Added Values

1. Added Values Presented by: Nick Newby & Russell Davis

2. Added Value of a Monopoly • “one strong company and the rest weak.” -Hiroshi Yamauchi, President, Nintendo • Nintendo hardware was a bargain to produce b/c they used commodity processors • Personal computers averaged $2500 to $4000. • NES was $100

3. Nintendo • NES was designed to simulate hit arcade games. • Inexpensive hardware and hit games = SALES

4. Virtuous Circle • Software houses wrote games for the NES, but Nintendo had complete control over them through licensing agreements • Nintendo also had in house game writers. • This meant that Nintendo was not dependent upon any one supplier

5. Nintendo • By limiting power of software developers, Nintendo limited the values to outside companies. • Nintendo created an intentional shortage of video the video game library at retailers. Was this a smart move?

6. Nintendo • Yeah • Shortage made game cartridges more desirable • Created publicity due to the shortage during the holiday season (1988) • Helped retailers move slower selling games • But kids remembered to tell their parents they still wanted the real popular game

7. Supply • Monopolies and shortages complement each other • Growing demand for products means: • Expand too little →Risk loosing sales • Expand too much → Unused capacity Added values entails building less instead of more

8. Limiting Supply Pros • Gets you a bigger slice of the pie • May give you distinction • May provide free publicity • May lead customers to purchasing slower-moving products while waiting for the shortage to end

9. Cons • Shrinks the pie – costs you sales today • May cost you a relationship and thereby future sales • Creates ill will • Leaves a hole in the market inviting entry.

10. Trade-Offs • Spend $1 so customers value it as $2 • TWA goes from worst rated airline to #1 when it spends $1 million to increase leg room in coach.

11. Trade Ons • Create higher quality and lower costs simultaneously. • Costs will initially rise, but customers will eventually come to you increasing production and distribution. • Scales of economies will prevail and costs will decrease.

12. Trade-Offs • Raise the amount customers are willing to pay by more than the incremental cost. • Reduce costs without reducing willingness to pay as much

13. Trade-Ons • Lower costs in a way that helps you to deliver a better product • Deliver a better product in a way that helps you lower costs.

14. Added Value of a Relationship

15. Added value • Provide high quality at low costs. • Be unique (if others can do what you do you have little added value). • Key to added value is differentiation.

16. So how do you create added value in a Relationship? • Create Loyalty • Some extent, relationships are automatic. • Actively promote strong relationships with customers and suppliers. • Create value for the customer.

17. U.S. Airline industry • 1981 facing extreme competition. • Found passengers after low prices had no loyalty. • American Airlines – frequent flyer program. • Customers became loyal at little cost to airlines.

18. Divided Loyalty • Two weeks later United Airlines created Mileage Plus frequent-flyer program. • Within three months all major airline companies had frequent-flyer programs. • Playing field was level again, every airline had their loyal customers. • Important: competitors with little to lose have reason to cut prices to attract customers.

19. Thanking the Customer • Important to thank your loyal customers. • Essential part of added value in a relationship. • 9 ways to thank the customer. • Say thank you in kind, not cash. • Save the best than you for your best customers. • Say thank you in a way that builds up your business. • Don’t say thank you too quickly, or too slowly. • Say that you’re going to say thank you. • Recognize that you may have to compete for loyalty. • Allow your competitors to have loyal customers too. • Don’t forget to say thank you even if you have a monopoly. • Say thank you to your suppliers as well as to your customers.

20. Imitation

21. Healthy Imitation • Harmful when you think win-lose strategy (win-lose + lose-win = lose-lose). • Win-Win = both companies profit. • Example: frequent-flyer program. • Greater price stability • Loyal customers • price rises less risky

22. Unhealthy Imitations • Not everything is win-win. • Game is about how fast you can improve you improvements. • Individual Inc. has fine tuned their customer learning process, resulting in preserved added value. • Getting feedback from customers. • Improving products. • Becoming faster at improving products.

23. Minnetonka • Robert Taylor’s innovation of the Softsoap machine. • Ordered 100 million pumps from the only two suppliers. • Locked the suppliers up for two years. • Eliminated threat of imitation. • Gave time to build brand image • Antidotes to Unhealthy Imitations • Collect customer feedback to customize your product. • Create brand identity • Build volume to move down the learning curve. • Compete aggressively for volume so that competitors can’t follow you down the learning curve.

24. Changing the Added Values • Little competition = assured added value • Competition = find some added value of your own.