New Challenges for Market-Driven Strategy Chapter 01 New Challenges for Market-Driven Strategy

Objectives Pivotal role of market-driven strategy in designing and implementing business/marketing strategies Links between business/marketing strategy and corporate strategy Challenges in the modern environment

Characteristics of a Market-Driven Strategy Becoming Market- Orientation Achieving Superior Performance Determining Distinctive Capabilities Customer Value/ Capabilities Match

Market-Driven Strategy (1) Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications

BECOMING MARKET ORIENTED Customer is the focal point 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

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

Characteristics of Market Orientation Customer Focus What are the customer’s value requirements? Competitive Intelligence Importance of understanding the competition as well as the customer Cross-Functional Coordination Remove the walls between business functions Performance Implications Market orientation leads to superior organizational performances

Becoming a Market-Oriented Organization Information Acquisition Cross-Functional Analysis of Information Shared Diagnosis and Coordinated Action Delivery of Superior Customer Value

Market Orientation Information Acquisition Inter-functional Assessment Gather relevant information on customers, competition, and markets Involve all business function Inter-functional Assessment Share information and develop innovative products with people from different function Shared diagnosis and action Deliver superior customer value

Market-Driven Strategy (2) Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities

DISTINCTIVE CAPABILITIES “Capabilities are complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.”

Southwest Airline’s Distinctive Capabilities 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 (group espirit)

Capabilities Disproportionate (higher) contribution to superior customer value Compelling Logic of Distinctive Capabilities Provides value to customers on a more cost-effective basis

Capabilities Desirable Capabilities Applicable to Multiple Competition Situations Superior to the Competition Difficult to Duplicate

Market-Driven Strategy (3) Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities Types of capabilities

Types of Capabilities Outside-In Processes Spanning Processes Inside-Out Processes

Organization’s Process EXTERNAL EMPHASIS INTERNAL EMPHASIS Outside-In Processes Inside-Out Processes Spanning Processes Financial management Cost control Technology development Integrated logistics Manufacturing/ transformation processes Human resources management Environment health and safety Market sensing Customer linking Channel bonding Technology monitoring Customer order fulfillment Pricing Purchasing Customer service delivery New product/service development Strategy development

Market-Driven Strategy (4) Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities Types of capabilities Creating value for customers

Matching Customer Value and Distinctive Capabilities Value Requirements Distinctive Capabilities

CREATING VALUE FOR CUSTOMERS Customer Value: Value for buyers consists of the benefits less the costs resulting from the purchase of products. Superior value: positive net benefits Creating Value: “Customer value is the outcome of a process that begins with a business strategy anchored in a deep understanding of customer needs.”

Creating Value for Customers Benefits Costs

Psychic and physic costs Value Composition Product Services Employees Image Benefits Value (gain/loss) Monetary costs Costs (sacrifices) Time Psychic and physic costs

Market-Driven Strategy (5) Becoming Customer Driven Marketing sensing capabilities Customer linking capabilities Aligning structure and processes

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

Improve existing processes Process redesign 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

Corporate, Business and Marketing Strategy (1) What is corporate strategy?

Corporate, Business and Marketing Strategy (2) What is corporate strategy? Corporate strategy framework Deciding corporate vision Objectives Resources Business composition Structure, systems and processes Gaining advantage through multimarket

Corporate, Business and Marketing Strategy (3) Business and marketing strategy relationships Strategic marketing

Corporate, Business and Marketing Strategy (4) The marketing strategy process Markets, segments and customer value Markets and competitive space Strategic market segmentation Strategic customer relationship management Capabilities for continuous learning about markets

Corporate, Business and Marketing Strategy (5) Designing market-driven strategies Market targeting and strategic positioning Strategic relationships Innovation and new product strategy Market-driven program development Strategic brand management Value chain strategy Pricing strategy Promotion strategy

Corporate, Business and Marketing Strategy (6) Implementing and managing market-driven strategy Designing market-driven organizations Marketing strategy implementation and control

Challenges of a New Era for Strategic Marketing Escalating globalization Technology diversity and uncertainty Internet Dynamics Ethical behavior and corporate social responsiveness