6. Marketing And Strategy
Introduction
Strategy is the overall vision of how an organisation’s purposes are to be
fulfilled. The word’s origins lie in a Greek term for the activity of generals, the
outcome of which was often stratagems – ploys and ruses to win a war.
Marketing strategy sounds a far more civilised process, but the outcome
can often be the same. In the commercial battlefield, the organisation must
fight competitors, indifference and inertia, a sound strategy being the key to
long term victory.
Different levels of strategy may be at work in an organisation. The guiding
principle of operation will be the corporate strategy, expressed in terms of
the mission statement. Within this overall framework, and supporting it, will
be the functional marketing strategy – more specific and practical than the
corporate strategy, although linked to the corporate strategy via a customer
orientation.
Corporate
Strategy
Marketing
Strategy
Formulating marketing strategy involves a degree of helicopter vision. Rather
than seeing the organisation from the internal perspective of operations, the
marketing strategist steps back and tries to see things from the outside; i.e.
from the customer’s point of view.
Differential Advantage is the key to maintaining an advantage over rival
firms in the competitive environment. Such an advantage may be lodged in
the organisation’s own capabilities, in the product or service, or in the nature
of the relationship with the customer. Here are some examples of different
types of differential advantage:
Organisational capacity – Benetton’s computerised warehousing
capacity gives it an edge in re-stocking swift-selling lines, so customers
can get the clothes they want when they want them.

Product or service – First Direct’s telephone banking lines are staffed
by human beings rather than machines 24 hours a day, so account
holders receive a personal service whenever they call.

Customer relationship – Readers Digest can target existing customers
with offers it knows will interest them because of previously logged
purchase behaviours.
In a way, the concept of differential advantage is very similar to the classical idea
of the unique selling proposition (USP) discussed previously. Marketing strategy
aims to uncover and enhance this differential advantage to the long term benefit
of the organisation.
Market Share-Related Strategy
Marketing strategies are often formulated on the basis of market share. Four
main options of market share-related strategy can be identified, each based on a
particular competitive position a firm may occupy:Market Leaders: Market leaders are often the most profitable and powerful
competitors, though this may also mean they have the most to lose! They can
either choose to either defend the share of the market they already have, a task
made easier by the economies of scale they enjoy, or they may aim to expand
their business by either increasing market share or, more difficultly, increasing
the size of the market as a whole.
Market Challengers: Market challengers can be seen as the “Number Two”
brands in the market. They don’t often confront the market leaders, instead
seeking to dominate smaller players via their competitive activities. They can,
however, sometimes attempt to hit the market leader via a “flanking strategy”;
that is, they assume the leader will be so preoccupied defending its core business
that parts of its market will be left with poor defences. In the 1980s, for
instance, IBM was so busy defending its mainframe business that it did not realise
the potential of the new personal computer market, an opportunity very
effectively exploited by the then tiny Apple organisation.
Market Followers: Market followers are well behind the leaders and challengers.
They enjoy a comfortable position and are not keen to rock the boat. Using
careful market segmentation and distinctive competitiveness, they can maintain
impressive profits. In the UK, for example, half a dozen major companies
producing local newspapers have remained relatively immune to the price wars
raging among their national counterparts by actively maintaining their own
market positions rather than fighting each other.
Niche Players: Niche players target a very precisely defined market segment
that is far too small to be of interest to major competitors. They manage to
establish very lucrative businesses precisely because they are satisfied with low
volume. Their success suggests that the correlation between market share size
and profitability works best at either end of the scale, leaving the middle ground
to less profitable businesses. Of course, as soon as the major players notice the
profits to be made, they will move into the niche sector with all guns blazing. The
1980s saw the establishment of very successful independent record labels
(“Indies”) in the UK, but they became so successful that the large labels decided
to launch their own “pseudo-Indies”, boasting artists and promotion levels that
the original niche players could not hope to match.
Product/Market Strategies
Rather than looking at market share, another way of looking at strategic options
is to see how an organisation relates to its customers and its offerings. Ansoff
(1950), who pioneered the academic study of strategic management, identified
four strategic options based on a firm’s orientation to its markets and offerings,
expressed in the Ansoff Growth Vector Matrix:-
Existing
Market
Penetration
Product/Service
Development
e.g. Kellog’s
Corn Flakes
e.g. Rolo Bar
Market
Extension
Diversification
MARKETS
e.g. Sony
New
e.g. Mars
Fun-Size
Existing
OFFERINGS
New
Market Penetration seeks to increase sales of an existing product in an existing
market, a strategy which is often a credible choice for market leaders if they want
to expand their business without excessive risk to existing market share. For
example, Kellog’s launched a very successful campaign for its corn flakes, inviting
lapsed consumers to try the product again using the slogan “Have you forgotten
how good they taste?”.
Market Extension is a little more risky, seeking to take an existing product into
a new market. Mars pioneered the fun-size sector in the grocery trade by repackaging its core product for a new set of shoppers whose needs differed from
those of the primary countline market.
Product/Service Development is riskier still, mainly because the absolute
entry costs are often much higher. Basically, this strategy involves launching an
offering new to the organisation into an existing market. In the late 1980s, BIC
(a successful manufacturer of disposable pens, lighters and razors) tried to launch
a range of disposable perfumes with disastrous results, primarily because the
imagery normally associated with perfume products was absent from the
campaign. By contrast, in 1994, Nestle were able to rekindle the interest of
former Rolo purchasers with the launch of a highly successful Rolo Bar.
Diversification is the riskiest strategy of all, though the high rewards to be
gained often encourage the risk of the high stakes involved. This strategy brings
new products and new services to new markets – a double unfamiliarity with a
potential for absolute disaster. With a clear strategy, however, a manufacturer
can pull this off. In the late 1980s, for example, the equipment manufacturer
Sony succeeded in managing one of the most successful examples of pioneer
marketing (or expeditionary marketing) ever with the launch of the
Walkman, a completely new product with no existing market whatsoever.
Competition-Based Marketing Strategies
The dominant voice in strategic thinking for much recent marketing has been
Michael Porter, a Harvard professor whose diagnosis of strategic options focuses
on the idea of competition between firms in mature markets, a situation in
which most marketing activities actually take place. Rather than wavering
indecisively in the market place, Porter (1980) recommends that the firm
deliberately takes up its stand on one of three strategic platforms:Cost Leadership: Concentrating on the ability to exercise economies of scale in
a number of different market sectors by investing heavily in technology to enable
the firm to beat its rivals on price.
Differentiation: Concentrating on product quality to justify a premium price,
thus generating more profit.
Focus: Concentrating the firm’s efforts on servicing a narrow range of customers
or segments, rather like a niche marketer would (with the same risk that too
much success may attract larger competitors).
Any of the above three generic strategies should create the kind of differential
advantage that will give a customer a reason to go to that particular supplier
rather than a competitor.
Exercise: CD Competitive Strategy
Cost leadership is the strategy adopted by Naxos, which uses a combination of
talented central European ensembles as well as more familiar British artists to
keep its prices low without compromising on quality of performance for its
classical music CDs. Using the latest digital technology, it is able to offer superb
sound quality to its customers for less than £5 a disc.
Differentiation is the strategy adopted by Deutsche Grammophon. Its core
business concentrates on full-price recordings by top-flight international stars and
orchestras. It is confident that record buyers will be prepared to pay up to £15 a
disc for this kind of quality.
Focus is the strategy adopted by Harmonia Mundi. This label specialises in Early
Music, a category running from medieval times to the eighteenth century. Its
full-price recording appeal to a segment of the market for their carefully
researched authentic performances.
Of course, the picture is not quite this clear. Deutsche Grammophon, like most
major labels, operates a budget label also (Classikon), and an Early Music label
(Archiv) as two thriving sub-brands. But, the general shape of the industry
corresponds to Porter’s description fairly well, so I’m sure you get the idea!
1.
Porter’s model describes the CD industry reasonable well. How might it
be used to help predict what will be happening in five years time?
2.
How can labels like Deutsche Grammophon ensure that their budget
offerings do not erode the “value” of their full-price recordings?
3.
How far is a “budget” positioning ever likely to be appropriate for a
classical music label?
(Source: Hill and O’Sullivan, 1999)