unionized, they have never adopted the adversarial, zero some attitude toward the company that has played other airlines. This contributes to a competitive advantage, raising customer satisfaction, and lowering relative cost. Or Southwest and Aravind Benefit from low turnover. Southwest has a service that they deliver on its particular type of route at a lower cost. They don’t offer meals, assign seats, enter, lying, baggage, checking, or premium classes of service, all of which contributed to the faster gate turnaround times. This enables Southwest to keep planes flying longer hours, and to provide frequent departures with fewer aircraft. Gate and ground crews, Erlinger, more flexible, and more productive than its rivals. Southwest also only offers tickets on its Internet site.