ACCA P3 Business Analysis - 2010 - Study text - Emile Woolf Publishing
Подождите немного. Документ загружается.
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 85
Paper P3
Business analysis
CHAPTER
4
Marketing and the value
of goods and services
Contents
1 Customer needs
2 Critical success factors for products and services
3 Value chain
4 Value network
Paper P3: Business analysis
86 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Customer needs
The marketing approach
What are customer needs?
The 4Ps of the marketing mix
1 Customer needs
1.1 The marketing approach
As stated earlier, markets can be defined by their customers and potential
customers. Companies and other business entities compete with each other in a
market to sell goods and services to the customers. The most profitable entities are
likely to be those that sell their goods or services most successfully.
Business success is achieved by providing goods or services to customers in a
way that meets customer needs successfully.
Customers will buy from the business entities that meet their needs most
successfully.
Much business strategy is based (partly) on the marketing approach or the
marketing concept, which is that the aim of a business entity is to deliver products
or services to customers in a way that meets customer needs better than
competitors. To do this, the business entity must have a competitive advantage over
its competitors, and a strategic aim is to achieve a competitive advantage, and then
keep it.
1.2 What are customer needs?
Customers buy products or services for a reason. When they can choose between
two or more competing products, there is a reason why they choose one product
instead of another.
A major factor in the decision to buy a product is usually price. Many customers
choose the product that is the cheapest on offer, particularly when they cannot see
any significant difference between the competing products.
If the buying decision is not based entirely on price, the customer must have other
needs that the product or service provides. These could be:
a better-quality product
better design features
availability: not having to wait to obtain the product
convenience of purchase
the influence of advertising or sales promotions.
Chapter 4: Marketing and the value of goods and services
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 87
There are many different types of customer, each with their own particular needs. A
product that meets the needs of one customer successfully might not meet the needs
of another customer nearly as well.
Customers may be grouped into three broad types:
consumers: these buy products and services for their personal benefit or use
industrial and commercial customers: customers might include other business
entities
government organisations and agencies.
In some markets, most customers are consumers. In industrial markets, all
customers are industrial and commercial customers, and possibly some government
customers. In some markets, such as the markets for military weapons, the only
customers are governments.
As a general rule, the needs of different types of customer vary. Industrial and
commercial customers are more likely than consumers to be influenced by price.
Consumers will often pay more for a branded product (due to the influence of
advertising) or for convenience.
1.3 The 4Ps of the marketing mix
The marketing approach is to identify customer needs and try to meet customer
needs more successfully than competitors. To do this, business entities need to offer
provide a ‘mix’ of the four Ps that will appeal to customers. The 4Ps are:
Product
Price
Place
Promotion.
Product refers to the design features of the product, and the product quality. In
addition to the product itself, features such as short lead time for delivery and
reliable delivery could be important. Product features also include after-sales
service and warranties. For services, the quality of service might depend partly on
the technical skills and inter-personal skills of the service provider.
Price is the selling price for the product: some customers might be persuaded to
purchase by a low price or by the offer of an attractive discount.
Place refers to the way in which the customer obtains the product or service, or the
‘channel of distribution’. Products might be bought in a shop or supermarket, from
a specialist supplier, by means of direct delivery to the customer’s premises or
through the internet.
Promotion refers to the way in which product is advertised and promoted. It
includes direct selling by a sales force (including telesales).
Paper P3: Business analysis
88 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Marketing can be analysed at a tactical level, and decisions about the marketing mix
might be included within the annual marketing budget. However, marketing issues
can also be analysed at a strategic level.
It is important in strategic analysis to understand what customers will want to buy,
and why some products or services will be more successful than others.
Chapter 4: Marketing and the value of goods and services
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 89
Critical success factors for products and services
Definition of a critical success factor
Marketing and CSFs for products and services
CSFs and key performance indicators (KPIs)
Johnson and Scholes: a six-step approach to using CSFs
Competitor benchmarking
Methods of competitor benchmarking
2 Critical success factors for products and services
2.1 Definition of a critical success factor
Critical success factors (CSFs) are factors that are essential to the strategic success of
a business entity. They have been defined as: ‘those components of strategy in
which the organisation must excel to out-perform competition’ (Johnson and
Scholes).
When management are analysing a market and customers in the market, they
should try to understand which factors are essential to succeed in business in the
market, and which factors are not so important. Strategic success is achieved by
identifying the CSFs and setting targets for performance linked to those critical
factors.
Example
A firm of accountants has an office in a major UK city. The partners are considering
an expansion of the business, by opening another office in another city 50 miles
away.
The partners want to expand their business, but they are cautious about investing in
a project that might not succeed and might cost them a lot of money. They have a
meeting to discuss the factors that would be critical to the success of a new office.
They prepare the following list of factors:
Employing top-quality accountants for the new office.
Charging lower fees than other accountancy firms in the city.
Obtaining a minimum number of corporate clients.
Obtaining a minimum number of private (individual) clients.
Offering a full range of audit and accountancy services.
Locating the new office in attractive city-centre premises.
All these factors could be important, and might help the new office to be a success.
However, not all of them might be critical to the success of the venture.
Paper P3: Business analysis
90 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
If the partners can agree which factor or factors are critical to success, they can
concentrate on setting reasonable targets for each key factor and making every effort
to ensure that those targets are achieved.
2.2 Marketing and CSFs for products and services
The previous example considers the CSFs for a new business venture (a new office
for an accounting firm). Strategic planners might want to identify the CSFs for a
particular product or service.
These are the features that the product must have if it is to be a success with
customers.
The CSFs of a product or service must be related to customer needs. They are the
features of a product or service that will have the main influence on the decisions by
customers to buy it.
Example
A parcel delivery service (such as DHL or FedEx) might identify critical success
factors as:
collecting parcels from customers quickly, as soon as possible after the customer
has asked for a parcel to be delivered
providing rapid and reliable delivery.
Example
The senior management of a company that manufactures sports cars, competing
with producers such as Ferrari and Maserati, need to understand the critical factors
that enable their products to compete successfully in the market.
After an analysis of the market and competition, they might decide that the CSFs
are:
building cars that match competitors in performance (top speeds, acceleration,
engine capacity), and also
sell at prices that are about 10% less than those of the main competitors.
Example
In a particular country, about 1,000 accountancy students take the ACCA
professional examinations each year. There are two tuition companies that provide
training courses for the examination.
Company X has been providing tuition for the ACCA examinations for several
years and now trains about 800 students each year. Company Y is a new company
that is entering the market for providing ACCA teaching for the first time.
Chapter 4: Marketing and the value of goods and services
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 91
For Company Y, the critical success factor for their training courses is probably the
pass rate for its students, and achieving a higher-than-average pass rate. (This is the
proportion of its students who pass the examination after attending a course.) For
Company X the pass rate is probably less critical because it trains most of the
students in the country, so it will not be able to beat the national average pass rate
by any significant amount. For Company X, the critical success factor might be
providing courses at times and in locations to meet the requirements of customer.
2.3 CSFs and key performance indicators (KPIs)
Critical success factors should be identified at several stages in the strategic
planning process.
CSFs should be identified during the process of assessing strategic position.
Management need to understand the main reasons why particular products or
services are successful.
CSFs are important in the process of making strategic choices. A business entity
should select strategies that will enable it to achieve a competitive advantage
over its competitors. These are strategies where the entity has the ability to
achieve the critical success factors for its products or services.
CSFs are also important for strategy implementation. Performance targets
should be set for each CSF. This involves deciding on a measurement of
performance, that can be used to assess each CSF, and then setting a quantified
target for achievement within a given period of time.
Measured targets for CSFs are called key performance indicators (KPIs).
2.4 Johnson and Scholes: a six-step approach to using CSFs
Johnson and Scholes have suggested a six-step approach to achieving competitive
advantage through the use of CSFs.
Step 1
Identify the success factors that are critical for profitability (long-term as well as
short-term). These might include ‘low selling price’, and also aspects of service and
quality such as ‘prompt delivery after receipt of orders’ or ‘low level of sales
returns’. It is useful to think about customer needs and the 4Ps of the marketing mix
when trying to identify the CSFs for products or services.
Step 2
Identify what is necessary (the ‘critical competencies’) in order to achieve a superior
performance in the critical success factors. This means identifying what the entity
must do to achieve success. For example:
If a critical success factor is ‘low sales price’, a critical competence might be
‘strict control over costs’.
If a critical success factor is ‘prompt delivery after receipt of orders’, a critical
competence might be either ‘fast production cycle’ or ‘maintaining adequate
inventories’.
Paper P3: Business analysis
92 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
If a critical success factor is ‘low level of sales returns’, a critical competence
might be either ‘zero defects in production’ or ‘identifying 100% of defects on
inspection’.
Step 3
The entity should develop the level of critical competence so that it acquires the
ability to gain a competitive advantage in the CSF.
Step 4
Identify appropriate key performance indicators for each critical competence. The
target KPIs, if achieved, should ensure that the level of critical competence creates a
competitive advantage is obtained in the CSF.
Step 5
Give emphasis to developing critical competencies for each aspect of performance,
so that competitors will find it difficult to achieve a matching level of competence.
Step 6
Monitor the firm’s achievement of its target KPIs, and also monitor the comparative
performance of competitors.
2.5 Competitor benchmarking
Benchmarking is a process of comparing your own performance against the
performance of someone else, preferably the performance of ‘the best’.
The purpose of benchmarking is to identify differences between your performance
and the performance of the selected benchmark. Where these differences are
significant, methods of closing the gap and raising performance can be considered.
One way of improving performance might be to copy the practices of the ‘ideal’ or
benchmark.
In strategic position analysis, benchmarking is useful because it provides an
assessment of how well or badly an entity is performing in comparison with
competitors.
Methods of benchmarking
There are several methods of benchmarking:
Internal benchmarking. An entity might compare the performance of units
within the organisation with the best-performing unit. For example, an
organisation with 30 branch offices might compare the performance of 29 of the
branches with the best-performing branch.
Operational benchmarking. An entity might compare the performance of a
particular operation with the performance of a similar operation in a different
business entity in a different industry. For example, a book publishing company
might compare its order handling, warehousing and despatch systems with the
Chapter 4: Marketing and the value of goods and services
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 93
similar systems of a company in a different industry that has a reputation for
excellence – for example a company in the clothing manufacturing industry.
Operational benchmarking arrangements might be negotiated with another
business entity.
Competitive benchmarking. An entity might compare its own performance and
its own products with those of its most successful competitors. Unlike internal
benchmarking and operational benchmarking, competitive benchmarking must
be carried out without the knowledge and co-operation of the selected
benchmark.
Customer benchmarking. This is a different type of benchmark. The benchmark
is a specification of what customers expect. An entity compares its performance
against what its customers expect the performance to be.
Example
Competitive benchmarking originated with the Xerox Corporation in the US in
1982. The company manufactured photocopier machines, but had lost a large part of
its market share to Japanese competitors. The corporation set up a team to compare
Xerox against its competitors.
The team identified critical success factors and performance indicators is several
different areas of operations, such as order fulfilment, the distribution of products to
customers, production costs, selling prices and product features. It then compared
it’s own performance in each area with the performance of the competitors.
The comparison showed that Xerox was seriously under performing in comparison
with the competition. Its management therefore went on to consider measures that
it should take to improve its performance.
As a result of the measures it took, Xerox was able to reduce its costs, improve
customer satisfaction, and regain some of its lost market share. In other words,
competitive benchmarking helped the corporation to regain competitiveness.
2.6 Methods of competitor benchmarking
There are no ‘standard’ methods of competitor benchmarking. In most
circumstances, competitors will not provide more information about themselves
than they are required to by law or regulations. Published financial statements
might therefore be an important source of comparative material, particularly where
the competitor is required to publish a full set of financial statements each year that
comply with international accounting standards.
Some of the methods that might be used by a company to compare performance
with its competitors are suggested below.
The published financial statements of competitors should be studied. These
should be analysed to assess the financial performance of the competitor.
Segment analysis, showing the performance of business and geographical
segments, might be particularly useful.
Paper P3: Business analysis
94 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Financial ratios obtained from the financial statements of the competitor should
be compared with similar ratios for the company. In addition, trends in
performance and in the ratios over time should also be monitored. Key
performance measures might include:
- annual sales (by business segment or geographical segment)
- growth in annual sales (as a percentage increase on the previous year)
- return on capital employed
- net profit/sales ratio
- gross profit/sales ratio.
Where there are significant differences in performance, the possible reasons for
the differences should be considered.
The products or services of competitors should be analysed in detail. In the case
of products, units of the competitor’s product might be purchased and taken to a
laboratory for scientific or technical analysis.
Information about competitors can be gathered by talking to customers and
potential customers who have had dealings with a competitor, and who are
willing to discuss what the competitor is offering as an incentive to make the
customer buy its products.
Sales prices should be compared. Some competitors might sell at higher prices
and some at lower prices. Some competitors might sell a variety of similar
products across a range of different prices. When there are significant price
differences, management should consider whether the price differences are
justified by the differences between the products or services.
Competitor analysis should also include an assessment of the critical success factors
of all the firms in the market. The CSFs of companies in the same market might
differ, and individual companies might succeed in their market for different
reasons, particularly when the market is segmented.