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Market-Driven Strategy

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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

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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.

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Achieving Superior

Performance

DeterminingDistinctive

Capabilities

CustomerValue/

CapabilitiesMatch

Becoming Market-

Orientation

Characteristics of a Market-Driven

Strategy

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Why Pursue a Market-Driven

Strategy? Strong supporting logic

Achievements of companies displaying market-driven characteristics are impressive Examples include:

Dell Inc.Louis VuittonSouthwest AirlinesTescoTiffany & Co.Wal-MartZara

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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

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Determine the impact of changes on customer satisfaction

Increase the rate of product innovation

Pursue strategies to create competitive advantage

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Characteristics of Market Orientation

Customer FocusWhat are the customer’s

value requirements? Competition Intelligence

Importance ofunderstanding the competition as well as thecustomer

Cross-Functional CoordinationRemove the walls betweenbusiness functions

Performance ConsequencesMarket orientation leads tosuperior organizational performances

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Information Acquisition

Cross-Functional Analysis of Information

Shared Diagnosis and Coordinated Action

Delivery of Superior Customer Value

Becoming a Market-Oriented

Organization

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Market Orientation Information Acquisition

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

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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.

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Southwest Airline’s Distinctive Capabilities

Organizational ProcessesSouthwest 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 KnowledgeThe 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 ActivitiesCoordination 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.

AssetsSouthwest’s key assets are very low operating costs, loyal customer base, and high employee esprit de corps

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CompellingLogic of Distinctive

Capabilities

Disproportionate (higher)contribution to superiorcustomer value

Provides value tocustomers on a morecost-effective basis

Capabilities

Source: George S. Day, Journal of Marketing, October 1994, p. 38.

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Capabilities

DesirableCapabilitiesDesirable

Capabilities

Applicable to Multiple

Competition Situations

Difficult toDuplicate

Superior to the

Competition

Source: George S. Day, Journal of Marketing, October 1994, 49.

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Types of Capabilities

Outside-InProcesses

Inside-OutProcesses

SpanningProcesses

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Organization’s Process

Source: George S. Day, Journal of Marketing, October 1994, 41.

Spanning Processes

Outside-In Processes

Inside-Out Processes

EXTERNAL EMPHASIS

INTERNAL EMPHASIS

Market sensing

Customer linking

Channel bonding

Technology monitoring

Customer order fulfillment

Pricing Purchasing Customer service

delivery New

product/service development

Strategy development

Financial management

Cost control Technology

development Integrated

logistics Manufacturing/

transformation processes

Human resources management

Environment health and safety

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Value Requirements

Distinctive Capabilities

Matching Customer Value and Distinctive

Capabilities

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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.

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Creating Value for Customers

Benefits Costs

CustomerValue

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Value Composition

Monetary costs

Time

Psychic and

physic costs

Product

Services

Employees

Image

Benefits

Costs(sacrifices)

Value(gain/loss)

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Becoming Market Driven

MARKET – DRIVEN

STRATEGIES

Market Sensing Capabilities

Customer LinkingCapabilities

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BECOMING MARKET DRIVEN

Market Sensing Capabilities

Customer LinkingCapabilities

MARKET-DRIVEN

STRATEGIES

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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

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Aligning Structure and Processes– Potential change of

organizational designImprove existing processesProcess redesign

– Cross-functional coordination and involvement

– Primary targets for reengineering:

Sales and marketing, customer relations, order fulfillment, and distribution

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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

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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

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Technology Diversity and UncertaintyRadical 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).

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Ethical Behavior and Social

Responsiveness

Increasingly demanding ethical challenges

Corporate responsibility

Responsibilities to stakeholders