Market-Driven Strategy

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Presentation transcript:

Market-Driven Strategy

MARKET-DRIVEN STRATEGY Becoming Market Oriented Distinctive Capabilities Creating Value for Customers Becoming Market Driven Challenges of a New Era for Strategic Marketing

MARKET-DRIVEN STRATEGY All business strategy decisions should start with a clear understanding of markets, customers, and competitors. The market and the customers that form the market should be the starting pint in shaping business strategy.

Characteristics of a Market-Driven Strategy Becoming Market- Orientation Achieving Superior Performance Determining Distinctive Capabilities Customer Value/ Capabilities Match

Why Pursue a Market-Driven Strategy? Strong supporting logic Achievements of companies displaying market-driven characteristics are impressive Examples include: Dell Inc. Louis Vuitton Southwest Airlines Tesco Tiffany & Co. Wal-Mart Zara

BECOMING MARKET ORIENTED Customer is the focal point of the organization Commitment to continuous creation of superior customer value Superior skills in understanding and satisfying customers Requires involvement and support of the entire workforce Monitor rapidly changing customer needs and wants

Determine the impact of changes on customer satisfaction Increase the rate of product innovation Pursue strategies to create competitive advantage

Characteristics of Market Orientation Customer Focus What are the customer’s value requirements? Competition Intelligence Importance of understanding the competition as well as the customer Cross-Functional Coordination Remove the walls between business functions Performance Consequences Market orientation leads to superior organizational performances

Becoming a Market-Oriented Organization Information Acquisition Cross-Functional Analysis of Information Shared Diagnosis and Coordinated Action Delivery of Superior Customer Value

Market Orientation Information Acquisition Inter-functional Assessment Gather relevant information on customers, competition, and markets Involve all business functions Intuit’s Quicken Inter-functional Assessment Share information and develop innovative products with people from different functions Zara Shared diagnosis and action Deliver superior customer value

DISTINCTIVE CAPABILITIES “Capabilities are complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.” George S. Day, Journal of Marketing, October 1994, p.38.

Southwest Airline’s Distinctive Capabilities Organizational Processes Southwest uses a point-to-point route system rather than the hub-and-spoke design used by many airlines. The airline offers services to 57 cities in 29 states, with an average trip about 500 miles. The carrier’s value proposition consists of low fares and limited services (no meals). Nonetheless, major emphasis throughout the organization is placed on building a loyal customer base. Operating costs are kept low by using only Boeing 737 aircraft, minimizing the time span from landing to departure, and developing strong customer loyalty. The company continues to grow by expanding its point-to-point route network. Skills and Accumulated Knowledge The airline has developed impressive skills in operating its business model at very low cost levels. Accumulated knowledge has guided management in improving the business design over time. Coordination of Activities Coordination of activities across business functions is facilitated by the point-to-point business model. The high aircraft utilization, simplification of functions, and limited passenger services enable the airline to manage the activities very efficiently and to provide on-time point-to-point services offered on a frequent basis. Assets Southwest’s key assets are very low operating costs, loyal customer base, and high employee esprit de corps

Capabilities Disproportionate (higher) contribution to superior customer value Compelling Logic of Distinctive Capabilities Provides value to customers on a more cost-effective basis Source: George S. Day, Journal of Marketing, October 1994, p. 38.

Capabilities Desirable Capabilities Applicable to Multiple Competition Situations Superior to the Competition Difficult to Duplicate Source: George S. Day, Journal of Marketing, October 1994, 49.

Types of Capabilities Outside-In Processes Spanning Processes Inside-Out Processes

Organization’s Process EXTERNAL EMPHASIS INTERNAL EMPHASIS Outside-In Processes Inside-Out Processes Spanning Processes Financial management Cost control Technology development Integrated logistics Manufacturing/ transformation processes Human resources management Environment health and safety Market sensing Customer linking Channel bonding Technology monitoring Customer order fulfillment Pricing Purchasing Customer service delivery New product/service development Strategy development Source: George S. Day, Journal of Marketing, October 1994, 41.

Matching Customer Value and Distinctive Capabilities Value Requirements Distinctive Capabilities

CREATING VALUE FOR CUSTOMERS Customer Value: Value for buyers consists of the benefits less the costs resulting from the purchase of products. Superior value: positive net benefits Creating Value: “Customer value is the outcome of a process that begins with a business strategy anchored in a deep understanding of customer needs.” Source: C. K. Troy, The Conference Board Inc., 1996, 5.

Creating Value for Customers Benefits Costs

Psychic and physic costs Value Composition Product Services Employees Image Benefits Value (gain/loss) Monetary costs Costs (sacrifices) Time Psychic and physic costs

Becoming Market Driven Market Sensing Capabilities MARKET – DRIVEN STRATEGIES Customer Linking Capabilities

BECOMING MARKET DRIVEN Market Sensing Capabilities MARKET-DRIVEN STRATEGIES Customer Linking Capabilities

Market Driven Initiatives Market Sensing Capabilities Effective processes for learning about markets Sensing: Collected information needs to be shared across functions and interpreted to determine proper actions. Customer Linking Capabilities Create and maintain close customer relationships

Aligning Structure and Processes Potential change of organizational design Improve existing processes Process redesign Cross-functional coordination and involvement Primary targets for reengineering: Sales and marketing, customer relations, order fulfillment, and distribution

CHALLENGES OF A NEW ERA FOR STRATEGIC MARKETING Strategic marketing faces unprecedented challenges and opportunities: Turbulent markets Intense competition Disruptive innovations Escalating customer demands Ethical Challenges Societal and Global Change Social Responsiveness of Organizations

Escalating Globalization It is important to understand the differences (and similarities) between the developed economies and the new world beyond. Market opportunities Competitive threats Partnering opportunities Outsourcing initiatives The world’s poor

Technology Diversity and Uncertainty Radical New Product Opportunities Nanotechnology Private space travel The digital home Self-cleaning windows Finland was ranked #1 in global competitiveness in 2004 by the World Economic Forum because of strong skills in adapting to new technology, proactive business practices, and nurturing a culture of innovation (www.weforum.org).

Ethical Behavior and Social Responsiveness Increasingly demanding ethical challenges Corporate responsibility Responsibilities to stakeholders