Delta Model Strategy: New Strategic Inside to Define Our Company Direction and Improve Our Performance

 

Javier González Montané

I remember to trying sharing with a CEO and an academic person the advantages of using the Delta Model Strategy (Hax, Arnoldo C. and Wilde II, Deal L. “The Delta Model – a New Framework of Strategy.” Journal of Strategic Management Education, 2003) but it was very disappointed that those well-prepared people were not able to realize the contributions of this model to the strategy field and firms’ performance. Therefore, it is likely a good idea to summarize the Delta Model, and review a few pros and cons of this model.

Adapted from Arnoldo C. Hax and Deal L. Wilde II “The Delta Model – a New Framework of Strategy.” and Jay R. Galbraith "The Star Model"

Delta model strategy pros

• Although the authors do not mention the Star Model of Jay R. Galbraith, we can see that the general framework that they called “The Delta Model’s Winning Formula” fits “almost exactly” in the well-known Star Model. This is a good point because the “simplicity” of this model make much easier the complex task of strategy communication and execution.
• The approach to integrate Porter’s Competitive Position Model (focus on industry and the external environment) and Gary Hamel and and C.K. Prahalad Resource-Based View of the Firm (focus on the firm, internal approach), which can be complementary models although it does not fit 100%.
• Most of the strategic models assume the importance of Mr. Customer. However, the Delta Model explicit mention that everything starts with Mr. Customer. This explicit mention makes a huge different, because many firms forget the importance of Customers in many decisions. Furthermore, this explicit mention of Mr. Customer is probably one of the most important steps to walk in the direction of creating a real Customer Centric Organization.
• The model approach three of the main business issues in the last years. The commodization of products and services, the scarcity of demand (Customer Targeting), and the misalignment between strategy formulation and strategy execution.
• There was a couple of very well developed positioning models (Treacy, Michael and Wiersema, Fred. “Customer Intimacy and Other Value Disciplines.” Harvard Business Review, January-February 1993. – Hagel III, John and Singer, Marc. “Unbundling the Corporation.” Harvard Business Review, March-April 1999.) However, the Delta Model expands and improves the previous models.
• Many organizations assume that the main focus to grow on the Total Customer Solution strategic option is focusing on large accounts. Nevertheless, the Delta Model says something different from traditional wisdom, this model mentions that many of the large companies think that they are self-sufficient and therefore they do not need us except for access to products. If this is the case in your industry (e.g. logistics service providers), the focus should move on medium firms. At least, that could be an opportunity for medium firms trying to compete profitably with large multinational focus on large accounts.
• This model shows the Lock-in System strategy. That strategy is not just used for IT firms like Apple. There are other large firms in different industries that try to pursuit that strategy via acquisitions, creating economies of scale, and building a strategic position of “one stop shop” that offers a complete product/service portfolio in all the geographies.

Delta model strategy cons

• The model promotes correctly from my personal point of view the networked firm, I mean nowadays “no business is an island” but at the same time the model promotes the System Lock-In positioning that isolates the company. For instance, Apple lock-in strategy does not leave any space for other hardware and software firms.
• The delta model is based on cooperation rather than on competition and rivalry. Nevertheless, the most desirable positioning is System Lock-In and my question would be: what can create more competition and rivalry that trying to Lock-In the System.
• They suggest that the most desirable strategy is Lock-in the system, and they focus on the advantages of this strategy but they do not cover “properly” the so high risks of following that strategy. We have just to see the consequence of following a Locking-In strategy in companies like Nokia or Blackberry trying to lock-in the system rather than cooperating with other players like Google (using Android system). Additionally, we should wonder ourselves the following questions: are customers happier with firms Lock-in the system? That strategy means that customers cannot change the supplier easy, and they are going to pay an over price because their exit barriers are very high. So the next question would be: can a lock-in system strategy create a SUSTAINABLE competitive advantage if this strategy is much more focus on our company than on Mr. Customer?
• The model begins very well segmenting the customer, but at the same time it “suggests” that large firms attract customers in all the positions. As Michael Porter would say try to be everything to all customers used to create confusion in the employees and customers even for many of the large firms.  Segmentation is so important because is the base to create trade-offs, and strategy is about trade-offs.
• The only element of the Star Model that is omitted in the Delta Model is: People. But people are an essential element in a model that try to approach strategy not just from the formulation perspective rather than from formulation and execution point of view. Moreover, the Delta Model shows the importance of Balance Scorecard tools, therefore they should remark like this tool that the Innovation and Learning Perspective that it is very much focus on people issues are the rock stone of the tool. Finally, a strategic model that one of the main contributions is the focus on Mr. Customer and Customer Loyalty, it should likely approach people because as professor Luis Maria Huete stress to get Customer Loyalty, we need to develop Employee Loyalty.

At this point, someone could think that the model has many pros and cons. However, I would like to clarify that the contributions of the model are many and so important. The cons in reality are just personal suggestions that could expand and improve the extraordinary contribution to the strategy field of this breakthrough model.

https://tinyurl.com/3azsb87h

Customer perceived value, CPV

 

Customer perceived value is an important marketing term that affects how marketing professionals advertise and price their goods. Factors like convenience, pricing and reputation can contribute to a customer's perceived value of a product. If you're a marketing professional or you want to become one, you may want to learn more about customer perceived value and how it can affect profits. In this article, we explore what customer perceived value is, why it's important, the different types of perceived value and tips for increasing your perceived value.

What is customer perceived value?

Customer perceived value is a marketing term that refers to the way a consumer views a product. This term attributes the success of a product or service to the perceived value consumers assign to it. Customer perceived value assumes that each customer evaluates their purchases to determine if they meet their wants or needs, then they compare that evaluation to the price they're paying. Sometimes, pricing can also affect perceived value.

Why is customer perceived value important?

Customer perceived value is important because marketing professionals can use the idea to predict how a consumer may view a product. When the perceived value of an item increases, the business or company can price it higher or sell more units, both of which result in higher profits. This means that marketing professionals try to increase the perceived value of goods and services by determining what their customers value most. To do this, they perform market research such as data collection, trials and surveys.

Types of perceived value

These are different perceived value types that may influence how a consumer views a product:

Form

The form of a product or service refers to its design or appearance. Improving the aesthetic qualities of a product can increase perceived value for customers who prioritize the appearance of an item or even a service. For example, some consumers may be more likely to purchase an application or program with a simple interface and clean design than one that may be more functional but has an unappealing appearance.

Task

Increasing the task value of a product or service means improving the item's ability to save consumers energy, time or money. This can include services that replace household duties or errands. For example, a grocery delivery service is an example of a product that offers high task value. House cleaners, subscription services and automated deliveries all reduce the time and effort a person must put in to maintain their daily chores.

Availability

The availability value refers to how quickly and easily a customer can choose your product. For example, a grocery store that stays open all night may increase its availability value. Vending machines, overnight customer service and digital or online products are more examples of items with high availability value.

Emotion

Emotional value refers to how the product or service appeals to the customer on an emotional level. To do this, marketing campaigns can relate products to important holidays or events, or make them a common part of family traditions. Marketing professionals may also donate part of their profits to charity or organize fundraising activities to show ethical action and create an emotional attachment for the customer.

Pricing

Pricing is another aspect of a product or service that can affect a customer's perceived value. This applies to both luxury and budget items, as the price of a product can communicate the quality to the consumer. For example, if a customer is looking for a purse to go with a luxury dress, they may be less likely to purchase a purse that doesn't match the dress in terms of pricing. If the purse is on clearance or doesn't match the dress in price, it may communicate low quality to the customer.

Conversely, some consumers may be more likely to purchase something if the pricing communicates that they're getting more value than what they're paying. Discounts and sales are great tools for creating budget pricing that appeals to customers. A different consumer may see the same purse on clearance and assume they're getting a great deal for the price.

Reputation

The reputation of a company or brand can also impact the customer perceived value. All the other types of perceived value can affect a company's reputation, as well as their policies, operation and how they treat their employees. A store's reputation may rely on cleanliness and organization, while an online vendor may improve their reputation by offering secure check-out and increased connection speeds.

Tips for raising your customer perceived value

If you're a marketing professional or entrepreneur, you may want to increase your customer perceived value and ultimately your profits. These are some helpful tips you can use when raising your customer perceived value:

• Brand partnerships: A brand partnership is when you create a contract with a well-known person, influencer, celebrity or another brand to promote your products. Partnering with individuals who have large followings can improve your perceived value and increase profits.

• Excellent reputation: Creating an excellent reputation for your brand can develop credibility for your consumers and increase your perceived value. If consumers believe you care most about their best interests and always offer them the highest quality products and best customer service, they're more likely to make repeat purchases with you.

• Extra convenience: Offering free shipping, trial periods, phone or tablet apps, subscription services, websites and constant access can increase your convenience and perceived value. Consider sending automated reminders to your customers about items they left in their cart or items they may need to replenish.

• Conscious capitalism: Conscious capitalism is when brands incorporate charity into their business models, and it can increase your perceived value if your consumer base cares about giving back. For example, a company may give a free bottle of water to a person in need each time someone purchases their own.

https://indeedhi.re/3srsvK2

Customers will buy from the firm that they see as offering the highest perceived value. Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives.

Total customer value is the perceived monetary value of the bundle or economic, functional, and psychological benefits customers expect from a given market offering.

Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining , using, and disposing of the given marketing offering.

Customer perceived value

An example will help here. Suppose the buyer for a large construction company wants to buy a tractor from Caterpillar or Komatsu. The competing salespeople carefully describe their respective offers. The buyer wants to use the tractor in residential construction work. He would like the tractor to deliver certain levels of reliability, durability,  performance, and resolve value. He evaluates the tractors and decides that Caterpillar has a higher product value based on perceived reliability, durability, performance, and resale value.  He also perceives differences in the accompanying services – delivery, training, and maintenance – and decides that Caterpillar provides better service and more knowledgeable and responsive personnel. Finally, he places higher value on Caterpillar’s corporate image. He adds up all the values from these four sources – product, services, personnel, and image – and perceives Caterpillar as delivering greater customer value.

Does he buy the Caterpillar tractor? Not necessarily. He also examines his total cost of transacting with Caterpillar versus Komalsu, which consists of more than the money. As Adam Smith observed over two centuries ago, “The real price of anything is the toil and trouble of acquiring it. “Total customer cost includes the buyer’s time, energy, and psychic costs. The buyer evaluates these elements together with the monetary cost to form a total customer cost. Then the buyer considers whether Caterpillar’s total customer cost is too high in relation to the total customer value Caterpillar delivers. If it is, the buyer might choose the Komatsu tractor. The buyer will buy from whichever source he thinks delivers the highest perceived customer value.

Now let us use this decision-making theory to help Caterpillar succeed in selling to this buyer. Caterpillar can improve its offer in three ways. First, it can increase total customer value by improving product, services, personnel, and / or image benefits. Second, it can reduce the buyer’s no monetary costs by reducing the time, energy, and psychic costs. Third, it can reduce its product’s monetary cost to the buyer Suppose Caterpillar concludes that the buyer sees its offer as worth $20,000. Further, suppose Caterpillar’s cost of producing the tractor is $14,000. This means that Caterpillar’s offer potentially generates $6,000 over the company’s cost so Caterpillar needs to charge a price between $14,000 and $20,000. If it charges less than $14,000, it won’t cover its costs; if it charges more than $20,000, it will price itself out of the market. The price Carterpillar charges will determine how much value will be delivered to the buyer and how much will flow to Caterpillar.

For example, if Caterpillar charges $19,000, it is creating $1,000 of customer perceived value and keeping $5,000 for itself. The lower Caterpillar sets its price, the higher the customer perceived value and, therefore, the higher the customer’s incentive to purchase. To win the sale, Caterpillar must offer more customer perceived value than Komatsu does.

Some marketers might argue that the process we have described is too rational. Suppose the customer chose the Komatsu tractor. How can we explain this choice? Here are three possibilities:

1. The buyer might be under orders to buy at the lowest price. The Caterpillar salesperson’s task is to convince the buyer’s manager that buying on price alone will result in lower longterm profits.
2. The buyer will retire before the company realizes that the Komatsu tractor is more expensive to operate. The buyer will look good in the short run; he is maximizing personal benefit. The Caterpillar salesperson’s task is to convince other  people in the customer company that Caterpillar delivers geater customer value.
3. The buyer enjoys a long-term friendship with te Komatsu salesperson. In this case, aterpillar’s salesperson needs to show the buyer that the Komatsu tractor will draw complaints from the tractor operators when they discover its high fuel cost and need for frequent repairs.

The point of these examples is clear: Buyers operate under various constraints and occasionally make choices that give more weight to their personal benefit than to the company’s benefit. However, customer perceived value is a useful framework that applies to many situations and yields rich insights. Here are its implications:

First, the seller must assess the total customer value and total customer cost associated with each competitor’s offer in order to know how his or her offer rates in the buyer’s mind.

Second, the seller who is at a customer perceived value disadvantage has two alternatives: to increase total customer value or to decrease total customer cost. The former calls for strengthening or augmenting the offer’s product, services,  personnel, and image benefits. The latter calls for reducing the buyer’s product, services, personnel, and image benefits. The latter calls for reducing the buyer’s costs by reducing the price, simplifying the ordering and delivery process, or absorbing some buyer risk by offering a warranty.

https://bit.ly/35XmY6E