Strategy and marketing

Strategy and marketing

Strategy & strategic planning: definition and basic concepts

Strategy: The early literature refers to military strategy. Under this perspective, strategy is the art of war, especially the planning of movements of troops, aircraft, etc. It aims at destroying the enemies. As long as business is concerned, strategy...

Discrimination

Policies: What are the important decisions impacting in the long term? They may represent the direction we are looking for. It is related to how strategy qualifies how to reach the goals set out in the policies.

Tactics: How to move troops in the military context. In a business domain, they relate to how to organize people, consistently with a given strategy.

The origin of strategy

Strategy: A deliberate search for a plan of action (decision) that will develop a business's competitive advantage and compound it. The set of decisions managers undertake in order to achieve a competitive advantage. The final goal of a strategy is to become different from the others: doing something better, providing the market with something totally new.

Strategy is not about competition. It's not a matter of overcoming somebody else; the end objective must be to acquire, maintain, sustain customers. The main aim is to exchange value with customers. Customers are the main focus, not beating competitors.

The knowledge of customers is important due to the growing level of personalization requested. There are companies that don’t know their clients because in the past, knowing the customers was not so important. Other companies look only on the inside of the company; in fact, sometimes they don’t know even their competitors. Retailers don’t know their customers. Customers have fidelity cards, but retailers don’t use this data and so they lower the price to attract clients.

It is very difficult to implement because often companies don't know customers, they are out of their comfort zone, they are hard to meet and reach, they are out of their supply and value chain. Ignorant about their customers:

• Customers are out of companies' comfort zone
• Less sophisticated: growing level of sophistication of customer needs

Ignorance led toward issues for some kinds of companies: What are customers' expectations? The commercial department never looked at why customers were buying certain products, why they needed them, or how they were going to use them. In the same way, retailers don't know customers. They have data but don't transform them into information. Therefore, they sell through promotions only (easiest way).

Strategy is the radical change that companies need to undertake in order to meet customers' needs. CRMs would be very useful, but actually companies don't really use them in the correct way as they would require a new business unit, which companies don't want. Organizing humans toward a unifying long-term objective is a very hard job.

Strategic decision

This is important because it has a long-term impact. It has a big impact on the final goal: costs, time, resources. Once it is implemented, it is almost non-reversible. It requires the top manager involvement. Strategic decisions are taken by individuals: entrepreneur, chief executive officer. It is needed to implement a body of high-level people in order to allow proper implementation.

A strategy is a comprehensive plan aimed at setting the future directions of a company aimed to increase the value exchange with its market. A strategy may consist of several strategic components/decisions. Whenever a direction has been set, it may be accompanied by several actions under an operational viewpoint. Therefore, a strategy would comprehend a wide set of consistent strategic decisions.

Understanding the competitive environment

It is needed to have a complete understanding of the competitive environment where the company operates. In many cases, companies have a very narrow or totally inbound perspective; they neglect the fact that other companies compete in the same market, even though they realize a totally different output. Many companies forget part of their competitors.

A model that is quite useful is the Abell Space: a tool helping managers understand the competitive environment where they work. The axes are:

• What: What customers' functions do we have to answer? What are they looking for (mobility, safety, etc.)?
• Who: What is the target? I may decide to serve different kinds of customers.
• How: What kind of technology are you using to deliver such an output to your customers' target?

Abell says that we can identify a specific environment by qualifying on the three axes the company's space. The more the spaces of two companies are overlapped, the more they may be in competition. There are companies using the same technologies and answering the same customers' functions, but not in competition because they serve totally different customers. E.g., Ferrari and Fiat are not in competition.

• Technology: Power engine
• Function: Mobility

But different targets. It may happen that companies that use totally different technologies may compete because they aim at satisfying the same functions. E.g., there may be the issue of safety for private homes or for shops.

• Technology: Alarm systems, private services

If we refer to the market of family homes, we have electric companies selling alarm systems competing with local private companies because they address the same market segment.

The Abell Model aims to support managers in their strategic decision-making, letting them understand better the environment where they operate. The proper level of usage of this model is the strategic business unit.

All strategic decision-making is not neutral. Defining properly the boundaries is an important step. If we choose narrow ones, we limit ourselves; otherwise, we may take risks. You have to identify who you are or who you want to be. You have to identify the scope of your activity.

Examples of strategic decision-making

Volkswagen: Car mobility. What if they start seeing themselves only as players? It is totally different because they don't only sell cars but offer mobility services in general. It may open up or close strategical options that would undertake different resources, time, etc.

Book industry: Technologies may be digital technologies, paper, audio. All of them would lead toward different environments: Digital ecosystems, bookstores, Alexa. Companies are continuously led toward changing their boundaries, faster than before.

Netflix: At the end of the '90s, it was 1/10 of Blockbuster. This latter one decided that it was not important to change boundaries, while Netflix decided to change its competitive environment from physical stores toward downloading, toward streaming platforms. It has to keep changing its ecosystem in order to keep competing as a leader.

Microsoft: It was thought to be a dead player once it was only selling Office licenses. When the board changed, a new philosophy was introduced: migrating toward cloud services.

Throughout these modifications, a lot of elements in the value chain are changed: components, markets, people, costs. If a company doesn't change its boundaries because it believes it too risky, they may fail as Blockbuster, Nokia, Motorola, etc. It depends on the understanding of the competition and of the environment, which may lead toward anticipating or postponing such decisions. It's a combination of models, tools, intuition, and principles; there is no rule or algorithm that may substitute a manager. Competition is diversity.

Strategic business unit

A strategic business unit (SBU) is a business category, it qualifies a specific boundary or homogeneous environment. It is characterized by a specific market or set of customers. It consists of people who commit themselves to serving a specific target market and are autonomous in taking strategic decisions. They have their own profits and incomes. A company consists of at least one SBU. A company may be made up of more SBUs: for instance, a company offering several businesses. There are companies such as Nestlé, P&G serving different customers with different products. Or serving many different products to the same market segment.

Companies tend to organize SBUs around specific products and specific markets. If we assume that a company has several SBUs, it may deal with different decisions:

• Corporate strategies: Aim at identifying the scope of a product portfolio, what kind of product and market. Identifying the boundaries. Also identifying the number of SBUs.
• Business strategies: Qualify how, from a concrete viewpoint, we want to achieve attractiveness in our target market. It aims at setting the value proposition.
• Functional strategies: Qualify at the level of each organizational unit how to work in order to achieve the plan business strategy (operation, logistics, financial, strategy).

These are the three layers we have to deal with when we talk about strategic decision-making.

How a company can create value

Value flows from the company to the customer and backwards, an exchange of value between the two counterparts. We may identify three approaches in order to create value, each one entails a specific culture.

Technology-driven approach

This is a very common perspective. Usually, a lot of people who are experts in such technologies or the environment where the company operates. A basic activity is technology foresight. The company goes through a specific approach: design, production, and marketing (the sequential logic behind this perspective). The scientific breakthrough drives everything, the R&D function is crucial in the innovation breakthrough. Very linear flow, consistent with stable environments. The market doesn't really affect the value generation process, in how the company transforms ideas into cash/incomes. There's no involvement of customers in the product design phase; they are passive actors, involved in the last phase when marketing sells. It's technology pushing, but there's no marketing effort to support market innovation. It's a common and successful approach that belongs to the comfort zone of the company. It is a sequential approach where marketing comes at the end of the cycle. It is common in B2B companies.

E.g., Optical gyroscope: It uses laser technology to measure angles, automobile navigation, etc. It's the technology exploitation that led to the breakthrough of such products.

Market-driven approach

It doesn't start from technology but from market studies: market trends, focus groups, etc. in order to collect significant information to nurture the work of the R&D unit. It is at the beginning of the innovation process. Everything starts from the discovery of a need to fulfill; later, the R&D will have to design a product that will have to deal with the unfulfilled need. Marketing is also at the end of the cycle, in order to sell. Marketing is the pivot of the overall cycle, beginning and ending point; it affects the overall process and is the fundamental input of the innovation generation. It is common in B2C companies; there's a stronger marketing awareness.

E.g., M&M's: It wanted to deal with the need for chocolate that didn't melt, avoiding the hands from becoming dirty. The solution was the usage of a sugar coat.

We cannot say which perspective is better; each one has advantages and disadvantages. Many marketing researches didn't point out some market opportunities: the customer is not a technological expert and is not able to frame a totally new opportunity. It often happens with total breakthroughs; it's a matter of novelty: therefore any innovation cannot be qualified by marketing campaigns. Many times customers have latent needs that they are not able to express.

The advantage of a technology-driven approach is the possibility to develop a totally new innovation, in order to achieve a competitive differential. On the other hand, applying such an approach with no marketing research gives no guarantee that such innovation will be appreciated by the market: I may launch a product too early, whose innovation may be later collected by other players.

E.g., DuPont: Textile maker which introduced technical textiles too early, losing investments of millions of dollars.

The market-driven perspective doesn't risk designing something that is not appreciated by the market; it will fulfill an existing need. But it is less likely that innovations will be radical, it's nothing making a real difference in consumers' minds.

Balance between market and technology-driven approaches

The best approach is a balance between market and technology-driven approaches. It is not easy to combine these two approaches because:

• It depends on the relative power of R&D in relation to the marketing one. Usually, in B2B companies, the R&D is way stronger; therefore, everything is driven by technology, where big budgets are invested. A balance between the powers of these two worlds is needed.
• It is not easy to set up effective communication between the two departments. It often happens that, even though they work together, technicians insert bias from the information they got from marketing explanations. Miscommunication.

The challenge is to try to orient this dialog using the perspective of a customer. We have to move from a logic of product-centrality toward customer-centrality. The Chief Organizational Officer is needed, in order to combine the two worlds.

New perspective of innovation generation

A new perspective of innovation generation grew: direct facility of connecting people and companies. A direct consequence of the development of the Internet: a network able to support interaction, sharing. Digital technologies properties:

• Connecting: immense capability to exploit information. Interaction opportunity.
• Carrying out tasks: using different contents and functions at the same time.

The combination of these two properties led to a new perspective: Cocreation: The user/customer may become an active player in the product development process; he may act as a designer/manager. In a B2B environment, such a perspective was introduced earlier because it was easy to organize meetings. Now it is possible to exploit such an opportunity on a massive scale, thanks to technology. Customers become co-creators of value.

Customization: The set of variables among which you have to choose affects different versions of a product that has already been engineered. The variables have been identified already; co-creation is a matter of something new, something that hasn't been codified yet.

• Beta testing of software
• Boxes, tools, digital libraries in order to provide ideas to the companies themselves
• Contests that involve their customers
• Platforms like FB help in understanding what is more appreciated

Such an approach is faster and sometimes cheaper. It is an effective way for allowing individuals to be spontaneous.

Intensity of competition

The intensity of competition keeps increasing:

• Competitors come from all over the world
• Competition is dynamic
• Customers don’t want to only be buyers; they want to play an active role in the market: individuals want to express themselves, want to make others aware of their judgement. They ask for a progressive level of customization; they also look for intangible and emotional features of benefits; there's a combination of irrational behaviors.
• Developing countries in the east are expected to bring new wealth, from where new riches will come.
• Growing complexity of the environment

In several industries, companies are forced to be global. For example, the European market is too small. This leads toward tensions and trade wars.

There was the progressive expectation that consumers will become more rational, as they have more information. It is not true: customers consider both functional and emotional features of what companies offer. If all aspects are true, it becomes more important the perspective of relationship: it becomes a crucial component of the company value, of its success. Relationship, not only products, becomes a further priority of nowadays companies. We may say in a more comprehensive way that customer experience becomes a core source of value; companies should prioritize the need to deliver a customer experience, it entails the issue of relationship, of emotion, and intangible benefits.

Designing a customer experience allows the company to better know the customer. Strategy must have customers in its core.

Strategy formation

In order to design a strategy, we need to be aware that such a decision requires comprehensive involvement of managers of the organization; it is an inter-function managerial process, which involves different competences, perspectives, responsibilities.

In order to take a decision, I need to study and understand, getting a comprehensive picture of the environment where I am working. It requires a wide set of activities aiming at studying the environment as a starting point.

• We must start with the identification of the boundaries. I create a big picture, knowledge repository, from which I have to create insights: potential targets, analysis of attractiveness. Then I have to address my proposal: identify the value proposition. Finally, I have to identify my position.
• Stage of studies: SWOT. Analysis of the environment in both terms of competition and demand. Nowadays, thanks to all the technological and digital tools, such analysis is run differently.

Strategy definition

Strategy level

• Segmentation
• Targeting
• Positioning

Operational level

• Identifying the marketing mix: It is the set of leverages used in order to transform strategy into a concrete commercial offer.
• Feedback: in order to measure the achieved results

External environment analysis (PESTE) and macro-level demand analysis and forecast

Analysis of the macro-environment

1. Analysis of the context

There are some helpful tools in order to analyze the market: SWOT analysis and PEST analysis. SWOT analysis: useful to have an overview of the market.

SWOT analysis

Strengths: Key elements that make our company powerful e.g., brand (Coca-Cola), high level of competences and resources in our structure and workforce, efficiency.