CRAVENS

PIERCY

McGraw-Hill/Irwin

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

8/e

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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-DRIVEN STRATEGY
Market-Driven Strategy Becoming Market Oriented Distinctive Capabilities Creating Value for Customers

Becoming Market Driven

Challenges of a New Era for Strategic Marketing

MARKET-DRIVEN STRATEGY
All

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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.

Characteristics of a MarketDriven Strategy

Becoming MarketOrientation

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Achieving Superior Performance

Determining Distinctive Capabilities

Customer Value/ Capabilities Match

Why Pursue a Market-Driven Strategy?

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 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

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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 customers 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

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Becoming a Market-Oriented Organization

Information Acquisition

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Cross-Functional Analysis of Information Shared Diagnosis and Coordinated Action Delivery of Superior Customer Value

Market Orientation
Information Acquisition

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

Intuits Quicken

Inter-functional Assessment
Share information and develop

innovative products with people from different functions Zara

Shared diagnosis and

action value

Deliver superior customer

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

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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 carriers 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-topoint 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 Southwests key assets are very low operating costs, loyal customer base, and high employee esprit de corps

Southwest Airlines Distinctive Capabilities

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Capabilities
Disproportionate (higher) contribution to superior customer value

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Compelling Logic of Distinctive Capabilities

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

Provides value to customers on a more cost-effective basis

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Capabilities
Desirable Capabilities

Applicable to Multiple Competition Situations Difficult to Duplicate

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

Superior to the Competition

Types of Capabilities
Outside-In Processes Spanning Processes

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Inside-Out Processes

Organizations Process
EXTERNAL EMPHASIS Outside-In Processes

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INTERNAL EMPHASIS
Inside-Out Processes

Spanning Processes
Market sensing
Customer linking Channel bonding Technology monitoring

Customer order fulfillment

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

Financial management
Cost control Technology development Integrated logistics Manufacturing/ transformation processes Human resources management Environment health and safety

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

Matching Customer Value and Distinctive Capabilities

Value Requirements

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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

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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.

Creating Value for Customers

Customer Value

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Benefits

Costs

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Value Composition
Product Services
Employees

Benefits
Value (gain/loss)

Image
Monetary costs Time
Psychic and physic costs

Costs (sacrifices)

Becoming Market Driven

Market Sensing Capabilities

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MARKET DRIVEN STRATEGIES

Customer Linking Capabilities

BECOMING MARKET DRIVEN

Market Sensing Capabilities

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MARKET-DRIVEN STRATEGIES

Customer Linking Capabilities

Market Driven Initiatives

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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

CHALLENGES OF A NEW ERA FOR STRATEGIC MARKETING

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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

Escalating Globalization
It is important to understand the differences (and similarities) between the developed economies and the new world beyond. Market opportunities

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Competitive threats
Partnering opportunities Outsourcing initiatives The worlds poor

Technology Diversity and Uncertainty

Radical New Product Opportunities
Nanotechnology Private space travel The digital home Self-cleaning windows

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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).

Ethical Behavior and Social Responsiveness

Increasingly demanding ethical challenges Corporate responsibility Responsibilities to stakeholders

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