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Topic 1

Market-Driven Strategy

Dr. Ehsanul Huda ChowdhuryPart-time Faculty, IBA

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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 SuperiorPerformance

DeterminingDistinctive

Capabilities

CustomerValue/

CapabilitiesMatch

Becoming Market-Oriented

Characteristics of a Market-Driven Strategy

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Characteristics of Market Orientation

Customer FocusWhat are the customer’s value

requirements? Competitor Intelligence

Importance of understanding the competition as well as the customer

Cross-Functional CoordinationRemove the walls between business

functions Performance Consequences

Market orientation leads to superior organizational performances

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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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Identifying Distinctive 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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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 costsTime

Psychic and physic costs

Product

Services

Employees

Image

Benefits

Costs(sacrifices)

Value(gain/loss)

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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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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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