DedicationThis book is dedicated to the authors’ wives – Gillian and Rosie – and to Ben Gilliganfor their support while it was being written.AcknowledgementsOur thanks go to Janice Nunn for all the effort that she put in to the preparation of themanuscript.
Strategic MarketingManagementPlanning, implementation and controlThird editionRichard M.S. WilsonEmeritus Professor of Business AdministrationThe Business SchoolLoughborough UniversityandColin GilliganProfessor of MarketingSheffield Hallam Universityand Visiting Professor, Northumbria UniversityAMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORDPARIS • SAN DIEGO • SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO
ContentsPreface xiOverview of the book’s structure xiii1 Introduction 1 1.1 Learning objectives 3 1.2 The nature of marketing 3 1.3 The management process 7 1.4 Strategic decisions and the nature of strategy 11 1.5 The marketing/strategy interface 19 1.6 Summary 37Stage One: Where are we now? Strategic and marketing analysis 412 Marketing auditing and the analysis of capability 43 2.1 Learning objectives 45 2.2 Introduction 45 2.3 Reviewing marketing effectiveness 50 2.4 The role of SWOT analysis 53 2.5 Competitive advantage and the value chain 70 2.6 Conducting effective audits 71 2.7 Summary 753 Segmental, productivity and ratio analysis 77 3.1 Learning objectives 79 3.2 Introduction 79 3.3 The clarification of cost categories 80 3.4 Marketing cost analysis: aims and methods 81 3.5 An illustration of segmental analysis 86 3.6 An alternative approach to segmental analysis 88 3.7 Customer profitability analysis 89 3.8 Marketing experimentation 101 3.9 The nature of productivity 102 3.10 The use of ratios 104 3.11 Analysing ratios and trends 107 3.12 Ratios and interfirm comparison 109
vi CONTENTS 3.13 A strategic approach 112 3.14 Summary 116 4 Market and environmental analysis 117 4.1 Learning objectives 119 4.2 Introduction: the changing business environment (or the new marketing reality) 119 4.3 Analysing the environment 120 4.4 The nature of the marketing environment 128 4.5 The evolution of environmental analysis 136 4.6 The political, economic, social and technological environments 139 4.7 Coming to terms with the industry and market breakpoints 149 4.8 Coming to terms with the very different future: the implications for marketing planning 153 4.9 Approaches to environmental analysis and scanning 159 4.10 Summary 165 5 Approaches to customer analysis 167 5.1 Learning objectives 169 5.2 Introduction 169 5.3 Coming to terms with buyer behaviour 170 5.4 Factors influencing consumer behaviour 174 5.5 The buying decision process 182 5.6 The rise of the new consumer and the implications for marketing planning 188 5.7 Organizational buying behaviour 192 5.8 The growth of relationship marketing 202 5.9 Summary 214 Appendix: The drivers of consumer change 215 6 Approaches to competitor analysis 221 6.1 Learning objectives 223 6.2 Introduction 223 6.3 Against whom are we competing? 230 6.4 Identifying and evaluating competitors’ strengths and weaknesses 236 6.5 Evaluating competitive relationships and analysing how organizations compete 241 6.6 Identifying competitors’ objectives 246 6.7 Identifying competitors’ likely response profiles 248 6.8 Competitor analysis and the development of strategy 250 6.9 The competitive intelligence system 251 6.10 The development of a competitive stance: the potential for ethical conflict 255 6.11 Summary 261
CONTENTS viiStage Two: Where do we want to be? Strategic direction and strategic formulation 2657 Missions and objectives 269 7.1 Learning objectives 271 7.2 Introduction 271 7.3 The purpose of planning 274 7.4 Establishing the corporate mission 277 7.5 Influences on objectives and strategy 290 7.6 Guidelines for establishing objectives and setting goals and targets 294 7.7 The development of strategies 310 7.8 Summary 3138 Market segmentation, targeting and positioning 315 8.1 Learning objectives 317 8.2 Introduction 317 8.3 The nature and purpose of segmentation 318 8.4 Approaches to segmenting markets 323 8.5 Factors affecting the feasibility of segmentation 326 8.6 Approaches to segmentation 327 8.7 The bases for segmentation 328 8.8 Geographic and geodemographic techniques 330 8.9 Demographic segmentation 332 8.10 Behavioural segmentation 338 8.11 Psychographic and lifestyle segmentation 341 8.12 Approaches to segmenting industrial markets 345 8.13 Market targeting 347 8.14 Deciding on the breadth of market coverage 350 8.15 Product positioning 353 8.16 Summary 3599 The formulation of strategy – 1: analysing the product portfolio 361 9.1 Learning objectives 363 9.2 Introduction 363 9.3 The development of strategic perspectives 363 9.4 Models of portfolio analysis 367 9.5 Market attractiveness and business position assessment 374 9.6 Criticisms of portfolio analysis 379 9.7 Summary 38310 The formulation of strategy – 2: generic strategies and the significance of competitive advantage 385 10.1 Learning objectives 387 10.2 Introduction 387
viii CONTENTS 10.3 Types of strategy 387 10.4 Porter’s three generic competitive strategies 390 10.5 Competitive advantage and its pivotal role in strategic marketing planning 396 10.6 Summary 423 11 The formulation of strategy – 3: strategies for leaders, followers, challengers and nichers 425 11.1 Learning objectives 427 11.2 Introduction 427 11.3 The influence of market position on strategy 427 11.4 Strategies for market leaders 428 11.5 Marketing strategy and military analogies: lessons for market leaders 438 11.6 Strategies for market challengers 447 11.7 Strategies for market followers 461 11.8 Strategies for market nichers 463 11.9 Military analogies and competitive strategy: a brief summary 465 11.10 The inevitability of strategic wear-out (or the law of marketing gravity and why dead cats only bounce once) 474 11.11 The influence of product evolution and the product life cycle on strategy 478 11.12 Achieving above-average performance and excellence 484 11.13 Summary 489 Stage Three: How might we get there? Strategic choice 493 12 The strategic management of the marketing mix 495 12.1 Learning objectives 497 12.2 Introduction 497 12.3 Product decisions and strategy 497 12.4 What is a product? 498 12.5 The dimensions of product policy 500 12.6 Brand strategies 505 12.7 The development of new products 510 12.8 Pricing policies and strategies 515 12.9 Approaches to price setting 517 12.10 Deciding on the pricing objectives 518 12.11 Methods of pricing 520 12.12 Using price as a tactical weapon 522 12.13 Promotion and marketing communications 523 12.14 Distribution strategies and the distribution plan 528 12.15 Channel management 528 12.16 The ‘soft’ elements of the marketing mix 534
CONTENTS ix 12.17 Integrating the elements of the marketing mix 536 12.18 Summary 536Stage Four: Which way is best? Strategic evaluation 53913 Criteria of choice 549 13.1 Learning objectives 551 13.2 Introduction 551 13.3 Financial versus non-financial criteria; effectiveness versus efficiency 553 13.4 Financial criteria 555 13.5 Non-financial criteria 565 13.6 Multiple criteria 576 13.7 Summary 58514 Modelling approaches – 1 587 14.1 Learning objectives 589 14.2 Introduction 589 14.3 Cost–volume–profit analysis 593 14.4 Investment appraisal 610 14.5 Summary 62415 Modelling approaches – 2 625 15.1 Learning objectives 627 15.2 Introduction 627 15.3 Allowing for risk and uncertainty 627 15.4 Matrix models 642 15.5 The marketing performance assessment model 648 15.6 Some other approaches to modelling 652 15.7 Summary 664Stage Five: How can we ensure arrival? Strategic implementation and control 66716 Problems to overcome 677 16.1 Learning objectives 679 16.2 Introduction 679 16.3 Pressures 680 16.4 Problems in the marketing subsystem 684 16.5 Problems of marketing feedback 688 16.6 Information adequacy 690 16.7 Cost problems 697 16.8 Marketing orientation 703 16.9 Planning orientation 711
x CONTENTS 16.10 Organizational issues 713 16.11 Summary 721 17 Management control – 1 723 17.1 Learning objectives 725 17.2 Introduction to control 725 17.3 Control defined 726 17.4 Basic control concepts 728 17.5 Responsibility accounting 734 17.6 Approaches to control 747 17.7 Some behavioural factors 757 17.8 Summary 762 18 Management control – 2 765 18.1 Learning objectives 767 18.2 Introduction 767 18.3 Controls 767 18.4 Taking corrective action 798 18.5 Management reports 809 18.6 Summary 811 Bibliography 813 Index 853
PrefaceIn writing the first edition of this book in the early 1990s, we were motivated by a con-cern to help improve the effectiveness of marketing practice. Twelve years and two edi-tions later, our purpose is unchanged. In doing this, we have sought to address anumber of key questions that logically follow each other in the context of strategic mar-keting management:1 Where are we now?2 Where do we want to be?3 How might we get there?4 Which way is best?5 How can we ensure arrival?The themes of planning, implementing and controlling marketing activities arereflected in the answers to these questions – as offered in the eighteen chapters whichfollow. The structure of the book is designed to take the reader through each of thequestions in turn. The sequencing of the chapters is therefore significant. We havesought to build the book’s argument in a cumulative way such that it will provideguidance in generating effective marketing performance within a strategic framework –once the reader has worked through each chapter in turn. Against this background we can specify the book’s aims as being:➡ To make the readers aware of the major aspects of the planning and controlling of marketing operations➡ To locate marketing planning and control within a strategic context➡ To demonstrate how the available range of analytical models and techniques might be applied to marketing planning and control to produce superior marketing per- formance➡ To give full recognition to the problems of implementation and how these problems might be overcome.Since the appearance of the first edition in 1992, the marketing environment – andtherefore the challenges facing marketing planners and strategists – have changed in avariety of often dramatic ways. Amongst some of the most significant of these changeshas been the emergence of what within this book we refer to as ‘the new consumer’ and‘the new competition’. This new consumer is typically far more demanding, far morediscriminating, much less loyal and more willing to complain than in the past, whilst
xii P R E FA C E the new competition is frequently far less predictable and often more desperate than previously. At the same time, the marketing environment has also been affected by a series of unpredictable events (SARS and the Iraq war are just two of the more recent of these), and by the emergence of new technologies and delivery systems. Together, these changes have led to a new type of marketing reality which has major implications for the marketing planning and strategy processes. The question of how marketing plan- ners might respond or, indeed, have responded to the new marketing reality is there- fore an underlying theme of this book. In practice, many marketing planners have responded by focusing to an ever greater degree upon short-term and tactical issues, arguing that during periods of intense environmental change, traditional approaches to marketing planning and man- agement are of little value. Instead, they suggest, there is the need to develop highly sensitive environmental monitoring systems that are capable of identifying trends, opportunities and threats at a very early stage, and then an organizational structure and managerial mindset that leads to the organization responding quickly and cleverly. Within this book we question these sorts of assumptions and focus instead upon the ways in which the marketing planning process can be developed and managed effectively and strategically. We therefore attempt to inject a degree of rigour into the process, arguing that rapid change within the environment demands a more strategic approach rather than less. We have also introduced a considerable amount of material designed to reflect some of the areas that have emerged over the past few years and that currently are of growing importance. The most obvious of these are e-marketing, branding, the leveraging of competitive advantage and CRM. It is not intended that this should be used as an introductory text: we have deliber- ately assumed that readers will have had some prior exposure to marketing principles, if not to marketing practice. The intended market of the book comprises the following segments: ➡ Students reading for degrees involving marketing (especially MBA candidates and senior undergraduates following business studies programmes) ➡ Students of The Chartered Institute of Marketing who are preparing for the Marketing Planning paper in the CIM’s Diploma examinations ➡ Marketing practitioners who will benefit from a comprehensive review of current thinking in the field of strategic marketing planning, implementation and control. Richard M S Wilson Colin Gilligan
Overview of the book’s structure 1 Introduction Stage One Where are we now? Strategic and marketing analysis 2 3 4 5 6 Marketing Segmental, Market Approaches Approaches auditing and productivity and to customer to the analysis of and ratio environmental analysis competitor capability analysis analysis analysis Stage Two Where do we want to be? Strategic direction and strategic formulation 7 8 9 10 11 Missions Market The The The and segmentation, formulation formulation formulation objectives targeting and of strategy of strategy of strategy positioning –1 –2 –3 Stage Three How might we get there? Strategic choice 12 The strategic management of the marketing mix Stage Four Which way is best? Strategic evaluation 13 14 15 Criteria Modelling Modelling of choice approaches approaches –1 –2 Stage Five How can we ensure arrival? Strategic implementaion and control 16 17 18 Problems to Management Management overcome control control –1 –2
INTRODUCTION 3 1.1 Learning objectives When you have read this chapter you should be able to: (a) define marketing in strategic terms; (b) understand the basic structure of the book and how this chapter establishes the context for what follows; (c) specify the characteristics of strategy and strategic decisions; (d) understand the nature of the debate about the future role of marketing and its contribution to management; (e) appreciate the changing emphases within marketing and the implications of these changes for the ways in which marketing strategies are developed.1.2 The nature of marketingThe question of what marketing is and what it entails has been the focus of a consider-able amount of work over the past 40 years. From this, numerous definitions haveemerged, with differing emphases on the process of marketing, the functional activitiesthat constitute marketing, and the orientation (or philosophy) of marketing. TheChartered Institute of Marketing, for example, defines it as:“ . . . the management process for identifying, anticipating and satisfying customerrequirements profitably. ”A slightly longer but conceptually similar definition of marketing was proposed by theAmerican Marketing Association (AMA) in 1985:“ Marketing is the process of planning and executing the conception, pricing, promotionand distribution of ideas, goods and services to create exchanges that satisfy individual andorganizational objectives. ”Although this definition, or variations of it, has been used by a variety of writers (see,for example, McCarthy and Perreault, 1990; Kotler, 1991; Jobber, 2003), Littler andWilson (1995, p. 1) have pointed to the way in which ‘its adequacy is beginning to bequestioned in some European textbooks’ (e.g. Foxall, 1984; Baker, 1987). It could be saidthat the AMA definition is more of a list than a definition and is therefore clumsy andinconvenient to use; that it cannot ever be comprehensive; and that it fails to provide ademarcation as to what necessarily is or is not ‘marketing’. They go on to suggest that the AMA definition presents marketing as a functionalprocess conducted by the organization’s marketing department, whereas the generalthrust of the more recent literature on marketing theory is that marketing is increas-ingly being conceptualized as an organizational philosophy or ‘an approach to doing
4 S T R AT E G I C M A R K E T I N G M A N A G E M E N T business’. This strategic as opposed to a functional approach to marketing is captured both by McDonald (1989, p. 8): “ Marketing is a management process whereby the resources of the whole organization are utilized to satisfy the needs of selected customer groups in order to achieve the objec- tives of both parties. Marketing, then, is first and foremost an attitude of mind rather than a series of functional activities. ” and by Drucker (1973), who put forward a definition of marketing orientation: “ Marketing is so basic that it cannot be considered a separate function on a par with others such as manufacturing or personnel. It is first a central dimension of the entire busi- ness. It is the whole business seen from the point of view of its final result, that is, from the customers’ point of view. ” A significant shift in emphasis since Drucker wrote this is to be found in the importance that is now attached to competitive position in a changing world. Thus, the marketing concept is that managerial orientation which recognizes that success primarily depends upon identifying changing customer wants and developing products and services which match these better than those of competitors (Doyle, 1987; see also Wilson and Fook, 1990). The contrasting emphases on customers and competitors can be highlighted as in Figure 1.1. If an enterprise is managed a little better than customers expect, and if this is done in a slightly better way than competitors can manage, then the enterprise should be successful. Within Figure 1.1 the customer-oriented and competitor-centred categories speak for themselves. The self-centred category is characterized by an introspective orientation Competitor emphasis Minor Major Minor Self-centred Competitor-centred Customer emphasis Major Customer-oriented Market-driven Figure 1.1 Customer and competitor orientations (adapted from Day, 1990)
INTRODUCTION 5that focuses on year-on-year improvements in key operating ratios, or on improvementsin sales volume without making direct comparisons with competitors. Such an orienta-tion is potentially disastrous when viewed in strategic terms. At the opposite extreme isa market-driven approach to marketing which seeks to balance a responsiveness to cus-tomers’ requirements on the one hand with direct competitor comparisons on the other(see Illustration 1.1). Illustration 1.1 But is your organization really market-driven? When Peter Drucker first outlined the market- mentation of the business and competitive ing concept 50 years ago, he equated mar- strategy. keting with customer orientation, arguing that for a firm to be market-driven meant Recognition of this has led Webster (1999, always putting the customer first and inno- pp. 239–40) to argue that the extent to vating continuously to improve the delivered which an organization is market-driven can value. Subsequently, it has been recognized be measured against eleven dimensions: that Drucker’s perspective lacked strategic content in that it gives emphasis to the organ- 1 The extent to which a customer focus izational culture, but fails to provide guidance pervades the entire organization on which customers to serve and how to 2 The commitment to delivering value serve them. Equally, Drucker’s initial views 3 The identification and development of failed to take explicit account of competitors distinctive competencies and the discipline of profit in the analysis of 4 The formation of strategic partnerships product and market opportunity. It is because 5 The development of strong relationships of this that customer orientation has been with strategically important customers replaced with the broader concept of market 6 The emphasis upon market segmenta- orientation. tion, targeting and positioning Given this, we can see marketing operating 7 The use of customer information as a at three levels: strategic asset 8 The focus on customer benefits and 1 Marketing as a culture, characterized service by a set of values and beliefs that high- 9 Continuous improvement and innovation lights the importance of the customer’s 10 The definition of quality based on meet- interests ing customers’ expectations 2 Marketing as a strategy, concerned with 11 A commitment to having the best infor- the choice of products, markets and com- mation technology available. petitive stance 3 Marketing as the set of tactics (essentially For Day (1990), the characteristics of a market- the seven Ps of the expanded marketing driven organization can be stated more mix) that provides the basis for the imple- succinctly:
6 S T R AT E G I C M A R K E T I N G M A N A G E M E N T ➡ An externally orientated culture that which found that ‘the single strongest influ- emphasizes superior customer value ence on company performance is innovative- ➡ Distinctive capabilities in market sensing ness. Further, a market-oriented company as a means of anticipating the future culture was found to have a positive impact in ➡ Structures that are responsive to changing all five countries, while customer orientation, customer and market requirements. by itself, has virtually no influence on bottom line performance’ (Webster, 1999, p. 241). It The significance of being market-driven has, is the recognition of this that, as Webster sug- in turn, been highlighted by a series of stud- gests, highlights the need for firms to inno- ies, including one amongst 600 managers in vate continuously in order to exceed the France, the USA, Germany, Japan and the UK, customer’s evolving definition of value. Given the nature of these comments, the essential requirements of marketing can be seen to be (Wilson, 1988b, p. 259): 1 The identification of consumers’ needs (covering what goods and services are bought, how they are bought, by whom they are bought, and why they are bought) 2 The definition of target market segments (by which customers are grouped accord- ing to common characteristics – whether demographic, psychological, geographic, etc.) 3 The creation of a differential advantage within target segments by which a distinct competitive position relative to other companies can be established, and from which profit flows. The way in which a differential advantage might be achieved – and sustained – is through the manipulation of the elements of the marketing mix. This mix has traditionally been seen to consist of the ‘four Ps’ of marketing: product, price, place and promotion. Increasingly, however, but particularly in the service sector, it is being recognized that these four Ps are rather too limited in terms of providing a framework both for thinking about marketing and for planning marketing strategy. It is because of this that a far greater emphasis is now being given to the idea of an expanded mix which has three additional elements: ➡ People ➡ Physical evidence ➡ Process management. The detail of both the traditional ‘hard’ elements of the mix and of the ‘softer’ elements appears in Figure 1.2; the individual elements of the mix are discussed in Chapter 12 of this book.
INTRODUCTION 7 Process management Product • how customers are handled and • product management managed from the point of very • new product development first contact with the organization • branding through to the point of very last contact Physical evidence Price • layout • pricing • decor • discount structures • ease of access • terms of business The marketing mix People Place/distribution • employee selection • channel management • employee training • customer service • employee motivation • physical distribution Promotion • advertising • sales promotion • public relations The four ‘hard‘ Ps • personal selling The three ‘soft‘ Ps • merchandising • sponsorshipFigure 1.2 The elements of the marketing mix1.3 The management processManagement can be looked at from a variety of viewpoints. It may be seen from one per-spective as being largely an attitude that reflects a willingness to debate issues andresolve them through the use of appropriate techniques and procedures. Alternatively,management may be viewed in terms of its responsibility for achieving desired objectiveswhich requires the selection of means to accomplish prescribed ends as well as the articu-lation of those ends. This view of management can be analysed further by focusing onits task orientation (e.g. in the functional context of marketing) or on its process orientation(i.e. the way in which the responsibility is exercised). In either case it has been suggestedthat decision-making and management are the same thing (Simon, 1960, p. 1). The process of decision-making is rendered problematic on account of the existenceof risk and uncertainty. In the face of risk or uncertainty, some managers postpone mak-ing a choice between alternative courses of action for fear of that choice being wrong.What they typically fail to recognize in this situation is that they are actually makinganother choice – they are deciding not to decide (Barnard, 1956, p. 193), which favoursthe status quo rather than change. This is not a means of eliminating risk or uncertaintysince it seeks to ignore them rather than to accommodate them: the imperative to adaptis one that cannot be ignored.
8 S T R AT E G I C M A R K E T I N G M A N A G E M E N T If the central question in the management process concerns the need to make deci- sions, we need to know what decisions should be made and how they should be made. This book is intended to deal with both these issues by following a sequence of stages that reflects a problem-solving routine. Figure 1.3 summarizes these stages. Stage One (strategic and marketing analysis) raises the question of where the organization is now in terms of its competitive position, product range, market share, financial position, and overall levels of capability and effectiveness. In addressing this question we are seeking to establish a baseline from which we can move forward. Stage Two (strategic direction and strategy formulation) is concerned with where the organization should go in the future, which requires the specification of ends (or objectives) to be achieved. While top management in the organization will have some discretion over the choice of ends, this is often constrained by various vested interests, as we shall see later in this book. Stage Three of the management process deals with the question of how desired ends might be achieved, an issue that begs the question of how alternative means to ends might be identified. This strategy formulation stage requires creative inputs which cannot be reduced to mechanical procedures. Introduction Stage five Stage one How can we ensure arrival? Where are we now? (control) (beginning) Stage four Stage two Which way is best? Where do we want to be? (evaluation) (ends) Stage three How might we get there? (means) Figure 1.3 The framework of the book
INTRODUCTION 9 Stage Four focuses on the evaluation of alternative means by which the most pre-ferred (or ‘best’) alternative might be selected. The need to choose may be due to alter-natives being mutually exclusive (i.e. all attempting to achieve the same end) or aconsequence of limited resources (which means that a rationing mechanism must beinvoked). Stage Five covers the implementation of the chosen means, and the monitoring ofits performance in order that any corrective actions might be taken to ensure that thedesired results are achieved. Since circumstances both within the organization and in itsenvironment are unlikely to stay constant while a strategy is being pursued, it is neces-sary to adapt to accommodate such changes. Within these stages are to be found the main managerial activities of:➡ Planning➡ Decision-making➡ Control.The entire sequence of Stages One to Five constitutes control, within which the plan-ning activities are to be found in Stages One to Four. At every stage it is necessary fordecisions to be made, so you will see that these managerial activities are closely inter-twined. Moreover, their links are spread across three different time dimensions whichare not of equal significance: the past, the present and the futurre. Let us consider thesein turn. The past brought the organization (and its products, competitors, etc.) to their pres-ent positions. By gaining an understanding of how the organization arrived in its pres-ent position, the managers of that organization might develop some insights to helpthem in deciding how to proceed in the future. However, there is no way in which thepast can be influenced, so the best one can do is to attempt to learn from it instead ofbeing constrained by it. If an organization simply continues on unchanging routes itsviability is almost certain to be endangered as the environment changes but it does not. Stage One is concerned with establishing the ways in which the past brought theorganization to its present position. The present is transient: it is the fleeting moment between the past and the futurewhen one must take one’s understanding of the past and link this to the developmentof one’s aspirations for the future. Decisions are made (with both planning and controlconsequences) in the present, but their impact is intended to be in the future. The time dimension that is of major relevance in any planning exercise must be thefuture rather than the present or the past. There is nothing about an organization thatis more important than its future, and the spirit of this was aptly summarized byC.F. Kettering: ‘I am interested in the future because that is where I intend to live.’ Thepast may help us in deciding how to proceed in the future, but there is no way in whichwe can influence the past, so there is a limit to the amount of effort that should beapplied to it as opposed to planning for the future. This is especially relevant when weconsider what a constraint to innovation the past might be: in Goethe’s terms, we see
10 S T R AT E G I C M A R K E T I N G M A N A G E M E N T what we know, and if we are obsessed with carrying on along unchanging routes we must expect our viability to become endangered as the environment changes but we fail to adapt to those changes. On the other hand, the anticipation of the future should not become too fanciful. In a deliberately extreme mood, De Jouvenal (1967) has stated that: “ . . . world population, and also the available labour force in industrial countries, is doubl- ing every 50 years. The GNP is doubling every 20 years, and so are the number of major scientific discoveries. The whole scientific and engineering establishment, including, for example, the numbers of graduates, membership of learned societies, and scientific publi- cations, is doubling every 15 years. The money spent on applied research is doubling every 7 years, and so also is the demand for electronics and aviation. If all these processes were to continue unchecked . . . within about 100 years every one of us would be a scientist, the entire national output would be absorbed in research, and we should be spending most of our lives airborne at 40 000 feet. ” This can be contrasted with a rather more serious comment made by Professor William H. Pickering of Harvard in a speech made during June 1908, in which his lack of imagi- nation is as extreme as De Jouvenal’s excess: “ The popular mind often pictures gigantic flying machines speeding across the Atlantic carrying innumerable passengers in a way analogous to our modern steamship. It seems safe to say that such ideas are wholly visionary, and, even if the machine could get across with one or two passengers, the expense would be prohibitive to any but the capitalist who could use his own yacht. ” With this uninspired perspective from a member of the establishment in the early twentieth century, it is not surprising that the vision of writers such as Jules Verne and H.G. Wells was mocked, yet their premonitions have often come to be justified, with surprising speed and accuracy in some instances. We did, for example, have Concorde, despite Professor Pickering’s pessimism. It should not be expected that any particular vision of the future will be correct in every detail, nor necessarily very detailed in its conception. Writing in 1959, Drucker made the rather careless statement that ‘. . . if anyone still suffers from the delusion that the ability to forecast beyond the shortest time span is given to us, let him look at the headlines in yesterday’s paper, and then ask himself which of them he could possibly have predicted 10 years ago’. What Drucker does not take into account is the vital level of resolution: our interest over a 10-year period may be more in the continued existence of The Times, or even of a free press, than in specific headlines, because the level of reso- lution would have to be relatively low (i.e. broad horizons, broad view, little detail). A balance must be maintained in dealing with the short-run future on the one hand and the long-run future on the other. Apart from headlines in The Times we can note the short-run preoccupation in the UK with financial results and contrast this with the longer-run relevance of market-building strategies, or the risk of being obsessed with tactics to the exclusion of a proper concern for strategy.
INTRODUCTION 111.4 Strategic decisions and the nature of strategyStrategic decisions are concerned with seven principal areas:1 They are concerned with the scope of an organization’s activities, and hence with the definition of an organization’s boundaries.2 They relate to the matching of the organization’s activities with the opportunities of its substantive environment. Since the environment is continually changing it is necessary for this to be accommodated via adaptive decision-making that anticipates outcomes – as in playing a game of chess.3 They require the matching of an organization’s activities with its resources. In order to take advantage of strategic opportunities it will be necessary to have funds, capacity, personnel, etc., available when required.4 They have major resource implications for organizations – such as acquiring add- itional capacity, disposing of capacity, or reallocating resources in a fundamental way.5 They are influenced by the values and expectations of those who determine the organization’s strategy. Any repositioning of organizational boundaries will be influenced by managerial preferences and conceptions as much as by environmental possibilities.6 They will affect the organization’s long-term direction.7 They are complex in nature since they tend to be non-routine and involve a large number of variables. As a result, their implications will typically extend throughout the organization.Decision-making (whether strategic or tactical) is but a part of a broader problem-solving process. In essence, this consists of three key aspects: analysis, choice andimplementation. Strategic analysis focuses on understanding the strategic position of the organiza-tion, which requires that answers be found to such questions as:➡ What changes are taking place in the environment?➡ How will these changes affect the organization and its activities?➡ What resources does the organization have to deal with these changes?➡ What do those groups associated with the organization wish to achieve?Strategic choice has three aspects:➡ The generation of strategic options, which should go beyond the most obvious courses of action➡ The evaluation of strategic options, which may be based on exploiting an organiza- tion’s relative strengths or on overcoming its weaknesses➡ The selection of a preferred strategy which will enable the organization to seize opportunities within its environment or to counter threats from competitors.
12 S T R AT E G I C M A R K E T I N G M A N A G E M E N T Strategic implementation is concerned with translating a decision into action, which pre- supposes that the decision itself (i.e. the strategic choice) was made with some thought being given to feasibility and acceptability. The allocation of resources to new courses of action will need to be undertaken, and there may be a need for adapting the organ- ization’s structure to handle new activities, as well as training personnel and devising appropriate systems. The elements of strategic problem-solving are summarized in Figure 1.4. We have given some thought to strategic decisions, but what is meant by strategy? Hofer and Schendel (1978, p. 27) have identified three distinct levels of strategy in a commercial context. These are: 1 Corporate strategy, which deals with the allocation of resources among the various businesses or divisions of an enterprise 2 Business strategy, which exists at the level of the individual business or division, dealing primarily with the question of competitive position 3 Functional level strategy, which is limited to the actions of specific functions within specific businesses. Expectations, objectives and power The Resources environment Strategic analysis Generation Resource of options planning Strategic Strategic choice implementation Evaluation Organization of options structure Selection People and of strategy systems Figure 1.4 A summary model of the elements of strategic management (source: Johnson and Scholes, 1988, p. 16)
INTRODUCTION 13Our main concern is in relation to business strategy (i.e. level 2 above) and the way inwhich this links to marketing as a set of functional activities (i.e. level 3 above). Different authorities have defined strategy in lots of different ways; there is nostandard definition. However, a range of elements that most writers seem to subscribeto in discussing strategy have been put forward by Simmonds (1980, pp. 7–9), asfollows:➡ Strategy is applicable to business within defined boundaries. While the boundaries may change, the strategy applies at any one time to actions affecting a delimited area of demand and competition.➡ There are specified direct competitors. These are competitors selling essentially the same products or services within the defined demand area. Indirect competitors are those operating outside the defined business and whose products are not direct sub- stitutes. Indirect competition is usually ignored or covered by the concept of price elasticity of demand.➡ There is zero-sum competition between the direct competitors for the market demand, subject to competitive action affecting the quantity demanded. Demand within the defined market varies over time. This variation in demand is largely independent of supplier strategies and is often referred to as the product life cycle. At its simplest it is depicted as a normal curve over time with regularly growing then declining demand.➡ Strategy unfolds over a sequence of time periods. Competition evolves through a series of skirmishes and battles across the units of time covered by the product life cycle.➡ Single-period profit is a function of: ➡ The price level ruling for the period ➡ The accumulated volume experience of the enterprise ➡ The enterprise’s achieved volume as a proportion of capacity.➡ Market share has intrinsic value. Past sales levels influence subsequent customer buying, and costs reduce with single-period volume and accumulated experience.➡ Competitors differ in market share, accumulated experience, production capacity and resources. Competitors are unequal, identified and positioned. Objectives differ. Enterprises composed of ownership, management and employee factions and oper- ating a range of different businesses have different objectives. Strategic business thinking, however, will usually express these as different time and risk preferences for performance within an individual business, measured in financial terms.➡ Within a given situation there will be a core of strategic actions which will be the essential cause of change in competitive position. Non-strategic, or contingent, actions will support strategic actions and should be consistent with them, but will not change competitive position significantly.➡ Identification of an optimal core of strategic actions requires reasoning, or diagnosis, is not attained through application of a fixed set of procedures and is situational. In short, thinking is required.
14 S T R AT E G I C M A R K E T I N G M A N A G E M E N T Taken together, these elements present a view of business strategy that sees it as a chosen set of actions by means of which a market position relative to other competing enterprises is sought and maintained. This gives us the notion of competitive position. It needs to be emphasized that ‘strategy’ is not synonymous with ‘long-term plan’, but rather consists of an enterprise’s attempts to reach some preferred future state by adapting its competitive position as circumstances change. While a series of strategic moves may be planned, competitors’ actions will mean that the actual moves will have to be modified to take account of those actions. We can contrast this view of strategy with an approach to management that has been common in the UK. In organizations that lack strategic direction there has been a tendency to look inwards in times of stress, and for management to devote their atten- tion to cost cutting and to shedding unprofitable divisions. In other words, the focus has been on efficiency (i.e. the relationship between inputs and outputs, usually with a short time horizon) rather than on effectiveness (which is concerned with the organiza- tion’s attainment of goals – including that of desired competitive position). While effi- ciency is essentially introspective, effectiveness highlights the links between the organization and its environment. The responsibility for efficiency lies with operational managers, with top management having the primary responsibility for the strategic ori- entation of the organization. Figure 1.5 summarizes the principal combinations of efficiency and effectiveness. An organization that finds itself in cell 1 is well placed to thrive, since it is achiev- ing what it aspires to achieve with an efficient output/input ratio. In contrast, an organ- ization in cell 4 is doomed, as is an organization in cell 2 unless it can establish some strategic direction. The particular point to note is that cell 2 is a worse place to be than Strategic management Effective Ineffective 1 2 Effective Thrive Die slowly Operational management 3 4 Inneffective Survive Die quickly Figure 1.5 Efficiency versus effectiveness (adapted from Christopher et al., 1987, p. 80)
INTRODUCTION 15is cell 3 since in the latter the strategic direction is present to ensure effectiveness, evenif rather too much input is currently being used to generate outputs. To be effective is tosurvive, whereas to be efficient is not in itself either necessary or sufficient for survival. Effectiveness in marketing terms can therefore be seen to be the ability on the partof management to search out and embrace changing markets and structures and thenreflect this in the marketing strategy. In crude terms, to be effective is to do the right thing, while to be efficient is todo the (given) thing right. An emphasis on efficiency rather than on effectiveness isclearly wrong. But who determines effectiveness? Any organization can be portrayedas a coalition of diverse interest groups, each of which participates in the coalition inorder to secure some advantage. This advantage (or inducement) may be in the formof dividends to shareholders, wages to employees, continued business to suppliersof goods and services, satisfaction on the part of consumers, legal compliance fromthe viewpoint of government, responsible behaviour towards society and the envir-onment from the perspective of pressure groups, and so on. Figure 1.6 illustrates theway in which a range of interest groups come together to sustain (and, indeed,constitute) an organization. In so far as the inducements needed to maintain thiscoalition are not forthcoming, the organization ceases to be effective. Thus, forexample, employees may go on strike in furtherance of a pay dispute; shareholdersmay be unwilling to subscribe further capital if the value of their shares has fallendue to bad management; consumers may have defected in the light of superiormarket offerings from competitors; and each of these will remove one vital elementfrom the coalition. Managers Suppliers Employees Customers The Shareholders organization Government Society Other (e.g.TUC)Figure 1.6 Interest groups
16 S T R AT E G I C M A R K E T I N G M A N A G E M E N T It should be apparent from this view of an organization that management’s free- dom of movement is constrained by virtue of the expectations of the various interest groups within the coalition. We are unable to assume that a clean slate exists on which any strategy might be drawn, since this may be against the interests of mem- bers of the coalition. What we can say, therefore, is that any strategy is potentially available in so far as it ensures that the interests of coalition members are protected. If this is not so the organization cannot be effective, and if it is not effective it will not survive. The failure to achieve an appropriate balance between operational and strategic management has been illustrated by numerous organizations in recent years, including Marks & Spencer, the Post Office and BA. In the case of the Post Office, the British government set out its vision for the future of the organization in its report, Counter Revolution: Modernizing the Post Office Network. The report highlighted a variety of issues, including: ➡ The failure to come to terms with the service requirements of increasingly sophisti- cated and demanding customers ➡ The lack of any real competitive stance, with the result that other service providers such as Federal Express, DHL and UPS were able to capture a substantial share of the organization’s most profitable business ➡ The slow adoption of new technologies ➡ A belief that the brand equals the branch network. With approximately 18 500 branches or outlets in 1999/2000, compared with less than one-fifth of this number amongst its most obvious competitors, the organization had proved to be slow and monolithic in its response to the far more focused and agile behaviour of others. In order to overcome this – and indeed to survive – a number of significant changes were needed, the most obvious of which was to identify with a far greater clarity exactly where and how the Post Office brand could add to the communi- cations chain for business customers and consumers alike. The difficulties of balancing both the operational and the strategic dimensions of management was also highlighted at the beginning of the century by BA’s poor performance at the time and, in particular, its failure to come to terms with the low- cost, no-frills entrants to the airlines market, such as Ryanair and easyJet. Having been hit by the low-cost carriers and then by a series of other factors – including the 2001 foot-and-mouth outbreak, the slowdown in the USA and global economy, and by the turmoil in the aviation industry after the terrorist attacks in the USA in September 2001 – the company then sold its own low(ish)-cost airline, Go!, in a management buyout for a little over £100 million. Eleven months later, Go! was taken over by easyJet for £374 million in a deal that strengthened BA’s competitor yet further. These sorts of difficulties have also been experienced by the car manufacturer Fiat (see Illustration 1.2).
INTRODUCTION 17 Illustration 1.2 Balancing operational and strategic issuesWith annual sales of more than two million . . . relentless price and hence costunits with over 30 billion euros, the family- pressures, the need for irresistible newdominated Fiat Group is the world’s sixth models, the imperative of establishinglargest manufacturer of cars and trucks. a premium position for the brand, theHowever, between 1990 and 2001, the com- scramble to defend legacy marketpany’s share of the intensely competitive shares.western European car market drifted from However, Martin goes on to suggest that Fiatjust under 14 per cent to a little over 9 per can be criticized for failing to face up to somecent. In commenting on this, Martin (2002) of the options that are open to it:suggests that: . . . this is where the first issue – the dif- Survival in such a brutal environment ficult strategic position of European car- depends on finding an upmarket makers – collides with the second, the niche, profitable business elsewhere, a ownership structure of family empires. hot-selling model or dominance of a domestic market. In effect, the Agnellis run a holding company with a core competence of Past business decisions give Fiat no politico-financial manoeuvring. To say claim to the first two of these. Its new this is not to denigrate them: success model, the Stilo, on which great hopes in this area is an essential skill in Italian were pinned, is selling less well than business life. And the family also had been hoped. And domestic domin- possesses a secondary competence, ance, once absolute, is under pressure. the appointment of loyal and largely Though Fiat retains 35 per cent of the effective managers. Day-to-day, the Italian market, it no longer does so companies are run well [our emphasis]. effortlessly: it must offer price conces- sions and discounts. The fact that 57 But difficult strategic decisions will per cent of Fiat’s western European car always come second to the need to and truck sales are made in Italy preserve the family’s role. Even where underscores the point. The car markets there is no direct conflict between this of Britain, Germany and France are all aim and the needs of a subsidiary, the bigger than Italy’s but Fiat’s market primacy of manoeuvring will always share there is much smaller – nowhere postpone difficult decisions that affect higher than 5 per cent, too low to one of the operating businesses. That generate healthy profits in mass- is, at least until there is a crisis, either market cars. at the operating level or in the overall stewardship of the group. The problemThe sort of problems that are faced by Fiat for Fiat is that both types of crises haveare also faced by some of the other car arrived simultaneously.manufacturers, including the European oper-ations of Ford and General Motors (Martin, The sort of issue highlighted above, that the2002). business is run well on a day-to-day basis but
18 S T R AT E G I C M A R K E T I N G M A N A G E M E N T has failed to come to terms with some of the ally been run well on a day-to-day basis, broader – and arguably more fundamental – but the management team, for a variety strategic issues, is one that has been faced by of reasons, failed to read the market suffi- numerous organizations, including Royal Mail. ciently well and was hit hard by a series of The Post Office’s operations have tradition- competitors. Given the nature of these comments, it should be apparent that achieving a consist- ent balance between operational and strategic issues is inherently problematic and it is the ability to do this that ultimately determines the organization’s overall level of mar- keting effectiveness. The question of what determines marketing effectiveness has been the subject of a considerable amount of research and is an issue to which we return at various points in the book (see, for example, Section 11.12). At this stage, therefore, we will limit our- selves to an overview of the sorts of factors that contribute to the effectiveness of mar-