PRINCIPLES OF BUSINESS

ADMINISTRATION
UNAV GRADO MARKETING 2020 / 1st SEMESTER

Esteban Santirso
Guillaume Bonnet
 STRUCTURE OF THE COURSE
• PART 1: From the idea to the business model
Lecture 1 & 2 (GB)
• PART 2: Financing the business
Lecture 3 & 4 (ES)
• CASE STUDY nº1
Lecture 5 (you!)

• PART 4: Organization models, Decision making process, management

Lecture 6 & 7 (ES)
• PART 3: People, People & people !
Lecture 8 & 9 (GB)
• CASE STUDY nº2
Lecture 10 (you!)

• PART 5: The environement

Lecture 11 (GB) & 12 (ES)
• CASE STUDY nº3
Lecture 13 (you!)
WHY ARE SOME COMPANIES (MORE) SUCCESFUL?
“THE LIFE IMPROVEMENT STORE”
THE FIGHTS OF GIANTS
…BUT WHERE DO YOU SPEND YOUR TIME / MONEY ?

AND WHY ?
 WHAT IS A BUSINESS ?
BUSINESS CAN BE:

• product / service / combination of both / other ?

• “Free” / expensive
• B to B / Consumer goods
• short term / long term

IT DOES IMPLY AN EXCHANGE OF GOOD / SERVICE AGAINST MONEY

• How can you convince somebody to give away their money to you in exchange for your product or service ?

• Why precisely you and not your competitor ?

• Is it long term ? if yes how can you do that in the long term ?
… AN ORCHESTRA ?
… AND AN ONION !
CONCEPT

PEOPLE

OPERATIONS

MARKETING

PRODUCT AND
SERVICE

CORPORATE IMAGE
 INDITEX BUSINESS MODEL
(annual report 2018)

Business model Inditex is one of the world's largest fashion retailers. It has eight retail formats (Zara &
Zara Home, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Uterqüe) which sell their
collections in 202 markets over an integrated offline-online store network. As of year-end 2018, it had
a network of 7,490 stores in 96 markets and was selling its fashions online in 156. The ability to
anticipate and react to our customers' demands and offer them responsible fashion framed by a
unique experience and relationship forms the basis of Inditex's business model. Inditex is working
towards becoming a company that is fully digital, fully integrated and fully sustainable, all
underpinned by its Right to Wear philosophy. To this end, our business model is articulated around a
solid corporate culture of sustainability which permeates every phase of our value chain: from how
our garments are designed to how we engage with our customers, including vital areas such as
logistics, supply chain management and our stores. To meet our objectives, we boast a highly diverse
team made up of over 174,000 people from 154 nationalities who speak 73 different languages.
Constant dialogue with our stakeholders, transparency, respect and the safeguarding of human rights,
in addition to making a positive contribution to our communities, are the key values of our
sustainable business model.
 MARKET INVESTIGATION
• Understand and investigate the market (needs of the customers and
competitors / alternatives)
• New companies & Existing companies
• Qualitative / quantitative info
• Your own experience or your friend´s or family´s
• Feedback (employee/customers)
• Company internal Database / CRM
• External database services (ex. AC NIELSEN)
• Panels
• Survey
• INTERNET AND DIGITAL TOOLS
 DEFINITION OF THE MISSION
• What is our business?
• Who is our customer? (The market segment)
• What do we offer? (The value proposition)
= benefits that the company delivers to its customers
= why do I have to spend my money on your service / product ?

Never loose the focus on the customer !

 CUSTOMER ORIENTED STRATEGY
1. Market segmentation
Consumers / customers are not all the same
Divide the total market into homogenous groups
2. Select targets
3. Differentiation: How do you attend better your customer´s needs?
4. Positioning: how do you position your proposition comparing to
others ?
FROM 10(K €) TO 500 (K€) IN 10 SECONDS !
SEGMENTATION
AUTOMOBILE MARKET (BASIC) SEGMENTATION
DO YOU CARE FOR A DRINK ?
 TARGETED SEGMENT

Niche

MASS MARKET

Individuals

Segment
 DIFFERENTIATION
• Significant
• Distinctive
• Superior
• Demonstrable
• Exclusive
• Affordable
• Profitable

"125 years old, PAUL is the Ambassador of the French art de vivre. Present in over 33 countries, the brand’s
teams share the love of work well done, the joy of offering to our customers each day the very best quality
products in a setting that is enchanting and unique.“ www.paul.fr
WHAT IS OUR RELEVANT DIFFERENTIATION ?

• Create a monopoly on the segment you target

• Create you competitive advantage
• The Unique Selling Proposition (USP)
 VALUES FOR THE PROPOSAL

…… COMPANY HAS CREATED A ….…. FOR ……. THAT ALLOW THEM TO

a.- ......
b.- ......
c.- ……

(Joe Wilson Spongelab interactive)

VAUE PROPOSITION MIX
 THE MARKETING MIX: THE 4 P´s

It is THE plan to deliver the value proposition

Product
Price
Place (distribution)
Promotion

The 4 Ps have been associated with the Marketing Mix since their
creation by E. Jerome McCarthy in 1960
 FROM THE 4 Ps TO THE 4 Cs

The 4Cs marketing model was developed by Robert F. Lauterborn in 1990

… TO THE 7 Ps (BOOMS & BITNER 1981)
1. People – are part of your value
proposition
2. Processes – how the service is
delivered is part of what the
consumer is paying for.
3. Physical Evidence – Almost all
services include some physical
elements even if the bulk of what
the consumer is paying for is
intangible.
 WHAT IS A PRODUCT ?
Anything that can be offered in a market that can be purchased to satisfy a
need
• Physical object
• Service
• Event
• Person
• Place
• Organization
• Idea
... or any combination of those
 IS IT JUST A KNIFE?
“YOU NEVER JUST BUY A PRODUCT
Maybe you think we are talking about the fact that
every knife is also a piece of history and an example for
extraordinary craftsmanship–and you are right. But
there is more.

TASTE. LEARN. DISCOVER.

Our shops are no longer just places where you can buy
products–they now can open a culinary world of their
own to the customer. A leading example is the new
World Flagship Store Taikoo Hui in Shanghai, where a
unique shopping experience is combined with places of
exploration and discovery such as restaurants, a
cooking school and a local market.”

https://www.zwilling.com/
 PRODUCT STRATEGY
• Product: tangible
• Service: intangible activity or benefit (no
physical ownership)
• Any combination of both product and
service

= create an EXPERIENCE
 PRODUCT / SERVICE LEVELS
The 3 successive levels which add
value for the customer

• Central benefit: what does the

customer really purchase ?
• Real product: technical features,
brand, quality , design,…
• Increased product: deliver a
satisfactory experience
 NEW PRODUCT DEVELOPMENT
• Generate new ideas
• Select
• Develop and try the concept
• Analise the business
• Develop the product
• Market test
• Launch
 THE 15 % RULE AT
3M History 3M reached an innovation
Here, our history inspires your future. milestone with the issuance of
its 100,000th patent. Each year
More than a century ago, 3M started as a about 3,000 patents are issued
small-scale mining venture in Northern to 3M worldwide
Minnesota, then named Minnesota Mining and
Manufacturing Company. Now a global
powerhouse, our products improve the daily
lives of people around the world.

But our success and longevity were not

apparent from the start. We tried. We failed.
We tried something new. Repeat cycle.
Innovation and perseverance drove our
founders, and it continues to drive 3Mers
today

https://www.3m.com
WHY IS IT SO IMPORTANT ?
 PRODUCT LIFE CYLE
The evolution of sales and profit over time
 CLASSIFYING PRODUCTS
1.- Consumer products
• Convenience
• Comparative products
• Speciality products
• Unsought

2.- Industrial products (B to B)

 THE PRODUCT MIX
• Quality
• Features
• Brand
• Packaging
• Labels
• Customer service
 SERVICES
• Intangible
• Variable
• Cannot be stocked
• Cannot be separated from supplier
 DEFINITION OF THE PRICE / COST
• Amount of money to be paid for a product
• Key factor : decision of consumer + profitability & market share
• Price = income
• Price can be changed
 SETTING THE PRICE
Versus the perceived value by the customer
Versus the cost of production
Versus competition
 COSTS OF PRODUCTION
• Total cost versus variable
costs
• Depending of volume of
production
• Learning curve
OTHER IMPORTANT ASPECTS REGARDING PRICE
• General marketing strategy & marketing mix
• Who is responsible for pricing ?
• Market: pure competition, monopolistic, oligopolistic
• Relation of price & demand: the demand curve : the elasticity of
demand
• Competition
• Environment
• Price varying according to the life cycle
• Price to gain market share
 PRICING STRATEGY
• Range of products
• Pricing the options
• Pricing the captive product
• Sub-product
• Packages
 ADJUSTING PRICE
• Discounts
• Pricing per segment
• Psycological pricing
• Promotional pricing
• Geographical pricing
• Dynamic pricing
EXAMPLE OF A RYAN AIR PRICING MODEL
 PRICE CHANGE AND REACTIONS
A change might be necessary and will lead to consequences
• Lower the price: increase volume, fight competition … price war!
• Increase the price : increase margin, maintain margin when costs increase
• Reaction of customers & competitors

Reaction to price decrease of competitors

• Reduce price
• Increase perceived value
• Increase quality and increase price
• Launch a me-too product / second brand to counter attack
NIKE´S FLAGSHIP STORE IN NEW YORK VERSUS
DECATHLON… CHOOSE THE RIGHT CHANNEL!
SUPPLY CHAIN & DISTRIBUTION CHANNEL
Supply chain
• Cooperation with suppliers and distributors
• What nature are distribution channels?
• What relations do have companies of the channel ? how do they work together?
• How does physical distribution & supply chain management contributes to attract and retain
customers ?

Distribution channel definition

• The organization to make a product available to customer: example
• Direct consequences on other marketing mix parameters
• Pricing (margin for intermediaries)
• Sales and communication policy must be designed accordingly
• Product must designed according to the distribution channel
HOW DO CHANNEL ADD VALUE ?
• Make the product available
• + information
• Promotion
• Contact
• Negotiation
• Physical distribution
• Financing

Organization
• Direct vs indirect
• Informal vs formal structure
• Potential conflicts ( horizontal / vertical)
• Vertical integration
• Quasi vertical integration via contracts = franchise
• Horizontal cooperation
• Multi channel (brick & mortar + web)
• Desintermediation
DESIGNING & MANAGING THE CHANNEL
Designing the channel
• What does the customer need ?
• Company own sales force
• Agent
• Distributor
• Exclusive vs intensive

Managing the channel

• Select and hire
• Manage and motivate
• Evaluate
 SUPPLY CHAIN MANAGEMENT
• Warehousing
• Inventory management
• Transport
• Information / data
 PROMOTION STRATEGY
Goal = develop an effective marketing programme

• Identify the target audience

• Define the communication objectives
• Design the message
• Select the communication channels
• Develop the total promotion Budget
• Decide the promotion mix
• Measure the results
• PUSH vs. PULL
DIGITAL MARKETING & SOCIAL NETWORKING
Internet revolution =>
Information availability +
relationships building

Social networks

Selling globally and directly

DIGITAL CORNER STONES: INFORMATION & MOBILITY
• Individual digital footprint (Cookies, searches,…)
• Information: data can be provided on searches(ex: Google analytics)
• Consumers opinions matters (ex: Booking)
• Cooperative platform (ex: Wikipedia)
• SEO (Search Engine Optimisation)
• Localisation tools

• Completely new business models emerge:

Streaming = deliver via the internet
Fintech

• Existing business re-invent themselves: News”paper”

Source : https://learndigital.withgoogle.com/garagedigital/course/digital-marketing
 DIGITAL IMPACT ON MARKETING MIX
• Products: new or better

• Process

• Place

• Promotion

• Pricing
THE DIGITAL PURE PLAYERS VS OTHERS
• Pure player
• Brick and mortar
• Click and mortar
• Multi channel / cross channel / omni channel
HOW HAS INTERNET CHANGED MUSIC INDUSTRY ?
 BUILD CUSTOMER RELATIONS

• Customer acquisition is costly (example telephone

companies)
=> retaining existing customer must be a priority!
• Satisfied customer = reference (B to B)
• Build long term customers
• Increase the customer share ( share of his expenses)
• Focus on the “good” customers ( butterflies / problematic
customers vs. true friends)
 CUSTOMER EXPERIENCE (CX)
The product of an interaction between an organisation and a customer
over the duration of their relationship. It involves:

• The customer journey

• The touch points
• The environement experience

before, during and after the purchase

Objective: increase LOYALTY
 MARKETING MYOPIA (Theodore Levitt)
• Giving importance to just one aspect of the marketing attributes
without focusing on what customer actually wants
• For example, focusing just on quality and not on the actual demand of
the customer
• Not changing with the dynamic consumer environment
MANAGE THE PRODUCT / BUSINESS PORTFOLIO
GROWTH STRATEGIES: THE ANSOFF MATRIX
(HBR 1957)
ANSOFF MATRIX: MARKET PENETRATION

In a market penetration strategy, the firm uses its products in the existing market. In other
words, a firm is aiming to increase its market share with a market penetration strategy.
The market penetration strategy can be executed in a number of ways:
1. Decreasing prices to attract new customers
2. Increasing promotion and distribution efforts
3. Acquiring a competitor in the same marketplace

For example, telecommunication companies all cater to the same market and employ a
market penetration strategy by offering introductory prices and increasing their promotion
and distribution efforts
ANSOFF MATRIX: PRODUCT DEVELOPMENT

In a product development strategy, the firm develops a new product to cater to the existing market. The move
typically involves extensive research and development and expansion of the company’s product range. The
product development strategy is employed when firms have a strong understanding of their current market
and are able to provide innovative solutions to meet the needs of the existing market.
This strategy, too, may be implemented in a number of ways:
• Investing in R&D to develop new products to cater to the existing market
• Acquiring a competitor’s product and merging resources to create a new product that better meets the need
of the existing market
• Forming strategic partnerships with other firms to gain access to each partner’s distribution channels or
brand

For example, automotive companies are creating electric cars to meet the changing needs of their existing
market. Current market consumers in the automobile market are becoming more environmentally conscious.
ANSOFF MATRIX: MARKET DEVELOPMENT
In a market development strategy, the firm enters a new market with its existing
product(s). In this context, expanding into new markets may mean expanding into new
geographic regions, customer segments, etc. The market development strategy is most
successful if (1) the firm owns proprietary technology that it can leverage into new
markets, (2) potential consumers in the new market are profitable (i.e., they possess
disposable income), and (3) consumer behavior in the new markets does not deviate too
far from that of consumers in the existing markets.
The market development strategy may involve one of the following approaches:
• Catering to a different customer segment
• Entering into a new domestic market (expanding regionally)
• Entering into a foreign market (expanding internationally)
For example, sporting goods companies such as Nike and Adidas recently entered the
Chinese market for expansion. The two firms are offering roughly the same products to a
new demographic.
THE ANSOFF MATRIX: DIVERSIFICATION
In a diversification strategy, the firm enters a new market with a new product. Although
such a strategy is the riskiest, as both market and product development are required, the
risk can be mitigated somewhat through related diversification. Also, the diversification
strategy may offer the greatest potential for increased revenues, as it opens up an entirely
new revenue stream for the company – accesses consumer spending dollars in a market
that the company did not previously have any access to.
there are two types of diversification a firm can employ:
• Related diversification: There are potential synergies to be realized between the existing
business and the new product/market.
For example, a leather shoe producer that starts a line of leather wallets or accessories is
pursuing a related diversification strategy.
• Unrelated diversification: There are no potential synergies to be realized between the
existing business and the new product/market.
For example, a leather shoe producer that starts manufacturing phones is pursuing an
unrelated diversification strategy.
MARKET STRATEGY BY P. KOTLER
According to market share
• Leader
• Challenger
• Cooperation
• Niche
SWOT ANALYSIS
PORTER’S THREE GENERIC STRATEGIES

If you do not choose you Will be “stuck in the middle “

“STUCK IN THE MIDDLE”
THE OUTPACING APPROACH
(Gilbert & Strebel 1987)
 THE BLUE OCEAN STRATEGY
(W. Chan Kim and Renée Mauborgne in the late 1990s and further developed
by Chan Kim & Mauborgne 2005, 2017)
FINDING YOUR BLUE OCEAN
WHY ARE INDUSTRIES MORE PORFITABLE
THAN OTHERS?
MICHAEL PORTER 5 FORCES (HBR 1979)
THE BUSINESS MODEL CANVAS
 YOU NEED THE RIGHT TIMING
• Idea
• Team
• Finance
• Business model
• TIMING

(Bill Gross founder of Idealab)

 CONCLUSION
• IT IS A LONG JOURNEY FROM AN IDEA TO A RESILIENT BUSINESS MODEL
• KNOW & USE THE EXISTING TOOLS
• KEEP THE CUSTOMER IN THE CENTER
• BUILD THE VALUE PROPOSAL & FIND THE RELEVANT DIFFERENTIATION
• DO IT RIGHT, EVERYTHING RIGHT AND AT THE RIGHT TIME

… AND DO NOT STAY THERE !