Chap 001

CRAVENS PIERCY

8/e McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Chapter One Market-Driven Strategy

McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

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MARKET-D RI VEN ST RATE GY  Market-Driven Strategy  Becoming Market Oriented  Distinctive Capabilities  Creating Value for Customers  Becoming Market Driven  Challenges of a New Era for Strategic

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MAR KE T-D RI VEN STRATEG Y  All

business strategy decisions should start with a clear understanding of markets, customers, and competitors.

 The

market and the customers that form the market should be the starting pint in shaping business strategy.

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Cha racteri sti cs of a Mar ket-D ri ven Strategy Becoming MarketOrientation

Achieving Superior Performance

Determining Distinctive Capabilities

Customer Value/ Capabilities Match

Wh y Purs ue a Market -D ri ven Strateg y?

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

Strong supporting logic



Achievements of companies displaying market-driven characteristics are impressive  Examples include: Dell Inc. Louis Vuitton Southwest Airlines Tesco Tiffany & Co. Wal-Mart Zara

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BECOMING MARKET ORIisENTE Dpoint  Customer the focal

of the organization  Commitment to continuous creation of superior customer value  Superior skills in understanding and satisfying customers  Requires involvement and support of the entire workforce  Monitor rapidly changing customer needs and wants

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Determine the impact of changes on customer satisfaction  Increase the rate of product innovation  Pursue strategies to create competitive advantage 

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Characteri sti cs of Market  Customer Or Focus ient ati on What are the customer’s value requirements?  Competition Intelligence Importance of understanding the competition as well as the customer  Cross-Functional Coordination Remove the walls between business functions  Performance Consequences Market orientation leads to superior organizational performances

Becoming a MarketOriented Organization

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Information Acquisition

Cross-Functional Analysis of Information

Shared Diagnosis and Coordinated Action

Delivery of Superior Customer Value



Market OrienAcquisition tati on Information

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 Gather relevant information on customers, competition, and markets  Involve all business functions

 Intuit’s Quicken

 Inter-functional Assessment  Share information and develop

innovative products with people from different functions  Zara  Shared diagnosis and

action  Deliver superior customer value

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DIST INCTI VE CA PABI LITI ES “Capabilities are complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.”

George S. Day, Journal of Marketing, October 1994, p.38.

So uthwe st Airlin e’s Dist in ctive C apabili tie s

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Organizational Processes Southwest uses a point-to-point route system rather than the hub-and-spoke design used by many airlines. The airline offers services to 57 cities in 29 states, with an average trip about 500 miles. The carrier’s value proposition consists of low fares and limited services (no meals). Nonetheless, major emphasis throughout the organization is placed on building a loyal customer base. Operating costs are kept low by using only Boeing 737 aircraft, minimizing the time span from landing to departure, and developing strong customer loyalty. The company continues to grow by expanding its point-to-point route network. Skills and Accumulated Knowledge The airline has developed impressive skills in operating its business model at very low cost levels. Accumulated knowledge has guided management in improving the business design over time. Coordination of Activities Coordination of activities across business functions is facilitated by the point-to-point business model. The high aircraft utilization, simplification of functions, and limited passenger services enable the airline to manage the activities very efficiently and to provide on-time point-to-point services offered on a frequent basis. Assets Southwest’s key assets are very low operating costs, loyal customer base, and high employee esprit de corps

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Capabilities Disproportionate (higher) contribution to superior customer value

Compelling Logic of Distinctive Capabilities

Provides value to customers on a more cost-effective basis Source: George S. Day, Journal of Marketing, October 1994, p. 38.

Capabilities

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Desirable Capabilities

Applicable to Multiple Competition Situations

Superior to the Competition

Difficult to Duplicate Source: George S. Day, Journal of Marketing, October 1994, 49.

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Types of Capabil iti es Outside-In Processes

Spanning Processes

Inside-Out Processes

Organi zati on’ s Proces s EXTERNAL EMPHASIS

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INTERNAL EMPHASIS

Outside-In Processes

Inside-Out Processes Spanning Processes

 Market sensing  Customer linking  Channel bonding  Technology monitoring

 Customer order fulfillment  Pricing



Financial management



Cost control

 Purchasing  Customer service delivery  New product/service development  Strategy development



Technology development



Integrated logistics



Manufacturing/ transformation processes



Human resources management



Environment health and safety

Source: George S. Day, Journal of Marketing, October 1994, 41.

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Mat chin g Cust omer Value and D istinct ive Capabilities Value Requirements

Distinctive Capabilities

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CREATI NG V ALUE FOR C US TOME RS Customer Value:

 Value for buyers consists of the benefits less the costs resulting from the purchase of products.  Superior value: positive net benefits

Creating Value: “Customer value is the outcome of a process that begins with a business strategy anchored in a deep understanding of customer needs.”

Source: C. K. Troy, The Conference Board Inc., 1996, 5.

Creati ng Val ue for Cust omers Customer Value

Benefits

Costs

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Val ue Composi ti on Product Services Employe es

Benefit s

Image

Monetar y costs Time Psychic and physic costs

Value (gain/loss)

Costs (sacrifices)

Be comi ng Market Dr iven

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Market Sensing Capabilities

MARKET – DRIVEN STRATEGIES

Customer Linking Capabilities

BECOMING MAR KE T DRI VEN Market Sensing Capabilities

MARKETDRIVEN STRATEGIES

Customer Linking Capabilities

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Market Dr iven Ini tiat ives

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Market Sensing Capabilities – Effective processes for learning about markets – Sensing: Collected information needs to be shared across functions and interpreted to determine proper actions. Customer Linking Capabilities – Create and maintain close customer relationships

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Aligning Structure and Processes – Potential change of organizational design  Improve existing processes  Process redesign – Cross-functional coordination and involvement – Primary targets for reengineering:  Sales and marketing, customer relations, order fulfillment, and distribution

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CHAL LEN GES OF A NE W ERA FOR STRA TEGI C MAR KETI NG

 Strategic marketing faces unprecedented challenges and opportunities: Turbulent markets Intense competition Disruptive innovations Escalating customer demands

 Ethical Challenges  Societal and Global Change  Social Responsiveness of Organizations

Escal ati ng Gl obal izat ion

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It is important to understand the differences (and similarities) between the developed economies and the new world beyond. Market opportunities Competitive threats Partnering opportunities Outsourcing initiatives The world’s poor

Technol ogy Di vers it y a nd Unce rtai nty Radical New Product

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Opportunities Nanotechnology Private space travel The digital home Self-cleaning windows Finland was ranked #1 in global competitiveness in 2004 by the World Economic Forum because of strong skills in adapting to new technology, proactive business practices, and nurturing a culture of innovation (www.weforum.org).

Ethic al Beh avio r and Social Responsi veness Increasingly demanding ethical challenges Corporate responsibility Responsibilities to stakeholders

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