summary marketing strategy 2009-2010

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Summary ArticlesMarketing Strategy

2009-2010

By;Viola RijnsdorpMeta van Ouwekerk Ruben JongeriusStefan Ek Maartje SchooldermanClaudia FelixGabrielle Boer

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Inhoud

Marketing as Strategy Week 44 .......................................................................................................... 3

What is Strategy? ............................................................................................................................ 3

Are you sure you have a strategy? .................................................................................................... 6

Customer Equity Drivers and Future Sales ...................................................................................... 8

Internal and External Analysis Week 45 ........................................................................................... 11

Growth Options Week 46 ................................................................................................................. 23

Blue Ocean Strategy ....................................................................................................................... 23

Market Busting: Strategies for Exceptional Business Growth ........................................................ 25

Value Innovation; The Strategic Logic of High Growth ................................................................ 26

Designing and Managing Brand portfolios Week 47 ......................................................................... 29

The brand report card the worlds strongest brands share ten attributes. How does your brandmeasure up? ..................................................................................................................................... 29

About your brand .......................................................................................................................... 31

Kill a Brand, Keep a Customer ...................................................................................................... 33

Brand Portfolio Strategy and Firm performance ............................................................................ 35

Designing and Managing Customers Relationships Week 48 ........................................................... 37

Co-opting Customer Competence ................................................................................................. 37

A Strategic Framework for Customer Relationship Management ................................................. 41

How Valuable is Word of Mouth? ................................................................................................ 45

Designing and Managing Marketing Channels Week 49 .................................................................. 49

The power of trust in Manufacturer-retailer relationships .............................................................. 49

Strategic Channel Design ............................................................................................................... 51

Distributor sharing of strategic information with supplier .............................................................. 54

Designing and Managing Pricing Strategies Week 50 ...................................................................... 55

Customer-centric prising: The surprising secret for profitability ................................................... 55

Pay what you want: A New Partcipative Pricing Mechanism ........................................................ 57

Should you launch a Fighter Brand? .............................................................................................. 59

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Marketing as Strategy Week 44

What is Strategy?

Positioning is rejected as too static for todays dynamic markets and changing technologies.In many industries, a self-inflicted wound, hyper competition is a not the inevitable outcomeof a changing paradigm of competition. The root of the problem is the failure to distinguishbetween operational effectiveness and strategy. Management tools have taken the place of strategy.

Operational effectiveness and strategy are both essential to superior performance, but work indifferent ways.

- Operational effectiveness means performing similar activities better than rivalsperform them.

- Strategic positioning means performing different activities from rivals of performingsimilar activities in different ways.

Operational Effectiveness:

The productivity frontier can apply to individual activities, to groups of linked activities suchas order processing and manufacturing and to an entire companys activities. When acompany improves its operational effectiveness, it moves toward the frontier. The frontiers isconstantly shifting outward as new technologies and management approaches are developedand as new inputs become available. Therefore managers have embraced continuous

improvement, empowerment, change management and the so-called learning organization. Ascompanies move to the frontier, they can often improve on multiple dimensions of performance at the same time.

Constant improvement is necessary to achieve superior profitability, but is not usuallysufficient. Few companies have competed successfully on the basis of operationaleffectiveness. Due to the rapid diffusion of best practices. Competition becomes a series of races down identical paths that no one can win competition based on operational effectivenessalone and leading to wars of attention, that can be arrested only by limiting completion.

Strategy

The essence of strategy is choosing to perform activities differently than rivals do. Otherwisea strategy is useless. Strategic positions emerge from three distinct sources:

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1. Variety-based Positioning: based on the choice of product or service varieties rather than customer segments. It can serve a wide array of customers, but for most it willmeet only a subset of their needs.

2. Needs-based Positioning: is more the traditional thing about targeting a segment of

customers. It arises when there are groups of customers with differing needs and whena tailored set of activities can serve those needs best. Differences in needs will nottranslate into meaningful positions unless the best set of activities to satisfy them alsodiffers.

3. Access based Positioning: Segmenting customers who are accessible in differentways. Although their needs are similar to those of other customers, the bestconfiguration of activities to reach them is different.

Positioning is not only about carving out a niche. A positions emerging from any of thesources can be broad or narrow. The basis-variety, needs, access or some combinations of thethree - positioning requires a tailored set of activities, because it is always a function of differences on the supply side, that is, of differences in activities.

What is strategy? Strategy is the creation of a unique and valuable position, involving adifferent set of activities.

Sustainable strategic position requires trade-offs

Trade-offs arises for three reasons:

1. From inconsistencies in image or reputation . A company known for delivering onekind of value may lack credibility and confuse customers if it delivers another kind of value.

2. From activities themselves . Many trade-offs reflect inflexibilities in machinery, peopleor systems. Value is destroyed if an activity is overdesigned or underdesigned for itsuse. Productivity can improve when variation of an activity is limited.

3. From limits on internal coordination and control. Positioning trade-offs are pervasivein competition and essential to strategy. They deter straddling or repositioning,because competitors that engage in those approaches undermine their strategies anddegrade the value of their existing activities.

What is strategy? Strategy is making trade-offs in competing. The essence of strategy is

choosing what not to do. Without trade-offs, there would be no need for choice and thus noneed for strategy.

Fit drives both competitive advantage and sustainability

Strategy is about combining activities. Fit locks out imitators by creating a chain that is asstrong as its strongest link. Fit is important because discrete activities often affect one another.Although some fit among activities is generic and applies to many companies, the mostvaluable fit is strategy-specific because it enhances a positions uniqueness and amplifiestrade-offs. Three types:

1. First-order Fit: Simple consistency between each activity (function) and the overallstrategy. Consistency ensures that the competitive advantages of activities cumulated,

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which makes it easier to communicate to customers, employees and shareholders andimproves implementation through single mindedness in the corporation.

2. Second-order fit: When activities are reinforcing .

3. Third-order fit: goes beyond activity reinforcement to optimization of effort .Coordination and information exchange across activities to eliminate redundancy andminimize wasted effort are the most basic types of effort optimization.

In all three types of fit, the whole matters more than any individual part. Competitiveadvantage grows out of the entire system of activities. The fit among activities substantiallyreduces cost or increases differentiation. Besides, the competitive value of individualactivities cannot be decoupled from the system or strategy.

Strategic fit among many activities is fundamental not only to competitive advantage but alsoto the sustainability of that advantage. Positions built on systems of activities are far moresustainable than those built on individual activities. The more a companys positioning rest on

activity systems with second- and third order fit, the more sustainable its advantage will be.Those systems are difficult to untangle form outside the company and therefore hard toimitate. Achieving fit is difficult because it requires the integration of decisions and actionsacross many independent subunits. Finally, fit among a companys activities creates pressuresand incentives to improve operational effectiveness, which makes imitation even harder.

Strategic positions should have a horizon of a decade or more, not of a single planning cycle.Continuity fosters improvements in individual activities and the fit across activities, allowingan organization to build unique capabilities and skills tailored to its strategy.

What is strategy? Strategy is creating fit among a companys activities. The success of a

strategy depends on doing many things well. If there is no fit among activities, there is nodistinctive strategy and little sustainability.

Rediscovering Strategy

Managers have become confused about the necessity of making choices. In the race for operational effectiveness, many managers simply do not understand the need to have astrategy.

The growth trap: The desire to grow has perhaps the most perverse effect on strategy. Trade-offs and limits appear to constrain growth. Attempts to compete in several ways at once createconfusion and undermine organizational motivation and focus. Too often, efforts to grow blur uniqueness, create compromises, reduce fit, and ultimately undermine competitive advantage.In fact, the growth imperative is hazardous to strategy.

Profitable Growth: Concentrate on deepening a strategic position rather than broadening andcompromising will lead to reinforce strategy. One approach is to look for extensions of thestrategy that leverage the existing activity system by offering features or services that rivalswould find impossible or costly to match on a stand-alone basis. Deepening a positioninvolves making the companys activities more distinctive, strengthening fit andcommunicating the strategy better to those customers who should value it.Globalization often allows growth that is consistent with strategy, opening up larger marketsfor a focused strategy.

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The role of leadership: With many forces at work against making choices and trade-offs inorganizations, a clear intellectual framework to guide strategy is a necessary counterweight.General managements core is strategy: defining and communicating the companys uniqueposition, making trade-offs and forging fit among activities. Strategy renders choices aboutwhat NOT to do as important as choices about what to do. Strategy requires constant

discipline and clear communication. Improving operational effectiveness is a necessary partof management, but is NOT a strategy.

The operational agenda involves continual improvement everywhere there are no trade-offs.This is the proper place for constant change, flexibility and relentless efforts to achieve bestpractice.The strategic agenda is the right place for defining a unique position, making clear trade-offs,and tightening fit. It involves the continual search for ways to reinforce and extend thecompanys position.

A company must continually improve its operational effectiveness and actively try to shift the

productivity frontier at the same time, there needs to be ongoing effort to extend itsuniqueness while strengthening the fit among its activities. However, a companys choice of anew position must be driven by the ability to find new trade-offs and leverage a new systemof complementary activities into a sustainable advantage.

Are you sure you have a strategy?Strategy has become a catchall term used to mean whatever one wants it to mean. Whenexecutives call everything strategy, and end up with a collection of strategies, they createconfusion and undermine their own credibility. Without a strategy, time and resources areeasily wasted on piecemeal, disparate activities and the result will be a potpourri of disjointed,feeble initiatives.

A strategy consists of an integrated set of choices, but it isnt a catchall for every importantchoice an executive faces. The key is not in following a sequential process, but rather inachieving a robust, reinforced consistency among the elements of the strategy itself.

The elements of Strategy

Arenas: Where of in what arenas the business will be active? It is important to be as specificas possible about the product categories, market segments, geopraphic areas and coretechnologies, as well as the value-adding stages the business intends to take on. The strategistneeds to indicate not only where the business will be active, but also how much emphasis will

be placed on each.Verhicles: How to get there? Selection of vehicles should not be an afterthought or viewed asa mere implementation detail. The company that uses various vehicles on an ad hoc or patchwork basis, without on overarching logic and programmatic approach, will be at a severedisadvantage compared with companies that have such coherence.

Differentiators: How a firm will win in the market place? In a competitive world, winning isthe result of differentiators. They require executives to make upfront, conscious choices aboutwhich weapons will be assembled, honed and deployed to beat competitors in the fight for customers, revenues and profits. Regardless of the intended differentiatiors, the critical issuefor strategists is to make up-front, delibarate choices. Without that, two unfortunate outcomesloom.1. If top managemet doesnt attempt to create unique differentiations, none will occur.

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2. Without up-front, careful choices about differentiators, top management may seek to offer customers across-the-board superority, trying simultaneously to outdistance competiors on toobroad an array of differentiators.In selecting differentiators, strategists should give explicit preference to those few forms of superiority that are mutually reinforcing, consistent with the firms recources and capabilities

and highly valued in the arenas the company has targeted.Staging: The speed and sequence of major moves to take in order to heighten the likelihoodof success. Decisions about staging can be driven by a number of factors.1. Recources2. Urgency3. Achievement of credibility: Attaining certain tresholds can be critically valuable for attracting resources and stakeholders that are needed for other parts of the strategy.4. The persuit of early wins: Wiser to successfully tackle a part of the strategy that isrelatively doable before attempting more challenging or unfamiliar initiatives.

Economic Logic: How profits will be generated? Not some profits, but the profits above thefirms cost of capital. It is not enough to vaguely count on having revenues that are abovecosts. Unless theres a compelling basis for it, customers and competitors wont let thathappen.

The most successful strategies have a central economic logic that serves as the fulcrum for profit creation. Some companies can charge premium prices, because their offerings aresuperior in the eyes of their targeted customers, customers highly value that superiority andcompetitors cant readily imitate the offerings. Systemic advatages of scale, experience andknow-how sharing will lead to lower costs.

The imperative of strategic comprehensiveness

First, all five are imporant enough to require intentionality. Suprisingly, most strategic plansemphasize one or two of the elements without giving any consideration to the others. Second,the five elements call not only for choice, but also for preparation and investment. Third, allfive elements must align with and support each other. Few managers pay attention to theconsistencies required among the elements of the strategy itself. The five elements of thestrategy diamond can be considered the hub or central nodes for designing a comprehensive,integrated activity system.

A strategy is more than simply choices on the five fronts: it is an integated, mutuallyreinforcing set of choices, choices that form a coherent whole.

IKEA: Revolutionizing an industry

Ikea is not only a retailer, but also maintains control of product design to ensure the integrityof its unique image and to accumulate unrivaled expertise in designing for efficientmanufacturing. The company relies on a host of long-term suppliers who ensure efficient,geographically dispersed production. As its primary vehicle for getting to its chosen arenas,IKEA engages in organic expansion, building its own wholly owned stores. IKEA attractscustomers and beats competitors by offering several important differntiators. First, productshave a very reliable quality but are low in price. Second, IKEA customers are treated in a fun,non-threateninng experience. Third, the company strives to make customer fulfillment

immediate. As for staging, IKEAs speed and sequence of moves, once mangement realizedits approach would work in a variety of countries and cultures, the company committed itself

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to rapid international expansion. The economic logic of IKEA rests primarily on scaleeconomies and efficiencies of replication. IKEA has enough standardization that it can takegreat advantage of being the worlds largest furniture retailer. They are vigilant, astutelearners, and they put that learning to great economic use. All of IKEAs actions fit together.The real power and role of strategy is in looking forward. Based on a careful and complete

analysis of a companys environment, marketplace, competiors and internal capabilities,senior managers need to craft a strategic intent for their firm.

Brake Procducts International: Charting a new direction

BPI executives concluded that they had a potential advantage that was well suited to theglobal consolidation of the automobile industry. If BPI did a better job of coordinatingactivities among its geographically dispersed operations, it could provide the one-stop, lowcost global purchasing that the industry giants increasingly sought. BPIs economic logichinged on securing premium prices from its customers, by offering them at least threevaluable, difficult-to-imitate benefits. First, BPI was the worldwide technology leader in

braking systems. Second, BPI would allow global customers an economical single source for braking products. Third, through its alliances with major suspension-componentmanufactures, BPI would be able to deliver integrated supsension system kits to customers.BPIs turnaround was highly successful. The substance of the companys strategy wascritically important in the turnaround.

Of strategy, better strategy, no strategy

Some of skepticism about strategy stems from basic misconceptions.1. A strategy need not be static : It can evolve and be adjusted on an ongoing basis.2. A strategy doesnt require a business to become rigid . Some of the best strategies for todays turbulent environment keep multiple options open and build in desirable flexibility.3. A strategy doesnt deal only with an unknowable, distant future . Strategy used to beequated with 5 or 10 year horizons, but today a horizon of two or three years is often morefitting.

Strategy is nog primarily about planning. It is about intentional, informed and integratedchoices. The strategy diamond is a way to craft and articulate a business aspiration.

Customer Equity Drivers and Future SalesIn the current competitive marketing environment, customer equity as a measure of theexpected future behavior of a firms customers is a key strategic asset that must be monitored

and nurtured by firms to maximize long-term performance. Effective management requirescareful monitoring of customer equity both to detect signals of erosion in customer equity andto appropriate programs to enhance it.

Theory

Value equity is the customers objective assesment of the utility of a brand based onperceptions of what is given up for what is receive. Brand equity is more subjective andemotional. It is the intangible asessement of the brand.

A major strength of Rust, Zeithaml and Lemons (2000) model is its ability to relate acompanys perceived marketing strategy and marketing investments to the customersreactions to these investments and to the economic output generated by the related customer behavior. However, the model does not include some key aspects of customer loyalty. By

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including the construct of loyalty intentions instead of a switching matrix, it is possible toaddress a core criticism of Markov models. To summerize: Our model tries to adress twoparticularly important concerns of Rust, Zeithaml, and Lemons (2000) model: 1. Notconsidering the concept of loyalty and 2. Not using behavioral data. Thus our model is wellsuited to improve the understanding of the relationship among perceived marketing actions,

customer attitudes and future sales.Development of hypothesis

Drivers of Loyalty intentions

1. Value equity: the perceived ratio of what is received ot what must be sacrificed.Thus, a favorable price- quality ratio is indicative of high value equity.

2. Relationship equity: involves the elements that link a customer to a brand or acompany. If perceived relationship equity is high, customers believe that they are welltreated and handled with particular care.

3. Brand equity: the subjective appraisal of a customers brand choice. It is the valueadded to a product or service as a result of prior investmetns in the marketing mix. If customers judge a particular brand as strong, unique and desirable, they experiencehigh brand equity. Because a brand attach additional value to a product or service, itincreases the value compared with a nonbranded product or service.

Link between loyalty intentions and future sales

The theory of reasoned action states that loyalty intentions have an immediate influence onbehavior. Loyalty intentons may result in a readiness ot act(buy). This readiness isaccompanied by the consumers willingness to serach for a favorite offering, despite theconsiderable effort necessary to do so. Therefore a positive effect of loyalty intentions onfuture sales can be assumed.

The link between past sales and future sales

Consumers will prefer to buy at the same retailer they bought from on previous purchaseoccasions, even though they might perceive other retailers as providing the same benefits.Corstjens and Lal(2000) explain that this phenomenon is due to the psychologicalcommitment to prior choices and customers desire to minimize their cost of thinking. =Inertia effect, is rational because it helps consumers achieve satisfactory outcomes bysimplifying the decision-making process and saving the costs of making decisions.

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Results

Overall, the model is stongly supported. The trhee drivers of loyalty intentions(value,brand,relationship equity) explained 44,69% of the vairation in loyalty intentionratings. Value equity bu itself would explain 36,85%, brand equity 36,91% and relationshipequity 20,40%. These percentages cannot be added up, because the equity drivers are notmutualy exclusive. Brand equity has a strong impact on loyalty intentions, closely followedby value equity. The likelihood ratio test show a significant improvement in the fit betweenthe original model and the new model, which includes three direct links etween the equitydrives and future sales.

Discussion

The study shows that all three customer equity drivers positively influence customers loyaltyintentions toward a firm and that customers loyalty intentions have a postive effect on thefirms future sales. Among the three drivers, brand equity and value equity are of primaryimportance in establishing future sales. Besides relationship equity is a significant driver of loyalty intentions. The study alos shows that future sales are directly influenced by loyaltyintentions and past sales. Furthermore, they are indirectly influenced by value equity, brandequity and relationship equity. Considering the equity drivers in particular, it is critical tounderstand that future sales could be influenced by marketing activities targeted towardincreasing the perceived equity of the three strategic fiels of investment: value, brand andrelationship.

Managerial implications

Value equity represents a customers balancing of what is given up (price) and what isreceived in return (value). A firm could consider delivering to the customer different aspectsof value, including quality service, quality product, price, convenience and an engagingshopping environment. It is important that managers uncover the level of influence of variousaspects of value on future sales for different customer segments in their business so thatresources can be appropriately allocated, thus maximizing value equity.

Brand equity is of equal importance to value equity in predicting loyalty intentions and,ultimately, in establishing future sales is noteworthy. When a brand is perceived as attractiveand unique, customers are less likely to switch. Thus, managers must focus on establishing

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and sustaining brand equity to influence loyalty directly. In establishing brand equity,managers must focus on building brand awareness, improving brand image and ensuring theconsistency of delivery of a brands promise at a level that surpasses the customersexpectations.

Relationship equity is a significant driver of future sales. This suggests that firms mustincrease relationship equity by establishing and maintaining sound relationships withcustomers that will help cement customers to the firm. Firms must consider setting upinitiatives, such as community activities and loyalty programs, that provide aspirationalvalue and establishing learning relationships with customers. By amplifying the nonfinancialbenefits provided to the members of the loyalty program, the retailer could become moretrustworthy while also creating switching barriers. Another way to achieve better relationshipequity would be to improve the social value that comes with the relationship with the retailer.

Finally, the challenge for managers who want to improve their marketing accountability isrelated to the lack of scientific approaches that link marketing actions with customer spending

actions. This study informs managers how the proposed model could be applied to companiesin understanding the drivers that are most important for influencing the buying behavior of their customers.

Limitations and further reserach

- The study analyzed a particular retailer from one industry. Caution must be exercisedin generalizing our findings to other retail organizations/industries.

- The analyzed data comes from customers who are current members of the loyaltyprogram of this particular retailer.

-

Only questionnaire data from one point in time is used.It would be fruitful to discuss the complex concept of loyalty intentions in more detail. Finallyit might by useful to examine the extent to which the three types of equity drivers havedifferent effects on specific aspects of purchase behaviors.

Internal and External Analysis Week 45

Marketing MyopiaBy Theodore Levitt

The reason growth is threatened, slowed or stopped is not because the market is saturated, butbecause of a failure of management . It is important to be customer orientated instead of product orientated. For example railroads defined their business incorrectly, they wererailroad oriented, instead of transportation orientated. Furthermore Hollywood defined itsbusiness incorrectly, they thought to be in movie business (product), but they were actually inthe entertainment business (customer). A customer-orientated management can keep a growthindustry growing by constant watchfulness for opportunities to apply their technical know-how to the creation of customer-satisfying uses that accounts for their prodigious output of successful new products, for example nylon, glass and aluminum industry. In each case the

industrys assumed strength lay in the apparently unchallenged superiority of its product. Inthe beginning there appeared to be no effective substitute for it, but over time all the industries

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come under a shadow of obsolescence. For example supermarkets have once took over all thedemand of corner stores and the need for dry cleaning is cut by synthetic fibers and chemicaladditives. The history of every dead and dying growth industry shows a self-deceivingcycle of bountiful expansion and undetected decay. Four conditions that usually guarantee thiscycle:

1. The belief growth is assured by an expanding and more affluent population

2. The belief there is no competitive substitute for the industrys major product

3. Too much faith in mass production and in the advantages of rapidly declining unitcosts as output rises.

4. Preoccupation with a product that lends itself to carefully controlled scientificexperimentation, improvement and manufacturing cost reduction.

Petroleum industry is used as example, due to its excellent reputations, they enjoy confidence

of sophisticated investors and their management are progressive thinkers.An expanding market keeps the manufacturer from having to think very hard or imaginatively, but it is very ceasing to be in a growth industry , but actually in a declining one,relative to other industries. Besides there could always appear an unexpected competitivesubstitute . Oil has never been a continuously strong growth industry, because each time itthought to have a superior product safe from the possibility of competitive substitutes, theproduct turned out to be inferior and notoriously subject to obsolescence (first oil was amedicine, then used in kerosene lamps, afterwards used in space heaters and at last for aviation in war time). It is important to know what makes a business successful. One of thegreatest enemies of the knowledge is mass production , because all effort is focused on

production and get rid of the products, that is why selling is emphasized above marketing.Selling focuses on the needs of the seller and the objective to convert the products into cash,whether marketing focuses on satisfying the needs of the buyer by means of the product andthe whole cluster associated with creating, delivering and consuming it. They create value-satisfying products instead of only offering the generic product or service. For exampleDetroit never really researched customer wants. They only researched their preferencesbetween the kinds of things they were already offering. The areas of the greatest unsatisfiedneeds are ignored or get stepchild attention. Marketing effort is viewed as a necessarycondition of the product, this is a consequence of mass production with its parochial view thatprofit resides essentially in low cost full production. Ford invented a assembly line, becausehe concluded that at $500 he would sell millions of cars. In this case mass production was the

result, not the cause of low prices.

Most of the times profit possibilities of lower unit costs and demand leads to a declining industry , because usually the products fails to adopt to the changing patterns of consumer needs and tastes to new and modified marketing institutions and practices or to productdevelopments in competing or complementary industries. The industry has its eyes so firmlyon its own specific products that it does not see that it is being made obsolete. For example if the buggy whip industry defined itself as being in the transportation business rather than beingin the buggy whip industry, it might have survived. Besides people actually do not buygasoline, they buy the right to continue driving in their cars. The gas station is perceived as atax collector, this makes the gas station a basically unpopular institution. Once companies

recognize the customer satisfying logic of other power systems, they have no choice aboutworking on an efficient, long lasting fuel. For their own good the oil firms have to destroy

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their own profitable assets. This creative destruction is necessary to stay profitable in thefuture. The historical fate of one growth industry after another has been its suicidal productprovincialism.

If a company becomes successful by creating a superior product, management continues to be

orientated towards the product rather than the people who consumer it. This develops thephilosophy that continued growth is a matter of continued product innovations andimprovement. This will lead to a selective bias in favor of research and production instead of marketing and the organization will view itself as making things rather than as satisfyingcustomer needs. Marketing is treated as residual activity, that must be done once the vital jobof product creation and production is completed. To this bias is added the favor of dealingwith controllable variables. The abstractions to which they feel kindly are those that are testedor manipulated in a laboratory or if not testable, then functional.Important are the realities of the market. Managers believe that consumers are unpredictable,varied, stupid, shortsighted and generally bothersome. That is why they focus on what theyknow and what they control, namely product research, engineering and production. Basic

questions about customers and markets seldom get asked, the latter occupy a stepchild status .They are recognized as existing, nut not worth very much real thought or dedicated attention.

The view that an industry is a customer-satisfying process instead of a good-producingprocess is vital for all business people to understand. Given the customers needs, the industrydevelops backward with the physical delivery of customer satisfactions, to creating things bywhich these satisfactions are achieved and finally to finding the raw materials necessary for making its products. Organizational lifetime conditioned management to look in the oppositedirection, what means marketing is a stepchild.

In any case it should be obvious that building an effective customer orientated company

involves far more than good intentions or promotional tricks, it profound matters of humanorganizations and leadership . A company has to adapt to the requirements of the market andit as to do it sooner rather than later. The trick is to survive gallantly and to feel the visceralfeel of entrepreneurial greatness. It is important to have a vigorous leader who is drivenonward by a pulsating will to succeed. This leader must have a vision that can produce eager followers. Beside the company must think of itself as providing customer creating valuesatisfactions instead of producing products. They are buying customers, as doing things thatwill make people want to do business with. The leader must create this environment, thisviewpoint, this attitude and this aspiration.

Unless a leader knows where he is going, any road will take him there.

Assessing Advantage: A Framework for Diagnosingcompetitive superiorityBy George S. Day & Wensley

Effective strategy moves are grounded in valid and insightful monitoring of the currentcompetitive position coupled with evidence that reveals the skills and resources affording themost leverage on future cost and differentiation advantages. Superior performance requires abusiness to gain and hold an advantage over competitors is central to contemporary strategicthinking. Business seeking advantage develop distinctive competences and manage for lowestdelivered costs or differentiation trough superior customer value. The promised pay off is

market share dominance and profitability above average for the industry. A organizingframework that clarifies the nature of competitive advantages is used to ensure a thorough and

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balanced assessment of the reasons for the competitive position of a business. There aredifferent stages in the measurement system, these appraisals are highlighted. (table 3)

1. Relationship between competitor focused and customer-centered approaches

Perspectives on competitive positionCompetitor-centered assessment is based on direct management comparisons with a fewtarget competitors. This approach is often seen in industries where the emphasis is on beatthe competition. The key question is: How do our capabilities and offerings compare withthose of competitors? These businesses watch costs closely, quickly match the marketinginitiatives of competitors and look for their sustainable edge in technology. Managers keep aclose watch on market share and try to detect changes in competitive position. Thisperspective leads to a preoccupation with costs and controllable activities, which cancompared directly with the rivals.

Customer-focused assessment starts with detailed analysis of customer benefits within end-use segments and work backward from the customer to the company to identify the actionsneeded to improve performance. This market back orientation is often found in service-intensive industries, like investment banking, in which new services are easily imitated, costsof funds are the same and entry is easy. Relatively less attention is given to competitorscapabilities and performance, the emphasis is on quality of customer relationships. Continuingcustomer satisfaction and loyalty id more meaningful than market share. This perspectivehave the advantage of examining the full range of competitive choices in light of thecustomers needs and perceptions of superiority but lack an obvious connection to activitiesand variables that are controlled by the management.

Market environments are not unambiguous realities, there are given meaning in the minds of managers trough processes of selective attention and simplification. Perspectives are neededto simplify their environments.

There are several meanings of competitive advantage, because there is no agreement on whatelements to include or how they are related, information gaps cannot be identified.Eleven distinct measurement approaches are evaluated for:

1. Conceptual validity is the measure compatible with the framework?

2. Measurement feasibility does the measure employ readily available inputs that arelikely to provide reliable and unbiased information?

3. Diagnostic insights will the measure yield information that can guide strategicchoices to enhance the long run value of the business?

Competitive advantage is sometimes used interchangeably with distinctive competence tomean relative superiority in skills and resources. Besides another meaning refers to what weobserve in the market positional superiority, based on the provision of superior customer value or the achievement of lower relative costs and the resulting market share andprofitability performance. An integrated view of those two meanings is based on bothpositional and performance superiority. The sustainability of positional advantage requiresthat business set up barriers that make imitation difficult. These barriers to imitation arecontinually eroding, what means the company have to invest continually in sustain or improvethe advantage. That is why the creation of a competitive advantage are the outcome of a long-run feedback or cyclical process.

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2. Source-position-performance framework

Sources of Advantage represents the ability of a business to do more or do better than itscompetitors.

Superior skills are the distinctive capabilities of personnel that set them apart from thepersonnel of competing firms. This arise from the ability to perform individual functions moreeffectively than other firms. For example: superior technical skills may lead to greater precision or reliability of the finished product. Skills derived from organization structureenable the firm to adopt more responsively and faster to changes in market requirements.Superior resources are more tangible requirements for advantage that enables a firm toexercise its capabilities. Examples are scale of manufacturing facility, location, distributioncoverage, family brand name etc. The distinction between antecedent sources of advantageand the positional advantages that result when they are deployed adroitly is seen readily insuccessful turnaround strategies.

Positions of advantage are directly analogous to competitive mobility barriers that coulddeter a firm from shifting its strategic position. They understood the best in a value chain,which classifies activities of the firm into the discrete steps performed to design, produce,market, deliver and service a product. Only value creation activities with great impact ondifferentiation and that account for a large or growing proportion of costs are considered:

lowest delivered cost positions - an overall cost edge is gained by performing mostactivities at a lower cost than competitors while offering a parity product.

Differentiated positions- a business is differentiated when some value adding activitiesare performed in a way that leads to perceived superiority that are valued by

customers. These activities are only profitable, if customers are wanted to pay a pricepremium. Some favored routes are providing superior service, offering innovativefeatures, using as strong brand name and providing superior product quality.

Performance outcomesThe most popular indicators of marketing effectiveness and competitive advantage are marketshare and profitability. Alternative measures are customer satisfaction and the value of customer franchises are less used.

Market share this measure can distinguish winners from losers, but it is a very simplisticview on competition, because competition is played over many time periods with evolvingmarkets. Besides there are few markets in which current share does not have a strongrelationship to future share. If the market share have to serve more than simply an outcomemeasure, the observed market share must be difficult to imitate and must refer to a market

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Positional advantages

Superior customer

value Lower relative costs

Performanceoutcomes

Satisfaction

Loyalty

Sources of advantage

Superior skills

Superiorresources

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with relatively stable boundaries. Besides to be a valid measure of competitive forces, it alsoshould relate to ways the competitor defines the market and should reflect emergingcommunalities and differences in market segment behavior. A single market share measure isunlikely to satisfy these requirements.

Market share and profitability there are two directions of the causality: from share to profitand from profit to share (companies which are profitable will reinvest the profits so they growfaster than their less fortunate rivals). Early in the evolution of the market first mover advantages dominate.

Profitability this is the reward from past advantages after the current outlays needed tosustain or enhance future advantages have been paid. Profitability is influenced by actionstaken in many previous time frames, it is unlikely to be a complete reflection of currentadvantage. If environment is turbulent it could be a misleading indicator. The interpretation of profitability is complicated by limitations, because the cost based approaches that underliemost accounting results are fundamentally different from approaches that estimate financial

value from the stream of future benefits, for example the treatment of intangibles.Consequently future value of an asset depends critically on how it is used and whether thestream of benefits can be protected from competitive forces.

Converting skills and resources into superior positions and outcomesNeither the marketing or strategy approach gives much attention to the relationship of theinput sources of advantage and the performance outcomes of market share or profit. Generallythere is more attention paid to the conversion of superior skills and resources to positionaladvantages. This are the structural determinants or drivers of cost or differentiationadvantages.

Converting sources into positions of advantageDrivers of positional advantages are the high leverage skills and resources that do the most tolower costs and create value for customers.

Cost drivers are the structural determinants of cost of each activity. Primary driversare:

1. scale of economics

2. learning that improves knowledge and processes independently

3. patterns of capacity utilization and the linkages

4. linkages: the way one activity is performed affects another activity (for example: more costly product design are used to reduce service costs).

Drivers of differentiation represent the underlying reasons why an activity is executedin a unique or superior way. Principal drivers are:

1. Policy choices about what activities to perform

2. Linkages within the value chain (for example: coordination between sales andservice to improve speed of order handling)

3. Timing that gains first mover advantages

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4. Other drivers could be: location, interrelationships with other businesses,learning and scale.

Converting sources directly to performanceThis conversion is modeled in the fundamental theorem , which holds that market shares of

various competitors are proportional to their sales of total marketing effort. This relationshipis a key feature of the so called market share attraction models. The basic notion is that thefirms competitive strength roughly correspond to its functional expenditures andcompetencies. In the most extensive application of the theorem a firm has an advantage, whenits capacity to supply products is greater than the market demand for its output. The resultingproducts can be applied to exploiting opportunities to gain share. The size of this advantage isestimated by subtracting the firms share to strategic investments from its share of units sold(Cook, 1983). The basic valuation model proposed by Cook presumes that the current level of investments in terms of annual cash outlays is the proper basis for assessing the level of market share a business can sustain. The resulting market share has a net present value thatrelates current outlays to the discounted value of the future revenue stream (Cook, 1985). In

reality this model only gives a partial picture of the potential value of past and currentstrategic investments. A complete picture must reflect:

1. The link between todays investments and opportunities to execute tomorrowsoptions. Especially in case of new technologies a first investment if often a necessarycondition to learn enough to be in the position to make further investments

2. First mover advantages

3. Strategic choice of when and how the profit potential of a positional advantage will berealized

The size and duration of a superior payoff depends on: Whether the perceived value by the customer and the resulting price premium are

greater than the extra costs of the differentiation.

Trade off between higher immediate profit and the increased market share gained withthe penetration price.

Opportunities to sustain an advantage over time

4. Nature of individual measures

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In figure 2 of the article the framework for assessing advantage describes the relation of performance of a business to that of its competitors. The framework illustrates thatconversions from superior skills and resources to positional advantages is mediated bystrategic choices, like entry timing, implementation, costs etc. Besides key success factorsmust be managed obsessively to ensure long run competitive effectiveness.

Methods for assessing advantages (table 2)

Competitor-centered methodsThe essence of this methods is a direct comparison with target competitors. Commoncompetitor-based method is judgmental identification of distinctive competences, which arebased on unique levels and patterns of both skills and resources, deployed in ways thatcannot be duplicated by others. A company can have a distinctive advantage without gaining acompetitive advantage, if this advantage is relatively unimportant to customers.

Identifying distinctive competences

1. Judge mental analyses of strengths and weaknesses - an almost limitless array of potentially influential factors gives no guidance. There are several reasons: firstcommonly the judgments are made without any reference point. Second, there is oftenno distinction between what the business does well that is valued by customers andwhat is does well what is unimportant for customers. Third, the judgments are basedon historical data or simple trend extrapolations, they do not give any insight in futurepossibilities. To overcome these problems a participative process involving task forcesto set priorities could be employed.

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2. Direct comparisons of resource commitments and capabilities- disproportionateweight tends to given to hard data about competitors because it is accessible andinvites direct comparisons. This type of data gives a narrow view of the relative size of competitive capabilities and commitment. The following factors must also beconsidered: functional capabilities, the capacity to grow, capability to respond quickly

to moves by others and ability to adapt to change.3. Assessing superiority in skills: The role of the marketing skills audit- skills are the

most distinctive encapsulation of the organizations way of doing business. This iswhat really matters in the long run, because they are the essence of adaptiveorganizations. It is important to focus on customer satisfaction, continuous innovationand a widespread commitment from the whole organization to obtain the first twoorientations.

In absence of objective and comparable measures, the only recourse is the knowledge of thebusiness unit managers. Subjective judgments are readily biased by selective perceptions and

dominated by facts and opinions that are easy to retrieve. Hard evidence of past and currentsuccesses is given more weight (market share, profitability), than soft assessments of futurethreats. Besides there are differences across organizational levels in the perceptions of whichskill and resource factors are important. Better overall judgments result when an externalmeasure of expertise can be used to pick the best expert for an issue. Unfortunately even thisperson is not immune to the biasing effects of selective perception.

Indicators of positional advantageThe emphasis of competitor- center method is inevitably on cost differences and activitycomparisons, because it is difficult to say whether an activity is better performed by acompetitor without customer judgments.

1. Value chain comparisons of relative costs - a cost advantage is gained when thecumulative cost of performing all the activities is lower than competitors costs. Todetermine the relative cost position an identification of the costs of each competitorsvalue chain is accomplished.

2. Cross-sectional experience curves provides a comparison of the current total costspositions of the competitors in a market according to their cumulative experience base.This makes it possible to estimate the relative profitability of each competitor at theprevailing price.

Identifying key success factors

1. Comparison of winning versus losing competitors - there are four categories of reasonsfor the differences in performance: uniqueness of the vision or strategy, resourcespossessed, differences in assumptions about the environment and fortuitous factorssuch as good timing or location.

2. Identifying high leverage phenomena key success factors are too superficial becausethey identify things, instead of relationships between desired outcomes andcontrollable inputs (for example: distance shipped and distribution costs per unit).

2.a. Management estimates of market elastics analyses measures degree to whichtotal revenues will be increased or decreased by changes in marketing activities, suchas pricing, sales efforts and service levels. It is unclear if the concept of elasticity canbe generalized.

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2.b. Drivers of activities on the value chain the procedure is better suited to costdrivers than to differentiation drivers, because these are based on relationships that canbe identified largely from internal data.

Customer focuses measures

In this approach comparison of competitors is made by customers. Emphasis is shifted tosegment differences and differentiation advantages. ( figure 3 )

Perspectives on positional advantages

1. Choice models there are several choice models, but full pay off will come when theycan incorporate the effect of controllable marketing variables as well as productattributes on the choice among competitive alternatives.

2. Conjoint analyses offers the capability to decompose an overall preferences or valuefor money measure into utility scores for each level of each attribute.

3. Market mapping these maps compress the information from customer judgmentsabout related attributes to a few composite dimensions. It is a pictorial representation,which gives the specific reasons why customers prefer one competitor over another.

Customer evidence of relative performanceThese performance measures require direct customer input.

1. Customer satisfaction

2. Customer loyalty- when the costs a customer would incur in searching for further information exceeds the benefits of the search.

3. Relative share of end-user segments- obtained by dividing the share of the firm by theshare of the top three competitors.

5. Overall processWe must look critical to the overall measurement process and its development and impactwithin the organization. Any measurement systems will be of commercial value if it is linkedadequately to the strategy formulation, resource location and tacitical planning process.

Summary and implications

An effective competitive strategy begins with the timely and actionable diagnosis of currentand prospective advantages of business. Information requirements:

1. There is adequate illumination of sources of advantage: superior customer value or lowest delivered costs or superior performance.

2. Balance of customer-focused and competitor-centered methods.

3. Proprietary information about sources that exert most leverage on positionaladvantages and future performance, is a competitive advantage.

The SPP framework (source, position and performance) is used to understand the nature of the advantages. This integrative multiple measurement perspective is required before a fullpicture can drawn. A point of advantage can only be profitable, if it is perceived and valued

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by customers and is difficult to imitate for competitors. Besides there is a certain performancepay off between superior costs or differentiation positions.

The available information is an advantage, the evidence is not only descriptive , but alsohistorical, distorted and incomplete. Historical because of the convenience of using readily

available measures being collected to monitor past performance and other needs. It isdistorted , because most available measures are linked to control and reward systems andalternatively measures rely on management judgments, which are biased by selectiveperceptions and recall of past successes. Finally, available measures are usually incomplete ,because they are derived from inappropriate conceptual frameworks.

Limits to customer-centering focus on costs and internal activities will deflects attentionfrom changes in market segment structures of customer requirements that might shift attributejudgments. Managerial and other expert judgments needed to watch and judge the relativeperformance of the markets and its competitor is biased by susceptibility.Limits of customer-focusing it is seldom apparent how attributes that are important to the

customer are influenced by activities in the value chain.Mapping your competitive positionBy Richard A. DAveni

In case an innovation pervades the value chain, a company must be able to migrate quicklyfrom one competitive position to another, creating new ones, depreciating old ones andmatching rivals. A possibility to do this to track the relationship between prices and productskey benefits over time. Most customers are unable to identify the features that determine theprices they are willing to pay for products or services, besides 50% of the salespeople do notknow what attributes juftify the features that determine the prices of products they sell. Byconducting a simple statistical analysis it is possible to draw a price-benefit positional mapwhich provides insights in the relationship between prices and benefits and tracks competitivepositions over time. Executives can use the tool to benchmark themselves against rivals,dissect competitors strategies and forecast markets future.

Developing price-benefit positional map:1. Define market by specifying the boundaries of the market in which you are

interested. First you have to identify the consumer needs and cast a wide net of products and services that satisfy those needs. Afterwards you must limit thegeographic scope if the products differ widely across the border. Finally you have todecide if you want to track the entire market for a product or only a specific segment.

2. Choose the price and determine the primary benefit it is important to identify theprimary benefit, this is the benefit which explains largest amount of variance in prices.It is important to use unbiased data, that is why you have to employ a regressionanalysis to identify the primary benefit, because consumers mostly cannot explain whythey make their choices. The benefit with the highest R 2 explains most of the variancein prices.

3. Plot positions and draw the expected price line this may be a oversimplification, butshows the relative position of competitors on common scale. The expected price lineshows how much customers expected to pay on average to get different levels of theprimary benefit. The trend is mostly a straight line, because people tend to pay morefor a higher level of benefit. Companies could position a brand/product above the line

to maximize profits or below the line to maximize market share.

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Interpretation positioning mapsPositioning maps helps companies to pinpoint the benefits that customers value, locateunoccupied or less competitive spaces, identify opportunities created by changes in the

relationship between the primary benefit and prices and allow companies to anticipate rivalsstrategies. Valuing intangible benefits it is important to calculate the premiums a company

earns for intangible secondary benefits, like supplementary service. Anticipating shifts in the value of benefits companies can employ the price-benefit

equation to get ahead of rivals in markets where consumers keep demanding differentbenefits.

Finding paths to least resistance to extend the use of price-benefit maps companiescan add more data, like unit sales, sales growth to identify areas with low competitiveintensity. Careful analysis can provide an early warning of a shift in customerspriorities.

Preempting rivals maps can used to predict the strategic intent of rivals and findmaps of preempting them. A possibility is to project the market trends. By forecastingthe movements of prices and benefits companies can stay ahead of shifts in expectedprice lines and their rivals.

Price-benefit map sounds early warnings, suggest responses to competitive threats and opensexecutives minds to many possibilities.

Growth Options Week 46

Blue Ocean StrategyBy W. Chan Kim and Rene Mauborgne

The article starts with the example of Cirque du Soleil, in a declining business of circuses theyhave managed to create a successful business.The business universe consists of two distinct kinds of space;Red Oceans, representing all existing firms, the known market space. Industry boundaries aredefined and accepted Competitive rules of the game are understood. Competitors try tooutperform one another by grabbing a greater share of existing demand.. Prospects for profitsand growth are reduced, products turn into commodities.Blue Oceans, industries not in existence. Demand is created, and ample opportunity for growth. Two ways for creating Blue Oceans;

- Completely new industries- Created from within

While studying many creations of blue oceans a consistent strategic pattern of thinking isobserved.

Blue and Red OceansCompanies have a huge capacity to create new industries and re-create existing ones. Lookingforward and backward in time it seems clear that Blue Oceans will remain the engine of growth. Red Oceans are shrinking steadily. Supply is overtaking demand. In overcrowdingindustries it becomes harder to differentiate brands in economic upturns and downturns

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The Paradox of StrategyRed oceans are much more favoured than Blue Oceans, although Blue Oceans deliver moreprofit. An explanation for this is that corporate strategy is heavily influenced by its roots in

military strategy. Red Ocean strategy is therefore all about competition, confronting anopponent and driving him off a battlefield. Blue Ocean is about creating doing business wherethere are no competitors, and creating new land. Focussing on RO means accepting the keyconstraints of war and means denying distinctive strength of the business world.This focus on winning against rivals is evolved from the entrance of Japanese companies.Competition was at the core of corporate success or failure they arguedTwo lucrative aspects of strategy are ignored:

Find markets with no or little competition BO - Exploit and protect BO

Toward Blue Ocean StrategyStudy on over 100 companies with BO creating delivered these key findings;Blue Oceans are not about technological innovation. Technology is sometimes involvedbut not a defining featureIncumbents often create BO and usually within their core businesses. BO are created fromwithin, they are right next to youCompany and industry are the wrong units of analysis . Company and industry have littleexplanatory value when analyzing BO creation. Better to focus on strategic move, the set of managerial actions and decisions involved in making a major market-creating businessoffering

Creating BO builds brands. Companies in example are remembered for the BO theycreated. So BO delivers brand equity. The key for managers is to make the right strategicmoves. The creation of BO is a product of strategy and as such is very much a product of managerial action

The Defining CharacteristicsSeveral characteristics of BO:The authors found that the creators of BO never use competition as a benchmark. They makeit irrelevant by creating a leap in value for both buyers and the company itself Furthermore BO strategy rejects the fundamental tenet of conventional strategy: that a trade-off exists between value and cost. But BO creation tells, successful companies pursue

differentiation and low cost simultaneously.Driving down costs while simultaneously driving up value for buyers, a company can achievea leap in value. BO strategy is achieved only when the whole system of a companys utility,price and cost-activities is properly aligned. It is the whole system approach that makes thecreation of BO a sustainable strategy. BO strategy integrates the range of a firms functionaland operational activities.Rejection of the trade-off between cost and differentiation implies a fundamental change instrategic mind-set. This is very important. The assumption of given structural conditions andforced competition within them (RO) is called the structuralist view or environmental determinism . This views says that companies and managers are largely at the mercy of economic forces greater than themselves. BO is based on a view that says that market

boundaries and industries can be reconstructed by the actions and beliefs of industry players,the reconstructionist view .

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Barriers to ImitationCreators of BO can often 10 to 15 years profit of their creation, because there are high barriersfor imitation.BO are able to generate scale economies very rapidly.They can immediately attract large number of customers and create network externalities.

The requirement to make changes to their whole system in order to imitate, organizationalpolitics may impede a competitors ability to switch to a different business model.The cognitive barrier can prevent competitors to enter. When company offers a leap in value,it earns brand buzz and loyalty.In other situations adapting to the BO strategy conflicts with the imitators existing brandimage. Ex. Body Shop and Loreal etc.

A Consistent PatternBlue and red oceans have always existed. It is necessary for companies to understand thestrategic logic of both types. It is time to even the scales in the field of strategy with a better balance of efforts across both oceans. The BO strategies have always existed but where

mostly unconscious. When companies realize that strategies for BO have different underlyinglogic, they will be able to create much more Blue Oceans.

Market Busting: Strategies for Exceptional BusinessGrowth

Opening quote: A company cant outperform its rivals if it competes the same way they do.Reconceive your businesss profit drivers, and you can change from copycat to king of thejungle..

Introduction

The main topic of this article is growth through changing a companys profit driver. Theauthor starts with a very clear example: the ready-mix concrete (gebruiksklaar cement)business. This has been a very stable market for many years. Each competitor played by therules and has a stable market share. Then, one company decide to change its profit driver;instead of selling concrete by the cubic yard or m 3 like all other companies, they decide tomake delivery their profit driver. Delivering the concrete at the right time at the right place ismuch more important to costumers than the price per cubic yard.

The Language of growthAs industries emerge and evolve, most companies settle on a common unit of offering:lawyers sell units of time (billing hours), manufactures sell units of products etc. These are all

unit of business , the fundamental basis for transactions between buyers and sellers.Associated with these units are key metrics : used to assess how well the company is doing(e.g. % of total billing hours actually billed). Often growth is possible by:1. Change the unit of business : make sure the unit of business reflects the value created for customers (so delivery speed instead of volume for the concrete firm)2. Change your performance on existing key metric: Make the existing key metricuniquely favor your company.

A Profitable alignment 1 and 2 above can result in: growth, higher price for your product because they are of greater value, you can be more proactive, create more shareholder value. Above that, it takes time for

competitors to react, since their business is still build on the old metrics

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Eight Moves for Growtheight moves to redefine profit drivers and realize low risk growth1. Change your unit of business: The concrete example2. Improve your key metrics: perform better, uniquely favor your company. Productivity3. Improve your cash-flow velocity : faster cashflows = Less working capital needed = more

effective use of assets.4. Improve your assets utilization: which will improve ROI5. Improve customers performance6. Improve customers personal productivity (convenience, time saving)7. Help improve customers cash flow8. Reduce customers asset intensity

Putting these ideas to good useApproach or steps:

Identify your unit of business and associated key metricsWhat does the company charge for? We make money by billing our customers

for_____Does that really reflect the value you create for your customers?

Identify obstacles to change

Why havent we changed yet? 2 techniques1. Japanese Five Whys: why.? Why.? Why? Why? .2. Five REsRemove: can we remove costs?Replace: if we cannot remove the costs, can we replace them by less expensive unitReduce: if we cannot replace costs, can we reduce them?Redesign: If we cannot reduce costs, can we improve in efficiency?Redistribute: If we cannot redesign, can we distribute costs over more products?

Review key customer segments you serve

Assess the need for new capabilities and potential internal resistance

Decide on a marketing and communications plan

Value Innovation; The Strategic Logic of High GrowthBy W. Chan Kim and Rene Mauborgne

Abstract The authors study how innovative companies break free from the pack by creatingfundamentally New market places, that is, by creating new products or services for whichthere are no direct competitors. A different competitive mindset is needed by managers.Instead of searching within the boundaries of industry competition, managers should look across those boundaries and find unoccupied territory. For example French hotel chain Accor,which developed what customers really needed, that is, a cheap place to stay and a goodnights sleep.

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Profitable growth is a tremendous challenge many companies face. Why do some companiesachieve growth? The difference in companies, which do achieve growth, is companiesfundamental, implicit assumptions about strategy. High growth companies paid little attentionto beating or matching their rivals.

The article continuous with the example of Bert Claeys and his Kinopolis, the super sizedcinema in Brussels. In a declining visitors market for movie theatres, Bert developed amegaplex with 7600 seats and 25 screen. The strength of this formula is in its differentiation.It is completely different than the industry standard, making it irresistible, i.e. cheap, quality,etc. for customers. The company put aside conventional thinking about how a theatre shouldlook like and made it even cheaper.

Conventional Logic Versus Value InnovationConventional logic and Value innovation (VI) differ over 5 basic dimensions of strategyIndustry Assumptions. Where many companies take their industries conditions as given,value innovators dont. They look for blockbuster ideas and quantum leaps in value. Ex. The

idea of Bert Claeys.Strategic Focus. Many organisations let competitors set the parameters for their strategicthinking. Compare strength and weaknesses with those of rivals. Ex. CNN developed 24/7hnews. The logic of value innovation starts with an ambition to dominate the market byoffering a big leap in value. VI monitor competitors but do not use them as benchmarks.Furthermore they free up their resources to identify and deliver new sources of value. Oftenthey achieve competitive advantages, although that is not the objective.Customers. VI do not focus on retaining and expanding their customer base. They focus oncommonalities in features that customers value. VI believe that customers will set differencesaside if they are offered a considerable increase in value.Assets and Capabilities. VI try to develop new business. Assess business opportunities

without being biased or constraint by where they are at a given moment. Ex. VirginMegastoresProduct and Service Offerings. VI cross the established boundaries defined by industry.They want to provide a total solution for buyers and not let them make a forced choice of aproduct. Ex. Bert and Compaq approach.

Creating a New Value CurveTake the Accor case as example. Accor developed a hotel what customers of budget hotelswanted, that is, a good night sleep for a low price. They created the Formula 1 hotels. Theextend to which they departure from the standard thinking can be seen in the value curve (seearticle). Value curve is a graphical representation of a companys relative performance across

its industrys key success factors. It usually follows one basic shape, rivals try to improvevalue by offering a little more or less, but never challenge the shape of the curve. ValueInnovators (VI) do, by eliminating features, creating features, and reducing and raisingfeatures to unprecedented levels in their industries. Ex. SAP integrated software developer.

The Trap of Competing, the Necessity of Repeating Eventually a VI will find its growth and profits under attack, by competition. In an attempt toresist VI often fall in the trap of conventional strategic logic to defend itself. Ex. Compaq.Monitoring the value curves may prevent a company from pursuing innovation when there isstill a huge profit to be collected from current operations. Innovation speed differs amongindustries, some companies can harvest their innovations for a long time, others can not.

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Driven by internal pressure some companies innovate, just to innovate. VI should deliver unprecedented value, not technologies or competencies. It is not the same as being the first tothe market.When value curve is fundamentally different than that of rest of the industry, and thedifference is valued by most customers, companies should resist innovation. Instead they

should focus on geographic expansion and operational improvements to achieve maximumeconomies of scale and market coverage. This discourage imitation and allow companies totap the potential of their current value innovation.

The Three PlatformsValue Innovation can take place on three platforms, product, service and delivery. Companiesthat are most successful on repeating value innovation were those that took advantage on allthree platforms. Platforms differ across industries and companies, but in general the productplatform is the physical product, the service platform is support such as maintenance,customer service, warranties, training for distributors and retailers, delivery platform islogistics and channels to deliver products to customers. Too often managers focus only on

product platform. But as customers and technologies change, each platform presents newpossibilities. Good VI rotate their value platforms.

Driving a Company for High GrowthOne of the key findings is that logic is often not articulated, and because not examined, acompany does not necessarily apply a consistent logic across its businesses.How can senior executives promote VI? First they should identify and articulate companiesprevailing strategic logic. Then challenge it, they must stop and think about industriesassumptions, companys strategic focus, approaches - to customers, assets and capabilities,product and service offerings that are taken as given.After reframing strategic logic around VI, Senior executives should ask 4 questions to create a

new value curve:1. Which of the factors that our industry takes for granted should be eliminated?2. Which factors should be reduced well below the industrys standard?3. Which should be raised well above the industrys standard?4. Which factors should be created that the industry has never offered?

All 4 questions should be asked. VI is the simultaneous pursuit of radically superior value for buyers and lower costs for companies.

In diversified corporations logic of VI can be used to identify most promising possibilities for growth across portfolio. Pioneer metaphor is the extend to which a company pushes the valuefor customers to new frontiers. A companies pioneers are the businesses that deliver

unprecedented value, and are the most powerful sources for growth. Settlers are the other extreme, and do not deliver much value to the company. In between are the Migrators, theyextend the industrys curve, but do not alter its shape.

A company which pursues growth can plot the portfolio on the pioneer-migrator-settler map.When this mainly consists of settlers, maybe the company has fallen into the trap of competing. Migrators indicate there can be expected growth, but it is not exploiting itspotential fully. It can predict future growth and profits, task which is crucial in a fast changingeconomy.

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Designing and Managing Brand portfolios Week 47

The brand report card the worlds strongest brandsshare ten attributes. How does your brand measureup?

By Kevin Lane Keller

Building and properly managing brand equity has become a priority for all kind of companies.After all, from a strong brand equity flow customer loyalty and profits.The problem is, only few managers are able to objectively asses their brands strengths andweaknesses. Many even find it difficult to include all relevant factors. In this article, the tencharacteristics that the worlds strongest brands share are identified. Furthermore, a brandreport card is set up (page 149) a systematic way for managers to grade their brandsperformances for each of those characteristics.

The top ten traitsThe worlds strongest brands share these ten attributes;

1. The brand excels at delivering the benefits customers truly desireExample - Starbucks started off as a small coffee retailer. They didnt sold coffee by thecup, treated coffee as groceries. By doing so, they stayed away from the heart and soul of what coffee has meant for centuries; the sense of community. Starbucks began to focus onbuilding a coffee bar culture, opening coffee bars like the ones in Italy. Starbucks coffeebars thus far have successfully delivered superior benefits to customers. Sales and profits

have grown more than 50% annually through much of the 1990s.2. The brand stays relevantIn strong brands, brand equity is tied both to the actual quality of the product and tovarious intangible factors. Without losing sight of their core strengths, the strongestbrands stay relevant in the product arena and changes their intangible assets to fit thetimes.Example Gillette spends millions of dollars on R&D to ensure that its razor blades aretechnologically advanced as possible.Relevance now has a deeper meaning in todays market witness various corporatebrands that very visible support breast cancer research or current educational programs.3. The pricing strategy is based on consumers perceptions of value

Example In implementing P&Gs value-pricing strategy for the Cascade automatic-dishwashing detergent brand, a cost cutting change in its formulation was made that hadan adverse effect on the products performance under certain conditions. Lever Brother quickly responded attacking Cascades core equity of producing virtually spotless dishesout of the dishwasher. P&G immediately returned to the brands old formulation. Thelesson to P&G is that value pricing should not be adopted at the expense of essentialbrand-building equities.4. The brand is properly positionedThe most successful brands in this regard keep up with competitors by creating points of parity in those areas where competitors are trying to find an advantage while at the sametime, creating points of difference to achieve advantages over competitors in some other areas.5. The brand is consistent

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Maintaining a strong brand means creating the right balance between continuity inmarketing activities and the kind of change needed to stay relevant. The brands imageshouldnt het blurred by series of marketing efforts that confuse customers by sendingconflicting messages.6. The brand portfolio and hierarchy make sense

Most companies have multiple brands; they create different brands for different marketsegments. The corporate brand acts as an umbrella. Brands at each level of the hierarchycontribute to the overall equity of the portfolio through their individual ability to makeconsumers aware of the various products and foster favorable associations with them. Atthe same time, though, each brand should have its own boundaries.Example BMW has a well designed hierarchy. At the corporate brand level, BMWpioneered the luxury sports sedan category by combining seemingly incongruent style andperformance considerations. BMWs advertising slogan the ultimate driving machinereinforces the dual aspects of this image and is applicable to all cars sold under the BMWname. At the same time, BMW created well-differentiated sub brands through its 3, 5 and7 series, which suggest a logical order and hierarchy of quality and price.7. The brand makes use of and coordinates a full repertoire of marketing activities

to build equityManagers of the strongest brands appreciate the specific roles that marketing activities canplay in building brand equity. Some activities, such as traditional advertising, lendthemselves best to pull functions; create consumer demand. Others, like trade promotions,work best as push programs; designed to push the product through distribution.Example Coca Cola makes excellent use of many kinds of marketing activities.8. The brands managers understand what the brand means to consumersIf its clear what customers like and dont like about a brand, and what core associationsare linked to the brand, then it should be also clear whether any given actions will fall inline nicely with the brand or create friction.9. The brand is given proper support, and that support is sustained over the long

runExample Coors Brewing. As Coors devoted increasing attention to growing equity of itsless established brands, and introduced new products, ad support for the flag ship branddropped from about $ 43 million in 1983 to $ 4 million in 1993. Furthermore, the themesof Coors ads shifted from western images to reflecting more modern themes. Notsurprisingly, sales dropped by half. Finally, in 1994 Coors returned to its original focus,admitting that they did not consistently give the brand the attention it needed.10. The company monitors sources of brand equityStrong brands usually make use of in-depth brand audits and brand-tracking studies.

Brand audits an exercise designed to assess the health of a given brand. Normally itconsists of a detailed description of how the brand has been marketed and what the branddoes and could mean to consumers.Brand tracking studies can build on brand audits by employing quantitative measures toprovide current information on how a brand is performing for any given dimension.Whereas brand audits measure where the brand has been, tracking studies measure wherethe brand is now and whether marketing programs are having intended effects.

Brand equityUltimately, the power of brands lies in the minds of customers, in what they have learned or experienced about the brand over time. Consumer knowledge is at the heart of brand equity.

Brand equity can provide marketers with a strategic bridge from past to future.

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All the money spend on marketing each year can be thought of investments investments inwhat consumers know, feel, believe and think about the brand. That knowledge dictatesappropriate and inappropriate future directions for the brand for its consumers who willdecide where they think that brand should go.Finally, brand equity can help marketers focus. Marketers who build strong brands have

embraced the concept and use it to clarify, implement and communicate their marketingstrategy.

About your brandBy Kevin Lane Keller, Brian Sternthal and Alice Tybout

Traditionally, the people responsible for positioning brands have concentrated on points of difference. But points of difference alone are not enough to protect a brand againstcompetitors. Too little attention is often paid to two other aspects of competitive positioning;

- Understanding the frame of reference within which brands work

- Addressing the features that brands have in common with their competitorsEffective brand positioning requires not only consideration of a brands points of difference,but also its points of parity with other products.

Example Subway

Steps in effectively positioning you brand.A. Have we established a frame?

Brand positioning starts with establishing a frame of reference. It is important to choose theright frame because it dictates the types of associations that will function as points of parity

and points of difference. The frame of reference could be, for example, other brands in thesame category. Coca Cola is a soft drink and it competes with Pepsi Cola, which is also a softdrink.A variable that might influence the choice for a frame of reference is the products stage in theproduct life cycle. In later stages of the product life cycle, growth opportunities and threatsmay emerge outside of the product category, making it necessary to shift the f

summary marketing strategy 2009-2010

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