Market Excellence A Strategic Perspective on Marketing Prof. dr. R.K. Moenaert TiasNimbas Business School Prof. dr. H.S.J.

Robben Nyenrode Business Universiteit

This document aims to provide the reader with a synthesis of essential concepts in contemporary strategic marketing. It does not aim to provide a fully detailed and comprehensive overview of the complete 'toolbox' of Strategic Marketing. However, it should provide the reader with the essential flowchart of frameworks and concepts. While we are no fans of alliterations, this document is - in summary - about 7 C's :

Customers Competition Context

Company strategy

Comprehend Commit

The document is quite concise (otherwise, it would never be read!). By definition, we had to make a selection. In making this selection, we aimed to provide you with a document that (1) follows a logical and consistent flowchart, and (2) enables you to acquire a solid overview of the key concepts in the strategic marketing domain.

Rudy Moenaert - Henry Robben

1. Focus on Process: The Nature of Strategic Marketing

Strategic thinking deals with the formulation and implementation of a set of decisions, in order to realize a sustainable competitive advantage (manifested in long-term above average profitability). Thus: strategic decisions are different from tactical decisions : they are important, they involve a significant commitment of resources, and they are not reasily reversible. The characteristics of successful strategies? While they are easy to summarize (Grant), they are very difficult to implement : clear objectives (e.g., how well does everybody in your company know what the goals are? how consistent are these goals across the company?) ; good understanding of the external environment (e.g., how solid is your insight in what the customers want, the competition aspires, the context may have in store for you?) ; profound appreciation of internal strengths and weaknesses (e.g., when was the last time you made a rational analysis of your resources vis--vis those of the competition?) effective implementation (e.g., once a decision has been taken, how good is the company in making everybody walk and talk in a coordinated direction?)

The Essence of Strategic Thinking

'Growth for growth's sake is the ideology of the cancer cell' Edward Abbey

Honestly: which company does not want to grow? However, long-term profitable growth must be supported by a strong resource base if it wants to sustain it.

'If I had been a woman, I would be constantly pregnant, because I simply cannot say no' Robert Maxwell

Many industrial product companies venture a little bit of everything. While this seems a low-risk strategy, it is actually a very high risk strategy. A company must make choices.

'Those that implement the plans, must make the plans' Patrick Hegarty - HP

Why do many consultancy reports fail in the implementation phase? Because managers forget that without involvement, it is difficult to realize commitment.

'A plan is nothing, planning is everything' Dwight D. Eisenhower

A plan is only one of the outcomes. If managed well, the planning activities, involving different parties, creates something a lot more valuable: a momentum for change.

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2. Getting Started: Defining Business Strategy

Strategic thinking concerns systematized common sense: on the basis of a rational and creative synthesis of an external analysis and an internal analysis, the future of the company is outlined. In fact, every strategic exercise always concerns three core questions: (1) where are we now?, (2) where do we want to go to?, (3) how do we get there? In the strategy literature, a distinction is commonly made between two levels of strategy : corporate strategy ('what business will we compete in?') and business strategy ('how will we compete in a given business?'). From a marketing perspective, the focus is on business level strategy formation and formulation. Indeed, competitive market battles are primarily planned and executed at the business unit level. It then follows that a good marketing plan is actually a business plan. Marketing must be viewed as a process, not a function. For instance, without systematic support from manufacturing and R&D, it is impossible to offer superior product quality. Marketing may be defined as the process of planning and executing the conception, pricing, promotion and distribution of goods, services, and ideas, to create exchanges with target groups that satisfy customer and organizational objectives customer (American Marketing Association). This definition will look groups like an open door to many readers. Unfortunately, reality is alternative ('who') such that (industrial) marketing managers spend very little offerings time on planning, and most on executing (often practically ('how') translated as 'fire fighting'). In addition, while the relationship marketing idea is clearly present in this definition, the practical implementation often results in the type of relationship many companies so desperately want to avoid : Living Apart Together... In defining the business, the company must ask itself to what customer groups it delivers (= segments), what function it realizes for this customer groups (= needs), and what the offerings are that are used to fulfill these needs. While the questions look simple, the answers are not. For instance, while British Airways or KLM look as they if they are in the airline transportation business, the substitution of videoconferencing equipment for business seats illustrates that the primary function they are fulfilling for many managers concerns communication. Otherwise stated, if you truly want to know what industry you are competing in, look at substitution behavior! Continued professional dedication to market 'Chance favours the prepared mind' intelligence is a conditio sine qua non to succeed in the market place. The company engages in a Louis Pasteur highly competitive simultaneous chess game, in which the competitive IQ of many competitors far exceeds that of Forrest Gump... While professional marketing intelligence, and the resulting marketing planning activities will never predict with 100 % accuracy what will happen, it enables the company to better prepare for the future. It also enables the company to check some of its assumptions, and read weak signals before it is too late. In reality, most threats are actually opportunities that the company did either not see or not act upon in a timely fashion.

customer functions ('what')

Rudy Moenaert - Henry Robben

3. External Analysis: Customers, Competition, Context

The company must define and analyse the various market segments that consitute a market. A market segment may be defined as a group of individuals, groups or organizations, sharing one or more similar characteristics that make them have relatively similar product needs (Dibb et al.). There are many bases available to segment markets (e.g., company demographics, behavioral, etc.). It is important that the company realizes that : a segmentation is a strategic tool, never just a paper-and-pencil solution that merely enables an easy and convenient statistical breakdown of the market place; a good segmentation is practical: it enables the company to focus its actions, and differentiate itself accordingly in the selected segments; a segmentation that is good for one company, may not be good for another company in the same industry: otherwise stated, do not assume that other companies will assume a role play in the same arena. within each segment, the company must ask itself what the critical customer needs are, i.e., what is customer motivation, and what are some of the unmet needs: maybe a company must not as much deliver what the customer asks, but rather what the customer needs. In evaluating market segment attractiveness, the company usually considers (1) segment size, (2) segment growth rate, and (3) intensity of competition in the industry. To analyze this third issues, the five forces framework provided by Harvard New professor M.E. Porter provides a Entrants useful analytical tool. There are five forces that shape a specific industry, i.e., the bargaining power of buyers and suppliers, the threat of new Industry Supply Demand entrants and subsitute offerings, and Competition side Side the rivalry of existing competitors within the industry. It may also be enlightening to look at strategic groups among the competition (i.e., Substitutes groups of firms that pursue similar competitive strategies, have similar characterstics, assets and skills), and individual firms. It is always instructive to benchmark the competition, and understand who's winning, who's losing, and what are the reasons why... The company must also understand the macro environment of the firm, since this may provide important opportunities and threats to the firm: national and international economy, natural environment, demographical structure, social structure, government and international policy, technology. Use of portfolio analysis (e.g., the BCG-matrix with stars, cash cows, question marks and dogs) enables management to picture its product lines or those of the competition. A historical analysis shows winners and losers.

high high market growth low

relative market share low stars question marks dogs

cash cows

Rudy Moenaert - Henry Robben

4. Internal Analysis : Competitive Advantage

Having a competitive advantage is vital : companies that have it, are thriving in the market place; companies that are lacking it, are losing. The strategy literature as well as the popular Jack Welch - CEO of General Electric business press is bulged with examples of companies capitalizing on their advantages : General Electric, Southwest Airlines, Microsoft, Nucor, WalMart, etc. Whereas in many companies, an analysis of strengths and weaknesses is the starting point and (unfortunately) often also the end point, we take the analysis one step further : a competitive advantage is defined as a strength that the company has, that within a given market, influences the customer's decision process in favour of the business unit. Obviously then, a competitive advantage is defined from the customer's perspective. 'If you don't have a competitive advantage, don't compete' The strategy literature often refers to the concept of key success factors. Such key success factors (KSF) are variables which management can influence and which determine the companys competitive position in an industry. However, a distinction must be made between KSF that constitute necessary conditions for the firm to compete in a given market ('tickets to ride' = qualifiers), and KSF that really distinguish the firm from its rivals ('tickets to heaven' = winners). From a marketing perspective then, a competitive advantage belongs to the second category. This does not mean that KSF of the first category are irrelevant. It simply implies that companies that are pursuing a competitive advantage may select one of the following options : either they excel on a KSF of the second category, or they revolutionize and introduce new KSF. Such rule breakers often proactivily overturn the established industrial order. Consider CNN : it started 24 hour news broadcasts, while other stations were absent. According to Porter - a popular guy in the strategy landscape - there are two roads to competitive advantage: differentiation (price premium for a unique product) or cost advantage (similar product at a lower price). While this framework is unquestionably among the most substantial and influential contributions that have been made to the study of the sources of competitive advantage, we do not buy into it : the argument that both strategies cannot be combined simultaneously is, in view of scientific and anecdotal evidence, untenable ; one must adopt a customer perspective: a customer is not interested in cost, rather in price (by the way: customers who buy on the basis of price, are loyal to the low price, not the company) ; from a technological perspective, companies first differentiate (= effectiveness) and only afterwards lower costs (= efficiency) ; a cost advantage is less sustainable than a differentiation advantage, because of e.g. international trade, technological change or inter-firm mobility of personnel.

The essence of a competitive advantage consists of differentiation, i.e., the act of distinguishing your offering from that of the competition. Competition is about differentiation, and the best differentiation is the one that truly delights the customer, but the customer cannot compare it with similar offerings in the market place. The essence is winning! When a manager says, 'We have a good product for a reasonable price', that's when you know a company is not successful in differentiating itself.

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5. Internal Analysis: Differentiate to Compete

Based on empirical and theoretical reviews regarding this subject, the strategic marketing literature, and consultancy projects, the following taxonomy is proposed (Moenaert & Robben) : The product/service component refers to the Product core functional product or service that a firm Service offers to its customers. However, many times, the innovation efforts of industrial product firms are focused on incremental innovations that will be copied immediately. Rather than creating classics, firms excel in generating Image design after design that can be hardly discerned from the competition. In order to be ahead of the competition, a diversity of Customer Price minor variations of an undifferentiated Process product platform are put on the market: uniform diversity. Remember, it is 'On-Time-to-the-Market', not 'Time-to-Market'. In case you forget: the acronym of Time-Based Competition is still a disease... Customer processes are defined as the company'Between 65 %and 85 % of customers customer interaction processes by which a who defect, say they were satisfied company identifies, builds and maintains with their former supplier' relations with its customers, as perceived by that customer. While competition is about Reichheld differentiation, the essence of relationship marketing is making sure the customer cannot switch. How do you do that? By getting into the value chain of your customer. Concepts such as one-to-one marketing and E-commerce highlight the importance of an adequate management of customer processes in todays competitive environment. That way, you develop switching costs for your customer, because of the people, assets and processes locked into the relationship. By helping the customer, you lock the customer into the relationship. The price element is defined as the financial cost the customer must bear for consuming the companys services or owning its products. We have dealt with this issue in the previous section. In industrial markets, the commodity magnet is always at work: customers want increasing service and quality for lower prices. Before you lower the price: remember that price is the only marketing variable that generates directly money for the company. The image component relates to the awareness, beliefs, ideas or impressions that the market place holds about a company and the products/services the company provides to the market. The competitive position of a company is never exclusively determined by the companys current marketing efforts. Through its history, a company develops externally a mental position in the market place. Actually, in industrial markets, the image is created through sustained interaction with the market place, not through glossy pictures in commercial brochures. Unfortunately, many industrial product companies do a poor job in developing a clear, credible, consistent and competitive image on the market place. Remember, the company always has an image. A company cannot not position. Whether the image is a competitive advantage, that's another story.

Rudy Moenaert - Henry Robben

6. Internal Analysis: Creating a Competitive Advantage,

The work of, among others, Wernerfelt, Hamel 'For the firm, resources and products and Prahalad, has triggered a whole new way of are two sides of the same coin' strategic thinking, i.e., the resource-based view. Central to the resource-based view approach is Birger Wernerfelt the idea that a competitive advantage does not originate from a position in an attractive market, but from effective resource deployment of resources in well-identified markets. A distinction is often made between assets (e.g., human resources, patents, infrastructure, financial resources) and competences (e.g., know-how, experience, culture, skills). An activity system (or 'business system'), shows how a companys competitive advantage is created by means of its resource base (i.e., assets and competences). Competences may be defined as as a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer (Hammer & Champy). Core competences are competences which offer the companys customer a unique added value, are difficult to imitate or to substitute by the companys competitors, and have the ability to create value to the customer in different markets in such a way the companys goals are achieved (Day). They are usually made up of many sub-competences.
history of loyal and profitable customers logistical systems Customer intimacy culture & work force Image financial strength mega projects influence lobby brand name Reliable & flexible proximity

innovation

decentralized structure local subsidiaries

diversity knowledge

Multidisciplinarity

scal

For instance, in the example above, we have summarized the activity system (business system) of a leading Dutch industrial engineering and technical service company. Its competitive advantages are : multidisciplinarity, customer intimacy, reliable and flexible proximity across the Netherlands, and a strong image. You want another word for assets and competences? Call them enablers, and it becomes clear a company must earn its competitive advantages. For each of these competitive advantages, the key enablers for this firm are indicated. The advantages of an activity system analysis are straigthforward: it allows for analysis and synthesis, while it is visually easy to communicate. It is important the company does such an analysis in a rational way. My suggestion is to include not more than five competitive advantages. Be honest about your company: if you have not convinced your customer with five most arguments, will you ever convince the customer?

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7. Internal Analysis : Sustainable Competitive Advantage

A sustainable competitive advantage is a durable 'There is nothing more exhilarating strength that, within a given market, influences the than to be shot at without result' buying process of the customer in favour of the company, and which cannot be imitated or Winston Churchill substituted by competitors as a result of the resource configuration (assets and processes) upon which the competitive advantage is based. Sustainable competitive advantages are the crown jewels of competitive strategy. They conform to the following five conditions (Collis & Montgomery) : Competitive superiority: The first condition states that competitive differentiation only results in a true competitive advantage if the firm disposes of a superior resource configuration. Many times, one observes wishful thinking in this respect rather than a thorough and rational assessment of one's competitive posture. Inimitability: The second prerequisite for a crown jewel refers to the level to which the resource configuration on which a competitive advantage is built, cannot be copied by competitors. Inimitability may be rooted in any of the following aspects : physical uniqueness (e.g., enforced by a patent), path dependency (e.g., the historical trajectory), economic deterrence (e.g., scale economies), interconnectedness of the resource configuration (e.g., a complex network of suppliers) and causal amibiguity (competitors do not understand how the company creates success, e.g., innovation culture at 3M). Durability: Durability refers to the degree to which the resource configuration provides a durable basis for competition. For instance, because of changes in the market place, the durability of the resources may be limited (e.g., the value of marketing processes in turbulent market places). Also, the life-span of some primary resources may be limited. For instance, when Michael Jordan ended his career with the Chicago Bulls, his contribution to the image of the Bulls may have been durable, his contribution to the quality of the game certainly was not. Appropriability: This criterion refers to the degree to which the company that owns the resource configuration and the resulting competitive advantage, actually receives the profits that result from this ownership. Given the steadily growing importance of services, and the increase of alliances and firmtranscending operations, the issue of appropriability is likely to gain influence in the future. Going back to the Michael Jordan example: what is the use of owning the Chicago Bulls, if Michael Jordan takes away most of the profits. Substitutability: The final criterion refers to the degree to which other resources may create an equivalent competitive advantage. For instance, a well-organized and logistically solid large bookstore may offer a broad assortment of low-priced books, but these competitive advantages may be realised by developing an Internet-based strategy.

Some leading consultants and academics are questioning the issue of sustainibility. However, we must not question the issue itself, rather the naive application of sustainability. In many industrial markets, sustainability lasts a maximum of 5 years... 'In the long run, we're all dead', is something Keynes already knew.

Rudy Moenaert - Henry Robben

8. Marketing Plan: A Business View on Market Excellence

A marketing plan is a strategic and financial concept of maintaining or improving the competitive position of the company in a selected market. A marketing plan formulates : how the company will compete in the future (competitive advantage) ; what resources are needed to realize this competitive differentiation (assets and competences) ; makes a business assessment of the selected approach (evaluation). Step I. Define the new activity system (= new business system). Following an analysis of its present activity system, and a thorough understanding of the market (customers, competition, context), the company defines how it will compete in the future. Eventually, a number of scenarios may be developed. What are the competitive advantages it wants to realize? In outlining the 'how to compete' question, the company may (1) build on some key competences (= 'competence push'), (2) on the basis of the market analysis identify novel or improved ways to differentiate itself from the competition (= 'market pull'), or (3) more realistically, use a combination of both. Step II. Define the new business R&D roadmap, i.e., the various projects Manufacturing that are needed to realize the new Mktg & Sales business system. Many times, this can be done by defining functional IT & Logistics projects that relate to the the Human Resources 2003 2004 2005 2006 specific competences and skills that are needed. For instance, if the company wants to excel in customer support, it may have to develop a diversity of new competences and assets in e.g. E-commerce, training facilities, customer satisfaction appraisal, etc. In order to realize this, there is only one advice: think projects, and define budgets (= finance), milestones (= time and deliverables) and responsibilities (= organization)! Step III. Evaluate! As one product manager once observed: 'Optimism is a sympathetic form of stupidity'. The company must evaluate the plan along a number of dimensions. One of the assessments that must always be made is the risk/return assessment. Other dimensions might involve time-to-market, budget required, competitive sustainability, leverage, change of competitive advantage, change of resource base, etc. Preferably, the company assesses multiple options, in order to make an optimal decision. That implies some options will not be realized. But hey, 'the essence of strategy is choosing what not to do' (Porter).

low excellent Return moderate

Risk moderate

high

grow the business

bet the business

downgrade the business poor

waste the business

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9. Visionary Marketing: Competing Today, Preparing for Tomorrow

Understanding competitive advantage is one thing, managing for it another. Six factors are pivotal in managing the dual nature of visionary marketing (i.e., the simultaneous realization of today-for-today and today-for-tomorrow strategies): vision, external orientation, focus, formalization of change, human resources and measurement. Vision: In order to motivate the members of the organization to align their activities with the organizations strategy, a clear vision is needed. Such a vision must bring about the much needed vital sense of urgency throughout the company. Communication is a critical success factor to the change process. In addition to communication, it is as much necessary the vision is brought in a clear, simple and concise way. In this respect, Collins and Porras launch the idea of BHAG (pronounce : Bee-Hag), i.e., a Big, Hairy, Audacious Goal. External orientation: The quality of a marketing strategy depends strongly on the degree to which the external environment is consulted and/or involved in the planning process itself. The adequate assessment and involvement of customers, suppliers and even competitors in the planning process is a necessary condition to remain competitive in a swiftly changing environment. It is pardonable to be defeated, never to be surprised (Frederick the Great). Focus: A clear focus in a firms strategy is required in terms of market, product and core process choices. From this perspective, it is essential that a firm not only assesses its product portfolio, but also its project and competence portfolios. Formalization of change: Implementing change does not imply a company carves out its trajectory in an unstructured fashion. Formalization refers to the degree to which a well-defined change program exists, that offers those involved a good basis to depart from. A crucial role is assumed by stage gates and the criteria that are used to assess the progress made at a certain point in time. Professionalization: Light-weight people create heavy-weight problems. Many members of the changing firm engage in change only by means of their words, but do not engage in it in the behavioural sense of the word. Actually, they prefer the status quo. Necessary preconditions for a successful implementation of a change program are the involvement of heavy-weight marketers, adequate team management and top management commitment. Measurement: Change programs ask for a close monitoring of the organizations progress. The use of a balanced score card is a good approach to monitor progress. A process which cannot be measured cannot be improved' ( (Deschamps and Nayak).

Rudy Moenaert - Henry Robben

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