MKTG 479 - Chapter 7 Creating Collaborator Value: Managing Business Markets

Advantages of Collaboration

1. Effectiveness 2. Cost Efficiency 3. Flexibility 4. Speed

Disadvantages of Collaborations

1. Loss of Control 2. Loss of Competencies 3. Empower Competition

Effectiveness

Advantages of Collaboration (1/4) - Allows specialization - Enables each part take advantage of other's expertise, can provide both entities with competitive advantage

Cost Efficiency

Advantages of Collaboration (2/4) - Each collaborator can achieve greater economies of scale and experience

Flexibility

Advantages of Collaboration (3/4) - Can rely on partners rather than spend resources developing new distribution options

Speed

Advantages of Collaboration (4/4) - Enables company achieve desired results much faster than building in-house expertise

Collaboration

Aims to improve a company's ability to create value for its target customers in a way that helps achieve its own strategic goals. Involves entering into a relationship with an external entity and delegating to it a subset of the company's activities. Brings together different entities to create a sustainable value exchange.

Horizontal Integration

Alternatives to Collaboration (1/2) Acquiring business entity at SAME LEVEL of value-delivery chain - A retailer acquiring another retailer - Manufacturer acquiring another manufacturer

Vertical Integration

Alternatives to Collaboration (1/2) Involves acquisition of entity occupying DIFFERENT LEVEL in value-delivery chain 1. Backward Integration 2. Forward Integration

Offering Differentiation

Collaborator Power (1/4) Greater power over collaborators. Companies with differentiated offerings in high demand likely to have more power over collaborators than companies with commoditized offerings Example: - Big brands like Coca-Cola, Adidas, and Samsung have more power dealing with distribution partners than lesser known brands

Collaborator Size

Collaborator Power (2/4) Better/Worse Shelf Space Volume Discounts Promotional Allowances Consolidated entities—manufacturers and distributors—likely to have more power over fragmented ones Example: - P&G, Kraft Foods, Nestle have preferential treatment over smaller manufacturers

Strategic Importance

Collaborator Power (3/4) Is this distributor the only one (or best) available? Entity tends to have more power when accounts for significant portion of collaborators' profits Example: - Walmart is in position of power when negotiating with smaller manufacturers bc their net income is low

Switching Costs

Collaborator Power (4/4) Entity likely to have more power when switching costs of collaborators high and its own switching costs are low

Alternatives to Collaboration

Common alternative involves insourcing activities performed by collaborators by creating new, company-controlled entity/by acquiring (or merging with) existing entity Two types integration: 1. Vertical Integration 2. Horizontal Integration

Collaborator Power

Refers to ability of given company to exert influence over another entity Collaboration Relationships: 1. Offering Differentiation 2. Collaborator Size 3. Strategic Importance 4. Switching Costs

Forward Integration

Vertical Integration (2/2) - Extending ownership of activities DOWNstream - Toward BUYERS - Manufacturer acquiring retailer to establish its OWN distribution system

Loss of Control

Disadvantages of Collaborations (1/3) - Delegating aspects company's activities to external entity leads to loss of control over value-creation process - IKEA

Loss of Competencies

Disadvantages of Collaborations (2/3) - Outsourcing key activities tends to weaken company's core competencies

Empower Competition

Disadvantages of Collaborations (3/3) - Outsourcing key activities might enable collaborating entities develop set strategic competencies, thus becoming company's potential rival

Backward Integration

Vertical Integration (1/2) - Extending ownership UPstream - Toward SUPPLIERS - Retailer acquiring wholesaler/manufacturer