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Strategic Product Augmentation
Boeing Global Services
1
The Make versus Buy Trade-off
• From the customer’s perspective, when does it make sense
for me to
– use a trading house
– do it myself ?
• The trade-off
– costs
• trader’s commissions
• fixed costs of set-up
• marginal costs of goods
– volume
• Beyond a critical size, it makes sense for the customer to go
direct!
P4 Sept/Oct -2003
Services Marketing – Professor V. Padmanabhan
2
Creating Value
• To customers
–one-stop shop
–information
–design
–consolidation
–logistics
–lower risks
–higher quality
–global network
P4 Sept/Oct -2003
Services Marketing – Professor V. Padmanabhan
3
Creating Value (contd.)
• To Suppliers
– financing
– management of quotas
– capacity utilization
• The Li & Fung Motto
– Connections
– Communications
– Control of Quality
– Consolidation of Shipments
• Results
– Higher Margins
– Higher Returns
P4 Sept/Oct -2003
Services Marketing – Professor V. Padmanabhan
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The Channels Challenge
• Traditional view
– channels are a cost of doing business
• Contemporary view
– channels can be a source of sustainable competitive advantage
• The Li & Fung Story
– moving from
• I compete with others at my level of the channel
– moving to
• It is competition between my channel and their channel
– conducting the channel
• a bunch of players,
• each with their own strategic interests
P4 Sept/Oct -2003
Services Marketing – Professor V. Padmanabhan
5
The Channels Challenge (contd.)
• The challenges are similar in many respects for all the
players in a channel (manufacturers, intermediaries,
retailers, etc.)
– From focus on purchase of what
– To knowledge of what to market to whom and when and how.
• Best practice benefits the total channel
– It is not a zero-sum game!
• The Challenge:
– new business models (e.g., Levi’s Signature)
– new business options
• markets (e.g., geography, categories)
• value propositions (e.g., incubator)
P4 Sept/Oct -2003
Services Marketing – Professor V. Padmanabhan
6