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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 4 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