Week 1 – Marketing Strategy – Flashcards

Strategy is the creation of a unique and valuable position, involving different set of activities Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mic of value.

Core of marketing: - Value identification -> Internal and external analysis - Value definition -> Value proposition: STP - Value delivery -> Execution: marketing mix

Upstream activities 1. Sourcing - Contract with lowest-cost suppliers 2. Production - Reduce costs/maximise scale and throughput 3. Logistics - Optimise supply-chain and distribution efficiency 4. Innovation - Build better products Downstream activities 1. Shaping customer perception - define competitive set - change purchase criteria 2. Innovation - tailor offering to consumption circumstances - reduce customer costs and risks 3. Building accumulative advantage - harness network effects - accrue and deploy customer data

Strategic Management - Corporate level - All functional domains - Focus on sustainable competitive advantage Strategic Marketing - Business and corporate level - Marketing functional domain - Distinctive customer value as prerequisite for sustainable competitive advantage Strategic Marketing is about creating sustainable value to customers that is both superior and differentiated from the value offered by others in the market This means delivery of value that: 1) customers deem important in the long run, and 2) that competitors cannot easily imitate Marketing Strategy is value definition (Value Proposition) - Segmenting - identifying different needs and groups in the markets - Targeting - which segments to target in order to reach the firm's overall objectives; niche markets vs. mass markets - Positioning - the position you want to claim in people's minds SEGMENTING Process of dividing the market into groups of consumers with a common need --> geographic, psychographic, behavioural, demographic segmentation Segments must be: (ISDSA) - Identifiable, with measurable characteristics - Substantial, large enough to serve profitably - Differentiable, similar needs that differ from other groups - Stable, be around to approach them before the need ends - Actionable - internally clear how to find them and what to do POSITIONING Elements of positioning statement - Frame of reference - how you define your market (product category or customer need) --> by positioning in the mind of consumers --> by your distribution position --> by pricing - Point of difference - what sets you apart (unique and relevant) - Reason to believe - what is proof of pudding Main criteria: (RUCCAS) - Relevant - Unique - Clear - Credible (to consumers) - Attainable (to us) - Sustainable Marketing strategy is all about defining the right value proposition for the right people, in order to - attract customers - keep customers - grow customers

Marketing Tactics = 4P's, value delivery Strategic Marketing = STP or Value Proposition - What customer value does the firm offer to (positioning) - Who: ie which markets/segments - How: ie with which resource configuration

Value Equity - objective assessment of utility of an offering/brand - drivers: quality, price and convenience Brand equity - subjective assessment of brand above its objectively perceived value - drivers: brand awareness, brand attitude/image and corporate ethics Relationship Equity - tendency to stick with the brand beyond customer's objective and subjective assessment of the brand - loyalty programs, special recognition&treatment, affinity programs, community programs, knowledge programs

1. Problem definition 2. Analyses - Internal analysis - External analysis 3. SWOT 4. Strategic option/option choice 5. Implementation 6. Control INTERNAL ANALYSIS - Activity system analysis - Value chain analysis - 7-S analysis - Capability analysis (Day) EXTERNAL ANALYSIS - Macro - Macro environment analysis - Meso - Industry analysis - Micro - Competitive analysis; Segment/Customer analysis

Strategy is not the same as operation effectiveness (i.e. speed, quality and productivity). Operational effectiveness is necessary but not sufficient for a sustainably profitable position. This is because "best practice" management tools diffuse rapidly. 1. Operational Effectiveness is not a Strategy Operational effectiveness (OE) means performing similar activities better than rivals perform them. It is about achieving excellence in individual activities (whereas strategy is about combining activities). Constant improvement in operational effectiveness is necessary to achieve superior profitability. However, it is not usually sufficient for two reasons: 1) The first one is the rapid diffusion of the best practices. 2) The second one is the fact that the more benchmarking companies do, the more they look alike. 2. Strategy rests on Unique Activities Strategic positioning means performing different activities from rivals' or performing similar activities in different ways. Strategic positions emerge from three distinct resources: 1) variety-based positioning: First, positioning can be based on producing a subset of an industry's products or services. We call this the variety-based positioning because it is based on the choice of product or service varieties rather than customer segments. 2) needs-based positioning: A second bases for positioning is that of serving most or all the needs of a particular group of customers. We call this the needs-based positioning, which comes closer to traditional thinking about targeting a segment of customers. Difference in needs will not translate into meaningful positions until the best set of activities to satisfy them also differs. 3) access-based positioning: The third basis for positioning is that of segmenting customers who are accessible in different ways. Although their needs are similar to those of other customers, the best configuration of activities to reach them is different. It is called access-based positioning. Access can be a function of customer geography or customer scale - or anything that requires a different set of activities to reach customers in the best way. Strategy is the creation of a unique and valuable position, involving a different set of activities. 3. A sustainable strategic position requires trade-offs Imitation: A valuable position will attract imitation by incumbents, who are likely to copy it in one or two ways: 1) repositioning: First, a competitor can reposition itself to match the superior performer. 2) straddling: A second and far more common type of imitation is straddling. The straddle seeks to match the benefits of a successful position while maintaining its existing position. Trade-offs create the need for choice and protect against re-positioners and straddlers. Trade-offs arise for three reasons: 1) inconsistencies: The first is the inconsistencies in image or reputation. 2) activities: Second, and more important, trade-offs arise from activities themselves. Different positions require different product configurations, different equipment, different employee behavior, different skills and different management systems. 3) coordination and control: Finally, trade-offs arise from the limits on internal coordination and control. 4. Fit drives both competitive advantage and sustainability Fit locks out imitators by creating a chain that is as strong as its strongest link. There are three types of fit: 1) consistency: First order fit is simple consistency between each activity and the overall strategy. Consistency ensures that the competitive advantages of activities cumulate and do not erode or cancel themselves out. 2) reinforcing activities: Second-order fit occurs when activities are reinforcing. 3) optimization of effort: Third-order fit goes beyond activity reinforcement to what we call optimization of effort. Coordination and information exchange across activities to eliminate redundancy and minimize wasted effort are the most basic types of effort optimization. Fit and sustainability: Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. The more a company's positioning rests on activity systems with second-order and third-order fit, the more sustainable its advantage will be. Finally, fit among a company's activities creates pressures and incentives to improve operational effectiveness, which makes imitation even harder. 5. Rediscovering strategy The failure to choose: Making no choice is sometimes preferred to risking blame for a bad choice. The growth trap: Pressures to grow or apparent saturation of the target market lead managers to broaden the position by extending product lines, adding new features, imitating competitors' popular services, matching processes, and even making acquisitions. Compromises and inconsistencies in the pursuit of growth will erode the competitive advantage a company has with its original varieties of target customers. Profitable growth: Too often, desire and effort to growth ultimately undermine competitive advantage. The growth imperative is hazardous to strategy. There are two approaches to growth preserve and reinforce strategy: 1) The first one is to concentrate on deepening a strategic position rather that broadening and compromising it. 2) The challenge of developing or re-establishing a clear strategy depends on leadership. Strong leaders willing to make choices are essential. The role of leadership: The leader must provide the discipline to decide which industry changes and customers need the company will respond to, while avoiding organisational distractions and maintaining the company's distinctiveness.

Upstream competitive advantage - companies scramble to build unique assets or capabilities and then construct a wall to prevent them from leaking out to competitors. Downstream competitive advantage resides outside the company - in the external linkages with customers, channel partners, and complementors. It is most often embedded in the process for interacting with customers, in marketplace information, and in customer behaviour. Loss of downturn competitive advantage - that is, consumers' connections with the brand - would be a more severe blow than the loss of all upstream assets. Million or billions of individual choices to remain loyal to a brand or a company add up to real competitive advantage. A company is market-oriented if it has mastered the art of listening to customers, understanding their needs, and developing products and services that meet those needs. The strategic objective for the downstream business is to influence how consumers perceive the relative importance of various purchase criteria and to introduce new, favourable criteria. Must competitive advantage erode over time? The traditional upstream view is that as rival companies catch up, competitive advantage erodes. But for companies competing downstream, advantage grows over time or with the number of customers served - in other words, it is accumulative. ex - The more users stay on Facebook, the more likely their friends are to stay. Network effects constitute a classic downstream competitive advantage. Brands, too, carry network effects. Can you choose your competitors? Conventional wisdom holds that firms are largely stuck with the competitors they have or that emerge independent of their efforts. But when advantage moves downstream, three critical decisions can determine, or at least influence, whom you play against: 1) how you position your offering in the mind of the customer 2) how you place yourself vis-a-vis your competitive set within the distribution channel 3) your pricing A later entrant can choose to compete directly with an incumbent or to differentiate, whereas an incumbent is subject to the decisions of later entrants.

Context & abstract Hard to understand the role of marketing in explaining business performance differences between firms important gap in marketing literature. Why do some firms outperform others? This paper synthesized 3 major streams of thought in strategic management, to develop an integrative theory-based conceptual framework. Marketing resources: Are the assets controlled by the firm, serve as input for capabilities Knowledge = "know how" to perform a task; vb, advertising creative selection Physical = plant, equipment reputational corporate reputation & brand equity Human resources = People & knowledge available within the firm Organizational resources = characteristics of the organization, scale and scope of operation Financial resources = cash for investment Informational resources = data, facts relational resources exchange relation, with supplier Legal resources = legal protection, copyright Marketing capabilities: When skills and knowledge transform resources, that than attribute to the firm achieving goals. -specialized: -Product management the process of adapting and delivering product that satisfy customer needs -Pricing management P is key component of the value delivered to customers -channel management channel members -communication management communication with the customers -Selling Cross-functional: -brand management system and process to develop, grow the firm's brand assets -CRM capability the firm's ability to identify attractive customers and prospects -new product development Architectural: - strategic market planning market segmentation, analysis - strategy implementation acquire, combine & deploy needed resources Dynamic: - market-learning the ability to actively and purposefully learn about customers, competitors - resource configuration the ability to retain, eliminate and acquire resources (fit environment) - capability enhancement improve the capabilities (fit environment) Discussion & implication For managers, the model has important implications for how they should think about developing and executing marketing strategy. Provides a useful checklist that ensures that all of the most relevant bases are considered in thinking about strategy options and their selection. Conclusion Developing an understanding how marketing is related with business performance, important for both marketing academics and managers. The model integrates insights from SCP, RBV and DC.

Customer equity = the total of discounted lifetime values of all the firm's customers. Most important determinant of long-term value. New approach to marketing that puts strategies that grow value of the customer at the heart. Customer Equity Diagnostic (developed by Lemon ea) = strategic framework that reveals the key drivers in increasing the firm's customer equity. - Enables managers to determine what is most important to customer. - Enables to begin to identify firm's critical strengths and vulnerabilities. Three drivers of CE (customers choose to do business with a firm because): 1) Value equity (the firm offers better value) 2) Brand equity (the firm has a stronger brand) 3) Relationship equity / retention equity (switching away from the firm is too costly) Value Equity = the customer's objective assessment of the utility of a brand, based on perceptions of what is given up for what is received. Three key levers: 1) Quality → the objective physical and non-physical aspects of the offering under the firm's control. 2) Price → what is given up by the customer. 3) Convenience → actions that help reduce the customer's time costs, search costs, and efforts to do business with the firm. Brand Equity = the customer's subjective and intangible assessment of the brand, above and beyond its objectively perceived value. Three key levers: 1) Brand awareness → the tools under the firm's control that can influence brand awareness (particularly marketing communications). 2) Attitude toward the brand → the extent to which the firm is able to create close connections or emotional ties with the consumer. 3) Corporate ethics → specific actions that can influence customer perceptions of the organisation. Relationship equity = the tendency of the customer to stick with the brand, above and beyond the customer's objective and subjective assessments of the brand. Five key levers: 1) Loyalty programs → actions that reward customers for specific behaviors with tangible benefits. 2) Special recognition and treatment → actions that recognize customers for specific behaviors with intangible benefits (e.g. membership in club). 3) Affinity programs → seek to create emotional connections with customers, linking the customer's relationship with the firm to other important aspects of the customer's life. 4) Community-building programs → seek to cement the customer-firm relationship by linking the customer to a larger community of like customers. 5) Knowledge-building programs → creating structural bonds between the customer and the firm, making the customer less willing to recreate relationship with alternative provider. WHEN VALUE EQUITY MATTERS MOST: 1) When discernible differences exist between competing products. 2) For purchases with complex decision processes (trade-offs of costs and benefits associated with alternatives are examined). 3) For most B2B purchases (often involve high costs and a long-term commitment). 4) When a firm offers innovative service and products (customers must carefully examine the product because key attributes may be difficult to discern). 5) For firms attempting to revitalize mature products (by introducing new benefits or features, firms can grow value equity). WHEN BRAND EQUITY MATTERS MOST 1) For low-involvement purchases with simple decision processes (often routinized and require little attention or involvement - emotional connection to brand is crucial). 2) When the customer's use of the product is highly visible to others (brand becomes an extension of the customer). 3) When experiences associated with the product can be passed from individual of generation to another. 4) For credence goods, difficult to evaluate quality prior to consumption (brand can be cue for quality). WHEN RELATIONSHIP EQUITY MATTERS MOST 1) When the "aspirational value" (customer's perception of the value) of the firm's loyalty program are significantly greater than the actual "cash value". 2) When the community associated with the product/service is as important as the product/service itself (continue purchase to maintain membership). 3) When firms have the opportunity to create learning relationships with customers, in which the firm comes to appreciate customer's preferences and habits (becomes difficult for customers to receive same personal attention from alternative provider). 4) In situations where customer action is required to discontinue the service.