Business, Marketing

Please find the attached 

think of a business you would like to start. This can be anything – goods or services. 

  • Provide a brief description of your business idea (150 to 200 words). 
  • Next, after reading Chapter 3 in your textbook, complete a SWOT analysis and Ansoff’s Matrix for your proposed product/service (1 to 2 pages). 
  • Additionally, describe the ideal marketing mix (Chapter 6) for your proposed product/service (minimum 300 words). 

Use your textbook (Please find the attached ) as your source plus at least two additional sources  

Present your paper as an academic paper with a cover page and a reference page, following APA guidelines.

This is assignment is due Sunday!

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Andrew Whalley

Strategic Marketing

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Strategic Marketing 1st edition © 2014 Andrew Whalley & bookboon.com ISBN 978-87-7681-643-8

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Contents

Contents

Preface 7

1 So what is marketing? 9 1.1 !e !ree levels of Marketing 9 1.2 !e value of Marketing; Needs, Utility, Exchange Relationships & Demand 11 1.3 !e !eoretical basis of competition 17 1.4 Alternative Frameworks: Evolutionary Change and Hypercompetition 32 1.5 !e Marketing Concept 35

2 What can be marketed? 40 2.1 Core Bene”t Product 44 2.2 Basic product 44 2.3 Augmented product 45 2.4 Perceived product 45 2.5 A note on branding 45 2.6 Summary of the Chapter 45

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© Deloitte & Touche LLP and affiliated entities.

360° thinking.

Discover the truth at www.deloitte.ca/careers

© Deloitte & Touche LLP and affiliated entities.

360° thinking.

Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities.

360° thinking.

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Contents

3 Marketing’s role in the business 47 3.1 Cross-functional issues 47 3.2 Strategic issues 49 3.3 Forecasting market and sales 64 3.4 Implementation, Analysis, Control & Evaluation 64 3.5 Objectives setting 66

4 Segmentation, Targeting & Positioning 67 4.1 Segmentation 69 4.2 Targeting 71 4.3 What is positioning? 72 4.4 Positioning and Perception 73 4.5 Perceptual Mapping 75 4.6 Strategies for Product Positioning 78 4.7 Product Re-positioning 79 4.8 Corporate Positioning 79 4.9 Chapter Summary 79

5 Branding 81 5.1 Why do we brand products? 81 5.2 Chapter summary 85

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Contents

6 !e Marketing Mix 86 6.1 Price 88 6.2 Place 91 6.3 Product 92 6.4 Promotion 96 6.5 Physical Evidence 98 6.6 People 99 6.7 Process 100

7 Product Management 102

8 Marketing Communications or MarCom or Integrated Marketing Communications (IMC) 104

8.1 !e Marketing Communications Mix 104 8.2 !e Marketing Communication Process 105 8.3 Marketing Related Messages 106 8.4 !e development of Marcoms 107

9 Expanding marketing’s traditional boundaries 109

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Preface

Preface !is book is aimed to give an overview of what marketing really means in the contemporary business environment. It’s not a “how to guide” it’s more a background/reference document to help stimulate some thinking and discussion about marketing, which is an essential part of any higher education course covering Marketing.

Let’s start with the premise that despite its importance, Marketing is the least well understood of all the business disciplines, both by those working within business and by the public at large. It is invisible to right-wing economists, whose credo is that prices carry all the information about supply and demand that markets, need to produce the goods and services that people want; the works of Adam Smith, Friedrich Hayek, Milton Friedman, Gary Becker, all leading economists in their “eld of their time have no mention of marketing whatsoever.

!e le#-wing socialists, social scientists, journalists, and popular mass media programme makers do at least acknowledge marketing as being real. But their views o#en present marketing as little more than manipulative, exploitative, hard-sell advertising used by greedy and morally bankrupt corporations in pursuit of their next set of bonuses. Both views are at best incomplete in terms of truly understanding markets from the key perspective – that of the customers and suppliers who interact to make the markets.

All commercial enterprises have products and services to sell and these are both the result of, and the reason for, marketing activities. Goods & Services, collectively called Products, are developed to meet customer needs and so those needs must be researched and understood. Each product can then be targeted at a speci”c market segment and a marketing mix developed to support its desired positioning. Product, Brand or Marketing Managers have to design marketing programmes for their products and develop good customer relationships to ensure their brands’ ongoing success

Marketing has arguably become the most important idea in business and the most dominant force in culture. Today mass media encapsulates our lives, satellite TV, broadband internet access, instant communications via web and mobile phone, all of which mean messages can reach you virtually at any time and place. !is means that marketing pervades society not on a daily basis but on a second by second basis.

!ere are several good reasons for studying marketing. First of all, marketing issues are important in all areas of the organisation – customers are the reasons why businesses exist! In fact, marketing e$orts (including such services as promotion and distribution) o#en account for more than half of the price of a product. As an added bene”t, studying marketing o#en helps us become wiser consumers and better business people.

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Preface

Marketing is also vital to understanding businesses of any sort, thus any study of business that excludes an appreciation of marketing is incomplete. In particular at the highest levels marketing becomes an integrating holistic culture that drives integrated, co-ordinated and focussed business practices with the interests of the customer as its heart – a combination that makes such businesses di%cult to beat in the market.

Some of the main issues involved include:

• Marketers help design products, “nding out what customers want and what can practically be made available given technology and price constraints.

• Marketers distribute products – there must be some e%cient way to get the products from the factory to the end-consumer.

• Marketers also promote products, and this is perhaps what we tend to think of “rst when we think of marketing. Promotion involves advertising – and much more. Other tools to promote products include trade promotion (store sales and coupons), obtaining favourable and visible shelf-space, and obtaining favourable press coverage.

• Marketers also price products to “move” them. We know from economics that, in most cases, sales correlate negatively with price – the higher the price, the lower the quantity demanded. In some cases, however, price may provide the customer with a “signal” of quality. !us, the marketer needs to price the product to (1) maximise pro”t and (2) communicate a desired image of the product.

• Marketing is applicable to services and ideas as well as to tangible goods. For example, accountants may need to market their tax preparation services to consumers.

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So what is marketing?

1 So what is marketing? Marketing is commonly misunderstood as an ostentatious term for advertising and promotion; in reality it is far more than that. !is perception isn’t in many ways unreasonable, advertising and promotion are the major way in which most people are exposed to marketing. However, the term ‘marketing’ actually covers everything from company culture and positioning, through market research, new business/product development, advertising and promotion, PR (public/press relations), and arguably all of the sales and customer service functions as well;

• It is systematic attempt to ful”l human desires by producing goods and services that people will buy.

• It is where the cutting edge of human nature meets the versatility of technology. • Marketing-oriented companies help us discover desires we never knew we had, and ways of

ful”lling them we never imagined could be invented.

1.1 The Three levels of Marketing

Almost every marketing textbook has a di$erent de”nition of the term “marketing.” !e better de”nitions are focused upon customer orientation and satisfaction of customer needs;

• !e American Marketing Association (AMA) uses the following: “!e process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.”

• Philip Kotler uses, “Marketing is the social process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.”

• !e Chartered Institute of Marketing (CIM), “Marketing is the management process that identi”es, anticipates and satis”es customer requirements pro”tably.”

In a January 1991, Regis McKenna published an article in the Harvard Business Review (HBR) entitled “Marketing Is Everything.” In the article the McKenna states, “Marketing today is not a function; it is a way of doing business.” Indeed we now call this the top level of Marketing – Marketing as a business philosophy. So yes, marketing is everything. In essence it’s the process by which a company decides what it will sell, to whom, when & how and then does it!

!is brings us to the second level of Marketing; Marketing as Strategy. !is entails understanding the environment the business is operating in; customers, competitors, laws, regulations, etc. and planning marketing strategy to make the business a success. !is second layer is about segmenting (S) the market, deciding which customers to target (T) and deciding what messages you want the targets to associate with you; what is called Positioning (P). !e overall process is usually referred to as; segmentation- targeting-positioning (STP) which is covered in Chapter !ree.

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So what is marketing?

STP however is not alone at this level; it is closely allied with the concept of Branding, which is not just about logos and names. Brands are now about image – or more correctly its perception, branding is a link between the attributes customers associate with a brand and how the brand owner wants the consumer to perceive the brand: the brand identity. Over time, or through poorly executed marketing or through societal changes in markets, a brand’s identity evolves gaining new attributes from the consumer’s perspective.

Not all of these will be bene”cial from the brand owner’s perspective and they will seek to bridge the gap between the brand image and the brand identity, by trying to change the customers perceptions – brand image – to be closer to what’s wanted brand identity; sometimes this necessitates a brand re-launch. A central aspect to brand is the choice of name. E$ective brand names build a connection between the brand’s personality as it is perceived by the target audience and the actual product/service, by implication the brand name should be on target with the brand demographic, i.e. based in correct segmentation and targeting. Level two of Marketing can thus be summarised as STP + Branding; Branding is covered in Chapter Four.

!e third level of marketing is about the day to day operational running of marketing, it encompasses the control of the Marketing Mix and the processes within a business that help create and deliver that company’s products and services to the customer. !is level spans all aspects of a business and across all customer contact points including:

• A company’s web site; • How they answer the phones; • !eir marketing and PR campaigns; • !eir sales process; • How customer contact sta$ present themselves (in person and on the phone); • How a business delivers its services; • How a business “manages” its clients • How a business solicits feedback from its clients.

!ese operational issues are covered in Chapters Five, Six and Seven.

From the above we see that:

• Marketing involves an ongoing process. !e environment is “dynamic.” !is means that the market tends to change – what customers want today is not necessarily what they want tomorrow.

• !is process involves both planning and implementing (executing) the plan.

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So what is marketing?

To summarise then we can see that a simple de”nition of marketing would be, “!e right product, in the right place, at the right time, at the right price,” Adcock et. al. !is is a succinct and practical de”nition that uses Borden/McCarthy’s 4Ps – Product, Price, Place & Promotion, which are covered in Chapter Five.

1.2 The value of Marketing; Needs, Utility, Exchange Relationships & Demand

It is a fundamental idea of marketing that organisations survive and prosper through meeting the needs and wants of customers. !is important perspective is commonly known as the Marketing Concept which as we saw earlier at its highest is a philosophy and business orientation about matching a company’s capabilities with customers’ wants. !is matching process takes place in what is called the marketing environment and involves both strategic and tactical marketing within the organisation’s structure. A truly marketing oriented business is actually structurally designed to facilitate the Marketing Concept as a philosophy and as a way of operating.

An entrepreneur realised that the feedback his company was getting had begun to show less and less positive results over the past twelve months. This period happened to coincide with an expansion of the business and a signi!cant increase in the number of sta”, form what had been before a relatively small team. Looking deeper a key issue seemed to be that customers where no longer !nding the business easy and #exible to deal with.

The entrepreneur hit on a novel solution. He split his sta” into those roles were to directly serve customers, e.g. Customer service, Sales, Marketing and those whose roles were to support the company, e.g. Accounting, Logistics, HR. Once complete a meeting was called and as the sta” assembled he personally gave small blue button badges to the support group, he proudly wore his own to show commitment, and small green button badges to those directly serving the customers.

Once assembled he explained the reason for the meeting and that he had reached a solution; the badges. “From this moment on we only have two rules that I want you all to bear in mind at all times. Those of you wearing a green badge – it is your job to say yes to a customer and !nd a way to do it. Those of you wearing a blue badge – when someone wearing a green badge comes to you and says I need to do this for a customer, your job is to !nd a way to say yes and to then do it”.

Now that’s the Marketing Concept as a cultural philosophy for a business.

Example 1: Management by Button Badge

Businesses do not undertake marketing activities alone. !ey face threats from competitors, and changes in the political, economic, social and technological aspects of the macro-environment. All of which have to be taken into account as a business tries to match its capabilities with the needs and wants of its target customers. An organisation that adopts the marketing concept accepts the needs of potential customers as the basis for its operations, and thus its success is dependent on satisfying those customer needs.

So to understand customers better – which as students striving to be better marketers we need to do, we should actually de”ne what we mean by wants and needs, rather than just use such terms loosely;

• A “need” is a basic requirement that an individual has to satisfy to continue to exist.

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So what is marketing?

Source: Maslow (1943) Figure 1: A Representation of Maslow’s Hierarchy of Needs

Maslow’s hierarchy of needs is depicted as a “ve level pyramid. !e lowest level is associated with physiological needs, with the peak level being associated with self-actualisation needs; especially identity and purpose.

!e higher needs in this hierarchy only come into focus when the lower needs in the pyramid are met. Once an individual has moved upwards to the next level, needs in the lower level will no longer be prioritized. If a lower set of needs is no longer being met, i.e. they are de”cient; the individual will temporarily re-prioritize those needs by focusing attention on the unful”lled needs, but will not permanently regress to the lower level.

People have basic needs for food, shelter, a$ection, esteem and self-development. Indeed many of you should recognise a link here to the work of Abraham Maslow and his hierarchy (“gure 1) of needs in explaining human behaviour through needs motivation. In fact many of these needs are created from human biology and the nature of social relationships, it is just that human society and marketers have evolved many di$erent ways to satisfy these basic needs. All humans are di$erent and have di$erent needs based on age, sex, social position, work, social activities etc. As such each person’s span of needs is likely to be unique and this it follows that customer needs are, therefore, very broad.

• A “want” is de”ned as having a strong desire for something but it not vital to continued existence.

Consumer wants are shaped by social and cultural forces, the media and marketing activities of businesses; as such a want is much more speci”c and goes beyond the basic to include aspirational values as well as the need satisfaction.

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So what is marketing?

!us, whilst customer needs are broad, customer wants are usually quite narrow. Consider this example: Consumers need to eat when they are hungry. What they want to eat and in what kind of environment will vary enormously. For some, eating at McDonalds satis”es the need to meet hunger, others wouldn’t dream of eating at McDonalds or any other fast food restaurant. Some are perfectly happy with a microwaved ready-meal, others will only countenance a scratch cooked meal with organic ingredients. Equally there are those who are dissatis”ed unless their food comes served alongside a bottle of “ne Chablis or Claret, or is served silver service by waiters in evening wear or has to be ordered from menus written in French.

Indeed it is this diversity of wants and needs that allows a variety of ‘solutions’ to be developed in any market and that directly leads to the need to think carefully about how and what can satisfy wants and needs. It is this approach we will explore at 1.3.2 later in this Chapter when examining Porter’s Five Forces model.

!is leads onto another important concept – that of demand. Demand is a want for a speci”c product/ service supported by the ability and willingness to pay for it, i.e. there is a market of customers who both want and can pay for the product/service. For example, many consumers around the globe want a Ferrari car, but relatively few are able and willing to actually buy one.

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So what is marketing?

!e concept of demand is absolutely fundamental to marketing, and is what much marketing research is actually aimed at; establishing the level of demand, and what Product Managers & Planners in many businesses spend their time trying to predict – patterns of demand and how they change as new products and services come to market and the needs/wants of the consumers and customers in the market evolve.

Indeed the concept of demand is how we in marketing actually de”ne a market – a group of potential customers with a shared need that can be satis”ed through an exchange relationship to the mutual satisfaction of the potential customers and the supplier. Indeed looking at this you should be able to see that this very neatly brings together the Marketing concept with more traditional views on exchange, utility, needs and wants.

We can also take this a step further. Remember we earlier talked about STP, well in fact the process we use to segment a market is one of demand assessment via grouping potential customers together by their shared need and/or wants that can be ful”lled through an exchange relationship. !is grouping through understanding shared needs is fundamental to e$ective marketing, but is also a major area of contention within most businesses because it is easy to get wrong. Good use of STP leads to a segmentation of the market into groups that are homogenous by need, these groups can then be prioritised by their potential return and one or more is then chosen to be served – it/they become a target market – and a marketing mix is chosen to do just that.

So to summarise;

• A “rm’s marketers carefully study of the needs individuals and businesses in order to asses the potential of a market.

• A market consists of people with purchasing power, willingness to buy, and authority to make purchase decisions.

• A target market – !e group of people toward who an organization markets its products or ideas with a

strategy designed to satisfy their speci”c needs and preferences. – Customer needs and wants vary considerably, and no single organization has the

resources to satisfy everyone.

Businesses therefore have not only to make products that consumers want, but they also have to make them a$ordable to a su%cient number to create pro”table demand. Businesses do not create customer needs or the social status in which customer needs are in&uenced. It is not Burger King or KFC that make people hungry, nor Budweiser or Coco-cola that make them thirsty.

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So what is marketing?

However, businesses do try to in&uence demand by designing products and services that are;

• Attractive • Work well • Are a$ordable • Are available

From what we’ve looked at so far it should be evident that Marketing also fundamentally involves an exchange process, that is marketing involves two or more parties trading something of value with each other. If you go to a restaurant you exchange money for food and service. If we travel to another city and stay at a hotel, we exchange money or more commonly credit through the use of a credit card, for the use of the room and services of the hotel. !e meal and the services of the hotel & restaurant in these examples are products passed onto us in an exchange of money or credit.

So to understand Marketing we need to understand the exchange process;

• !ere must be two parties, each with unsatis”ed needs or wants. !is want, of course, could be money for the seller.

• Each must have something to o$er. Marketing involves voluntary “exchange” relationships where both sides must be willing parties. !us, a consumer who buys a so# drink in a vending machine for £1.00 must value the so# drink, available at that time and place, more than the money. Conversely, the vendor must value the money more. (It is interesting to note that money is, strictly speaking, not necessary for this exchange to take place. It is possible, although a bit weird, to exchange two ducks for a pair of shoes.)

• !e parties must be able to communicate. !is could be through a display in a store, an infomercial, or a posting on eBay.

• An exchange process exists when two or more parties bene”t from trading something of value. Because of marketing, the buyer’s need for a certain product is satis”ed, and the seller’s business is successful.

• Marketing can contribute to the continuing improvement of a society’s overall standard of living.

So we can see that Marketing is said to have a positive e$ect on an economy and helps satisfy needs by bringing supplier and customer together, it facilitates the exchange transaction.

!is is as equally true of a charity as it is of a commercial business. A charity takes a donation and the exchange is the feeling of self-grati”cation the giver of the donation feels for giving. E$ective marketing – at all three levels – can increase the value of this self-grati”cation in the eyes of the donator, e.g. making them feel they are making more of a di$erence, and thus marketing makes giving easier, i.e. marketing is a facilitator of the exchange by creating utility.

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So what is marketing?

Utility is a concept within economics that is related to marketing. Utility is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services. Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behaviour in terms of attempts to increase one’s utility. !e Product and/or service and marketing of the product and/ or service form the foundation of the exchange process and together they create a utility.

In marketing we de”ne utility as the want-satisfying power of a good or service. Richard Buskirk has presented an idea that marketing is an activity that creates from, place, time and ownership utility;

1. Form utility: !e usefulness of a product that results form its form; converting raw materials into “nished products. Product planning and development activities create form utility.

2. Time utility: making a product available when consumers want to purchase it. A#er production goods are stored by the manufacturer, wholesalers, retailers, etc until such time, the demand of the product is created and such goods are made available to the customer at the time when they are needed or demanded.

3. Place utility: making a product available in a location convenient for customers, the &ow of goods through di$erent distribution channels from producer to consumer from the place of abundant to the place or where they are needed creates place utility.

4. Ownership utility: refers to the orderly transfer of legal title to the product and/or service/s from the seller to the buyer via a sales transaction. Goods may be lying in a reliable state with producer or the manufacturer or their agents until some other person needs them.

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So what is marketing?

!e production process creates form utility of a goods or service, whereas time, place, and ownership utility are created by the marketing function; it is the act of o$ering a goods or service, when (time utility), where (place utility) and via processes that make possession easy, e.g. price/distribution/purchasing terms (ownership utility). !ink back to the point made above about how businesses try and increase demand; the four factors stated on how a business does this are ways of increasing the utility of the product/ service. So the greater the utility, the greater the demand and potentially the more successful the business.

Marketing therefore, consists in moving goods to the manufacturers, in a form in which it is required at a time when they required, to the place where they are to be used and for those who are to use them for various purposes.

Marketing functions are the activities that create utility and facilitate the exchange process and include;

• Buying or leasing • Selling or leasing • Transporting • Storing • Standardising or grading • Financing • Risk taking • Information gathering

It is worth noting at this point that the concept of utility overlaps into later points on the Marketing Mix, value chain and on goods versus services marketing.

1.3 The Theoretical basis of competition

It is important to distinguish here between strategy frameworks and strategy models. Strategy models have been used in theory building in economics to understand industrial organisations. However, models are di%cult to apply to speci”c company situations and instead, qualitative frameworks have been developed with the speci”c goal of better informing business practice.

1.3.1 Generic Strategy: Types of Competitive Advantage

Strategy is fundamentally about two things:

• deciding where you want your business to go, • and deciding how to get there.

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So what is marketing?

Indeed a strategic plan is o#en compared to planning a journey; you know where you want to go to and from where you are starting, how you chose to travel depends on the resources and timescales you have in which to complete the journey. !is is what a business’s strategic plan does; it lays out where the business is heading for (targets/goals), where in currently is and what resources it intends to use, at what time, with what expected result, to get there.

A more complete de”nition is based on an understanding of competitive advantage, the mechanisms by which such advantage is created and communicated to the target audience. !ese are the objects of most corporate strategy:

Competitive advantage grows out of value a “rm is able to create for its buyers that exceeds the “rm’s cost of creating it. Value is what buyers are willing to pay, and superior value stems from o#ering lower prices than competitors for equivalent bene”ts or providing unique bene”ts that more than o#set a higher price. !ere are two basic types of competitive advantage: cost leadership and di#erentiation.

– Michael Porter, Competitive Advantage, 1985:3

Figure Two below de”nes the choices of “generic strategy” a “rm can follow.

COMPETITIVE ADVANTAGE

COMPETITIVE SCOPE

Lower Cost Differentiation

Broad Target

Narrow Target

1. Cost Leadership 2. Differentiation

3A. Cost Focus 3B. Differentiation Focus

Source: Porter, M, 1985:12 Figure Two; Porter’s Generic Strategies

A “rm’s relative position within an industry is given by its choice of competitive advantage (cost leadership vs. di$erentiation) and its choice of competitive scope. Competitive scope distinguishes between “rms targeting broad industry segments and “rms focusing on a narrow segment. Generic strategies are useful because they characterize strategic positions at the simplest and broadest level. Porter maintains that achieving competitive advantage requires a “rm to make a choice about the type and scope of its competitive advantage. !ere are di$erent risks inherent in each generic strategy, but being “all things to all people” is a sure recipe for mediocrity – getting “stuck in the middle”.

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So what is marketing?

An alternative framework developed by Treacy and Wiersema (1995) predicates that a “rm typically will choose to emphasize one of three “value disciplines”: product leadership, operational excellence, and customer intimacy. !is framework is more in-tune with more advanced marketing concepts developed around the service dominant approach to marketing.

It is useful to think of strategy frameworks as having two components: internal and external analysis. !e external analysis builds on an economics perspective of industry structure, and how a “rm can make the most of competing in that structure. It emphasizes where a company should compete, and what’s important when it does compete there. Porter’s Five Forces and Value Chain concepts comprise the main externally-based framework. !e external view helps inform strategic investments and decisions. Internal analysis, like core competence for example, is less based on industry structure and more in speci”c business operations and decisions. It emphasizes how a company should compete. !e internal view is more appropriate for strategic organization and goal setting for the “rm. !ese concepts are closely allied with those of environmental scanning in terms of macro and micro-environments covered in Chapter !ree.

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So what is marketing?

Porter’s focus on industry structure is a powerful means of analyzing competitive advantage in itself, but it has been criticized for being too static in a world now driven by technological and social change. !e internal analysis emphasizes building competencies, resources, and decision-making into a “rm such that it continues to thrive in a changing environment, this has a close resonance with Porter’s value chain concept and with the Resource based view (RBV) of the “rm covered later in this chapter. However, neither framework in itself is su%cient to set the strategy of a “rm.

!e internal and external views mostly frame and inform the problem. !e “rm’s actual strategy will have to take into account the particular challenges facing a company, and would address issues of “nancing, product and market, and people and organization. Some of these strategic decisions are event driven (particular projects or reorganisations responding to the environment and opportunity), while others are the subject of periodic strategic reviews.

1.3.2 What is the basis for competitive advantage?

Industry structure and positioning within the industry are the basis for models of competitive strategy promoted by Michael Porter. !e “Five Forces” diagram (Figure !ree) captures the main idea of Porter’s theory of competitive advantage. !e Five Forces de”ne the rules of competition in any industry. Competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness. Porter claims, “!e ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the “rm’s behaviour” (1985:4). !e “ve forces determine industry pro”tability, and some industries may be more attractive than others. !e crucial question in determining pro”tability is how much value “rms can create for their buyers, and how much of this value will be captured or competed away. Industry structure determines who will capture the value. But a “rm is not a complete prisoner of industry structure – “rms can in&uence the “ve forces through their own strategies. !e “ve forces framework highlights what is important, and directs manager’s towards those aspects most important to long-term advantage.

A note of caution when using this in a practical way; just composing a long list of forces in the competitive environment will not produce meaningful results – successfully utilising this tool requires that the analysis and identifying the few key driving factors that really de”ne the industry are done with care and precision. In some respects it is best to use the Five Forces framework as checklist for getting started, and as a reminder of the many possible sources for what those few driving forces could be.

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New Entrants

BuyersSuppliers

Substitutes

Industry Competitors

Intensity of Rivalry

Threat of Substitutes

Threat of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Determinants of Buyer Power

Bargaining Leverage • Buyer concentration vs. firm concentration • Buyer volume • Buyer switching costs relative to firm switching costs • Buyer information • Ability to backward integrate • Substitute products • Pull-through

Price Sensitivity • Price/total purchases • Product differences • Brand identity • Impact on quality/ performance • Buyer profits • Decision maker’s incentivesDeterminants of Substitution Threat

• Relative price performance of substitutes • Switching costs • Buyer propensity to substitute

Rivalry Determinants • Industry growth • Fixed (or storage) costs / value added • Intermittent overcapacity • Product differences • Brand identity • Switching costs • Concentration and balance • Informational complexity • Diversity of competitors • Corporate stakes • Exit barriers

Entry Barriers • Economies of scale • Proprietary product differences • Brand identity • Switching costs • Capital requirements • Access to distribution • Absolute cost advantages Proprietary learning curve Access to necessary inputs Proprietary low-cost product design • Government policy • Expected retaliation

Determinants of Supplier Power • Differentiation of inputs • Switching costs of suppliers and firms in the industry • Presence of substitute inputs • Supplier concentration • Importance of volume to supplier • Cost relative to total purchases in the industry • Impact of inputs on cost or differentiation • Threat of forward integration relative to threat of backward integration by firms in the industry

Source: Porter, M. 1985:6 Figure 3: Porter’s 5 Forces – Elements of Industry Structure

1.3.3 How is competitive advantage created?

At the most fundamental level, “rms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market. !is is an act of innovation not invention, innovations have their concept and development based in an understanding of the markets’ needs whereas inventions are o#en abstracts developed from an idea with no market ‘concept’ as their fundamental base. !e innovation approach mirrors the modern marketing concept; the invention approach mirrors old style product pushing.

Innovation as an approach is also sounder in competition theory; it shi#s competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond, and it does so with greater speed being based in real market needs. !e most typical causes of innovations that shi# competitive advantage are the following:

• new technologies • new or shi#ing buyer needs • the emergence of a new industry segment • shi#ing input costs or availability • changes in government regulations

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Indeed there can be signi”cant advantages to early movers responding to innovations, particularly in industries with signi”cant economies of scale or when customers are more concerned about switching suppliers.

Innovation as a means of developing and introducing new products also needs to be understood in terms of the adopting behaviour of the consumer as formulated by Everett Rogers, in his work Di#usion of Innovations (1962). Rogers was not the “rst to observe this, the sociologist Gabreil Tarde wrote about it in 1890, which was later followed-up by thoughts from Friedrich Ratzel and Leo Frobenius. However it was Rogers who “rst drew a variety of outlines together to develop a framework for the adoption of ideas the adoption of new ideas, services and products which consisted of a sequential set of stages, as follows;

– Becoming aware of the new product – Seeking information about it – Developing favorable attitudes toward it – Trying it out in some direct or indirect way – Finding satisfaction in the trial – Adopting the product into a standing usage or repurchase pattern.

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Indeed this also mirrors thinking on general communications at the time (Hierarchy of e$ects & linear communications theory). Rogers also incorporated thoughts on consumer behaviour in terms of the speed of adoption of a new product/service/idea and the cumulative penetration of the market by it. In essence Rogers produced a generic segmentation that can be used to both understand and model the introduction of a new product/service/idea, by re&ecting the ‘adopter characteristic’ types onto the target market. !ese are illustrated in “gure 4.

Source; Rogers, E. (1962) Figure 4: The adoption Process of New Products and relative market share

Rogers outlines “ve adopter characteristics;

• Innovator: 2.5% of all purchases of the product; purchase the product at the beginning of the lifecycle; not afraid of trying new products that suit their lifestyle and will also pay a premium for that bene”t

• Early Adopters: 13.5% of purchases; usually opinion leaders and naturally adopt products a#er the innovators; crucial because adoption by them means the product becomes acceptable, spurring on later purchasers

• Early Majority: 34% of purchases; spurred on by the early adopters; wait to see if the product will be adopted by society and will purchase only when this has happened; usually have some status in society

• Late Majority: 34% of sales; usually purchase the product at the late stages of majority within the lifecycle

• Laggards: 16% of total sales; usually purchase the product near the end of its life; the ‘wait and see’ group (wait to see if the product will get cheaper)

!is concept also has implications for product management, particularly in terms of extra input into models like Anso$ ’s matrix.

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1.3.4 How is competitive advantage implemented?

But besides watching industry trends, what can the “rm do? At the level of strategy implementation, competitive advantage grows out of the way “rms perform discrete activities – conceiving new ways to conduct activities, employing new procedures, new technologies, or di$erent inputs. !e “”t” of di$erent strategic activities is also vital to lock out imitators. Porters “Value Chain” and “Activity Mapping” concepts help us think about how activities build competitive advantage.

!e value chain is a systematic way of examining all the activities a “rm performs and how they interact. It scrutinizes each of the activities of the “rm (e.g. development, marketing, sales, operations, etc.) as a potential source of advantage. !e value chain maps a “rm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of di#erentiation. Di$erentiation results, fundamentally, from the way a “rm’s product, associated services, and other activities a$ect its buyer’s activities. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the di$erence between the buyer value and producer cost.

Source: Porter, M 1985:37 Figure 5: Porter’s Value Chain

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!e value-chain concept has been extended beyond individual “rms and it is now routinely applied to whole supply chains and distribution networks. !is concept re&ects the fact that delivery of a mix of products and services to the end customer will mobilize di$erent economic factors, each managing its own value chain; indeed this also re&ects the fact that with marketing theory ‘Place’ is much more than where a goods or service is sold, but also includes all the distributive and process aspects of business too – one reason why logistics has become so important in most retail businesses. !e industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the “value system.” A value system includes the value chains of a “rm’s supplier (and their suppliers all the way back), the “rm itself, the “rm distribution channels, and the “rm’s buyers (and presumably extended to the buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a car manufacturer might require its autoparts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information &owing along the value chain, the “rms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system. In strategic management terms this was called vertical, backwards or forwards integration depending on the starting point of the business within the value system.

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A “rm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. One of the reasons the value chain framework is helpful is because it emphasizes that competitive advantage can come not just from great products or services, but from anywhere along the value chain. It’s also important to understand how a “rm “ts into the overall value system, which includes the value chains of its suppliers, channels, and buyers.

With the idea of activity mapping, Porter (1996) builds on his ideas of generic strategy and the value chain to describe strategy implementation in more detail. Competitive advantage requires that the “rm’s value chain be managed as a system rather than a collection of separate parts. Whilst this seems obvious – a business is a holistic collection of processes that run concurrently not discretely – most business texts, and teaching, treat di$erent aspects of the value chain as discrete standalone parts to be managed as such. !is is the height of folly.

!e choice of marketing strategy determines positioning choices which in turn determine not only which activities a company will perform and how it will con”gure individual activities, but also how they relate to one another.

!is is crucial, since the essence of implementing strategy is in the activities – choosing to perform activities di$erently or to perform di$erent activities than rivals. A “rm should be greater than the sum of its parts; it is more than the sum of its activities. A “rm’s value chain is an interdependent system or network of activities, connected by linkages. Linkages occur when the way in which one activity is performed a$ects the cost or e$ectiveness of other activities. Linkages create tradeo$s requiring optimization and coordination and indeed these linkages are the key to be &exible and reactive to changing business conditions.

Porter describes three choices of strategic position that in&uence the con”guration of a “rm’s activities:

• variety-based positioning – based on producing a subset of an industry’s products or services; this involves a choice of product or service variety rather than customer segment. !is makes business sense when a company can produce particular products or services using distinctive sets of activities.

• needs-based positioning – similar to traditional targeting of customer segments using the STP process. !is can be used when there are distinct groups of customers with di$ering needs, and when a tailored set of activities can serve those needs best. It many respects this is Porter’s focus strategy by another name.

• access-based positioning – segmenting by customers who have the same needs, but the best con”guration of activities to reach them is di$erent, in such circumstances the way in which the various customer segments are served is di$erent, e.g. website and a shop sell the same items but serve di$erent customers based on access.

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Porter’s major contribution with “activity mapping” is to help explain how di$erent strategies, or positions, can be implemented in practice. !e key to successful implementation of strategy, he says, is in combining activities into a consistent “t with each other. A company’s strategic position, then, is contained within a set of tailored activities designed to deliver it. !e activities are tightly linked to each other, as shown by a relevance diagram of sorts. Fit locks out competitors by creating a “chain that is as strong as its strongest link.” If competitive advantage grows out of the entire system of activities, then competitors must match each activity to get the bene”t of the whole system.

Porter de”nes three types of “t:

• simple consistency – “rst order “t between each activity and the overall strategy • reinforcing – second order “t in which distinct activities reinforce each other • optimisation of e$ort – coordination and information exchange across activities to eliminate

redundancy and wasted e$ort.

1.3.5 How is competitive advantage sustained?

Porter (1990) outlines three conditions for the sustainability of competitive advantage:

• Hierarchy of source (durability and imitability) – lower-order advantages such as low labour cost may be easily imitated, while higher order advantages like proprietary technology, brand reputation, or customer relationships require sustained and cumulative investment and are more di%cult to imitate. Indeed recent decades bear testament to the periodic movement of low labour costs businesses from country to country. Socio-economic conditions improve as a result of the foreign investment drawn to the low labour costs, causing in&ationary pressure on wages, which eventually undermine the low labour costs and so the foreign investors move to the next low wage economy to exploit.

• Number of distinct sources – many are harder to imitate than few. • Constant improvement and upgrading – a “rm must be “running scared,” creating new

advantages at least as fast as competitors replicate old ones.

Advocates of this framework emphasize the importance of a dynamic strategy in today’s more dynamic business environment, given the impact of technology in the widest sense it is hard to argue that our contemporary business environment is anything like that of even the 1990s let alone earlier eras. As such strategies based on a “war of position” in industry structure work only when markets, regions, products, and customer needs are well de”ned and durable; arguably this is now rarely the case.

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Indeed as markets fragment and proliferate, they also accelerate the product life-cycles, this makes dominating any particular market segment more di%cult and because of the fragmentation less valuable. In such an environment, the essence of strategy is not the structure of a company’s products and markets but the dynamics of its behaviour. A successful company will move quickly in and out of products, markets, and sometimes even business segments. Underlying it all, though, is a set of core competencies or capabilities that are hard to imitate and distinguish the company from competition. !ese core competencies, and a continuous strategic investment in them, govern the long term dynamics and potential of the company.

Source; Author adapted from various sources. Figure 6: Core Competencies and Marketing

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1.3.6 What are core competencies and capabilities?

Prahalad and Hamel speak of core competencies as the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology (1990). !ese skills underlie a company’s various product lines, and explain the ease with which successful competitors are able to enter new and seemingly unrelated businesses. Taking Pralahad and Hamel’s view, three tests can be applied to identify core competencies:

1. provides potential access to wide variety of markets, 2. makes signi”cant contribution to end user value, and 3. di%cult for competitors to imitate

!is has a close association with the support activities aspect of Porter’s value chain model. Indeed Stalk, Evans, and Schulman (1992) speak of capabilities similarly, but de”ne them more broadly to encompass the entire value chain rather than just speci”c technical and production expertise. !is is now seen as a more pragmatic view for developing strategy, in that it helps to focus on strategy as having four key elements;

1. Portfolio of competencies. An essential lesson of this framework is that competencies are the roots of competitive advantage, and therefore businesses should be organized as a portfolio of competencies (or capabilities) rather than a portfolio of businesses. It follows that organization of a company into autonomous strategic business units, based on markets or products can cripple the ability to exploit and develop competencies – it unnecessarily restricts the returns to scale across the organization. Core competence is communication, involvement, and a deep commitment to working across organizational boundaries. !is is a radical departure from traditional organisational theory.

2. Products based on competencies. Product portfolios (at least in technology-based companies) should be based on core competencies, with core products being the physical embodiment of one or more core competencies. !us, core competence allows both focus (on a few competencies) and diversi”cation (to whichever markets “rm’s capabilities can add value). To sustain leadership in their chosen core competence areas, companies should seek to maximize their world manufacturing share in core products. !is partly determines the pace at which competencies can be enhanced and extended (through a learning-by-doing sort of improvement).

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3. Continuous investment in core competencies or capabilities. !e costs of losing a core competence can be only partly calculated in advance – since the embedded skills are built through a process of continuous improvement, it is not something that can be simply bought back or “rented in” by outsourcing. For example, in America & Europe Wal-mart, has invested heavily in its logistics infrastructure. !ese were strategic investments that enabled the company’s relentless focus on customer needs. While Wal-mart was building up its competencies, K-mart was outsourcing whenever it was cheapest leaving it less able to react to customers’ changing needs.

4. Caution: core competencies as core rigidities. !ere is a consensus of opinion about the limitations to restricting product development to areas in which core competencies already exist, or core rigidities. Good companies may try to incrementally improve their competencies by bringing in one or two new core competencies with each new major development project they pursue.

1.3.7 Resource-Based View of the Firm (RBV)

!e RBV framework is a relatively recent development that combines the internal (core competence) and external (industry structure) perspectives on strategy. Like the frameworks of core competence and capabilities, “rms have very di$erent collections of physical and intangible assets and capabilities, which RBV calls resources. Competitive advantage is ultimately attributed to the ownership of a valuable resource. Resources are more broadly de”ned to be physical (e.g. property rights, capital), intangible (e.g. brand names, technological know how), or organizational (e.g. routines or processes like lean manufacturing).

No two companies have the same resources because no two companies share the same set of experience, have acquired the same assets and skills, or built the same organisational culture. And unlike the core competence and capabilities frameworks, the value of the broadly-de”ned resources is determined in the interplay with market forces; this has strong links with Porter’s Five Forces covered earlier.

For a resource to be the basis of an e$ective strategy, it must pass a number of external market tests of its value. Collins and Montgomery (1995) o$er a series of “ve tests for a valuable resource:

Inimitability – how hard is it for competitors to copy the resource? A company can stall imitation if the resource is (1) physically unique, (2) a consequence of path dependent development activities, (3) causally ambiguous (competitors don’t know what to imitate), or (4) a costly asset investment for a limited market, resulting in economic deterrence.

Durability – how quickly does the resource depreciate?

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Appropriability – who captures the value that the resource creates: company, customers, distributors, suppliers, or employees?

Substitutability – can a unique resource be trumped by a di$erent resource? Competitive Superiority – is the resource really better relative to competitors?

Similarly, but from a more external, economics perspective, Peteraf (1993) proposes four theoretical conditions for competitive advantage to exist in an industry:

1. Heterogeneity of resources => rents exist A basic assumption is that resource bundles and capabilities are heterogeneous across “rms. !is di$erence is manifested in two ways. First, “rms with superior resources can earn Ricardian rents (pro”ts) in competitive markets because they produce more e%ciently than others. What is key is that the superior resource remains in limited supply, i.e. it is constrained in some manner. Second, “rms with market power can earn monopoly pro”ts from their resources by deliberately restricting output. Heterogeneity in monopoly models may result from di$erentiated products, intra-industry mobility barriers, or “rst-mover advantages, for example.

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2. Ex-post limits to competition => rents sustained Subsequent to a “rm gaining a superior position and earning rents, there must be forces that limit competition for those rents (imitability and substitutability).

3. Imperfect mobility => rents sustained within the “rm Resources are imperfectly mobile if they cannot be traded, so they cannot be bid away from their employer; competitive advantage is sustained.

4. Ex-ante limits to competition => rents not o$set by costs Prior to the “rm establishing its superior position, there must be limited competition for that position. Otherwise, the cost of getting there would o$set the bene”t of the resource or asset.

Taking the RBV Managers should build their strategies on resources that pass the above tests. In determining what valuable resources are, “rms should look both at external industry conditions and at their internal capabilities – in essence an audit of both macro and micro-environments is still required but is processed via a di$erent model that recognises that resources can come from anywhere in the value chain and can be physical assets, intangibles, or routines.

Because of the changing nature of the business environment and rapidly shi#ing needs of customers’ continuous improvement and upgrading of the resources is essential to prosper, indeed this casts the need to be able to manage ambiguity into centre stage, re&ecting some of the lessons laid in Peters & Waterman, and Waterman. As such businesses must consider industry structure and dynamics when deciding which resources to invest in.

Equally in corporations with a divisional structure, it’s easy to make the mistake of optimizing divisional pro”ts and letting investment in resources take a back seat. Good strategy requires continual rethinking of the company’s scope, to make sure it’s making the most of its resources and not getting into markets where it does not have a resource advantage. RBV can inform about the risks and bene”ts of diversi”cation strategies.

1.4 Alternative Frameworks: Evolutionary Change and Hypercompetition

At the end of the 1990s several studies of worldwide industries were undertaken by a variety of consulting and academic organisations. One of the key results reported in almost every study was that those companies that followed traditional approaches to strategy, collaboration, organization, and business processes (as taught in most MBA programmes and espoused by some consultants), had decreased the chances for success compared to those “rms whose managers followed innovative approaches to strategic thinking and action. While some details of the innovative approaches were provided in the report, there was no unifying framework to aid managers and researchers in putting the “ndings in context, nor was there any basis for generalizing the “ndings to other industries.

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As a result, strategy literature moved its focus to managing change as the central strategic challenge. Change, the story goes, is the striking feature of contemporary business, and successful “rms will be the ones that deal most e$ectively with change, not simply those that are good at planning ahead. When the direction of change is too uncertain, managers simply cannot plan e$ectively. When industries are rapidly and unpredictably changing, strategy based on industry analysis, core capabilities, and planning may be inadequate by themselves, and would be well complemented by an orientation towards dealing with change e$ectively and continuously.

1.4.1 Evolutionary Change

In Competing on the Edge, Eisenhardt & Brown (1998) advocate a strategy based on what they call “competing on the edge,” through combining elements of complexity theory with evolutionary theory. !eories that draw analogies between biological evolution and economics or business can be very satisfying: they explain the way things work in the real world, where analysis and planning is o#en a rarity. Moreover, they suggest that strategies based on &exibility, experimentation and continuous change and learning can be even more important than rigorous analysis and planning.

In Eisenhardt & Brown’s framework, “rms develop a “semi-coherent strategic direction”. !is requires them to create and maintain the right balance between order and chaos – “rms can then successfully evolve and adapt to their unpredictable environment. In many regards this has overlaps with what many older strategic texts term ‘emergent strategy’. By competing at the “edge of chaos,” a “rm creates an organization that can change and produce a continuous &ow of competitive advantages that forms the “semi-coherent” direction. Firms are not hindered by too much planning or centralised control, but they have enough structure so that change can be organized to happen. By organising in this way they promote an entrepreneurial and market oriented business philosophy.

!ey successfully ‘evolve’, because they pursue a variety of moves – reacting to the evolutionary pressure of customers’ needs and in doing so make some mistakes but also relentlessly reinvent the business by discovering new growth opportunities. !is strategy is characterized by being unpredictable, uncontrolled, and ine%cient, but there is no denying it works. It’s important to note that “rms should not just react well to change, but must also do a good job of anticipating and leading change. In successful businesses, change is time-paced, or triggered by the passage of time rather than events.

In Built to Last, Collins and Porras (1994) outline habits of eighteen long-successful, visionary companies. Underlying the habits is an orientation towards evolutionary change: try a lot of stu$ and keep what works. Evolutionary processes can be a powerful way to stimulate progress. Importantly, Collins and Porras also “nd that successful companies each have a core ideology that must be preserved throughout the progress. !ere is no one formula for the “right” set of core values, but it is important to have them. In strategy-speak, it is this core ideology that most fundamentally di$erentiates the “rm from competitors, regardless of which market segments they get into.

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Note there are close associations with the ‘core’ concept of branding and with the modern interpretation of what a business’s mission statement should stand for here, indeed they go on to state that they should be deeply held values that go beyond “vision statements” – they are mechanisms and systems that are built into the system over time. In marketing-speak these values should be a major part of a “rm’s corporate positioning who’s values need to be congruent with those of its products and services.

Attention to the core beliefs may sometimes defy short-term pro”t incentives or conventional business wisdom, but it is important to maintain them. Note; “maximize shareholder wealth” is not an adequate core ideology – it does not inspire people at all levels and provides little guidance.

In the context of strategy and planning, this book o$ers a couple of important lessons:

• Unplanned, evolutionary change can be an important component to success. Strategy and planning should foster and complement such change, not su$ocate it.

• Certain core beliefs are fundamental to organizations, and should be preserved at all costs. Not everything about an organization is a candidate for change in considering alternative strategies.

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1.4.2 Hypercompetition

As discussed earlier, there is little doubt that today’s business environment has become dynamic as such traditional sources of competitive advantage erode rapidly, and sustaining advantages can be a distraction from developing new ones. With the fragmentation of markets, products and services, the proliferation of niche seeking competitors and of means of delivering to the market, competition has intensi”ed to make each of the traditional sources of advantage more vulnerable; price & quality, timing and know- how, creation of strongholds – entry barriers have fallen, and deep pockets – resource dominance, are no longer su%cient means by which to control and dominate. !is has become known as Hypercompetition.

!e concept of hypercompetition suggests that strategy should also involve the creative destruction of an opponent’s advantage; in some respects this places a strong emphasis on SWOT analysis (see 3.2.1.6. in this text). !e primary goal of this new approach to strategy is disruption of the status quo, to seize the initiative through creating a series of temporary advantages. It is the speed and intensity of movement that characterizes hypercompetition. From economic theory we know that there is no equilibrium as in perfect competition, and only temporary pro”ts are possible in hypercompetition markets.

!is approach has seen the rise of several new trends in marketing such a ‘guerrilla’, ‘ambush’, ‘astro-tur”ng’, ‘viral’ and ‘stealth’ all of which are designed to create temporary advantages in markets. !ese approaches are described in Chapter Eight. It has also seen the rise of ‘game theory’ as a tool for analysing customers’ and competitors’ responses to a “rm’s competitive moves; game theory attempts to mathematically capture behaviours in strategic situations and thus to predict scenarios of market macro-environment, thus enabling the key pivotal points for disruption to be identi”ed.

Successful strategy in hypercompetitive markets is based on three elements:

• Vision for how to disrupt a market – setting goals, building core competencies necessary to create speci”c disruptions

• Key capabilities enabling speed and surprise in a wide range of actions • Disruptive tactics illuminated by game theory

– shi#ing the rules of the game, signalling, simultaneous and strategic thrusts

1.5 The Marketing Concept

!ere have been four eras in the development of business, “gure 7 below, which have sequentially led to the development of !e Marketing Concept. To understand Marketing it is thus important to understand what these eras were and what their philosophy of business was, indeed some businesses still run on these philosophies are do not utilise the marketing concept.

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190 The Production Era • Minimal dialogue between customers and suppliers • Mass production • Homogenous products • Distribution is the focus of marketing

194 The Institutional Period and Selling Orientation • Rapid growth • More focus on cost management, inventory management and asset management • Selling focus (company builds it and sales person sells it) • Minimal customer voice • Increasing need for marketing communications • The development of the 4Ps

195 The Marketing Concept

• Companies should only make what they can market instead of trying to market what they have made

• Increasing customer focus

198 Relationship Marketing/ Supply Chain Era • Customers now have a dialogue, not just a voice • Close, long-term relationships based on mutual trust • More emphasis on win-win outcomes

200 Value Chain Era • Start with customer requirement and build infrastructure to deliver maximum value • Integration of supply and demand chains • Proactive, knowledge-based relationships

? Era

Source: Adapted by author from various sources Figure 7: The four Eras of predominant business philosophy

Markets are ancient, but the concept of marketing arose only in the middle of the 20th century. In agricultural and mercantile societies there were producers, guilds, traders, bankers, and retailers, but economic consciousness was focused on making money, not ful”lling consumer desires. As markets matured in the early 20th century, “rms had to compete harder for market share, but they did so through advertising and sales promotions aimed at unloading goods on resistant customers; the hard sell reigned.

!e concept of marketing that we now see have is “rmly rooted in the developments during the industrial revolution of the 18th and 19th centuries. !is was a period of rapid social change driven by technological and scienti”c innovation (see BBC history website) leading to mechanisation and industrialisation and the mass production philosophy made famous by Henry Ford. Ford also characterises consumer choice and attitude of this period, “any colour as long as it’s Black”.

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Strategic Marketing

37

So what is marketing?

Mass production led to an emphasis on the cost-e%ciency of production rather than the satisfaction of the customer, i.e. a base appeal to meet the widest of market needs. !e key idea was that a good product would sell itself and thus little to no emphasis was placed on marketing, indeed emphasis was placed on maximising distribution; a good product with wide distribution equalled success. Hence this is aptly named the Production Era.

One result was that for the “rst time the production of goods was separated from their consumption. Mass production, developing transport infrastructure and growing mass media meant that producers needed to, and could develop more sophisticated ways of managing the distribution of goods.

During the late 1930s and more so in the 1940s a shi# in thinking began. Larger more dominant Corporate Institutions developed in the a#ermath of the great depression alongside a proliferation of smaller competitors as worldwide markets began to recover. !e beginnings of International travel on a accessible scale also fuelled both growth and competition. !e result was a shi# to wards sales – towards ‘pushing’ product via ‘hard’ techniques in both sales and in creative advertising designed to ‘overcome’ customer resistance and convince them to buy. It is in this period that most of today’s creative agencies in advertising and marketing have their roots.