Market-Led Strategic Change

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Market-Led Strategic Change
Transforming the Process of Going to Market
Fourth edition Nigel F. Piercy
Professor of Marketing and Strategic Management Warwick Business School The University of Warwick

AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD PARIS • SAN DIEGO • SAN FRANCISCO • SYDNEY • TOKYO
Butterworth-Heinemann is an imprint of Elsevier

Butterworth-Heinemann is an imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP, UK 30 Corporate Drive, Suite 400, Burlington, MA 01803, USA First edition published by HarperCollins Publishers Ltd 1991 First published as a paperback edition by Elsevier Ltd 1992 Second edition 1997 Reissued with new cover 2000 Third edition 2002 Fourth edition 2009 Copyright © 2009, Nigel Piercy. Published by Elsevier Ltd. All rights reserved The right of Nigel Piercy to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988 No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone ( 44) (0) 1865 843830; fax ( 44) (0) 1865 853333; email: permissions@elsevier.com. Alternatively visit the Science and Technology Books website at www.elsevierdirect.com/rights Notice No responsibility is assumed by the publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions or ideas contained in the material herein. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress ISBN: 978-1-85617-504-3 For information on all Butterworth-Heinemann publications visit our website at www.elsevierdirect.com Typeset by Charon Tec Ltd., A Macmillan Company. (www.macmillansolutions.com) Printed and bound in Italy 09 10 11 12 13 10 9 8 7 6 5 4 3 2 1

To the memory of my mother, Helena G. Piercy (1911–2001)

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Contents
Preface to the fourth edition Acknowledgements About the author What readers said about market-led strategic change PART I THE IMPACT OF CUSTOMER VALUE IMPERATIVES ix xiii xv xvii

1 3

New marketing: marketing is dead, long live marketing! Chapter 2 The customer is always right-handed: customer satisfaction, customer sophistication and market granularity Chapter 3 New marketing meets old marketing: new marketing wins! Chapter 4 Value-based marketing strategy End-of-part cases Case 1 Tata, But Definitely Not Goodbye Case 2 Strangling the Fat Lady at EMI? Case 3 The Clouds Raining on the Computer Business PART II Chapter 5 Chapter 6 DEVELOPING A VALUE-BASED MARKETING STRATEGY

Chapter 1

31 81 109 147 147 155 162

169 171 219 267

Strategic thinking and thinking strategically Market sensing and learning strategy: competitive strength through knowing more Chapter 7 Strategic market choices and targets: where to compete and where not to Chapter 8 Customer value strategy and positioning: what have you got to offer, how does it make you different to the rest? Chapter 9 Strategic relationships and networks: building the infrastructure to deliver the strategy End-of-part cases Case 4 Big Blue Gets Transparent Case 5 Oh, the Tangled Web They Weave at BAA Case 6 The Wild, Wild Rover

309 343 377 377 388 402

Contents

PART III

PROCESSES FOR MANAGING STRATEGIC TRANSFORMATION

413 415 431 467 517 517 526 532 539

Chapter 10 Strategic gaps: the difference between what we want and what we have got Chapter 11 Organization and processes for change: building the infrastructure to make it happen Chapter 12 Implementation process and internal marketing: making it happen End-of-part cases Case 7 Tesco – Fresh & Queasy in the USA Case 8 When the Peddle Hits the Mittal Case 9 One-Laptop-Per-Child Stirs Up the Grown-Ups Index

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Preface to the fourth edition
Yes – I fear the terrible moment has arrived when Market-Led Strategic Change 4 is allowed to escape and wreak havoc on staid and conventional academic views of the world of customers and competitors, and to wallow in the glorious turbulence and disruptive change that characterize modern markets! My target readers remain people of practice – whether managers, students and teachers of marketing and management, or analysts and planners – rather than people of theory. I really have nothing particularly against academic theoreticians (thank goodness, my lie-mode chip appears to be effective), just their irritatingly superior attitudes, undeserved arrogance, stupidly smug expressions, wilfully closed minds and their inherent belief that ‘the trouble with good practice is that you have to ask if it works in theory’. Why do people with no interest in business get involved in teaching in business schools, when they usually aren’t any good at it? Such persons can best be described as ‘murally challenged’ (can’t read the writing on the wall). I really think some of these people need to take a bite from the reality sandwich. The world wants more from us than untested and pointless theorizing. Thoughts on the future of business schools
‘If stupidity got us into this mess, why can’t it get us out?’ (Will Rogers)

Let’s be honest, Market-Led Strategic Change remains a book with attitude, and I remain insincerely apologetic to those who do not like that attitude – sorry, it’s the only one I’ve got.

Changes in the Fourth Edition
Constant from the earlier editions of the book is our focus on the ‘process of going to market’ rather than ‘marketing’, in the conventional sense of what people in marketing departments are assumed to do. This focus underlines the point that customers do not much care how we organize

Preface to the fourth edition

ourselves inside the company, until and unless it affects the value they receive. How we perform in the market is a concern for everyone in the organization, not just an issue for the marketing department (if there still is one, which is actually increasingly unlikely). Going to market is a process, usually a cross-functional process, and often an inter-organizational process. The underlying goal of this book is to provide managers and management students with ideas, concepts, and tools for achieving superior performance in their markets. This means that my target reader is not just the marketing specialist, but all those who have to work with marketing processes, whatever their management specialisms. This audience embraces those who may never in their careers ever work in marketing or sales – but who do need to understand what the really important questions are that they should demand to have answered by their marketing colleagues and consultants. For those who are marketing specialists – you need to read it too, to know what the searching questions are you will be asked and how you should go about answering them! In fact, everyone in the world should read it (as long as they buy their own individual copies). The ‘good news’ for some about the leaner organizations we are now developing is that you may have to spend less on specialist marketing functions. The ‘bad news’ is that even if you are in operations, supply chain, finance, or human resource management, you now share in responsibility for the way we go to market, so you had better understand how it works! While the focus and goal of the book remain constant from the last edition, there have been substantial changes to the structure of the book. These changes reflect the feedback from users of the last edition, and the changing realities which managers are now confronting. The rationale for the structure is explained in the first chapter (‘A routemap for market-led strategic change’). To streamline the material and to maintain clarity of purpose, the book has been divided into three parts with 12 chapters. Part I examines the imperatives for a focus on customer value. This part explains the approach we are taking and the requirements for value-based strategy. The major addition here is a chapter that contrasts the somewhat static conventional, ‘4Ps’, programmed approach to marketing with the requirements of new marketing for new types of market. The logic for this change is that readers have suggested (somewhat unkindly, I thought) that to establish a basis for ‘new marketing’, it is helpful to first clarify what is meant by ‘old marketing’, and I guess they have a point. Part II provides a detailed template for developing a value-based marketing strategy. The core material is concerned with market learning, market segmentation and positioning, value propositions and strategic relationships. A new chapter has been added to focus on the challenges of strategic thinking and ‘thinking strategically’ about customers, competitors and markets. Part III addresses questions of implementation and change from a process perspective and looks at strategic gaps between intent and reality, organizational change and implementation process and internal marketing. • •

x

I am equally aware that many users will be lecturers. PowerPoint slides for each chapter. if you are such a managerial reader – could I just ask if you have considered buying copies for all your colleagues to enrich their lives as well as your own? However. who will whimper and starve if you do not adopt the book and ensure that all course participants buy at least one copy (each). . one for the office. This may be found at http://textbooks. There are also photographs of my pathetic but very endearing three-legged cat. Indeed. These have all been newly produced for this new edition. there is an Instructor’s Manual available for adopters of the book. who want to use the book as part of their marketing teaching and professional development programmes.elsevier.com/ manualsprotected/9781856175043. teachers and trainers in marketing. To persuade as many of the latter group as possible that adopting the book for their students is a really. and one for traveling . xi • • . there is much to be said for the view that people really need to buy three copies of this book – one for home. . and copies of the case studies that were in earlier editions and not this one (in case you want to go on using them with the new edition). Indeed. While you will need a password from the publisher. suggested frameworks for using the case studies in teaching. the Instructor’s Manual contains suggested designs for different types of teaching programme.Preface to the fourth edition Opportunities to consider and examine the implications for practice are provided in the cases at the end of each part. Supporting materials I hope that many of the users of this book will be managers who simply pick it up from the bookstall or web pages as a potentially useful read from which they may gain some new insights and ideas. really good idea that will make them incredibly popular with their students and gain them unbelievably high teaching scores.

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and any errors contained. Nonetheless. remain the responsibility of the author (until such time as he can find someone else to blame. (If that line survives it is absolute proof they did not check the Preface. business people. Dave is genuinely inspirational. I suppose I should also thank my proofreaders: Dr Carolyn Strong (University of Bath). Departmental Secretary for the Marketing and Strategic Management Group at Warwick Business School. Dr Nikala Lane (University of Warwick) and Dr Niall Piercy (University of Bath). Cravens of Texas Christian University. from whom I have learned enormously in our research and writing collaborations. Emeritus Professor at Cranfield School of Management.) Clearly. what can I say – everyone’s a critic . Many colleagues. But. which usually does not take very long). I would like to express particular gratitude to Professor David W. . I’ll give it to you’. and students have played a part in reshaping Market-Led Strategic Change (though admittedly often an unwitting and reluctant part).Acknowledgements It is always the case with work like this that those who deserve thanks are too numerous to mention. research collaborators. Sheila Frost. I don’t think they got my underlying premise that ‘if I want your opinion. deserves special thanks for numerous kindnesses and supporting activities in getting the book produced and delivered. I would also like to draw attention to Professor Malcolm McDonald. . It would have been nice if they could have restricted their comments to the typing errors they were actually asked to find. and are therefore idle as well as picky. who has had a profound influence on my thinking about marketing. just in some cases not very well-informed critics. Nigel Piercy Warwick Business School September 2008 . and trying to do so would require me to be a much nicer person than I actually am. the shortcomings and limitations of this book (in the unlikely event they were to exist).

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About the author
Professor Nigel F. Piercy BA, MA, PhD, DLitt is one of the best-known business school academics in marketing and strategy in the UK. He is Professor of Marketing and Strategic Management at Warwick Business School, having previously held a chair in strategic marketing at Cranfield School of Management, where he was head of the marketing group, and having earlier held the Sir Julian Hodge Chair in Marketing and Strategy at Cardiff University. In addition to UK business school experience, he has been a visiting professor at: Texas Christian University; the University of California, Berkeley; Columbia Business School, New York; the Fuqua School of Business, Duke University, North Carolina; Athens Laboratory of Business Administration; and the Vienna University of Business and Economics. He has presented seminars and workshops at business schools throughout the world. He has managerial experience in retailing, and was in business planning with Nycomed Amersham plc (now part of GE Healthcare). He has extensive experience as a consultant and management workshop speaker with many organizations in different parts of the world; he has worked with managers and management students in the UK, the USA, Europe, the Far East, South Africa and Zimbabwe. He focuses on issues of market strategy development, planning and implementation, and recent company work includes: TNT, EMC, EON, Amey plc, British Telecom, Allied Dunbar, Ford Cellular, AT&T, Honeywell, AIB Group, ICL, Yellow Pages, as well as other smaller organizations. He has presented and chaired management development programmes for: the Chartered Institute of Marketing, the Academy of Marketing, the Institute of Management, the Institute of Directors, the Tavistock Institute and Henley Management College. His research interests are in strategic marketing and strategy implementation, recently emphasizing the sales/marketing interface and the impact of strategic customers on buyer–seller relationships. Professor Piercy has published 18 books and written around 300 articles and papers appearing in the management literature throughout the world. Recent books include: Marketing Strategy & Competitive Positioning 4th edn (with Graham Hooley and Brigitte Nicoulaud) (Hemel Hempstead: FT/Prentice-Hall, 2008) and Strategic Marketing, 9th edn (with David W. Cravens) (Burr Ridge IL: McGraw-Hill/Irwin, 2009). He is also author with Nikala Lane of Strategic Customer Management: Strategizing the Sales Organization (Oxford: Oxford University Press, 2009). Among other awards and prizes, he was the UK Marketing

About the author

Author of the Year for three years. He has published academic papers in the Journal of Marketing, the Journal of the Academy of Marketing Science; the Journal of World Business and the Journal of Business Research, and has written on management and marketing issues in The Sunday Times and The Independent newspapers.

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xvi

What readers said about Market-Led Strategic Change
‘Much is known about good marketing practice, but little is known about how to transform a company into a first-rate marketing company. Nigel Piercy has provided the best guide I’ve seen to creating a market-led company – replete with worksheets, diagnostics, and many convincing illustrative cases . . . a very useful and readable book that will make a contribution to many companies that manage to read it and act on it.’ Professor Philip Kotler S.C. Johnson & Son, Distinguished Professor of International Marketing, Northwestern University, Evanston, IL, USA ‘Professor Piercy lives up to his promise to provide management with a number of tools and techniques to help implement marketing effectively in their own companies so that customer considerations and satisfaction are put at the top of the management agenda. A very practical manual, full of good useful advice . . . I enjoyed reading it.’ Professor John O’Shaugnessy Professor Emeritus of Business, Columbia University, New York, USA ‘it is not just the chapter titles which are provocative. The more closely one reads the contents of the individual chapters, it becomes apparent that they constitute a healthy mix of foundation material (informative), well-reasoned questioning of certain heretofore unchallenged assumptions and practices (provocative), and clear directions to managers as to how the content of the individual chapters can be put to use in organizations (instructive) . . . I was looking for new insights,

What readers said about Market-Led Strategic Change

needless to say I was not disappointed . . . an outstanding contribution.’ Professor P. Rajan Varadarajan Distinguished Professor of Marketing and Ford Chair in Marketing and E-Commerce, Texas A & M University, College Station, Texas, USA ‘This is a marvelous, thought-provoking book on how to cultivate and implement a customer-focused strategy within a company. In a time when many marketing texts seem depressingly similar, this book is different and that is very much to the good . . . No reader will walk away from this book without substantial new ideas on making customer-focused marketing work. On that basis, I think it is a book that should be on the shelf of every person seriously concerned with market strategy.’ Professor Bruce H. Clark Northeastern University ‘Every once in a while one reads a book and thinks “This makes so much sense, why didn’t someone write it before?” Anyone seriously interested in the management of marketing is likely to have this reaction to Nigel Piercy’s Market-Led Strategic Change . . . Refreshing in its candor, stimulating in its arguments, practical in its applicability, Professor Piercy is to be congratulated. Buy it!’ Professor James M. Hulbert R. C. Kopf Professor Emeritus of International Marketing, Columbia Business School, Columbia University, New York ‘This book is aimed at the reflective practitioner who wants to get things done. It is a management perspective on marketing, where marketing is not just the Marketing and Sales Department but a way of life that permeates every corner of the company. Market-Led Strategic Change demonstrates the author’s ability to combine systematic analysis with practical advice for action. The book is rich in practical examples from the author’s own experience and research.’ Professor Evert Gummesson Professor of Service Management and Marketing, University of Stockholm, Sweden ‘By now everyone knows (or should know) what marketing is and what benefits will accrue to the marketing oriented organization. The problem is not WHAT but HOW. Virtually all the recent work on competitiveness and competitive success . . . confirms that ‘it ain’t what you do, it’s the way that you do it’. In his new pragmatic and practitioner-oriented book Nigel Piercy provides usable insights and advice on how to establish, • •

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What readers said about Market-Led Strategic Change

develop, deliver and sustain long-term customer satisfaction which can be the only guaranteed road to survival and success. I will use the book myself both as an educator and a senior manager/company director.’ Professor Michael J. Baker Professor Emeritus of Marketing, University of Strathclyde, Scotland, UK ‘I have always enjoyed reading what Nigel Piercy has to say about marketing, because he always has something interesting and useful to say. This book is no exception. It is creative, original, punchy, practical, challenging, thought-provoking, actionable, and a very enjoyable read to boot. I shall definitely be recommending it to as many people as possible. It will make an enormous contribution to marketing practice.’ Professor Malcolm McDonald Emeritus Professor of Marketing, Cranfield School of Management, UK

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P

A

R

T

I

The impact of customer value imperatives
The purpose of Part I is to set the scene for what follows (which is a somewhat unoriginal goal for the first Part of a book). This is necessary because what follows is liable to make little sense to the reader unless the foundations have been clarified. This is not a conventional book about marketing or strategy, but aims to bridge the gap between the two areas. This should thoroughly upset the reader with some familiarity with marketing who expects every book about the subject to be a discussion of products and brands, prices, distribution and marketing communications (the conventional marketing programme), with a bit of market research and consumer behaviour stuff thrown in to add a (false) veneer of respectability. The central part of this book might also confuse the reader new to the area who expects it to be all about advertising, selling and consumer psychology. While this traditional stuff can be quite fun, it really does not hit the spot in addressing the real market issues businesses face. Things have changed. Conventional approaches to marketing have not. Therein lies the dilemma . . . First, we have to get some of the basics out of the way (Chapter 1). The objectives and rationale for the book are explained – why we are increasingly talking about ‘new marketing’ to replace traditional approaches; why I think the market-led strategic change approach is needed; the idea of the process of going to market being more important than marketing as a traditional, functional activity; and the implications for what managers need to know (and what they perhaps do not need to know about). This chapter also introduces some of the major challenges facing managers as themes which run through the book. I also provide a route-map showing the reader the way through the book and hopefully clarifying its rationale. In Chapter 2 I try to tease out the issues of customer satisfaction and customer loyalty – the mantras underpinning much marketing trivia. I think the real customer issues are about customer sophistication

Market-Led Strategic Change

and power, and the disappearance of the ‘mass market’ forever. Next, I examine the need for a different approach – ‘new marketing’ (Chapter 3). Here we look at what the radical, disruptive changes taking place in markets mean for the need for new marketing approaches to cope and respond. Finally, the themes emerging in the first two chapters are brought together in building a rationale for value-based approaches to marketing strategy (Chapter 4). The logic here is that many of the issues on which we have obsessed in the past – sales transactions, brands, customer relationships – are only a means to an end. The end is achieving superiority in customer value, where the arbiter of what is superior value is, always has been, and always will be, the customer. This provides the foundation for moving into Part II of the book and its structured approach to building a value-based marketing strategy.

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2

C H A P T E R
• • • •

1

New marketing: marketing is dead, long live marketing!
This chapter ...
This chapter is about scene-setting. This is not an excuse for you not to read it! Here I try to explain what I think is wrong with many of the ways we approach marketing and make a case that focusing on the process of going to market as a set of value-defining, value-creating and value-delivering activities is more useful and realistic than talking about marketing departments and conventional marketing programmes. I also identify that one of the critical issues in market-led strategic change is about implementation capabilities that cross traditional functions and organizational boundaries. This sets the agenda for management focus and action somewhat differently to the traditional approach, which you may like and you may not. In case you are not convinced by my compelling prose of the need for radical change in how companies go to market, I then attempt to frighten you with some of the huge challenges we face in re-thinking the process of going to market: the need for genuine innovation in customer value and the accompanying requirement for business agility; building the capacity to survive inevitable yet surprising crises; living with aggressive investor influences; understanding and adjusting to the realities of globalization and emerging markets; accommodating the virtual realities created by the Internet; building corporate social responsibility and integrity into the business model; and, actually

Market-Led Strategic Change

having a strategy rather than just plans and programmes. These themes pervade the rest of the book. Finally, I provide a route-map which identifies the rationale and logic for how the book develops, and should help anyone who gets lost on the way!

Introduction
The escalating demands of sophisticated, value-oriented customers, the impact of new forms and sources of competition, the effects of new business models emerging in embryonic and mature industries, the sheer weight of the incredible change in technological capabilities, the unpredictability of radical and disruptive change in our markets, the emergence of survival-threatening crises at the speed of light, the realities of globalization and the true impact of emerging markets, accompanied by unprecedented scrutiny of ethical standards and corporate social responsibility . . . these dynamics all make for interesting times for marketing and business executives. However, it is these same developments that make much of traditional marketing look somewhat battered and bruised, not to say sad and inadequate (though in fact, I just did). Clinging to static models of conventional marketing programmes in a world of turbulence, obsessing with tools and techniques that analyse with great precision a world that has disappeared, persisting with conventional ways of doing things in markets where success belongs to innovators – none of these depressing characteristics of marketing bode well for its future as a business discipline. Paddy Barwise and Seán Meehan put the issue nicely when they underline that as products have become more difficult to differentiate (largely because there are few real differences between them), companies have resorted to excessive branding and gimmicks, leaving customers less satisfied now than they were a decade ago. Their appealing logic is that customers do not want bells and whistles and trivial brand differences – they just want quality products, reliable services and fair value for money, i.e., customer-focused differentiation.1 People do not want fake offerings from slickly marketed phonies, they want real, authentic offerings from transparent and honest sources.2 We stand accused of ‘marketing malpractice’ – executives focused on evernarrower market segments and more trivial product extensions, instead of finding out what jobs customers really need to get done and providing purposeful products and genuine innovations to do those jobs.3 At best, marketing in the conventional sense is a professional discipline struggling to come to terms with the changes that confront it, and struggling to redefine itself for a new era.4 Nonetheless, while traditional approaches to marketing look increasingly obsolete, the challenge of going to market remains critical to company performance. Hence the new mantra: ‘Marketing is dead, long live Marketing’. • •

4

New marketing: marketing is dead, long live marketing!

Reality Check: Is marketing flogging a dead horse?
The tribal wisdom of the Dakota Indians, passed from generation to generation, says that ‘When you discover that you are riding a dead horse, the best strategy is to dismount.’ However, in the corporate world, faced with the expired quadruped situation, more advanced strategies are likely: 1. 2. 3. 4. 5. 6. 7. Buy a stronger whip. Change riders. Appoint a committee to study the horse. Lower the standards so that dead horses can be included. Hire outside contractors to ride the horse. Harness several dead horses together to increase speed. Request additional funding from HR for training to increase the dead horse’s performance and create a personal development plan for the horse. Undertake a productivity study with Operations to see if lighter riders would improve the dead horse’s performance. Have the Accounting Department declare that as the dead horse does not have to be fed, it is less costly, carries lower overheads and therefore contributes substantially more to the bottom line than do some other horses. Rewrite the expected performance requirements for all horses. Promote the dead horse to be Marketing Director . . .

8. 9.

10. 11.

Source: Adapted from Wendy Lomax, ‘Tribal Wisdom’, Academy of Marketing Newsletter, June 2005, p. 22.

So, does the world need yet another book about marketing?
In fact, this is a book about the process of going to market, not marketing in the traditional sense – the difference is explained shortly. It also sets out to be controversial not conventional. The book is grounded in working with managers in companies and revelling in the creativity and innovation taking place in the marketplace, not in traditional marketing theory – it is sad that these should be such different things, but they are. There is a small problem with the conventional marketing view of how companies take their products and services to a customer, which is getting more deadly by the day – it assumes and relies on the existence of a world which is alien and unrecognizable to executives who actually have to manage such things for real. It rests on implicit assumptions such as the formalization and integration of ‘marketing’ in an organization, not to mention explicit assumptions that market strategies are specifically formulated and directly lead to related marketing

5

• •

and frequently cite the definition of the specialist as one who knows more and more about less and less. making false claims for products and services. The more you think about your company’s process of going to market. marketing planners. prescriptive textbook. experienced and faced by line executives who have the real problem of managing. It may not be original. In fact. I worry about the expression ‘marketing specialist’. instead of conventional • • 6 .7 crossfunctional teams8 – and that is how we have to learn to manage it. but ‘going to market’ is a process owned by everyone in the organization – the ‘part-time marketers’. My view of this is that if ‘marketing’ is what traditional marketing departments do (or did). but it sure is true. marketing as a company function only came into being to coordinate sales and advertising activities. historically. and so on. selling things no one needs. someone else will. ivory-tower. ‘market-led’ instead of ‘marketing-led’. not the reality as it is perceived. then ‘going to market’ is what companies do (and always will). It assumes that the whole market problem is solved by marketing research to fully understand customers and markets. eventually knowing everything about nothing. But why upset the applecart? . All these assumptions come from the page of the idealistic. It is also because markets and customers are the responsibility of every manager in a company. From these humble administrative origins grew the empires of brand managers. Even more irritating is the way in which the word ‘marketing’ is used. and it helps if we say so. The reason is simple.5 The general perception is that only sales is less attractive than marketing as a profession – and that is fastchanging as sales takes control of strategic customer relationships and gets respectable. It is simply because markets are more important than marketing. marketing researchers and customer relationship management. . It is not a ploy to save paper and ink (unless you are a green marketing fanatic – in which case. The core of market-led strategic change is to focus on the process of going to market and how it is designed and managed. process instead of functional department. because if we don’t. not the ‘property’ of marketing specialists.Market-Led Strategic Change programmes. I avoid using the word ‘marketing’ in many places in the book and in work with executives: ‘going to market’ instead of ‘marketing’. . that’s really what it is). ‘Marketing’ may have belonged to marketing specialists.6 the chief executive. It is no exaggeration to say that the word ‘marketing’ has almost become a term of abuse denoting high pressure selling. ‘spinning’ the truth. and even providing dubious advice to political leaders. What is ‘marketing’ anyway? It always annoys marketing executives (a worthwhile objective in its own right) when you point out that.

who said it had to be so boring? I think we have another problem in management education and consultancy with what seems to be the ‘MBA mantra’ – to be boring and tedious as a substitute for being innovative and creative. Consider conventional marketing in the light of the words of Thomas Paine: ‘A long habit of not thinking a thing wrong. Thou shalt live by the dictum that those things which cannot be measured precisely and validly to six decimal points.’ Thomas Paine. (1737–1809). simply do not exist (little things like customer satisfaction and customer value shall not trouble thee . long live marketing! marketing. for is not the neatness of the organization chart a measure of thy true worth? Thy mission is to attend meetings for the rest of thy life. many of our companies have set themselves up to make it as difficult as possible to respond to the ways in which customers and markets have changed. In fact. for is not the number of such meetings a measure of thy productivity? Oh all right. for do not they deserve to be in an agency somewhere.New marketing: marketing is dead. This seems to be what ‘professionalism’ in areas like marketing leads to. you are likely to become aware of three quite frightening things: customers and markets have changed – radically and forever. 7 • • . and consequently. creativity. This is a reality from which there is no escape. to which you have to agree if you want to be a ‘proper ’ manager. writer and revolutionary And. by the way. it must look something like this: Reality Check: The MBA Code of Practice Thou shalt never smile again. but not that much. . I am exaggerating a bit.) Thou shalt dedicate thyself to driving the creative and unconventional people out of thy organization. humourless jerk. Thou shalt dedicate thy career to being a boring. gives it a superficial appearance of being right. where they can do no harm? Thou shall worship at the alter of bureaucracy. the manager’s job has changed – radically and forever. for is this not how thy professors are moulded? Thou shalt spread the message that plans and systems matter more than doing things. In a time when success will depend more than ever on talent. Business is serious stuff – absolutely no giggling allowed! It is almost as if every business school in the world has an unwritten set of MBA Commandments. .

CRM.g.9 Figure 1. For example. Frederick Webster provided the insight that value processes in an organization are concerned with defining value. supply chain.. the intellectual capacity to grasp and understand revolutionary change. The specific organizational labels matter less than the recognition of the need to provide leadership and coordination to the organizational activities that impact on the value received by customers. developing or creating value and delivering value to customers. The simple logic of the model is as follows. customer service Figure 1. and the ability to deliver – this type of ‘professionalization’ may be less than helpful. and concentrate on the things that deliver value.1 The process of going to market Resources Capabilities Strategic relationships • • 8 . brand development. create new opportunities and make money? The Process of Going to Market What do we mean by the ‘process of going to market’? The model in Figure 1. new product development. complex management science. market knowledge and learning. strategic relationships Customer value Processes that deliver value e.g. processes to define value may be named Customer Relationship Management or Marketing Information Systems..g. innovation. while processes that deliver value may be recognized as Distribution Management or Customer Service. creation and delivery as making up the horizontal process of going to market and the creation of customer value.1 shows these processes of value definition. it is unlikely that the processes will be labelled in this generic way. processes to create value may be called New Product Development or Brand Development. intelligence Processes that create value e. Perhaps we should lighten up on the suits and ties. innovation.1 explains. The important point is that value processes become the focus Creativity Innovation Reinvention Processes that define value e. channels. Although this type of approach is increasingly influential in designing market-led organizations. original strategic insights..Market-Led Strategic Change unconventional thinking. PowerPoint presentations and report writing. research.

and the application of advanced theories of market behaviour by traditional marketing departments and executives. are all secondary to this. This simple process model (which. and new ways of doing business are underpinned by information technology. I would go still further. the existence of ‘specialists’ in professional disciplines. we will make much more complicated later on) leads us to identifying some important practical differences in managing the process of going to market. instead of just ‘marketing’. Certainly. or should in fact be leading and driving the market. we concentrate on getting our act together around the things that matter to delivering our customer-focused strategy into the market – the ‘ownership’ of activities by functional departments. boundaries between traditional functional departments. If asked which of these is meant by market-led strategic change. They are more often about managers with a sense of what will go with a particular type of customer. funds). But who cares about conventional views when they are demonstrably out-of-date? In fact. this viewpoint does not sit happily with many conventional views of how things should be done. If you look at the many cases of market success studied in this book. cross-functional integration). competences and abilities). as the infrastructure supporting complex relationships inside and outside the organization. trust me. collaborators. collaborations. and strategic relationships (partnerships. The creation and delivery of superior customer value becomes the arena in which we deploy creativity. These are: ● ● ● ● ● ● we base our strategies on our customers and markets – we are market-led or market-driven. and even between organizations. our capabilities (skills.New marketing: marketing is dead. are crossed by teams and processes focusing on the creation of value for customers. and conventional organizational structures.* our internal programmes of change and our external actions in the marketplace are driven by that strategy. new types of strategic relationships – with customers. competitors and co-workers – are more fundamental than contracts and transactions. innovation and sometimes the reinvention of the model of how we do business. The perspective of the process of going to market instead of that of traditional marketing has very practical implications. long live marketing! of our resources (people. putting together a deal that will attract that *Some people get a bit hung up on whether we should truly be led or driven by the market. technology. in almost no case can you put the success down to structured marketing programmes with impeccably great planning. 9 • • . the only real answer is ‘both’ (because they are the same thing if you think it through and stop playing silly games with words).

implementation – driving the things that matter through the corporate environment to the marketplace. and. then there remains the question of who it is for. and often a vital part. to find ways of doing it better? These questions suggest that the things a manager really needs to get a handle on. pricing. and so on. but they seem to have been somewhat neglected recently. are: ● ● ● customers – understanding customers and focusing on the market offering we make to them and what it produces in superior customer value. The difference is that the context for marketing should be the process of going to market. buyer behaviour models. The content of this book is chosen with two very simple questions in mind. marketing communications. market research techniques. It is for actual or future business managers (who may or may not see themselves as ‘marketing specialists’). and to attain superior performance in the marketplace. details of marketing programme decisions (let specialists worry about salesperson routing systems and media buying).Market-Led Strategic Change customer. models of consumer behaviour (because most of them don’t actually tell you what consumers are going to do. That is really the difference between managing marketing and managing the process of going to market. So what do managers need to know? If this is a book about the process of going to market. branding. and most of us sell to organizations anyway). what does a manager need to see when s/he stands back from day-to-day operations to see the big picture of going to market. to change the way things are done. If our focus is the process of going to market. We are pretty short on technical details – pricing theories. distribution. The guiding questions are: what does a manager really need to know to improve the company’s process of going to market. driven by networks of critical relationships. not the marketing department. marketing activities – new product development. advertising theory. Those questions may be simple. and so on – are a part of the process of going to market. and driving that strategy through the internal and external obstacles. Managers do not need to get involved in technical details and arcane theories. new product development programmes. Of course. then we probably do not need to know much about: theories of market orientation (let’s just take customers seriously instead). There is a reason for this. marketing strategy – choosing market targets and building a strong market position based on differentiating capabilities to create a robust and sustainable value proposition to customers. marketing research techniques (because most of them are about measurement tools as opposed to actually • • 10 . in the process of going to market.

postmodernism and critical marketing (and I still don’t know what they are. This has just made life a lot harder. and the ones we cannot afford to run away from. long live marketing! understanding our markets). So. or business design. 11 • • . One of the toughest decisions to confront is when the established business model has become obsolete. just that they don’t seem to be useful for anything). it got worse. or. Reality Check: Thoughts on meeting postmodern marketers They said: ‘Smile. to focus on the difficult things that really matter: customers. Sorry. These are recurring themes throughout the book. New business models The business model.New marketing: marketing is dead. consider some of the issues below as the context for managing the process of going to market. But coping with inefficiencies is pointless if the business model has been displaced by something better – clichés about rearranging the deckchairs on the Titanic spring to mind. And. market strategy and effective implementation in the process of going to market. Interestingly. I smiled. and how to change. Tackling inefficiencies and developing better internal organizational processes is an important part of a manager’s role. describes how a company makes money – how it generates revenue and profit by delivering value to customers – including the infrastructure needed to achieve this goal. it could be worse’. but some of the most significant challenges now facing executives include the following. However. The other things that make life a lot harder for managers are the fundamental changes and shift in the pressures and challenges they face. Challenges for the 21st Century Manager Part of the justification for re-thinking traditional approaches to getting goods and services to market is that the world has changed and the demands on managers have escalated. These are the tough issues. Although it is not exhaustive (even if it is somewhat exhausting). the things managers do not need to know knock out about 95% of what most conventional training and education courses in marketing do. all we are doing is putting the easy (and silly) stuff on hold.

Consider Microsoft’s approach to China. China prices for Microsoft products are rock-bottom – instead of charging hundreds of dollars for Windows and Office. Microsoft’s China strategy abandons the centrepiece of its approach elsewhere – the protection of its intellectual policy at all costs. China’s slack intellectual property enforcement laws mean Microsoft’s normal pricing strategies were bound to fail. • • 12 . or stagnation and failure. to seek out innovation for the future. Reality Check: Microsoft’s business model in China Microsoft entered the China market in 1962. now Linux often costs more than Windows because it requires more disks. it sells a $3 Windows/Office package to students. It follows that companies require a capacity for continuous reconstruction or resilience to overcome forces which do no more than perpetuate the past. the superiority of agile fast-fashion companies like H&M and Zara in speed and cost over established fashion clothes retailers. In China’s back alleys. But no one should think this is going to be comfortable. Microsoft’s emerging business model for China is a radical departure from how it operates in the rest of the world.Market-Led Strategic Change The inevitable displacement of the recorded music CD by digital music downloads. competition is between business models not products and companies. pp. as it does in the USA and Europe – which has opened the company to criticism from human rights groups. In China. the unbeatable challenge of the low-cost budget airlines to the established full-service flyers. but its business there has been a disaster. Source: Adapted from David Kirkpatrick. Google’s attempts to make the value chain in wireless mobile like that in the broadband Internet market (where applications are developed independently of device manufacturers and network operators). Another problem was city governments like that in Beijing installing free open-source Linux operating systems on workers’ PCs. could relegate operators to a minor and unprofitable role. July 23 2007. ‘How Microsoft conquered China’. The key problem for Microsoft in China is not brand acceptance – everyone already uses Windows – but counterfeit copies of software bought for a few dollars. Microsoft is partnering closely with the government – instead of fighting it. The policies that made Microsoft market leader in the USA and Europe made little sense in China – Microsoft has had to become ‘un-Microsoft’. 76–82.10 The choice is between reinvention and renewal. Fortune. Tolerating piracy has become part of Microsoft’s long-term China strategy. the impact of open-source (free) computer software from Linux and Sun on conventional software producers like Microsoft – all are examples of new business models displacing the old by offering better value to customers. Increasingly.

Customers generally stopped at the table with greater choice – but only 3% of those who shopped actually bought any jam. The challenge of innovation is not about mindless proliferation of unwanted alternatives. 13 • • . real innovation is likely to be disruptive and challenging. nearly a third of them bought some jam. Source: Adapted from Gerd Gigerenzer. long live marketing! Innovation and business agility Innovation means more than producing new products which are marginally different to their predecessors.12 Products that do too much produce ‘feature fatigue’ – hey. The constant search for better ways of managing underpins outstanding success at companies like Toyota and Procter & Gamble. But if you look at the organizational changes at companies like Procter & Gamble and IBM in their search for valuable innovations that benefit customers. they shop more when the number of alternatives is lower. tasting tables had either 24 or six different jars of jam.11 People ask if the British consumer really needs 38 types of milk. although innovation usually refers to technology and products.14 It is already clear that we are going to have to be slicker and faster than ever before in how we learn and respond to marketplace and competitive change.New marketing: marketing is dead. not just making buying more complicated – in the ‘anxiety society’ the luxury of wide choice is driving some people mad. People may search for simplification rather than complexity in shopping choices. it is about creating new ways to deliver superior customer value. Gut Feelings: The Intelligence of the Unconscious. London: Allen Lane. processes and bureaucracies of the past simply cannot hack it any more. 2007. Of those who stopped at the table with only six jars of jam. not incremental and predictable. It seems that while shoppers are attracted by the idea of choice. it’s not just a dual wake-up alarm clock. and the ‘explosion of choice’ for customers may be unproductive. It is about the quest for delivering superior value. The structures. The organizations from which we go to market will be smaller. 154 jams and 107 varieties of pasta on the supermarket shelf. they are too slow and cumbersome. it’s a CD player and aromatherapy machine as well – with a shortwave transmitter and a Dictaphone function for recording latenight brainstorms!13 Reality Check: More choice or make it simpler? In a study in a US supermarket. the most important innovations may actually be in how we think about and do management – management innovation changes how we all work and are directly linked to sustainable competitive advantage. In fact.

based on: strategic sensitivity – constantly scanning for information. Usually they will not be nice surprises: an earthquake in Japan stopped car manufacture at most plants because one component supplier closed down. Strategic agility involves companies in developing the capability for nimble. entrepreneurial. processbased.Market-Led Strategic Change flatter. Sometimes. Rolls– Royce’s 2008 strategic shifts were explained: ‘We are determined to create a leaner and more agile support structure. when the British government decided to distinguish itself by losing computer disks containing huge amounts of citizens’ personal data. when we faced the consequences of the sub-prime lending debacle in the USA and the subsequent credit crunch. and led by strategic relationships inside and outside the company. but what most of us have now simply cannot deliver what is required.’17 The same goals link overhead reduction and bureaucracy cutting at Cadbury–Schweppes. In aerospace. the global toy business faced huge product recalls of ‘toxic toys’ and public dismay in 2007. collective commitment by managers to make fast decisions and not fall back on ‘individual hesitancy’ or ‘bureaucratic politics’. BP and the big automobile companies.’ • • 14 . After Madonna’s first concert in Spain on a recent tour. the 9/11 terrorist attacks in the USA had major impact on the aerospace industry. the airlines. They will be difficult to manage. Zara is a slick and agile company that gets new fashion clothes from cat-walk to store in days. and resource fluidity – deploying the right resources quickly to where they are most needed. Crisis survival One of the implications of rapid. TNT was less than amused to find itself named as the courier by ‘responsible’ minister Alistair Darling (who was apparently trying to off-load the blame onto an innocent party). Fat. turbulent and unpredictable market change is that you will get surprises. transatlantic tourism. without clear boundaries. focused on learning. and so on. for you will never have time to make them all yourself. when it was discovered that Chinese suppliers had been using lead-based paint on toys. better suited to the global markets in which we operate. slow organizations cannot survive anywhere. Business agility and flexibility are imperatives. Reality Check: Mistakes ‘Learn from the mistakes of others. flexible and fast reactions to change. often hollow. the world changed for everyone on 9 August 2007. they will be nice surprises. Zara got to work on copying one of her dresses – by the last gig on the same tour many of the fans were wearing the ‘same’ dress as Madonna – nightmare for Madge!16 The priority for agility spans diverse sectors.15 Strategic agility may have interesting effects. externally-oriented.

Marketing under siege Military strategists will tell you that the most difficult battlefield manoeuvre is the fighting withdrawal – retreating from a lost battle still fighting. where anyone can make a living. in good order. The industry is under siege from health authorities. The challenges of maintaining a rigorous approach to business. and the crises they create. Social activists are less than keen on Western tobacco companies exporting their products to developing countries. because of societal fears about an obesity epidemic. The industry is consolidating through international mergers and acquisitions. but unfortunately their products are lethally dangerous and highly addictive. because society disapproves of ‘binge-drinking’. Many more sectors are experiencing siege-like conditions: producers of alcoholic drinks like Diageo have been put in the strange position of advertising aimed to reduce alcohol consumption. Even the mighty Tesco faces attacks because of the creation of ‘Tesco Towns’ and reduced consumer choice as small shops are forced to close – society fears the company is simply too powerful and is creating ‘Tescopoly’. But whatever else you can say about tobacco – the producers are not popular (notwithstanding their attempts to publicize their records as enlightened employers and a force for social improvement in tobacco-growing countries). and with resources as intact as possible. But promotional activities are severely circumscribed by lawmakers and barriers erected to smoke-free new products like nicotine gel. Nonetheless. or are under attack. for example. long live marketing! Surprises. the situation for tobacco companies. fast-food companies are looking at increasing criticism of their food and restrictions on their businesses. BAT is looking at strong demand for cigarettes in emerging markets like Russia where smokers are upgrading to more expensive cigarettes. at a time when it seems most consumers are not willing to pay the price for more environmentally responsible 15 • • . governments and pressure groups. and the fact that fewer people smoke in most developed countries. of retaining and motivating talented people. I have coined the phrase ‘marketing under siege’ to describe the marketplace equivalent. Failing to respond effectively may have devastating consequences. cheap lager at Tesco and cider for 26p a pint at Sainsbury have raised furious protests from antidrinkers. Their business is wholly legitimate. Many of us will work in markets that are declining. rather than in popular ‘growth’ markets. demand an unprecedented level of flexibility and responsiveness from managers. snuff and chewing tobacco – yet alone the continuing quest for a ‘safe cigarette’. Automotive companies are being forced by government policies to invest in ‘green’ technologies to meet reduced emissions targets. companies like BAT remain large employers and are attractive to many investment funds. Consider. and delivering sustained value to investors in conditions of severe societal hostility and encroaching regulation are considerable.New marketing: marketing is dead.

In many sectors. falling house prices. • • 16 . But . they adapt them – maintaining marketing spend.Market-Led Strategic Change vehicles – they appear to prefer their gas guzzlers.✝ The sub-prime mortgage debacle in the USA was affecting banks across the world. not all sectors will be affected in the same way. emphasizing core values. Analysts and consultants were already starting to draw up lists of the products and retailers most likely to be hit by a reduction in consumer expenditure‡ – they figure big ticket items will suffer most. . . ‡ Actually.* And we have not even started to talk about people who make armaments and munitions . executives will have to function under attack in the midst of considerable unpopularity. disasters like the collapse of banks like Northern Rock in the UK and Bear Stearns in the USA. adjusting product portfolios and prices. next time I get a Hummer with a gun rack. ‘economic downturn’. while retailers like Tesco and B&Q are in the best position to survive bad times. . . They are talking us into a major problem by undermining consumer and business confidence and thus causing what they fear to happen. Importantly. in which White House staffers use the word ‘bagel’ instead of ‘recession’ to avoid spreading gloom. Sound counsel is that in bagel-affected economies successful companies do not abandon their strategies.’ ✝ The trouble with the word ‘recession’ is that people use it to talk themselves into a loss of confidence and a consequent economic downturn. the worldwide ‘credit crunch’. Voices of old-style national protectionism were starting to be heard – with Japan rapidly building new barriers to entry for overseas competitors. who buy businesses and take them into the *It does look a bit like the thought process of the average 4 4/SUV driver is something like: ‘I love my Range Rover. sorry. I think there is a strong case for the relaxation of the law. and not all countries will be affected to the same extent. to be on the safe side. global warming.18 A serious bagel will undoubtedly create more difficult conditions for companies taking their products and services to market. and a marked loss of consumer confidence all pointed towards a big bagel. such that anyone who uses phrases like ‘global meltdown’. downturns in economic indicators of growth. A bagel will underline the growing importance of business agility. perhaps physically – particularly if they are the bankers whose greed and crass stupidity created the problem in the first place. . or ‘credit crisis’ should be punished. winter storms . A global bagel By mid-2008 it looked like the world was talking itself into a bagel. flooding. and the EU still obsessing about cheap shoes. despondency and panic. the USA blocking Chinese technology company investment in their country for ‘security reasons’. and yet still deliver value to their customers and shareholders. .19 Aggressive investors The first half of the 2000s saw a prominent and controversial role for private equity investors. however. I will follow the excellent example of the superb West Wing series.

CVC Capital and Merrill Lynch. The point is that buyers of businesses change how they operate. Debenhams. KKR has bought Boots. we still have a situation where a Wall Street firm – Cerberus – owns a Big Three automaker (Chrysler). and sometimes not – for example.20 Reality Check: The Debenhams debacle In one of private equity’s most high profile deals. Blackstone has bought Hilton Hotels. and then sold back to the market three years later in May 2006. scope Courtesy of Debenhams plc 17 • • . at an enormous profit for the private equity backers – they put in £600 million and took out three times that amount. When taken private. was taken private by TPG Capital. and Debenhams has been through private equity ownership and back out again.New marketing: marketing is dead. and by others as turnaround specialists. Debenhams looked a perfect candidate – property that could be sold to raise money. sometimes for the better. when Permira and CVC owned the AA they were accused of systematically reducing customer service as part of their cost-cutting. one of Britain’s oldest department store chains. long live marketing! private sector – seen by some as asset-strippers who destroy businesses and jobs. While the credit crunch of the later 2000s has trimmed their wings somewhat.

The chain was already failing to meet expected forecasts for sales and profits when it was re-listed. with prices slashed. What globalization really means It is a bit trite to draw managers’ attention to the globalization of their markets. 9. Fuelled by the company’s repeated profit warnings. ‘Debenhams to Delay Paying Bills as Sales Tumble’. The resignation of the company’s chairman was precipitated by investor pressures. strengthen the board and return cash to shareholders. and Debenhams was delaying supplier payments. Teena Lyons. it has become almost a • • 18 . with worries that the midmarket brand was particularly exposed to any consumer downturn. improving margins. June 22 2008. p. Debenhams’ shares hit an all-time low. has failed to spend enough on its stores and that regular price discounting has damaged the brand. Other investors have backed Mr Peltz’s very public demands for change at Cadbury. stores were not refurbished. Jenny Davey. As part of the purchase deal. to come up with a radical plan to improve share performance and meet testing financial targets. ‘Debenhams Chief Defies the Critics’. Nonetheless. p.1 billion in debt onto Debenhams’ balance sheet. Worries are that the chain is over-burdened with debt.Market-Led Strategic Change for squeezing suppliers on prices.21 Similarly. deep cost-cutting was implemented and price discounting to shift stock quickly eroded the chain’s brand image. ‘Flip or Flop?’. the world’s largest bank in which it has a 3% stake. and room for more aggressive trading tactics. Critics claimed that private equity does not add value to businesses. properties were sold. Sunday Times. In private ownership. 3-3. Calpers. Sunday Times.22 Forecasts suggest that investor action to force change in companies will continue to escalate. Financial Times. pressuring them to spell out how they intend to improve profit margins. and the share value plummeted. 3-8. If you do not get your act together – they will come and make you. providing an additional constraint and pressure for managers. the American pension group. has set a six month deadline for HSBC. by summer 2008 trading conditions had deteriorated. However. add the forceful behaviour of activist investors. late-2007.23 The days of just paying lip-service to the shareholders seem to be over. but instead just hollows them out for short-term profit. In fact. the company is fighting to regain its former position by increasing sales. p. December 2 2007. Sources: Elizabeth Rigby. opening new stores and refurbishing others. the backers put £1. August 6 2007. Nelson Peltz heads a group of investors in Cadbury– Schweppes and is determined to force the company’s management to think along more radical lines. To the impact of buy-outs. Most have probably noticed.

the oil and gas business was once led by ExxonMobil and Chevron of the USA and BP and Royal Dutch Shell in Europe.24 But compare this vision to a few harsh but interesting realities: the low-cost car for India has not been produced by any of the global automotive alliances. which is now the global market leader. who together own a third of the world’s oil and gas production and reserves. Venezuela’s PDVSA. This is fine. and elsewhere are buying companies and brands in the West. describes the ‘globally integrated enterprise’ (GIE) as the 21st century successor to the multinational corporation.New marketing: marketing is dead. if somewhat optimistic. The GIE represents fundamental change with the integration of production and value delivery worldwide – connected and shared business practices will make it possible for companies to easily transfer work from in-house operations to outside specialists.26 Astonishingly. it is likely to require very different organizational forms and ways of doing business. it is new ways of doing business. though frequently somewhat secretive. bringing its pioneering microfinance techniques (very small loans to high credit risk consumers). but now is dominated by Saudi Aramco.27 Do you see something of a pattern emerging here? Not only are many sectors now dominated by investment from the emerging markets – and many of us in the next few years are likely to have to get used to the idea that ‘head office’ is now in Mumbai or Beijing not London or New York – the real export from the emerging markets is not capital.25 the global steel industry has been reinvented by Lakshmi Mittal’s Arcelor Mittal company. However. amid the meltdown of mainstream banks in their credit crunch. The centre of the GIE is global collaboration with commercial partners and governments. in 2006 an Indian company opened a call centre in Britain. or new 19 • • . governmentcontrolled investment vehicles) – as much as all the hedge funds in the world put together. growing out of Indonesia. and. six Gulf States alone control sovereign fund assets of $1. but by the Indian company Tata – the ‘one lakh car ’ (selling for £1250) is the Tata Nano. Chairman and CEO of IBM. Russia. Bangladesh’s Grameen Bank made its first loans in New York. India and China. Brazil’s Petrobras and Petronas of Malaysia. the top tourist sites in India began to refuse to accept the US dollar in payment for admission – they wanted to be paid in a hard currency like the Rupee.7 trillion (secretive. three of the five largest companies in the world were Chinese (PetroChina. the Middle East. CNPC of China. the investment vehicles of governments in Asia. Samuel Palmisano. in 2008. in 2007. long live marketing! knee-jerk reaction in companies from almost every sector to suggest that the answer to falling sales growth in the developed world (and just about every other problem too) is renewed efforts to attack the growing demand in emerging markets – usually the ‘BRIC’ countries of Brazil. India and the former Eastern Europe. China Mobile and Industrial & Commercial Bank of China). NIOC of Iran. at the end of 2007. Russia’s Gazprom. to the poor of the United States of America who do not rate a bank account. Russian steel-makers are rapidly acquiring steel plants in the USA.

heads. Virtual realities The impact of virtual communities on the Web. carts and the luggage compartments of the trains in Mumbai’s suburban rail network.000 meals with almost no mistakes. The system is highly customer-focused but relies on the dabbawallahs’ feet. Financial Times. ‘Food for Thought for the Financiers’. Source: Adapted from Sarah Murray. deliver more than 170. and ask what such radically different approaches could do in other markets. The extension of business models from emerging markets like India has the potential to revolutionize Western markets. The tiffin box system has operated successfully for more than 100 years. Companies who have developed effective ways of doing business in the harsh market conditions they have faced. or barcode scanning. but it is both lean and agile. 14. p. This complex system has no computer databases or software. Every day the dabbawallahs. are likely to find Western markets pretty soft targets. Businesses that have survived tough economic conditions have valuable lessons for others. A coded system of numbers and signs on the tiffin box directs it to the correct office.Market-Led Strategic Change business models.28 Think about Mumbai’s tiffin boxes. The food is prepared in the morning by wives. Reality Check: No such thing as a free lunch Mumbai’s ‘dabbawallahs’ constitute a 5000-strong workforce that every day rushes tens of thousands of tiffin boxes (stacked cylindrical tins of food) across the city. and using a relay system they reach the right person by lunchtime. or supply chain strategy. bicycles. sisters and maids.29 The virtual life led by people through their avatars (three-dimensional graphical. The empty tins are collected after lunch and returned to the housewives who prepare the food. • • 20 . many of whom are illiterate. from social networking on sites like MySpace and Facebook to user-generated content on YouTube is seen by some as the move from the hippy counterculture of the 1960s to cyberculture in the 2000s – a sort of ‘digital utopianism’. November 19 2007. digital representations) on virtual worlds is perhaps illustrative of how weird this is getting.

Sun can create new products – such as computer hardware – and test them to destruction in Second Life. About $2 million a day is spent through conversion of Linden dollars. Roughly half the users are female. with a full-time job. Starwood Hotels has built a huge model of its new Aloft hotel on an island. became the first real-world clothing retailer to set up shop in Second Life in June 2006. along with bank defaults. and a buttoned-down Sam. Big business interest has been stimulated though commercial life is mainly dominated by small virtual business owners.000 pairs of virtual shoes in its store. Reflecting its real-world coolness.New marketing: marketing is dead. The store sells virtual T-shirts for residents to wear. Crompco Corp. Residents can watch real-world sports events in the company of their virtual friends in a virtual stadium. the company has issued etiquette guidelines for employees visiting Second Life. IBM’s chief executive brags that he has two avatars in Second Life – a casual Sam. Second Life has more than 8 million users – or ‘residents’. an underground gas tank testing company. Residents create an avatar of their choice (often somewhat idealized compared to the real person) and are free to wander or fly though the expanding world. and have a chat with the conductor in the bar afterwards. 21 • • . Second Life is one of ten futuristic initiatives to which IBM has committed $100 million. Recently. software developers and Sun customers. Virtual Tokyo opened in 2007 (as a marketing and advertising platform for Dentsu. American Apparel Inc. Some companies are already targeting their customers’ online alter egos with advertising and sales efforts. the Liverpool Philharmonic gave a concert allowing Second Life residents to interact with each other during the event. attended by 60 avatars including journalists. and the typical user is aged between 25 and 34. some of whom are making real money. Sun hosted the first Fortune 500 press conference in the ‘Sun Pavillion’ in Second Life in 2006. Second Life is the bestknown of the online virtual world sites on the Internet. IBM is taking virtual life so seriously. Rising virtual property prices have become a concern of late. In fact. Sun Microsystems uses its Second Life presence to develop a better understanding of new communications modes. has built a virtual gas station for training employees. with deluxe pool and designer lounge. asking colleagues to be ‘sensitive to the appropriateness of your avatar or persona’s appearance when you are meeting with IBM clients’. buy virtual refreshments at the shop. IBM has bought a large space used for company and industry meetings of IBMers’ avatars. Japan’s largest advertising agency). as well as real-world products. long live marketing! Reality Check: Second life – or get a life? Run by San Francisco-based Linden Lab. spending Linden Dollars (the virtual world’s currency) – possibly buying virtual clothes and shoes for the avatar in the virtual shops.. Adidas has sold 21.

3-2. Andrew Baxter. p. Success may be based on the ability to reconcile contradictions and integrate profoundly differing views. Paul Hemp. ‘A Second Life for Classrooms with Vision’. This is fine and dandy. the chances are that the virtual economy has a lot more surprises in store.32 • • 22 . March 3 2008. .30 A key capability for managers is turning out to be the ability to hold two opposing ideas at the same time. 12. Coping with paradox Complexity and rapid change also create paradox for management – for example. pp. ‘Fancy a Second Life’. to become an essential part of how we compete. Embracing contradictions. Amusingly. May 1 2006. pp. Environmental issues have become increasingly decisive in customer decision making – the ‘green consumer ’ is alive and well and populating your markets. 48–57. 71–82. p. But the scope of corporate social responsibility (CSR) has gone way beyond just meeting society’s new standards. Harvard Business Review. The ‘strategy paradox’ is that. and avoiding the oversimplification of ‘this or that’ or ‘either/or ’. Financial Times.31 Corporate social responsibility and integrity Many companies have long been involved in corporate philanthropy (charitable donations). Sources: Robert D. . While it may be relatively easy to get a handle on the impact of social networking and peer-to-peer communications on customers’ perceptions and preferences (see Chapter 3). companies must make bold strategic commitments to the future. mission statements aspiring to superior corporate citizenship. British supermarkets spent much of the same year in an ‘environmental arms race’ attempting to out-green each other. In March 2007. while they cannot be certain what the future will bring – the paradox is that the same behaviours and characteristics that maximize a firm’s probability of notable success also maximize its chances of total failure. But things just got a lot more serious. Microsoft dropped one of its UK suppliers because that supplier did not conform to Microsoft’s employment diversity standards. June 2006. and codes of conduct to guide decision makers in ethical behaviour. produces better decisions and strategies. BusinessWeek. among the first applications is the use of virtual worlds as an online teaching device by business schools .Market-Led Strategic Change No one is really clear where virtual worlds lead – just that they lead somewhere. to succeed. Sunday Times. how to simultaneously combine incremental change with bold new initiatives. Hof. ‘Avatar-Based Marketing’. July 15 2007. to establish a vision that drives the business. ‘My Virtual Life’.

low-cost ways for businesses to do better in protecting the environment – providing. In fact.33 Remanufacturing allows companies to recycle materials from used products to produce ‘like new’ – Caterpillar has built a highly profitable $1 billion remanufacturing division re-using tractor and engine parts. It may be one of the most important we face. if it helps – there is much evidence that our customers. hunger and climate change. copiers. The initiative centres on improving the efficiency of IT products. after losing market leadership to Hewlett–Packard. reducing the harmful materials used in them. social and environmental problems of the world by ‘disrupting existing industries. suppliers. the real challenge emerging is to integrate CSR initiatives into the business model in such a way that they represent how we compete and the value proposition we offer to our customer. global recycling and product recovery programs for customers. founder of Grameen Bank. Reality Check: CSR and Dell’s business model Leading computer supplier Dell Inc. which has created a big new business for banks in the emerging markets. faces challenges in rebuilding its value proposition.New marketing: marketing is dead. long live marketing! At one level. Heineken and Diageo teamed up for a CSR project to help African farmers grow sorghum. carpet tiles and cell phones. Michael Dell’s environmental strategy focuses on three areas: creating easy. things may just work out neatly. and cooperating with customers to dispose of old products. CSR initiatives may identify and stimulate the biggest business opportunities of the future. Certainly. who pioneered microfinance (very small loans to borrowers previously seen as uncreditworthy). like retailers getting rid of singleuse plastic carrier bags (worthy though that ambition may be). brewing beer from locally grown materials in Africa rather than importing expensive barley. employees and business students all think we should try much harder.36 It involves something more profound than just leaping on the latest media-inspired. taking creative approaches to lessen the 23 • • . In fact. value chains and business models’ to find solutions to poverty. government-sponsored bandwagon. Dell is leveraging its distinctive competitive competences in initiatives with both business and social benefits – using the strengths of its direct business model to generate collective efforts to reduce energy consumption and protect the environment. compressors. what started as a CSR project created sustainable and attractive business.34 By contrast ‘social entrepreneurs’ are a group of ‘unreasonable people’ striving to solve economic.35 One of the best-known examples of social entrepreneurs is Muhammed Yunus. managers. This is a very big challenge. for example. with participation requiring little effort on their part. Similar initiatives span disposable cameras.

Smart companies have done just that with a new approach: a few straightforward. and advising on upgrades of legacy systems to reduce electricity usage. markets. companies could afford to have complex strategies.37 One of the most straightforward ways to deal with the question ‘do we really have a strategy’ is to look for the externally oriented and integrated concept about how we will achieve our objectives and answers to five broad questions:38 Competitive arenas – Where will we be active – in what sectors. Having a strategy Everywhere you go.* Most have neatly designed marketing programmes.Market-Led Strategic Change environmental impact of products from design to disposal – helping customers to take full advantage of new. understandable. value chains. tell people where we are going and what will get us there: When the business landscape was simple. • • 24 . ‘Everyone Has a Choice’. they need to simplify. Source: Adapted from Michael Dell. energy-saving technology and processes. The link between this CSR initiative and the company’s business model and value proposition is clear. April 18 2007. or business model? Differentiators – How will we win in the marketplace – what is our competitive advantage over alternatives faced by the buyer? Staging – What will be our speed and sequence of competitive moves? Economic logic – How will we obtain returns? The evidence seems to be that most business successes come from careful strategic choices. But it has to be clear.39 Much of what follows in this book is *And we should all remember the old joke: Question: How do you make God laugh? Answer: Tell her your plans. But now that business is so complex. segments. In the complex situations we now face the need for a strategic perspective on how we deal with our markets has become imperative. technologies? Vehicles – How will we get there – what products and services. and looking to partnership with governments to promote environmental stewardship PC. Plans and programmes are not the same as strategy. Financial Times Digital Business – Special Report. people have plans. hardand-fast rules that define direction without confining it. p. 1.

develop and implement a strategy in how we go to market.2 and this should put each part in its context. the second provides an approach and a template (the strategic pathway) for developing a value-based marketing Part I Customer value imperatives Part II Developing a value-based marketing strategy The strategic pathway Part III Processes for managing strategic transformation Change strategy The customer is always right-handed Market sensing and learning strategy Strategic gaps New marketing meets old marketing Strategic thinking and thinking strategically Strategic market choices and targets Organization and processes for change Customer value strategy and positioning Value-based marketing strategy Implementation process and internal marketing Figure 1. The book is divided into three parts: the first addresses the customer value issue and why this has become dominant in our thinking about how we go to market.2. I refute any suggestion I have trouble sticking to the point. but there is one! The underlying structure is shown in Figure 1. it is a guide for readers who want to pick out the issues most immediately relevant to them rather than starting at the beginning and working through. This structure has two purposes: it is a safety net for readers who get part way through the book and discover they have no idea why they are reading what they are reading – come back to Figure 1. but nonetheless hopefully this Figure may assist. readers may find it useful to come back to this Figure as they move to each new Part of the book to reinforce the structure of the model we are building. It may not be obvious. long live marketing! concerned with trying to clarify how we can identify. A Route-Map for Market-Led Strategic Change There is a rationale for the way in which the structure of the book is set up to deal with the issues of change and complexity outlined above. Naturally. More seriously.New marketing: marketing is dead.2 A routemap for market-led strategic change Strategic relationships and networks 25 • • . It has been suggested to me that my enthusiasm for telling stories may make it difficult for readers to follow the underlying logic of the book.

The conventional view – ‘old marketing’ – provides us with a start in the search for ‘new marketing’ (Chapter 3). This part of the book also builds the logic for value-based marketing strategy. marketing communications. customer-driven marketing actions. with some of the realities companies now face in going to market. the ability to predict better and to identify value-creating opportunities before the competition does. Underpinning effective strategy is a variety • • 26 . while transactions.Market-Led Strategic Change strategy (or testing the strategy which a business already has in place). At the core of effective strategy is a strongly identified customer value proposition (for the chosen market targets) and a positioning relative to competitors which makes sense to customers and reflects their priorities (Chapter 8). distribution and service) does not seem helpful in developing effective. We examine the move in our thinking from a focus on managing transactions (selling things to people). First we consider the challenge of strategic thinking and the consequent need for thinking strategically.3 – sets of interrelated questions to develop and test the robustness of a business strategy. The traditional static model of marketing programmes (product policy. In Part I we look at the disruptive and radical ways in which customers and markets have changed and the challenge of doing business in these new markets (Chapter 2). shown in Figure 1. In this context we then contrast the conventional model of marketing. The logic behind this is to move from customer value (why we have to change things) to strategy (what things we are going to change) to implementation (how we are going to change them). and the third examines processes for managing the strategic transformation businesses face in developing and implementing more effective business strategies (i. pricing. yet it is the language of marketing as it has been taught to generations of management students and executives. Thinking strategically is concerned with developing the mind-set that allows us to stand back from day-to-day operations and address the contradictions and risks in making strategic choices (Chapter 5). Nonetheless. customer service and customer relationship management may impact on customer value. components for developing a change strategy). which provides the structure for most marketing plans. brands and customer relationships to focusing on customer value. brands.. Strategic thinking highlights a range of issues which are critical in developing a strategic perspective about how and where a business can compete. The foundation for the strategic pathway is market sensing and learning strategy. or process of going to market. are hallmarks of effective strategy in modern markets (Chapter 6). The next four chapters consider the elements of the ‘strategic pathway’. Enhanced understanding of the marketplace.e. the important issue is the value created. not the methods used to create value for different customers (Chapter 4). Superior sensing capability allows better and more insightful approaches to defining and targeting markets and making choices about the segments and niches within them (Chapter 7). Part II builds on this foundation to look at how to build and test value-based strategy.

3 The strategic pathway Strategic transformation and strategy implementation of strategic relationships. or if the relationships needed cannot be built. The components or stages of the strategic pathway model are interrelated and in reality people iterate – move from one set of issues to the next and then back again. The components of change strategy are also highly interrelated and it is likely that in the practical setting it will be necessary to work backwards and forwards between the issues rather than seeing them as a sequence. Whatever 27 • • . and the potential role of strategic internal marketing in planning and implementing an effective implementation strategy (Chapter 12).New marketing: marketing is dead. Part III is concerned with change strategy. we draw together the emerging change-oriented themes into a programme to address strategy implementation barriers. Finally. In this sense. but if what we thought was a value-creating opportunity does not actually match the needs of the target market. we examine and analyse strategic gaps – differences between plans and strategies (strategic intent) and what we actually have in the marketplace (strategic reality). long live marketing! Strategic thinking and thinking strategically Market sensing and learning strategy Strategic market choices and targets Customer value strategy and positioning Strategic relationships and networks Figure 1. Different Ways of Using This Book There are several ways in which this book. which provide a relationship network challenge (Chapter 9). and the material it contains. depending on the reader’s objectives. First. and the process-based organization (Chapter 11). market understanding leads to market target choices and value strategy. with customers but also others like collaborators and competitors. Tracking the causes of strategic gaps is a foundation for addressing strategy implementation issues and organizational change needs (Chapter 10). Next we examine structural approaches to strategy implementation (marketing organization) and the move towards integration around customer value priorities (total integrated marketing). can be used. we may go back to the market choices and re-think the strategy.

then please e-mail me and I will send you a personal. Patrick and Seán Meehan. If you need more detail on any of these ideas. my lack of patience with those clinging to the apparent certainties of a by-gone era may become apparent. use the Route-map and the chapter headings and sub-headings to home in on the material that seems most relevant to your needs. Christensen. some readers will be looking for guidance and a new view on specific problems they currently face. Other readers will know that they want to develop an overview of the strategy of going to market. based on where you need to develop better insight and to learn new ways of thinking about the problems companies face in the way they go to market. You are best advised to follow the guidance of the people who designed the programme. Harvard Business Review. The logic to hang on to. Boston MA: Harvard Business School Press. . pp. As a result. you should understand that while a lot of management books have a single idea which is then stretched out over a couple of hundred pages. The intention of the approach taken is to move people (marketing and business planning executives in particular) out of their comfort zones and to force them to confront the realities of customer value. Simply Better: Winning and Keeping Customers by Delivering What Matters Most. However. which explains the steps in the book. For them. 2007. They need to work through the text step-by-step. James H. . my intention here is to have lots of relevant and insightful ideas over every few pages. Clayton M. 3. Gilmore. and consequently what they need to learn more about. • • 28 . is described in the Route-map section above. 2. starting at the beginning and working through to the end of the book is probably the best approach. Then. Nonetheless. 74–83. who will have given a lot of thought to what things they want you to know more about at each point in the programme.. 2004. Barwise. Boston MA: Harvard Business School Press. customized insult . at the pace that best suits them. and B. References and End-notes 1. Put it this way – if having read the whole book there is any reader who feels they have not been insulted. Some readers will be using the book as part of an education or training programme in marketing or business strategy. Authenticity: What Consumers Really Want. ‘Marketing Malpractice: The Cause and the Cure ’. Scott Cook and Taddy Hall. They need to decide what those important decisions are. Joseph Pine. December 2005. whatever your specific goal in using the book. You can navigate the material in this way. be warned that there is a touch of controversy in the way we approach things here. strategy and implementation before it is too late for their businesses.Market-Led Strategic Change your specific goals. further sources are clearly indicated throughout.

p. February 18 2008. Doz. Fast Strategy: How Strategic Agility Will Help You Stay Ahead of the Game. Financial Times. Daily Mail. ‘Stop Listening to Marketing Men. Hamel. ‘Quality Becomes Commodity in Brand Battle’. 8. Hamilton. 13. 52–63. 22. January 12/13 2008. Webster. Michael J. December 30 3007. Gummesson. June 14 2004. 1990. pp. Ringshaw. March 14 2007. Cambridge. long live marketing! 4. Harvard Business Review. 30. Financial Times. November 2007. ‘The Tyranny of Choice’. Marketing News. ‘Calpers Fires HSBC Broadside’. Stefan. 15. p. Delingpole. 10. June 24 2007.. Kate. 17. Daily Mail. 7. pp. Evert. Financial Times. Quelch. University of Halsted Research Report 90: 3. George. Stefan. 12. ‘High-Tech CEOs Plugged Into Marketing’. Wiggins. Harvard Business Review. 23. 12. Daily Mail. 39–66. 12. Elizabeth. ‘Tomorrow’s World: Re-Defining the Role of Marketing’. ‘Retail Braced for Survival of the Fittest’. Day. Daily Mail. 1990. Stern. Calvert. 18. p. New York: Free Press. p. 1997. ‘Marketing’s Bad Case of Attention Deficit Disorder ’. Sunday Times. 15. Grant. 18. James. 2007. ‘Family Comes First When Marketing Faces Tougher Times’. Yves and Mikko Kosonen. June 2 1995. Top Tory tells Cameron’. p. Financial Times.New marketing: marketing is dead. Financial Times. ‘Greater Output Frames Company Strategy’. 20. ‘The Quest for Resilience’. Kirsty. in Donald R. Giant Steps in Management: Innovations That Change the Way We Work. ‘Anxiety Society!’. Walker. 9. p. ‘Cadbury Investors Back Peltz’. 29 • • . PA: Wharton School Publishing. Lehmann and Katherine E. ‘AA “Cutting Services” to Boost Profits’. p. 5. 1–10. 21. Jonathan and Jon Ungoed-Thomas. 43–48. 2007. January 8 2008. John. ‘Activists Flex Muscles As Markets Falter ’. Jenny. 8. pp. The Marketer. 19. March 24 2008. pp. September 18 2007. p. Mol. Sylvia. Gary and Liisa Välikangas. 19. 18. 3. Financial Times. 18. February 2006. ‘Defeating Feature Fatigue’. 3-1. September 2003. ‘Spoilt for Choice’. 98–107. MA: Marketing Science Institute. Davidson. Rigby. 6. 16. ‘The Future Role of Marketing in the Organization’. p. and Julian Birkinshaw. Pfeifer.. p. Rust. July 31 2003. Stern. Roland T. Frederick E. 14. December 22/23 2007. 14. Financial Times. Reflections on the Futures of Marketing. Harlow: FT/Prentice Hall. 11. The Part-Time Marketer. Max. June 5 2007. Philadelphia. Burgess. Debora Viana Thompson and Rebecca W. pp. Jocz (eds). p. p. Market Driven Strategy – Processes for Creating Value. July 28 2007. Sunday Times.

The Growth Gamble: When Managers Should Bet Big on New Businesses. Financial Times. and Donald N. p. Academy of Management Executive. 11. Boston. 38. 2008. Piercy and Brigitte Nicoulaud. Porter. • • 30 . Chicago. John and Pamela Hartigan. The Opposable Mind: How Successful Leaders Win Through Integrative Thinking. Marketing Strategy and Competitive Positioning. Roger. Chapter 18. December 2006. 25. Graham. 36. Geoff and Richard McGregor. See Hooley. 78–92. 63–70. London: Nicholas Brealey Publishing. 4th edn. Wiggins. p. 127–138. Harvard Business Review. Boston. 107. ‘Grameen Bank’s Loans to US Poor ’. Brian. Sull. MA: Harvard Business School Press. Financial Times. ‘Emerging Markets Give Flight to New Industry Champions’. January 2001. Andrew and Robert Park. 30. Donald C. 48–59. ‘Globalization’s Offspring’. E. 31. 32. pp. Jenny. 2007. 14. New York: Currency Business Books. 29. Palmisano. September 25 2005. 15 (4) 2001. Daniel. 11. The Strategy Paradox: Why Committing to Success Leads to Failure [and What To Do About It]. April 4 2007. pp. p. 4. Nigel F. Martin. January 10 2008. ‘Strategy As Simple Rules’. 33. 85 (3) 2007. pp.com. Harvard Business Review. Daily Mail. 27. 35. 2006. 28. p. Kramer. ‘Everything Old Is New Again’. Economist. 2005. Frederickson. Fred. From Counterculture to Cyberculture: Stewart Brand. Foreign Affairs. Campbell. Donald. ‘Indians Set Up British Call Centre’. Hindo. and M. Turner. Michael. Raynor. August 5 2005. Harlow: FT/Prentice Hall. 26. Elkington. February 16/17 2008. Financial Times. 2007. Samuel J.. p. Adapted from Hambrick. ‘Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility’. 39. August 8 2006. BusinessWeek. ‘Are You Sure You Have A Strategy?’. 34. MA: Harvard Business School Press.Market-Led Strategic Change 24. and James W. Financial Times. Sull. pp. 2008. Kathleen M. Eisenhardt. ‘China’s Champions’. and How They Can Avoid Expensive Failures. 37. ‘Africa’s New Thirst for a Local Brew’. 8. Dyer. Michael E. the Whole Earth Network and the Rise of Digital Utopianism. IL: Chicago University Press. March 17 2008. The Power of Unreasonable People: How Social Entrepreneurs Create Markets and Change the World. ‘The Globally Integrated Enterprise’. p. Pimlott.

There are two main parts to this chapter. customer sophistication and market granularity This chapter .C H A P T E R • • • • 2 The customer is always righthanded: customer satisfaction. we tease out some of the contradictions in managing customer satisfaction and loyalty. and conclude that many of us have not done too well in producing satisfied customers. . . I suggest you take a break after each part to consider the implications (this is a long chapter). First. in a world where mass markets have disappeared and markets are fragmented and . we examine a few of the seismic shifts in markets – both consumer and business-to-business – which are stretching our capabilities to adapt and reinvent how we do business. Secondly.

.* things do not look much like this. outside the handful of excellent marketing companies in the world. companies tell you about their customer care policies and their focus on customer satisfaction. Just about every sector you go to. The Customer Conundrum The customer conundrum is that everyone says they believe in customers. Mr Lafley. Why is it when you look around in most markets companies treat their customers so badly? Is it because they don’t care. but when you look at what they do. and you know who you are. or they just can’t help themselves? Or. and. Mr Mittall. Who are we kidding? Just look at how organizations actually treat their customers: * . they really do not take the customer issue seriously at all. . Mr Jobs. Mr Immelt. don’t they know what they are doing? Customer service is bad all over The critical importance to business survival of providing value to our customers is hardly news to anyone. (This is usually reinforced when you ask customers what they think. We are now even allowed to admit that there is such a thing as a bad customer. However. satisfaction is confused with loyalty. with whom we probably do not want to do business. But think about it: if marketing had delivered on all the promises. • • 32 . Introduction A lot of people still think marketing is the greatest thing since sliced bread – indeed was probably responsible for sliced bread.Market-Led Strategic Change granular. Sir Terry. and when our customer care programmes and customer satisfaction measurement systems do not help us – we are lost for what to do next. we would have a handle on how markets are changing. our marketing would be robust in delivering sustained and superior value to our customers.) Service is seen as servility. then companies would align their operations with customer requirements with ease and dexterity. then you may skip this chapter – otherwise not. Mr Palmisano. if you are one of the aforementioned. The chapter opens up the customer conundrum (why we say we take customers seriously but rarely do) and the radical market changes that mandate equally dramatic shifts in the way we go to market to achieve business goals in the new types of market we face. Indeed.

like this one. . ‘Vulnerable. it says so in the Patients’ Charter and I’m a patient. Two points spring to mind: how can service standards be so appalling in an expensive ‘caring’ business. Sunday Times. there was no patient alarm to call help in an emergency. because he had failed to memorize his ‘patient number’. and more than a quarter claiming that once lost. why is it so unusual for a chief executive to sample his or her own customer service? Source: Adapted from Susan Clark. and the roof leaks when it rains. Porter: F*** off! Other surprises for Spiers were: getting into a hospital in a wheelchair is difficult when there are no automatic sliding doors. it is unsurprising that many customers show low levels of satisfaction and display low levels of loyalty to suppliers. the hospital porter took 40 minutes to respond to his bleep. April 24 1994. for example. there were no pillows on the trolley. hospitals. mate? Patient : You’re supposed to wear one. their business was lost forever. whatever happened to privacy and dignity?’. A UK survey published in 2006 found that fully one-quarter of customer service experiences during the previous year had been bad. Afraid and Humiliated’. Spiers concluded: ‘If I had really been a frail and elderly patient in pain. On arrival. It really should not be like this – we have the knowledge and the technology to do so much better. He got into a wheelchair and visited the Royal Sussex County hospital in the guise of a disabled outpatient. The overwhelming reason why customers take their business elsewhere is dissatisfaction with customer service. and stripped away his dignity in how they treated him – publicly humiliating him. staff gave him incorrect directions. leading to the conversation: Patient : Where’s your name tag? Porter: What’s it to you. he was told to expect a 5-hour wait to see a doctor. are full of discarded litter and are very grubby. then chairman of Brighton Health Care NHS Trust – an £801 million business – decided to put this to the test. and. Yet all 33 • • . . with 65% of the people surveyed reporting they had taken their business elsewhere after a bad service experience.1 Faced with bad attitudes from the people who sell them goods and services.The customer is always right-handed: customer satisfaction. John Spiers. I would have been scared and bewildered . customer sophistication and market granularity Reality Check: The reality of customer service The National Health Service has a ‘patients’ charter’ and boasts slogans like ‘Putting Patients’ Interests First’ as well as a management policy of ‘positive customer care’.

From customer satisfaction to customer loyalty • • • The conventional argument is that satisfied customers are loyal. Also. some customers you really don’t want to retain because they are bad customers. Customer satisfaction and customer loyalty The conventional belief is that satisfied customers are loyal customers. and the return in investment in marketing to existing customers can be seven times higher than with marketing to prospective customers. in most places marketing spend remains focused mainly on growing customer numbers. the customer base will need renewing every 5 years. The Bain and Co. with an 80% annual customer retention rate. and has spawned huge numbers of customer loyalty programmes. the longer the ‘life’ of the customer the higher the sales volume over which acquisition costs can be spread. Calculating ‘customer lifetime value’ is a powerful way of concentrating minds on the significance of customer retention. and referrals and word-of-mouth recommendations to other customers. a higher share of their expenditure.2 Productivity – gains in profitability from customer retention come because: acquiring new customers to replace those we lost costs five times more than the cost of maintaining existing customers. because the financial gains can be huge. and build development programmes to improve. The case for focusing on customer retention has proved overwhelming for a whole generation of managers. Unfortunately. but if retention is increased to 90%. the advantages of high customer retention are: ● ● ● ● Profitability – customer loyalty reduces costs and improves profits.Market-Led Strategic Change the evidence suggests that this is where our obsession with ‘marketing’ has got us. This is a well-trodden path. writes ‘customer loyalty appears to be the only way to achieve sustainably superior profits’. That sounds pretty convincing. One important goal is customer retention (loyalty). they buy more of the company’s products. and. • • 34 . the base needs to be renewed only every 10 years. and loyal customers bring us repeat business. and the like. you cannot buy real loyalty that easily. the evidence is that not only do loyal customers take less marketing effort. but tends to miss a couple of important truths: customer satisfaction and customer loyalty are still not the same thing.3 Sales volume – to hold sales volume constant. but to recap. Actionability – customer retention is one of the things you can measure and evaluate. work suggests that the average company loses 10% of its customers each year but a reduction in loss of customers by only 5% could increase profits by 25–85%. This is exciting stuff. Frederick Reichheld of the consultancy Bain and Co.

Or maybe the customer just wants a change for the hell of it. or a technology innovation takes them to the competition. They may be tied to us by: product compatibility (e. These are different things. customer sophistication and market granularity Whoever told you that customer satisfaction and customer loyalty were the same thing – because they lied to you? • • • Put crudely. how often do we get lulled into a false sense of security because we confuse these customers with the next type? Happy Wanderers – these customers show every sign of being satisfied with what you do and how you do it. loyalty Customer loyalty High High Satisfied Stayers Customer satisfaction Happy Wanderers Low Hostages Dealers Figure 2. They may choose to buy elsewhere because: tempting new products and services attract them. service.1 suggests four possible links between customer satisfaction and loyalty: ● ● ● Satisfied Stayers – this is the situation that is assumed by the customer retention argument above: if you satisfy customers through your quality in product and service. in reality. These customers will always give you great ratings on the customer satisfaction questionnaire – they just leave when they feel like it. then they will remain loyal. Hostages – it is possible that some of our most loyal customers may be highly dissatisfied ones. For example. so you reap all the advantages of customer retention. But. value and so on. Alternatively.The customer is always right-handed: customer satisfaction. the company stops outsourcing and produces the product itself. customer loyalty or retention is about how long we keep a customer (or what share of their business we take).g. while customer satisfaction is what people think of us – our quality.1 Customer satisfaction versus customer loyalty Low 35 • • . but they do not (or maybe cannot) give loyalty in return. in business-tobusiness markets. only our product works in their machines). they want things they can only get from a competitor. the purchasing company starts a supplier base reduction strategy. Figure 2. corporate purchasing policies change. or. you may lose the satisfied customer because: there is a change in key personnel.

1. complaining customers. corporate policy (e. These customers are not satisfied – but they are retained (at least for the time being). or even a form of monopoly if your brand or product is close to unique for the time being. they just buy on a different basis. it is not really surprising that they are not amused to have it suggested that their underlying assumption was wrong. Dealers – these customers are not satisfied and move brands and suppliers frequently. feature loyalists – place a • • 36 . because the chances are that only a small proportion of the attitudinally loyal are actually behaviourally loyal as well. The difference between satisfaction and loyalty is straightforward: satisfaction is an attitude (how a customer feels about our company. There are also many non-attitudinal factors that impact on behavioural loyalty to a greater extent: committed loyalists – place a high value on what we offer them. but way less than half will buy the same car next time. They are not alone in worrying about this issue.4 The chances are that some satisfied customers will defect – not least because there is a big difference between customers who are just ‘satisfied’ and those who are ‘completely satisfied’. the complications for most people in switching bank accounts are substantial. central purchasing tells you where to purchase certain products). Why aren’t customer satisfaction and loyalty the same thing? • • • Some managers object to the model in Figure 2.g. Using satisfaction (an attitude) to indicate loyalty (a behaviour) does not work particularly well – 90% of car buyers are satisfied or very satisfied when they drive away from the showroom.g.g. and not to switch – they are the Satisfied Stayers of Figure 2. product.1 – since many have spent fortunes on improving customer satisfaction to build customer loyalty. The point of this is that considering only attitudinal loyalty (measuring satisfaction. British Airways has found that the defection rate among their ‘satisfied’ customers was 13% – exactly the same as with dissatisfied. This model is not just speculation. and so on) leads us to make bad marketing investments.5 One way of thinking about this is to distinguish between behavioural loyalty (what the customer does) and attitudinal loyalty (how the customer feels about us and our products/services). This does not make them bad people.Market-Led Strategic Change ● incentives (e. intention to repurchase. accumulating enough frequent flyer miles with the same airline to get the free flight). It comes out of a project with a well-known company which is discovering that as its markets open up to new competitors. while loyalty is a behaviour (do they buy from us more than once). tend to be willing to pay a price premium. Often they will be the buyers most attracted by low prices and the best ‘deal’ on the market. service). customer satisfaction (theirs is very high) is really not the same thing as customer loyalty or retention (theirs is falling rapidly). and some customers are just lazy). the costs of switching – economic or psychological (e.

They are particularly effective if they focus on the customers who are most important to us – the big spender. customer magazines. collectable vouchers for free flights from petrol stations. another form of Hostage. the ‘frequent flyer ’ programmes operated by the major airlines (offering the business traveller who flies a lot the chance to save points so that s/he can fly some more). the Dealers in our model. If you want the benefits of customer retention. and. it takes a lot more than winning questionnairebased popularity polls. because that is what my employer buys. they may be Satisfied Stayers or Hostages. but if I eat lunch in McDonald’s every day.’10 In terms of Figure 2. whereas customer loyalty can only be earned. convenience loyalists – stick with the present option for an easy and convenient life – I may hate my bank but it’s just not worth the hassle of changing. relationship marketing. lack of choice – some have no alternatives – I believe Toshiba laptop computers are the best in the world. the potential customers for new products.6 William Neal of SDR Consulting is clear – behavioural loyalty is driven by perceived value. but I use a Dell laptop. or the most profitable customers.1. so the key to understanding loyalty is value and choice. these are Hostages. There is. and. and some of your customers are retained. one problem that should be noted about customer loyalty programmes – they have very little to do with customer loyalty. I am going to be a loyal Coke consumer because that is all McDonald’s sells – another form of Hostage. and to avoid making simplistic assumptions about customer satisfaction and customer loyalty.The customer is always right-handed: customer satisfaction. Is this because ‘buying’ a period of repeat purchases from a customer 37 • • . and loyalty programmes. channel loyalists – place a high value on the channel of distribution – I prefer Pepsi. head of the customer loyalty practice at Bain and Co. The bottom line on this is that you need to explore and understand better why some of your customers defect. This is the real basis for making effective decisions about investments in customer satisfaction. noted some time ago: ‘Loyalty is not developed by simply bribing someone to come back next time. But can you buy loyalty. motor manufacturers and leading retailers like Tesco and Sainsbury. what most companies seem to be doing is investing in developing Hostages. As sales promotion devices some of these schemes have been highly effective: the Tesco Clubcard is seen as one of the main reasons why Tesco took market leadership from Sainsbury in the UK grocery market. customer sophistication and market granularity high value on one or two ‘must have’ features of the product or service. anyway? • • • The strong case for leveraging customer retention led to what some called ‘a mad dash back to the dark ages of marketing’7 in a ‘lemminglike rush’8 to customer loyalty programmes – plastic loyalty cards from financial services firms. not satisfaction or attitudes. As Christopher Hapton. price loyalists – want the best price for basic product performance. not building Satisfied Stayers.’9 George Day summarizes the critical point succinctly: ‘Repeat behaviour is for sale. regular customer discounts. however.

the real big deal with loyalty programmes is the customer information resource they create. Financial Times. Sources: Adapted from Michael Peel. 13. i. to work for a relationship built on something more lasting and stable than sophisticated bribery.e. then conventional loyalty programmes are no more than short-term sales promotion. or simply cares enough about the customer to build trust and commitment. Also. offers something new that attracts customers and offers better value in the customer’s terms. Even then. the use of databases from customer relationship programmes and Internet data sources are not always used perfectly: Reality Check: Data dereliction One retailer launched a targeted customer campaign that had a tiny flaw: a fifth of the intended recipients were dead. ‘Letters to the Dead and Other Tales of Data Dereliction’. which we will consider as a strategic resource for superior market understanding. Actually. and will have little long-term effectiveness. customer loyalty programmes are no protection against the competitor who delights the customer.) An insurer was unable to store separate addresses for a couple holding a joint account. Further investigations showed that lazy and bored sales staff eager to close deals had simply chosen the first option on the pull-down menu of jobs. When the wife left her violent husband. Once again it seems we may be in danger of missing the point – do we really care about customers in ways that matter to them? The real customer problem Rationally speaking one would probably believe that if a company does its best to offer high levels of service and to provide the best possible level of quality in all its dealings with customers. The letters to them were addressed to ‘Dear Mr Deceased’ and urged them to ‘wake up’ to what the company had to offer.Market-Led Strategic Change is easier than taking customer satisfaction seriously? If so. which promptly sent a confirmation note to her old home (where her ex-husband was living). The company had to pay to re-house the woman in a new. (Presumably. she sent her new address to the insurance company. An insurance company was intrigued to discover that the majority of its customers were astronauts. but this really is not the same thing as customer satisfaction. undisclosed location. September 3 2007. if the pull-down menu had been different. It is important to focus on customer loyalty and customer retention. then it would be • • 38 . in Chapter 6. p. the company would have been amazed at how many of their customers were aardvarks.

The Wal-Mart tactics have infuriated consumers and aroused their suspicions – if someone takes hold of their purchases at the checkout (to pack them in a bag). Wal-Mart arrived determined to pamper every customer in sight. . p. ‘Yeah. But the easy assumption that maximum service and quality pays is not necessarily true for two reasons: we may not understand what service creates customer value. Sources: Toby Helm. losing $1 billion in the process. customer sophistication and market granularity likely to prosper. and ‘shopping is boring’. the ‘customer comes last’. However. Reality Check: Wal-Mart’s European adventure Wal-Mart is the world’s biggest supermarket retailer. . Wal-Mart’s ‘10 foot rule’ states that if a customer comes within 10 feet of an employee. Analysts blamed Wal-Mart’s reluctance to adjust its retail model to the demands of German customers.The customer is always right-handed: customer satisfaction. and the emphasis is on efficiency. ‘Give us an A’ . . 39 • • . Being great at the wrong service is very expensive. Locally employed shop-workers have been found hiding in the lavatories to avoid the embarrassing but mandatory morning Wal-Mart chant – ‘Give us a W’ . Gerrit Wiesmann and Jonathan Birchall. Financial Times. ‘Wal-Mart Is in Retreat from Its Global Empire’. and even if we do we may not be able to deliver it. Daily Mail. in January 1998 WalMart arrived in Germany. In fact. they think someone is trying to steal from them. Wal-Mart beat a retreat from Germany. after 8 years of losses. We will see later that these are key issues underlying the strategic choices of markets and segments we need to confront in building a strong market strategy. this is a country where the rules of retailing seem to be ‘the grumpier the better’. In 2006. (swivel the hips at the hyphen) . Complaints/ requests must be dealt with ‘by sundown’. In April 2001 the company announced it was scrapping its expansion plans in Germany and would not be launching the planned 50 new stores by the end of 2002. 15. . ‘Wadduya get’ . . In many cases this is true because of the lack of competition on precisely those things in all too many markets. Germany’s leading retailer. the result has been a major culture clash. selling its stores to Metro. By late-2000 Wal-Mart’s losses were running in excess of £150 million a year in Germany from its 95 stores. October 28 2000. . p. ‘Service With a Smile Frowned on by Germans’. As part of its global expansion. ‘Wal-Mart Sells Out to Metro in Germany’. July 29 2006. It is easy to get suckered by this assumption. July 29/30 2006. Its US value proposition of lowest price and highest service has been incredibly successful. Daily Telegraph. the latter must smile and offer to help. Waaal-Mart’. and the company was ranked bottom of all retailers in Germany in an annual customer satisfaction survey. Lucy Farndon. . Wal-Mart admitted it had completely misjudged German shopping tastes and habits. 69. .

. Reality Check: Mickey Mouse meets the US immigration officer Alarmed by the surly. Consider the possibilities in Figure 2. which has escalated with ‘increased security’ (a good excuse). when the man with the gun yells ‘Any fruit.2. For example. Providing service and quality which is not valued by the paying customer. From Mickey the Immigration Officer’. the US government’s Discover America Partnership is adopting training techniques from Disney’s theme parks. Daily Mail. and this is not regarded as a good idea. however well-meaning. May 13 2007. which compares what we promise customers with what they receive. Often the problem really does come down to simply not understanding what things really matter most to the customer. ‘Welcome to America . Having a good service offer • • 40 . do not shout ‘Hi!’ Source: Adapted from Stephen Adams. yes please. is unlikely to gain the business that we want. and. awkward. is a good route to ‘servicing’ and ‘total qualitying’ ourselves right out of business. The goal is to learn how to welcome visitors. emotional. p. unreasonable people who want things done on their terms not ours. manage large queues. and respond to ‘negative reaction’ from the travelling public. Buddy?’. because it is their money. 53. in fact. The point is that raising unrealistic customer expectations (in terms of what we can really deliver) will create dissatisfied customers just as surely as poor product marketing and service delivery. in the airline business people talk about the ‘olive factor ’ – if you forget to put the olive in the martini. aggressive and rude attitude of US immigration officers to arriving visitors. Customers can be very unfair in the judgements they make – but at the end of the day it is allowed. Can we deliver what we promised? The second point is that offering the customer service and quality and responsiveness which we cannot really deliver is also potentially a route to disaster. an apple would be delicious!’ This is on a par with: when you see your friend Jack on the plane. it is unwise to respond ‘Oh. In the real world we should never forget that when we are customers we are likely to be not simply harsh but also highly unfair in the judgements we make. Maximizing the wrong service and quality (as far as the customer is concerned) is expensive and unproductive (as far as we are concerned). Nonetheless. .Market-Led Strategic Change Do we know what service to maximize? The first point is that customers are perverse. the customer thinks you will forget to put the wheels down when you land the plane.

The danger area is not keeping promises. one way of looking round at our competitors and how well they are doing. You get what you pay for. The conclusion is that we should think in terms of appropriate service and quality strategies. which is not much better than the ‘OK’ from the customer who is promised little and gets just that. is shown in Figure 2. I HATE you bastards – you lied to me! Bad OK. which engenders customer feelings of hatred (at least in some cases).3. customer sophistication and market granularity The service and quality we promise High Good The service and quality the customer receives Low I am in LOVE – I didn’t know you were this good! OK. The interesting opportunity may be under-promising and over-fulfilling against expectations which gets you customer love.2 Customer expectations and outcomes which is fulfilled gets you ‘OK’ from the customer. For example. but it’s what I expected. Figure 2. It’s bad.3 Service and quality versus customer satisfaction Low 41 • • . that match the most important needs of our target customers but also our ability to deliver. and comparing their performance to ours.The customer is always right-handed: customer satisfaction. Before we Impact of service and quality on customer satisfaction/retention High High Smart servicers Overservicers Low Service and quality level Underservicers Nonservicers Figure 2.

13 about 40%: are ‘where can I get?’ queries the last 20%: are people who want to buy stuff Happy customers and happy employees Even more worrying when we think about companies’ service delivery capabilities is confusing customer and employee satisfaction – the assumption that if we are terribly. customer contacts come in four categories: about 1 in 7 customer contacts: another 25% or so: are triggered by basic quality defects – ‘it doesn’t work’ take the form of ‘how do I?’ questions which have to be addressed by quality improvements which means the company has failed to communicate properly or its processes are confusing. or is there no clear relationship? Indeed. it would be good to decide whether we are currently over. Whatever else we may find. which dimensions of service and quality or those other issues). An interesting argument is that actually ‘the best service is no service’ because if you get things right in the first place. ‘the size of a company’s customer service operations is in inverse proportion to the quality of its underlying operations’. and whether there are low-service opportunities in the market as well as high-service niches. There is actually some truth in the saying ‘There’s riches in niches’. terribly kind to employees.Market-Led Strategic Change jump to easy conclusions about what works and what does not. and these are the issues to address if the web page or other selfservice options are done properly customers should be able to answer these for themselves the more the first 80% can be reduced. • • 42 . terribly nice to customers. they will be terribly. and we win with both groups. is low customer satisfaction associated with high or low service provision.or under-servicing. why not see what the distribution and spread of competition is – is high customer satisfaction achieved through service and quality or other issues (and if so. the more the company can invest in helping customers when they actually need and value it.12 According to research by Price and Jaffe (ex-Amazon). customers do not want your service. or if we have got it about right.11 In this sense. and see what conclusions that leads us to. we might then look at which types of firms are doing best in market share and profitability terms.

.14 Undoubtedly. when internal and external customer satisfaction are high. This suggests that four possible scenarios result when internal and external customer satisfaction are compared: synergy. but this does not translate into external customer satisfaction – for example. what about the squash ladder?’ Figure 2. ’ Low Alienation ‘unhappy’ customers and ‘unhappy’ employees We really do need to question these assumptions. On the other hand. by and large. There is hard evidence that the long-held premise that happy staff make happy customers is not true. assumed by many to be obvious and easily achieved. the real secret is to ‘torment your customers – they’ll love it’. which is what we hope for. customer sophistication and market granularity External customer satisfaction High High Internal customer satisfaction Synergy ‘happy’ customers and ‘happy’ employees Low Internal euphoria ‘Never mind the customer. and we see them as sustainable and self-regenerating.The customer is always right-handed: customer satisfaction. He reckons we all fell for the line that if 43 • • . and we are likely to be highly vulnerable to competitive attack in the external market and low morale and high staff turnover in the internal market. it can be a powerful competitive weapon. or else . .15 But just consider the relationship between internal (employee) and external (customer) satisfaction shown in Figure 2. worst of all.4 Customer satisfaction and the internal market Coercion ‘you WILL be committed to customers. These scenarios are exaggerated. or alienation. which may be very difficult and expensive to sustain. Stephen Brown tells us that we all got it wrong anyway and that while ‘Customers are a good thing. This is the ‘happy customers and happy employees’ situation. provided they’re kept well downwind’. but have provided a useful way of confronting the issues with executives. In the same vein.4. when employee buy-in is focused on what matters to customers. if internal socialization and group cohesiveness actually shut out the paying customer in the external market. is where we have high levels of satisfaction in the internal market. coercion is where we achieve high levels of external customer satisfaction by changing the behaviour of employees through management direction and control systems. internal euphoria. where we have low levels of satisfaction internally and externally. Perhaps.

‘Harry and the Marketing Masterclass’. p. Fiercely controlled embargoes and midnight launches add to the mystery. The US publishers also dropped hints that there were not enough copies to go around. In July 2007. p. The author barely promotes her books – less as the success of the series grew – and puts a watertight seal around a book until it comes out. Financial Times. Stephen Brown. with no reviews or hints of the plot. pp. Publication dates are strictly enforced. which is complete nonsense. July 12 2005. tormenting and torturing people because it really does get their attention. The average waiting time for a new Ferrari is two years – calculated to maintain the brand’s special cachet. ‘Web Abuzz Over Claims of Harry Potter Leak’. The seventh and final (hopefully but not definitely) instalment of JK Rowling’s series broke bookselling sales records throughout the world – 2. • • 44 .3 million in the USA. which beats being ignored. Sometimes. Ferrari deliberately keeps production below demand. though spookily the world’s press had little trouble in finding one of the buyers to splash them over front pages across the world. you get more by playing hard to get. For example. as the little creep disappeared in a puff of self-generated smoke. ‘Torment Your Customers (They’ll Love It)’. The book series is about very effective ‘anti-marketing’.16 He has a point about teasing. but a year is not long enough. 83–88. The series has sold around 352 million copies worldwide. but not so long that it drives customers to look elsewhere or creates speculative re-sale markets.6 million copies in the first 24 hours in the UK and 8. July 18 2007. She vetoes HP merchandising deals that she thinks would demean the books. Consumers may want the book now – but they have to wait.000 for a 430 Scuderia model. Sources: Tom Holman. Harvard Business Review. Financial Times. The mystery surrounding new HP books drives even more excitement for fans. Some bookstores have displays of a new HP book under lock and key to emphasize the message. Three years waiting is reckoned to be too long for someone paying $300. luxury car maker Ferrari sees enhanced exclusivity in having long waiting lists for its cars. In 2000 several advance copies were ‘accidentally’ sold from an unnamed Wal-Mart in West Virginia. in the week before publication pirate images of the book appeared on the Internet and online forums hissed with stories about its sources and accuracy. Ben Fenton. October 2001. Others have ‘final count-down’ displays before the launch.17 Reality Check: Hateful Harry The 2007 publication of the final Harry Potter boy wizard novel – Harry Potter and the Deathly Hallows – brought to its climax the book publishing phenomenon. Pretend leaks are common to each book. 12. 7.Market-Led Strategic Change we love customers enough they will love us right back.

The point is two-fold. . Let us consider these points. in turn. Reality Check: Clowning around with kids’ minds For the best reasons in the world. the very real danger that we end up becoming obsessed with the trappings rather than the substance of customer service. A survey suggests the youngest patients are terrified by the red noses and grinning faces. Perhaps even more worrying is that many tools and techniques to improve our customer service are misused on a wide scale. Certainly I remain unrepentantly sceptical about top managements who foist such things as customer care programmes on their organizations. It is worrying that by and large it is actually a lot easier to adopt customer care programmes. and. They are being used to treat the symptoms not the sickness. very visible. if we only adopt the trappings of these tools. but not solve. without themselves being committed. balloons. or even the dinner trolley – it’s the clowns painted on the walls. and to provide the services they want (the substance not the trappings). efforts to cover up. and any beneficial effect will be short-lived. the issues we have raised seem symptomatic of something deeply wrong in our organizations that may be hard to get close to. than actually to care about customers in the real sense. Clowns were universally disliked by children in the survey. 45 • • . It seems coulrophobia (fear of clowns) is a somewhat commoner condition than expected. second. Entertaining and cheering images should be therapeutic . to train operatives in customer service. and at best of top management going for the latest ‘quickfix’ (shortly to be replaced by the next fashionable panacea). and other cheery things. Second. At worst this smacks of lip-service and lack of real commitment where it matters most in the organization. They are token. . if we just treat the symptoms (of poor customer service and low satisfaction) without getting to grips with the real underlying problem (of management attitudes and behaviour as well as those of operatives). animals. customer sophistication and market granularity The real problems with customer service The real problems are: first.The customer is always right-handed: customer satisfaction. because they are quite important and warrant a little further thought. and so on. First. then we will achieve little of lasting value. and may do considerable harm to our businesses. then the effect may be in the wrong direction in spite of the best intentions. ooops! It turns out that for small children the most scary thing about hospitals is not the needles. visible participants. people who run hospitals have covered the walls of children’s wards with paintings of clowns. the underlying problem. Even patients between 7 and 16 years of age find the clowns ‘scary’.

It is the most successful of the European ‘no-frills’ airlines. 43. customer loyalty and the goals of customer service.. profitability). This is bad. based on the model of Southwestern Airlines in the USA – offering very low fares but stripping out many of the expensive services provided by conventional airlines. ‘Send Out the Clowns’. ‘Clowns Too Scary for Children’. In some cases. high performance may be driven by low service levels.Market-Led Strategic Change Unsurprisingly. no window shades (flight crew have to waste time opening them to land). by making tickets free. December 27 2008. The problem is strategy Companies create many of their own problems by confusing customer satisfaction. advertising on seat-back • • 46 . January 16 2008. Nonetheless. loyalty and service are needed to implement our marketing strategy with these customers. which slows you down). the obvious conclusion from a company’s performance is that its strategy has failed because poor customer service is linked to low customer satisfaction and loyalty. AOL Lifestyle. Aggressive Chief Executive Michael O’Leary even plans to go from being a ‘low-cost airline’ to a ‘no-cost airline’. deduct £1 from the airport taxes). Sources: Chris Brooke. But in other cases.e. with adverse effects on its performance (sales. as we have seen the result is many unsatisfied customers.3 and remember the Non-Servicers. Daily Mail. and worse. professional clowns are not very happy about this finding. Unsurprisingly. and a poor reputation. but earning more from additions like food and luggage charges. reclining seats break and have to be fixed. Then consider the success of arch non-servicer Ryanair. smart hospitals have gone back to plain walls. Look back to Figure 2. Ryanair has given new meaning to the ‘art of cheap’: a quarter of seats are already ‘free’ except for airport charges and taxes. growth. the planes are stripped down with seats that don’t recline (you can cram in more passengers instead. p. disloyal customers and criticisms of customer service delivery. no entertainment. In some promotions Ryanair has offered to pay people £1 to sit in a seat on the aircraft (i. Reality Check: Ryanair – the master of non-service strategy Ryanair in 2007 remained the world’s most profitable airline. What is worse is a failure to identify what levels of customer satisfaction. no seat-back pockets (less cleaning costs).

Mr O’Leary does not believe in pampering his customers – certainly not the ‘whiners’ who complain: ‘If these policies anger 1% of passengers but the other 99% are really happy with low fares.’ Famously. as he planned to prey on his rivals during the expected economic downturn. who had won ‘free flights for life’ as the millionth passenger to use the new airline. as well as an ad with a woman dressed as a sexy schoolgirl. believing it should show other complainers and litigators that Ryanair never backed down (regardless of the very bad publicity that ensued). without their permission. Flight crews must buy their own uniforms and staff at Ryanair headquarters must buy their own pens. car rentals and even online bingo).’ Passengers who want even minimum services are required to pay for them – choosing to check in at the airport rather than online costs the passenger £4 and the charge is going to increase. and. Shortly afterwards Ryanair said advertising rulings by 47 • • . O’Leary’s view is that ‘You want luxury? Go somewhere else. leading to a warning of falling profits. Mr O’Leary notes. encourage price-sensitive consumers. flight attendants sell digital cameras and MP3 players. paid the damages to Mr and Mrs Sarkozy. and complained to the new CEO demanding compensation. After a customer sued Ryanair for charging for the use of a wheelchair. customer sophistication and market granularity trays. Early 2008 saw Ryanair in trouble for ads featuring French President Nicolas Sarkozy and his bride. but noted it ‘generated gazillions worth of free PR’. and the company refused to countenance a compensation settlement. Carla Bruni. After 10 years happily enjoying ‘free flights for life’. Staff are banned from charging their mobile phones at work. food and water are very expensive on Ryanair planes. but people do look for cheaper alternatives. when he took over as CEO at Ryanair. Ms O’Keeffe was later awarded her compensation in the Irish courts. and soon flights will provide onboard gambling and a cell-phone service. stimulate traffic. O’Leary inherited a passenger. tougher economic conditions and falling fare levels. speedy boarding costs another £4 per passenger. Employees are encouraged in O’Leary’s low-cost thinking. Ms O’Keeffe encountered problems with getting seats. the company simply added a ‘wheelchair levy’ to every ticket instead. Jane O’Keeffe. and sees no reason why others cannot do the same). hotels. then that’s fine. those who want to check in luggage pay hefty charges of £20 (Mr O’Leary says he can be away for two weeks with only an overnight bag. He believes that during recessions travel does not get cut back.The customer is always right-handed: customer satisfaction. Faced with a ‘perfect storm’ of rising oil prices. He made no mention of customer service. and promote new routes and base developments’. Mr O’Leary said ‘sorry’. Mr O’Leary said his ‘only one response to any consumer uncertainty’ would be to intensify a price war with moves ‘to slash fares and yields. more than 98% of tickets are sold online (along with insurance. ‘We said f*** off ’.

Aaron O. September 15 2002. Alan Ruddock. incremental changes that we can take care of). p. . or denying services to our target customers because we spread our efforts over all customers. March 14–16 2008. p. July 22 2007. Sunday Times. disruptive and demand new approaches. Alan Ruddock. The Sophisticated Customer The reason why marketing has to change is because customers and markets have changed. The issue is alignment between service capabilities and marketing strategy. We are now in a business era where ‘the landscape is fundamentally changed from the environment that drive commerce and organizations for the last hundred years’. Patrick. and aligning service capabilities with these priorities.Market-Led Strategic Change the UK Advertising Standards Authority made no sense and put its sexy schoolgirl ad on its web page. 3-6 – 3-7. changes in markets are radical. ‘Ryanair Boss Puts Whiners to Flight’. ‘How O’Leary Spread His Wings’. .18 Our problem is that a lot of our thinking about how we go to market (in companies. The answer to the customer conundrum seems to lie in understanding what aspects of customer service are important to the customers who are important to us. 3-3. and the fundamental reshaping of business-to-business markets. radical shifts in consumer market structures. What we end up with is providing services to customers who do not value them. Sunday Times. p. ‘Ryanair warns of “Perfect Storm” Damage’. The company continues to earn its maverick reputation. Consider briefly some of the disruptive changes we now face: the demands of the vindictive sophisticated customer. Sunday Times. July 15 2007. February 5 2008. This is about where we want to be in the market compared to competitors and the type of value we want to offer to different customers. Financial Times. p. 6. and books about marketing) is still founded on assumptions that things are basically the same as they always were (with a few minor. But first – you got to know what the strategy is . it is impossible to resolve the customer conundrum. ‘Ryanair Ignores Ad Police’. In fact. Wall Street Journal. training and education programmes. p. ‘Bullying Passengers Pays for Ryanair Boss’. Sources: Kevin Done. without understanding our market strategy. The new customer Three words that chill executive souls in just about every company are ‘the sophisticated customer ’. If those words do not keep your marketing • • 48 . 3-10. 17. In short. Dominic O’Connell.

The customer is always right-handed: customer satisfaction.26 Certainly. who are sceptical of figures of authority. The consequences of not making this transition can be dire. Des Wilson.20 and they complain increasingly loudly about advertising images that are unsubtly based on sex and violence.27 One study describes the new British consumer as ‘an autocrat in a bad mood’. to new marketing. The problem is traditional marketing consistently underestimates the intelligence and street wisdom of the customer. highly individualistic people. distrust and hostility – brands seen as tolerable today may be the ‘enemy’ of the consumer tomorrow. then you probably need to get smarter marketing and sales executives.25 The ‘new consumers’ have evolved from being conformist and deferential and prepared to trust mass advertising.21 Even men are fed-up with being mocked in crude advertising gender stereotypes. For example. this is what we have to offer ’. The tide is still rising’24 – he was right. you simply have to change the way you do things because your customers know exactly what you are up to. is that customers everywhere have wised-up. not just against your immediate competitors. anti-business and anti-marketing pressure groups abound – more than 1000.23 At the extreme. many consumers are increasingly sceptical about advertising and see only ‘brainwashing and lies’. Surveys suggest that British business leaders are now more frightened of the Consumers’ Association and Greenpeace than they are of trade unions or government ministers.28 49 • • . Whether you are in consumer marketing or business-to-business. this is what we want’. The information age means there has been a fundamental shift in power between sellers and buyers.22 The challenge to the advertising industry is to drop the tired approaches of the 1960s and start ‘with the fact that you know nothing about people. a former campaigner. predicted ‘The militant citizen is becoming an increasing proportion of the population. into free-thinking. which is a time-bomb under traditional marketing. They have exhausted the things they need to buy. serving customers who say ‘here we are. ranging from Greenpeace to ‘Surfers Against Sewage’ – actively campaigning to change business policies. If you go on making assumptions about the future based on the compliant. The single most devastating factor. The ‘new world’ in which we all have to compete is one rich in information – but information owned by the customer – the transition we are seeing is from old marketing which said ‘here we are. where consumer restlessness and dissatisfaction are part of a long-term social trend. Sophisticated customers are also increasingly cynical and hostile towards business and marketing in particular. advertising agencies are fearful of a consumer rebellion in which consumer disinterest may mushroom into frustration. attention and trust. deferential and easily satisfied customer. and are now concentrating on what they want to buy.19 But it is worse than just customers with higher expectations. you are heading for a nasty surprise. customer sophistication and market granularity and sales executives awake at night. They are short on time. because all the old certainties are gone’. Sophisticated customers know more and they want more – you will be judged against the standards of the best everywhere.

. having heard the eponymous talents produce their inimitable sounds. and you can only reach one conclusion – the customer says what is value in his/her terms. Reality Spice: Value versus quality In the Spice Girls’s film. These customers are liable to become very angry if you do not provide them with value in their terms. .30 Value is what we say it is . someone comments ‘that was perfect.29 What new customers say It is actually frightening to try to enumerate the types of demands that are being placed on us by new customers. Traditional approaches of going to market with ‘confusion marketing’31 – such as. Value is not defined by the factory or the supply chain – value is defined by the customer. or ‘We’re on your side’ at Virgin. and believe represent quality. ‘confusion pricing’ to make it so complicated to compare prices that customers stay with you – are really not clever with sophisticated.Market-Led Strategic Change Some companies have already responded to the fact that new customers want more than low prices and brands. and all the other things we know and love. Who are you calling fickle? I just changed my mind • • • New customers are allowed to change their minds. and he/she knows it. remember the Spice Girls. Look around at the examples of those who have established new areas of value and profit creation. without actually being any good’. Spice World. and it is not very pleasant reading for the squeamish. and compete on the basis of a sense of purpose that goes beyond profit: at IKEA ‘We are a concept company’. • • • Next time you and colleagues are debating product quality and technical standards. Incredibly. Sometimes you may think this is irrational • • 50 . and they do. girls. Values and standing for something may be the only way to build a competitive edge in the eyes of the sophisticated customer. not least because Eric Schlosser has pointed out exactly what people are eating in burgers. it even starts to look like the extended American love affair with burgers and fried chicken is on the wane. but here are my suggestions of what sophisticated customers are saying to us. and how these demands are escalating in size and complexity. value-seeking customers.

and Michael Dell notes ‘We are in the fashion business. pp. January 14 2008. with shiny black or yellow covers and Lamborghini logos. but is it cute? Does this computer make my bum look big? The makers of PCs (personal computers) used to focus on capability and price. The products we sell increasingly make a statement about who you are. Look at the current trends in the apparently rational. function-driven PC marketplace: Reality Check: It may be clever.The customer is always right-handed: customer satisfaction. Wall Street Journal. It is rapidly becoming apparent that computer users now want hardware that makes a fashion statement. Dell – New consumer PCs come in a choice of colours including bubble-gum pink. ASUSTeK – Produces a laptop specifically for car racing fans. yellow green and pink. Tulip – Some ‘limited edition’ PCs come with encrusted jewels. The company’s pink Vaio laptop is the best-seller in the line and popular with young women. aimed at fashion-conscious students and adults.’ Hewlett–Packard – Putting the ‘personal’ back into the personal computer involves a distinctive ‘piano black’ finish to bring a sense of ‘timeless elegance’. Its ‘limited edition’ pink laptop with leather covered case and mouse is aimed at young women. they are aimed at wealthy people who drive Bentleys and buy Gucci bags. Guth. customer sophistication and market granularity on the part of the customer – tough. Justin Scheck and Don Clark. ‘PCs Get With Style Program to Tackle Apple’. looking more like expensive handbags than computers. 26. iPhones and MacBook laptops that its aura of cool creates value for customers – its PC market share doubled in 2005–2008 and its operating margins top 18% compared to 6% at rival Dell. Examples include: Lenovo – Attacking the consumer market involves laptops with a bright red top and a high-sheen display that runs right to the edge of the lid. No one said they have to be sensible. 51 • • . Robert A. Sources: Steve Hamm and Jay Greene. p. 24–26. BusinessWeek. Sony – The Vaio line includes ‘eco-edition’ notebooks with leopardprint exteriors. This is not just about the ‘young and hip’ – other computer users are demanding style as well. Apple has proved with its flashy iPods. ‘That Computer Is So You’. Customers decide what creates value – we have the opportunity to respond or suffer the consequences. January 5 2008. it even makes ‘vroom-vroom’ engine sounds when it boots up.

A recent trial of the ‘sucks’ test on Google produced 165. The reason was. OSS is even more revolutionary than just being free – online users amend. .000 for Google itself.34 In a strange way these are loyal customers – they are the ones who care enough to tell you (and everyone else) what is wrong with your products and service.000 hits for Wal-Mart. that the cable operator had failed to install her service properly.32 Indeed. with circulation figures at the Sun and Daily Mirror newspapers tumbling. ‘Free’ is one of my favourite prices . In fact. The results are unlikely to be pretty. free) is challenging the position of companies like Microsoft. ‘Have I got your attention now?’ • • 52 . In fact. for which previously they paid money – see back to the Ryanair Reality Check. who cling to the idea that they own intellectual copyright in software and make you pay for it. she said. instead of just disappearing. sooner or later one is likely to take the plunge and become a free newspaper. she was left sitting on a bench in a corridor for two hours waiting to see a manager. Comcast office. . one test is to go to Google and enter the name of your company or any of its brands followed by the word ‘sucks’ to find out what customers actually think. if that is what customers choose. pricing at free is not just about high technology. It is unavoidable that new customers will demand many things ‘free’. She left and returned with a hammer and let loose. For example.e. Customer relationship is going to have to mean more than giving your business to a supplier in return for the right to be sold more. . Internal Microsoft documents note that the ‘ability of the OSS process to collect and harness the IQ of thousands of individuals is simply amazing’. refine and develop the programs on their own initiative. • • • Sometimes value is about the price sticker. On her first visit to the Comcast office. Virginia.Market-Led Strategic Change By the way.33 Loyalty is for sellers not buyers . bear in mind that customers who think you have been disloyal and treated them badly may be vindictive. Think of the revolution in the computer software industry where ‘open source software’ (i. • • • Smart customers know that we want them to be loyal – increasingly they are demanding that we should be loyal to them as well. the mid-2000s have seen the emergence of the ‘Consumer Vigilante’ – the customer who is so angry about your inadequacies they may be prepared to take extreme action: Reality Check: Hell hath no fury like a customer scorned In August 2007. Also.000 for Disney and 767. . 530. a 76-year-old retired nurse named Mona Shaw smashed up a keyboard and telephone in a Monassas. Her rallying cry was.

Reality Check: The problem with peas The problem with peas is how to eat them. fined $345. It seems new customers are aware that we may need to sell things more than they need to buy them. . ‘Consumer Vigilantes’. However. or (2) to turn the fork over and scoop the peas onto the fork. new services and so on. . now brag about how much they have saved. pp. It’s trying to save money because we want to beat the system’. . even if sometimes a bit strange. waiting to see if a better deal will come along becomes a lot more attractive. she was arrested. March 3 2008. . not just after a refund. is regarded as uncouth. Smart customers know this. 53 • • . it’s not so much trying to save money because we have to. capturing the minds of frustrated consumers everywhere. The sting of bad service experience may cut so deep that it transforms an annoyed customer into a Consumer Vigilante. Providing new choices that give greater value because they make peoples’ lives easier is no problem. . customer sophistication and market granularity Subsequently. The approved methods are (1) to spear a few at a time with a fork and mush a few more onto the back of the fork (which is not very pretty). and have no hesitation in exploiting that situation – why would they? Make life simpler . please .The customer is always right-handed: customer satisfaction. with the assistance of the knife.35 We are starting to see in the UK the well-established inverse price snobbery of the tough US consumer – people who used to brag about how much they spent on an item. but seeking revenge . which would be rational. • • • Providing greater consumer choice was a central part of marketing – more brands. • • • In many consumer sectors price discounting has become the norm. BusinessWeek. consumers want to buy quickly (before prices go up again). . Let’s play the waiting game and see what happens . Using a spoon. 37–42. A Henley analyst notes: ‘From the consumer’s point of view. . Source: Adapted from Jena McGregor. and became a media sensation. and the question ‘What? You paid retail?’ has become an expression of universal contempt for those foolish enough to pay full prices. new products. In times of stable or falling prices. . it is important to understand that this is not just because consumers are short of money and therefore only able to buy cheap goods. Quality or cheap – both. • • • In times of high price inflation.

with which young people will be able to cope. where the issue is that peoples’ basic needs are just about met and are boring. alongside their burgers and chicken nuggets – the ‘grands pois’. It also obscures the genuine innovations which we launch.37 The new customer wants to be teased. You really could not make this up. Many children now arrive at school completely unaccustomed to a knife and fork. . however. Source: Adapted from Tom Robbins. . ‘TV-Food Kids Forget Art of Eating Peas’. . The problem is when too many product choices make life more complicated not simpler we are in danger of making the purchase of a toothbrush or a bottle of shampoo into an unnecessary life-changing drama for the customer. but the higher level needs now being met are interesting and innovation and choice matters more. but they are eaten mainly by adults. when people were given identical glasses of red wine they • • 54 . consumers still want a degree of choice. The supermarket firm Tesco has become concerned. No one said life was fair (if they did. Sunday Times. One analyst describes the problem as ‘selling to the sated’. Tesco has asked food scientists to solve the problem by developing a larger pea. titillated and intrigued (and they may still not buy the product). research suggests that a high price makes a glass of wine taste better. • • • Paradoxically. . December 17 2000.36 The simple fact is that proliferation and duplication makes shopping more difficult and many people have had enough of it – it annoys consumers and increases their cynicism. they lied).000 tons of peas a year. But it is increasingly clear that responding to the needs of new customers is going to lead us all into actions and approaches that would previously have seemed bizarre and absurd. . a generation of children has now grown up eating mainly fast food and television dinners and lack the cutlery skills required to eat peas (other than the mushy version which sticks to chips). and schools have to teach them how to use cutlery. They sell 30. In the study. Reality Check: Whining consumers Notwithstanding customer sophistication and fickleness. But not too simple . Product development agency CLK coins the term ‘choice fatigue’ to describe just how bewildered and extremely irritated consumers are becoming with the flood of product variants (mostly only marginally different to others) they are offered.Market-Led Strategic Change However.

Sunday Times. Reality Check: Give me back my Wispa! Cadbury stopped producing the bubbly-chocolate bar Wispa in 2003 in the face of declining demand. By the end of 2007. but don’t change the things I like. 1-9. 4. Courtesy of Cadbury–Schweppes plc 55 • • . customer sophistication and market granularity said they got more pleasure from the one they were told cost more (they were told the prices were £5 and £45 a bottle respectively). When the same test was conducted without the price information. tasters reported the wines to be identical. But diehard Wispa fans established websites and blogs demanding its return. Daily Mail. January 13 2008. p. ‘Costly Wine “Fools” Brain’. Brain scans confirmed they were activated far more by the higherpriced wine. But. It seems much of the real pleasure in the wine was generated by the high price paid. . Two men took to the stage during Iggy Pop’s set at the Glastonbury festival with a banner saying ‘Bring Back Wispa’. p. January 14 2008.The customer is always right-handed: customer satisfaction. Sources: Jonathan Leake and Elizabeth Gibney. The results suggest the human brain measures pleasure by mixing real perceptions with expectations about how good something will be. Clamour on social networking sites MySpace and Facebook led to fans posting short videos on YouTube extolling the virtues of the Wispa bar. . ‘High Price Makes Wines Taste Better’. I don’t like change • • • The challenge imposed by new customers seems to be: innovate and improve. rather than the quality of the vintage. . Cadbury had given in to the online pressure and started producing Wispa bars again.

p. ‘store rage’. there is huge power in treating customers as individuals. If only . . and a higher share of the customer’s total spending. move in at tea-time. • • • Waiting for products and services is increasingly unattractive to customers – particularly when the waiting appears to be because it is simply more convenient for the seller than for any other reason. The payoff is higher profit margins. greater customer loyalty. we really can have the scenario of: pick the house in the morning. p. August 18 2007. and watch while it is mixed). 2006 finally saw specialist house mortgage lenders launching the ‘five minute mortgage’ – giving buyers an immediate offer of finance without even a valuation of the property. whether it is the designer fruit juice (you specify the flavours and the proportions. After years of procrastination.Market-Led Strategic Change Mars was forced in 2007 to make an abrupt U-turn over a change in its recipe. Sources: Peter Stebbings. Daily Mail. . 5. . Daily Mail. ‘Vegetarians 1. ‘Web Wispa-ing Campaign Helps Bring Back a Chocolate Classic’. . to tailor the product and how it is positioned to the needs of the individual. May 21 2007. Mars 0’. However. . the Vegetarian Society still refused vegetarian status to the Mars bar because it contains battery-farmed eggs. . Pioneers of ‘one-to-one marketing’. Don Peppers and Martha Rogers. Instant gratification is just not fast enough . 29. you won’t like me if you make me angry!’ • • 56 . or the individualized package of financial services (for example. and being treated individually. Mr Cadbury . • • • Recent years have seen excessive use of the word ‘rage’ – as in ‘air rage’. not the massproduced version that everyone else gets. sort out the finance and paperwork over lunch. However. though they got their way on the rennet. even ‘desk rage’. Halifax’s Intelligence Finance product). . though they acknowledge that implementation is a huge barrier to achieving these payoffs. . . Make it specially for me • • • In many sectors we are already seeing the customer demanding some thing different – customized products and services. . But don’t make me angry* . Over to you. ‘trolley rage’. which included rennet in its Mars bar – rennet is an animal product and its use displeased vegetarians. have founded a business to spread their philosophy of establishing a learning relationship with each customer.38 Now if someone can just sort out the lawyers. somewhat spitefully. The veggies mounted media pressure on Mars and got the product changed back to the way it was. to describe how * To quote the Incredible Hulk: ‘.

BusinessWeek. Film-maker Michael Winner. And now entertain me . successful companies do more than just sell goods and services.The customer is always right-handed: customer satisfaction. They believe that ‘work is theater and every business a stage’. There is no doubt that new customers are increasingly uninhibited and passionate in their complaints about bad service and poor value. 57 • • .40 and that’s just a start . customer sophistication and market granularity angry and unpleasant new customers can become if they feel uncomfortable. 47–56. who lists his hobby in Who’s Who as ‘being difficult’. Companies should realize that they make memories not just products. the challenge is to manage the customer’s experience as well: Reality Check: The experience economy Pine and Gilmore describe the ‘experience economy’ as the one in which we now work. The video quickly spread across the Internet. pp. In other words. by early 2008 British banks had been obliged to repay at least £560 million to their customers. • • • Research agency Mintel underlines the apathy. . June 20 2005.39 It may also be why after years of getting away with charging customers about £30 for exceeding overdraft limits or otherwise transgressing the creative rules they put in place. . lack of enthusiasm and indifference felt by British consumers towards shopping41 and concludes ‘shopping must be more fun’. suggests: ‘The reason the British are complaining is that they have more to complain about. bicycle lock manufacturer Kryptonite tried to ignore a blogger video that showed how to open its locks with a BIC pen. and create a stage for generating greater value. training shop assistants in self-defence. and so on. they create experiences that engage customers in a highly personal and highly memorable way – this is how you prevent your product or service becoming a commodity. forcing the company to spend more than $10 million on lock replacements. more broadly. Their examples are widespread: ● At theme restaurants like Hard Rock Café and Planet Hollywood. the food is no more than a prop for ‘eatertainment’. In fact. Source: Adapted from Robert D Hof. not just deliver services. ‘The Power of US’. . like the surly and unhelpful attitude in shops’. The responses of airlines and retail stores have not been helpful – having air passengers arrested and refusing to fly them again. . Reality Check: The games we like to play In 2004.

and mist rising from the rocks. to raise the level of anticipation. Gilmore. ‘Welcome to the Experience Economy’. but also so that those waiting are exposed to those coming off the ride. that experiences must be ‘refreshed’. to entertain customers. consumers are engaged in fun activities and events as ‘shoppertainment’ or ‘entertailment’ – Niketown is a show not a shop. . Queuing appears to be part of making the experience memorable and enjoyable. Queues are designed to twist around so that the length is not intimidating. or they will cease to attract customers in the same way. The Rainforest Café chain has created a jungle representation with streams and jungle noise. drive round in old cars. So much so. • • • One extension of the experiential marketing trend is seen in the efforts that many companies are having to make to positively pamper their customers. For example. than on busy days when they have to wait 15–20 minutes. experiences are a distinct economic offering. Alton Towers theme park has actually found that queuing can enhance the customers’ enjoyment of a visit. that customers of this distinctive and memorable computerrepair experience buy Geek Squad T-shirts and lapel pins from the company’s website. Sources: B. Pine and Gilmore warn.42 The challenge is to create and manage the experience. however. The park has found that customer enjoyment scores are actually lower on quiet days when they can get straight on the rides. . Joseph Pine II and James H. The fun of thinking about the experiences we provide for our customers and how memorable they are is the paradoxes it identifies. In this sense. 97–105.Market-Led Strategic Change ● ● ● At stores like Niketown. 1999. A Minneapolis computer installation and repair company is called the Geek Squad. carry badges. Harvard Business Review. and one from which companies may in future gain revenue. and turn a boring activity into a memorable encounter. Its ‘special agents’ are costumed in white shirts with thin black ties. and its safari-suited servers announce ‘Your adventure is about to begin’ not just ‘Your table is ready’. Joseph Pine and James H. July/August 1998. And now peel me a grape . B. pp. Gilmore. and invite them to rejoin the end of the line – but only just before they get on the ride. MA: Harvard Business School Press. The Experience Economy: Work Is Theater and Every Business A Stage. Boston. The new customer seems to lay down the challenge: ‘make me like you!’ David Freemantle argues that companies that prosper • • 58 . Closed circuit cameras spot queue jumpers.

and the company is rolling out a next-generation store format to reinforce this socialization. and wet fish shops smell. In 2001. print pictures and order leather-bound books of family photos – all with the help of shop staff who know this stuff and will not embarrass those who do not. to shape the customer’s shopping experiences and perceptions. and non-shiny floors because shiny means slippery and increases worries about falling over. bigger parking spaces to avoid feeling ‘crowded’. the developers of the Bluewater shopping mall in Kent took a ‘total sensory design’ approach to the retail environment.47 59 • • .44 Retailers are very sensitive on this subject: Reality Check: Bad retail neighbours Retail outlets tend to form clusters – clothing retailers aim to be grouped together to attract larger crowds. HMV Group reported strong sales in its music stores. ‘Pawn. porn shops with salaciousness. Source: Adapted from Jim Packard. while many retailers experienced very poor sales at Christmas in 2007. traffic flows. But there is a problem with shops with strong smells – food outlets do not want to be next to Lush (very smelly toiletries and cosmetics). where to the formula of leather chairs. colours. if this would make the trains arrive on time’!45 Interestingly. burn CDs. in this case the hoped-for increase in customer satisfaction may be a long time coming.46 A similar model is being tried at US bookstore Borders.43 But customer pampering is going far further than unlocking employees’ emotional intelligence. lighting. Designing retail environments extends to smells. 3. including ‘male crèches’ in which females could park their extraneous men. The most undesirable neighbours are: pawn. HMV is driving sales with its ‘social hub’ where customers can play games against each other and buy refreshments in-store.The customer is always right-handed: customer satisfaction. we even saw the London Underground perfuming its stations to relax the atmosphere – however. June 5 2006. HMV is just about the ‘last man standing’ in the troubled specialist retail music business on which the supermarkets are rapidly encroaching. coffee shops and books. customer sophistication and market granularity across many sectors and countries seem to do so in part by winning competitive advantage simply because their customers like them. has been added a digital centre where customers can download music or books. Pawn shops are associated with poverty. porn and prawn. Financial Times. For example. research family histories. Porn and Prawns Are the Most Unpopular Retail Neighbours’. p. as one passenger remarked in disgust: ‘I would dodge dead rats and litter. simplified road access to avoid stress. noise levels and types.

we are required to be seen to behave ethically and to display high levels of social responsibility. we find guilty of denying hard-working activists the right to protest against you. Patricia Seybould argues that the net result is that the customer takes control of an industry and reshapes it from outside.Market-Led Strategic Change And make me feel good about buying things from you . environmental damagers. now. In the new world. . She says that managers no • • 60 . . help is on its way: Reality Check: A new anti-business protest group is formed I wish to announce the formation of a new anti-business protest group: the International Domain for Ideological Opportunities to Terrorize Someone (IDIOTS). It is already very clear that media attention. polluters. . . What it comes down to is that smart companies watch and respond to public opinion to avoid being damaged. The new watchword is transparency. Do something!’ Never fear. and it is going to be difficult for us to live with. and if they don’t like it. Internet sites. The target is all companies who are not exploiters. wreaking havoc in the Third World. the spread of organized lobby groups and enhanced sensitivities mean that if you get caught behaving unethically or offending against human rights you will have no place to hide. make all the bad stuff in the world go away • • • Apart from excellent service and enhanced environments. and this is a flagrant and cruel abuse of our human rights. you start to wonder if you are doing something wrong! Just imagine the day you get a phone call from your CEO saying ‘I am embarrassed in front of my peers – our company is so insignificant that no one is protesting against us. they want us to stop. get in that goldfish bowl and stay there while I keep an eye on you. You have been warned! And there will be no secrets any more . protestors seem to have a grudge against everyone – just about any company you can name is accused of exploiting workers. because I’m in charge now! • • • The new customer demands to know what we are doing and why. You. Bear in mind – behaving ethically and being socially responsible will not guarantee commercial success. or polluting some aspect of the environment.48 In fact. but it may be an important part of survival. or guilty of any other such behaviour. In fact. it has almost got to the stage that if you are not on someone’s hate list. part of being liked by customers seems to be increasingly about much bigger issues too – we are being held responsible for the woes of the world and being required to do something about them.

that is:50 To be found where? Patient’s notes Patient’s notes Child patient’s notes Patient’s notes Patient’s notes Patient’s notes Female patient’s notes Discharge letter Patient’s notes Patient’s notes Patient’s notes Acronym SIG PAFO FLK GROLIES FAS NFH TUBE TF BUNDY TFTB LOBNH TLR Translation Stroppy Ignorant Git P(drunk) And Fell Over Funny Looking Kid Guardian Reader Of Limited Intelligence in Ethnic Skirt Fat and Stupid Normal For Here Totally Unnecessary Breast Examination Totally F***** But Unfortunately Not Dead Yet Too Fat To Breathe Lights On But Nobody Home Two-Legged Rat – refers to a patient undergoing experimental treatment This is wonderful laddish humour. what did you just call me? • • • New customers are also less than amused when they find out what some service providers call their customers behind their backs. customer sophistication and market granularity longer determine the destiny of a company – customers do. thus avoiding the patronizing behaviour of know-it-all teenage servers). but you will lose – better to start practising ‘sweet surrender ’ to the inevitable. and private medicine is booming? Interestingly. Terribly amusing. medium or large. mochas and Frappe (similar to Starbuck’s Frappucino). lattes. until you may reflect that this is you and me they are talking about. 61 • • .The customer is always right-handed: customer satisfaction. Part of the product concept is that if you buy coffee in McDonald’s instead of Starbucks. Maybe such attitudes towards your paying customers by doctors helps explain why there are now more alternative medical practitioners in the UK than doctors.49 And. Her advice to companies is fight the customer revolution if you want. selling cappuccinos. For example. consider the ‘secret’ acronyms scribbled on hospital charts by doctors – ‘secret’ until one of them ratted. you don’t get a ‘condescending look’ for mispronouncing the name of the coffee or the size required (the latter is a jab at the ‘grande’ and ‘venti’ sizes at Starbucks – at McDonald’s you ask for small. in the USA McDonald’s is attacking Starbucks by installing coffee bars with ‘baristas’.

By 2021 a third of UK households will be people living alone. The latest cards to appear have updated messages: ‘For Mummy and Daddy On Your Wedding Day’ ‘Congratulations On Your Divorce’ • • 62 . ‘growth markets’ and the like. However.54 Marketing products to ‘families’ has become greatly more complex. economic turmoil and cheap technology. Reality Check: Greetings cards for the modern family Manufacturers of greetings cards have adjusted to some of the realities of modern family units in Britain.Market-Led Strategic Change McDonald’s is in the sixth year of successful turnaround. Dad and 2. becoming ‘old. together. These terms are increasingly meaningless – markets have fragmented and divided into niches in most mature markets. consumer markets are changing their structure in numerous significant ways. and this trend is likely to continue with more diverse forms of family unit. while Starbucks is struggling.4 children looks like it is becoming a mirage. Consumer market changes Driven by demographics. The typical family • • • Which would be what exactly? Mum.51 It is an interesting thought that not patronizing. One of Europe’s fastest-growing lifestyles is ‘Lats’ – unmarried couples living apart.53 Men are becoming husbands and fathers later. insulting and irritating customers may actually have become a source of competitive advantage! Market Shifts and Quakes The increasingly sophisticated customer is one of the most important market phenomena of the 2000s. there is more. Consider some of these market changes and the idea of market granularity as a better way of thinking about markets.52 Within family households. social change. Then face up to the fact that there is such a thing as bad customers. A lot of traditional marketing rests on notions like ‘mass markets’. women will be the key breadwinners in a growing number of households and likely to be the ones making the big purchase decisions. and the chase will be on for the ‘solo pound’. new dads’ behaving differently to younger fathers. overall market growth is an average which says nothing about the changes within the market.

gaming. ‘Happy Divorce! Cards for the Failing Family’. Bebo. demanding and seriously high maintenance. Source: Adapted from Sinead McIntyre. The MySpace generation • • • These are the young who live online. 25. I made that one up) ‘Congratulations on Your New ASBO’ (OK. They are different from those who went before. Reality Check: The Myspace generation and hygiene – some things don’t change In the USA. that was me again) The world has changed and greetings cards messages reflect this change. May 2 2005. social networks and shared tastes. They can be spotted by their boombox headphones. yoga mat (have to be into wellness. and are designed to get rid of odours. P&G created SWASH – an anti-wash brand carrying the Tide logo. 29. cynical. and has opened a shop near Ohio State University – Ohio students quickly organized an online competition to see who could go longest without washing their clothes. They are more likely to be reached through MySpace.56 The second generation of the Internet has spawned a global youth culture. Swash products include a stain-removing pen and a ‘smoothing spray’. ‘Laundry 101: No Water Necessary’. BusinessWeek.55 Also called the Millennials or Generation Y. iPods and iPhones (and indolent expressions). November 19 2007. P&G sells the items at Swashitout. linked by blogs. when more conventional domestic skills kick in. designer coffees. Prime target buyers are college students. innit?). Facebook or YouTube than any conventional media. The company hopes loyalty to Tide may pay off later. customer sophistication and market granularity ‘You’re Divorced!’ ‘Happy Christmas to Mum and Boyfriend’ ‘Happy Release From Prison!’ (Oh OK. stains and wrinkles without using water or an iron. 63 • • . p. digital cameras. Source: Adapted from Robert Berner. Procter & Gamble’s Tide brand claims about half the detergent market.57 Many in their 20s and 30s still live at home with their parents – the KIPPERS (Kids In Parents’ Pockets Eroding Retirement Savings). buy online. Blackberrys. play online and have growing market power.The customer is always right-handed: customer satisfaction. hipster clothes. Daily Mail.com (‘Keep the clothes you love to rewear feeling clean’). laptops. The challenge faced was how to extend the reach of the brand to new types of consumer. they are cheesed-off. p.

and the company does a nice line in insurance for senior skiers (shunned by other insurers). December 11 2006. Text on the screen is large and easy to read.Market-Led Strategic Change Mind you. Reality Check: Phones that just make phone calls The Jitterbug Dial is a large Samsung clamshell phone. Interestingly. It simulates a proper dial tone when it is ready to make a call.61 Marketing responses in targeting older consumers through specialist media or including ‘oldies’ in ads are likely to be less effective than developing new products aimed at the older – Saga’s cruise business is growing at 40% a year. the growth market for Sony’s Playstation was older consumers not younger buyers. Wildstrom. A rubber gasket round the earpiece makes it more comfortable and excludes ambient noise. Guess who that one is aimed at? Source: Adapted from Stephen H. and that many of their customers behave badly on holiday – think Keith Richards falling out of a tree. show movies or make coffee. one places other calls. It has no menu button. bumper stickers in the USA proclaim the arrival of the ‘SKIers’ (Spending the Kids’ Inheritance) – also known as the WOOFies (Well Off Older Folk). p. BusinessWeek. they want cool stuff. receive e-mails. The buttons are big and clearly labelled. surf the Web.60 In most developed countries. who are heavily in debt and face working into their mid-70s because they are not investing in pensions. • • 64 . ‘For Puzzled Seniors Only’. The OneTouch version has only three buttons: one dials a pre-arranged number. It has a dedicated on/off button. older consumers are set to account for the bulk of the growth in expenditure on many products – and the signs are they do not want geriatric tools. it seems many do not plan to leave their wealth to their children – there is ‘a declining bequest ethic’. download music.59 Conversely. the same generation has been labelled the ‘Tiswas Generation’ (thirty-somethings with no savings). The new ‘grey generation’ truly does appear to be dedicated to growing old disgracefully. 24. It makes phone calls. The Jitterbug does not take photographs. I should point out that apparently Saga is a company specializing in products and services for the over-50s. since there are no menus. *For the younger reader like myself. and one turns it off. As the ‘baby-boomers’ reach retirement age.58 Saga louts* • • • It has been suggested that most advertisers target 18–34 year olds because the average age of brand managers is about 25.

concierge services and personal shoppers. In the UK. though may end up a victim of its own stereotyping. the ‘Miranda complex’ describes the phenomenon of successful women hiding their large incomes and denying their professional status for fear of intimidating potential partners. 65 • • . and appeal more to affluent women. For example. affluent oldies and the wealthy. The ‘super-rich’ in Europe (worth more than £30 million a head) constitute the ‘platignum pound’. and so on.The customer is always right-handed: customer satisfaction. the female-only car insurance. leading the somewhat smug CEO to note that notwithstanding the credit crunch. The wealthy • • • Notwithstanding economic turndown in some markets. the MySpacers are balanced by the ‘ASBO Generation’. such as technology. customer sophistication and market granularity The pink market • • • The Economist has coined the term ‘Womenomics’ to describe the increased economic purchasing power of women and their growing cultural power – finding that increased female participation in the paid labour force has had more impact on the growth of the world economy than China or new technology. and their taste for luxury has not been abated by economic slowdown. Russia and India are important customers for Rolls–Royce cars and other luxury items. very wealthy consumers remain an intriguing target.. creating rapidly growing demand for private jets.64 The feminization of markets and marketing is likely to be a major trend.62 The Economist study found that women dominated household decisions. the private bank. just remember they are the only qualifications some of these kids will get. Coutts & Co. some wealth-related trends are counter-intuitive. US luxury retailer Saks Inc. ‘Our customer feels good’.63 Female purchasers are already a prime and distinct target – a women-only airline called Fly Pink with pink airplanes has been planned. escalating taxes. rising food and energy prices and the like. amid crashing retail sales in the 2007 holiday season. The poor • • • In spite of the comments above. while in the USA the ‘poverty business’ focuses on the working *And before you criticize Anti-Social Behaviour Orders (ASBOs). The less well off apparently have less interest in ultracheap supermarkets.66 Interestingly. In the USA. cars and financial services. but are increasingly significant in areas traditionally seen as male-dominated. is already a reality.* and the wealthy by the lowincome. markets do not consist solely of MySpacers.65 The newly rich of China.’s wealthy clientele allowed it to buck the trend. is forging links with high fashion to update its image. The improving fortunes of low-cost supermarkets Aldi and Lidl in 2008 have been driven by their increasing appeal to higher-income groups who find themselves under pressure from mortgage costs. and Sheila’s Wheels.

Russia and China are buying luxury goods from the West. ‘cruelty-free’ beauty products.69 Retailers call this the ‘30:3 phenomenon’ – 30% of consumers say they think about workers’ rights. • • 66 . remember that while the USA and Europe debate the merits of the iPhone. who have no access to credit or health care. such brands usually have tiny market shares. $20 wind-up radios from Philips. while consumers claim they would pay a 5–10% price premium for many ethical products.70 There are moral conflicts for the green consumer too – the trend for healthier eating has led to a massive rise in the number of laboratory animal tests for food additives and health supplements. bus-stop stalls and roadside cafes. and underlies the major changes in many sectors. In the UK estimates suggest that population trends will soon create ‘super diverse’ cities. While Europe congratulates itself on using biofuels to power vehicles and thus save the world. While growing numbers of wealthy middleclass consumers in India. and explains such factors as the strong sales growth of ‘hybrid’ cars. or the ‘kermitization of business’ than some companies think). but actual sales figures show only about 3% act on those thoughts. commentators suggest that ethical consumption is one of the most significant branding issues in modern markets. Even more apposite. riots are taking place in emerging markets where crops devoted to biofuels mean that there is no food to eat.68 The green and ethical consumer* • • • The ‘green consumer ’ is the one who distinguishes between brands and companies on the basis of societal/environmental impact and ethical standards (though they may be less impressed by corporate ‘posturing’. Real shifts in attitudes are difficult to assess – for example. and successes have been products adapted to these conditions – 4 cent sachets of soap. and dramatic *Question: What’s green and flies? Answer: An eco-hypocrite.67 Ethnic markets • • • Greater freedom for people to move around the world and to relocate their homes adds to growing ethnic diversity in domestic markets. where no ethnic group will form a majority – immigration to the UK will come from countries scattered across the world. the $900 Hero-Honda Splendour motor cycle.71 Nonetheless. animal welfare and the state of the planet when they choose what to buy.Market-Led Strategic Change poor. and the infrastructure at its worst. Ethnic communities and a pluralist society are already creating new opportunities for companies agile enough to find them – ‘multicultural marketing’ no longer just means selling abroad. more than half the people alive in the world today have never made a telephone call of any kind. 70% of India’s population lives in the rural countryside where the population is poor. salt and tea from Hindustan Lever sold in small shops.

the bright spark Neo-Croms who decided in 2008. sales of ‘ethical’ products in the UK were estimated by Mintel at £2 billion in 2006. For example. stop taking overseas holidays and stop flying.. and so on. *Mind you. are on to a real loser. big.74 The only saving grace about the Neo-Croms is they keep getting things wrong. With their spurious claims that whatever they want banned is for health. on the basis of minimal evidence.73 The Neo-Cromwellians • • • The 2000s have seen the resurgence of the puritan consumer. safety or security reasons. you will never part women from chocolate.e. They shroud their arguments in spurious and unproven arguments about passive smoking. the Neo-Croms will still disapprove. and may suffer serious physical harm in any such attempt. they must have been infuriated when Reckitt showed that dishwashers are more efficient than hand washing (i. chunky 4 4s like Range Rovers and BMW X5s. Certainly. 67 • • .72 What should most worry us is the possible hidden or ‘stealth’ segment of customers apparently loyal to your products. dedicated to purging pleasure wherever it is found. live healthier lives (in NeoCrom terms). They represent a culture of restricting other people’s pleasures (perversely taking pleasure in so doing). Casual observation will tell you that even if every bone in their bodies instantly turns to talcum power. use less heating power). but really they just don’t like people enjoying things. They have succeeded in having smoking banned in public buildings. stop driving. but who are poised to switch as soon as a viable and more ethical alternative emerges – they buy your product at the moment. free-range and organic products rising by 62% since 2002. Neo-Croms also believe passionately that people should stop driving – especially driving beautiful. but they would rather not. the Neo-Croms have gained enormous media influence and are changing things. customer sophistication and market granularity growth in the sales of organic foods. Having pushed people to abandon their domestic appliances to save energy. to persuade women that eating chocolate causes brittle-bone disease. and are somewhat po-faced to say the least. many ‘healthy option’ foods contain more risky ingredients and fat than the non-healthy options. with spending on Fairtrade.* Reality Check: Neo-Cromwellians and the anti-pleasure movement Neo-Croms believe that people who smoke cigarettes are evil and should be stopped. These are the ones who want everybody else to drink less.The customer is always right-handed: customer satisfaction. Even if the vehicles get hybrid engines or run on chip fat. stop smoking. aircraft.

Of course. Major scares follow a consistent pattern: they begin with a genuine problem.* Many perceived threats reflect ‘counterknowledge’ – defined as ‘misinformation packaged to look like fact’. scare-mongering leads to the relentless squeezing of businesses by zealous enforcement of pointless regulations based on spurious ‘science’. expensive and more damaging than the original problem). most resourceful civilization. .75 Others reflect urban legends and conspiracy theories.76 Scaremongers are usually wrong. the real offence to the Neo-Croms is people enjoying two things at the same time. meeting people’s apparent thirst for delusion. Nonetheless. the tipping point is when the issue is taken up by politicians. international security and so on. At one level. who produce absurdly over-thetop responses (normally inappropriate. the vulnerability of consumers to trendy ‘scares’ introduces a new kind of volatility into consumer demand and a new shaping force for consumer perceptions. but people in the ‘anxiety society’ are usually gullible. Scared consumers • • • The 2000s have seen the consumer in many countries becoming increasingly jittery and liable to change perceptions and behaviours in response to perceived threats in the world – the credit crunch. and must be stopped. which is then misread by bad science (usually confusing causality with association and using inappropriate projections).Market-Led Strategic Change But when it comes to people who smoke while driving a 4 4 – they are by definition the spawn of Satan. It is likely that fashionable fears will create crises for many companies. environmental catastrophe.000 people. the ‘bird flu’ pandemic was said in 2005 to be about to kill 150 million people. rising prices. is on the way to becoming the most frightened. the media hype the story for its news impact.’79 He was *It is apposite that after reviewing the disastrous retailer sales figures for December 2007.78 At another level. and nothing happened. my dear wife’s only comment was ‘Well. the ‘Millennium Bug’ was going to destroy civilization. There is no objective evidence whatever that smoking poses a road safety risk (and there is some evidence suggesting the reverse). it appears we have statistical confirmation of your meanness at Christmas . This is not new – Aaron Wildavsky commented in 1989: ‘How extraordinary! The richest. best protected. .77 Unreasoning panic and bad-tempered dismissal of sceptics ensues. and we are still waiting. longest lived. with the highest degree of insight into its own technology. smoking while driving will soon become an offence on ‘safety’ grounds. For example: expert opinion was that BSE (‘mad cow disease’) would kill 500. which was later revised to 200. in order for their eyes to be gouged with red-hot pokers.’ • • 68 .

Reshaped business-to-business markets The shift in business-to-business markets (B2B). It was never more true that for many ‘perception is reality’.85 We will return to the critical issue of developing deep market understanding as the basis for effective strategy in Chapter 6. customer sophistication and market granularity right. in which he correctly described such things as the move from an industrial society to an information society and from national economies to a global marketplace. Opportunities come from a much deeper understanding of markets at the ‘granular ’ level. John Naisbitt wrote influentially about ‘megatrends’ transforming our lives. His logic is that change is driven by small trends that creep up on us and that it takes only 1% of people to create a movement that can change the world – small shifts in taste and behaviour have a huge knock-on effect.80 Of course.81 Now the argument is that the era of ‘megatrends’ is over. for example.83 He thinks. and now we are expected to respond to its dictates. Market granularity One major implication of the fragmentation of markets is the need to reconsider the impact of ‘megatrends’ and to focus on ‘microtrends’ at a much lower level of aggregation.84 This is why McKinsey has established a team of analysts in India to study ‘granular growth decompositions’. but detecting the emergence of numerous new ‘identity groups’ who have not been noticed by companies. declining markets and so on – and collect data that describe broad trends where differences within populations are averaged-out. than that people have accepted the global warming credo. and that climate change is part of a natural cycle and process upon which people have relatively little impact. Some dominant customers do not play 69 • • . anyone who challenges the zealots upholding the new religion of global warming are demonized as heretics. and that is what we have to live with. or selling industrial products. it matters less from a business perspective that global warning is a myth. that ‘sun-haters’ are likely to become as influential as the anti-smoking fascists. mass markets. and we should instead focus our thinking on ‘microtrends’ – small forces behind today’s big changes. is mainly concerned. whether selling consumer goods into the value chain. Microtrends create new niche markets – perhaps the unrecognized demand for a chain of hygienic upmarket tattoo parlours will be important. In the 1980s.82 Mark Penn argues that the issue is no longer huge cultural shifts. For example. We got there. The point is that too often we speak in very general terms about market trends – growth markets. with the emergence of the powerful. yet much conventional marketing still has this focus. Certainly. dominant customer. there are views that ‘global warming’ is the biggest scare yet perpetrated on humankind. The term ‘mass market’ is becoming redundant and truly unhelpful. in market after market.The customer is always right-handed: customer satisfaction.

Asda and Morrisons – hold nearly 80% of the UK grocery market. In some local areas Tesco has such market control that the areas are called ‘Tesco Towns’ subject to ‘Tescopoly’. Sainsbury. Tesco alone accounts for 31% of the market. and how many – supply base reduction strategies. Ford’s goal was to have seven ‘key suppliers’ covering about half its global purchasing.89 British supermarkets stand accused of rampant bullying and intimidation of suppliers. to Tesco it is only 1–3% of Tesco sales.Market-Led Strategic Change nicely with their suppliers. Dominant customers have an unprecedented amount of power in deciding who they deal with. the Competition Commission says its role is to protect consumers not suppliers. many B2B suppliers are faced with unprecedented levels of concentration in the customer base. with which suppliers it would have a close relationship – the rest are bought as commodities or shut out altogether. • • 70 . Supermarkets have been accused of abusing the power they have over their suppliers. where a small number of customers constitute a significant proportion of total demand. Reality Check: The rough side of being a supermarket supplier The Big 4 supermarkets – Tesco. the largest supplier had less than 3% of Tesco sales and the median supplier less than one-hundredth of one per cent. as part of its cost-cutting. After dealing with Ford. For example. who may have no option other than accept what is on offer or walk away and lose massive amounts of business. For example.88 Buyers with dominant market power are likely to use that power in dictating terms and conditions to suppliers. Supplier complaints about their treatment by UK supermarkets include: Listing fees – huge lump-sum payments for placement of new products or just to get access to supermarket shelves. However. but for the supplier it could mean losing 10–30% of sales with no alternative outlet. in 2007. If a large supplier loses a contract. As market attrition. Tesco. I decided not to buy its cars. The company is extremely confrontational. competitive forces and mergers and acquisitions impact on industry structure. Less than helpfully from a supplier perspective.86 One executive from a Ford supplier comments: ‘In my opinion. Airbus revealed plans to cut its core network of suppliers from 3000 to about 500. In 2005 Competition Commission figures showed around 2600 suppliers provided more than £9 billion of sales to Tesco. is frequently accused of uneven treatment of suppliers. [Ford] seems to send its people to ‘hate school’ so that they learn to hate suppliers. the dominant UK supermarket. in 2005 Ford decided to dump half its 2000 component suppliers in an effort to reduce its $90 billion a year purchasing budget. with potentially devastating effects on the European aerospace industry’s network of suppliers.’87 In a similar supply base reduction.

Sainsbury tried to impose new terms on 1900 suppliers so they would wait up to 49 days before being paid instead of 21 days. reneging on contract terms and demanding large cash payments to ensure future business. avoiding links to the low wages and poor working conditions imposed on suppliers by low prices. to find that these carriers charge excessive freight rates. Unilaterally extending credit terms – in 2005. 71 • • . June 4 2006. 4. Richard Fletcher. November 4 2007. Marketing costs – forcing suppliers to contribute to supermarket marketing costs. with purchasing effectively subcontracted to category captains. for example paying for supermarket price wars. Intervening in suppliers’ businesses – food producers are told to use specific carriers to deliver goods to supermarkets. Kellogg’s resistance led to Asda discounting their cornflakes (prompting other supermarkets to follow) and hitting Kellogg’s profit margins. through threatening and aggressive behaviour and bullying e-mails. March 30 2006. 3-7. knowing that the producers have no choice. Sunday Times. The Mail on Sunday. Changing contracts retrospectively – for example. March 20 2005. Contracts – more than two-thirds of suppliers have no formal contract. Sunday Times. ‘Picky Stores Force Farmers to Dump Veg’. including £45 million from Unilever alone. under threat of blacklisting. Teena Lyons and Patrick Tooher. Product standards – imposing unreasonable product requirements on suppliers – Britain’s farmers are forced to throw away as much as a third of their fruit and vegetables because they fail supermarkets’ cosmetic requirements – Tesco tests potatoes with a ‘brightness meter’ to see if the skin is shiny enough. 79. p. Daily Mail. p. Compensation – forcing suppliers to retrospectively compensate retailers for lower than expected sales.The customer is always right-handed: customer satisfaction. because the supermarkets will not agree terms (and accept being bound by them). July 17 2005. Retrospective price cuts – demanding rebates from suppliers retrospectively and without the choice of refusal. telling suppliers they would be classed as ‘preferred’. p. 1-6. Asda demanded £368 million from food and drink firms. Joanna Blythman. Category captains – supermarkets avoid direct contact with fresh food producers so staying at arm’s length from production. In 2006. ‘complacent’ or ‘underperforming’ on the basis of their response. p. 1. and sometimes suspicious ‘phantom bids’ at online auctions which further drive down prices paid to suppliers. Daily Mail. ‘Big Chains Surge as Suppliers Scrape By’. customer sophistication and market granularity Price pressure – forcing prices down to unsustainable levels. Lucy Farndon. Sources: Jonathan Leake. ‘Crackdown on Way for Sore Bullies’. ‘The Big Stores Behave Like Medieval Barons’. p. ‘ASDA Faces a Supplier Revolt Over Cash Demands’.

and so on. they pay off the credit card every month. Actually. But the issue is becoming more urgent and bigger by the day – are there some customers with whom we do not want to do business. rather than accept lower prices imposed by a retailer customer. estimates that as many as 100 million of its 500 million customer visits each year are undesirable – the goal is to get rid of the 20% of customers who are unprofitable.91 The search for advantage and balancing power in dealing with dominant and powerful customers is one of the biggest challenges facing B2B sellers in increasingly concentrated markets. we are allowed to say it – there are bad customers. Goodfellas’ pizzas hold more than 30% of the British frozen pizza market. and is consequently in a strong position to negotiate with retailers. do not keep their side of the deal. alternative distribution channels and customers. in the latter case. so there are no charges. Companies like Unilever.Market-Led Strategic Change For suppliers the search is for business strengths to counter the power of dominant customers – strong brands that pull products through the value chain. The objective is to produce distinctive products with appropriate marketing support that retailers and consumers will pay for. and what can we do about it? Bad customers who play the rules • • • Some customers are smart. which means the threat to profit is not that great. Northern Foods – maker of Goodfellas’ pizzas. With increasingly sophisticated customers and the new market dynamics described above.90 In 2008 Northern Foods was prepared to close a Lincolnshire factory making pasta ready-meals. They may be bad in several ways and for several reasons. or building stronger product portfolios. are not as numerous or profit-draining as supermarkets thought. they cherry-pick the special offers in the store and buy nothing else. we probably exaggerate the effect – recent evidence suggests that extreme cherry-pickers. and tries to pin customers down by contract – charging penalties to retailers who do not take delivery of as many products as promised.93 It looks like the biggest danger here is overreacting. making it difficult for retail merchandisers to ignore. sophisticated and they enjoy using our own rules against us – they return excessive amounts of product for refund. Bad customers Yes. who buy only items on sale. this is not trivial. Dedicated bargain-hunters are 1% of shoppers not 15%. For example. or who want recipes changed. It was probably not a great idea for B&Q to make the • • 72 . Best Buy. The leading US electronics retailer. Northern is prepared to walk away from contracts that do not pay enough.92 This is not without risk – ‘firing’ customers can make you very unpopular (and not just with the ones you fire). Nestlé and French group Danone have been more successful than most in ‘premiumtizing’ their brands to avoid price cuts and other pressures from retail buyers. Fox’s biscuits and a range of retailer own-label food products – competes on quality.

(Don’t get me wrong. wearing it for a night out. returning the product. Devil or demon activities include: ‘wardrobing’ – buying an expensive item of clothing.96 Punishing customers for sticking to the rules we made. then buying it back at returns prices. demon behaviour is simply undisguised theft – a recent survey found that around 7% of adults who use self-service checkouts in supermarkets fail to scan some of the items to get them free. or Mr PP for short. Reality Check: Shooting yourself in the foot In 2007 an insurance company which shall remain nameless cooperated in TV exposés of fraudulent insurance claims. ‘pack attacks’ – damaging the packaging of an item on display to buy it later at a discount. I love it when commercial organizations decide they have the right to behave like the police force.99 Technology can assist in identifying demons. These are the ‘demon customers’ (as opposed to ‘angel customers’).The customer is always right-handed: customer satisfaction. Bad customers who break the rules • • • A completely different category is people who break the rules – sometimes to the extent of criminal fraud. but I bet they were glad to see the back of her!95 And the Tesco store manager who threatened an elderly disabled couple with a car parking fine because they were too slow going round the store. buying loss-leaders and selling them at higher prices on eBay. or sending him a letter calling him a ‘silly old sod’. but you have still got the problem of how to get rid of them – a start is to cut back on promotions and sales tactics that attract them.) Mr PP revealed how rigorous his company is in pursuing fraudulent claims to the grave and beyond (this neatly reinforcing the popular stereotype that insurance companies love taking your money.97 well-known to retailers in particular and very much unwanted. Bear in mind that although demon customers are most easily spotted in the retailing connection – there is no reason to imagine that sharp practices by customers only occur in shops or are restricted to consumers. or for just being annoying can be very risky. and to remove them from mailing lists. ‘excessive’ returning – making large numbers of purchases and returning them all – buying a product. probably had some difficult explaining to do. then returning it for refund.94 Nor did Lidl in Swansea come away with much credit when they banned an elderly lady for persistently pushing her trolley into the checkout the wrong way round. customer sophistication and market granularity headlines for banning a grumpy granddad from all their stores for complaining too much. claiming manufacturer rebates. 73 • • .98 Sometimes. with several interviews with their head spook – let’s call him Mr Pretend Policeman. although it was probably very satisfying.

Mr PP destroyed the rationale for his company’s expensive cross-selling strategy. or whether we can do business on those terms. So far. the sophisticated consumer is wising up to the fact that sometimes we need to sell the things more than they need to buy the things. The plan was to sell these to small stores and chains with a wholesale price of £25. The dominant customer issue raises important questions about how to improve bargaining power and when to simply walk away. Mr Numpty the Sales Manager was delighted to report that he had been able to sell 10. It is rumoured that local dentists did great business with the company’s marketing and sales executives. at most. The company has spent several years more or less giving away small whole-life insurance policies to build the database that would allow cross-selling of diverse products.000 DVD players from the Far East for £15 a machine. He actually smiled (more of a sly grimace actually) when he said this. and the issue is whether we want to. Nonetheless. many of whom had ground their teeth to a pulp when they saw Mr PP’s pronouncement destroy their cross-selling strategy. from this company if a dispute on a claim (which can happen to anyone) allows the company to punish you by cancelling your car insurance? Advice to the street-wise: never buy more than one policy from any one company – spread your business around to minimize the risk you will be abused by Mr PP or one of his ilk. Bad customers who make the rules • • • Sophisticated and powerful customers make the rules.000 players in a single deal to one of the UK’s largest supermarket chains – let’s call them NastyCo – for • • 74 . Why would any sane person now buy more than one policy. say on your house insurance. high levels of concentration in the customer base put major customers in the position to define the terms of the deal and to challenge the seller to turn them down. like your motor insurance (which you would then find it near impossible to replace with another company). However. then his company will cancel your other policies with them. as discussed earlier. so good. We saw that in B2B markets. The clearest examples are in the B2B sector. He had imported 20. In one fell stroke. Reality Check: Gotcha! A Marketing Director recently explained why he wanted to kill his Sales Manager.Market-Led Strategic Change but will move heaven and earth to avoid paying out on claims). and a recommended retail price of £50. But his real winner was to suggest that if there is a disputed claim.

Where Does That Leave Marketing? In denial? The simple fact is that radical and disruptive changes in customer attitudes and behaviour. allowing the supermarket to sell them for £20. and when we could talk about ‘mass markets’ without looking silly.The customer is always right-handed: customer satisfaction. In the next chapter I build the foundation for this updating by comparing traditional marketing ways of looking at things and the real priorities in companies.50 a player. Why would any independent retailer buy the machines for a wholesale price of £25. 4. 2. Reichheld.businesszone. ‘UK Customers Fed Up With Bad Customer Service’. Laura. they are now over. other than to NastyCo.. ‘Zero Defections: Quality Comes to Services’. ‘Accountability’. Jones. customer sophistication and market granularity £17. when the call came. Harvard Business Review.000 machines were unsaleable. Harvard Business Review.co. pp. Frederick F. September/ October 1990. April 25 2006. 75 • • . So.uk. pp. Marketing Business. He had to accept – losing £25. 105–111. The Loyalty Effect. Reichheld.000 on the overall deal. Frederick J. The challenge is to update how we do marketing to reflect the ways in which customers and markets have changed. NastyCo offered £10 a player for the remaining 10. Thomas O. That is why he wants to kill Mr Numpty his Sales Manager. and W. 1996. References and End-notes 1. ‘Why Satisfied Customers Defect’. If those days ever existed. 3. www. Mazur. Life for executives was a great deal easier when customers were thought to be compliant and cooperative (and actually should be rather grateful that we are prepared to share our fantastic products with them). He became less pleased when the Marketing Director pointed out that the remaining 10. Boston. MA: Harvard Business School Press. Earl Sasser. July/August 1996. 5. 88–100. when NastyCo was retailing them for £20? The Marketing Director says the worst of it was knowing that someone at NastyCo was grinning and saying ‘do you think they have had that conversation yet – shall we make the call?’ Sure enough.000 machines. Earl Sasser. November/December 1995. and in the forces that are driving market structures seem to have left much conventional marketing behind. He was pleased with himself. and W.

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This sets us up for the next chapter looking at value-based marketing strategy. Given the challenge of radical customer and market change we examined in the last chapter. from where it has slipped in recent years. and you would . The reason is that the conclusion to which we are working is that marketing is strategy – only when you have a strategy can you make sensible decisions about customer service..C H A P T E R • • • • 3 New marketing meets old marketing: new marketing wins! This chapter . The word has become part of the business vocabulary. This agenda is going to be the basis for many careers in ‘new marketing’ and for getting marketing back onto the top management agenda. now we can contrast traditional models of the marketing programme to the new challenges and demands we face.. and the dramatically different agenda managers face in the process of going to market. Introduction Marketing as an organizational function has been around for quite a while now. responding to market changes and investing in marketing actions.

Market-Led Strategic Change think that everything would be hunky-dory.1 Marketing strategy and marketing programmes (the marketing mix) • • 82 . stereotypes and prejudices of the past as it is with marketing programmes. place and promotion. Our focus in this chapter is on the inadequacies of conventional marketing programmes in achieving business goals in the new types of market we face. It is actually in crisis. the most familiar model in marketing is the ‘marketing mix’ or ‘marketing programme’ – it is certainly how we have trained executives to think about planning their marketing operations. I have two major points to make here: first. But I am going to suggest to you that everything in the world of corporate marketing is far from hunky-dory. second. and Marketing strategy Marketing programme Customer marketplace The value offering * Product policies * Pricing policies * Place /distribution * Promotion /marketing communications Marketing tools Figure 3.1 it was McCarthy who classified marketing tools into four groups which he called the ‘four Ps’ of marketing: product. This opens the way to examining value-based marketing strategy as the way forward (in Chapter 4). price. the traditional model has simply not kept up with the way that markets have changed. Traceable to the 1960s. because ‘old marketing’ is as much to do with attitudes. These formulations of half a century ago have been useful in bringing thinking together around the offering sellers make to the customer and how it is promoted and distributed. and ‘promotion’ is commonly ‘marketing communications’. Nonetheless. Some people group product and price issues together as the ‘value offering’ and distribution and communications as the ‘marketing tools’. it is impossible anyway to make appropriate decisions about investments in marketing actions/programmes without understanding the strategy being pursued and what it is intended to achieve. Old Marketing Has Not Kept Up with New Markets and New Priorities It is a bit unfair. They provide a basic building block in understanding seller actions in going to market.2 In modern parlance. along the lines shown in Figure 3.1. The commonest depiction of marketing activities is in the form of the marketing mix. ‘place’ is often labelled as ‘distribution’ or ‘value chain’. and.

developing and launching new products to meet emerging customer needs. depending on the stage of life cycle reached. new product failure rates remain incredibly high.3 Products. selecting an effective product mix to service target markets. Let’s consider each area in turn – bearing in mind that you can get chapter and verse on each of these areas in any conventional marketing textbook. brand management models and planning structures. where you set out to compete with your own products before someone else does).g.. identifying different market conditions and hence effective marketing policies.New marketing meets old marketing: new marketing wins! provide a structure for planning marketing operations.g. Brands and Innovation Product policy The main issues seen as part of product policy are: defining the product itself. portfolio models to assess the completeness and balance of the product mix. A wealth of conceptual and analytical tools exist to support decision making in this area. However. all travelling at maximum velocity. 83 • • . and the logic of traditional product policies (e. never design a product mix where you compete with yourself) are increasingly challenged by strategic innovations (e.. and. including groupings into product lines and ranges that make sense to the customer. military jets and the space shuttle. to fill gaps in our product range. and often also to provide a management focus (e. or to replace obsolete products. and its purpose and positioning against the competition.g. which we will not open up here. since they are covered in depth in the conventional literature. with its ‘bundled-in’ services. new product development protocols and methods. where products are withdrawn from the market. product deletion strategies and evaluation techniques. the product life cycle model. Nonetheless. and. creating a branding policy that will have meaning and identity for the customer. in the form of brand or product management and planning). Reality Check: Winging it in new product development Scientists at NASA in the USA built a gun specifically to launch dead chickens at the windscreens of airliners. managing product deletions. to represent our competitive positioning and value proposition. The goal was to test the strength of new windscreens by simulating bird collisions. consider proactive cannibalization. the marketing mix/programme structure blinds us to many of the highest priorities really faced in the process of going to market. Examples include: the ‘augmented’ product model showing the different levels and sources of value that can be offered to the customer.

the brand is the ‘core identity’ we are selling – advertising people like to talk about the ‘brand personality’ and to give brands human identities – Martini and Coke as ‘extrovert’ brands that want you to join in. the Mars bar). The horrified engineers sent the test results to NASA and begged for advice. blasted through the control console. When the chicken was fired from the gun at the train windshield. not the other way around. Tesco). Young & Rubicam.g. for example. Richard Branson). So what’s wrong with that? There is nothing wrong in active and nicely managed product development and planning processes and branding. Perhaps the first point is – if you want to know what branding is.6 In addition. A brand is something that is bought by a customer. the engineers were shocked that the bird smashed through the shatter-proof windshield. brands exist to serve customers.g.Market-Led Strategic Change British railway engineers were eager to test the windshields of new high speed trains using the gun. Marketing people never stop going on about brands – the company as the brand (e. Where it goes wrong is where carefully planned product and brand policies produce. This results in a somewhat less than dynamic rate of change and innovation. never ask someone from an advertising agency.g. Much talk is of the ‘soul’ of the brand. The simplest explanation of a brand was Stephen King’s view that: ‘A product is something that is made in a factory. • • 84 . but Timotei shampoo as an ‘introvert’ brand saying shyly ‘you can come to me if you want’5. snapped the engineer’s back-rest in two and embedded itself in the back wall of the cabin. unless you like lectures on the philosophy of meaning and have plenty of time. where relying on a brand strategy to survive is looking increasingly dubious. the product as the brand (e. the customer as the brand (yes.’ Brands In Chapter 4 I will suggest that we are now in an era of valuebased strategy. we’ll come back to that one). Arrangements were made and the gun arrived in Britain. defrost the chicken.’ In other words. the person as the brand (e. NASA responded with a one-line memo: ‘Next time. (Or as Dilbert would say – ‘isn’t it amazing people actually get paid for doing this’!) Nonetheless. claim that brands have replaced religious faith as the thing that gives purpose to peoples’ lives4 – these people really should get out more. we should not forget that there are major difficulties in establishing new brands in existing markets.

Indeed.8 Companies like Apple. because companies create products that address consumers’ unmet and often unarticulated needs. . Breakthrough ideas represent the new market power – ‘cool power ’. if needed. faster and better diminishes and profits decline.7 Increasingly. simultaneous. to data organization. 85 • • . Google. in disarray and embroiled in uncomfortable uncertainty.9 The move by Apple from computers to the music and movie business. to online software. Toyota and General Electric are rated as the most innovative in the world. many of our existing bureaucratic processes in marketing are geared towards marginal changes in products and brands and not making mistakes.10 The challenge for marketing is to drive creative and powerful innovations that make a difference and re-shape markets. Design strategy begins to play a key role in product differentiation. While true innovation addresses superior customer value. There are many risks in what Google is doing – but one of the larger ones is that someone buys a marketing book and decides that they need to have a properly structured product and brand strategy .New marketing meets old marketing: new marketing wins! and institutionalize. This is where you find the above-average earnings that you want. Conventional ‘metoo’ products and brands are increasingly encountering the ‘limitation of imitation’. A new corporate model is taking shape in successful organizations. The critical issue is radical innovation in the value we provide to our customers. living on the edge of chaos. so the advantage of making things cheaper. as one Google director says ‘It’s far easier to beg forgiveness than to ask permission’12 – but that’s the way they like it at Google. This simply does not hack it. Steve Jobs at Apple has achieved a step-change in the music business because of the iPod – not even a new product. and a lot of it can be outsourced to technical agencies anyway. which focuses on creativity and innovation to provide new pathways to growth. the evolution of Google from Internet search to advertising. decision making and understanding the consumer experience.11 The bureaucracy of conventional product policy can follow later. incremental and often marginal changes in our offering to the market. The successful creative corporation emerges with a new ‘innovation DNA’ and a fast-moving culture that routinely beats the competition because of high success rates in innovation. radical innovation initiatives. Creative innovation becomes the key driver of growth. innovation at Google appears to the outsider to be almost anarchic – disordered. And. to mobile phones. GE’s search for ‘imagination breakthroughs’ has led into emerging market initiatives and green technology – all represent the power of ideas in changing markets and achieving step-changes in performance. that’s how they have built the capability to handle multiple. the key survival factor is the ability to build creative. As technology and information become commoditized and globalized. but one which was a better-conceived and betterdesigned version of an existing product – because Jobs has the power to attract customers with his superior ideas. the dominance of Toyota in hybrids and the quest for the first plug-in electric car. innovative companies. .

add a percentage for margins to the full cost of the product). second. price levels and relativities within the product mix or range.. we are offering. ‘skimming’ the market with a high price versus ‘penetration’ pricing with a low price to gain volume and market share).g.Market-Led Strategic Change Price and Value Price policy The principal issues which make up total pricing policy are usually identified as: price positioning in terms of level against competitors and customer expectations (e. market-based (e. Price and profit • • • There is an incredibly direct link between price and profit – similar sized changes in reducing costs or increasing sales volume never have the same profit impact as price. competition-based (e. not a junior executive toy like producing brochures. Most conventional attention is given to methods of computing prices: cost-based (e. bidding versus list prices. into a mass-market fashion • • 86 . and it is a strategic management choice. Price is a critical issue that positions a product or company in the marketplace. and brand choices. The Swatch watch transformed the wristwatch from a functional item used to tell the time.g.g. that prices are set by junior executives in marketing departments. So. setting prices low may have attractions. types and forms of price discounting in different customer markets..g. A McKinsey survey calculated that a 1% increase in price improves operating margin by 11. for example with a radical innovation. Wrong. key accounts versus general market prices. what’s wrong with that? Probably there are two important things wrong with the traditional marketing perspective on price: first. and.. ‘what the market will bear ’).13 This alone makes price a high-level management choice. equal competitors’ prices. that price-setting is seen as just a calculation based on costs and competition. or establish a position above or below theirs). and has little to do with customer value. on both counts. direct sales versus transfers to subsidiaries. Certainly. and the margins created. Reality Check: Pricing an innovation in value Strategic pricing for demand creation may be a powerful way to get high volume quickly and establish a market position competitors cannot equal.1%. and pricing in different customer markets – export versus home.

compared to 21% the year before. HBOS offered them the low rates usually given to new customers. and get trapped in a spiral of further price reductions until profit disappears altogether. The Swatch project team worked back from the strategic price to arrive at a target cost. The low price left no profit margin available for the Japanese and Hong Kong companies to imitate the Swatch and undercut its price. For Western firms. The product combined the accurate time-piece with creative designs and emotional appeal. 87 • • . HBOS market share fell to 8% in 2007. attempting to compete on price against competition from lower-cost competitors in countries like China or India is highly unattractive. ‘The Pioneers of Innovation’. The company’s project team had to determine the strategic price for the innovatory product. Sources: W. ‘Strategy. pp.14 For example. and the head of retail banking left the company. Value Innovation and the Knowledge Economy’. 41–54. However.New marketing meets old marketing: new marketing wins! accessory. a major customer is being troublesome. p. and the panic discounting by British retailers looking at slow Christmas sales in 2007. The trouble with discounting is that it tells the whole world you have problems. 10. Spring 1999. and to design a suitable production system. marketing has long stood accused of ‘snatching defeat from the jaws of victory’ in making poor price decisions unsupported by market knowledge. Price cutting usually works in gaining sales volume. The massive risk is also that price cutting leads to commoditization – we end up in a situation where we sell only on low price. Nonetheless. the bank could not offer rock-bottom rates to everyone. The Swatch watch was priced aggressively at $40 – a price at which customers could buy several watches as fashion accessories.15 Price as a quick-fix • • • The trouble is there is a terrible temptation that when times get hard. notwithstanding the fact it frequently undermines profitability – recent examples include deep discounting by the car companies in the USA to shift models. and builds expectations of more discounts for those who wait. If products are stuck in the channel of distribution. and became uncompetitive. getting into a head-on price war with a direct competitor is not a good place to be – the loser is usually the first one to blink – because everyone makes less money. Global Finance. April 1999. a knee-jerk reaction is to cut prices. At the time. you use price as a quick-fix. Chan Kim and Renee Mauborgne. so edged up prices overall. or if sales are lower than anticipated. or the competition is taking our market share. Sloan Management Review. Generally. cheap. to stop existing mortgage borrowers leaving for low rates elsewhere. high precision quartz movement watches from Japan and Hong Kong were dominating the mass market (priced at around $75).

charging different prices for air tickets through different channels really annoys the people who pay more. Price visibility also invites attacks if you charge different prices to different markets/customers (e.Market-Led Strategic Change Price sensitivity • • • Much conventional thinking also assumes that customers are highly aware of prices and show high price sensitivity. in others they are quite wrong. • • 88 . and sending out e-mails with discounts) were ineffective because everyone found out. When price is highly visible you can be attacked and damaged because your prices are too high (e.. sports club members paying a monthly fee are more likely to attend and renew their memberships than people who make a single annual payment – partly because the monthly subscription is a constant reminder of the price being paid. tempted to rush down to Sainsbury’s for 26p cider should be warned – the promotion only lasted a single day after the press and politicians started carping about social responsibility – which is kind of the point I was making. the low-cost airlines have a deserved reputation for low fares. the ‘secret sales’ attempted by British retailers before Christmas 2007 (circulating money-off vouchers to established customers.. and female buyers and Generation Y customers appear to dislike price bargaining more than they like getting a ‘special’ price. Certainly. There is also the question of when and how people are sensitive to price. the media and government to attack. supermarkets are held responsible for teenage delinquency because they sell lager for 22p a can and cider for 26p a pint.* Asda’s £2 chicken is linked to unpleasant battery farming conditions). poor working conditions in clothes factories in China are blamed on the £6 dress in Primark.16 Even car dealers are moving away from haggling and towards fixed prices because the Internet makes prices more transparent. For example. Managing the visibility of price may be difficult.g. food and power prices) or because they are too low (e. Price is perhaps the easiest thing for consumers. The whole point of Fairtrade coffee is that it seeks out the consumer who is prepared to pay more for coffee. but much * The party animals amongst you. while the business-class seat seeks out the traveller willing to pay a massive premium to avoid sitting in the back of the aircraft. if indeed they are.g. holding ‘guerrilla sales’ in-store at short notice. In many cases these assumptions are fine.18 For example.. differences between your Web price and your store price for the same product have been known to infuriate customers.17 Price visibility • • • One of the hidden challenges is to manage price visibility for competitive advantage. and M&S took a lot of flack when people found out it was charging 82% more for sandwiches in London compared to the North of England). Price architecture • • • Managing price architecture may be more effective.g. charging more for holidays during school breaks penalizes parents and families.

In the USA. but the refill cartridges are relatively cheap ($9. has developed a strategy to reinvent the inkjet printer. February 19 2007. in the sense that changing prices becomes too complicated and risky.99 for black and white and $14. May 21 2007. ‘Kodak’s Moment of Truth’. p. For example. Price and strategic vulnerability • • • Generally. but by offering lower-cost warranties. you pay more than normal for the printer ($149–$299). and the company has been pursued by competition regulators ever since. In some cases price may be a critical part of a new business model. The target is the heavier printer users.99 for colour).New marketing meets old marketing: new marketing wins! of their revenue is generated by additional charges for check-in facilities. 42–49. At the very least. mishandled price strategy can lose a company its pricing freedom. The prevailing business model is the ‘razor and blades’ strategy invented by Gillette – you sell the product (razor or printer) at less than cost and make profits on the supplies the customer must buy for the product to go on working (the razor blades or the ink cartridge). Reality Check: Reinventing the pricing model Kodak. the costs of being investigated by the UK or EU authorities for suspected price fixing or other anti-competitive behaviour are extremely high. John Gapper. Sources: Steve Hamm.19 Strategic pricing • • • It is also dangerous to miss the opportunities of strategic pricing initiatives. marketing thinking does not address price and strategic vulnerability. 13. after disaster in its failure to respond quickly enough to the impact of digital technology on the photography business. credit card payment and so on. pp. With the Kodak product. 89 • • . luggage. not by reducing the price of electronics products. who under the traditional model effectively subsidize light users. The Kodak Easyshare printer reverses the conventional logic of pricing printers and refill cartridges. Financial Times. ‘A Bid to Reprint the Pricing Rule Book’. The EU currently has a Competition Commissioner with all the restraint of a rabid Rottweiler in pursuing investigations and taking legal action. Wal-Mart has attacked the position of Best Buy and Circuit City. The cost per print is around 10 cents compared to 24 cents for the nearest Hewlett–Packard equivalent. BusinessWeek. The world was generally not happy with Microsoft when it became apparent that it was making an 85% margin on the Windows operating system.

Mapping customer value aims to set value as the offer. leading to a rapid reduction in price and lots of problems with angry consumers who had bought early at the full price. This makes it a kind of bigger deal than simply one element of the ‘marketing mix’ based on cost-plus calculations in the marketing or accounting department. This is dependent on a profound and deep understanding of how different customers understand and use our products. Some forms of pricing behaviour can lead to senior executives being sent to prison. Distribution Channels and Value Chains Channel management Perhaps the ‘Cinderella’ of marketing for too long was the channels and logistics systems that actually get our products and services • • 90 . Price has a profound impact on how customers use and perceive the product or service and the long-term relationship we have with the customer. In effect.000 to £50. Part of meeting this challenge may be about educating customers to look at products and services in terms of the value they produce rather than just how much they cost. It may be an important part of reinventing the business model. or even of determining the level of demand for the product. The risk of errors in diagnosis and waste of extremely expensive drug treatments (£10.21 The term ‘customer value management’ has been coined to describe an approach to collecting and analysing data to demonstrate in money terms the superior value that products deliver to customers – turning salespeople into ‘value merchants’ rather than sellers of products.23 Price is linked to our strategic position in the market and whether we can sustain it.22 This approach is likely to be highly influential in business-to-business marketing.Market-Led Strategic Change A radical reinvention of the value proposition to the customer. Delivering products and service at prices that represent good value to our customers is the real challenge.000 per patient) is thus borne by the seller. the company has offered the NHS expensive cancer drugs with a ‘money-back guarantee’ – if the patient fails to make adequate progress. This strategy changes the rules of the game radically. Of course. not price. Adverse publicity about prices and pricing behaviour can seriously damage a company’s corporate reputation. sometimes you will get it wrong – Sony’s Playstation 3 lost out to Nintendo mainly because it was priced too high and price reduction was unavoidable. based on the pricing model. encouraging NHS take-up of the treatment.20 Customer value • • • There is little doubt what matters most in pricing is customer value. is also shown by British-based drug-maker Janssen–Cilag. What becomes clear is that price is not simply a way of recovering costs. then the NHS gets the drug for free. Apple’s iPhone was priced too high at launch in the USA.

and logistics on the other: selecting. and. is about simple service to the customer – and that is why it is seen as part of the marketing process. software. To begin with. Recent years have seen the growth of direct marketing approaches: loyalty programmes used to build databases to target consumers. information services. The problem is that in many instances the control of distribution is located with the operations area. when I want to buy it? how long do I have to wait to get delivery of the product and how sure am I it will get here on time? can I get spare parts.g. payment and seat allocation). what’s wrong with that? Traditional views of distribution fall short of reality in several quite important respects. The digitization of products changes the rules of the game completely – whether it is music. computer games. deciding on the intensity or exclusivity of outlets in the channel of distribution. the Internet represents a more subtle change than providing the opportunity to bombard customers with e-mail messages and online ads. The alternative to channels of distribution with intermediaries is direct marketing of goods by manufacturers to users. motivating and controlling distributors and outlets.New marketing meets old marketing: new marketing wins! into the hands of the paying customer. a seat on an aircraft). maintenance and after-sales service quickly and reliably and do I believe the promises made about spares and maintenance? In other words. through our transportation arrangements. customer information collected from Internet users being used to target them with new product messages sent by e-mail. The principal issues to be addressed in distribution are about channels on the one hand. movies. however sophisticated. even if the product cannot be digitized (e. Ebay in its original form was probably a prototype for what is coming – it provided a powerful peer-to-peer marketing machine.. financial services. Similarly. telephone call centres using databases to segment markets as the base for telemarketing campaigns. our stockholding and the location of our warehousing in the marketplace.com provide an online service allowing users to set up their own online shops in five minutes. A more recent example is the convergence of consumer social networking on the Internet and distribution channels. supply chain or distribution management. and the like – once the product can be distributed in digital form via the Web the dynamics and control of the value chain are different. circumventing conventional distribution channels and marketing intermediaries. Zlio shops are a way 91 • • . providing the promise and reality of the delivery and services that the customer wants. TV and video. not with marketing. the customer is typically unreasonable and selfish enough to think that the following is really what distribution is about: is the product/service available in the outlet I want to use. But even this underestimates the capacity of the Web to create and support new business models. the channel can be (Internet-based booking. the distribution system. The trouble with this is that the customer probably does not care too much how we organize it. Firms like Zlio. So.

Market-Led Strategic Change of recommending products to friends and relatives in return for a small commission from the supplier. However. sports memorabilia.24 However. ‘Mr Daley’s Mission: To Reach 6bn Shoppers and Make Money’. The combined company is aiming at the world’s 6 billion consumers. specializing in Japanese manga items. The most common Zlio shops are enthusiasts’ stores – for example. p. P&G is not alone in looking at radically new value chain positioning strategies. for example. not the most affluent 1 billion. and a larger portfolio of megabrands (each generates more than $1 billion in annual sales) than any other company in the world. puts distribution and value chain issues way up on the strategic agenda – this is increasingly a key survival issue for companies. Sources: ‘It Was a No-Brainer’. 59–64. pp. A number of brand owners have established their own retail outlets to overcome the limitations of existing distribution channels: Lego sells its toys in its own outlets to counter the power • • 92 . Jeremy Grant. In fact. P&G is shifting its route to market. 32. Individual Chinese salespeople take P&G products into towns and areas with small villages. the merger represents a more fundamental change in P&G’s business model. in more conventional cases the power and concentration in buying bases like that for grocery products (as discussed in the last chapter). Indeed. by expanding its focus on the ‘lower-income’ consumer in developing markets like India and China and providing them with affordable products. where a one-person kiosk sells shampoo and toothpaste. One attraction of the merger was to create a brand portfolio that provides greater bargaining power when dealing with retailers like Wal-Mart. and represent the rapidly growing phenomenon of social shopping. In China. Carrefour. rather than working with global retailers like Wal-Mart and Carrefour in emerging markets. Financial Times. Tesco and Metro. extreme responses may include ring-fencing existing business and seeking out more attractive markets where distributor concentration does not create the same imbalance in power: Reality Check: Enough is enough! Procter & Gamble’s 2005 purchase of Gillette created a company with more than $60 billion in revenues and $200 billion in stock market value. the strategy involves a huge distribution system staffed by an army of individual Chinese entrepreneurs – what P&G calls a ‘down-the-trade system’. chilli sauces – or birthday present wishlists. Importantly. July 15 2005. Fortune. Choices and designs of value chains becomes a higher priority than attempts to manage conventional distribution channels. February 21 2005.

and then started selling branded coffee machines. the boutiques are lined with dark wood panelling. Apple and Sony operate their own outlets to get closer to the buyers of their sophisticated products. Nespresso previously sold coffee capsules for espresso machine by mail-order (and online) to members of the ‘Nespresso Club’. discreetly lit. a subsidiary of Nestlé. Nespresso Gemini CS 100 Pro Photograph courtesy of 2A 93 • • . is establishing ‘coffee boutiques’. Nespresso. Reality Check: Going direct Several brand owners are extending their channel strategy from reliance on conventional retailers to establish a position at the retail level of the value chain. Located at prestigious addresses like New York’s Madison Avenue and London’s Beauchamp Place.New marketing meets old marketing: new marketing wins! of ‘category killers’ like Toys’R’Us. with plush interiors.

but books selling less than 1000 copies sold a total of 84 million copies. books selling more than 250. Financial Times. The brand experience is hoped to lead to purchase of the coffee machines and accessories. Amazon is a ‘long tail aggregator ’ because it brings the non-hits together. Joe Simpson. p. A decade later. Nespresso’s objective is to become a lifestyle brand and this is reflected in its new channel strategy. offices and first-class airline lounges. but can be applied to many others. Indeed. costs of inventory and distribution are close to zero. Touching the Void started to sell again. ‘How to Serve a Bespoke Cup of Coffee’. in 2004 in the USA. The goal is to enable an increasing number of people to experience the brand first-hand. Booksellers promoted it in their Into Thin Air displays. The strategic logic for such moves is that branded consumer goods companies are often at the mercy of third-party retailers when it comes to the marketing and placement of their products. Tuesday April 3 2007. • • 94 . Suddenly. Touching the Void now outsells Into Thin Air more than two to one. But with Internet economics. and help me find it. Sources: Adapted from Jenny Wiggins and Haig Simonian. reinvented online channels can reverse traditional logic – long tail theory suggests that the biggest money is in the smallest sales because the economics of distribution has fundamentally changed. wrote a book called Touching the Void describing a near-death experience in the Andes.Market-Led Strategic Change Nespresso plans further retail expansion – taking the brand into hotels. which was a considerable publishing success. Old-style distribution in music emphasizes big hits and best-sellers. In these terms. The book sold only modestly and was soon forgotten.25 Long tail theory comes from the music and publishing sectors. The revised paperback edition spent 14 weeks on the New York Times bestseller list. Jon Krakauer wrote Into Thin Air. Random House rushed out a new edition to keep up with demand. restaurants. a British mountain climber. 10. For example. The goal is to move beyond selling a ‘product in a box’ to offering a superior ‘service experience’.000 copies sold 53 million copies in total. so the long tail of non-hits may be where the real value lies.26 There are two long tail rules: make everything available. Reality Check: Long tail power In 1988. another book about a mountain climbing tragedy.

the target customer. the management problems are: deciding objectives for the communications programme. managing the communications process. the key point to make is that however exciting and creative.e. setting objectives for each form of communications which represent achieving the role we want it to play. the principal issues to be addressed can be summarized as follows: deciding on the role of each form of communications in delivering the market strategy to the marketplace.com recommendations – suggesting people who liked Into Thin Air would also like Touching the Void. this is about linking our product and price offer to our customers and nothing else. ‘Big Earnings from Small Sales’. Sunday Times. London: Random House. The Long Tail: How Endless Choice Is Creating Unlimited Demand. The underlying point is that while conventional marketing concentrates on how to manage distributors in a traditional vertical channel. The communications methods open to us in delivering marketing to the customer can be classified as: advertising and promotion. Amazon combines infinite shelfspace with real-time information about buying trends and public opinion. sales and account management. but not impossible). In many cases the underlying rationale and economic model underpinning traditional distribution channels is fast becoming obsolete. Marketing Communications The most visible and ‘glamorous’ aspects of marketing programmes are in the area of marketing communications. i. incidentally. Sources: Chris Anderson. Unlimited selection reveals truths about what consumers want and how they want to get it. the integration of communications activities – this is not just in deciding what role they should all play but actually arranging it – comparing the messages delivered by 95 • • . budgeting. 2007.New marketing meets old marketing: new marketing wins! The secret is Amazon. Broadly in each of these areas. p. 3-13. and public relations. for example. integrating the different forms of communication (getting the ad agency and the sales force doing things even vaguely compatible would be a start in the right direction in many cases). and evaluating in mundane terms like value-for-money what we are actually getting for our spend on communications (not easy. Creative awards and advertising agency hype notwithstanding. in advertising and sales promotion this is likely to be about handling relations with external agencies. and evaluating the success of the spend against objectives. However. the world has moved on and the really big decisions are about how to configure and manage a value chain that delivers superior value to our customers. Chris Adams. October 29 2006.

Sales management issues centre on the recruitment and selection of salespeople. particularly if they are integrated and linked clearly to our business strategy. e. balancing the attractions of short-term gains from a price cut or special deal with the long-term position we are trying to build for a brand. press. point-of-sale displays. third party suppliers. etc. Let’s take them in turn. sales promotions and sales calls. exhibitions. However. Advertising and promotion • • • Traditional advertising and promotion (in consumer markets) tends to be based on mass markets – we have an advertising agency develop • • 96 . distributor incentives. radio.g. Account management arrangements vary from call centre operations to provide customer service to cross-functional teams dedicated to the needs of particular customers or groups. customer competitions and incentives. but public relations is intended to refer to the creation and maintenance of corporate images relevant to different audiences. Public relations • • • It is a label greatly abused in practice. trade publications and also includes the communications role of product packaging. or by members of the channel of distribution. but also more specialized vehicles like direct mail. e. ‘special offers’.g. Advertising and promotion • • • Advertising involves using mass media like TV. plus the supporting materials for presentation.. what’s wrong with that? There is nothing inherently wrong with these approaches to communications with the marketplace. sales promotion is much more short-term. So. Sales and account management • • • Personal selling involves face-to-face representation by seller to buyer. coupons to motivate product trial. and this seems to be what marketing is doing. or simply coordinating ad campaigns. collectables and the like. suppliers. where it seems to go wrong is in clinging to the familiar models of the past when the world has fundamentally changed. regulators. motivation. price cuts to shift stock. Selling may be by a manufacturer’s own direct sales force.. customers. sales literature. display. reward and organization of the sales force. outdoor and transport media to reach large audiences. shareholders.Market-Led Strategic Change salespeople to the positioning our advertising is trying to gain. While advertising may be about building brand image and awareness (or other goals). etc.

in the 1960s an advertiser could reach 80% of US women with an ad spot on the three main TV channels – now even a hundred TV channels could not get close to this audience coverage. peer-to-peer influence and resistance quite unlike conventional media. like Mothercare’s Gurgle. Social networks. advertising was concerned with ‘Big Ideas’ that would connect a brand.000 units sell out in 10 days with no other marketing. But. spreading the word in their networks.) Besides. Consumers can use blogging and networking sites to upload their own versions of adverts – sometimes 97 • • . video-game consoles and mobile phones. which are then placed in mass media like television and print (newspapers and magazines). and Facebook.27 (And even if they could. But in the same way that mass markets are increasingly an illusion. In the USA.31 User-generated advertising content – sometimes called ‘citizen advertising’ – further illustrates this interactivity. like Bebo. emotionally with millions of consumers. Consumer reactions to advertising are shaped by friends. Online marketing communications are increasingly different. The proliferation of digital and wireless communications channels is spreading the mass audience over hundreds of narrowcast TV and radio channels and websites. blogging sites and reality games. hundreds of specialist print media.New marketing meets old marketing: new marketing wins! attractive ads.28 As far as brands are concerned. the ITV audience in Britain is increasingly characterized as the old and the poor. For example. family and contacts linked by the technology. There is a degree of interaction. provide opportunities for very focused communications. in search. Interestingly. their word-ofmouse communications helped 10. After a new train kit was shown to 250 Lego train evangelists. TV viewers are getting good at ways of bypassing the adverts when they watch TV – so-called ‘avoidance technology’. as well as computers.29 Mass communications are giving way to micro-communications. like Perplex City.com for new parents and Sermo for medics. The strength of companies like Google. with individualized messages needed for individual consumers. but now the ‘Small Idea’ is in the ascendant – targeting individuals or specialized communities of customers. user reactions have been hostile – users are concerned about privacy and object to their online networking behaviour being monitored to benefit advertisers – yet without the users. it’s not just a case of sticking ads on the Web instead of on commercial TV channels. the site has nothing to sell advertisers. Specialist networking sites. the mass media of conventional advertising no longer exist.30 It is unsurprising that online advertising is taking an increasing share of advertising expenditure – actually right now it’s the only bit that is not declining. do not provide a passive audience receiving and responding to conventional advertising. Facebook and MySpace. MySpace and YouTube. and provide precision in targeting messages. in social networking and video sharing. as Facebook has tried to introduce behaviourtargeted advertising onto its website. Lego now enlists influential consumers as evangelists. is that the interests of users are revealed by their searches and networking.

Samsung has developed an approach to link users to interactive billboards in Hollywood and Manhattan’s Time Square. Many do not have the skills to manage online media or the combination of online and offline in a single campaign.33 Where we go from here is a more fundamental re-think of how advertising works than just sticking more and more ads onto online sites. and retreat to ‘walled gardens’. and Johnson & Johnson are trying to create new types of advertising groups that blend different functions. while others like Nokia are going for multiple agency teams. Fallon put a man in a gorilla suit and had him play the Phil Collins piece ‘In the Air Tonight’. where they can escape commercial messages. then subcontract the work – to interactive shops. Sometimes.36 Increasing emphasis is being placed on high levels of creativity and the ability to work across media. to involve the public in creating ads and participating in the advertising process. or private online communities. and persuades large advertisers to make unconventional and controversial ads. which devise the overall message. as marketing services agencies struggle to keep up with rapid changes in the media. seeking out ad-free environments like blogging. We can expect online users of social networks to take control over their own online data. The underlying trend is for advertisers. sometimes not. It is beginning to look like simply using online media as a substitute for traditional media is a big mistake.34 Procter & Gamble.32 There is a risk that even though online ads become more ‘relevant’ through behaviouraltargeting. companies invite people to create ads for their products. as with the Cadbury gorilla campaign. In 2007 for an ad for Cadbury Dairy Milk. users will increasingly screen them out. Traditional online advertising will not go away. The online audience on social networking sites like Facebook and MySpace is getting fed-up with the avalanche of ads – they are spending less time on these sites.35 Major agencies are fighting for relevance by becoming ‘brand navigators’. direct marketing agencies and so on. allowing them to put up text messages on the billboards for thousands to see. Catch 22 for advertisers is that more aggressive advertising on these sites can lead to even more frustrated and stroppy users. instead of badgering consumers to passively absorb ads. It is also not surprising that conventional advertising agencies have been wrong-footed by the degree and speed of these changes. and paying little attention to the ads. because they went there to meet their buddies not to buy stuff. Reality Check: The Cadbury gorilla Fallon Worldwide is renowned as an agency that pushes the envelope creatively. it will just become increasingly ineffective.Market-Led Strategic Change flattering. • • 98 . Major companies like Unilever are insourcing advertising. Dell.

Some of the most important decisions being faced at the front of companies. postings on Facebook and blog sites. which also seems to have been largely ignored by conventional marketing (possibly because marketing executives are in denial about this one too). Financial Times. ‘Aping of Ad Helps to Drum Up Chocolate Interest’. in business-to-business marketing particularly. major corporations are transferring resources from traditional marketing to new-style strategic sales organizations. Indeed. with 7 million downloads from YouTube. it is estimated that salesperson effectiveness accounts for as much as 40% of business-to-business choice of supplier. The sales organization or strategic customer management • • • Meantime.37 As technology makes products more substitutable. and how to handle the position with dominant customers. But no one can explain what the gorilla has got to do with the chocolate. where they meet their customers. 23. the sales function has moved beyond the role of implementing marketing strategy to one of leadership in strategy: Today’s competitive environment demands a radically different approach. A wholesale reinvention of the advertising process is being driven by consumer reactions to conventional approaches. Carlos Grande. Wall Street Journal. p. The investment in a conventional TV campaign was leveraged by viral marketing. the ability of firms to exploit the 99 • • . sales organizations employ more people than marketing does. it quickly became an Internet hit. Expenditure on the sales function exceeds that on higher-profile advertising and sales promotion. After the 90-second ad was aired in August. are among the most critical a company faces. December 12 2007. in the sales organization a different type of revolution has been taking place. p. 6. ‘Fallon in London Hones an Unconventional Edge’. Patrick. Traditional marketing does not seem to have got this yet. where the ad was not even on the air. media change and the still-emerging potentials of the Internet. Specifically. December 11 2007. Increasingly. and dozens of spoof copies.New marketing meets old marketing: new marketing wins! The only reference to chocolate was a slogan at the end ‘A glass and a half full of joy’. are concerned with managing the customer portfolio. Decisions regarding where to make investments to strengthen customer relationships. Sources: Aaron O. Sales of Cadbury Dairy Milk rose 9% in the two months after the ad debut. ‘viral’ circulation by e-mail. Even though salespeople are expensive in salaries and other costs. where to offer reduced levels of sales support. This led in turn to free editorial coverage in mainstream media – including an uninterrupted showing on Australian TV news.

it is clear that our conventional marketing approaches in this area have tended to be ‘mere “messaging”. customers.7 billion). Recent estimates have examined what difference corporate reputation really makes to the value of a company. nifty marketing and PR’. Next and Asda (using ‘slave labour ’ in overseas factories). while public relations has been concerned with the trivia of press releases and sponsorship deals and the like. while companies used to control their identities and the content of messages about themselves. Public relations or corporate reputation management • • • Lastly. how the sales force is managed. Mattell (safety issues in childrens’ toys). demanding B2B customer. communities and interest groups’. partners.Market-Led Strategic Change true potential of the sales organization requires that company executives adopt a new mindset about the role of the selling function within the firm. and what salespeople are expected to produce.3% (worth $4 billion). Samsung and BAE (bribery corruption allegations).2% (increasing market value by $2 billion). The sales function must serve as a dynamic source of value creation and innovation within the firm. if Coca-Cola had the reputation of Pepsi.9% (boosting market value by $9. is massive and warrants a strategic response. its stock would rise 3.40 This just got a lot more serious than arranging boxes at Wimbledon for favoured customers (unless I am one of them.43 While at one time managers used to control channels • • 100 . its stock would rise 6. while the strategic sales and strategic account management functions are growing. Managing risk to corporate reputation has acquired a high priority in many companies because of the impact of reputation on market value and the ability to compete. and still looks at sales as part of the marketing communications programme. conventional marketing seems to have missed this shift. Those who manage strategic customer relationships tend to have the CEO’s ear.39 Again. Siemens. Reputational risk is subject to systematic management attention in major companies. in which case it is a first rate idea). exchanged. corporate reputation has become an increasingly strategic issue impacting on the ability of companies to compete effectively. more than those who witter on about brands and adverts . disintegrating and sometimes disappearing. now information about a company is ‘created. distributed ecosystem of employees. I am sorry to be the one who tells you – but basically marketing departments are downsizing. its stock would rise 4. and modified by a vast. so: if Wal-Mart had the reputation of Target.38 The force driving the move towards ‘strategic customer management’ is the powerful. Volkswagen. However.42 In fact. if Colgate had the reputation of Procter & Gamble. . . Communications Consulting Worldwide predicts what would happen to the stock price of several major corporations if they could switch corporate reputations with a peer which has a better reputation.41 The damage to companies like BP (plant safety issues).

It may be the strategic response to reputation attack is never to admit guilt and to meet each accusation with a counter-attack. opponents care less about whether you are guilty and mostly about beating you. a strategic response may be more aggressive. heavily funded by ExxonMobile) who had filed a complaint accusing Greenpeace of abusing its tax-exempt status. and establish relationships with NGOs and diplomats’. who protects the reputations of clients not through soft. When Greenpeace USA found itself subject to an Internal Revenue Service audit in 2005. In many companies. 101 • • . fuzzy concepts and press releases but by going after the enemies of clients like ExxonMobil. ‘Today.46 Reality Check: Corporate reputation damage control Eric Dezenhall in the USA is known as the ‘pit-bull of public relations’. easy to use. now “belong to everyone”’. where ‘A corporate affairs director might now have to develop a greater focus on major public policy issues. in which participants waved placards declaring ‘Capitalism Rocks’ and ‘Stop Global Whining’. the role has been ceded to ‘chief attention officers’ or corporate affairs directors.44 Generally. but when you have been wronged the response should be a vigorous defence. to deflect attention from an anti-company environmental protest (participants have since denied that they were paid by Dezenhall’s firm). The Wall Street Journal revealed close links between PIW and Dezenhall’s communications company. Chemicals Industry – casting doubt over the fairness of a TV exposé. as a result. build an intelligent position on human rights. it seems that the marketing department has not provided the analytical power and capabilities to anticipate potential problems and develop mechanisms to deal with them. When an organization finds itself in the position of being ‘the accused’. freely available and.45 Companies may have to take an increasingly aggressive stance in protecting corporate reputations that goes way beyond simple PR. The rule seems to be that when you have done wrong is the time to be repentant and conciliatory (traditional PR). channels are exploding in number. While PR is essentially a conciliatory engagement with attackers.New marketing meets old marketing: new marketing wins! of communications. well-known for its stealthy assaults on its clients’ enemies. Campaigns associated with Dezenhall Resources include: ExxonMobile – arranging for a counter-demonstration. they blamed Public Interest Watch (a Washington non-profit organization.

47 For example. investors. that change will be disruptive for many traditional ways of doing things. it can get a tiny bit depressing. which constituencies are affected (customers. pp.48 Corporate reputation represents a cross-functional challenge for companies. Britain’s largest defence contractor. and what needs to be fixed. Eric Dezenhall and John Weber. preventing a TV investigation by exposing the couple as con artists.Market-Led Strategic Change Motel 6 – undermining claims by a couple who said they had been spied on in their room. a major point of concern is that companies often seem uncertain how to repair damaged reputations – it may take a careful analysis of what is causing reputational damage. All the factors we have described create a massive pressure for change in how we go to market. Once again. preparing a strategy to pay newspaper pundits to challenge whistleblower Sherron Watkins (the law firm later asserted it had nothing to do with a proposed antiWatkins effort). and the inadequacies of conventional marketing approaches in coping with the things that really matter. Actually. BusinessWeek. Responses to reputational damage vary from charm offensives to more rigorous counter-attacks. ‘The Pit Bull of Public Relations’. Sources: Eamon Javers. Certainly. But where else are you likely to find the new opportunities in markets if not through understanding the drivers of customer satisfaction and loyalty and the ways in which markets are • • 102 . The New Marketing Challenge Anyone feeling suicidal yet? Sometimes when you look at the generally poor performance we have achieved in sorting out customer satisfaction and loyalty. Real Advantage’ to ‘reinvigorate’ its image among key stakeholders. marketing appears determined to turn its back on the real problems facing management and to concentrate on trivia. employees). O’Melveny & Myers – retained by this law firm representing former Enron CEO Jeffrey Skilling. 2007. New York: Portfolio. This move may be connected to an array of bribery investigations linked to BAE across the world and the negative press associated with them. April 17 2006. Certainly. it shouldn’t be. the radical changes in customer markets everywhere. 2008 saw BAE Systems. which goes way beyond the traditional remit of ‘PR’ and marketing communications. Damage Control: Why Everything You Know About Crisis Management Is Wrong. launching a large-scale advertising campaign and road-show based on the theme ‘Real Pride. 84–85.

i.. When the laptop computer market became obsessed with the size and weight of the machines.New marketing meets old marketing: new marketing wins! Renewal Coping/ adaptation mechanisms Disruptive pressures on existing business models Revolution Radical market and customer change/trends Value-creating opportunities for new business models Reinvention Designing new ways of doing business Figure 3. and to respond with coping and adaptation mechanisms – renewal. 103 • • . notably in Silicon Valley.e. or whether emerging valuecreating opportunities will instead be exploited by new entrants to the market. the changes in many markets do amount to a revolution – the differences between markets largely reflect the stage the revolution has reached. Of course. Sony had no real track record or capabilities in the computer business. In the move to develop electric and hydrogen-powered vehicles as an alternative to highpollution petrol fuels.2 Market revolution drives renewal and reinvention reshaping? The model in Figure 3. The same market changes identify the new opportunities to create superior value for customers by designing new business models. one interesting question is whether the existing competitors in a market are capable of reinvention. IBM or Hewlett–Packard. the first sub-three pound laptop did not come from Dell. Certainly.2 provides a framework to express this more optimistic view – and one that can be used operationally in a company to confront the issue. Tracking the specifics of fundamental market changes and the disruptions created is the basis for developing effective responses and evolving new business models. but the recurring experience seems to be that the new entrant. it came from Sony. it is just very good at making things smaller. The challenge for them is to understand the specific changes unfolding and where they are going. Radical market and customer change does provide disruptive pressures on the established players in the market. it is small start-ups. unencumbered by existing ways of doing things will take the prize. It is not inevitable. to develop new ways of doing business which are aligned with market change – reinvention.

and a recurring theme in market-led strategic change. they are communications in a new media world and the strategic management of customer relationships. while new marketing focuses on innovations in customer value. it is the value chain. In many companies. it is how price positions us in the market. and how we manage customer value. In any case. the standing of marketing is at an all-time low. It is as if old marketing were mainly concerned with market manipulation (through brands. it is innovation and change. product development specialists. not programmes of advertising and promotion around tired brands. The really important issue is not computing and setting prices. but we have also seen that traditional marketing thinking – obsessed with the marketing mix and marketing programmes – has not done well in keeping up with how things have changed. it is strategy. when we should be thinking about more important things. the really important issue is not operational marketing management. how the visibility of price exposes us to attack. and increasingly are.Market-Led Strategic Change which are driving innovation.49 Old marketing meets new marketing Our conventional marketing tools may not be adequate to cope with decisions and environments of this kind. promotion and so on). The really important issues are not advertising campaigns and media or sales management. not the big car-makers who have been reluctant to invest and slow to respond. Marketing programmes and the elements of marketing programmes (the marketing mix) are the ‘language’ of marketing as portrayed in textbooks. and captured in marketing plans. The way forward is to recognize that marketing is strategy. managing the whole value chain and engaging in a new world of communications technology. The really important issue is not distribution channels. Nirmalya Kumar argues that the way for marketing to get back on the CEO’s agenda is to address the issues that matter to the CEO – and doing a bit of market research and placing ads does not really hack it. In short. Marketing is strategy Coping with market disruption is a big deal in its own right. The really important issue is not product planning and branding. They miss the point and they distract us into focusing on operational trivia. and so on). The issues raised are fine and important. His conclusion is that ‘the fate of marketing hinges on elevating the role of marketing executives from promotions-focused tacticians to customer-focused leaders of transformational initiatives that are • • 104 . The very real conclusion is that marketing is strategy. most of the operational details can be. outsourced to specialists (advertising agencies. advertising. except in one respect. enshrined in marketing education and training programmes.

110–118. pp. 34–42. Fortune. George E. 18–20. 17. 2–7.. pp. Valarie A. ‘Customer-Centered Brand Management’. 52–64. Bruce. and Nigel F. October 29 2007. ‘I’m a Tall Blonde Burger ’. 2. BusinessWeek. Neil H. BusinessWeek. E. pp. 1996. If you are desperate for this approach before you get into this chapter. Piercy. Lashinsky. Harvard Business Review. ‘Just a Variation on a Theme’.New marketing meets old marketing: new marketing wins! strategic. 17. 9–19. Homewood. p. and then how we can develop value strategies (Part II). 76. Michael V. 7.. Borden. ‘The Evolution of the Creative Company’. ‘The Concept of the Marketing Mix’. April 24 2006. Summer 1997. 4. ‘Brands Are New Religion Says Advertising Agency’. 5. May 14 2007. September 2004. BusinessWeek.. 37–51. February 2005. p. Zeithaml and Katherine N. pp. Tomkins. ‘Boost Brand and Profit With the Right Price’. Richard. BusinessWeek. David W. Strategic Marketing. Basic Marketing: A Managerial Approach. ‘Pricing Gets Creative’. Jena. p. pp. ‘Difficult Time for Hornby and HBOS’. Marketing Management. October 2 2006. Cram. Bennett. pp. 12th edn. pp. Croft. McCarthy.. 9. Fortune. Colvin. February 1 2007. Financial Times. The next stage is to look at value as the basis for strategy (Chapter 4). David. 16. Financial Times. ‘Creativity Pays: Here’s How Much’. June 16/17 2007.50 The centre of his argument for a strategic perspective on marketing is value. Geoff. 25–30. 6. and bottom-line oriented’. 9th edn. 8. ‘Power: A Cooling Trend’. then we provide this kind of coverage in: Cravens. ‘Most Innovative Companies’. Nussmaum. IL: McGraw-Hill/Irwin. 10. Marn and Craig C. 13. p. Tony. 11. August 8/15 2005. Eric V. 15. Independent on Sunday. 2009. 12. Rust. ‘Boost Brand and Profit’. cross-functional. Roegner. August 6 2004. 18. Cram. McGregor. 105 • • . June 4 1960. Vence. Journal of Advertising Research. Henry. Jerome. Cressman. Financial Times. 3. Burr Ridge. 52–53. pp. Roland T. Deborah L. ‘Snatching Defeat From the Jaws of Victory: Why Do Good Managers Make Bad Pricing Decisions?’. March 1 2001. December 10 2007. Welch. pp. Oliver. Marketing Management. 17. Jane. ‘Chaos by Design’. 71–72. ‘Haggling Starts to Go the Way of the Tail Fin’. Lemon. References and End-notes 1. pp. 11. David. Zawada.. Adam. November 17 1996. IL: Irwin. Marketing News. 14.

‘Transformed by the Internet’. January 10 2008. 3-13. 2008. 28. James C. November 18 2002. 32. Wall Street Journal. Value Merchants: Demonstrating and Documenting Superior Value in Business Markets. February 18 2008. p. ‘Struggles of a Mad Man’. May/June 2005. Timmions. ‘Drugmaker’s Proposal to NHS: We’ll Pay If Cancer Treatment Fails’. Aaron O. Vranica. and Thomas T. 36. 54–56. A more detailed coverage of this topic can be found in: Piercy.. MA: Harvard Business School Press. Paul. Chris. 37. ‘The Vanishing Mass Market’. September 2002. and Catherine Holahan. Wall Street Journal. 30. p. 2007. 16. 7. ‘The Coming Ad Revolution: Google and Microsoft Are So Yesterday’. 27. ‘Big Earnings from Small Sales’. 39. Chris. 38. 25. Mason. p. Sunday Times. BusinessWeek. 22. December 7–9 2007. Harvard Business Review. ‘Facebook Ad Program Is Changed Over Privacy’. Bianco. 2009. Burt. Anderson. 4th edn. Abrahams. Harlow: FT/Prentice Hall. Nigel F. Maija. 28. John and Dilip Soman. ‘Pricing and the Psychology of Consumption’. Esther. June 4 2007. 34. Strategic Sales Leadership: Breakthrough Thinking for Breakthrough Results. The Long Tail: How Endless Choice Is Creating Unlimited Demand. p. Financial Times. Narus. 23. The Sales Educators. 35. 44–50. p. Ante. p. Boston. 28–32. 1. 31. pp. December 3 2007. October 29 2006. ‘ITV Audience “Is Old and Poor”’.. January 21 2008. Vara. Financial Times. pp. January 2 2008. Marketing Strategy and Competitive Positioning. ‘The Power of Us’. Anderson. See: Hooley. Smith. BusinessWeek. OH: Thomson. 2007. pp. Sizamme. 20. p. BusinessWeek. Helm. Sunday Times. • • 106 .Market-Led Strategic Change 19. 15. BusinessWeek. Gerald E. 33.. ‘Struggles of a Mad Man’. and Nikala Lane. Wall Street Journal. Strategic Customer Management: Strategizing the Sales Organization. ‘Nokia Hopes Two Teams Are Better Than One’. Nirmalya Kumar and James A. chapter 15. 3-1. Marketing Management. February 12 2008. p. Vauhini. Nagle. Robert D. Hof. Piercy and Brigitte Nicoulaud. 25. Nigel F. ‘Pricing the Differential’. Anderson. Financial Times. ‘Microsoft Makes 85% Margin on Windows System’. ‘Social Shoppers Find Goods Well Recommended’. Graham. 58–62. London: Random House. Oxford: Oxford University Press. 29. 26. Patrick. Gourville. 24. Spencer E. Wall Street Journal. July 17 2005. pp. July 12 2004. Helm. 91–96. Kleinman. pp. 2006. Nicholas. Mark. June 20 2005. pp. 4. Palmer. p. Dyson. 47–56. 21. Anthony. ‘Generation MySpace Is Getting Fed Up’.

42. January 9 2008. 6. Stern. New York: Portfolio. Financial Times. 48. Financial Times. Eccles. 45. pp. 18. The Authentic Enterprise. Boston. Ibid. January 31 2008. Engardio. 49. Ibid. ‘Electric Cars: How Plug-In Cars Picked Up Speed and Credibility’. Kumar. 14. Sylvia. MA: Harvard Business School Press. ‘Companies Seem Uncertain How To Restore Tarnished Reputations’. pp. p. July 9 & 16 2007. p. The Arthur W.. 2007. ‘Reputation and Its Risks’. ‘What Price Reputation?’. Wall Street Journal. 107 • • . 2004. February 2007. 46. 44. Financial Times. New York: Arthur Page Society. Scott C. Newquist and Roland Scatz. 43. Pfeffer. 104–114. 47. ‘BAE Systems Launches Ad Blitz’. Nirmalya. BusinessWeek. Dezenhall. Marketing As Strategy: Understanding the CEO’s Agenda for Driving Growth and Innovation. Pete and Michael Arndt. John. January 8 2008. 50. 70–79.New marketing meets old marketing: new marketing wins! 40. 2007. February 1 2008. p. Eric and John Weber. George. 11. Anders. Robert G. Harvard Business Review. Reed. 41. Page Society. Stefan. p. Damage Control: Why Everything You Know About Crisis Management Is Wrong. ‘Wanted: Chief Attention Officers Who Can See Round Corners’.

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fragmenting markets. Even then. Introduction The last chapters made the case that so far many of us have not done too great a job in taking customers seriously. It is also one of the most important challenges to face up to.C H A P T E R • • • • 4 Value-based marketing strategy This chapter . This chapter is where we start to look at the implications of what has gone before – new types of challenges for executives in managing the process of going to market. brands and customer relationships – all of which may be important – but what really matters is how these activities and resources build customer value. and traditional marketing has failed to keep . and teasing out what drives superior value for different groups of customers is a major challenge.. instead of just paying lip-service to it. If you can get a company to really take customer value seriously.. We can look at marketing strategy built around transactions. the weakness of traditional marketing approaches in coping with the issues that matter to business performance. aggressive demanding customers. This chapter is built around the argument that value drives effective strategy. you have probably just made a major contribution to enhancing business performance. we have a problem – customer value is not the straightforward idea it may seem.

Basically. as revealed in Chapter 2. The challenge is to keep up with the demanding and sophisticated customer we identified and described. The other side of the coin is that our customers are taking us very seriously indeed. I want to describe an evolution from marketing which is primarily about transactions (selling stuff). are you in for a surprise. Customer loyalty High High Value-based marketing Customer sophistication Brand marketing Low Transactional marketing and selling Relationship marketing Low Figure 4. better you get that surprise now. angry. to our obsession with brands and relationships. to arrive at value-based strategy as the inevitable response to escalating and diverse customer demands. invasive.Market-Led Strategic Change up with the way things have changed. Transactional marketing • • • With relatively unsophisticated customers when loyalty is low. traditional marketing responses have often been low-quality products. if you read the last couple of chapters and still thought the answer was a bit more customer servility and a plastic loyalty card – boy. We are in the midst of what can only be called a revolution in the types and levels of demands that customers are making. We need revolutionary approaches to how we go to market to cope with this reality. Changes in the process of going to market are driven by the sophisticated customer and the need for customer loyalty along the lines shown in Figure 4. This suggests several phases in the development of our approaches to marketing. In this chapter. The driving force of new marketing is the new customer. vengeful. demanding.1 Valuebased marketing • • 110 . the driving force in this transition is not clever marketing people – it is sophisticated. However. However. Value as the driver of business and marketing strategy What I want to underline is the evolution of market processes from transactions to value – what some people call new marketing. unreasonable customers.1. than when your business meets the smart customer.

sophisticated customer ’1 who forces us towards continuous improvement in the things that matter most to customers. where the complaining customer is treated as the ‘enemy’. anything except price and real value. customers are loyal because they have no choice (or think they don’t). I really do think the worst kinds of transactional marketing are still around. This is the era of value-based marketing. This sounds old-fashioned. with free products. and the ‘picky. the deal. and complaining customers are bought off. and the ‘hard-sell’. For example. and we are only just starting to realize what it means for how we manage the process of going to market. 111 • • . complaint response systems. and so on. Relationship marketing • • • When we find that as our customers get smarter. Brand marketing • • • As loyalty becomes more important (because of the potential impact of retention on profitability. brands and customer relationships do not matter any more. But please bear something in mind – no one is trying to say that transactions. customer care programmes. hard-nosed. Consider each of these aspects of marketing in turn. loyalty disappears. This approach to marketing is associated with aggressive selling and the main emphasis is sales volume and revenue. and have to be thankful for what they get.Value-based marketing strategy backed by excessive advertising and promotion. we still see customers as pretty stupid. the contract and the immediate revenue and profit. It is. the former chief marketing officer of Coca-Cola advises us that the traditional marketing approach is: ‘When you can’t genuinely add value for your customer (compared to what your competitors are offering) pull the wool over their eyes instead. fault-finding. we respond with ‘relationship’ marketing – customer satisfaction surveys.’2 Oh yes. Transactional Marketing and Selling The issue in transactional marketing is the sale. loyalty schemes.g. not because we like customers). Value-based marketing • • • The trouble is what we see now is the challenge of building and sustaining high loyalty with smart customers who demand openness and transparency. In protected markets or industries dominated by a few companies. It is still alive and well in some sectors like the retail car trade. What we are saying is that the issue has become how these approaches to the way we go to market succeed in creating value for different types of customers. e. and marketing stresses brand and image.

what do girlies know about cars?). Giles Chapman. ‘Auto Suggestion’. May 23 1998. conniving and downright crooked people. Female customers (or more importantly non-customers) disliked the atmosphere of car showrooms. Douglas Rushkoff argues that corporate selling has moved on from being merely intrusive and misleading. . It seems that car showrooms are full of smarmy.Market-Led Strategic Change Reality Check: Even in the car trade . Nonetheless. Daily Telegraph. January 17 2001. the dirty toilets. (4) show him that what he really wants to buy is coincidentally the very car that you have available to sell . to become coercive in a very negative sense. Salespeople are being put in separate offices. At least. The sad truth is that many people would rather buy a car from a computer screen than talk to the people employed to sell cars. (2) find out what the man wants to buy. traditional sales approaches are clear and reinforced by conventional sales training: (1) when a couple enters the showroom. The fact is that female consumers make or influence about 80% of car purchases. ‘ Would You Sell a Brand New Car to These People?’. in particular. the machine-brewed coffee. found the macho and patronizing manner of staff to be objectionable and unacceptable. Toyota found in a pilot scheme at its showrooms in Bristol and Grimsby that female customers. Sources: Ray Massey. Coercion seeks to stymie our rational processes in order to make us act against – or at the very least. Ray Massey. Internet purchasing. Indeed. without – our better judgment’. and trains salespeople to play ‘good cop and bad cop’ to manipulate customers. . and 60% of company fleet managers are women. but he is a bit stupid. who you would like to have as a mate. and will stay away from the customers unless they are asked for advice. or if all else fails. Is it really surprising that current estimates suggest that the majority of car purchases will very soon be partly or wholly Internet-based? At least Toyota has responded to the changed marketplace (maybe belatedly. Let’s not forget that this is the sector that has invested serious money in training by hypnotherapists to try to hypnotize customers. arrogant. and being ignored by salespeople. talking to salespeople.3 He describes how the complaints • • 112 . . ‘Why Female Buyers Hate Macho Car Men’. . (3) explain carefully to the man that this is not really what he wants to buy because he is basically a good bloke. sideline the woman (after all. that is how some car dealers describe their enemy – the customers. Daily Mail. . A long-time bastion of traditional. . but it is a start). transactional sales approaches. observing that ‘Coercion is much more debilitating than persuasion or even influence . even the car trade is having to wake up to what new customers want and demand. It now gives interested customers a choice of brochures. July 21 1997. Daily Mail.

He quotes the techniques used by one female salesperson to sell jeans: ‘I kind of tilt my head to one side and stare at the guy’s butt. (And this. Transactional marketing is also about things like revenue enhancement through customer penalty policies: ● ● ● ● airlines who make you pay the full price for a new ticket if you happen to lose yours (notwithstanding the fact that your booking is in their computer system). incidentally. insurance companies who charge you penalties.4 Is it really surprising that as customers have wised up. so that an advertising agency could apply them to selling products. as soon as he notices I’m looking. The customer is always right. hotels who charge you for the room you booked. naturally less a large administration fee deduction. they are getting their own back? Reality Check: Management training There are two essential rules in management: One. and then charge you for the letter they send to tell you they are fining you. 2000. It works every time. or at a time they don’t like. commission and administration fees if you cancel an insurance policy early. They often depend on sex. to induce feelings of dread in consumers. They must be punished for their arrogance. New York: Little Brown. with a possible refund later. I can hold my breath and get my face all flushed. (Attributed to Dogbert) 113 • • . I quickly glance away and pretend to be caught. from a man who reverse-engineered the recruiting practices of religious cults. banks who charge you a penalty if you withdraw your own money too frequently. Then. unless you give them 72 hours notice that you can’t make the trip. presumably on the grounds that you should have known you were going to be ill and stay at home.) Reality Check: Selling blue jeans Douglas Rushkoff describes the techniques used to sell in retail locations like clothes stores.’ Source: Adapted from Douglas Rushkoff. Coercion.Value-based marketing strategy department of one Japanese department store is scented. Two.

Market-Led Strategic Change However. if all you use to evaluate market success is short-term sales volume and revenue figures. First. In 2007 the latest trend for body decoration enthusiasts. Films of the experience can be found on YouTube. Furthermore. In this case. which burn at more than 1000 degrees Centigrade. possibly quite trivial. Brands were the way we would improve over transactional marketing and build customer loyalty. in their terms. for example. services and companies is so central to conventional views of marketing it is hard to imagine a time when brands would not be the most important part of any marketing organization. and you just incentivized a transactional relationship between your company and your customer. However. then your company has made it even clearer that what matters most is sales transactions. Reality Check: Branding realities – EUW! I used to make a silly joke about the problem with branding being that it was very painful for the cows. sole answer to the marketing strategy problem is on the wane. is it surprising that the buyer does not want to be our friend (have a relationship) and is not that concerned about our brands and advertising. If anywhere in your value chain you have salespeople or intermediaries (like Independent Financial Advisers in financial services) who are paid wholly or largely in volume-based commission. if you found yourself thinking that stories of over-aggressive selling and a fixation with sales revenue targets are kind of oldfashioned. • • 114 . was having their skin branded in the style of a Texas prize steer. moving on from tattoos and piercings. be aware that all some customers want from us is efficiently managed transactions. before we blame salespeople for all our problems and think of better ways to punish them. there are two complications to bear in mind. then you just bought yourself transactions. try asking some of the customers concerned. Brand Marketing Branding products. In business-to-business marketing. Secondly. purchase for the buying organization. we may represent a routine. Red-hot metal brands or cauterizing pens. are used to sear a design permanently into the flesh. I have stopped doing this. This is to say that for some buyers the way we manage the sales relationship and sales transactions may be what creates or destroys value for them. then consider this. If you don’t believe me. and just wants simple transactions that can be routinized? Besides some buying organizations do not do ‘friendly’ – they buy on price and specification and that is all that really matters. the power of branding as the single.

And. reduce search costs. 115 • • . building society Abbey National morphed into abbey (lower case. cost the company another £11 million and featured in a £15 million advertising campaign. .8 Products that are ‘loved’ create customer evangelists and brand zealots who generate buzz through recommendation. Brands are an extremely important way for sellers to make their products distinct from those of competitors. make promises. different colour background). p.5 They focus management attention on brand equity or value – defined as the brand assets (or liabilities) linked to a brand’s name or symbol that add to (or subtract from) a product or service – with four dimensions: brand awareness. October 28 2007. I would like to announce the formation of the Brand Atheists Society.000. I think the boys and girls in adland should get out a bit more into the real world. perceived quality.6 Perhaps where it goes wrong from a business viewpoint is when we start seeing the brand as an end in its own right. convey symbolic values. It does not help when people from advertising agencies are running around claiming that ‘brands are the new religion’. and when we think competing through brands makes us stronger than we really are. The ‘customer-friendly’ move from Abbey National to abbey earned advertising agency Wolff Olins £500. Sunday Times. They matter because for customers they: identify the source of the product. 1-8. rather than just a means to an end. in which case. brand associations and brand loyalty. .Value-based marketing strategy I sense a marketing opportunity – competitions to nominate a teenager of your choice for the branding process . ‘It’s the Brand New Body Craze – And It Hurts’. . and provide a signal of quality. different background) and within two years to Abbey (capital A. . reduce risks.* as if nothing had changed. don’t people do some really silly things in the name of ‘branding’? Reality Check: What’s in a name – a lot of fees for advertising agencies? Under different management teams. Source: Adapted from Brendan Montague.7 Advertising guys have a lot of enthusiasm for the softer aspects of brand value – they wax lyrical about brands as an object of love or as ‘lovemarks’ in a world where products are ‘mysterious’ and ‘intimate’ and inspire ‘loyalty beyond reason’. *.9 Personally.

They are brands judged to be ‘desirable among many style leaders and influencers’ and have ‘a magic about them signifying users have a sense of taste and style’. (2) Microsoft ($57 billion).13 Interestingly. (4) Agent Provocateur. February 26 2005. in electrical appliances. (6) Nokia ($30 billion). (8) Disney ($28 billion). (4) GE ($49 billion).10 For better or worse. this means that a huge share of the market value of companies like these is down to the brand. ‘The £9 m Capital Gain’. (9) Jimmy Choo. Respondents identified Nokia (from Finland) and Samsung (from Korea) as Japanese.Market-Led Strategic Change Subsequently putting the capital ‘A’ back into Abbey is estimated to have cost another £9 million. (7) Green & Blacks. in electronics retailing. • • 116 . and a complete waste of money by its customers. (9) McDonald’s ($28 billion). (3) iPod. and (10) Mercedes–Benz ($22 billion). The successive make-overs were described as a ‘rebranding process’ by the company. p. p. (7) Toyota ($28 billion). in drinks. 101. April 30 2005. in computers.14 These are the special kinds of brand that create brand junkies. 31. and change markets But before we get too anti-brand. (2) Alexander McQueen.11 Nonetheless. A survey of young US consumers found that most did not have a clue where their brands came from (and didn’t seem to care much either). ‘A Costly Sign of the Times as Spaniards Splash Out’. (6) Google. part of the global momentum achieved by Chinese companies is supported by the development of strong Chinese brands to compete internationally – Haier. Darren Behar. (8) Tate Modern. we should probably not exaggerate how well people know the brands of which we are so proud. and Wahaha. it’s worth noting that brands are major company assets. Brands are a lot of fun. ‘cool’ or ‘breakaway’ brands seem to be those that have actually cut down on the traditional advertising hype and really connected with customers. and (10) Vivienne Westwood. Daily Mail. Sources: James Ashton. (5) Intel ($32 billion). The top 10 cool brands in the UK in 2006 were: (1) Aston Martin. it really is true that some brands earn their way because they become cults – they are cool. The BusinessWeek/Interbrand list of the top 100 global brands in 2006 put the following brand values on the top brands: (1) Coca-Cola ($67 billion). Lenovo. are among the leaders. Daily Mail. (3) IBM ($56 billion). Indeed.12 Cool brands win Nonetheless. Gome. Ericsson (from Sweden) and Adidas (from Germany) as US brands. (5) Bang & Olufsen. and Lego (from Denmark).

p. was launched in 2003 as ‘quintessentially cool’. Coca-Cola ran one of the most famous ad campaigns of all time – they stood 200 multi-ethnic young people on a hilltop in Italy and had 117 • • . Burt Helm. the reality is a little different. BusinessWeek. Sources: Gail Edmonson. if you look at the recent history of some of those brand icons. These lists are still around. Thirty years ago. When I was brought up in marketing. 26. we were always shown lists of the ‘world’s greatest brands’. the devastating brand illusion is that brands make you unbeatable – the strongest brand always wins. BusinessWeek. July 31 2006.000 US Mini owners – they have been sent a ‘kit’ allowing them to decrypt the ads to find web pages leading to free prizes and invitations to Mini events. Brands do not make you unbeatable However. In 2006 BMW put ads in US magazines ranging from Maxim to New Yorker that were encrypted so they could only be read by their current 150. It is not true. they were the models from which we should learn what marketing was really about. if we could ever aspire to the giddy heights of a brand manager job. First Mini sightings in the USA involved a model strapped to the top of a 4 4 with the message: ‘What are you doing for fun this weekend?’ The Mini appeared in football stadiums watching the games like a fan. These were the leading examples of the pinnacle of marketing’s achievement. The brand bubble has burst. and some people (many of whom should know better) still believe the mythological power of the big brand. Unfortunately. p. Non-owners just have to remain curious and perhaps slightly jealous. with a mock contract committing owners to keep the roof down as long as they can stay true to the Mini’s open-minded spirit. Reality Check: The demise of the brand icons Coca-Cola is the most valuable brand in the world. ‘The Mini Just Keeps Getting Mightier’.Value-based marketing strategy Reality Check: BMW Mini buzz The retro-designed BMW Mini. with its unique snout and bulldog shape. ‘For Your Eyes Only’. The message is that owning a Mini is being part of an exclusive club. April 5 2004. based on the 1959 classic. The launch focused on ‘guerrilla’ tactics not advertising – unconventional stunts and humour to spark a buzz. 66. The first deliveries in the USA of the Mini soft-top came with a seal to be broken when the roof is raised for the first time.

juice-based drinks. The baby-boomers of the 1960s wore their Levi 501 blue jeans as the uniform of rebellion. None of these new products carries the Coke brand name. A joint venture with Procter & Gamble took Coke into the juices and snacks market. seemed unchallengeable. Health-conscious consumers continue to shy away from sugary carbonated drinks. The trouble is the baby-boomers are still wearing their Levi’s to do the family shop in Sainsbury’s and to wash the Volvo on a Sunday afternoon. the Swiss food group. The only jeans acceptable to the 15–24 year old market in the 2000s come from design houses like Donna Karen. teas and ready-to-drink coffee. and high energy drinks. Tommy Hilfiger and Calvin Klein. after he has finished washing the Volvo). In 2000 Coca-Cola planned the launch of milk-based drinks for children. The power of the global master brand. CocaCola has tried to keep up with the fragmenting soft drinks market by producing local brands – its best-selling cola in India is Thums Up not Coke – and by launching products to meet growing demand for bottled water. By 1999 Coke had more than half the world soft drink market. plus an agreement with Disney to sell children’s drinks under the Disney brand. Levi-Strauss denim blue jeans were a symbol of youth and rebellion – the symbol of the macho Old West. The blue • • 118 . Former CEO. and the extension of the Coke brand onto fashion and sports clothing. not from Levi-Strauss. supported by global advertising of some $1. Coca-Cola had become the second most understood word on the planet – Coca-Cola advertising even invented the modern Father Christmas in 1931. to market ‘new beverages’. there is nothing cool about Levi’s – they are indeed the jeans your Dad wears – their uniform is chinos and combat trousers (and definitely not Levi’s Docker brand chinos. Roberto Goizueta. the connoisseur’s brand of choice. flavoured water. such as health drinks. but a ‘piece of genius’. By 2001 the company had more than 200 brands. Coke’s share prices fell from $85 in June 1998 to $47 two years later. and was partnering with Nestlé. Or it did until the world started falling out of love with carbonated soft drinks. and has hovered at around $50 since. In 2004 Coke veteran Neville Isdell was brought out of retirement to shake up management and launch new products. Denim jeans have become old people’s clothes – even Prime Minister Tony Blair wore blue jeans. To the young buyer of blue jeans. The CEO said he was not selling a drink.6 billion. because your Dad wears them too.Market-Led Strategic Change them sing ‘I’d Like to Buy the World a Coke’. flavoured iced tea and coffee drinks. said he would never rest until the ‘C’ on the cold tap in English-speaking countries stood for Coke. Weak sales and profit falls continued into 2001. People used to say proudly ‘Just bury me in my 501s’. In 2000 Coca-Cola announced the cut of 6000 jobs – one-fifth of its global workforce – and heavy costs being incurred in withdrawing large stocks of unwanted Coke concentrate from its global supply chain.

Investors took the view that if the only thing you can do when times get tough is to cut the price of a brand – then the brand is not worth much after all. About 40% of total supermarket sales in the UK are retailer private branded goods.Value-based marketing strategy jeans market is now driven by fashion not by brands like Levi. but you need more to succeed with new customers than a neat brand name. Rupert Steiner. is the brand dead? No. generic cigarettes in supermarkets and filling stations across the US. This desperate attempt to hold market share immediately drove their share price dramatically down and impacted on the value of brand-based company stocks across the world. Private 119 • • . Financial Times. It may have to be a lot different. Brands are always going to be important. with the closure of overseas factories following close behind. Sunday Times. They then extended deep price-cutting to other premium cigarette brands. The lonely ‘Marlboro Cowboy’ has ridden everywhere. Marlboro. Philip Morris did the one thing that brand-owners are not supposed to do – they took the huge gamble of cutting the price of Marlboro by 20% (40 cents a pack). posting its largest annual loss. In 1999 Levi-Strauss closed half its US factories and laid off 6000 staff. ‘Marlboro Friday’ was April 2 1993. the company pushed ahead with selling a mix of jean styles through different types of stores. What has reached the end of the road is ‘blind branding’ – believing that the brand alone will create superior customer value. ‘Coke Chief’s Latest Daft Idea – a Cola Tap in Every House’. is the most widely recognized cigarette brand in the world. the Philip Morris brand. This signal was sent on ‘Marlboro Friday’. ‘Fallen Icons’. Source: Richard Tomkins. Marlboro was one of the first of the global brands to signal that an era of brand-based competition might be coming to an end. slick packaging and spurious brand values built through advertising. By 2004. There are some other issues too. Blind branding So. Private brands One reality for brand-based companies is that private labels are encroaching on their markets in many sectors. The term ‘brand equity’ has never seemed quite the same ever since. Philip Morris faced a tough situation in the US cigarette market – market share was being eroded by sales of low-price. unbranded. The challenge is focused branding that creates customer value in the customer’s terms. February 1 2000. because of a 13% fall in sales. of course it isn’t. March 18 2001. The brand has been taken downmarket into discount store ranges.

in some sectors the brightest future for manufacturers may be producing private label products rather than investing in their own consumer brands. now that figure is closer to one in three and Asda is close to being the largest clothing retailer in the UK. consumers • • 120 . The company is very successful at what it does. In fact. When the pre-Volkswagen Skoda brought new models to the UK in the mid-1990s. to food companies like Kraft. ‘standard’ (mid-market) and ‘finest’ (upmarket).17 Brand liabilities Your brand may be the most important way in which a customer identifies your offering/product. the 900 pound gorilla in the UK retail scene. For example. which is a major culture shift to say the least – the rules are very different. your products and everything you stand for.16 Tesco. Inevitably. If you do not believe me – try asking the guys at Tesco about the anti-supermarket campaigners. they did ‘blind and seen’ tests. Hershey and Cadbury. Five years ago. and the company generates half its revenue from own-label products (double what it was ten years ago). has neatly segmented its own-label offering into three levels: ‘value’ (cheap). The power of retailers to challenge the position of brand-owners has grown dramatically. Kellogg and Unilever. and value innovators at companies like Aldi and IKEA. the premium store brand. In some cases this may serve only to remind the customer how much they hate you. or a gourmet praline from a specialist. and private label alternatives are attractive to many customers. Asda sold clothes to less than one in ten of its customers. restaurants and confectionery shops. imitating the brand leader but at a lower price. questions should be raised about the desirability of basing strategy for the future on brand when it is under attack by private labels. as well as thousands of hotels. like H&M and Zara in fashion. The business model is set up for the business-to-business value chain with clients ranging from confectionery companies like Nestlé. and has no consumer brand. Whether it is a branded bar from a multinational. Most Barry Callebaut customers put their own names on the product. no one outside the chocolate business has heard of Barry Callebaut – in fact it is the world’s biggest chocolate maker.Market-Led Strategic Change label competition can come from deep discounters like Aldi. the copycat brand. Developing value propositions and innovations to cope with this challenge is increasingly difficult for premium brand owners. from supermarkets like Tesco and Asda.15 Private labels can compete effectively in many product sectors. They can be classified as: the generic or ‘value’ category – the low-cost alternative. which offer their own value for money brand. the chances are the chocolate came from Barry Callebaut. or from specialist retailers. With the badges removed and no way to identify the vehicle as a Skoda. which may even be sold at higher prices than the manufacturer brand equivalents.

Q: How do you double the value of a Skoda? A: Fill it with petrol. but with the badge and identity revealed. Some counterfeiting has been linked to organized *It also reflected the history of Skoda in producing low quality vehicles.Value-based marketing strategy were impressed with the design and price. and the same designer took compensation from New Look for its Bonbon shoes. and the fact the brand had become a joke in the UK: Q: Why do Skoda’s have heated rear windscreen? A: To keep your hands warm when you are pushing them. and indirectly when prospective customers see just who appears to own your brand). Apple was very disgruntled when the sex toy shop Ann Summers advertised a vibrating product called the ‘iGasm’ which plugs into an Apple iPod and vibrates at different speeds with the music played. This is negative brand equity – when the brand reduces the market value of the product. environmental responsibility. You lose out both ways – you lose potential sales (directly. which infringed copyright.* As customers dream up ever-more demanding ways to judge companies – ethical standards. Sometimes the best advice is to keep quiet and hope the problem goes away. and then you get blamed when the counterfeit product falls apart. Fashion retailer Warehouse had to settle out of court for selling a £20 copy of a £650 Jimmy Choo clutch bag. Some copying is just competitors pushing their luck. but Ann Summers just offered them free iGasms to cheer them up. and the UK market for counterfeit goods has passed £9 billion. The adverts based on Apple’s signature silhouette did not go down too well either. and that you can do something about. In the USA counterfeiting is estimated to cost businesses $200–250 billion a year. some brag about it more than if they had bought the real brand – in a backlash against the high prices of some designer goods). perceptions of the design were less favourable and estimated value by potential consumers was several hundred pounds lower.50 handbags which were just a little too similar to the £495 original from Jimmy Choo. Counterfeit brands One of the huge risks in brand-based business strategies is that if the strategy works and the brand becomes successful you are exposed to copying and counterfeiting of your brand. Apple made threatening noises. 121 • • . More serious is illegal pirating and counterfeiting. Q: What do you call a Skoda with a sun roof? A: A skip.18 Though sometimes you can just end up looking silly. national origin (see Chapter 2) – then the chances for the brand to become a liability increase. because it is rubbish quality. and with customers who are quite happy to buy the counterfeit (indeed. M&S was obliged to destroy thousands of £9.19 Luxury goods makers claim that more than 90% of Louis Vuitton and Dior items sold on eBay are fakes.

piracy has become a useful new distribution channel. Brands that go wrong Dependence on brand-strength to compete should also be put in the context that sometimes things go wrong with the brand.21 Of course.Market-Led Strategic Change international crime and terrorist organizations. and other hot spots are the Philippines. The exception is. rather than just opportunists. and are aggressively doing so in many sectors. though copiers also go after car parts. Once the pirating sector embraced even those customers. To base your business on an asset that can be easily copied – with customers happy to buy the copies – is an increasingly high risk to take. then they had to slash CD prices. it made sense for record labels to write off a few cheapskate customers and raise prices for the rest (older more prosperous customers willing to pay for music). Pakistan and Paraguay. Legal authorities in many countries will seize counterfeit goods when they are discovered. where suing for damages is widely recognized to be a waste of time and money. There are many other examples of brand and company demise caused by this kind of brand trajectory. one interesting argument is that there is such a thing as ‘promotional piracy’ – an alternative to price cuts in advertising a product. when Napster started out and music piracy was a marginal activity. motorcycles. Russia. and shoes. of course. and leave you weak in the marketplace. with the huge profits available driving rapid growth. It has been estimated that counterfeit goods may be as much as 7–10% of all world trade. • • 122 . The most profitable response to piracy depends on the type of customer faced. There may be no single correct trade-off between sales lost to piracy and the sales generated by the buzz from pirated copies in circulation. China. The adoption of the luxury Burberry brand as the hallmark of football thugs and chavs is a well-known example – from which the brand has been trying to recover. brand owners can pursue legal actions against counterfeiters and counterfeit distributors. to get back to the position where it can sell its clothes for very high prices. to be ‘reassuringly expensive’. consumers continue to buy counterfeit brands – often knowingly and willingly – which is something of a worry for the longterm strength of strategy based on brand. Brazil. memory chips. So. cigarettes. China accounts for nearly two-thirds of counterfeit goods. However. for some industries. Ukraine. Reality Check: Stella Artois – wife beater Stella Artois was a marketing triumph – the strong lager that claimed in unashamedly upmarket advertising. In this sense. pharmaceuticals. Consumer electronics and luxury goods are the most commonly counterfeited.20 In fact. creating ‘buzz’ and expanding the user base for the product. Vietnam.

Move fast – or lose out – customers may be hooked on innovation but they are not prepared to wait. If you are in Europe. There is a major clash between the expensive art-house minimovies used to advertise Stella and the sponsorship of tennis at the Queen’s Club. achieved by moving from basic products like paper towels (that can easily be challenged by retailer private labels) to higher-margin products like health and beauty care. it has a tendency to make some people drunker and more aggressive more quickly – hence the unflattering name ‘wife beater’ (thought to come from the impoverished white people in the USA known as ‘trailer trash’. and where the brand has ended-up. The new media message – the splintering of traditional media can be turned to advantage. whose white. engulfing consumers in brand messages from in-store *If you are in the UK. Source: Adapted from Victoria Moore. maximum aggravation’. Because Stella is stronger than most beers. Strategic brand management The most important point about branding is that while the creativity is fun.. Minimize exposure to Wal-Mart* – powerful retailers like categories (e. and wider and wider availability in all kinds of pubs undermined this position. Daily Mail.g. ‘Wife Beater’. not the expensive aspirations of the advertising agency. sleeveless T-shirt is known as a ‘wifebeater vest’). The hugely successful advertising positioned the brand as stylish and very French (even though it is made in Belgium). But price discounting in supermarkets and off-licences conflicted with this image. laundry) not brands (e.g. The message is the same. 123 • • . innovate – standing still is not an option even with currently market leading brands. P&G has mastered ‘surround-sound marketing’.Value-based marketing strategy But the brand became associated with the ‘wrong sort’ of drinker – those who pub landlords characterized as ‘minimum drinking. Procter & Gamble in the USA suggests there are five new strategic branding lessons: Innovate. substitute the name Carrefour. Tide) and they use their muscle – P&G is one of the few large suppliers to Wal-Mart that has sustained above-average profitability. Brands are one way of making strategy real. substitute the name Tesco.. the important link is to business strategy. November 15 207. 38–39. Stella remains the drink of choice for binge-drinkers aiming to get blind-drunk. including its Olay skin products. pp. innovate.

to product placement in TV shows. Inc • • 124 . to websites. While Colgate–Palmolive was focusing on tubes of toothpaste. a failed attempt to bring younger buyers to the Toyota marque in the USA. Scion grew from Toyota’s Project Genesis. Courtesy of Toyota Motor Sales.22 This said. to retailer close circuit TV. brands may play a key role in strategic positioning and developing an effective value proposition for a target market or segment.Market-Led Strategic Change demonstrations. P&G went for a greater ‘share of mouth’ with innovations like the cheap spin toothbrush and premium-priced Whitestrips teeth-whitening kits. Think broadly – P&G has moved from detergents to trying to solve every problem in the home. Toyota’s Scion division was created in California in 2003. Nonetheless. brands are not the only way of approaching strategy – they are a means to an end. Reality Check: Re-positioning the Scion brand One of the problems faced by Toyota in the USA was the generational issue: the average buyer of Toyota and Lexus was 54. USA. to appeal to Generation Y consumers (expected to dwarf the market size of Generation X by 2020). Many first-time car buyers associate Toyota with older drivers.

distinction is that ‘Brands exist to serve customers. and the suggestion that we should focus on the customer equity (the customer’s perception of the value in the buying transaction). 125 • • . as well as nightclubs.Value-based marketing strategy Scion positions its ‘funky’ cars as the first stepping stone in a young car buyer’s journey. 22. Newspaper and TV advertising has been avoided in favour of promotional events like taking the cars unannounced to trendy music and clothing stores. p. ‘Street teams’ hand out invitations to parties featuring its vehicles.000 for a watch that does not even keep infallible time (it is a chronometer not digital)? Clearly some products create value through intangibles and brand associations. the top vehicle on the Scion owners’ ‘aspirational’ list is the sleek Lexus IS saloon. Sources: Bernard Simon. ‘Toyota Finds Scion Tough Going’. It supports DJs and film-making competitions and is a key sponsor of a national video game league. The unit has built Scion as a ‘guerrilla brand’. Intellectualizing the car business is a big mistake. You need value. Rick Waggoner. the median age of Scion buyers was 31 (it would have been lower. Would any luxury product survive without a strongly protected brand image? How else could Louis Vuitton charge $650 for its signature duffel bag and $2950 for its Suhali Lockit handbag? How else could Gucci be looking at 30% annual sales gains? How come Rolex can get people to pay £10. ‘Scion Brand Greases the Wheels for Toyota’. You need more and you need to change. it would be foolish to deny that some products are bought because of the intangible values associated with the brand. and new types of competition emerge. Recently. but several of the Scion models have been a surprise hit with buyers in their late-40s). Does the brand create customer value and how? One important. increasingly critical.’24 He has a point. April 26 2006. and has pioneered new ways of plugging in to the lifestyle of its target customers.23 Certainly. But to believe that all brands achieve this is a different proposition. 10. having the greatest brand in the world will not help you. Financial Times. Nonetheless. noted that: ‘The automobile is a lust object. but you need more than a brand. Brands are certainly one way of delivering value to customers. CEO of General Motors. The truth is that to survive now you may need a brand. then really your brand is not worth much. Importantly. Bernard Simon. Financial Times. Scion sales have been disappointing but Toyota is persisting with its strategy to find ways to connect with trend-setting young people. but only part of the requirement. If all you can do when times get tough for a brand is to cut prices. not simply the value or equity of the brand. Scion has also set up its own record label and a Scion release clothing line. p. March 25 2008. not the other way around’. When markets change. By 2006.

25 Along these lines. we may have to learn to see brands as less of a goal and more as what results from good marketing – John Deighton of Harvard Business School suggests ‘Marketers are a little too desperate to build brands. and very much to the point.28 The difference between conventional marketing and relationship marketing. policed by the brand manager. In essence. service and delivery performance. was the move from emphasizing the transaction (the single sale of a product or service) to focusing on the continuing relationship with the customer. relationship marketing remains an interesting approach in many situations. is the brand in a market environment where it can prosper – or will strong competitors and low price players destroy its chances? His conclusion matches ours – just to have a brand achieves little. While branded goods companies continue to launch new products. But. what did relationship marketing really do for us? In fact. it is becoming more and more difficult to repeat the success of the blockbuster brands of the past. One visionary even claims that the real problem is that brands are becoming less a way of reaching out to customers and more of a barrier to getting closer to them.’27 And so. but if they build strong customer relationships the strength of the brand will follow. to shareholders). we were told. the answer to the customer problem apparently became ‘relationship marketing’. Interactive marketing and radical one-toone product and service customization may have made the traditional concept of brand obsolete. is the brand effectively integrated into business processes to sustain its proposition – for example. by the way. Relationship Marketing So. what is the deal with relationship marketing? The 1990s saw just about everyone telling businesses that they had to get with relationship marketing as the only way to do ‘new marketing’ in modern markets – a major ‘paradigm shift’ for marketing theory and practice. quality control.Market-Led Strategic Change The symptoms of problems for brand-based companies are several. which cannot respond to changing customer processes. Peter Doyle26 suggested that we should be auditing brands for their value-enhancing characteristics: is there any effective proposition to the customer – does the brand offer some unique benefit not offered by other brands and not easily imitated by them. this is ‘blind branding’ – the issue is whether the brand delivers value to customers (and hence. Alan Mitchell argues that the problem is that brand-building may be a distancing process that creates a rigid set of pre-packaged products and brand images or values. which has helped to revitalize marketing in some • • 126 . He argues that increasingly we are in a world where customers seek the right to specify their own bundles of attributes and to create and manage their own ‘brands’.

It tells us that the relationship we build with the customer is an asset that may provide enduring competitive strength. and it offers competitive strength from microsegmentation and customizing – using our enhanced knowledge of the customer to take our value proposition down to the segment of one customer with customized or adapted offers and products. All the evidence is that what they all actually want to do is to sell me financial services. Because we focus on relationships in all these areas – customer and partners – instead of just transactions. is BMW going to change more than the marginal extras on the vehicle to retain me as a customer? I really do not think so. affluent customers are saying things like: ‘Do not telephone me to tell me that you are my personal banker and that you have some wonderful new products. Stop sending me letters and leaflets about your products. and that we have to have a broader perspective that recognizes that we have more than one type of customer and market. and this means relationship marketing involves all employees across traditional boundaries. Great relationship from a customer perspective (not).32 Is it the answer? Relationship marketing is an important development in marketing practice – but a new paradigm or theory of marketing? I think not. I just want you to leave me alone!’ Now that puts a different perspective on relationship marketing. A conundrum for the financial service sector – where many of the firms see relationship management as their salvation – is that many of their most attractive. then we turn from competition and conflict to mutual cooperation and mutual interdependence with customers and strategic partners. We also need to be very cautious about making promises we cannot keep in the guise of relationship marketing. play golf with you or go to the races with you.31 Relationship marketing focuses our attention on customer retention – the efforts we make to build a lasting relationship with the customer. Part of the problem may be that some customers simply do not want to have a relationship with you. is the Sainsbury Bank actually going to give me a different account to anyone else’s. joint ventures and new types of joint trading agreements30 – some now use the term ‘viral marketing’ to describe the web of relationships spreading to our customers’ customers. I do not want to have lunch with you. in building and sustaining customer relationships. 127 • • .Value-based marketing strategy companies.29 Our market strategy has also to be into the broader setting of networks of interdependent firms linked by strategic alliances. is Marks & Spencer going to use its database to stock trousers that are long enough for me. Speaking as a ‘segment of one’ – is British Airways really going to give me more leg-room in an economy seat and let me smoke on the flight because I tell them this is what I want. not just selling a product or service in a one-off transaction. It can do the following types of thing for us.

or because it meets our needs inside the company? If the answer is the latter – there is nothing necessarily wrong with this. December 27 2006. 32–33. Can you help me get the pizza out? Source: Adapted from Victoria Moore. Daily Mail. Besides. ‘Help! I’m Plain Stupid’. those are our opening hours. Operator: Where did you get that number from. Caller: My dad bought me a computer last week. it should be remembered that it is a matter of human genetics that no male over the age of 16 can actually say the word ‘relationship’ without trembling inwardly. Help Desk: What’s the problem. I was also eating pizza. Caller: Does your European breakdown motoring policy cover me when I am travelling in Australia? Operator: Doesn’t the name of the product give you a clue? Technical Support: I need you to right-click on the Open Desktop. Technical Support: Can you tell me what you have done up to this point? Customer: Sure. It’s a really big mess. pp. very bad. Operator: Sir. • • 128 . *And. . With the CD drawer open. just don’t expect your customers to get excited about it. I’m really hungry. I set the pizza on it to pick up the phone. Help Desk: What happened then? Caller: Well. look what it turned into – plastic loyalty cards and call centres. the CD drawer took part of the pizza inside the computer. . Now I can’t get the drawer open.Market-Led Strategic Change There does seem a danger that because marketing people have discovered relationships* they assume that relationship strategies will be greeted with open arms by their customers. You told me to write ‘click’ and I wrote ‘click’. and I was taking out a CD when the phone rang. Reality Check: The richness of call centre relationships Caller: I’ve been ringing 0700 2300 for two days and I can’t get any help. Caller: Well. Teenage Caller: I wonder if you could help me. The evidence suggests that this is not the case. Before getting carried away – ask the question: are we embracing relationship marketing because it is a better way to meet our customers’ needs. Customer: OK. though ‘commitment’ is even worse . Technical Support: Did you get a pop-up menu? Customer: No. Can you help? Help Desk: This is bad. sir? Caller: It was on the door.

invoicing. e-commerce. on our own customers (not the ones the competition got and we lost). For example. and only on measured behaviours (what people bought. and there is no contact between the seller and the ultimate buyer.) There are good reasons why CRM has been renamed Customer Relationship Myopia in some companies. you don’t need call centres located in India and the Far East. and sales systems (automated appointment making and contact management). and a wealth of customer information on real purchase behaviour to enhance decision making. customer lifetime value is low. you probably do not need complex CRM technology if: customers only buy the product once in a lifetime. Internet marketing. demonstrating the company’s trustworthiness. and getting caught dumping customers who have done nothing ‘wrong’. The information collected focuses on the past (historical sales records). operational systems (e.33 What they actually got was mostly call centres located in India and the Far East. tightening the connection with the customer. customer service systems. (S/he would presumably be the one in charge of the call centres located in India and the Far East.g. There are two problems here: getting rid of customers who were going to become profitable in the future. credit card company Egg.34 Then. customer churn is high throughout the industry. CRM also seems to restrict management to tactical actions – like ‘firing’ customers who do not appear profitable (based on short-term. For a start. Advocates talk about the potential for aligning company resources seamlessly around customer relationships. etc. To the average consumer this mainly means call centres located in India and the Far East. the customized ‘one-to-one’ relationship with the individual customer. For example. Companies were promised much more by CRM sellers and advocates. in a company-wide process of change. and retaining those who used to be profitable but are unlikely to be so in the future. the unit value of the product is low. call centres. This is not a great basis for driving radical innovation and coping with disruptive market change. achieving the coordination of complex capabilities (functions and resources) within the company. CRM was to be a ‘customer-responsive strategy’ that would gain competitive advantage by: delivering superior customer value by personalizing the interaction between the company and the customer. owned by Citigroup. had a lot of questions to answer when it withdrew credit cards from 161. Some even aspire to the creation of a new role of Chief Relationship Officer.). CRM includes: data warehouses.Value-based marketing strategy Customer relationship management systems Companies around the world are spending millions on Customer Relationship Management (CRM) technology. and.. They talk about the impact of CRM on customer retention. Their public line was that. the prospects for getting rid of unprofitable customers. order processing.000 people in 2008 – 7% of its customers. 129 • • . not what they think). historical calculations).

* It got worse when the credit rating agency Fitch pointed out that Egg’s actions were likely to cause an increase in defaults and write-offs among affected customers – because they are likely to repay every other card first. Daily Mail. Simon Duke. In fact. ‘BSkyB Hits Peak of Its Investment in Broadband’. p. p. they were weeding out customers with a ‘higher than acceptable risk profile’. Sources: Andrew Edgecliffe-Johnson and Ben Fenton. decent customers – not good.35 Oh dear – caught lying and abusing honest. And. ‘Sky Gets Tough with Skinflint Subscribers to Boost Shares’. In some ways CRM has provided companies with the technology to annoy and irritate their customers faster than ever before – like those call centres in India and the Far East. The company has phased out the enticing introductory rates. however. Reality Check: The sky’s not the limit Satellite giant BSkyB spent a lot of 2007 weeding out the cheapskates among their pay-TV subscribers.Market-Led Strategic Change following the credit crunch. But this is an operational or tactical contribution. Skinflint and flat-broke customers have been quietly frozen out. Egg denies all such charges. Pushing out the less affluent has also helped Sky improve its customer retention rate – cancelled contracts have been reduced to 10% of the base. Improved retention is coupled with a rise in average spending per user to a record £421 a year. • • 130 . February 7 2008. Out of respect for their reputation. Some of us better get used to the idea that pretty soon it is likely to be global *Of course. CRM has also achieved remarkably good results in sharpening up service response times and the ability to target customers more precisely in some markets. make substantial improvements in operational efficiencies. I will avoid comments about them having egg on their faces. and pushed the credit quality of the average subscriber to an all-time high. 80. 20. about those call centres in India and the Far East. The result was to increase the number of new customers paying the full-price subscription three-fold. The ploy was to reduce discounts to eliminate ‘offer riders’ from the customer base – those casual customers who switch between rivals according to who has the best promotion. they appeared to also be culling customers with faultless borrowing records who had the unfortunate characteristic of paying off their bills every month and thus incurring no charges for Egg. leveraging CRM data can.36 Nonetheless. Financial Times. since they can no longer use the Egg card. February 7 2008.

. one way of underlining the point that in B2B marketing. In victory: revenge. simplify.37 And then. the issue is still how does managing customer relationships influence our ability to deliver superior value to customers? What matters is the types of relationships customers want Some customers actively demand a relationship focus from sellers. I bet they’ll enjoy it too. you really wouldn’t know you were talking to someone in Poland or Louisiana instead of Mumbai or Beijing .‘. and then we really are talking about powerful leverage for competitive advantage. This pressure comes mainly in business-to-business marketing – either from distributors or industrial end-user customers.Value-based marketing strategy Impact of supplier on cost structure and competitiveness High High Critical partner to create competitive advantage Showstoppers manage to reduce risk Low Market risk/ lack of choice Leverage manage for financial impact Recurring consolidate.2 How B2B purchasers look at supplier relationships Low Indian and Chinese companies outsourcing their call centres to Europe and the USA. manage by exception Figure 4.’ 131 • • . Business-to-business customer relationships • • • For example. This model shows *Always.2. One example is given in Figure 4. customers define the relationships that they will have with different suppliers is to look at the type of sifting mechanisms that professional purchasers use. remember the old adage: ‘In defeat: malice. Here there is a major change in customer priorities that puts relationship management high on the agenda.’* The reality about CRM is that you cannot avoid the fact that it is people not software that build customer relationships. their graduates are so good and work for such low wages. . Then their executives will be able to come out with all the nonsense – ‘You know it works wonderfully well.

g.Market-Led Strategic Change the purchaser balancing two issues in deciding the relationship to have with a supplier: do they matter to me because they have a large impact on my cost structure and competitiveness (or not). but who I can replace if I have to..38 The search for closer more profitable and sustainable relationships with strategic customers (the most important.3 Relationships with strategic customers • • 132 . though not necessarily the largest) has led to large investments in major account and strategic account management systems. recurring relationships are with suppliers still not with a major impact on my operation. plan jointly. may locate specialist personnel at or near the buyer ’s locations Seller Buyer Strategic account partnership The buyer and seller collaborate. specialized salespeople. leverage relationships are sellers with a significant impact on my costs. and both invest resources and share risks.. but the relationship is transactional Strategic account investment The seller dedicates resources to the buyer organization and plans around the individual customer’s needs. e. e. and here I just want supply chain and transactional efficiency (meet my requirements or I go to your competitor). because I cannot source the product elsewhere? From the purchaser’s perspective: the show-stoppers are not important to me but I cannot source the product elsewhere. crossboundary links extend beyond purchasing and sales to include management and technology Seller Buyer Figure 4. These differ in the relationship existing between buyer and seller as suggested in Figure 4. so the only added-value I want is to take that market risk away (e.3.. guarantee my supplies). specialized salespeople. and am I at risk. an account team.g. and critical relationships are with those offering something unique that is very important to me – here we may be looking for a partnership with a strategic supplier to create joint competitive advantage. nothing else.g. but also easily replaced. The major account relationship involves the seller dedicating resources to a major customer – an account team. so the conversation is about price and terms of trade. Seller Buyer Major account selling The seller devotes specialized resources to dealing with an important major account.

entertainment products and so on. At least then we could focus on the customer groups where we are best able to deliver the relationship that they want. who wants a long-term relationship with the supplier and a high degree of closeness or partnership in things like developing new products. electronics. This can be a very expensive error. Customer relationship-based market segmentation • • • One neglected idea that arises from the above points is that relationship requirement is potentially a very revealing way of segmenting markets. and we may even locate specialist personnel near or in the buyer’s premises. but at the end of the day shop around. In fact. sharing risks and developing broader technology and management links. P&G has a 200 person team wholly dedicated to Wal-Mart (the single customer that constitutes 20% of P&G’s business) located in Arkansas near to the customer’s headquarters. and your investment in the relationship does not buy you customer loyalty or retention. We discussed the Ford approach to strategic suppliers in Chapter 2. Tesco is starting to attract suppliers like Disney similarly to locate at their head office.Value-based marketing strategy customized service offers – but the relationship remains primarily a transactional one: we sell. almost like a merged company. Strategic account partnership is where buyer and seller collaborate and plan operations jointly across the organizational boundaries between them. loyal buyers – customers who want a long-term relationship. not the seller. If we genuinely seek to distinguish important differences between customers. they buy (we hope). The important thing about this is that it is the customer who defines the relationship on offer. and arm’s length transactional customers – will shop around for the best 133 • • . In the UK. For example. and the closeness of the relationship they want. we may find very different types of buyer: relationship seekers – the type of customer becoming a major force in industrial marketing.4 suggests that if we look at the customers in our market in terms of whether they want a long-term relationship with their suppliers. Figure 4. relationship exploiters – customers who will take every advantage they can get from relationship offers for whatever they can get. but not a close one – think of the financial services example above. along with around 450 other suppliers. Strategic account investment takes things closer with a customer we see as of strategic importance – we are likely to have a strategic account management team planning around the customer’s existing and future requirements. then maybe one way is to look at what they want from us in terms of a relationship (both type and degree of involvement). For example. The automotive industry provides many examples of this kind of partnership between car-makers and suppliers of components. This takes the significance of relationship marketing way beyond plastic loyalty cards and call centres. the one way to really irritate important B2B customers is to mis-read the relationship – commonly thinking you are a lot more important to the customer than you really are. and you need to be realistic about where you stand in the customer’s view of the supply base. tyres.

booked on an annual basis. • • 134 . An example might be buyers of staple chemicals for industrial applications. and stop trying to waste my time’. Salespeople were now to be coached in building customer relationships. However. Reality Check: Who says I want a relationship with you? In one company in the advertising business. This is not particularly profound. or words to that effect. They cascaded this idea down through the company until it reached the sales force.Market-Led Strategic Change Type of relationship customer wants with supplier Long-term Close relationship Relationship seekers Closeness wanted by customer in supplier relationship Loyal buyers Distant relationship Arm’s length transactional customers Relationship exploiters Short-term/ transactional Figure 4. The other result was severely irritated customers and a very unhappy sales force. and do not want a close relationship with the supplier. executives may find it is a good way of re-thinking our priorities in investing time and effort in building customer relationships. they were selling directory advertising mainly to small and medium-sized enterprises. and it may be a useful balance to the consultants’ euphoria over relationship marketing as the solution to any problem you care to name. will probably buy on price. The result was top management waxing lyrical about customer relationships.4 Segmenting markets by customer relationship requirements deal. or sit and drink coffee with you. I am too busy. top management bought into the idea of relationship marketing big time (I think someone had foolishly let them go on a management short-course). In reality. I do not want to have lunch with you. at the height of the relationship marketing boom. Let me place the order on the Internet. You are just not that important to me. but customers who were saying: ‘Go away and leave me alone.

to involve the people you need. You get this for free – it would be churlish not to take advantage! The opportunity is to use relationship marketing to help in: putting the marketing process (not the marketing department) back on centrestage in companies that have been looking elsewhere for leadership. it has forced us further apart – consumers have begun to view companies as enemies. For most of us. customer satisfaction (the attitude) is a poor predictor of customer retention (the behaviour). The argument emerging is that value. relationship marketing has not generally brought us closer to customers. but you don’t have to learn anything new. born-again zealots without any underpinning process. touchy-feeley. Apart from which. what all this means is that relationship marketing is potentially very useful – it can give a new life to marketing and market strategy in particular. We will come back to relationship marketing.40 My friend Malcolm McDonald takes a somewhat stronger and more cynical view about relationship marketing as yet another management fad: Remember ‘relationship marketing’? The domain quickly became occupied by happy-clappy.39 Relationship rhetoric versus relationship reality The situation we have reached is that ‘relationship rhetoric’ has reached the end of the road – believing that investing in customer relationship-building has value in its own right. is what predicts and drives loyalty – value is what links satisfaction and retention. However. believing that relationship marketing is the killer approach because it guarantees customer satisfaction and loyalty is where it all goes wrong. We probably should not dismiss relationship marketing as a fad (which it may turn out to be) or ‘putting old wine in new bottles’ (which it probably is) or ‘academic theory’ (which it certainly is) – take the opportunity to use relationship marketing to build customer focus in the company. weepycreepy. as perceived by the customer. not allies. As we saw in Chapter 2. In looking to prevent the ‘premature death’ of relationship marketing. involving every part of the company in concentrating on value for the customer. and they are fighting back. when we look at the network of relationships that have to be managed in developing our strategic 135 • • . and to drive market-led strategic change.Value-based marketing strategy Where does that leave us with relationship marketing? Actually. Susan Fournier and colleagues are forced to concede that as it is currently practised. this is just too good to miss out on. ‘delighting’ or ‘exciting’ all customers is the quickest way to bankruptcy!41 The point is that relationships are important only as a route to learning and delivering superior value in the customer’s terms. and putting the customer higher on the agenda than advertising and marketing programmes. getting the management focus back to the customer.

Indeed this formula – customer value creates shareholder value – is the fundamental principle of capitalism. produce. which is increasingly generated through supply chain leadership. we are looking for better ways to address what really constitutes value for our customers.Market-Led Strategic Change pathway (Chapter 9). . Noel Capon and Mac Hulbert describe as one of their fundamental principles of strategic marketing. management can in turn deliver superior value to shareholders. but at a time when branding strategies and relationship marketing programmes seem to have run out of steam. as a route to enhancing shareholder value. . Value-driven Strategy Where many companies now find themselves is desperately pursuing customer retention and profitability goals. for the moment. and deliver products and services. Today’s marketing challenge is to bridge the widening gap between brand and customer value.43 A yet stronger statement of the importance of value in shaping management thinking about marketing was made by Peter Doyle: The essential idea of marketing is offering customers superior value. and opens up a gap between them and the competition. A corollary of this principle is that although firms develop. . creates a new market space for the pioneer. The new challenge of competing on value is about finding ways of ‘bridging the gap between brand and customer value’: Marketing has focused on creating brand value. . . particularly in the brand-conscious eighties. By delivering superior value to customers. . networks of relationships and individualized customer service. This is an era of value-driven strategy. rather than exploring customer value and translating this into a value proposition through branding . . we can say that alone relationship marketing is not a sufficient answer to evolving market demands. customers perceive value only in the benefits that these products and services provide.45 • • 136 . However.44 There is substantial and growing evidence that real value innovations are what changes the structure of an industry. the principle of customer value: success in targeted market segments is directly related to the firm’s ability to provide perceived value to customers . Creating a unique selling proposition for product brands and exploiting them through predictable stimulusresponse tools falls short of the modern customer’s level of sophistication. Increasingly.42 Similarly.

the lean. new advertising and promotion – but weak at real innovation that abandons the ‘rule-book’. product leadership – offering leading-edge products and services. But. like the ‘no frills’ airlines. conclude the participants. for example. profitable growth . Market leaders are just that – pioneers. loyalty and – ultimately – sustainable. you can enter the rides 137 • • . the more are the paradoxes and surprises you encounter. Too much so-called innovation has been replacing existing products with updates or variations of the same thing.Value-based marketing strategy However. an Economist Intelligence Unit report interviewed executives from leading companies throughout the world about their approaches to innovating for the benefit of their customers and shareholders: ‘What counts. . and different customers buy different value. Don’t get me wrong – sometimes superior customer value is exactly about having low prices. . that lead to increased customer satisfaction. the superb Federal Express courier service.’46 Obviously. . Value-based strategy is not straightforward. retailers like Nordstrom. making it difficult for them ever to catch up. It really is not that simple. Marketing has always been about innovation – new products. This is defined as creating new value propositions . and it does not provide the ‘single answer ’ – any more than brand or relationship strategies did. i. delivered with minimal difficulty or inconvenience. One of the dangers that these writers warn us about is the simpleminded managerial assumption that ‘value’ means cheap. . there is nothing much new in talking about value and marketing. customer intimacy – segmenting and targeting markets precisely so as to tailor offerings very precisely to match exactly the demands of those niches. there is a big difference between value-based strategy in the process of going to marketing and traditional marketing – what Philip Kotler has openly called ‘neanderthal marketing’. The X-Celerator Pass lets you do all the bad things you always wanted to do: you can park in the ‘wrong’ place closer to the rides. lowprice business model of the ‘no frills’ airline is not the only way to create value. then you can have lower prices and dominate the market. They argue that market leaders are those who focus on delivering superior customer value in line with one of three ‘value disciplines’: operational excellence – providing reliable products and services at competitive prices. But. For example. Michael Treacy and Fred Wiersema47 underlined the fact that value does not have a single meaning in any market – customers determine what creates value. is value innovation. finding new ways of creating value offers direct impact on profits: ● Although derided as ‘un-English’ for doing so. the more you consider what creates customer value. the Alton Towers theme park has introduced an ‘X-Celerator Pass’.e. and. For example. such as Johnson & Johnson’s Vistakon disposable contact lenses that caught competitors off guard. new services. which costs £65 for adults (compared to the normal £21 entrance ticket). if you get unit costs down faster than your competitors. for example. But what is frighteningly new is the incredible and paradoxical challenge of building customer value with the new customer. In fact.

complained at paying £50 for ‘hardcore’ films. Perception of value has changed. in Grimsby. Jim Maxmin. and most importantly you get to jump the one hour queues for the rides and attractions. and we all know who decides what ketchup gets bought. they are going to let you know about it. and The Adult Shop. In the USA. offering ‘hardcore’ pornographic videos. Nicholas Griffin. In January 2001. ‘Sex Shop Is Fined Because Its Videos Are “Too Tame” ’. containing old films that could be seen on normal television. Mr Griffin was prosecuted under the Trades Description Act. Reality Check: When we say ‘value’ we mean it . Technology has made the corporation transparent. Sources: ‘Sex-Shop Boss Fined Because His Porn Wasn’t Hard Enough’. Daily Telegraph.Market-Led Strategic Change ● at the exit gate.48 This is such a wonderful idea. . .J. and its annual sales target in 90 days. was fined £5826 by York magistrates’ court. It may sound weird. H. a sex shop owner. Sally Pook.49 Making boring food fun looks like value creation as far as children are concerned. it is almost evil. .’ Said the head of York Trading Standards: ‘They felt embarrassed and reluctant to come forward. • • 138 . in a cone-shaped bottle to encourage children to draw pictures on their food with the ketchup. Chairman of Global Brand Development. this product variant took 6% of the $500 million US market in seven weeks. Customers of Little Amsterdam. Daily Mail. in York.’. but also felt cheated . Heinz announced that its EZ Squirt Ketchup would be available in ‘Blastin’ Green’ as well as the conventional tomato colour. The idea is to make mealtimes more interesting for the foul 6–12 year old. but stuck in a mature market with little growth. . the only certainty is that if your target customers do not think you are providing them with value. Said Mr Griffin: ‘I am amazed that people have the audacity to complain about things like that. The reason was that the pornographic films he sold were not explicit enough. summarizes nicely the types of challenges that an era of value-based strategy and sophisticated customers pose for us all: The real challenge for marketers now is the creation of real value in an environment where e-commerce is rapidly commoditizing products and services. It was shortly followed by a ‘Funky Purple’ version. that turned out to be too tame. In fact. January 19 2001. January 19 2001.

. Maybe they are right. . maybe they have not bothered to find out. These are executives who say things like: ● ● ● . no one would ever bank with a grocery store (big news to Tesco and Sainsbury with their neat front-end financial services. Maybe they would have been right ten years ago. The dangers of assumptions about value It is all too easy to assume that we know what drives value (and that whatever does remains the same year-in year-out). no one can replace a doctor (actually there are more alternative medical practitioners in the UK than General Practitioners – you may have to pay them large sums of money. I am less enthusiastic about those who assume they know. . as they fight to take back control of the value chain and actually make some money). We know what our customers want • • • Perhaps the most frightening thing you can hear managers in a company say is that they already know what their customers want – they know what creates customer value. Or. we still have some issues. It is increasingly clear that customers define what creates value and that different customers buy different value at different times. I admire managers who genuinely understand what is driving important things like value in their markets. . but things have changed. which demote the suppliers of the products to anonymous middlemen). but they make you better and see you when it is convenient for you not them – now let’s talk about what drives value). no one would ever buy a car off the Internet (big news to Ford and GM who are making this the central part of 21st century car distribution.51 To start. . . . There are huge problems in the fact that managers always assume that they know what drives value for their customers (even when they have no intention of providing that value). consider some of the commonest managerial preconceptions about what is most important to customer value. 139 • • .Value-based marketing strategy How do you embrace this marketplace when your customers know more than you do? How do you embrace loyalty when your customers are just one click away from leaving?50 The search for customer value But even when we all agree that customer value is what going to market is all about. because they usually get it wrong. . and the fact that customer value is not a simple or stable commodity.

4.e. Reality Check: Orchestral efficiency A management consultant’s report on an orchestra’s performance of Schubert’s Symphony No. 2. What notes this instrument is called upon to play could be shared out equitably amongst the other instruments. as were the second violins. Make it cheaper • • • This. suitably amplified. We regard the long oboe passages to be extremely wasteful. Much unnecessary labour is involved in the number of demisemiquavers in this work. Three violins in each section. he might well have finished his work. would seem to us to be adequate. opens the way for the corporate beancounters (accountants) to leap into the fray and claim smugly that they were right all along – just get costs down. Examples range from IKEA in furniture to no-frills hotels to budget airlines – for some groups of customers. In fact. and you are bound to offer the best customer value (i. 8 in B Minor (the ‘Unfinished Symphony’): ‘After attending a rehearsal of this work.. We could find no productivity value in string passages being repeated by the horns. of course.’ • • 140 . smile for the customers. that kind of thing. Also. we make the following observations and recommendations: 1. had the composer been aware of modern costeffective procedures. wear and tear on the instruments and hall rental fees. 3. lower prices are the way to drive value up. The simplification would also permit more use of trainee and less-skilled players with only marginal loss of precision.Market-Led Strategic Change Bung in some customer service • • • Some executives try to trivialize the whole issue of customer value by suggesting that just enhancing customer service will solve all the problems – answer the phones quicker. Conclusion: if the above recommendations are implemented the piece under consideration could be played in less than half an hour with concomitant savings in overtime. be the cheapest supplier around). some of the most successful operations around do the reverse – they reduce service expenditures to offer lower prices and a different customer experience. We note that the twelve first violins were playing identical notes. lighting and heating. get prices down. We suggest that many of these could be rounded up to the nearest semiquaver thus saving practice time.

Just about every business person travelling gets stuck with carrying around a laptop – it 141 • • . It is a perspective that is increasingly important in dealing with major customers who demand proof of added-value from suppliers. then you set yourself up to deliver it and everything should be fine? Well. 87).Value-based marketing strategy The trouble with this position is that in many markets being in the bargain-basement is not a good place to be. one of the greatest disservices done to companies by the otherwise impressive initiatives in quality management and supply chain efficiency is they have sold the message that value is measurable and rational. Or. This is a reasonable engineering perspective. This is not trivial. a constant search for value-creating opportunities. unchanging issue. consider some of the luxury brands we have discussed – much of the market position of products like Rolex. Alternatively. and to assume that the drivers of value stay the same is just a little optimistic given our current level of performance in achieving value superiority in most companies and markets (which generally is not great).52 We will discuss this further when we look at value propositions (Chapter 8). In fact. and they seem to do rather well. But to assume that we know all the things that drive customer value. and a high level of responsiveness to align company resources with new opportunities. Value migration Yet worse. who truly believes that customer value is a simple quantitative computation. perhaps take customer value seriously? • • • Taking customer value seriously implies challenging stereotypes and assumptions about what matters to customers. Value as rational cost/benefit analysis One barrier frequently faced is ‘rational thinker ’ in the company. It requires us to think strategically about our markets and customers and often to develop new ways of doing business. not if what matters most to some or all customers changes – either because their priorities change or because a competitor comes up with something that taps into a neglected source of customer value. You lose out to the next competitor who can lower costs and reduce prices faster than you – look back to the earlier comments on coping with competitors from countries with lower cost structures (p. It is often neither of those things. among the more deadly assumptions is the one that treats customer value as a stable. deducting product cost from benefits received. Once you have found out what drives value. dismissing all that which cannot be measured or which appears ‘irrational’. Ferrari is defined by high prices. to assume only the things that we can measure matter. Consider laptop computers and business travellers. Louis Vuitton.

Market-Led Strategic Change shouldn’t be so in this day and age but it is (I personally suspect a secret alliance between computer manufacturers and chiropractors. Sony who made the breakthrough with the Vaio range. multi-dimensional. but its laptop was small and cute. and markets have fragmented and become granular. If you are even partly with me at this stage. the first sub-three pound laptops were not from IBM.53 Indeed. It is the customer value that really matters – not the sales management. Where Now? This brings us to the end of the foundation-building part of the book. But then. the demands of sophisticated customers are escalating. from outside the PC sector. Marketing has become mainly an issue of strategy focused on customer value. Just paying lip-service to customer value is not good enough. everyone had the big chip. It is probably the one that matters most to us. of course. The point is that only a few years ago. The point is that things change – value ‘migrates’ from one feature or attribute to another. or customer relationships can only be judged in terms of whether they deliver superior customer value. don’t we?). and changed the rules of the game. the key buying factors were things like: how much computing power does it have (to run the everlarger software packages). or we weren’t going to buy it. Hewlett–Packard or Dell (whose smallest machines appeared to be about the weight of a small automobile). Go-to-market strategies based on managing transactions (sales). and you can fix them’). • • 142 . unstable and idiosyncratic. the branding or CRM. brands. Customer satisfaction remains elusive. Hopefully. It was. along the lines of ‘we’ll give them bad backs. Sony did not have much of a reputation in computing or much of a service network. how long does the battery last (to equal the length of the flight). how bright is the screen (because we all need to run our PowerPoints in direct sunshine. Interestingly. the long-lasting battery and the bright screen. Then we wanted the laptop to be as thin as a magazine and to weigh less than three pounds. It is a complex construct. Customer value is complex. we have seen enough to agree that customer markets – consumer and B2B – are changing dramatically and permanently. value migration describes the bigger issue of how value flows away from outmoded business designs towards others that are better equipped to create utility for customers and profit for the company. Traditional marketing approaches – the way most of our marketing executives have been trained and the way we develop marketing plans and actions in companies – look increasingly inadequate to cope with customer and market change. the next part of the book teases out the most important issues in developing a value-based marketing strategy (and testing the robustness of strategies already in place). Identifying value shifts in our markets and developing responses that achieve and sustain value growth is a high priority which must be addressed.

11. Mitchell. Richard. ‘Breakaway Brands’. ‘The True Price of Penalties’. FTMagazine. p. 2003. ‘Cool Brands: Britain’s Coolest Brands 2006’. 27. Danuta. Roberts. 13. Stern. 14. p. Roberts. David. 2000. Financial Times. Stefan. 2000. Steenkamp. 12. quoted in: Harford. New York: HarperCollins. Fall 1999. 15. McCarthy. February 7 2005. MA: Harvard Business School Press. Dan. November 12 2007. New York: Kaplan Business Books. 11. ‘Best Global Brands’. Kevin. Financial Times. 4. ‘Quality Becomes Commodity in Brand Battle’. p. Balfour. Coercion. Sunday Times. March 14 2007. 16. ‘Chocolate Maker Is the Power Behind the Wrappers’. 2007. New York: Little Brown. Rushkoff. Aaker. pp. Lovemarks: The Future Beyond Brands. Kiley. 16.. Marketing Business. Measuring and Managing Brand Equity. Tomkins. 11–12. Kumar. 54–66. ‘Brands Are the New Religion. Douglas. BusinessWeek. 12. BusinessWeek. New York: Free Press.Value-based marketing strategy References and End-notes 1. October 1 2007. 9. 8. 18. November 8 2004. pp. Ellen. ‘Flunking Brand Geography’. McConnell. 2000. Boston. 3. Strategic Brand Management: Building. Elizabeth. August 7 2006. Fall 1997. Dexter. Financial Times. 20. 5. ‘Fakes!’. Simonian. 14. 21. Fram. April 5/6 2008. p. and Erich Joachimstaler. The End of Marketing As We Know It. Woyke. 49–56. 10. June 18 2007. 44–51. Powerhouse Cultural Entertainment Books. p. Marketing Management. Kevin Lane. 143 • • . 17. pp. 44–50. BusinessWeek. March 1 2001. Alan. 6. ‘The Customer Penalty Box’. Sergio. 2. 19. Financial Times. 2007. Fortune. Kean. Frederick. BusinessWeek. Tim. Newling. September 18 2006. 2006. p. Upper Saddle River. Croxson. 7. Private Label Strategy: How to Meet the Store Brand Challenge. March 1997. Marketing Management. 60–63. NJ: Pearson. Zyman. 22. ‘Evolution’. McGirt. Daily Mail. ‘How to Stop Piracy: Catch the Consumers Young’. Nirmalya and Jan-Benedict E. Karen. Says Advertising Agency’. Keller. p. 3. ‘China’s Power Brands’. July 19 2007. pp. and Michael S. Eugene H. Eugene H. ‘Piracy’s Hidden Treasures’. David A. pp. Creating Customer Evangelists: Profit from Turning Loyal Customers Into a Volunteer Sales Force. Brand Leadership. Haig. M. Fram. ‘Could Choo Tell My Bag’s a Lookalike?’. Ben and Jackie Huba. September 26 2006. pp.

2004. July/August 1997. 29. ‘Customers’ Anger Could Damage Egg’. Valerie A. Day. 6 2006. Philip. 24. Boston. November 2000. 4. ‘Branding: Five New Lessons’. The Marketing Review. 28. 32. 31. p. British Journal of Management. Christian. Shipp. Jagdish. Piercy. John. Don and Martha Rogers. BusinessWeek. Lane. Frederick. 1996. 2000. 23. July/August 1997. 1–17. ‘New Organizational Forms for Competing in Highly Dynamic Environments: The Network Paradigm’. ‘Gentlemen. in Understanding CRM. October 1992. Nigel F. Pfeffer. Piercy and Shannon H. Mitchell. Sunday Times. Ody. ‘Good Payers Face Being Axed by Credit Card Firms’. 22(6). Lemon. ‘Strategic Customer Management: Designing a Profitable Future for Sales Organization’. 659–668. Penelope. 1995. Fortune. Roland T. London: Financial Times. p. pp. David W. pp. George. 27. 4(4). Peter. Financial Times. Enterprise One to One: Tools for Building Unbreakable Customer Relationships in the Interactive Age.. Gronroos. Chichester: John Wiley. February 3 2008. Doyle. Alex. ‘Evolution’. Peppers. Journal of Marketing. 26–28. Zeithaml and Katherine N.. pp. pp. ‘Focusing On Customers’. London: Financial Times. 2000. 33. Jane. 39. ‘The Changing Role of Marketing in the Corporation’. Piatkus. ‘Tying In an Asset’. International Marketing Review. Croft. Proceedings: Society for Marketing Advances Conference. MA: Harvard Business School Press. pp. 110–118. 25. Orlando. quoted in Alan Mitchell. September 2004. 32(2). Jeffrey. February 15 2008. Nigel F. 397–418. What Were They Thinking?. Vol. Taylor. ‘Evolution’. 34. 39. in Understanding CRM. pp. ‘The Strategic Sales Organization’. 3–28. pp. ‘From Marketing Mix to Relationship Marketing’. 1-7. Sheth and Atul Parvatiyar. 203–218. p. 35. 59–63. 38. Byrnes. Start Your Turnaround’. Marketing Business. ‘Customer-Centered Brand Management’. ‘New Marketing for the New Economy’. pp. Kotler. 26. • • 144 . 1997. Value-Based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value. Alan. pp. January 21 2008. p. Cravens. ‘The Evolution of Relationship Marketing’. James and Robert Watts. 30. 36. February 14 2005. Ashton. 2000. Deighton. Harvard Business Review. 37. N. 4–20. 7(3).. Webster. Rust. 1994. European Management Journal. FL. Nikala and Nigel Piercy. Nanette. 2007. Marketing Business. Management Decision.Market-Led Strategic Change 22.

49. Value-Based Marketing – Marketing Strategies for Corporate Growth and Shareholder Value. 51. Chichester: John Wiley. Edgecliffe-Johnson. Capon. Harvard Business Review. 47. 2000. Marketing Business. pp. McDonald. 53. Treacy. 52. 1996. 43–51. Andrew. Malcolm. Stan and Simon Knox. Daily Telegraph. June 1999. ‘Step Aside. Peter. Susan Dobscha and David Glen Mick. Nirmalya Kumar and James A. W.. New Jersey: Prentice Hall. Boston. New York: Free Press. Marketing Management in the 21st Century. ‘Defining Strategy in a Digital Age’. Value Merchants: Demonstrating and Documenting Superior Value in Business Markets. Marketing Business. Boston. Kim. January/February 1998. 2007. London: HarperCollins. MA: Harvard Business School Press. Financial Times. Wall Street Journal. ‘Preventing the Premature Death of Relationship Marketing’. Managing Customer Value: Creating Quality And Service That Customers Can See. MA: Harvard Business School Press. August 18 2000. 48. Slywotsky. ‘A Rebuttal: “Loyalty Really Isn’t That Simple”’. ‘Children Learn to Love Their Greens’. December 10 2000. 46. Fournier. The Discipline of Market Leaders. August 11 1998. ‘Wrong Sort of Innovation’. Treacy and Wiersema. August 14 2000. 50. Quoted in Thatcher. 45. ‘Pioneers Strike It Rich’. Mandy. March 6 1997. Michael and Fred Wiersema. 1998. Anderson. 1995. 41. Noel and James Mac Hulbert. Doyle. London: Pitman.. Gale. ‘On the Right Track’. Narus. 1994. I’ve Got a Ticket to Ride’. Maklan. p. 40. Competing on Value: Bridging the Gap Between Brand and Value.. 44. 39. pp. 42. Maurice. Marketing News. March 2001. William D. Financial Times. James C. 145 • • . ‘How to Leapfrog the Competition’. April 2000. Laura. Weaver. Bradley T.Value-based marketing strategy 39. Neal.. Adrian J. Chan and Renee Mauborgne. p. 13. 2001. Discipline of Market Leaders. 43. Marketing Business. Value Migration: Strategies to Pre-empt the Markets of Tomorrow. 28–31. Mazur. Susan.

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which help us think about the important things in business.4 billion compared with $11. I suggest that the questions you should ask yourself are quite simple: (1) what is going on here. But Definitely Not Goodbye In 2006.P • A • R • T • I End-of-part cases One useful exercise is to think through some of the issues raised in the preceding Part of the book. in the context of some stories about what is happening for real in different companies and sectors. and (3) what lessons can we acquire from these events that we can take away and apply elsewhere? Incidentally.3 billion in company purchases from outside India. Case 1: Tata. Bankers in Mumbai joke about ‘reverse colonization’. because they are intended to be interesting business stories in their own right. (2) what is likely to happen next. Importantly. What follows is more like ‘stories’ than traditional academic ‘case studies’. Indian acquisitions of overseas companies exceeded those of foreign companies buying into the country – outward-bound deals were worth $22. if you are just reading the book for fun rather than academic study – please don’t use this as an excuse to skip the cases. for the first time. Rather than posing a series of questions about each case (which would tell you what I think the issues are). India is experiencing the impact of a new breed of companies which are the product of a .

24 0.8 billion profits. and decided to ‘think big’ and steer a course for Tata to become a global heavyweight.10 0.47 0. By 2008 Tata had 330.22 0.30 1. while India’s economy grows in spite of it. the group is controlled by three trusts. The 2000s have seen growing recognition of the role of India’s Tata Group as the undisputed leader of the country’s push overseas. The group’s stand-alone revenue is around $29 billion. That strategy dates to the early 2000s when Tata’s chairman commissioned a sweeping strategy review for the group. with $2.41 0. Where did Tata suddenly come from? Tata did not ‘suddenly’ come from anywhere. He was struck by the audacity of ambitious Chinese projects.000 employees worldwide. with 26% of them outside India.17 0.Market-Led Strategic Change decade of restructuring since 1991. • • 148 .17 0. into which companies were able to ‘grow’ and develop.12 *Tata acquired a 30% stake in Bumi Resources In 2008 Tata acquired Britain’s Land Rover and Jaguar from Ford.13 0. Founded by entrepreneur Jamsetji Tata in the mid-19th century. The group is 140 years old. although some analysts think that China’s economy grows because of its government. and is a strong force in the domestic market in India. Tata is India’s most prolific purchaser of international companies. including a study to compare India with China. when India began dismantling its socialist economic system and allowing greater foreign competition. where it has 98 operating companies and 289.000 staff – more than any other private sector company in India. The group’s biggest international takeovers between 2004 and 2007 were: Date announced Jan 2007 March 2007 Feb 2005 Feb 2000 July 2005 June 2006 Nov 2006 April 2006 Nov 2004 Dec 2005 Target Corus Bumi Resources* NatSteel Asia Tetley Tea Teleglobe International Eight O’Clock Coffee Ritz–Carlton Boston Millennium Steel Tyco Global Network Brunner Mond Value ($ Billions) 11.

0bn) Tata Steel ($6.6bn) Tata Group Tata Tea ($910M) Tata Consultancy Services ($4.1 The Tata empire* 149 • • . The major components of the Tata empire are shown in Figure C1.2bn) Indian Hotels * Figures are 2007 sales in US dollars Figure C1. He personally chairs key operating units like Tata Steel and Tata Motors. health and agricultural development projects. the group’s beverage division. control the Tata brand.2bn) VSNL ($2. a Cornell-trained architect. Bombay House exerts influence through a Group Corporate Office – nine senior executives sit on the boards of Tata companies and act as ‘stewards’. These two – chaired by Ratan Tata – provide the strategic vision. it is a lot lighter in structure than a Western equivalent – there is no central strategy or consolidated financial statements. Mr Tata is 70 but remains the dynamic presence and the driving force behind the company’s global ambitions.End-of-part cases and is headed by a family member – Ratan Tata. and lend a hand with big deals. Tata has ambitions to reinvent solar energy to bring affordable power to villages that are off the power grid. almost all parts of the group have made substantial overseas acquisitions: TCS has Tata Motors ($7. and Tata Motors. Since then. Tata’s international expansion began in earnest in 2000. What is Tata about? Three businesses account for most of Tata’s sales and profits (around 75%): Tata Steel. Tata Consultancy Services (TCS) in the IT market. Although Tata is a conglomerate. bought Britain’s Tetley Tea – the company that invented the tea bag – for £271 million. when Tata Tea. The group is bound together by small staffs at the holding companies Tata Sons and Tata Industries.1. the group has built a long history of enlightened projects to alleviate poverty and hunger by investing in education. mentoring managers and promoting corporate social responsibility. Partly as a result of its trust-based governance.

Tata Steel has bought mills in Singapore. Tata’s acquisition of Tyco International’s undersea telecom cables for $130 million makes it the world’s biggest carrier of international phone calls. environmentalists claim that the Nano will be known as ‘the car that ate India’.7 billion in additional revenue. and Tata Motors purchased Daewoo’s truck unit in Korea. Many purchases gain Tata strategic position in global markets.000 rupees or about $2500). Thailand and Vietnam. New York and other countries – in 2005 acquiring the Ritz-Carlton in Boston. the collective rush by • • 150 . complementing its existing markets. has bought hotels in Sydney. in defiance of market opinion. operating under the brand name Taj.000 trucks annually. For example. critical of the vehicle’s emissions and fuel use. then mostly a truck maker. The group’s Indian Hotels. and steel mills in Singapore. Corus will add £9. into the passenger car business nine years ago. Once fully consolidated. It is now India’s number two carmaker.000 cars and 250. Around two-thirds of Tata acquisitions have been in the UK. secures access to US and European auto-makers. with steel mills added in Pennsyvania and Ohio. and the Tata Motors purchase of the Jaguar and Land Rover businesses from Ford for around $2 billion (with Ford contributing around £300 million to Jaguar and Land Rover’s pension funds). A new venture with Fiat will produce 150. This deal makes Tata the world’s fifth largest steel-maker. Once Jaguar and Land Rover are consolidated. Soda-ash is used in making glass and in washing powder. among other things. though often not with a high profile. Tata has purchased stakes in Indonesia’s biggest coal mines. the Tata group will earn more revenue from its UK-based companies than from its India-based units. and once Jaguar and Land Rover are consolidated. it is likely that the UK businesses will generate more of Tata’s group revenue than its India-based units.7 billion by Tata Steel. Tata Motors is building new plant in India. Tata Tea has made purchases in the USA and South Africa. the Ace. Nonetheless. In 2008. the 2008 purchase of soda-ash maker General Chemical Industrial Products of the USA for $1. Latin America and the Far East. Thailand and Vietnam and is expanding output in India. sharply boosting output of its small truck. but with low profit margins and high development costs the project is likely to take more than five years to get into profit. Among the highest profile deals were the takeover of rival AngloDutch steel-maker Corus in 2007 for £6. These last acquisitions tilt the balance between Tata’s domestic and international sales to the global market. and boosts its steel-making capacity five-fold. The Nano was created because Mr Tata promised India a ‘one-lakh car ’. greatly expands Tata’s range of finished products. Its purchase of British company Icat International makes Tata a major supplier of outsourced industrial design for US car and aerospace companies.01 billion makes Tata Chemicals one of the world’s largest soda-ash producers and gives access to markets in North America. Meanwhile.Market-Led Strategic Change bought IT businesses from Chile to the UK. Mr Tata took Tata Motors. Tata Motors also unveiled the Nano car – the world’s cheapest passenger car priced at one lakh (100.

but currently sells cars in only a few European countries. including vehicle and engine production and a shared dealer network. to roll out a WiMax 151 • • . may reveal Tata’s strategy with these brands. to reduce production and supply chain costs. The 2004 acquisition of Tyco’s undersea cables has helped turn VSNL – a formerly governmentowned operator – into one of the world’s biggest international voice and data providers. with questions raised about Tata’s ability to manage upmarket brands.End-of-part cases auto-makers into low-cost cars reflects the fact that although there are 900 million cars on the world’s roads. finance and other industries. two-thirds of the global population does not have one. It is planning more than 100 budget hotels under the name Ginger. In 2008 Tata unveiled an agreement with Sir Richard Branson to launch Virgin Mobile in India to challenge its larger rivals for part of what is the fastest-growing mobile phone market in the world. The brand will target young Indians under a brand franchise agreement with Tata Teleservices. Israel and the USA. Many see the Nano as one of Tata’s biggest gambles. Tata collaborates extensively with Fiat in India. while IBM gets only 35% of its business there. but also owns or manages elite properties like New York’s Pierre. Tata Tea acquired Tetley Tea in 2000. BusinessWeek suggests TCS is now more American than IBM – TCS collects 51% of its revenues in the USA. In addition. retail. as well as 30% of bottled water brand Glacéau in 2006. This strategy includes a large number of partnerships with defence groups in Europe. Controversy also surrounds the deal to buy Jaguar and Land Rover from Ford. although the deal with Ford may pose problems for such collaborations. in return for access to Jaguar’s advanced technology and Land Rover’s four-wheel drive systems. The Nano represents a new business model that includes distributing the vehicle in kit form for assembly by the distributor. giving TCS explosive growth in the past five years. automotive and software products. and further acquisitions are expected. and that is the real target market for the future. the new subsidiaries show a strategy of focusing directly on defence. and San Francisco’s Camden Place. Tata Consultancy Services has been riding the software and technology services outsourcing boom. The formation of Tata Advanced Systems and Tata Industrial Services marks Tata’s aggressive expansion in the newly liberalized Indian defence sector. Overtures from Fiat to expand its relationship with Tata into Europe. While Tata has indirectly supplied the defence sector through its steel. It is now developing its own software for transportation. Boston’s Ritz-Carlton. Interestingly. The deal with Ford promises to transform Tata Motors from an emerging markets specialist into a global producer with the full range of vehicles from trucks to small and luxury passenger vehicles. The Indian Hotels unit is the proprietor of Taj luxury hotels. and herbal tea-maker Good Earth. In 2007 Glacéau was sold to Coca-Cola at a large profit. Tata Communications is looking at spending $600 million over the next five years.

Financial services are a growing focus for Tata. to boost the currently tiny number of broadband users in the country. public officials and even Korea’s Prime Minister.5 billion in 1989 and Land Rover for $2. The purchase of Land Rover and Ford is an example of how Tata manages its acquisitions.Market-Led Strategic Change wireless network in India. spoiler rumours that Tata aimed to sell the brands on as soon as a deal with Ford was reached. in its acquisition of Daewoo’s commercial trucks business in Korea in 2004. and to raise cash to help fund Ford’s turnaround (the company has lost more than $15 billion in the last two years). There is also the opportunity to build the brands’ business in Asian auto markets in which Tata is highly experienced. For example. with sales in the highmargin markets of the West. In addition. Tata Motors concluded the $2 billion purchase of Land Rover and Jaguar from Ford. Mergers are more akin to strategic partnership than to aggressive venture capitalism. To date. Tata had to win an auction: Tata executives were enrolled in Korean language classes. Tata executives from India working with Daewoo were required to shave their moustaches because Koreans prefer a ‘clean’ look. for example. and in time to Corus’ markets in Europe. With the auction won. Nonetheless. Ford acquired Jaguar for $2. Tata is planning to launch a fullservice bank as soon as restrictions preventing industrial groups from owning stakes in banks are relaxed. Tata formed a joint board of directors to develop a strategy to expand Daewoo’s product line and boost exports. Tata has found a way to acquire companies across the globe yet to still tread gently. This is the highest profile takeover of an established European car-maker by an emerging Asian manufacturer so far. which it can ship to operations in south-east Asia. Jaguar has seen huge sales declines in Ford’s core US market. and Tata began making presentations to employees. Ford is selling the brands as part of its strategy to refocus on its core Ford and Lincoln brands. has access to cheap supplies of government-allocated iron ore. While Land Rover has performed well in recent years. • • 152 .75 billion in 2000. Tata’s plan was to retain the brands’ British character and leave their management largely intact. Tata has the potential to add value in the supply chain by cooperating on engineering and development. Tata’s governance and history has encouraged a ‘hands-off ’ approach to its acquisitions. the local mayor. Buying Land Rover and Jaguar from Ford In 2008. and becoming a universal bank would consolidate this thrust. In all its deals Tata has signalled its respect for workers. company brochures were translated into Korean. Tata Steel. which can be done at lower cost in India. Contrary to damaging. and up to 2008 it had not laid off any workers or closed any facilities in its overseas acquisitions (although it has had layoffs at home). The group overseas strategy has been generally to combine low-cost production in emerging economies like India. and has been unprofitable for years.

In the West the expectation is that an acquired business will take on its owners’ operating characteristics. in March 2008. stamping and other components. In addition. Tata faces an uphill struggle to turn Jaguar and Land Rover into luxury manufacturers that can compete with BMW. Tata executives spent two days in talks with UK union leaders to assure them that there were no plans to drastically change the business structure of the two businesses when they were bought. It is also true that Tata faces growing challenges in its domestic market. the terms of the sales preclude passing Ford technology to third parties. cheap vehicles. Analysts question the wisdom of getting involved with the loss-making Jaguar business. and Ford becomes the main supplier to the new owner. for example. Porsche and Audi. providing engines. while acquiring luxury brands like Jaguar is attractive for Tata compared to developing its own. there was to be no attempt to ‘Indianize’ the companies. Tata pledged to preserve the historic identities of the Jaguar and Land Rover brands. and still has margins way below those at Tata’s own steel operations. suggesting that bad roads and high fuel prices would keep many emerging market travellers on motor-cycles for many years to come. He states that Tata does not consider itself capable of micro-managing acquired businesses from India. and costs are rising due to salary inflation and a stronger Rupee. the Nano – the ‘one lakh car ’ – has attracted a mixed press. even to the extent that this approach is sometimes misunderstood as neglect.End-of-part cases In preparation for the takeover. which constrains Tata’s freedom to do deals with partners like Fiat. The Wall Street Journal comments that Tata is making multi-billion dollar ‘bets’ in its quest to become one of the first globally-recognized Indian brands – with the fear that some of the wagers will fail. 153 • • . The fierce bidding war for Corus. Honda’s chief executive disputed the low-cost car business model. As part of the deal. incidentally. The stress was on Tata’s long-term investment culture and desire to keep the structure of acquired companies mostly intact. However. where foreign companies are entering the automotive and hotel sectors. the lucrative China market may be an illusion as car-buyers in China are losing their enthusiasm for small. However. in favour of a more patient investment philosophy. Mr Tata explains that moulding an acquired company to look and function more like its parent is a ‘more Anglo-Saxon’ concept. which was struggling to avoid heavy losses. Recently. the UK factories are to remain open until 2011. Mr Tata says his approach is to seek out companies with sound business plans and good corporate ethics. Mercedes. may have led Tata to pay too much for the business – Corus is a company long characterized by very poor management. In particular. and then to avoid the destructive pressure for short-term profits. What is the downside and the dilemmas for Tata? To some tastes Tata is seen as taking big risks – in which Mr Tata actively encourages his executives.

When Orient-Express. More recently. although Jaguar lost about $550 million. Renault and Bajaj (the Indian motorcycle-maker) are discussing a plan to make a car in India that would sell for around $3000. earlier deals for Ritz-Carlton and Four Seasons properties in the USA did not attract the same response. trades union Unite backed the Tata purchase in favour of rival bids from Mahindra & Mahindra and buy-out group One Equity Partners. although Mr Tata simply described the Orient-Express response as ‘unfortunate’. The Tata Nano Courtesy of Tata Motors Ltd In addition.2 billion in 2007. ‘quasi-racism’ and ‘arrogance’ by Indian politicians and newspapers. this concern was not shared by the Jaguar company’s management. Toyota. who were reported to be ‘completely relaxed’ about the deal. • • 154 . General Motors and Suzuki all produce low-priced vehicles in India and Hyundai is entering the market. and optimistic that Tata ownership would be beneficial. the chairman of the Jaguar Business Operations Council in the USA went public with the claim that the US public was not ‘ready for ownership out of India of a luxury car brand such as Jaguar ’. Interestingly. India with its large pool of first-time car-buyers and cheap engineering and manufacturing skills is rapidly becoming the biggest world centre for low-cost car production. there has been vocal resistance to the spread of Tata ownership in some markets. Similarly.Market-Led Strategic Change In addition. However. which would be close to the price of the Nano models above the base model. on the grounds that a link with Tata would tarnish its premium brand image – they stood accused of ‘discrimination’. rejected a tie-up with the Taj hotel chain. The two brands are estimated to have made a joint profit of $1. a New York-listed company.

24. February 1–3 2008. but this soon changed. and the Apple-led iTunes and iPod (and now iPhone) innovation to pioneer paid music downloads. ‘India’s Global Reach’. p. ‘Fiat Boss Hopes Tata Will Share Jaguar’s Secrets’. pp. p. p. Joe Leahy and Any Yee. Ratan Tata is 70 years old and may be the last family member to run the business. Wall Street Journal. In particular. Early downloads were poor quality and difficult to undertake. 5. January 10 2008. it cannot be all that difficult to combine basic and luxury products under single ownership. it is possible that the rate of expansion may slow. January 25 2008. ‘The Burning Ambition of the Tata Group’. ‘Tata Tells Union It Won’t Force Change’. p. p. Case 2: Strangling the Fat Lady at EMI? The music industry The recorded music business has been under siege since high-quality digital downloading of music from the Web became viable for consumers. Sunday Times. Financial Times. February 25 2008. The group is putting a greater emphasis on moving up the value chain through stronger branding. Clay Chandler. Importantly. emulating the successes of Japanese and Korean companies in the past. By 2008 the music industry was looking at revenues from all recorded music shrinking another 10% against the previous year – following 155 • • . Wall Street Journal. 1. Executives see building global brands as a natural evolution. ‘Tata Dismisses Concerns Over Luxury Marques’. There are also some concerns that Tata top management may be spreading itself too thin over too many diverse ventures. ‘Tata: Master of the Gentle Approach’. and the lack of experience in managing luxury brands in the Tata group. pp. Financial Times Special Report: India and Globalization. March 5 2008. ‘India’s Tata Extends Global Reach’.End-of-part cases However. 29. 63–68. 6. Eric Bellman and Stephen Power. there is nothing to stop Tata ‘ring-fencing’ its luxury brands – in the way the Toyota did with Lexus – rather than integrating them with other businesses. Manjeet Kripalani. Fortune. Jo Johnson. October 29 2007. Apple has used the clout of the iPod to impose low and uniform prices on the record labels. Sources: Ray Hutton. Jackie Range. BusinessWeek. Joe Leahy. December 27 2007. Mr Tata’s view is that if Unilever can manage a portfolio running from cheap soap to luxury cosmetics. Mike Spector and Edward Taylor. The biggest disruptions have been the ability of consumers to access file-sharing websites and to download music without payment (pirated copies of published music). 64–66. He has no evident successor from the Tata family and succession to the top job remains an uncertainty for the businesses’ future. Of course. others worry about the compatibility of managing a portfolio with the world’s cheapest car and some of the most expensive under the same ownership. February 3 2008. ‘Tata Expansion Adds Risk’. 3-2. p. Wall Street Journal. However.

9 m Digital sales — 5. The dominant factor causing the music industry problems remains online piracy – illegal downloads outnumber the legal by 20 to one. Legal downloading for free • • • In 2008 the latest innovation hoped to rescue the struggling recorded music industry was the launch of a legal downloading service called Qtrax. Several strategic themes are apparent: 1. With free listening supported by advertising and paid downloads (and merchandise and concert tickets) the goal is to link MySpace’s huge social networking membership to the catalogues of the largest music companies. Legal downloading for money • • • The growth of digital music sales has slowed dramatically.1 billion. and to pursue consumers in legal actions for downloading pirated copies of music – but the real search is for a sustainable business model for the new music industry.5 m 21.1 billion in 2005 to $15 billion in 2007. they rose only 38% to $2. The music industry initially tried to fight the disruptions it faced – enormous efforts to close file-sharing websites like Napster. the growth of digital downloads slowed in 2007. of singles sold) 2003 2004 2005 2006 30.8 m 26. In addition. Nonetheless. The Qtrax model is that it is an advertising-supported site from • • 156 . By contrast. The biggest impact here has been Apple’s iTunes site. analysts suggested that digital sales can only be enhanced if record labels and telecommunication firms work together to make it easier to listen to music on mobile phones. Importantly. According to BPI figures. the world has moved on. 2. in 2008 MySpace joined with three of the largest record companies to launch its own music service – MySpace Music.0 m The value of physical sales of CDs has fallen from $21.4 m 13. sales trends have developed as below: Physical sales (No. By 2008 music sales in all forms were at a five-year low.1 billion. and almost doubled in 2006 to $2. The venture is a major challenge to the dominance of iTunes.9 billion in 2007. 2008 was the first year when songwriters and publishers earned more from broadcasts and legal downloads than from sales of CDs.Market-Led Strategic Change declines throughout most of the 2000s. at the same time that CD sales have declined.5 m 53.9 m 25. and failed to compensate for crashing CD sales. In addition. while digital sales tripled in 2005 to $1. While the music labels have been trying to protect the CDs from which 90% of their revenues used to come.

global music companies and dozens of small local labels to provide free. In many ways the issue is bands as brands. In 2007. classical and jazz composers are using the Internet to sell their creations. avant-garde. Disintermediation • • • One part of the Web revolution has been the move by some artists to publish and sell their work directly on the Web as downloads. and has a much larger online catalogue than Apple’s iTunes. but reflects a reaction to iPhone’s invasion of the mobile phone business. offer ‘punter equity’. direct to fans. This undermines the growing position of mobile operators like Orange and Vodafone as providers of music services to their subscribers. Verizon and Sprint have all gone in this direction. like Sellaband and Slicethepie. 5. Unlike previous similar attempts like Spiral Frog. Qtrax has done licensing deals with all leading music labels and many independents. the publisher and the distributor and market the music. a Japanese pop group called GreeeeN – an anonymous quartet of dental students – recorded the first song to accumulate one million downloads to mobile phones. bringing its links to Apple’s iTunes with it. letting band followers invest in their favourite artists. The attraction is to eliminate the label.com for the Chinese online search market. in return for viewing advertisements. Some mobile phone companies have invested heavily in their own music services – in the USA AT&T (with Napster). Diesel and Coca-Cola are looking to partner with bands to use the music as a communications tool – in 2008 Groove Armada left Sony BMG to sign with drinks giant Bacardi. The money is in other aspects of the product. 4. which was the fastest-selling UK debut single of all time. Established artists like Peter Gabriel (a founder member of Genesis) have raised money to record and distribute their own albums. Lifestyle brands like Agent Provocateur. after a MySpace campaign. for example to fund recording an album. licensed music downloads. 157 • • . Music has no value • • • Some conclude that recorded music no longer has a monetary value – it is a free commodity. A joint venture between Google and a Chinese online music company. The most famous example is the Arctic Monkeys’ ‘I Bet You Look Good on the Dancefloor ’. Reintermediation • • • Mobile phone makers Nokia and rival Sony–Ericsson have pioneered music downloading services for users of their phones – free in Nokia’s case. there are more downloads to mobile phones than to computers.End-of-part cases which music fans can download songs free of charge. is part of Google’s fight against Baidu. 3. but may be a road map for the future of the music industry. who will release the band’s music through their own label and download platforms. Globally. or the artists. This trend is not restricted to rock music – hordes of contemporary. Some Web-based offers to music fans.

for a $150 million deal with Live Nation. major artists make 75% of their earnings from touring. It is even possible to sell albums ‘on the out’ – freshly-minted copies of the performance as fans leave the concert venue. The Rolling Stones were also in talks with Live Nation. merged with Columbia in 1931 to create Electric and Musical Industries (EMI). the label where he was once President. This is the context in which EMI’s music business operates. managing artists like Kaiser Chiefs and Franz Ferdinand. the Mama group has a similar model. producing the videos and creating new products that link with the act (for example. and hip-hop star Jay-Z dropped Def Jam. running the website. The EMI music business Founded in 1897 as the Gramophone Company. In 2008 Live Nation signed a $100 million deal with Irish rockers U2 to handle the band’s merchandising. digital and branding rights. By 2008 Apple was in talks with the record companies to sell iPods and iPhones with unlimited music downloads from iTunes (consumers would pay around a $100 higher price for the device or a subscription of $7–8 a month) because their main profit stream comes from the devices not the iTunes downloads. While Nokia is offering $80 per device to music industry partners (to be divided according to market share) to get its ‘comes with music’ service started. to access more music than they could ever anticipate buying. EMI is one of the world’s four largest recorded music groups. like RealNetwork’s Rhapsody service – the subscription buys rented access to millions of songs for a monthly rental. Apple is offering the music industry only $20 per device.Market-Led Strategic Change For example. Part of the shift is driven by the fact that people accustomed to paying a monthly charge for their mobile phone may see little problem in paying a little more each month for a music subscription. Why own the music? • • • For many years Steve Jobs at Apple has maintained that people want to buy and own music. Live Nation is the world’s largest concert promoter – 35 million people attend its shows every year. The first big Live Nation signing was Madonna in 2007. However. Universal holds about 25% of • • 158 . who left Warner to sign a $120 million ten-year contract with Live Nation to handle every part of her business except publishing. selling the merchandise. 6. and selling concert tickets and merchandise – they aim to make money not from selling CDs but from the relationship between musicians and their fans. In market share. which is the model for his iTunes site. and demerged from the Thorn electrical conglomerate in 1996. operating the tours. In the UK. Live Nation is attacking the record labels by poaching their artists and offering them a one-stop shop – making the albums. there are signs that the consumer may be moving towards subscription services for music. It is widely seen as the weakest of the majors. video games like Guitar Hero). generating income from live venues.

because he said they were always jetting off to Hollywood to see film premieres – Hands explained: ‘They thought they were in the movie business.End-of-part cases the wholesale recorded music business worldwide. leaving with around £3 million. It was one of Europe’s last big leveraged deals before the credit squeeze stalled cheap debt. EMI and rival Warner were making bids for each other. Terra Firma’s track record Terra Firma was spun out of the investment bank Nomura in 2002. though likely to make a £2 billion profit on the deal. army homes – slammed for ‘appalling conditions’ for troops. the Spice Girls and Robbie Williams among its stars. People will tell you what they like. a traditional music industry executive. Sony BG has 21%. with Warner rumoured to be interested in buying EMI back from a private equity takeover. headed by Guy Hands. It is called market research.’ Hands-on strategy at EMI Eric Napoli. but actually they were in the popcorn business. business transformation and strategic relationships. Thresher off-licences – sold at no profit after seven years of trying to turn the business around. concert promoters. but no deal was forthcoming. EMI Group chief executive. Hands appointed a trio of private equity executives with no music industry experience to cover finance. and repeated profit warnings were issued by then Chief Executive Eric Nicoli. Less successful ventures include: Le Meridien – the £1. their biggest recording artist was in rehab.’ Tony Wadsworth. In fact. and others 27%. later when regulatory issues were clearer. It’s not magic. EMI 13%. the American business was heavily in loss. took over the music company EMI in 2007. Major successes for CEO Guy Hands include: Waste Recycling Group – making £1 billion profit from a 2006 deal.9 billion hotel chain collapsed in 2003. or consumers themselves. EMI’s music business was in disarray early in 2007 – CD sales were collapsing. and Angel trains – making £450 million in a mid1990s turnaround. stepped 159 • • . as a result of clashes over management control and concerns about regulatory risks. several private equity firms in the USA expressed interest in buying EMI. high profile artists were abandoning traditional arrangements to do lucrative deals with retailers. Insight into Hands’ business approach comes from the time when he ousted managers at the Odeon cinema chain. Coldplay. private equity firm Terra Nova. Warner MG 14%. one of his purchases. an excursion into television rentals came to an ugly end with the default of Boxclever. quit the company as Terra Firma took over. Rockingham – losing £50 million on a racetrack. At this stage. Terra Firma paid £3. In 2006. His view was that: ‘You don’t need people with an “ear” for hits.2 billion for the music label that includes the Beatles. Odeon Cinemas – reviving an ailing franchise.

Hands promised fundamental change in how EMI approached the music business. with substantial job losses planned – some 30% of artists paid an advance never actually recorded an album and 30% of CDs produced were destroyed because of poor publicity and low sales.Market-Led Strategic Change down as chairman and CEO of the UK business shortly before Hands’ restructuring was announced. He wanted to change EMI’s bloated bureaucracy into a lean. Ruthless cost-cutting addressed excessive mollycoddling of music stars – the new management objected to EMI spending £130 million a year in a music division that only makes £60 million in profits. and pushing a single type of music onto consumers from each label. • • 160 . with more talent scouts and fewer middle managers.’ Early moves by Hands were to threaten to drop music artists who were not working hard enough and to ‘unpick’ its executives’ pay packages. His vision was ‘Our job is to monetize music for the artist. customer-focused organization.000 strong roster. even if many were returned for refund. thinking that conglomerates of labels benefit from economies of scale. Thousands of artists were dropped from EMI’s 14. Source: Getty Images Hands was convinced that the EMI business model was based on three out-of-date characteristics – believing that enough CD hits will make enough money to cover everything else. This was followed by tight restrictions on new artist signings and marketing budgets. warning that artists would have to meet their side of the bargain. In the past EMI pushed its sales staff to get CDs into shops.

’ 161 • • . His goal is to make EMI the world’s most innovative. Radiohead chose to launch their newest album on the Internet. working in a partnership with artists based on transparency and trust. Hands made a low offer and Radiohead left amid enormous publicity. while others thought he understood it only too well. and then resorting to crude cost-cutting when times get tough. at a time when sales were falling and he was desperate to cut costs. Critics say that Hands’ EMI deal is the classic example of private equity overpaying in a boom. and rewards will be based on sales. some of the biggest-selling artists like Robbie Williams and Coldplay started threatening to hold back new albums because of the uncertainty at EMI. Robbie Williams declared himself ‘on strike’. It is more akin to the model at consumer goods companies like Unilever and Procter & Gamble. like football teams. Hands faced a classic talent business dilemma – whether to re-sign Radiohead. one of EMI’s best-known bands. putting his album on hold and refusing to go on tour. His conclusion on the music business was that: ‘History can teach us: everyone thought the recordable cassette was the end of the music business – it wasn’t – we just have to re-invent the business model. Nonetheless. establishing a centralized marketing function at EMI. Critics said Hands just did not understand the music business. However. artist-friendly and consumer-focused music company. He has even looked at ways for bands to be sponsored. Hands has challenged the underlying strategic assumptions at EMI.88 and two-thirds of the downloaders paid no more than the handling charge of 45p). it looked like Disney – one of the rare bright spots in the embattled music industry – would be handing international distribution to Universal at the end of its contract with EMI in 2009. and has worked for a major culture change in the company. The Rolling Stones were looking to move to Universal after 31 years with EMI (taking their back catalogue with them). and Paul McCartney and Joni Mitchell opted to launch their latest albums through Starbucks coffee shops. where marketing is controlled by the individual record labels owned by each company. the era of multimillion advances has ended. inviting fans to pay whatever they wanted for it (which turned out generally not to be very much – the average was about £2. Nick Gatfield – responsible for the success of Amy Winehouse and Mika – has been hired from Universal to run A&R in the USA and Europe. In 2008. runs counter to practice at the music majors. Interestingly. He believes EMI has spent too much on existing artists and not enough on finding new ones. and their managers formed the ‘Black Hand Gang’ to organize protests about changes at EMI.End-of-part cases Weeks after the take-over. When announcing his new strategy. His strategy rests on £200 m of cost cuts – with the marketing budget to shrink from over 20% of total spending to 12–15% – and restructuring so A&R (the Artists & Repertoire Department) is no longer responsible for anything other than finding talent. and finance and legal in a back office division. Mr Hands needed two hefty bodyguards to get into the office. with marketing and promotion in a new music services division.

• • 162 . choose a model with the most powerful Intel processor you could afford. and continue to rise. Microsoft added more and more features to its software (many of which far exceeded normal users’ computing requirements). Andrew Edgecliffe-Johnson and Joshua Chaffin. mobile phones would replace PC functions. Paul Sloan. January 13 2008. James Ashton and Dominic Rushe. Financial Times.5 billion of EMI debt on their books. Fortune. annual PC sales jumped from 50 million to 200 million. music-industry insiders and bankers believed that Hands was about to get his fingers burnt. with sales still slipping. ‘Hands to Raise New Equity and Cut Third of EMI Music’s Staff ’. Andrew Edgecliffe-Johnson. p. 15. However. The funeral and wake for the PC may have been premature. However. A year after the purchase. with possibilities for advertising-supported music downloads and allowing fans to put music from EMI’s back catalogue on their websites. Sunday Times. in the period from 1995 to 2005. the structure of this marketplace has evolved in several ways of considerable significance to the strategies of PC manufacturers and software developers. particularly in the emerging markets. the changes in the PC marketplace are more subtle than these views would suggest – for example. 3-5. and the signs are that this ecosystem is looking at an even more profound change in the near future. the PC is seen as ‘yesterday’s computing platform’. Andrew Edgecliffe-Johnson and Martin Arnold. ‘Help!’. February 6 2008. p. Intel and Dell – relied on mutually supportive business models to maintain control of this ecosystem for the PC business. p. January 14 2008. Wall Street Journal. Early signs were a relaxation in EMI’s position on online piracy. Financial Times. Meanwhile. 1.Market-Led Strategic Change In 2008 Hands recruited an executive from Google to head EMI’s digital operations. then load it up with Windows XP or Vista and Microsoft Office – the staples of desktop software. The computer ecosystem In the mid-2000s the typical way that someone would buy a PC would be to log onto the Dell website. p. January 12/13 2008. artists in revolt. ‘Hands Seeks to Head Off Revolt at EMI’. ‘Keep On Rocking in the Free World’. ‘Apple in Talks to Sell iPod and iPhone with Unlimited Music’. bankers at Citigroup were still stuck with £2. March 19 2008. computing power would be accessed from the Internet. 1. To such critics. and so on. December 10 2007. Case 3: The Clouds Raining on the Computer Business Many claimed that the era of the Personal Computer (PC) had ended by the early-2000s – computers would be worn like clothes. The ‘Big Three’ – Microsoft. 69–72. Sources: Loretta Chao and Ethan Smith. 32. ‘Google to Strike Back at Baidu in China’. Financial Times. p. unsold since the buyout. pp.

it also became a recipe for bloated and inefficient software from Microsoft. Google is primarily known as an Internet company. The technology ecosystem implodes The Big Three have problems. number two in the business AMD is now attracting the best design talent in the industry. Intel has reached the physical limits of speed – smaller. computer manufacturers were freed from the years of Intel bullying to pay top prices for its microprocessors. Dell has also evolved its value chain strategy in order to reach new markets. Open-source software providers like Sun and Linux offer free or low-cost downloadable operating systems and office programmes to rival Microsoft’s. Cheaper ’ was the theme that linked the Big Three together. Faster. forcing Intel to change course. that contrast with Microsoft’s bloated equivalent software. Intel’s hated rival AMD ended Intel’s monopoly in PC and server chips. Dell has lost market share to Hewlett–Packard and Lenovo. leading Intel to make faster and faster chips to handle the new software. After years of being strong-armed by Intel. notwithstanding the maturity and sophistication of the business. using Dell to distribute lightweight toolbar and desktop search products. Working with Microsoft’s arch-enemy. particularly those where the direct sales approach is unpopular. Microsoft was years late in delivering the new Windows operating system. while this business model worked well for some time. By putting several slower processing cores on a single chip. Meanwhile. Dell is broadening its business model to target computer re-sellers – specialty vendors who design and install computer systems for corporate customers. Dell also loads Google software on PCs before they are shipped. by delivering its software as a service over the Internet. but has developed a ‘software-lite’ strategy for the PC. Google needs to secure a position in front of computer users. Dell is developing a global retail strategy that 163 • • . AMD continues to complain about Intel’s aggressive and unfair tactics. Vista – the program got too big to be managed. With some believing AMD chips to be superior. ‘More. and it has proved unpopular with users. AMD has come up with a better design. Meantime. However. faster chips leak too much power. Dell has ended its exclusive deal with Intel and ships some Dell servers with AMD chips. In addition. Nonetheless. before new packages arrive that favour Microsoft’s own search software. somewhat weakening one of the industry’s closest alliances. The inevitable development. attracting the interest of competition regulators. Google has been able to release new products more quickly. profiting from a computing platform that was thought to be securely in the hands of Microsoft. inefficient chips from Intel and poor customer service from Dell. and pointing the way to Dell PCs carrying AMD chips as well.End-of-part cases to encourage users to keep upgrading to new versions of Windows and Office. Intel and Dell. is that others have found ways to make money from the desktop PC. while Dell used its direct sales approach to sell cheaper and cheaper boxes.

BicCamera outlets in Japan. Clouds and reinventing the IT world While its software and search strategy has already undermined Microsoft’s dominance. it expands Google’s footprint way beyond search. By supplying business computing as a set of simple services. Microsoft is now in the unfamiliar position of trying to copy Google’s approach to software development. dark. Google engineers teach the cloud new tricks as it grows in size and sophistication – in 2007 they added four new data centres.Market-Led Strategic Change includes selling computers in stores (Wal-Mart. whose company-owned stores have helped breathe new life into the AppleMac. Google does not just use its computing grid to process Web searches. spreadsheet and e-mail programs – applications that have long been the mainstays of Microsoft’s profitability. Google operates a globe-spanning network of computers that answer search queries instantly by processing mountains of data – whirring away in large. but also to supply services such as word processing. Google (and other utility providers like Salesforce. Importantly. Carphone Warehouse and Tesco in the UK. One challenge of programming at Google is to leverage the cloud – to push it to do things that would overwhelm other machines and networks. For example. almost like a living thing. faster boxes. Google is poised to take a new role in the computer industry. the days when PC-makers feared reprisals from Microsoft if they stepped out of line seem to be over. part of IBM’s business strategy is based on open-source software development and extension to displace Microsoft’s dominance: IBM computer code is given to the Apache free open-source web server. at an average cost of $600 million a piece. and Gome in China). refrigerated data centres. For example. While Windows is still ubiquitous. they are replaced individually with newer. • • 164 . a partnership with IBM aims to plug universities around the world into Google-like computing clouds. and Dell is trying to look more like Apple. the supercomputer. Google’s cloud is a network of hundreds of thousands – by some estimates 1 million – cheap servers. Intel is imitating AMD’s approach to chip design. Best Buy. People at Google call this network ‘the cloud’. Google’s system never ages – as individual computers die. each storing huge amounts of data. Unlike its predecessor. IBM’s head of research operations notes. Experimental Dell own-branded stores are expected to expand. along with kiosks located inside shopping malls. Google has further plans to reshape the sector based on its search strengths. 600 IBM programmers are paid to work on the Linux open-source operating system and key IBM patents have been given to Linux developers. media and advertising. the world’s primary computer. and Google could become. and Apache is then incorporated into IBM’s commercial software. and Guitar Center in the USA. in effect. This means the cloud regenerates as it grows. As the concept of computing clouds spreads.com and Amazon Web Services) threaten to render large parts of the IT industry obsolete. to make search faster. Staples. in building this cloud. Carrefour in Europe.

producing all the energy to run their machinery. they need to be as easy to program and navigate as the Web. Supplying electricity to many users from central stations achieved huge economies of scale. Significantly. For clouds to reach their potential. The pioneers in a position to dominate this field are: ● Google – the only search company built from scratch around hardware. The electricity utility comparison model fits neatly with Google’s grand vision. and investing more than $2 billion a year in data centres. or a form of capital. as the volumes of data from business and scientific research expand. It is likely that all sorts of new business models will emerge. Power generation was assumed to be an intrinsic part of running a business (much as data processing is now). Companies and research organizations may eventually hand over most of their high-level computing tasks to a world-spanning network of computers forming a cloud.com. It is estimated that Google can carry out a computing task for one-tenth of what it costs a typical company. and competitors like Amazon. Until the end of the 19th century. This suggests growing markets for cloud search and software tools – a natural business for Google. The invention of the alternating-current electric grid at the turn of the century overturned that assumption. speed and flexibility of resources like Google’s cloud. they will be able to drastically reduce their expenditure on their own hardware and software – revenue that currently goes to Microsoft and the other tech giants. businesses had to run their own power-generating facilities. As industrial technology advanced. when farms and businesses closed down their own power generators and bought power instead from efficient industrial utilities. and 165 • • . established a decade ago. The emerging ecosystem A move towards clouds represents a fundamental change in how we handle information. people are starting to see Google as poised to become the dominant force in the next stage of computing. The transformation in the supply of computing promises to be as dramatic as that in electricity supply.End-of-part cases ‘Compared to this. As this strategy unfolds. generators grew more sophisticated but were still located at the site of a business and maintained by its employees. computing power is turning into a strategic resource. Big data centres linked to form a cloud encapsulate the full disruptive potential of utility computing – if people and businesses can rely on central stations to fulfil all (or most) of their computing needs. ‘to organize the world’s information and make it universally accessible’. and the price of electricity fell rapidly. the Web is tiny’. Other companies are also influential. initiating new users to cloud computing. It is almost the computing equivalent of the evolution in electricity supply from a hundred years ago. No corporate computing system can match the efficiency. Amazon has opened up its own networks of computers to paying customers.

IBM is teaming up with Google to get a foothold in clouds. then the questions become about timing – when will it impact – and the effects on the business models of • • 166 . IBM – dominant in business computing and traditional supercomputers. IBM is launching a pilot cloud system for the government of Vietnam. Yahoo! – smaller and poorer than Google. companies will have many options as they move into the utility computing era. buyers do not face an all-ornothing choice. Microsoft – still currently dominated by its proprietary software. it is likely that most business computing will migrate to the computing cloud. but as the leading patron of Hadoop (a free software framework that supports distributed applications running on large clusters of commodity computers processing huge amounts of data).com has strengths in running business applications like accounting packages and lets companies write their own programs to run on its servers. the big dilemma is whether cloud computing will be the next major disruption in information technology. and is building massive data centres in Illinois and Siberia. But ultimately. A powerful facilitator of the migration to cloud computing will be grid technologies developed at Cern (the European particle physics centre) which provide for speeds 10. If it is. larger companies are more likely to pursue a hybrid approach – supplying some hardware and software requirements themselves and buying others over the grid. Microsoft is strong on the fundamentals of cloud science. Because of computing’s modularity. its expertise in this area could provide a boost for the retailer in the next-generation of Web services from retail to media. the grid allowed researchers to analyse 140 million compounds – a task that would have taken the standard Internet-linked PC 420 years. In contrast to switching over to electricity utilities. Dilemmas For companies in the computing and related areas. Already used in drug design. it could end up with a lead. mean there are no outdated components to slow data flow.Market-Led Strategic Change ● ● ● ● the leader in cloud computing. with software not perfectly suited to cloud computing.com is partnering with Google in a joint venture – Google’s cloud is best at sifting through data. but Salesforce.000 times faster than a typical broadband Internet connection. While capital-constrained smaller companies may have strong incentives to quickly adopt the full utility model. Amazon – the first to sell cloud computing as a service (Amazon Web Services). Salesforce. The Cern grid linking research and university institutions is effectively a parallel Internet. while smaller than rivals. and has built a showcase cloud centre in Ireland. Grids based on dedicated fibre-optic cables and modern routing centres (instead of the hotch-potch of cables and routing equipment designed mainly for telephony. on which the Internet runs).

pp.End-of-part cases existing companies – disruptions usually benefit some while punishing others. to which established competitors will need a response. 49–55. p. June 5 2006. The Big Switch: Rewiring the World. BusinessWeek. and trying to plan around that disruption without knowing exactly when it will impact. the problem remains maintaining awareness of a disruption that may have devastating impact on the established structure of the market. ‘Computer Pack Top Dogs Lose Their Bite’. April 6 2008. 1-10.W. W. Financial Times Special Report: Digital Business. Jonathan Leake.. From Edison to Google. p. Sunday Times. ‘Google and the Wisdom of Clouds’. Norton & Co. 2008. In the meantime. Sources: Richard Waters. Nicholas Carr. and predicting which is which is not always easy. ‘Coming Soon: Superfast Internet’. 167 • • . January 30 2008. Financial Times. Nicholas Carr. p. Stephen Baker. 1. Disruption may also be about quite new business models. which may be driven by new entrants to the sector. ‘A Revolution Is Taking Shape’. 19. December 24 2007.

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there is the challenge of developing a perspective which looks at the emerging pattern and confronts the big choices that must be made. We start in Chapter 5 by examining the types of issues that should be considered in developing a value-based marketing strategy (strategic thinking). or perhaps ‘What do you know that everyone else does not know that gives you a competitive advantage. We provide the strategic pathway model as a structure to capture the output of strategic thinking (Figure 5. before the resulting plans kill the business stone-dead. Simply recognizing the existence of big changes in the marketplace is not enough to generate effective responses. as well as for auditing the strength of what comes out of conventional (usually backward-looking) planning systems. The following set of four chapters examines the components of the strategic pathway model: ● ● Market Sensing and Learning Strategy (Chapter 6) is concerned with market knowledge and its use – simply put ‘What do you know about this customer or market that gives you the chance to do better than the alternatives in front of that customer or market?’. and the granularity of the market in terms of the segments and niches within it and how these are changing.1). market invasion by competitors in related sectors. . alongside the perspective relevant to actually producing an innovative strategy (thinking strategically). and how will you sustain that advantage?’ Strategic Market Choices and Targets (Chapter 6) looks at where you are going to compete and what your targets are – in the setting of changing market boundaries.P • A • R • T • II Developing a value-based marketing strategy Part II of the book provides a structured approach to assessing the robustness of a business’ strategy in its markets. new types of competition. It provides a mechanism for structuring executive views on strategic direction.

But there again. . The rationale for this Part of the book is: strategic thinking drives us to examine the process of going to market structured around the strategic pathway. but it provides a framework into which new issues can be fitted. with competitors and others – and the interactions between these stakeholders that support or hinder the implementation of the strategy. you would not have bought a book about it . There is some pretty heavy material included here.Market-Led Strategic Change Strategic thinking and thinking strategically Market sensing and learning strategy Strategic market choices and targets Customer value strategy and positioning Strategic relationships and networks Strategic transformation and strategy implementation Figure 5. The strategic pathway model is not an exhaustive coverage of every issue or idea that will be faced in practice. . In the next Part of the book we provide an audit tool to assess a company’s strategic pathway (Chapter 10). Strategic Relationships and Networks (Chapter 9) examines the relationships which must be managed for a strategy to be effective – not just with customers but also with collaborators. no one said a strategic perspective on the market was going to be easy (and if it was. with co-workers. the outcome of the pathway is a strategy that drives us to examine the processes to be addressed in strategy implementation and the transformation of an organization to achieve alignment with the strategy.1 The strategic pathway ● ● Customer Value Strategy and Positioning (Chapter 8) examines the need to establish a clear value offering that matters to the customer in question and to understand the comparisons the customer makes between alternative ways to solve their problems (how are we positioned against the competition in the customer’s eyes). it seems to be the bit about marketing that really matters to businesses.) However. The pathway is iterative – we have to work backwards and forwards through the components to allow for their impact on each other. • • 170 .

differentiators – how will Courtesy BAE Systems . We said strategy was about: competitive arenas – where will we be active. . I then want to suggest that not only are the issues different. Introduction – What Is Strategy Anyway? In Chapter 1 we said that having a strategy was a good start to making marketing effective in delivering superior customer value. the perspective should be too – that is to say that the challenge is also ‘thinking strategically’. The purpose of this chapter is to try to clarify what we mean by marketing as strategy (because that is the basis for what follows in the next set of chapters describing the strategic pathway). vehicles – how will we get there. But more than that. as opposed to focusing on marketing operations and tactics. This is important because it is often difficult for managers to separate themselves from day-to-day operations – physically or mentally – yet this is vital. At the risk of being cute. On this basis. we can then move on to the building blocks for creating a value-based marketing strategy.C H A P T E R • • • • 5 Strategic thinking and thinking strategically This chapter . It is not enough to recognize that some issues have strategic significance – it is also important to address them in a different way. . it emphasizes the difference between ‘strategic thinking’.

agile manufacturing systems.* It is not before time that some of us are getting very sceptical about generalized ‘rules’ and prescriptive models as routes to developing strategy. A lot of management thinking in recent decades has been dominated by the global pursuit of operational efficiency – total quality management. it is really about these things. eBay was a silly idea. about as much use as a one-legged man in an arse-kicking contest’ is how one CEO explained to me how much he valued strategic plans. new technology for automation.Market-Led Strategic Change we win in the marketplace. business process re-engineering. The saving grace for strategic planning was that it has not done as much harm as it might have done. It is not.’1 *‘. • • 172 . . but strategy is choosing to run a different race because it’s the one you’ve set yourself up to win. growth rates and sustainable competitive advantage. What strategy is not Most important. it is also about simple things like being best at doing the things that matter most to customers and finding new and better ways of doing things to achieve this. If we think planning is the same as strategy. one effect is that the rapid diffusion of ‘best practices’ achieved through benchmarking against competitors is that industries have become more efficient without individual companies becoming more profitable – because benchmarking and best practice make companies more similar. This too may be worth remembering next time your planners and analysts want to show you the latest techniques and computer software. and so on – all for sound theoretical reasons connected to market share. all the complex strategy stuff is just to help with these things (and if it isn’t. not more differentiated. They would have been damaging and wrong. Most analytical approaches would have suggested that Google had no chance of making money up against Microsoft. However. Hewlett–Packard could never beat Dell. There is also something to be gained from understanding what strategy is not. While strategy may sound esoteric and academic and daunting (which is how strategic planners like to win their own personal turf wars). expert systems and so on – and hope the techniques will make the decisions for us. and the economic logic – how will we obtain returns? Of course. This pursuit of operational efficiency has had enormous benefits in improving product and service quality and reducing unit costs in many industries. Michael Porter clarifies the confusion: ‘Operational efficiency means you’re running the same race faster. strategy is not the same as strategic planning. core competency focus. models. The next confusion is that we think strategy is the same as operational efficiency. because no one took much notice of the plans that the planners produced. and so on. then we probably also confuse analytical techniques with strategy – matrices. maybe we should not bother with it). lean supply chains. . staging – what will be our speed and sequence of competitive moves. value engineering. In fact.

and organizing to achieve ‘fit’ in maintaining the advantage. but then it will be copied or bettered by them. the greater the risks of complacency.’2 The trouble is that your moment of greatest strategic vulnerability is probably when you are experiencing greatest success. Revolution. as they rebuild and respond to change. though risking substantial personal injury as a result of making such comments. not incremental change from the past. because it is then that the seeds of complacency are sown – this is ‘the fatal arrogance of success’. to change. reinvention and renewal We argue elsewhere in more detail that the key words to describe modern markets are revolution. to survive. The more successful and dominant you are. and consequently in the strategies that successful organizations pursue. continuous innovation to sustain that advantage. While success brings profits. 173 • • .* What is strategy about? So far. Hard-nosed managers are frequently sceptical about the use of emotive words like the trio of Rs above.Strategic thinking and thinking strategically Superior operational efficiency may give you a short-term advantage over competitors. Strategy is about competitive advantage through differentiating against the customer’s alternatives.3 The importance of strategic clarity is underlined by the new era of disruption for business that we have been describing – achieving and maintaining competitive advantage is about revolution and reinvention. but we probably get further if we ask what strategy is about. * Some managers even suggest we may not know our ‘Rs’ from our elbows. growth and unbounded optimism. reinvention – in the creation of new business models that make traditional ways of doing business obsolete as routes to delivering and sustaining superior customer value. Increasingly the priority is not just short-term performance but building the robustness to bounce back. One paradox of strategy is that you probably need to be making new strategic decisions at the time when you feel least inclined to do so. it also has a way of blinding executives to the many organizational dangers that creep in at the same time. to turn things around. It must deliver greater value to customers or create comparable value at a lower cost or do both. Porter clarifies again: ‘A company can outperform its rivals only if it can establish a difference that it can preserve. reinvention and renewal:4 revolution – in the ways industries and markets operate and the sources of competition which become important. and renewal – in the strategies of change and repositioning by companies whose business models have become outdated. we have said what strategy is and is not.

Prahalad.13 Strategic Thinking So what are the big strategy issues that should be central to our thinking about how we go to market? It is impossible to catalogue every new idea that comes along.Market-Led Strategic Change Strategy is about breaking free • • • To paraphrase two major milestone publications about strategy by Michael Porter5 and Gary Hamel and C.12 The issue we have to grapple with is – how do we develop strategic thinking that is revolutionary and creative in our organizations? How do we get beyond talking about new strategic ideas and actually create them? How do we overcome limiting stereotypes and assumptions that constrain the future? The challenge is to ‘put innovation back into strategy’.6 strategy is about breaking free from: an obsession with management tools that are spectacular and seductive in improving operational efficiency but are not strategy (e.g. who follow and imitate. benchmarking. not when it is about growth. But strategy is also about much more than just breaking free of these constraints and burdens – it is about defining what we are going to be in the marketplace. tactics – ‘strategy is revolution. and particularly not trying to preserve the past – Hamel and Prahalad estimate senior managers spend only 1–3% of their time looking at the future. Actually. and.11 It may not be straightforward to achieve these aims. time-based competition. reengineering. or what Hamel and Prahalad have called building a ‘strategic intent’:10 a stable but stretching perspective of how to win.. K. the industry ‘rules’ – Gary Hamel says there are three kinds of companies in all industries: rule makers. lean supply chain management. it rarely is. one of the biggest challenges managers face in developing effective strategy is to ensure that the strategy is not a product of the biases (and possibly the ignorance) of the existing management team – those biases are likely to be rooted in the organization’s past successes not its future needs. rule takers. while a market is defined by customer needs and demands7 – customers do not care about industries. total quality management. new ways of doing things and new activities that we choose for ourselves.9 ‘sameness’ – Michael Porter argues that a company can only outperform its competitors if it establishes a difference that delivers greater value to customers or creates comparable value at a lower cost (or both). outsourcing. Indeed. everything else is tactics’. like IKEA and Virgin. just meeting their needs. who implement revolution in the industry and re-invent the business. I have picked out below some of the major strategic • • 174 .8 the present to create the future. hostility to change – change is seen as unpleasant and is resisted mainly when it is something nasty imposed on us from above (and when it is a synonym for cost-cutting and downsizing). and so on). who built the industry. and rule breakers. industry dogma – an industry is a group of organizations with similar capabilities and supply technologies. based on our core competences as an organization.

July 24 2007. But strategic thinking is rarely going to be clear and unambiguous. While conventional marketing thinking clings to the relative certainties of devising promotional programmes. one big danger we face is that of active inertia – when we respond to changes in the market 175 • • . That is good – it explains why companies pay you a lot of money to do it.2 Strategic thinking questions that look like they are going to be exercising top management minds over the next few years. Reality Check: Obvious answers in strategy? ‘For every complicated problem there is an answer that is clear. Mencken) Source: Quoted in: Stefan Stern. the unstable and the risky. simple – and wrong’ (H. 16.2. L. but they do not substitute for strategic insight. the paradoxical. strategic thinking has to grapple with the uncertain. which we can apply in developing our strategic pathway (the detailed ‘what’ of market strategy). p. Nothing can be exhaustive because new ideas are coming through all the time. Marketing as strategy We ended Chapter 3 with the conclusion that marketing that matters is about strategy – programmes and tactics can follow later. Indeed.Strategic thinking and thinking strategically Strategic dilemmas Social legitimacy The growth mandate Crisis and failure Marketing as strategy Reinvention and renewal Timing and speed Radical innovation The limitations of imitation Figure 5. Financial Times. but these themes provide us with insights into how to go about putting together a robust strategy. the confusing. These themes are summarized in Figure 5. ‘The Mania for Measuring That Will Send You Off Target’. This is often difficult.

14 We have a problem. the pressure for creative reinvention and renewal in the business model. they will fail. and that this is the hidden strategy paradox facing companies. and. national and functional boundaries. developing distinctive capabilities – yet they do not know what the future will bring. The strategy paradox • • • Michael Raynor presents one of the dilemmas we face as the ‘strategy paradox’. Strategic dilemmas Life is rarely straightforward or uncomplicated and strategic thinkers have to accept the need for difficult choices. not tacticians. the four Ps’. the related limitations of imitation. and if their assumptions about the future are wrong. . where simply copying rivals replaces strategic thinking. the unremitting pressure for radical innovation that breaks the ‘rules’ and delivers a step-change in performance. there is no strategy of change to deal with the new external realities.Market-Led Strategic Change by accelerating activities that succeeded in the past. The trouble is what companies and their CEOs are desperately seeking is a strategic perspective on the marketplace and the route to market. hopefully also teased out in Chapter 3. and most of all. We have nothing to lose except hierarchies. and to study the risk profile of alternative strategies. the shock effects of crisis and failure which will be experienced more often as business risks increase. the quest for social legitimacy in meeting both societal and business goals. ‘The same behavior and characteristics that maximize a firm’s probability of notable success. Nirmalya Kumar summarizes this issue nicely: ‘The demand from CEOs is for foresight rather than hindsight.2 underline some of the complexities that are faced by marketing executives in taking a leadership role in strategy: strategic dilemmas and uncertainties regarding causes and consequences. products. • • 176 . While there is an impression of purposeful activity. the growth mandate demanding growth in markets which have slowed down and the gambles involved. He concludes. It arises because managers have to make bold strategic commitments to the future – markets.16 He makes the point that the best-performing firms often have more in common with bankrupt companies than with other businesses that have just managed to survive – many of the traits we have come to associate with high performance are also the ingredients of total collapse.15 The factors in Figure 5. and for marketing strategists. When the world changes – sometimes radically – a company trapped by active inertia will do more and more of the same things they always did. in that we have invested much time and effort in getting good at operational marketing activities – the ‘4Ps’ – and far less in developing strategic capabilities in marketing. but which must be survived. for innovators. . the issues of timing and speed – fast strategy or not. not marketing planners . first-mover advantage or not. also maximize its probability of total failure’.

Schlimmbesserung • • • Schlimmbesserung is a German word literally meaning ‘worse improvement’. Sony positioned its Betamax as a video recording device to tape TV programmes. is the question of priorities in goals – profitability or growth. swinging between centralization and decentralization. According to Raynor. under which a company develops and manages a broad range of strategic options (that give the company the right but not the obligation to make extra investments in the future).18 This is complicated by varying management opinions about which are the priorities – as well as the general feeling that we want everything. the more constrained the means you can use to pursue them’. He urges maintaining strategic flexibility. managers shy away from the bold commitments that success seems to demand and instead choose timid. It turned out that consumers wanted video machines to play rented movies. cost-cutting exercises that become prohibitively expensive. swinging between a focus on strategy and execution. MS-DOS. For example. we should create strategic options based on different possible scenarios. OS/2. Over and above goals flexibility. However. His answer is that companies should hedge their bets – at the same time as committing to a core strategy. unremarkable strategies. realizing the risks of failure they face. in the late-1980s. and the lower-priced VHS format won out. It failed because things did not turn out as assumed.Strategic thinking and thinking strategically For example. The tension between goals pulling in different directions can trap decision makers in an unproductive cycle – swinging between a growth push and a productivity push.17 suggesting the importance of being flexible about goals. planting trees as a strategy for offsetting greenhouse gas emission turns out to have the unfortunate effect that planting trees 177 • • . one dilemma facing the strategic thinker is that ‘The more precisely defined your goals. the danger is that. Sony developed a cutting edge product. corporate synergy or stand-alone unit performance – and the tensions between them. and refers to the unintended consequences of what we do – efficiency drives that reduce efficiency. please. writing applications for Apple – positioning itself for success under different industry scenarios. but keeping options open (just in case we’re wrong). For example. and so on – or ‘revenge effects’. Strategic goals • • • The pursuit of goals is central to strategic development. short-term or long-term. understood its customers and executed its strategy well. The resolution of this tension in conflicting goals is important but rests on our ability to decide which goal is most important to the company. Perhaps the greater paradox is that the mandate appears to be total commitment to a bold strategy. Microsoft simultaneously kept options open with different operating systems – Windows. sacrificing any chance of higher performance for a better chance at simple survival.

so we can change.21 The role of strategic marketing in meeting the corporate mandate for growth is underlined as achieving growth becomes more difficult for many companies. Marketing’s role is to contribute to a firm’s growth through better anticipation of market opportunities and evaluation of risks. Marketing should be central to corporate growth but is in danger of being marginalized in important decisions about growth strategy. with corresponding collapse in their share prices. companies entering the Fortune 50 averaged growth in revenues of 9–20% in the five years before they entered this elite group. and the degree to which they can undermine the value of the strategy. Somehow the excitement of new strategic ideas has to be balanced by thorough review and continuous monitoring for potentially unforeseen consequences and what they cost.22 One study shows the seriousness of the growth crisis – over a substantial period of years. Growth plans may fail because of: ● Premium-position captivity – holding the premium position in a market where you deal with the most demanding customers.Market-Led Strategic Change can make global warming worse if they are grown in the snow-covered northern latitudes. marketing has tended to fixate on serving and retaining current customers. and 29% the year they entered (often via a large acquisition). Product innovation loses its ability to protect premium prices and brand and marketing strengths no longer protect market • • 178 . The growth mandate Many companies are experiencing the squeeze between investor demands for sustained earning growth and shrinking and fiercely contested markets. offer high performance products and get the highest prices. tighter linking of technological possibilities with market concepts. becomes a trap when new competitors with lower cost structures enter or customer tastes change. because the dark surface of the tree reflects less of the sun’s heat back into space than does the pristine white snow. but 93% of these companies never subsequently achieved revenue growth above 2% again.19 There is merit in thinking about the downside of new developments and changes at the outset – ‘excessive optimism risks revenge effects’20 – and monitoring for emerging revenge effects. if they are spotted early enough. which is reinforced by company rewards and incentives that emphasize short-term market share and profitability. Conventional revenue-boosting tactics are running out of steam and becoming less effective. creating a ‘growth crisis’ for many companies.23 When growth stalls • • • Research also suggests that companies lose momentum for four main reasons – all of which are within management control. and faster adjustment to sifting market needs and competitive moves. In the past.

25 Google is illustrative of building new growth platforms as the basis for growth strategy: Reality Check: Googling growth While 2008 sees concerns that advertising revenues may be soft and there are doubts how Google will fare in an economic downturn. Google search has provided the platform to develop a series of new businesses in different markets and facing different competitors: Added-value services – attracting users involved the development of services like e-mail and Google Map. Innovation management breakdown – there are severe problems in managing the internal business processes for updating products and services or creating new ones. In this model. One approach is to focus on establishing new growth platforms. Premature core abandonment – there are failures to fully exploit growth opportunities in existing core markets. social pressures. Research suggests that new growth platform innovation is very different to traditional product or service innovation. we see real. products and channels. Possibilities for developing new growth platforms come about when changes like new or converging technologies.Strategic thinking and thinking strategically ● ● ● share. strategic growth that leverages the company’s capabilities and knowledge. and its dominant position. created by building new growth platforms on which the company can build families of products.24 Building growth platforms • • • The challenge is building a basis for sustained growth that counters tendencies for growth to stall. This logic suggests that guarding against growth stalls should be high on the strategy agenda. or changing regulatory environments create the opportunity to meet some unmet customer need. Talent bench shortfall – there is a lack of leaders and staff with the skills and capabilities required for strategy execution. and has a much deeper strategic importance. for example when acquisitions and growth initiatives are in areas distant from existing customers. Processes and activities developed for the top end of the market become a barrier to shifting strategy. Because of the information it collects about consumer and business behaviour in search. 179 • • . it is a long time since anyone saw Google as just a search engine. profitable. services and businesses and extend their capabilities into multiple new domains. The challenge then is building the capabilities to exploit the opportunity.

Google wants every phone to be a Google phone. Social networking – OpenSocial is an alliance of 50 competitors to Facebook. but each has the potential for developing into a new growth platform creating a new cluster of businesses around new opportunities. ‘Google’s Buried Treasure’. Mobile phones – Google has established the Open Handset Alliance to reshape the mobile phone business by offering a free Linux-based mobile phone operating system. Sources: Richard Waters. pp. Each new business is linked to the search platform. July 23 2003. Kevin Allison and Richard Waters. aiming to develop universally compatible applications and open up social websites to targeted ‘social advertising’. This platform may provide the foundation for a more automated health information service. 49–55. 6. Healthcare – in 2008 Google announced plans for a digital health records system to give users more control over their personal healthcare. BusinessWeek. but much more in terms of areas like scientific research and completely new businesses that go beyond search. media and advertising. and what is needed is a new core business. Delaney and Vauhini Vara. p. One estimate is that two-thirds of companies will have to redefine their core business over the next • • 180 . 11. with the Google database at the centre of a broader health information system. September 24 2007. Kevin J. which may yet be linked to social networking behaviour as well. Wall Street Journal. Google is offering applications software online for business users. ‘Key to It All’. p. Cloud computing – Google plans for its globe-spanning data centres to form a network – a ‘cloud’ – capable of answering search queries instantly. Stephen Baker. Financial Times. Android. This move is part of spreading confrontation with Microsoft’s personal health records system. November 27 2007. with Google’s mobile operating system on as many different handsets as possible. ‘Google and the Wisdom of Clouds’. p. ‘Google Aims to be the World’s Data Organizer’. open to software developers to build applications. Financial Times. Android is an open-source operating system. 11. the search for growth opportunities may be stimulated by the fact that the existing core business has reached its potential. Google is also bidding for wireless spectrum in the USA. December 24 2007. Online software services – in direct competition with Microsoft. and may operate its own mobile network. Adjacency and hidden assets for growth • • • In some cases.Market-Led Strategic Change Advertising – search knowledge provides the basis for targeting advertising communications.

Research by Campbell and Park takes the view that. Ford paid £1 billion for KwikFit. The adjacency was an illusion. Ford bought garage services company KwikFit as part of a strategy of spreading into lucrative add-on automotive services. G. low growth is the norm not the exception. software systems valuable outside your company. balls and equipment. information – your proprietary technical know-how. untapped insights into customers.26 Research suggests that veering dramatically away from the existing core – for example. Ford claimed to have learned a lot from the experience. your place in the value chain. or hidden assets in the business. links with suppliers.28 Success in adjacency moves is not automatic. such as unrecognized segments. such as undeveloped adjacencies. and three years later sold it to venture capitalists for £330 million. your high level of interaction with customers. and. The Game-Changer. but with less risk than new products or new markets. Nike successfully took its sports shoes from sport to sport. or underexploited capabilities. Opportunities may exist. The initiative was based around adhesive film technology from its R&D laboratories but also bleaching expertise from its household care business. through a new acquisition in a booming market – may be less attractive than looking for change closer to home. New York: Crown Business. Exploiting hidden assets has several advantages: they are likely to generate more growth than product extensions. however. geographical markets or services. in fact. networks – your installed user base. rivals cannot easily imitate them. 181 • • .30 The growth gamble • • • Going for growth usually involves risks. Source: Adapted from A. and into new product areas like golfing clothes. strategic ‘real estate’ – your strong market position. Lafley and Ram Charan. 2008. they reinforce the core business. for example. When the range was launched in 2001. and left Reebok behind as a result. user communities. it created a new personal care category. in: undervalued business platforms.29 Hidden assets in the business are strengths which are lying dormant.Strategic thinking and thinking strategically decade because of forces ranging from globalization to the impact of the Internet. rather than cannibalize it.27 Reality Check: Brand revolution at P&G P&G has a highly successful range of tooth-whitening products – recently adding Crest Whitestrips Plus Tartar Protection to its extensive range. Hidden assets include: customer relationships – your reputation for expertise. Adjacencies are unexploited customer segments.

The direct model was close to a religion at Dell – it allowed the company to ship custom-built machines while avoiding holding costly inventory. The problem you may face is that because business leaders crave certainty and investors prefer steady and predictable performance. most of which had little chance of success. The very flexibility of the direct model contributed to Dell’s problems. At the very least. Most of the successes they found were the result of careful strategic choices. in some circumstances. companies become tied to business models that used to work and things that used to be true. Dell made profits by convincing customers to upgrade from • • 182 .32 Reality Check: Dell’s new strategic thinking For two decades Dell’s direct selling model in the personal computer business was seen as unbeatable. they say that we should carefully evaluate: (1) the value advantage – do we have a significant advantage or disadvantage in offering superior value to this new market. In this way. companies try hard to stick to proven ways of doing things.31 Reinvention and renewal But the demand is more than just revenue growth. rather than multiple experiments or portfolios of initiatives. (3) leadership/sponsorship – do we have strong leaders for the new project and sponsors in the parent company that give us an advantage. They believe that. The underlying challenge may be more about redesigning the underlying business model to reinvent the way a business operates. But in the outside world. (4) existing businesses – is the impact of the new business on the existing business positive or negative? These authors counsel considerable caution before launching another venture in pursuit of elusive and possibly illusory growth. However. we need to have the confidence to face down unrealistic expectations for above-average growth. which for 20 years had relied on direct sales of customized computers over the telephone and Internet. CEO Michael Dell acknowledges that the company developed tunnel-vision around its sales model. customers change – they want new and different products and services and they want them delivered in new and different ways. (2) the profit pool – is the profit pool in this new market attractive or unattractive. in the mid-2000s Dell’s sales and profits slipped as a result of changes in customer buying habits and the competitive landscape.Market-Led Strategic Change and in all the cases they examined managers were investing in too many projects.

Making the case for change may encounter attitudes like these: arrogance – the implicit (sometimes explicit) belief it is impossible to do things better than we already do. p.Strategic thinking and thinking strategically basic models by buying additional memory and processing power. ignorance – although accepting that others might be able to do things better. The move to lower prices meant that Dell was putting features into its products that customers did not value enough to pay for. focus on execution. in Built to Change. learning and. and rapidly changing environment is following a recipe for failure. A lack of change creates a legacy business – a sitting target for fastmoving new competitors.33 Market leaders. for stability . in particular. organizations are built to support enduring values. but this may require getting past major organizational pressures favouring the status quo and finding ways to make discussion of fundamental change legitimate in the company. But sales to retail outlets and channel partners are less profitable. point out that even as senior managers congratulate themselves on getting a grip on the business in uncertain times. denial – defensiveness and avoiding discussion of the need for change in how we do things. when necessary. freeze them into place.35 Strategic thinking addresses the need for reinvention and renewal of the business model. we are doing as well as we possibly can and don’t know how to improve. . ‘Analysts Assess Dell’s New Strategic Thinking’. because you have failed to adapt to changing conditions. not to change. increase predictability and get processes under control . But this strategy unravelled as customers began to place more emphasis on price over performance.34 Accordingly. organizations struggle to change their business models. reinvention of the business model. stable strategies and bureaucratic structures. may be particularly resistant to changing the way they do business. Lawler and Worley add: ‘Organizational change is difficult because management systems are designed. . Lawler and Worley. 183 • • . who have past successes to keep them warm. and people are rewarded. pushing Dell towards $3 billion in cost cuts to support its new strategy. stick to their knitting. These ideas establish stability as the key to performance. April 7 2008. .’ The need is for experimentation. Dell has moved from the direct model to a multi-channel sales model using retail stores and selling to third parties designing computer systems for companies. creating a stable organization to perform in a complex. 26. As a result. Source: Adapted from Kevin Allison. Financial Times. they may be creating bigger problems for the future: Organizations are encouraged to institutionalize best practices. .

Google pioneered online paid search and Apple made a profitable business out of digital music. in particular. Source: Adapted from ‘Imitation’s Limitations’. Benchmarking • • • Operations management. failing to achieve a leadership position leaves companies in the weak situation of continually playing ‘catch-up’ to try to claw back business. and do something pretty similar (though hopefully better and different in some important ways). Microsoft is now left trying to break into markets that were created by others rather than pioneering its own. Financial Times. This is the relatively weak situation in which Microsoft finds itself at present.Market-Led Strategic Change The limitations of imitation Faced with the need for strategic change. 14. but then you have to have something better than the first mover to achieve an advantage. New online software products are an attempt to equal Google’s offering. usually by close imitation of those who have innovated. Reality Check: Microsoft and playing catch-up Google and Apple combined are now worth about the same as Microsoft in market capitalization. Microsoft underlines ‘imitation’s limitations’. To monitor productivity in operations this is useful. and will have to lead a new business opportunity from the front to impress investors. The failed attempt to take over Yahoo! was driven by the goal of catching up with Google in online search. and they each dominate a new area that was open to Microsoft. has driven almost universal adoption of benchmarking – comparing ourselves to others on the key metrics we believe to underpin performance in our industry. It is possible to achieve success as the ‘second mover ’ in a market (see below). The Microsoft Zune music player is a late attempt to break Apple’s hold on the digital music market with the iPod. July 18 2007. Microsoft’s new Internet search product was built to try to win business from Google. Playing catch-up • • • However. Where it goes wrong is when companies measure themselves against their competitors instead • • 184 . one temptation is to look carefully at what others are doing in the market. Xbox was built to challenge Sony’s already powerful PlayStation. p.

just a better-conceived. retailers and service providers like brokerages have taken huge amounts of business away from established players. while challenging General Motors for the number one position in the global auto industry. Hot power is becoming increasingly irrelevant. and undermined most traditional music companies (and the iPod was not even a new kind of product. start-up costs and fixed costs are so low. This is ‘cool power ’. never enjoying market power. In online media. and getting the railroads to refuse to carry their products.Strategic thinking and thinking strategically of having a strategy. music and publishing are trying to understand what advantage they have left – their vast infrastructure of transmitters and printing presses matters less every day as online media develop. lean production theorists criticize Toyota for falling productivity against operations benchmarks and rate it lowest of all the major car producers – they are piqued because most of lean production theory equates with ‘copy Toyota’. Notwithstanding the disapproval of benchmarkers. In an information economy. Interestingly. or huge factories. For example. unusual in the automotive sector. competitive strength lies in new ideas not simply new products and routes to market. better-designed version of an existing product). An interesting distinction coming out of international relations research is the distinction between ‘hot power ’ and ‘cool power ’. Leadership may be about more than simply market share (by definition just a benchmark of our sales compared to competitors in the existing market). but Steve Jobs had the iPod idea that has transformed the online music business. In today’s economy. new competitors can spring up wherever there is an opportunity. Online banks. when Rockefeller ran Standard Oil he destroyed the competition by underpricing them until they failed.36 Competitive differentiation and innovative strategy that breaks free from the rest in the value offered and the competitive advantage achieved is unlikely to be built simply by imitating rivals on operational metrics. a big idea is worth more than a big market share. Imitating competitors’ strategies is unlikely to develop the radical new ideas that can change industries. It may be about new types of market power other than that achieved by size and volume. followed by imitation and pursuit of the leaders on the benchmark in question.37 Leadership in ideas and influence in a market or 185 • • . The strategic goal is difference versus the rest not using benchmarks to become identical to competitors. a big distribution network. radio. Cool power beats hot power – Apple has always had a small market share in computers. Operations benchmarks may mislead when we consider bigger issues of strategy. There is the potential for a vicious circle of competitive benchmarking. This traditional kind of power is ‘hot power ’. Intellectual leadership • • • Increasingly. the formerly dominant owners of TV. the same decade of ‘decline’ has seen Toyota make solid profits.

p. The Prius provides Toyota with a strong platform for further developments in more environmentally friendly cars. When Caesar spoke. such as the plug-in electric car. petrol-electric vehicles with the lower fuel use and emissions demanded by environmentalists. Toyota had previously no great environmental record and the bulk of its sales are conventional vehicles. In fact. The Prius has become a symbol of environmental awareness – visible evidence of a driver’s green commitment. Although it was neither the first nor technically the best in bringing hybrid technology to the market. The Roman politician Cato once noted: ‘When Cicero spoke. people marched. July 26 2007.’38 Real leadership in an industry or market may be about the ability to influence and to build a platform. Early high-profile users were Hollywood celebrities. although hybrids account for only a tiny sliver of the car market – about half a per cent of the 66 million passenger vehicles sold annually. 29. keen to show how they were saving the world. compared to buying a standard petrol-driven car. • • 186 . 3-5. ‘Health Drive Moves into Higher Gear’.Market-Led Strategic Change industry – intellectual leadership – may be one of the most potent strategic weapons that frees our thinking from an obsession with market share. September 2 2007. ‘Toyota Takes the Green Road to Be World No. 1’. the impact of the Toyota Prius in giving Toyota intellectual leadership in the race for cleaner motor vehicles. for example. Ray Hutton. p. Financial Times. Buying and running a Prius is estimated to cost around $5000 more over five years. ‘Toyota Puts On the Pressure in Hybrid Car Race’. and the Toyota RiN ‘healthy living’ concept car was on display in 2007. Reality Check: The Toyota Prius Toyota has never been a radical innovator in products – much more of a copier and improver – but the exception is the Prius. In spite of its fuel-efficiency. It has not been a massive seller – reaching global sales of the first million Prius cars took Toyota ten years. people marvelled. rather than traditional types of market power. Sources: Bernard Simon and Michiyo Nakamoto. Toyota is widely perceived as the leader in hybrid technology and what follows. p. which has now translated into market leadership in this rapidly growing part of the automobile industry. 21. John Reed. Consider. Financial Times. The Prius is generally perceived as the lead innovation in hybrid. November 27 2007. Toyota claims about a 90% market share for hybrids. the Prius is far from being the ‘greenest’ car around – vehicles like the VW Polo have that distinction. Sunday Times. buying a Prius was about political correctness not saving money. including a fair share of ‘gas guzzlers’ like the Tundra. It was not the first hybrid vehicle to reach the market – Honda got there first.

Google – has lifted search advertising to where it is now. 5. and (3) the misguided application of financial analysis as an accomplice in the conspiracy against innovation.44 True innovation is geared towards customer value. Leading innovators are changing their industries not just their products. 4. Microsoft – to some more a fast follower than a leading innovator. but deepseated change in the way we approach the market. but with a massive R&D budget to enhance Windows and Office. 2. Consider the following aspects of radical change: disruptive innovation – innovation that changes the way an industry operates. worried that the growing sophistication of their products will put off buyers. 3. cannibalization – the resulting forces that drive successful companies to compete with themselves.40 The failure to innovate has been tracked to: (1) paying too much attention to the company’s currently most profitable customers. authors like Daniel Pink argue that the very basis of value creation is shifting from the disciplines of logic. with a famously chaotic innovation process that has led it into everything from radio ads to online office software. big ideas – nurturing the big ideas that will change an 187 • • .39 It is estimated that minor innovations make up 85–90% of most companies’ development portfolios. their bias is in the other direction. according to BusinessWeek’s ranking. science and linear thinking to the intuitive.43 The focus is on innovation so radical it may even frighten customers – a major concern at companies like Samsung and LG. but smarter. with a continuous improvement process which is copied worldwide. risks. or growth opportunities worth $50–100 million are leading GE into emerging markets and green technology. Apple – the master of product and store design. non-linear processes of creativity and imagination. but goes beyond new products to companies completely rewiring themselves. For example.45 These companies are managing deep-seated change. value innovation – the companies that pioneer change. driving business from the music industry to mobile phones.42 Terms like the ‘imagination economy’ describe the move from technology and services to create value to creativity and imagination.41 In fact. General Electric – CEO Jeffrey Immelt’s push for ‘imagination breakthroughs’. but rarely generate the growth that companies seek – at a time when companies should be taking bigger. and a deep focus on customer value – everything else is just variation on a theme. (2) creating products and services that do not do the jobs customers want done. Toyota – dominance in hybrids could lead to the first plug-in electric car. not just in products but in their business models. the five most innovative companies in the world in 2007 were: 1.Strategic thinking and thinking strategically Radical innovation Another of the themes we introduced in Chapter 1 was the imperative of innovation – not incremental change to products and services.

as disruptive technologies improve over time. and get to do the job adequately. Source: Adapted from Clayton M. 1997.Market-Led Strategic Change industry. Most large steam shovel excavator manufacturers made the transition successfully. Wang. but better. cheaper and faster. However. Few of the traditional manufacturers survived. Clayton Christensen describes what he calls the ‘innovator’s dilemma’. Why. Reality Check: Disruptive technology in the excavator market Until the 1920s. and the rest) left behind in their turn? Could it be that these companies were too stupid and too blinkered to see how the market was changing? Or was there something else at work? Christensen argues that the PC is an example of a ‘disruptive technology’. In 1947. then their lower prices drive the existing technology out of the market. which did the job better. but because they do what the textbooks tell them to do. and innovation networks – the shift in managing innovation to open business models and cross-boundary collaboration. far smaller than was demanded by the big contractors in mining and sewage construction. backhoes attacked the main excavator market. J C Bamford developed the hydraulic shovel. Disruptive technologies are fundamentally different to conventional or ‘sustaining technology’. cheap. Nixdorf. however. The JCB was. or backhoe. But. Boston. MA: Harvard Business School Press. and was a sustaining technology. Initially its market was restricted to digging narrow trenches in the street. Generally. the established technology for excavators was the steam shovel. This was followed by the machines powered by the internal combustion engine. because it worked off the back of a tractor. new technologies tend to do things better from the customer’s viewpoint – these are ‘sustaining technologies’ because they allow us to sell similar things to current customers.46 He was puzzled why seemingly smart companies so often get it wrong. The Innovator’s Dilemma. he asked. Christensen. and then when the market moved again from mini-computers to personal computers. when the computer market moved from mainframes to mini-computers was IBM left behind. were the makers of mini-computers (Digital. As its technology became more robust. Disruptive innovation • • • The failure of many major organizations to innovate and change is in some important ways explained not because managers are complacent or necessarily stupid. • • 188 . This did a poor job – it could only handle small bucketfuls of earth. the distinguishing characteristic of the disruptive technology is that it does the job worse than the existing technology – but it is cheaper.

48 But. the idea of ‘proactive cannibalization’ has taken grip of many strategists’ minds. It is not what our (currently) most profitable customers want. The new technology appeals to less sophisticated. It also has to ignore the wishes of existing major customers – he calls this ‘agnostic marketing’.Strategic thinking and thinking strategically Established manufacturers are bad at coping with these breakthroughs because they are so good at serving their customers. the reason they did not adopt them was that their customers did not want them. disrupted Compaq’s distributor-based approach to computer marketing. for example. but faster and cheaper. lower margin customers. so you might as well do it yourself and retain the customer. Christensen also tells us that few established firms succeed in adapting to disruptive innovation. The risk we face is that established firms. whereas many others ossify and perish? We suggest that the answer lies in the extent to which firms are prepared to give up the old and embrace the new. The product is not as good as what went before. sticking to tried-and-tested strategies with our major customers may blind us to changing market needs and competitors with new technologies. Cannibalization49 • • • One of the strongest traditional arguments against radical innovation is that we simply compete with ourselves – we cannibalize our own sales to our existing customer base. In other words. fail to see the threat of disruptive innovation in time because their customers do not see it. including its parent company. Executives often believe that it is unproductive for a company to compete with its own products and services. this throws up the awful spectre of competing with ourselves – cannibalization – which is anathema to the conventional marketer. At its simplest the logic is compelling – someone is going to compete with you and attack the sales of your products and services. rather than targeting those of competitors – it risks underexploiting existing investments for no gain in sales (or probably profits). of course. or ask for it. The best hope is to create an independent business with a completely new business model designed to attack the competition. The Internet. excelling in the core competences that keep their biggest customers happy. Firms must break out of the natural human trait that propels them to use yesterday’s bag of tools to solve tomorrow’s problems. but was an important sustaining technology for the direct marketers Dell and Gateway – the Web allows them to serve customers in the same way they always did. More elegantly expressed: What causes some firms to be radically innovative over long periods of time. need it. want it. 189 • • . However. These companies knew about the innovations in question. it may at the same time be a sustaining technology for others.47 It gets worse too – while the disruptive innovation undermines some business models. or the ‘innovator’s solution’.

1. and BA has simply established a stronger competitor for itself. although it is counter-intuitive for many managers and organizations. BA’s response was to establish its own ‘no frills’ airline – Go. However. in some cases you may have little alternative anyway. who promptly resold the business to easyJet. Reality Check: British Airways’ ‘Go’ Faced with the invasion of the British and European internal flight market by ‘no frills’. Predictably. when the price of innovation is to compete with your own products. A similar result was achieved by Buzz. but even then you have to be careful. willingness to cannibalize is one of the most powerful drivers of radical product innovation. with little impact on the ‘no frills’ operators. which was bought by Ryanair in 2003 for £15 million. February 1/2 2003. Having looked at buying their new competitors or putting them out of business (the full extent of BA’s competitive strategy repertoire from time immemorial). • • 190 . 3-11. the major effect of Go was to cannibalize sales of BA flights. while they still have options. Kevin Done. BA was ready to sell Go (for much less than the original asking price). For example. the rival low-cost airline. BA needed to respond to stop the decline in market share. and being prevented by the European regulators from doing either. but offered less service and convenience than BA’s regular flights. when they will have nothing left but a useless bag of tools. Defensive cannibalization – or at least cannibalization resulting from defensive strategies – is different to proactive cannibalization. low price operators like easyJet and Ryanair. Intel’s continuous improvement of computer chips and Gillette’s continuing introduction of improved shaving technology show proactive cannibalization that has positive benefits. ‘Ryanair Swoops to Land Buzz in £15 Million Deal’. Go was sold to venture capitalists 3i for £110 million.51 Of course. By 2001. Sources: Dominic O’Connell. Sunday Times. who continued to expand.Market-Led Strategic Change They must do so today. from the start Go was priced substantially higher than the ‘no frills’ operators. It appears to be a case of the biter being bit. October 26 2003. They must be willing to cannibalize before there is nothing left of value to cannibalize. Financial Times. p. ‘Cassani Throws a Book at Men Who Failed Go’. launched by KLM as its low-cost brand.50 These researchers conclude that. p. The end-result seems to be the conclusion that a conventional full-cost airline lacks the will or the ability to operate a ‘no frills’ operation. not tomorrow.

The issue is whether we 191 • • ..g.54 Quite simply.3). and minor brand extensions. and Pioneers – these are the businesses that represent real value innovations. because they will be instantly copied. e.Strategic thinking and thinking strategically Value innovation • • • Broad-based innovation is increasingly critical – extending far beyond new products and services to include ideas. Migrators – these offer conventional value improvements over competitors. and in modern markets you quickly reach the point of diminishing returns. it is no longer possible to beat the competition by making incremental improvements and changes. or invest for competitiveness against established rivals. One dominated by Migrators offers some growth potential. concepts and business models or face the alternative of ‘crash and burn’ – he says. non-linear innovation is the only way to escape the ruthless hyper-competition that has been hammering down margins in industry after industry’. 60% of the Fortune 500 companies disappeared.. but these generated only 62% of launch revenues and 39% of profits. ‘Radical. for example. Gary Hamel is critical. Their categories are: ● ● ● Settlers – these offer ‘me-too’ value. in product function improvements or design. in one major research programme. A portfolio that is heavy with Settlers leads to a company’s decline.53 For example. Their research suggests that the really high-performing companies in every sector are those who achieve ‘value innovation’ – they do not just imitate competitors. the study of 100 major new business launches found that 86% were ‘me-too’ launches.g. incremental change led by marketing departments in the past – his challenge is that we should be creating radical new products. based on equalling what their competitors do. the other 14% of launches – those radical enough to create or re-create markets – generated 38% of revenues and a massive 61% of profits. processes.55 An important insight comes from the work of W. The reason was that in industry after industry companies building innovative businesses raced ahead by replacing established firms who were focused on improving existing businesses. usually in the same way that they do it. e. the Dyson bag-less. or incremental improvements. business practices and designs52 – and is not just concerned with marketing’s traditional preoccupation with new product development. cyclone carpet cleaner. Chan Kim and Renée Mauborgne at INSEAD. they innovate in new value for customers. but is vulnerable to the strength of a value innovator. Their observation is that between 1975 and 1995. the Swatch watch. of the type of productled. By contrast. and so on. the Sony Walkman. the reality is that as products tend to converge and become more similar. because innovation linked to value determines our real growth prospects (see Figure 5. They suggest that one useful exercise is to assess our portfolios of products and service on their ‘Pioneer– Migrator–Settler ’ map. but often cheaper.

but it is an obvious extension of the iPod and iTunes music business.56 Big ideas • • • In many ways the heart of radical innovation is the search for ‘big ideas’. and there is the prospect of competing against the Blackberry in the business market. But this relies on the ability to create and resource ‘big ideas’. This may produce very different conclusions to those based on just looking at current numbers like market share. Harvard Business Review. Chan Kim and Renée Mauborgne. pp. IBM is putting some of its brightest and best talent behind new ventures that break free of the existing business. On the face of things.Market-Led Strategic Change Pioneers: value innovate High-growth trajectory Migrators: improve value Figure 5. 102–113 Settlers: me-too businesses Current portfolio Planned portfolio are gearing our planning towards Pioneers. To stay relevant and to succeed. It may not work. ‘Value Innovation: The Strategic Logic of High Growth’. January/February 1997. after the personal computer and the Internet. rather than settling for ‘small ideas’.58 After a history of missing out on some of the ‘big ideas’ when they arrived. By allowing software manufacturers to create programs custom-built for the iPhone – freed by the iPhone’s breakthrough touch screen from the constraints of fixed buttons and small screens – the goal is to allow the iPhone to develop into the ‘third great platform’ for software makers.3 The Pioneer–Migrator– Settler map Source: Adapted from W. as the underlying iPhone strategy unfolds. customer satisfaction and profitability – because these numbers all represent the past not the future. companies need bold innovative strategies.57 For example. The challenge is to continuously shift the portfolio away from Settlers. • • 192 . hardly a ‘big idea’ – you might ask whether the world actually needs another mobile phone. but it is certainly a ‘big idea’. 2007 saw the launch of the iPhone by Apple – the cutest mobile phone in the world. and to overcome inertia. or merely settling for the status quo. In fact. sales revenue. albeit based on out-of-date technology – with mixed sales results. narrowmindedness and risk aversion that provide barriers to true innovation – ‘big think strategy’. it starts to look like a very big idea indeed.

‘Never Forget to Nurture the Next Big Idea’.Strategic thinking and thinking strategically Reality Check: Nurturing the next big idea The fear in companies like IBM of missing out on new technologies and new opportunities. rather than relying on in-house development. ‘Horizon Three’ businesses. Because new ideas fall between organizational boundaries and sometimes conflict with existing business units. Innovation networks • • • The growing importance of collaboration and cooperation in innovation is underlined by Lynda Gratton’s research into ‘hot spots’ of energy and innovation in companies.61 Insight into new forms of collaboration and open-source innovation comes from Don Tapscott’s Wikinomics. are protected from the rest of the organization. in IBM as in many other companies. providing visibility and management sponsorship. Growing emphasis is being placed on developing an ‘ideas culture’ in companies. Financial Times. to prevent middle managers using their power to block new developments. and (3) a successful igniting of purpose – followed by making productive capacity available to create real value. as opposed to Horizon One businesses (mature businesses like mainframe computers) or Horizon Two businesses (current growth businesses).60 Her research sees ‘hot spots’ as points where people work together in exceptionally creative and collaborative ways. For ‘hot spots’ to emerge. as the company has in the past. They are put in separate organizational units with dedicated teams. 193 • • . The young Horizon Three business units are insulated from traditional management methods and performance yardsticks – efficiency measures can squeeze the life out of a promising new idea. that might not fit their personal agendas. the search for big ideas as the basis for radical innovation increasingly relies on collaboration with others and open-source approaches. The old. (2) an ability to span boundaries. May 15 2001. protective barriers set up by businesses around themselves are increasingly a barrier to the new open business models that underpin radical innovation.59 However. Source: Adapted from Richard Waters. Tapscott’s view is that if people from all over the world can get together to create an encyclopaedia – Wikipedia – there are no limits to what they can create. has changed the way it identifies and pursues promising new ideas. they are managed differently. they need: (1) a cooperative mind-set.62 A ‘wiki’ is a piece of software that allows thousands of people to edit the same website. There is a clear understanding that Horizon Three businesses benefit from personal sponsorship by senior managers.

but a new business model. Microsoft is tapping into a new talent pool with its advanced technology centre outside Beijing.64 It is likely that radical innovation will lie at the heart of strategic thinking in many companies. When Procter & Gamble needed a new chemical to remove red wine stains from clothing. P&G’s performance has seen a step-change improvement. As we noted earlier. in a massive turnaround of a business that had stalled. At a time when technology crosses borders faster than ever – because of the Internet. global innovation networks involve loose structures of in-house engineers.5 million people on the Web are more likely to come up with the solution than 9000 chemists in the company. flexible and fast • • 194 . they created a website called InnoCentive. having the capacity to move fast does not necessarily mean that this is the right thing to do in every situation. defending against attack and taking a new strategic position. For smaller companies. This is an ‘era of open innovation’. Under Mr Lafley.63 Worldwide innovation networks are increasingly central to maintaining and enhancing competitiveness. Israel. Timing and speed One of the most topical questions in strategic thinking concerns business agility and the capability in an organization to move quicker than competitors in responding to change. IBM has major labs in China. the most important innovations may be in how we change the ways in which we work. instead of turning to their own R&D department. and rival Unilever has been left behind. At Procter & Gamble. Business agility • • • We saw in Chapter 1 that growing emphasis is being placed on the value of strategic agility – developing nimble. G.Market-Led Strategic Change Wikinomics brings people together on the Web to create a giant new brain. Many companies have realized that going ‘open source’ or collaborating and sharing ideas means many innovations can be created and developed outside the company. Switzerland. The logic is that 1. cheap telecoms and advances in interactive design software – the location of R&D matters less than who controls the networks. under A. The classic corporate drive to research and develop was replaced by a ‘connect and develop’ strategy of working with outside partners. Japan and India. By 2007. Companies are exploiting this in the form of ‘crowd-sourcing’. Lafley the company has abandoned its reliance on in-house R&D. contract designers and manufacturers. However. university scientists and technology suppliers brought together around a single project. This may involve a worldwide research and development organization. organize and manage65 – the issue is not just a new product. 35% of P&G’s new products came from outside the company. where anyone could come up with a solution and be paid.

So speed is of the essence’. but the temptation for leaps into the dark remains. of course. Managers are constantly pressured to deliver ‘quick wins’ – how else do we ward off low morale. managers committing to making fast decisions. defend against aggressive investors?71 The systems modeller Russell Ackoff notes the dilemma with fast moves for quick returns: ‘The only problems that have simple solutions are simple problems . and (4) making mid-course corrections as new information becomes available. Complex problems do not have simple solutions’. We will look at this area in more detail in Chapter 11. Richard Branson explains: ‘A good idea for a new business tends not to occur in isolation.66 Donald Sull defines agility as ‘a company’s ability consistently to identify and seize opportunities more quickly and effectively than rivals’. there is a long history of cash-rich companies leaping into strange investments – it is more than thirty years since Gulf Oil tried to buy the Ringling Brothers Circus. Perversely. particularly if we see a ‘quick win’ in prospect. and often the window of opportunity is very small. and fluidity in resources in the organization. Fast strategy. At the other end. (3) making things happen quickly. now it is 6–9 months. H&M can get fashion clothes from sketch pad to the racks in its stores in just three weeks.70 However.72 Worse. or not so much • • • Part of the innovation imperative discussed earlier is speed. in an interesting move from hydrocarbons to lion-taming. relying more on collaborative strategic relationships and flatter structures to replace the slow-moving hierarchies of the past. build momentum. drawing on four qualities: (1) making sense of the outside world to spot opportunities as they emerge.68 Much of our thinking about organizational structure and process is driven by the need to become leaner and faster.Strategic thinking and thinking strategically reactions based on enhanced strategic sensitivity to change.69 In many companies the time to bring new products to market has halved in the last few years: at Nissan. .67 Sull argues that agility and flexibility allow a company to respond to change when the change is experienced rather than devising detailed plans. Nokia and Motorola used to take 12–18 months to develop new mobile phone models. Samsung partnered with XM Satellite Radio to bring the first portable satellite radio combined with music player to store shelves in 9 months from the partners shaking hands on the deal. . now it is 10½ months. Cash-rich companies tend to rush to invest in new markets when it might be more sensible to hang back. the development time for new cars used to be 21 months. net free cash may encourage management to fight wars of 195 • • . This is the basis for ‘fast strategy’. there is actually a danger that we invest in opportunities too quickly. it also follows that fast innovators like Virgin and Google are also fast to get out when things underperform. (2) making the right choices from the opportunities that present themselves. calm down the City analysts.

but it has created a market that it now has to share with AMD and others.75 • • 196 . this only works if the first mover also invests heavily in the technology and infrastructure to support the market position – moving first is not a strategy in itself. Initially. wider aisles and more helpful salespeople. in spite of the blood feud between the two companies and very aggressive tactics by Intel.74 The trouble is that as markets change in the turbulent and unpredictable ways we have described (Chapter 2).73 First mover advantage.Market-Led Strategic Change attrition – long-term struggles where the huge costs are justified by the prospect of a winner-takes-all outcome. and a greater appeal to the growing number of female customers for home improvement products. Home Depot’s less so. which is difficult for them to beat. and by the time competitors arrive the first mover will have secured a strong. when AMD ended Intel’s near-monopoly in server and PC chips. Lowe’s financial performance has been outstanding. achieving a dominant position as the desired standard by computer buyers – they looked for the ‘Intel Inside’ logo. cost and operational efficiency. Intel has recovered some of its market position through price-cutting and new product launches. as the alternative to ‘Big Bad Orange’ (Home Depot). being the second mover or later has never looked so good. as well as becoming the target for new entrants to the market. In the 1990s. Being first means picking up a lot of market development costs and overcoming a lot of barriers that the second mover can avoid. Advanced Micro Devices (AMD) – Intel was the pioneer of computer chips. Of course. only to face competition from Firefox – a browser developed by the open-source software community. Sometimes the winner does not take all. For example: ● ● Lowe’s versus Home Depot – Home Depot in the USA more or less invented the home improvement superstore. and grew a big company on the back of the concept. Since 2006. Lowe’s edge came from observing the first mover and competing differently. defensible position in the market. Microsoft won a war of attrition against Netscape for control of the Internet browser market. But this provided the space for Lowe’s to enter the market with brighter stores. AMD has been eating into Intel’s market with superior products. there is no competition in the market. or maybe not • • • Conventional strategic wisdom suggests that first-mover advantage means that the innovator – the first product to enter the market – will have an enduring strength over rivals. The now departed CEO Robert Nardelli took the view in 2000 that Home Depot would do best to compete on price.

that really attractive business opportunities are quite rare. rather than speed and trying to establish a first-mover advantage. of course. One spectator sport. volatile markets – and because they are seduced by the idea that they can gaze deeply into the future and create a long-term strategy that will produce sustainable advantage. those that reflect problems in our company (it’s our fault). the makers of Tylenol gained much acclaim for their response to the crisis in withdrawing the product. familiar markets stumble when they enter less certain. making preparations. For example. It’s not our fault • • • One type of problem is the ‘sniper crisis’. most people in the outside world don’t care whose fault it was – but it helps us get our mind around the impact of nasty surprises on the business. The most obvious answers are not necessarily the most useful ones. However. Of course.Strategic thinking and thinking strategically Active waiting • • • In fact.76 Making a reasoned decision on how quickly to move and the type of business model appropriate to deliver the speed required has become a key part of strategic thinking. Certainly you will be judged by your ability to cope with this kind of crisis. what is worrying is how this type of problem can quickly morph into the second kind of crisis. in some situations strategy may be more about ‘active waiting’. ready to seize opportunities and deal with threats. Managers cannot create a golden opportunity just because the business is in decline or investors are demanding more growth. Active waiting involves anticipating. In fact. He figures that successful businesses often falter because managers experienced in stable. 197 • • . suggesting that we should be ready when the big opportunities emerge and protect resources during the long periods of business as usual. In fact there are several different crisis situations to include in our thinking: crises that arise from events or changes which are not of our causing (it’s not our fault). and their timing is almost never under the control of an individual company. consider the 1982 recall of Tylenol painkillers in the USA after seven people died after a lunatic spiked bottles of pills. and those that reflect the failure of our strategies (it’s their fault). for example. and it wasn’t their fault. This is an emergency for which the company is generally not to blame (even though it might have done more to prevent it). The strategic issue is not just what to do but when and how quickly? Crisis and failure We underlined the issue of surviving crises in Chapter 1 – as well as the unpredictability of many such traumas and the disastrous consequences they can bring. making packages tamper-proof. Donald Sull argues. is looking at the excuses that managers come up with for why things went wrong. when they arise. and so on.

Excuses Offer a Degree of Light Relief ’. The company’s CEO and chairman. In 2007. Scandals at Enron. because apparently sports shirts stopped selling (there may actually have been wider problems at the sportswear retailer). in a spectacular illustration of ‘snatching defeat from the jaws of victory’. In winter 2008. p. 15. maker of Barbie dolls and Fisher-Price toys. Mattel. Likely candidates as standard excuses for the next couple of years: the weather. Retailers – blaming the weather for poor results has become an art form.77 Consider the position at Mattel.Market-Led Strategic Change Reality Check: (Un)Imaginative excuses The problem with making excuses is that people remember the excuses long after the problem has gone away – usually laughing at the perpetrator. turned attention away from what Mattel was doing to make things better when he declared in the Wall Street Journal that the company had been right not to tell regulators about the hazardous toys – he ended up being hauled in front of a Senate committee for a public thrashing. December 22/23 2007. Alistair Gray. He managed to deflect attention from Mattel being caught out by errors in supply chain arrangements. Sources: Alistair Gray. or arrogance.g.. wrongdoing. because the company is held responsible because of its carelessness. In a single week in 2007 companies as diverse as Royal Bank of Scotland. Financial Times. and focus it on Mattel’s • • 198 . M&S blaming poor sales on heavy rain in the summer 2007. Arthur Andersen and Siemens are illustrative. Financial Times. the weather. downturn in the housing market. though the rain apparently had no similar effect on Primark or New Look. uncertainty about government change. It’s our fault • • • The second kind of crisis is more problematic. Blacks Leisure – apparently global warming explains their falling sales and margins. British Airways and Trinity Mirror all blamed the poor weather for weak business results. had to withdraw thousands of products because some of the Chinese-made toys were decorated with lead paint. certainty about government change. The recalls cost about $100 million. p. Examples include: Sports Direct – profit warning issued the day after the England football team crashed out of the 2008 European football championships. 18. But you seemingly cannot win. ‘Come Rain or Shine. ‘John Lewis Blames Warm Spell for Sudden Slump in Weekly Sales’. February 23 2008. e. the ‘credit crunch’. John Lewis blamed their sales slump on the unseasonably warm weather.

which was cheaper and more affordable for consumers. Wal-Mart and some of the Hollywood studios backed Toshiba and it looked like the Toshiba format would win hands down. in particular. and to have questions raised about whether large customers are putting excess pressure on suppliers to reduce costs and actually causing the crisis themselves. following similar moves by Target. Toshiba’s CEO 199 • • . For Boeing. Best Buy and Blockbuster. Old saying: ‘when in a hole. and a month later Wal-Mart announced it would no longer stock Toshiba’s HD-DVD discs or players and was going over exclusively to Sony’s Blu-ray. was a major shock to Toshiba. This was an especially bitter shock after ‘strategic partners’ like Microsoft. in 2008 US aircraft maker Boeing had to deal with the shock of the US Airforce’s unexpected decision to give European aircraft maker Airbus the $40 billion contract to replace its ageing fleet of 500 Boeing tankers. The initial reaction was to formally contest the deal – faced with the prospect of abandoning its tanker business altogether. while Toshiba promoted its HD-DVD. and was the most recent in a series of damaging setbacks. Reality Check: Format wars The battle over the format for the next generation of DVD players was fought for five years between two rival groups: Sony led a group backing its Blu-ray technology. which it believes is the superior format. The decision was certainly also a surprise to senior US politicians who were outraged at the Airforce decision to use a European supplier for a major defence contract. the outcome was unexpected. The loss of this contract is likely to raise questions about Boeing’s other military aircraft projects. The Warner decision. In January 2008 Warner Brothers unexpectedly abandoned HDDVD as a format for selling its movies. but now have to find a way to recover.Strategic thinking and thinking strategically previous fines for not reporting hazards quickly. It’s their fault • • • Unexpected success of our competitors that displace the position we believed we had secured in a market can be nasty.78 A similar situation is faced by Toshiba in recovering from losing the next-generation DVD format wars with Sony. Boeing succeeded in persuading the US Government Accountability Office that the Air Force was at fault and the deal should be renegotiated. Toshiba built support for its format among movie studios (for selling their movies) and among major retailers for selling the players and discs. For example. stop digging’. This was the tipping point in the format wars between Sony and Toshiba. They were not expecting this body blow to the business.

delay makes things worse not better. big time. February 20 2008. Wall Street Journal. But there is an interesting argument that actually most things fail.79 Failure • • • The turbulence and disruption which are now commonplace in the markets we face had one very clear implication – we will fail more often than in the past. January 7 2008. personal computers and disc players to win back its place in the consumer living-room. Wall Street Journal.Market-Led Strategic Change was so angry with Warner executives at the resulting press conference. Mariko Sanchanta. 28. Andrew Edgecliffe-Johnson and Maija Palmer. the company warned investors of a 31% fall in expected profits for the coming year. ‘Sony Wins Next-Generation DVD Battle’. Shortly afterwards. February 20 2008. February 20 2008. p. and (5) be resilient and continue to innovate. 99. not your ego. Losing the DVD business is a serious blow to Toshiba’s plans to expand its consumer electronics business. Financial Times. p. he lost his cool. 7. The existence of failure is one of the unmentionables in many businesses. 28. Late-February 2008 Toshiba announced its withdrawal from the high-definition DVD business. ‘Toshiba Regroups After Ceding Fight Over DVD Format’. (4) be a proactive leader and clearly communicate your decisions. Sarah McBride. Toshiba now has to shift its strategy to focus on televisions. nor is failure. so the issue is how we prepare to survive the disaster. and on the other that more than • • 200 . Sources: Yukari Iwatani Kane. (3) act quickly and decisively. on the one hand. p. ‘Blu-ray Lands a Major Ally’. (2) work with the facts and listen to the market. Toshiba CEO Atsutoshi Nishida suggested five tips for overcoming a crisis of this kind: (1) keep in mind that business without risk is business without growth. and its strategy of delivering interconnected digital electronics products with HD-DVD at the centre. Interestingly. 6. Paul Ormerod draws an analogy between biology and economics to point out that. Financial Times. Failure to secure an HD-DVD deal with Bollywood or in China may also have been a critical problem.99% of all biological species that have ever existed are now extinct. success is not forever. Toshiba may have underestimated Sony’s determination not to lose another format war – twenty years earlier Sony’s Betamax had lost out to VCR. p. Former Toshiba supporter Microsoft was quickly in talks with Sony about sharing Bluray and incorporating a Blu-ray player in the next generation of Xbox 360 games consoles. ‘Betamax Memories Are Erased at Last as Blu-ray Triumphs’.

p. Q: What are they? A: Wrong decisions. P&G’s feminine care division actually has a ‘fail forward’ award every year to recognize the failures from which the company has learned.81 It is easy to mistake spectacular short-term success for long-term success. Reality Check: Making mistakes Q: What is the secret of your success? A: Two words. Those who stand still are simply waiting to have their businesses taken away from them. been absorbed into other companies. Lafley says that the challenge is ‘to encourage hope. at P&G the company enjoys a success rate of 60% on innovations. There is a strong case that success is both relative and usually transitory – believing otherwise is to be deceived by the ‘halo effect’ surrounding management theories and heroes. for the story to change dramatically in a couple of years. Lafley says that is as high as he wants it to go – any higher would be playing safe. which is what creates progress). Indeed. Companies fail because they do not adapt to their customers’ changing needs. G. 201 • • . . Brands fail because they do not evolve. the Swiss-Swedish engineering group. or to new competitors. ‘U Turn If You Want to On the Road to a Bad Decision’. We will pursue this issue further in examining organizational change issues in Chapter 11. the US Internet equipment maker. October 16 2007. Q: What are they? A: Right decisions. or they evolve in the wrong way. enjoyed incredibly positive media coverage and academic acclaim in the 1990s. One strategic challenge now is to sustain the slickness and speed of manoeuvre to spot trouble and get clear before it is too damaging. Cisco. 16. only 19 were still in the list by 1995. but the CEO A. . was first hailed as an all-conquering colossus. He argues that adaptation is the key to survival and that the weak fall by the wayside – of the top 100 global companies in 1912. ABB. then damned as an irresponsible shambles by the same people.83 The nature of crisis and business failure underlines the search for business agility we noted in Chapter 1. Source: Adapted from Stefan Stern. discourage blind faith’. or gone bankrupt. technologies and skills are replaced by the new. the rest having declined. Q: How do you get that experience? A: Two words.80 Ormerod follows the logic of Schumpeter’s ‘creative destruction’ (old ideas.Strategic thinking and thinking strategically 10% of all the companies in America disappear each year. Financial Times. Q: How do you make right decisions? A: One word. Part of our strategic thinking has to accommodate the temporary nature of success and the need to continually adapt. Q: What is that? A: Experience.82 Nothing lasts forever .

Ethical standards • • • In the past. However. People are susceptible to two opposite and unhelpful reactions to the risk of disaster – panic and utter neglect. and along with it the ethical issues surrounding strategic decisions. Even without this formal requirement. standards in the way in which supplier relationships are conducted. formal ethics codes and processes require decision makers to show that they have displayed due diligence in evaluating the ethical dimension of their choices and decisions. which are often not that unpredictable. The cost and type of potential ‘damage control’86 should factor into assessing the attractiveness of a strategic option. the moral dimension of business has greatly expanded.87 Behaviour that is regarded as uncompetitive. as executives try to steer a path between wilful inaction (pretending things cannot go wrong) and reckless overreaction (avoiding situations where there are risks. and the avoidance of such situations. This has become a seriously big deal. as well as concerns about customer relationships. or spending on protection against risks which are not very serious). relationships with competitors and whether they are managed with integrity. and not to us. the requirements for fair and proper behaviour in the conduct of relationships with partners in strategic alliances and networks. In growing numbers of companies. Strategies developed for the future in today’s companies increasingly have to satisfy moral concerns as well as commercial goals. can attract substantial penalties. perhaps a bigger issue – regardless of whose fault it is – is how we let ourselves get taken unawares by emergencies. but not soon. and the dangers of treating some unfairly by favouring others. A recent review of the literature of disaster suggests two major issues: (1) the nature of human cognition – we can imagine terrible things happening. Social legitimacy Another of the themes we introduced in Chapter 1 was concerned with social legitimacy and corporate social responsibility. and (2) the incentives to prepare for disaster are often very poor. smart managers are increasingly reluctant to risk actions that may be perceived as unethical • • 202 .84 Nonetheless.Market-Led Strategic Change Why do we get caught unawares? • • • However. ethics concerns in marketing and sales were focused on issues like misleading buyers and misrepresentation as a form of dishonesty. examining ‘worst case scenarios’ is becoming a priority in many areas of decision making. That broadening of interest has extended ethical dilemmas to: the way in which a company treats its employees and the demands it places upon them. in particular.85 Strategic thinking needs to recognize and evaluate the potential for crisis and failure and how to cope.

bad boys.Strategic thinking and thinking strategically and impact negatively on corporate reputation and the costs of doing business. the media and their customers. BAE is the biggest foreign supplier to the Pentagon.000 employees are in the UK. Allegations include: Saudi Arabia – bribing Saudi officials for lucrative arms contracts: claims are that Prince Bandar was paid £1 billion over ten years by BAE under the £43 billion Al Yamamah deal to supply Tornedo fighter jets (which both parties deny). but the long-term impact on costs and strategic freedom are unlikely to please shareholders or customers. there were government concerns that the corruption investigation would jeopardize the £4. South Africa – claims of bribes for warplanes. an aggressive company culture has caused frequent conflicts with the British government. s/he is unlikely to be inviting you to a game of whist. BAE has achieved outstanding success in the US market – which accounts for 54% of the global £580 billion spent on defence each year. because Riyadh was not pleased with the threatened exposé. Transgressions may not even bring direct penalties. The company has also been accused of private intelligence-gathering operations that secretly infiltrated antiarms trade groups and other ‘dirty tricks’ to stifle protesters. the Serious Fraud Office is looking at off-shore payments through agents associated with the Czech Republic (a planes deal). In fact. leading to inflated prices. watcha going to do when they come for you? BAE is Britain’s biggest defence contractor. relish explaining unethical practices to their shareholders.43 billion deal to sell Typhoon fighter jets to Saudi Arabia. although continuing to probe activities in six other countries. In the UK. controversially the Serious Fraud Office dropped its investigation into BAE’s dealings in Saudi Arabia. to get him to drop the probe into the Saudi arms deal for ‘security reasons’. A judicial review 203 • • . Other stakeholders may be even less pleased. and are unlikely to thank you for providing them with the opportunity to do so. Australia – paying ‘hush money’ to two Australian airlines to silence them about toxic fumes escaping into the cabins of BAe 146 jets. and is one of the UK’s biggest employers – 34. Then Prime Minister Tony Blair was accused by a senior judge of ‘holding a gun’ to the prosecutor’s head. in my experience. Reality Check: Bad boys. Chile (another planes order) and Romania (refurbishment of two frigates).000 of its 96. Tanzania – Tanzania’s top corruption investigator plans criminal charges relating to BAE’s sale of a £28 million radar system for air traffic control. In December 2006. Put it this way – few CEOs. BAE’s stellar performance has been surrounded by a mediastorm of criticism relating to accusations of corrupt business practices in overseas markets. When the CEO says ‘get your cards’.

with the theme ‘Real Pride. 63. September 28 2003.88 The issue concerns the impact of business on societal issues as diverse as environmental concerns to employment conditions. October 17 2007. p. At the very least. even if no action is taken against the company. Sources: ‘Arms Firm Waged Dirty War on Protestors’. strategic thinking has to examine the social impacts of proposed strategies. in June 2007 the US authorities launched their own probe into the Saudi deal. Late in 2007 CEO Mike Turner announced he would be leaving his job in 2008. June 12 2007. ‘BAE Systems Launches Ad Blitz’. Less susceptible to Saudi pressure than the British. Michael Peel. p. in the wake of continuing negative publicity surrounding the company’s involvement in the SFO investigation into the Saudi arms deal. ‘BAE Tightens Its Defences’. Links between Downing Street aides and BAE. The risk is that our strategy fails because. five years earlier than planned. p. and this becomes an issue which must be justified by benefits offered and offsetting opportunities. In mid-2007 former Lord Chief Justice Lord Woolf was appointed to chair a BAE ethics committee to scrutinize how the company conducts arms deals with foreign governments. and consider whether they are justified. revealed in SFO investigations. A major concern is that investigations into bribery corruptions by US authorities will harm relationships with the Pentagon. January 31 2008. p. Real Advantage’. December 7 2007. Daily Mail. we cannot deal with the suppliers required. ‘Pressure on Ministers over BAE Probe’. and further acquisitions in the US may be blocked by the Department of Justice. A defensive perspective on CSR requires that we factor such issues into thinking about strategy. 1-1. Sunday Times. Financial Times. a proactive stance on CSR goes much further and looks for ways to combine societal goals with business goals • • 204 . our customers will not accept the legitimacy of what we are doing. Sylvia Pfeifer. Daily Mail. p. Financial Times. for example. 4. have done little to repair the company’s relationships with the UK government.Market-Led Strategic Change later castigated Blair and his officials for giving in to Saudi political pressures and abusing public trust by claiming national security as the reason for the action. 73. The reality is that factories and distribution networks almost unavoidably produce pollution of various kinds. and requested legal assistance from the UK (which was not forthcoming). ‘Lord Woolf to Chair BAE Ethics Group’. Alex Brummer. BAE planned a big advertising campaign in an attempt to ‘reinvigorate’ its image with key stakeholders. Karl West. 18. this announcement taking 8% off BAE shares. As we noted in Chapter 1. In 2008. or competitors exploit our vulnerability in a ‘holier than thou’ stance. Corporate Social Responsibility (CSR) • • • We introduced the related issue of CSR in Chapter 1.

and has expanded to employ 43. and the same standards apply to products made internally. ‘Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility’.6 billion. Kramer. All aspects of the business directly reflect its value proposition. December 2006. Elizabeth Rigby. Whole Foods is an extreme example. This is intellectually far more challenging but may constitute one of the most important opportunities for breakthrough strategies in new markets. Sourcing emphasizes purchases from local food producers through each store’s procurement process – buyers screen out foods containing any one of 100 common ingredients the company considers unhealthy or environmentally damaging. opening a store in Kensington. The UK market for organic food is expected to be worth £2. The Whole Foods model relies on attracting the provenance-conscious consumer. 78–92. Whole Foods arrived in the UK in 2007. natural and healthy products to consumers who are passionate about food and the environment. so baked goods contain only unbleached and unbromated flour. Daily Mail. Its green credentials are given a fashionable lustre by celebrity customers such as Charlize Theron. with plans to roll out to other metropolitan centres – it believes the UK can support 40 of its large stores. Sources: Michael E. 16. 205 • • . The CSR question will be considered further in examining value propositions in Chapter 8. and selling smaller baskets of higher margin products rather than the traditional weekly family shop. Gwyneth Paltrow and Angelina Jolie. Environmental standards extend to the way stores are built and the use of energy and to recycling. The business started as a farmer’s cooperative in Texas in 1980. pp. Financial Times. The company has created the Animal Compassion Foundation to develop more natural and human ways of raising farm animals. Reality Check: The wholesome Whole Foods Market phenomenon Whole Foods Market is a US food retailer with a value proposition to sell organic. ‘Organic Store That’s a Whole Lot of Trouble for the Supermarkets’.000 workers and achieve annual sales of £2.Strategic thinking and thinking strategically in our business model.4 billion by 2010. p. June 7 2007. Harvard Business Review. June 2 2007. 31. Porter and Mark R. Social issues are central to what makes Whole Foods unique and able to charge premium prices. p. ‘Whole Foods Opens Flagship Store’. Sean Poulter. but makes the point.

Second. Moving management thinking from operations to strategy is not easy – it may mean separating them mentally and physically from day-to-day business to allow a longer-term focus. in packaging. but have good ideas. It may also be about weird people who do not talk like real managers. Strategizing Management processes Planning/ budgeting Existing/same Strategy New Figure 5. Planning and budgeting is essentially about the short-term and existing strategies. Consider two horrible words. in selling approaches and in distribution.4. tactivizing – I have invented this word to describe the process of innovation and originality in marketplace tactics – in advertising. in pricing. Thinking strategically is about strategizing processes. coming up with innovative ways of capturing the customer’s attention may be vital to stand out from the competition. Far from it – positioning a brand in the customer’s mind may be a critical element of competitive success. The danger is when we confuse the smart tactics with having a strategy. The difference can be discussed around the structure in Figure 5. Strategizing We need to be a lot more defiant in demanding creativity and originality in marketing that goes a lot further than natty advertising campaigns and cute branding. to achieve breakthrough thinking and creative outcomes. But it is also about the way people think.Market-Led Strategic Change Thinking Strategically Creating the space to think strategically means recognizing that strategy involves different processes and mind-sets to planning and budgeting. This is rarely easy. in sales promotion. strategizing is mainly about the longer-term and new strategies. and ideas like the ‘opposable mind’.4 Strategizing processes • • 206 . First. strategizing – most important is creativity in developing new ways of doing business and new processes of going to market. There is nothing whatever wrong with creativity in tactics.

and finds that managers seem to be crying out for strategy approaches that engage both head and heart – very few managers were engaged to the extent they found their company’s strategic thinking exciting.’93 Innovators need to be sensitive to organizational politics and the need for top manager champions as well as creative.’89 In short. If you get its full attention and hold a biscuit in front of its nose. Smart tactics should follow smart strategies. they are designed to do more of the same. there are a lot of barriers to thinking strategically in companies. let’s emphasize creativity in building new strategies – strategizing – not just in new advertising and promotional ideas – tactivizing. research by McKinsey suggests that less than half of executives are satisfied with their company’s approach to making strategic decisions. Interestingly. organizational structure and how time is used – leads to the most durable competitive advantage. In fact. it goes down on all fours’. general naysaying and subtle signals that it might not be “career smart” to associate with the project. being innovative can positively damage your career – the rewards of success may be small.Strategic thinking and thinking strategically This is where reinvention comes in – it is about developing a new business model. it might take a few steps. not the other way around. Gary Hamel jokes: ‘Trying to get an organization to innovate is like trying to teach a dog to walk on its hind legs. Strategy consultant Cognosis has investigated peoples’ experience of strategy development and their attitudes towards the process.90 There is work to do here in many companies. The importance of strategizing is underlined by a simple but very powerful quotation from the writings of Peter Drucker: ‘A company beset by malaise and steady deterioration suffers from something far more serious than inefficiencies. while management innovation – changing decision-making. Some barriers are easier to deal with than others. Researchers suggest that in some companies. Doing new stuff in old organizations • • • Most organizations are not designed to do new things.91 Hamel argues that ‘management monotony’ undermines innovation by its obsession with budgeting and ‘best practice’. In one project researchers observed: ‘The usual organizational antibodies were applied in an attempt to neutralize it: withholding of funding. derived from how they are currently organized and managed. Its “business theory” has become obsolete. the fact is that most managers work in organizations that give no incentive to explore new ways of doing things. there may be positive incentives not to try. Barriers to strategic thinking and thinking strategically In fact. 207 • • . while the risks of being pilloried if the project fails are substantial – and innovators may be seen as an ‘irritating virus’ that should be subtly discouraged. But as soon as you turn your back.92 However.

95 Challenging management assumptions – delusions – and stereotypical views of what will work and what won’t has led to the call for ‘evidence-based management’. Financial Times. ‘U Turn If You Want to On the Road to a Bad Decision’. flawed thinking about ‘best practice’. Evidence-based management • • • Almost in despair. single explanations of performance. October 16 2007. this presumes that we use evidence to challenge false beliefs. . Earlier someone had suggested interrupting a nice family game of dominoes to go on a four hour round-trip to eat at a not very good restaurant. Tracking the delusional stereotypes and assumptions held dear by managers helps to understand why clever people make bad. rely on naive theories of behaviour and ignore obvious answers. Management delusions confuse correlation with causality and look for simple. The drive is dusty and tedious. quoted in Stefan Stern. 16.Market-Led Strategic Change The halo effect • • • Phil Rosenzweig describes the ‘halo effect’ as first among a series of delusions surrounding management decision making. For example. short-sighted decisions. ‘I only went along with it because I thought the rest of you wanted to go’. . leadership. When back home. It just happened.94 Once delusions become part of management culture. ‘miracle cures’ from consultants. it is difficult to persuade people that they are wrong. Source: Jerry Harvey. to arrive at invalid statements of what drives performance – attributions based on prior performance are a poor indicator of the real success factors for the future. The halo effect looks at the company’s overall performance and makes attributions about its culture. values and so on. consider the Abilene Effect. Jeffrey Pfeffer asks ‘What were they thinking?’ when he looks at business decisions that fail to consider the unintended consequences of their actions. Neither is the intention to succumb to the ‘mania for • • 208 . and frequently are little more than ‘half-truths and total nonsense’. The challenge of evidence-based management is to substitute hard evidence for ingrained management beliefs which are often based on flimsy information. some 53 miles away. It is hot. Reality Check: The Abilene effect The Abilene Paradox helps explain how decisions just emerge without ever actually being ‘made’. p. Texas to Abilene. No one wanted to go to Abilene.96 Of course. not as a barrier to screen out any new ideas for which hard evidence is scarce. one by one all four confess they would rather have stayed at home . There are four people in a car going north from Coleman.

the industry was dominated by two business models: large hotels that had the economy of scale to offer business travellers extra services.97 Geeks may yet rule the world – in fact. When he started out. managing mavericks will be far from easy. Companies need to think about attracting unconventional people with unconventional ideas – weird people – to become in-house mavericks. but are too shy and nerdish to tell the rest of us.99 While most decision makers follow a ‘this or that’. For example.98 He argues that far from benchmarking against competitors. or the ability to hold two opposing ideas in mind at the same time. Dan Cable argues that if your goal is to create something that is valuable. ‘either/or ’ approach that oversimplifies the complexities of the real world. The opposable mind Research by Roger Martin reveals the interesting characteristic of successful strategic leaders is their ability to reconcile contradictions and to integrate profoundly differing views – integrated thinking. and importantly they would pay for it. Having strange people in the company may be a corporate resource. we should aim to accentuate differences in our thinking.Strategic thinking and thinking strategically measurement’ as a substitute for thinking strategically. but this is not just about the new economy – companies like IBM and Procter & Gamble are also exploring ways of capturing maverick creativity and innovation to channel it into mainstream business. That way you can focus on an obsession with commitment to doing things differently (and better) than anyone else. because ‘stars don’t work for idiots’ and they need a ‘maverick-friendly’ environment in which to operate. 209 • • . Google is a high performer that employs strange people. The goal is to challenge prevailing misconceptions before it is too late. Strange is weird but good in thinking strategically. fancy communications and stylish dining facilities. every one a prima donna. integrative thought processes allow people to embrace contradictions and build better strategies. Sharp realized that many business travellers wanted both intimacy and service. then compared to your competitors. and small hotels that offered intimacy but few services. However. He fused elements of two contradictory business models to create a successful new strategy. rare and hard to imitate. even to the point of becoming a little weird. Weirdos There is also something in the view that fresh thinking about important issues should not be the preserve of conventional executives skilled in running the existing business. they may do already. your people need to be downright strange. Isadore Sharp of Four Seasons hotels has created one of the world’s most respected luxury hotel brands. Conventional logic was you had to have revenue from at least 1000 rooms to offer secretarial help.

but they allow us to simplify complex situations and make an appropriate response. but the need for fresh thought processes to deal with the world’s contradictions and complexities suggests we should try. uninspiring.) Emotion • • • There are some grounds for wondering whether the way we approach strategy shows an over-reliance on rationality. fine. Everybody can do “or”. everybody can do trade-offs. The more variables we consider.Market-Led Strategic Change Similarly. as we try to make complex decisions fit into our strategic decision-making frameworks.100 Strategic thinking needs to generate emotional engagement as well as intellectual excitement. the harder it is to make the right decision. But you’re not going to win if you are in a trade-off game. there is pretty solid evidence that gut feeling or intuition often beats considered reasoning in making complex choices – this is.102 Leaping to a quick decision. Rather than choosing between price or quality. But it often gets us worse ones – standard. What we describe as ‘rules of thumb’ may be based on complex calculations. profits were falling. but there should be some joy as well.’101 He has a point – it may be hard work thinking strategically. Strategy doesn’t only have to be a position. and it had just issued two consecutive profit warnings.’ Learning to be an integrative thinker may be difficult. He said: ‘We weren’t going to win if it was an “or” . results when the unconscious sifts through the situation in • • 210 . Lafley improved innovation by outsourcing half of all product development to smaller companies and laboratories. Senior managers were in two camps: those who wanted to cut prices and compete on price. . when A. Henry Mintzberg complains in Strategy Bites Back that ‘Everybody is so serious. the intelligence of the subconscious. G. The power of creativity. (Actually. judgement and emotion Much of the reality of thinking strategically is about intuition and emotion rather than fact-based rational choices. it has to inspire. while also cutting the cost of centralized R&D. Lafley took over at Procter & Gamble in 2000 it was losing market share to cheap generics and retailer brands. If that gets us better strategies. and those who wanted to invest in new products. . or having a hunch. Gut-feeling and strategic intuition • • • Interestingly. strategic thinking and new models can be linked to hard analysis in the ways we look at next. Intuition is a neurologically based behaviour that has evolved to ensure that humans respond quickly when faced with a dilemma – too much data disrupts the process. generic. So an uninspiring strategy is really no strategy at all.

as they prepare to make judgement calls. may be critical to making strategic thinking effective. Science reveals that the so-called ‘Aha!’ moment is a flash of insight or a special form of intuition – strategic intuition. strategic intuition. throws out irrelevant information and focuses on what really matters. Judgement • • • Related work focuses on judgement as a characteristic of successful management decision making and leadership. Good judgement calls result in well-informed. This gives us three types of strategic ideas: strategic analysis. Certainly research suggests that judgement does not occur in a single moment. where you study the situation you face. Leadership and thinking strategically • • • Stimulating and rewarding creativity and innovation is mainly an issue of leadership. but grows out of a process: preparation – cutting through complexity to get to the heart of an issue and looking for ideas. Science identifies three types of intuition: ordinary intuition is just a feeling or gut instinct. expert intuition is snap judgements. and strategic planning. the research goes further.104 In fact. persuading managers trained in conventional top-down planning and budgeting systems that there is a better way of doing things based on strategic intuition may be tough. execution – making it happen while learning and adjusting along the way. where you work out the details of how to do it.103 In trying to make management and marketing more ‘scientific’ we may have overlooked the power of people to make smart decisions through intuition. Making judgement calls is arguably the central element of leadership.106 Understanding how leaders sense. Aligning strategic thinking with the process through which senior managers make judgement calls is likely to enhance the chances we are taken seriously. the call – a clear ‘yes’ or ‘no’ and explanation. The unconscious mind is so good at this it often delivers a better answer than protracted and more deliberate ways of thinking – the power of thinking without thinking. when you instantly recognize something familiar. better to watch for opportunities with large payoffs at low risk. There are lots of views on what form that leadership 211 • • . the logic of strategic intuition has other implications too. Fixed goals lead organizations to miss out on the profits of opportunistic flexibility. and only then set goals. where you get a creative idea for what to do. In fact. In this way we can progress through ‘opportunistic innovation’. It suggests that grandiose corporate statements about ‘set big goals and do whatever it takes to achieve them’ are not only banal but also wrong. wise decisions that produce desired outcomes.105 However. But judgement is difficult to pin down. frame and align issues.Strategic thinking and thinking strategically front of us looking for a pattern. The commonplace formula has things backward – instead of setting goals first. and strategic intuition is not a vague feeling but a clear thought.

However. not where’s the result?107 Others suggest that the role of the manager is to protect those working on innovative projects from attack and criticism from the rest of the organization – particularly the ‘brand police’ with their vested interests in existing brands not innovations. Strategic thinking is what gets you to the strategic pathway.108 and the importance of designing and leading supportive cultures. the strategic pathway simplifies them. it probably only does this if you create the space to think strategically . . Encourage the flow of ideas outside work – social interaction can facilitate new ideas. but also give you credibility in pursuing change. . and that’s why you get paid a lot for doing strategy. suggests the following guidelines: ● ● ● ● ● ● Under-define jobs – so people have the time. Pair visionaries with implementers – to cultivate both sets of skills. partnering with customers. Evaluate the process not the short-term result – ask how things are moving and what is happening. Bringing in outsiders. Strategic thinking complicates things. and plans can be developed. . Gulp. establishing separate organizational units are all described by companies as part of their attempts to provide a useful setting for creativity and innovation. but nothing ever happens because no one knows what you are talking about.109 In this sense.5): a set of issues that can be clearly communicated. • • 212 . this does not mean you want the resulting strategy to be so complex and difficult to understand that only you know what it means (you think). the manager’s role is to remove the obstacles and barriers to creativity and innovation. . No One Is Ever Going to Understand All This . and you are struggling to express it in ways that anyone else can understand. This is why we are moving on to pin strategy down in the strategic pathway (Figure 5. Do not over-map the journey – being over-analytical and demanding to know the outcome at the start can kill creative thinking. But there again.Market-Led Strategic Change should take. Paul Horn. where decisions are made explicit. You were warned that strategic thinking has to deal with a diverse set of issues that are incredibly difficult to pin down to specifics and are ambiguous and conflicting. For example. Brainstorm with people who use what you sell – customers bring problems. This has been a failing of strategizing in the past – very clever. space and freedom to develop new things without being totally constrained by a defined role. Director of IBM Research.

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Stephen. January/ February 1997. Fast Strategy: How Strategic Agility Will Help You Stay Ahead of the Game. Henry W. p. 72. 57. ‘Scouring the World for Brainiacs’. • • 216 . p. ‘The Albatross of Product Innovation’. Cane. 63. August 11 1998. 2000. Management f-Laws: How Organizations Really Work. ‘Speed Demons’. Tasaddura and Philip C. ‘Flexibility Takes Over from Plans in an Agile World’. 2007. PA: Wharton School Publishing. 71. 2007. 2007. Harlow: FT/Prentice Hall. 62–66. Hamel. Leading the Revolution. ‘Value Innovation: The Strategic Logic of High Growth’. 55. Kim. Kim and Renée Mauborgne. Overell. November 21 2007. 16. Doz. Hamm. 65. Business Horizons. 2007. Giant Steps in Management: Innovations That Change the Way We Work. p. Stefan. Yves and Mikko Kosonen. 69. August 11 1998. 67. MA: Harvard Business School Press. 11. pp. MA: Harvard Business School Press. Financial Times. 2000. 61. 2007. pp. Quoted in: Cane. Kevin. Steve. 60. Shervani. Philadelphia. 59. Innovate and Succeed. BusinessWeek. Boston. pp. Ancona. W. MA: Harvard Business School Press. Chan. March 27 2006. Financial Times.. 2007. ‘Apple Unveils iPhone Grand Plan’. ibid.. 102–113. Pete. Boston. p. MA: Harvard Business School Press. p. October 11 2004. Gratton. Harlow: FT/Prentice Hall. Hot Spots: Why Some Companies Buzz With Innovation – And Others Don’t. 2007. Don and Anthony Williams. Boston. 64. Financial Times. BusinessWeek. 67–76. Big Think Strategy: How to Leverage Bold Ideas and Leave Small Thinking Behind. ‘Good Ideas to Generate More Good Ideas’. Devon: Triarchy Press. Engardio. Axminster. ‘Pioneers Strike It Rich’. 56. 66. Chesbrough. Financial Times. Allison. 6. Quoted in: Hamm. Kim. 70. pp. The Big Idea. Russell. W. Stern. Open Business Models: How to Thrive in the New Innovation Landscape. ‘Pioneers Strike It Rich’. 62. W. 53. London: Atlantic Books. Ackoff. X-Teams: How to Build Teams That Lead. London: HarperCollins Business. February 27 2007. March 10 2008. Robert. 54. Chan and Renée Mauborgne. 68.Market-Led Strategic Change 52. 2006. Gary. 58. Mol. June 28 2005. Chan and Renée Mauborgne. Michael J. ibid. Alan. 57–62. Deborah and Henrik Bresman. Financial Times. Jones. Boston. Lynda. Tapscott. 12. Wikinomics: How Mass Collaboration Changes Everything. p. Harvard Business Review. 23. Schmitt. Bernd H. and Julian Birkinshaw. Financial Times. 11. January/February 1997. ‘Easy Appeal of a Quick Win Will Lead to Losses in the End’. Zerrillo.

88. Simon. Quoted in: Stern. January 3 2007. and Ram Charan. 9–11. January 25 2006. Boston. p. Hamel. FTMagazine. Financial Times. 4th edn. 25. ‘Strategy as Active Waiting’. 2007. 2008. Graham. ‘A Turnaround Primer ’. Rosenzweig. 15. 2007. March 3 2008. Paul. 81. John. March 20 2006. February 2 1993. Ormerod. February 20 2007. Financial Times. ‘Second-Move Advantage’. Financial Times. Wall Street Journal. 2007. 8. February 2–3 2008. 30–31. 23. p. pp. p. November 30 2005. Gapper. ‘Superstar Yarns That Dazzle and Delude’. MA: Harvard University Press. Jon Burger. Peter. Nigel F. Stefan. New York: Simon & Schuster. Stefan.. Financial Times. ‘A Surplus of Cash Inevitably Leads to a Shortage of Sense’. Wall Street Journal. Stefan. Morgen. Michael. Lafley. Fortune. p. 91. Marketing Strategy and Competitive Positioning. 87–102. ‘Corporate Doers and Thinkers Miss a Chance to Experiment’. Kane. p. The Halo Effect: and Eight Other Delusions That Deceive Managers. ‘No Reason to Put Mattel on the Rack’. 120–129. Financial Times. Financial Times. Sull. 2008. Stern. Damage Control: Why Everything You Know About Crisis Management Is Wrong. 9. 76. Hal and Demitri Sevastopulo. p. Stern. Donald. Why Most Things Fail: Evolution. 217 • • . Financial Times. Nigel. 85. A. Witzel. 89. Harvard Business Review. 2007. Harlow: FT/Prentice Hall. Gary and Bill Breen. Boston. 84. Skapinker. 13. September 17 2007.Strategic thinking and thinking strategically 73. Kevin. p. ‘Toshiba’s Strategy for Post-HD DVD World’. Chichester: Wiley. 2007. March 3 2008. ‘When Disaster Strikes’. 87. ‘Ethical and Moral Dilemmas Associated with Strategic Relationships between Business-toBusiness Buyers and Sellers’. See: Hooley. Yukari Iwatani. Philip. September 2005. Chapter 18. 75. pp. Sunstein. 23. Extinction and Economics. 72. New York: Portfolio. 82. 77. Financial Times. London. New York: Crown Business. Cass R. ‘Harshest Setback in Boeing’s Woes’. August 12 2002. pp. Worst-Case Scenarios. 78. p. G. 79. Piercy and Brigitte Nicoulaud. Piercy and Nikala Lane. ‘Wanted: More Emotion and Less Rationality About Strategy’. 9. 90. The Future of Management. 80. Journal of Business Ethics. 2008. 15. Dezenhall. 92. Drucker. March 3 2008. The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation. ‘Victory in US Gives EADS a Timely Lift’. 86. Weitmann. Eric and John Weber. Done. 83. F. p. MA: Harvard Business School Press. ‘First Mover Advantage: Prelude to a Longer Plan’. pp. 74.

Financial Times. Financial Times. Christopher M. Change to Strange: Create a Great Organization by Building a Strange Workforce. Strategy Bites Back. ‘Making Judgment Calls: the Ultimate Act of Leadership’. Richard. 2007. Taylor. Gut Feelings: The Intelligence of the Unconscious. McDermott. Financial Times. Kay. MA: Harvard Business School Press. Cable. Jeffrey and Robert I. January 26 1998. Boston. Financial Times. Duggan. Mavericks at Work: Why the Most Original Minds in Business Win. Harmondsworth: Penguin. 94–102. • • 218 . August 20 2002. 97. MA: Harvard Business School Press. Skapinker. 103. Pfeffer. Rosenzweig. ‘Keeping a Lid on Egos at Work’. Jeffrey. ‘Creativity and the Bottom Line’. Horn. Robert W. 2007. Ibid. William. Boston. 102. MA: Harvard Business School Press. PA: Wharton School Publishing. John. Mintzberg.Market-Led Strategic Change 93. Hard Facts. Allen Lane. Boston. Harvard Business Review. April 2001. ‘Beware the Pitfalls of Over-Reliance on Rationality’. New York: The Free Press. Blink: The Power of Thinking Without Thinking. 98. 105. 26–27. 9. 106. 104. Martin. 109. p. Sutton. 2007. January 16 2001. Ty. Francis. Peters and Mark Rice. Boston. Paul. 2004. The Opposable Mind: How Successful Leaders Win Through Integrative Thinking. The Halo Effect … and Eight Other Business Delusions That Deceive Managers. Daniel M. 94. Lampel. 2008. MA: Harvard Business School Press. Gina Colarelli O’Connor. 100. 101. pp. Gerd. New York: Columbia Business School. 99. ‘Breaking Brand Barriers’. 108. Gladwell. What Were They Thinking? Unconventional Wisdom About Management. Bennis. 2006. 96. Tichy. Malcolm. Dangerous Half-Truths and Total Nonsense: Profiting from Evidence-Based Management. Leifer. Philadelphia. Pfeffer. Verzer. Noel M. Houlder. Radical Innovation. ‘Open Your Company to New Ideas’. Henry. New York: Harper. Michael. 2008. Roger. Gigerenzer.. 95. Strategic Intuition: The Creative Spark in Human Achievement. Vanessa. 2006. William and Polly LaBarre. 2001. 2007. pp. and Warren G. 107. October 2007. FT/Prentice Hall. Phil. Marketing Business. Bruce Ahlstrand and Joseph P. Lois S. 2007. November 17 1997.

through the question of: what do you know that gives you an edge or advantage and how can you sustain that advantage over your competitors? However. I want to focus on what people are doing to better understand their customers and markets and to raise their companies’ ‘market IQ’ on a broader basis. We can look at some of the newer knowledge-generating approaches . concerned with the sensing and learning processes that underpin strategy. and the shift in thinking we need from ‘doing market research’ (mainly about techniques of data collection) to market sensing (mainly the process of understanding customers and markets). Let’s consider the black swan perspective – the ‘unknown unknowns’. We address the issue of competitive strength. This chapter opens up the first stage of the strategic pathway.C H A P T E R • • • • 6 Market sensing and learning strategy: competitive strength through knowing more This chapter . instead of just looking at the same old tools of marketing research and the like. . .

Understanding customers and markets The unhappy but recurring truth is that most companies have little or no idea why their customers behave as they do. Information offers us huge leverage because it is not really about doing surveys and collecting facts and figures. esoteric and theoretical (for which read: often impractical. This is the reason market sensing and learning is positioned as the first part of the strategic pathway – it provides the foundation for what follows. This approach will be severely irritating to died-in-the wool. We finish off with a look at some lessons in learning from those who have made learning work in generating competitive advantage. and an approach to enhancing a company’s sensing capabilities around key markets and customers. Much of the time we just • • 220 . vague and useless in the real world). ‘real managers’ are too expensive and important to spend time digging up market information and processing it – the trouble is that the expensive managers then take no notice of what the information says. neuromarketing. paid-up members of the marketing research profession. think about and deal with the environment. Superior market knowledge is the basis for more insightful market choices. It is the area of marketing that sounds most academic. What matters is learning and understanding to create competitive advantage. and a realistic view of the relationships and relationship networks that underpin a strategy. Marketing information is about how we understand. make a token gesture and ignore what really matters. or collect more information and store it on a computer database – i. futurology and marketing intelligence activities. Introduction Marketing information is difficult because it is the area of marketing that is surrounded by most misconceptions and misunderstanding. the partner and the competitor.Market-Led Strategic Change that are proving interesting – ethnography. Guess what? I don’t care. then you have a good chance of influencing what they do. the customer. i. better understanding of customer value. It is the area where it is easiest to convince ourselves that the answer to all our problems is to do more marketing research. Much of the shift from traditional approaches to market sensing is about emphasizing interpretation rather than just generating data.e.e. so we can get on with doing things the way we have always done them. It is the part of marketing that is most easily and most defensibly ‘delegated’ to junior executives – after all. This is why information gives leverage – if you can influence how decision makers and operational staff think about the marketplace. looking for the things which are ‘hidden in plain sight’. Internet-based sensing. or building computerized databases – these are just the trappings.

and fear of what customer experience data may reveal.1 Gerald Zaltman notes some of the greatest ‘marketing fallacies’ to include the idea that people think in a well-reasoned or rational linear way. there is research support for believing that companies that systematically monitor customer experience can take important steps to improve it and impact positively on performance. and that consumers can readily explain their thinking and behaviour. Just about every sector you look at there is one common factor – those who know more. We considered the ‘granularity of growth’ earlier – that mega-trends are less revealing for decision making than micro-trends (p. tend to be the best performing companies.2 But this does not diminish the importance of building a superior understanding of the customer and the market. instead they should manage them with greater focus at a more detailed level. there is a strong argument that one of the attributes of leading companies is that they are 221 • • . The barriers to achieving this performance improvement do not include lack of information but factors like: too much emphasis on CRM (which just captures facts about existing customers).3 Another barrier to enhanced understanding of customers and markets is the perspective managers adopt. lack of management attunement to customer needs. Companies are looking beyond the databases and call centres of Customer Relationship Management (CRM) to establish new approaches to Customer Experience Management (CEM). This view suggests the importance of developing an understanding of market that goes down to a granular level.5 Increasingly. 69). CEM captures and communicates what a customer thinks about the company at all points of contact and locates the places to add value in the gaps between customer expectations and company performance. Fast. and the McKinsey authors note: ‘We believe that the leaders of large institutions need to avoid taking an averaged view of all their businesses. For example. it just means it is more complicated than sending out surveys. nimble companies are very good at scanning for information and insight. those who exploit that market knowledge. building a genuinely superior understanding of customers and markets will rely on an intensity of market knowledge which is unprecedented.6 In fact.’4 Simply looking at averages like market share and customer satisfaction metrics leaves a company vulnerable to those who instead invest in building superior insights into the market and developing truly distinctive capabilities. Knowledge intensity We noted earlier that one of the characteristics of agile fast-moving businesses is that they show a high level of strategic sensitivity – they have a high level of awareness of what is happening around them and what is going to happen next.Market sensing and learning strategy: competitive strength through knowing more do not know how consumers (in particular) assess value and arrive at their decisions. those who learn more. Not least among the problems is that they may not know either (which makes a bit of a nonsense of asking them actually).

it can be argued that the only way companies can take risk out of the business is by paying closer attention to how customers are changing and how markets are developing. which produces little value in identifying untapped customers and new markets. . . businesses are struggling to meet the demands of increasingly competitive international markets and sophisticated clients.Market-Led Strategic Change fact-obsessed. It’s answering the question: what do we know about customers that others don’t? And then using that information to make and keep profitable customers for life. The goal is instead to think more broadly. Many companies show signs of a low market IQ: they don’t look closely enough at their customers and so miss opportunities. Coach. Adrian Slywotsky summarizes the challenge of becoming a knowledge-intense organization: The best countermeasure for defeating customer risk is creating and applying proprietary information about your customers . or they look only at a slice of the market.10 The signs of a low market IQ are: (1) a focus largely on current customers – normally using internal data that say nothing about • • 222 . Raising your market IQ One interesting view of the market knowledge challenge has been described as raising a company’s ‘market IQ’. looking backwards not forwards. A characteristic of successful companies like Toyota. they take a piecemeal approach to market information. and fail to ‘read’ their markets as a result.’ Typically companies take a ‘rear-view mirror ’ approach to their markets. . Research by the Business Management Performance Forum underlines that ‘companies are failing to respond to fast-changing markets because they are unable to understand and adjust to what their customers want . .9 Reality Check: The importance of knowledge If you can keep your head when all those about you are losing theirs – you are simply not aware of the real situation. Samsung and Target is that they are more ‘risk-shapers’ than ‘risk-takers’ because of their superior market knowledge.7 Fact-based management and evidence-based management are approaches that allow managers to challenge corporate decision-making assumptions and stereotypes and look for new knowledge and its implications – breaking free of the ‘dangerous half-truths and total nonsense’ to which managers all too often cling. or base conclusions solely on current transactions data.8 In fact.

In the 17th century the black swan issue fascinated philosophers and when news of the first sighting of a black swan in Australia trickled back to Europe. one-time studies. rather than just thinking about market research techniques. a way of delivering value better and to higher levels than the competition? And. but the observation of a single black swan can refute that conclusion’. which are expensive and never integrated. dear. what do you know that is not obvious to every rival in this business – what do you know that they don’t? Where does your superior insight create us a competitive advantage. it became an analogy of things we can and cannot know with certainty. The crunch questions It follows that the crunch questions to ask in looking at this first stage of the strategic pathway are simple: what do you know? In particular. (3) reliance on qualitative market research – instead of looking for hard data and evidence on which to base decisions.11 The focus of this chapter is providing a basis for evaluating and enhancing a company’s market IQ – tracking the full breadth of sources of knowledge and learning processes. while you’re at it – if you believe you have learned more than the others and you have the basis for building competitive advantage from that market knowledge.Market sensing and learning strategy: competitive strength through knowing more non-customers or lost customers or potential new customers. a difference that matters. John Stuart Mill. an edge. leading to timid strategies that mirror those of competitors. and (4) a pattern of taking a piecemeal approach – characterized by narrow. and the fragility of our knowledge.* The black swan analogy has been developed by Nassim Nicholas Taleb. 223 • • . hissy things that flap their wings at you.12 but it comes from a much earlier time. it’s only an analogy. the classical economist and philosopher put it so: ‘No amount of observation of white swans can allow the inference that all swans are white. *I know – horrible. but bear with me on this for a moment.13 The black swan issue underlines a severe limitation to our learning from observations and experience. how do you plan to sustain that learning advantage as a basis for how you compete long-term? Black Swans and White Swans An interesting perspective on the challenge of market knowledge and learning capabilities comes from swans. (2) basing strategies on information that is shared by all rivals – executives reject the chance to develop their own thorough and independent view of a market and rely on things like published reports.

Reality Check: Predictability Any event. .’. .com An immediate thought is to question how much of what we do in marketing research is actually about counting white swans and ignoring the possibility that there are black swans. We can count white swans. restricting our knowledge to the irrelevant and inconsequential. weigh them. we seem never to learn that we don’t learn from unpredicted events. . Worse. . the answer is ‘yes’. segment the white swan market using swan demographics. We can say ‘probably . . Taleb considers the black swan an analogy for highly improbable events which happen in every sector of human activity that share three characteristics: (1) they are highly unpredictable – they are outliers beyond the realm of regular expectations. • • 224 . rather than opening ourselves up to the ‘impossible’. so that large events continue to surprise us.’ or ‘on the basis of the evidence available to us .Market-Led Strategic Change Source: istockphoto. but we still can’t answer the question. and (3) after one has occurred we try to make it appear less random and more predictable than it actually was – so thus we avoid learning anything from the black swan occurrence. One telling point is that most organizations and the people in them fall vulnerable to the impulse to simplify. He argues that we fool ourselves into thinking we know more than we actually do.’ or ‘drawing on our extensive scientific samples . (2) they have massive impact. once it has occurred. narrate and categorize. But the issue goes further. . can be made to appear inevitable by a competent market researcher. ‘are all swans white?’. And we would be wrong.

Fortune. please try to express it more clearly than did Mr Rumsfeld. there are things that we know we know . or you may share his career trajectory. Understanding the impact of improbable black swan events is central to a more sophisticated approach to market knowledge. . But the surprise is for the turkey. because as we know. developing robust approaches to market knowledge must build objective.15 In many situations working on the interpretation of 225 • • . April 14 2008. open-minded inquiry systems that scan the periphery of the market and encourage experimentation. Taleb’s point is that black swan logic makes what you don’t know far more relevant than what you do know. more than ever before. Google is a black swan – it should not have worked. Some crises may be ‘gray swans’. Source: Nassim Nicholas Taleb. But there are also unknown unknowns . However. not the butcher – he knew all along that this was going to happen. massive global impact. He said: Reports that say that something hasn’t happened are always interesting to me. quoted in: ‘Fear of a Black Swan’. . pp. the butcher arrives and there is a surprise. Reality Check: Black swan perspective The black swan is a matter of perspective. but many of our approaches to things like business risk assessment and market research measurement specifically exclude the possibility of a black swan – because it is improbable. he was not wrong. Every day it is lulled more and more into feeling that the human feeders are acting in its best interests. the ones we don’t know we don’t know. We also know there are known unknowns. if you have to explain this to your CEO. when Donald Rumsfeld came out with his most ridiculed statement. But on the 1001st day.14 Black swan events are the ‘unknown unknowns’ to which he referred. which went a long way to making him the former US Defense Secretary. no rational analysis would have supported it. . . and from which few insightful lessons have been learned. but it is one of the most impactful business platforms in the world. A turkey is fed for a thousand days. Similarly. rather than relying on probabilistic estimates and samples that simply obscure the real changes that matter. there are known knowns. 44–45. Strangely. that is to say we know there are some things we do not know.Market sensing and learning strategy: competitive strength through knowing more Taleb argues that the 9/11 terrorist attack on the USA was a black swan event – unpredictable. The black swan model underlines that.

Deaths continued. . leaving no trace of the cause of the patient’s death. agencies and technicians. This chapter provides some guidelines for those going in this direction. the distribution systems. Those are jobs for market researchers.16 Reality Check: Marketing researchers Q: How do market researchers take their exercise? A: They jump to conclusions Managers are not there to design questionnaires. consider the following account published in The Sunday Times in 1996. un-plug the life-support systems beside the bed. From Market Research to Market Sensing We are not going to discuss all the conventional technology of marketing information systems – marketing accountancy techniques. . Investment in establishing new kinds of market learning processes may be a high priority for many companies weak in scanning and interpreting the outside world. Finally.Market-Led Strategic Change information may be a higher priority than simply acquiring information. build models and so on (or they should not be). collect data. marketing research methods and things like questionnaires and sample design. Perhaps the greatest indication of the importance of superior market sensing is the surprises it uncovers for companies: one US record company was amazed to discover that the biggest purchasers of its rap and techno music were grandparents – they buy the records for young • • 226 . unknowns’. the partners in an alliance. How many died in the South African Floor Polisher Massacre? None of us can ever afford to believe that we have all the relevant facts and can ignore new. hospital staff found the patient occupying a certain bed in intensive care lying dead with no apparent cause. clean the ward and once again plug in the patient. or building mathematical models and integrated marketing information systems. sources of information. If you need more convincing about ‘unknown. plug in her floor polisher. unexpected information. What managers have to do is to understand. At first it seemed coincidental. This maid would enter the ward. All that can come later if you need it. every Friday over a period of months a couple of years ago. the competitor and the big changes in the marketplace that can make us rich or put us out of business. a nurse noticed the Friday cleaning lady doing her weekly chores. describing events at the Bloemfontein Pelanomi Hospital: . Then doctors feared a ‘killer disease’. To understand the customer.

it will be. three queues of the same length. it will land face down only half the time.Market sensing and learning strategy: competitive strength through knowing more people. not competence – and measuring the wrong things badly is not an inspiring description of what 227 • • . The difference is actually very real. If your queue in the bank or supermarket can be beaten by the neighbouring one. One way to explain this difference is with Murphy’s Law – the principle that if something can go wrong. Consider the following examples from the fascinating research of Robert Matthews.18 which actually demonstrate this: Murphy’s Law predicts: When your breakfast toast falls on the floor it will land face down if it can. Therefore all queues have the same chance of finishing first. This is actually a more difficult issue than market research techniques. If there are. They have been trained to believe that precise information and immaculate information systems are the hallmark of professional management. The reality is: Few of us toss our breakfast toast in the air – it normally slides off the plate because you are reading the paper. When this happens the toast will land face down most of the time. What we know is that Murphy’s Law is right and the scientific researchers are wrong. for example. while you wait for the research to be done. it will. Many of the predictions of Murphy’s Law have been denied by scientific. The mathematics of queues indicate that in the bank or supermarket are subject to random delays. most research is crude and arbitrary in the assumptions it makes – this reflects technology and budgets. and this can be proved. and what can be measured scientifically and presented to us in research reports. It is the difference between what we know and understand. When you are in a queue you are not interested in averages. and on average will tend to move at the same rate. as probability theory would predict. Scientific research says: Experiments show that if toast is tossed in the air a large number of times. having someone measure it and write you a report about it does not make it any more or less true – it simply stops you doing something about it. This leads to three points of comment about research and management: if something is true and you know it to be true. What is the difference between market sensing and marketing research? Many managers will challenge this difference – they would. the chances are only 1 in 3 that your queue will suffer fewer delays than the others – two-thirds of the time the other queues will do better and will finish before us. whose parents will not buy it because they do not want it in the house. but it is more important too. you just want to be out fastest.17 That is why the issue is market sensing – how those of us inside the company understand and react to the marketplace and the way it is changing. rational research.

. until they set themselves up as arbiters of normality. Actually. customers liked to feel around the blossom end of the fruit with its nipple-like scar . and perhaps get a life? I believe it was Robert Townsend who said of psychologists: ‘I have nothing against 55 year old bachelors who live with their mothers. they are difficult to carry. Focus groups of female shoppers suggested that breast size was the most likely subconscious factor influencing the choice of a melon. Research has become commoditized. it is trying to ensure that the things that managers ‘know’ and ‘understand’ are the right things and they are well understood. Daily Telegraph. Source: Adapted from Peter Birkett. or does anyone else think that Tesco’s market researchers should try to get out more. It also leads to identifying the important information needs. and the role that market research can usefully play. The reason? Because it had received market research findings from its consumer psychologists suggesting that the fashionable preference for smaller female breasts – epitomized by the model Kate Moss and the actress Gwyneth Paltrow – explained why women shoppers were rejecting large melons in favour of small ones. and blame the shortcomings of marketing research for the decline of marketing’s corporate influence: Most marketing research has degenerated into an overused set of tools and techniques. and. The reason people do not like big melons is that they crush the rest of the shopping.19 Ouch! But it makes you wonder why we go on thinking that ‘doing a bit of market research’ is the answer to all our problems. this is actually something we can work on.’ Let me save Tesco a lot of money in further research. and they do not fit on the cool shelf in the fridge. often selected on the basis of a low-cost supplier. ‘Sales of Smaller Melons Go from Bust to Boom’. Reality Check: Consumer psychology gets rude In 1999 the supermarket Tesco instructed its suppliers of melons to grow more small melons for them – no more than 1lb 3 ounces. the real challenge is not making market research more sophisticated. . . As we will see shortly. • • 228 . The Tesco psychologist’s report also dwelt on the idea that when choosing a melon. I would guess that anyone who has worked in a supermarket for more than five minutes could have told you this. others go even further. May 3 1999.Market-Led Strategic Change we should use to make decisions. Marketing research has wrapped itself in a set of beliefs and methodologies that are rooted in refuted behaviorist psychological concepts. and you end up throwing most of it away because it rots and stinks before you can eat it all. they fall out of the shopping bag. just like the toilet paper aisle at Wal-Mart . Is it just me. .

Actually. With scanning at the retail electronic point-of-sale. and what we use it for. when faced with a decision managers will demand more information. But don’t just look at what information they collect – look at the information they choose not 229 • • . Indeed. We Know What We Don’t Need To Know.Market sensing and learning strategy: competitive strength through knowing more Broadly. the difference between market sensing and marketing research is that market sensing describes the processes in the organization that develop management understanding about the external world. There is. Myth 3 – If We Try Hard Enough. Much of this presumption rests on the ‘scientific’ model of decision making. while marketing research is mainly concerned with techniques of data collection and reporting – surveys. we can monitor sales and cash flow by the hour! More to the point are questions about what information we need. If we can just crunch enough numbers. Myth 6 – Well. We Can Know Everything. The difference is between process (understanding) and technology (collecting data through formal techniques). Myth 4 – We Know What Marketing Information We Want. Surely no one still believes that managers know what information they want? Myth 5 – We Know Why We Want the Information – which does not tie-up very well with the role information actually seems to play in organizations. good evidence that one major stimulus for market sensing is marketing research results – it is not so much that one is superior to the other. one way of underlining the difference between sensing and formal information collection in marketing research is to consider the mythology that has built up around marketing information. however. market experiments and so on. then we will know everything there is to know about this market – and then we cannot get it wrong. One fast way into understanding the culture and dogma of an organization is to look at its information resources. more that they are different. Reality Check: The myths of marketing information Myth 1 – We Need More Marketing Information. If anyone says they need more information – try asking them ‘why?’ Myth 2 – We Need Marketing Information Faster. you can never have the most important information because it does not exist when you need it. how complete it is. Managers are also party to this conspiracy – the research evidence is that however much information they already have. There seems to be a built-in presumption in the minds of many analysts that if you give managers more information they will make better decisions. observation studies. than simple technology-driven speed of delivery.

not just the techniques of market research. I have tried to capture this in Figure 6. But. look at the information they receive but discredit and refuse to believe. look at the information they discard.Market-Led Strategic Change to collect. We Know What It Means. how often are companies wrong-footed in the marketplace simply because they ignore important information for the reason that it is inconsistent with managers’ past experience? Dispelling some of these myths is useful because it moves us closer to the reality of information in the organizational setting. so the issue is the process of market sensing and understanding. The evidence is that what most of us measure is not what matters. Myth 8 – We Know What We Know. More often assumed than tested. but what is easiest to measure. Myth 9 – We Know Who Decides What We Know. Myth 7 – We Measure What Matters.1 Marketing research versus market sensing • • 230 . Sources of marketing knowledge Processes of management understanding Internal records CRM data Databases Management information systems Interpretation Surveys Observation Market tests Marketing research Market sensing capabilities Market understanding Ethnography Internet Futurology Cross-over tools Scanning Trends Clues Marketing intelligence Figure 6. One more time: the issue is superior understanding of customers. Do we really know who makes the hidden choices that determine how your organization understands the outside world? Myth 10 – Well. which compares sources of marketing knowledge with the processes of management understanding.1.

and were outstanding successes for the companies concerned. it took me a while too. . . . Pierre Cardin. OK. so if one person in a thousand has a great idea. we do no one any favours when we exaggerate what marketing research can do. The limits of questions • • • We want to know things – so we ask people questions and call it market research. It is because while you are out at work.H-------. Unreasonable expectations • • • We expect market research to give us new ideas for products and services and to tell us which is the best advertising. and the 1990s poster campaign for the then unknown clothing designer Tommy Hilfiger. and T---. Conventional marketing research is used and badly abused in many situations. Limitations of conventional market research Apart from anything else. The ‘big idea’ is not a votable issue – surveys of opinion about them are meaningless.Market sensing and learning strategy: competitive strength through knowing more Unreality Check: A little known fact . P-----C-----.K----. why do we bury it as ‘0. Calvin Klein and Tommy Hilfiger. it may be silly.20 He says his two best campaigns were the Braniff airlines ‘If You’ve Got It. All right. Why do we believe that people know.’ or more likely ignore it as ‘other responses’? The US advertising legend George Lois goes further. 231 • • .001% of the sample said .L-----. Flaunt It’ ads of 30 years ago.* These campaigns infuriated company lawyers. It has recently been discovered why there are never any teaspoons in the kitchen when you want to make a cup of tea. teaspoons migrate upstairs and transmute into wire coat hangers in the wardrobes. or will tell us the things we want to know? Scientific market research techniques have become much more sophisticated in the past 20 years. but no worse than some of the things that market researchers come up with. market researchers and competitors. He says doing research is about being careful and ‘Being careful guarantees sameness and mediocrity’. and at the heart of the problem is that we have been brought up in traditional marketing to expect far too much from marketing research. which listed the few ‘great designers for men’ as: R---. But innovation is not democratic. . and still *Yes. C----. They are: Ralph Lauren.

Hitler. or only visit the store infrequently – are they of no interest. The product failed miserably.’ Fifty years ago a US academic surveyed Americans’ attitude towards the Metallic Metals Act – 38% said it should be passed. or shop elsewhere?). and one in ten will tick it. The decision to enter the European market was well-supported by research: figures showed the growing number of European visitors to the US theme parks. but the launch of EuroDisney was an expensive lesson in the importance of market understanding not market research. the location was based on modelling population figures – 17 million people live within a 2 hour drive of the Paris site. what about the customers who left or never tried us?22 Marketing databases. There was no such thing as the Metallic Metals Act. it dismissed anti-Disney demonstrations as insignificant.21 The right result • • • How often is it true that market research gives us the answers we want because it studies the segment of the market that gives the ‘right result’ – of course.* We don’t believe it • • • When Disney transferred its Disneyland format to Europe – EuroDisney near Paris – the company lost $921 million in the first year. because profiling them by recency. but also when they get junk mail addressed to ‘Mrs Pol Pot’. In the conventional Disney way. Bob Worcester of the MORI research agency says: ‘Ten per cent of people believe ICI makes bicycles. why should they own up to being stupid and buying the wrong product. frequency and monetary value will tell you they do not matter (so do they starve to death. most existing customers say they are satisfied.000 people prior to launch. People do not buy the product for its taste – new Coke just was not ‘cool’. The taste test results were positive. are wonderful – but what about consumers who do not join the scheme. • • 232 . and it ignored the fact that European holiday *Though actually my favourites are the consumers who give false names – Stalin. like those created from the retailer loyalty schemes. they know exactly who to thank. and 109 million within a 6 hour drive. unless they are already a foregone conclusion. The figures were encouraging.Market-Led Strategic Change fail to predict the result of national elections. They have the pleasure of being addressed as ‘Mr Stalin’ by shop staff. of course most existing customers say they are happy – do you want them to wear a sign saying ‘I am stupid’. Those same sophisticated techniques were used to test the taste of Coca-Cola’s ‘new Coke’ on 190. Pol Pot and the like. You show them a list of products like paints and fertilizers. which are much better figures than the US parks show. The company ignored the failure of amusement parks in France. throw in bicycles as a dummy.

Reality Check: Studying the past Those who do not study the past will repeat its errors. and reported in our marketing information systems – are they really the things that matter to managers in understanding the market (or are they the things that we always measure because they are easiest to measure)? *For reasons that wholly escape me.Market sensing and learning strategy: competitive strength through knowing more patterns are completely different to those in the USA – people in Europe have longer holidays and spend less on each. a syndrome known to therapists as ‘the elephant in the living room’ – which everyone steps around and pretends is not there. Organic food is one of the fastest-growing categories in the fresh food sector.’ I think she must have been thinking of someone else. The elephant in the market When a family suffers a trauma – such as incest or alcoholism – it often refuses to acknowledge it. maybe we should think about the elephant in the market. or maybe the elephant in the company. weren’t you. try the following test. a junior colleague once left this written on my whiteboard: ‘Question: What’s the difference between God and a professor? Answer: God does not think she is a professor. Initial evaluations of tofu. When you look at the things that are studied by our market analysts and researchers. published by our research agencies. Excuses • • • Research can provide you with the perfect justification for ignoring new market opportunities. Carolyn? 233 • • .23 Well. Myopia also led the company to ban alcohol from its park – you try telling the French they cannot drink wine at lunchtime and see what happens! Excellent research that ignores the things that really matter (because no one asks the right questions) reinforces company myopia and costs a lot of money to put right. organic tomatoes and alfalfa sprouts as food suggested they were for weirdos only. Those who do study the past will find other ways to foul up. The future is not best predicted by opinion polls. You probably think this is just a petulant tirade against market researchers?* Well.

Daily Telegraph. but that is all. Time wasters – questions that do not really matter. Issues like quality performance and brand performance would probably fall here – they are core issues for most of us and if things go wrong we need to react. Then-Chairman Sir Richard Greenbury claims that he was never shown the confidential surveys or informed of their findings. Financial Times. in the late-1990s confidential company surveys revealed then that customers were losing faith with M&S. Dwight Riskey of Pepsi-Co calls these ‘the curse of the brand manager ’ – issues like the colour of the package. However. they may be ‘nice-to-know’. These should be ignored. Riskey describes these as the ‘tyranny of the in-box. Some suggest that M&S management had come to believe that they could not fail. While successful competitors. now executive chairman. Figure 6. the typeface for the logo. May 15 1997. March 8 2000. immediate projects. People busy themselves with lots of tiny. ‘Look Out: It’s Behind You’. retailer Marks & Spencer has seen a major renewal of its business in the 2000s.24 • • 234 . This appears to have been some kind of ‘collective myopia’ in the company – a refusal to face the really big challenge. Short-term dilemmas – urgent but unimportant questions that should be resolved by a judgement call not extensive study. Financial Times. M&S seemed to be hobbled by its history and its cumbersome management structure. Michael Skapinker. This is an interesting analysis in most companies. or whether they were afraid to tell him. M&S entered the 2000s with severe trading problems. Sources: Kate Rankine. Whether they did not think the loss of customer faith in M&S service or ability to provide ‘value for money’ was important enough to tell the CEO. ‘How to Bow Out Without Egg on Your Face’. the fall was completely unexpected and a shock to senior management in the company. such as Next and Matalan. Stuart Rose. Importantly. had spotted emerging customer needs and met them. But when M&S sales collapsed.Market-Led Strategic Change Reality Check: Ignoring the elephant in the market Under CEO. Its profitability and share price were collapsing – shares down from a 1997 peak of 650p to just over 150p in late-2000. October 30 2000. Different types of research question are then divided into: ● ● ● Priorities – important and urgent questions that need speedy answers to support management decision making.2 suggests that any question of information differs in two respects: importance and urgency. management did not pass on the message from the customers. ‘Marks Ignored Shoppers’ Fall in Faith’. winning momentary job satisfaction while avoiding bigger issues that are important to their business’. Peter Martin.

2 Strategic and non-strategic marketing information Low ● Strategic – questions that may not be important to the day-to-day running of the business. Conventional marketing research is limited in how much it can contribute to meeting strategic information needs – we may need to look more broadly at cross-over tools and intelligence approaches. vital to the long-term direction of the business) and how much goes on short-term dilemmas and time wasters? You may be depressed by the conclusion – typically 1–10% of the effort goes into the strategic area that generates 90–99% of the value. 235 • • . How much of the information is truly strategic (i. but are critical to long-term direction.e. released by the Chief of Naval Operations: Canadians: Please divert your course 15 degrees to the South to avoid a collision. This might include questions like ‘Are there limits to our growth potential in this market and what are they?’ The challenge is simply this – look at what happens in a company and see where the efforts and resources go.Market sensing and learning strategy: competitive strength through knowing more Importance of information High High Short-term dilemmas Low Priorities Urgency of information Strategic Time wasters Figure 6. Building market knowledge and understanding needs to use any and every source of insight available and reject none out of hand. Reality Check: Spotting the most important information This is the transcript of an actual radio conversation between a US naval ship and the Canadian authorities off the coast of Newfoundland.

I DEMAND THAT YOU CHANGE YOUR COURSE 15 DEGREES TO NORTH. THAT’S ONE FIVE DEGREES NORTH. Ethnography is a social science based on anthropology and its use in marketing studies is based on the idea that richer information and insight can be generated by deep immersion in the consumer’s life. I say again. divert YOUR course. THREE CRUISERS AND NUMEROUS SUPPORT VESSELS ACCOMPANY US. but I don’t see any clipboards or questionnaires. but are really cool. Canadians: No. Accordingly. How you classify it matters less than whether it has potential for creating new insights into a market. The moral: Believing you have all the facts you need is risky. The New Cross-over Tools between Measurement and Management Understanding One of the excellent developments in recent years has been the spread of new approaches to building deeper market understanding. even if you have a nuclear missile with you.Market-Led Strategic Change US Ship: Recommend you divert your course 15 degrees to the North. OR COUNTERMEASURES WILL BE TAKEN TO ENSURE THE SAFETY OF THIS SHIP. Canadians: Negative. Ethnography A significant advance of recent years has been the use of ethnographic approaches to developing enhanced market understanding. or that they can readily explain their own thinking and behaviour. Canadians: We are a lighthouse. asking customers direct questions may give misleading results. They are not really conventional marketing research approaches or traditional intelligence activities. THE SECOND LARGEST SHIP IN THE UNITED STATES ATLANTIC FLEET. I say again. • • 236 . rather than asking questions. and observational techniques like ethnography may be more insightful. US Ship: This is the Captain of a US ship. Some suggest this is ‘marketing research’. Your call. I SAY AGAIN. You will have to divert your course 15 degrees to the South to avoid a collision. which span the gap between traditional quantitative surveys and purely open-ended intelligence gathering. THREE DESTROYERS. you divert YOUR course. US Ship: THIS IS THE AIRCRAFT CARRIER USS LINCOLN. We saw earlier that research suggests it may be mistaken for executives to assume that consumers think in a well-reasoned or rational way.

This and several other new product launches tripled the size of the Mr Clean US business in two and a half years. Another area allows solo travellers to work in larger. technology sophisticated ‘road warrior’. semiprivate spaces. an anthropologist. ‘Standard marketing research and statistical data is often frustratingly shallow when you want to move towards designing technology. a writer and an architect spent six weeks touring hotels in 12 cities. without really knowing what they were looking for. come directly from insights into how people clean. They found consumers engage in two types of cleaning: weekly deep cleans and quick daily cleaning. with small tables. when Procter & Gamble wanted to revitalize its Mr Clean brand. but not small groups of business travellers.’ Ethnography and anthropology can provide insights that remain uncovered in traditional quantitative research methods.26 There are a growing number of cases where traditional research approaches have failed to identify the insights important to new marketing strategy initiatives.Market sensing and learning strategy: competitive strength through knowing more When WD-40 wanted to reposition a product line as essential bathroom cleaners.27 Reality Check: Insights from ethnography Marriott used an ethnographic research agency to rethink the hotel experience for an increasingly important customer segment: the young. creating for each a social zone. The result was the reinvention of the lobbies of Marriott and Renaissance Hotels. it sent people out to watch housewives cleaning bathrooms. In-home ethnographies and focus groups examined consumer cleaning habits and product usage. Xerox’s work practice technology group manager notes. quiet. The findings were: hotels are generally good at serving large parties. hotel lobbies tend to be dark and poorly designed for doing business. A team including a designer. The brand’s new positioning – X14 as The Bathroom Expert – and its competitive differentiation. This extends way beyond consumer products. One thing they found was that housewives balanced insecurely on the edge of the bath to clean the ceiling and walls with brooms or mops. The P&G initiative resulting was Mr Clean Magic Reach – an extendable tool with changeable pads allowing users to easily clean high and tight corners of the bathroom. brighter lights and wireless Web access. but where qualitative.25 Similarly. cafés and bars. the company undertook an open-ended approach to try to understand how consumers clean and how they shop. 237 • • . and asked guests to graph what they were doing hour by hour. They loitered in hotel lobbies. Marriott lacked places where guests could comfortably combine work with pleasure outside their rooms. and liked the idea of a brand focused on the bathroom. ethnographic approaches have proved full of insight.

managers and engineers at textile makers.28 The Apple iPod – currently an icon of innovation success – was not a profound breakthrough in technology. and working closely with engineers on technical questions. Instead of installing a software-based key on the PC. examining their lives and values. Sources: Spencer E. A considerable advantage has been achieved in access to a new market. The search is for better ways of understanding how people behave and • • 238 . and reassuring to parents. parents believe the opposite – they want children to learn Mandarin. 9. The work involved a two-and-a-half year study of Asian families in seven countries. One major insight caused GE to rethink their strategy: GE thought that the fibres industry was a commodity business based on obtaining the cheapest materials. pp. p. ‘The Science of Desire’. This insight led Intel designers to launch a PC aimed at the Chinese home education market. Financial Times. Locks and keys are important symbols of authority in China. Intel included a physical locking mechanism. visible elsewhere in the room. tracing the order in which the character is being written (correct stroke order being an important part of the learning process).Market-Led Strategic Change General Electric used ethnographic research to develop its competitive positioning in the plastic fibres business – providing material for high value products like fire-retardant jackets and bullet-proof vests. June 5 2006. touring their offices and photographing their plants. Hidden in plain sight • • • Deep immersion in the way that people live their lives through approaches of this kind is associated with many successful growth and innovation strategies. and created the iPod/iTunes platform. BusinessWeek. which has a touchsensitive screen that allows users to write in Mandarin. Intel used ethnographic research to examine the use of computers by children in China. Ante. In the USA the conventional parents’ belief is that a child should be bought a computer in the early stage of his/her development – exposing the child to computing at the earliest age. Wednesday August 24 2005. and the computer is a distraction from this. In China. GE now shares prototypes with customers. ‘Anthropologists Get to the Bottom of Customers’ Needs’. Researchers interviewed presidents. 98–106. Kim Thomas. Apple focused on how people might interact with digital change. But while Sony struggled to design the perfect music player. by-passing executives. Chinese parents also had misgivings about allowing children unlimited Internet access. following the logic that looking at things through the customer’s eyes reveals the things that are ‘hidden in plain sight’. What it found instead was an artisan-based industry where customers wanted to collaborate from the earliest stages to develop high-performance materials – these are people with curiosity who like to get their hands dirty.

Consider. Identifying customer groups like ‘budgetconscious’ and ‘family-focused’ is guiding Kroger store design and promotions strategy. but also feel good. is now divided into caffeinated and decaf sections. Nonetheless. Dunnhumby Ltd is the Tesco owned agency which has provided the basis for the insightful analysis of customer data which has become the hallmark of Tesco’s growth in the UK.Market sensing and learning strategy: competitive strength through knowing more live their lives. rather than providing new all-powerful tools of influence.29 While not ethnographic. the interpretation of detailed CRM data provides a powerful means of decoding shopper needs and wants if they are used properly. Neuromarketing • • • One variation on this theme of deeper customer knowledge from unconventional approaches is ‘neuromarketing’. The effects are already being felt at Kroger. Kroger is growing faster than industry average based on detailed customer knowledge. the use of magnetic resonance image (MRI) scanning to explore the consumer mind. functional MRI use aims at probing consumer preferences for different kinds of products. based on the amount of memory encoding that occurs when people are scanned viewing a product.32 Nonetheless. Coffee. Price promotions for best-selling products have been stopped in favour of those for store brands bought by the most pricesensitive customers. Research agency Neurosense has worked with flavour and fragrance houses to provide physiological evidence that their fragrances and tastes do induce the mood change they claim to produce. with executives looking at themselves from the outside. Some are more surprising than others. collects rich data. Critics see the development as sinister and a misuse of technology. Other projects include predicting what people are likely to recall.33 While in its early stages. Internet sensing It is pretty obvious that the Internet provides a whole new set of ways to observe and evaluate customers and markets. 239 • • . which can also be interpreted to see what is hidden in plain sight.31 Interestingly.30 While developed as medical technology. rather than focusing inwardly on current successes. The agency is now operating in the USA. findings are more suggestive of the limitations to how much peoples’ behaviour can be changed by marketing stimuli. neuromarketing may be an interesting source of new insights into customer behaviour. CRM technology. because the data show consumers look for that distinction first. and comparing how the brain reacts to new product prototypes compared to existing products. previously arranged by brand and origin. for example. Ford and Chrysler in the USA have used scans to monitor brain activity as people examine car interiors. while doing little for customer service. and runs Kroger’s loyalty card programme. it is interesting to see teams of neuroscientists and psychologists working with designers to create houses that not only look good.

35 We noted earlier that external scientific networks already contribute 35% of Procter & Gamble’s new products. brands and reputations. new applications and new business models. customers and outsiders to generate new ideas and insights. earlier. underpinning its distinct brand positioning. the Unilever beauty brand. Well one thing that is happening is the use of Second Life by companies to get reactions to different business scenarios.34 Recall that. Virtual reality • • • We looked at the strange phenomenon of virtual reality worlds like Second Life in Chapter 1 and pondered what they might be for.37 For example. The engagement may be uncomfortable – Coke was distinctly unamused by YouTube video clips showing people making small explosions by putting Mentos mints in Diet Coke.36 Blogs • • • Companies are also waking up to the value of ‘blogs’ (web logs or a form of online diary) as a way of listening to and talking to customers. Eli Lilly taps into the wisdom of crowds with ‘prediction markets’ to forecast better. The IBM hope is that 100. consultants. others are using the social network phenomenon as a learning mechanism. a network of 12 islands. With more than a billion people in the world online. Nike asked consumers for video clips of their football skills. and employees’ families to provide new ideas and insights into technology – and the new ideas are open-source: they are fair game for anyone who logs on. we discussed the impact of ‘crowdsourcing’ on radical innovation strategy – in the form of open source collaborations. IBM runs an ‘Online Innovation Jam’.40 Social networks • • • Relatedly.Market-Led Strategic Change The Wisdom of Crowds • • • James Surowiecki coined the term ‘the wisdom of crowds’ to describe the phenomenon whereby groups may be remarkably intelligent.38 The ‘blogosphere’ is becoming an important way to engage with consumers. Procter & Gamble launched two social networking sites to gain insight into consumer habits and interests by using the • • 240 . inviting clients. to get closer to understanding how consumers use sports footwear. alter human behaviour and lead to new businesses for IBM. For example. IBM has established IBM Land on Second Life. Dove. The promise is to understand better the shifting landscape of opinions about businesses.39 Companies are turning to virtual offices and landscapes as tools for employees and business partners to collaborate and learn. but later relented and joined in the fun. an increasing number of companies are using Internet-based services to tap into the collective intelligence of employees. to test new forms of internal communications. In 2007. engaged with consumers to debate the nature of ‘real beauty’ online.000 minds will lead to new ideas so powerful they will transform technology. and often smarter than the smartest people in them.

and had avoided being dragged into an unprofitable area. They built four scenarios. ‘The Time Lords’. with the aim of seeing things coming before the competition does.41 Other companies monitor online searches relevant to their products. including one where a venture capitalfunded start-up began a new Web payment system and defeated Visa. . FTMagazine. The company began to track signals that might suggest scenario number one was beginning. flags – a dogmatic world of conflicts over values and religions putting a brake on globalization. January 27/28 2007. encouraging a short-term attitude to financial returns and vertical integration. and. and then identifying warning signals in each scenario and watching the world closely for these signals. . Source: Adapted from Graham Bowley.. By 2001. pp. and visioning – working out not only what is likely to happen but what you want to happen. and their capitalization. Prompted by the 9/11 terrorist attacks and the collapse of Enron. 241 • • .42 Trained futurists have three key approaches: careful examination – looking more closely than most people do at what is really going on around us.g. all those measures were declining. Shell. has a lengthy history of scenario planning – looking at things that might happen and how to react if they do.Market sensing and learning strategy: competitive strength through knowing more online forum to allow women to tell their stories and learn from each other about such issues as breast cancer. the number of new online businesses that signed up to the new Web payments systems. Visa had not rushed in to invest in its own online payments system. and one where online rivals fizzled out and failed. where gated communities and national standards exacerbate fragmentation and make country risk management essential. for example. Futurology Some companies are using futurologists and scenario planners to challenge their assumptions and to make sense of new trends. and conversations about them on sites like Facebook and MySpace. open doors – a pragmatic world with built-in security certification and close links between investors and society encouraging cross-border integration. Visa feared the threat of online payment systems. e. careers and families.’ questions. scenario-building – developing descriptions of how things may unfold. As a result of scenario planning. they have focused on themes of insecurity and mistrust to develop three scenarios of the ways in which the world may develop: low-trust globalization – a legalistic world with intrusive controls.43 Reality Check: Warning signals at Visa In the late-1990s. the level of advertising by start-up rivals. The goal is to take managers out of their comfort zones and encourage open-minded approaches to the big ‘what if . 17–23.

professor of economics at Yale University. . December 23 2007. 1898 – announced he had found a non-addictive substitute for morphine. Not with winter coming’. it does appear that rail travel at high speeds is indeed impossible. 2000. Y2K is so worrisome. Irish scientist 1823 – ‘Rail travel at high speeds is not possible because passengers. 1-12. It was called heroin. Talking about the mini-skirt. . Ed Yourdon. The Wall Street crash followed soon afterwards. Dr Heinrich Dreser. It provides another way to challenge an organization’s assumptions and stereotypes and focus attention on the external challenges to be faced. Marketing Intelligence Marketing intelligence efforts are a more familiar approach to examining trends and changes. would die of asphyxia. Irving Fisher. p. In many ways this is not the point.’ Nothing happened. Sunday Times. at the request of the Royal Air Force. 1966 – ‘It’s a bad joke that won’t last. Coco Chanel. 1929 – said that shares were at a permanently high plateau. but for quite other reasons. that I will make sure my family isn’t there [in New York] when the clock rolls over to January 1. 1999 – ‘I expect New York to resemble Beirut if even a subset of the Y2K infrastructure problems actually materialize . qualitative. precise measurement is not the only route to understanding. Reality Check: Getting the future wrong Dionysius Lardner. importantly. • • 242 . Conventional wisdom was that armour protection should be concentrated on the engines and the fuel tanks.’ Two hundred years later. unable to breathe. In reality. subjective and incomplete market intelligence. head of Beyer drug research laboratory. software expert. As with the cross-over tools. researchers were tasked with identifying the most important areas on aircraft that should be protected with additional armour.Market-Led Strategic Change Futurologists struggle with the fact that they are not always right about the future. in my opinion. many of the most valuable inputs to enhanced market sensing will be messy. ‘Back to the Future: 2008’. Source: Adapted from Martin Wroe. Reality Check: Information and analysis versus common sense During World War II.

their report was quashed when one of the fliers pointed out that they were examining the planes which survived and got home. and did not believe their competitors gathered intelligence about them.45 243 • • . government records. . . mainly through hits in the engines and fuel tanks . and do the same in return. Fortunately. not complex market research projects. Yet US research still divides companies into: intelligence ostriches – who did not use intelligence gathering. Competitive intelligence sources run all the way from readily available ‘open sources’ (like press clippings. customers. there is always one person who knows exactly what is going on – that little creep must be fired! The issue of competitive intelligence is not new – as long ago as 1981 BusinessWeek published The Business Intelligence Beehive. Intelligence is about knowing things. present employees and so on. not having it written in a report with full statistics and graphics. Reality Check: Marketing intelligence In any organization. and maybe they should look at some of the ones that got shot down. Their findings were stunning – conventional wisdom appeared quite wrong. The methodology involved identifying bullet and shrapnel damage and carefully assessing the concentration and severity of damage to each aircraft. industry reports) to observation of competitors’ activities and interviews with competitors’ suppliers.Market sensing and learning strategy: competitive strength through knowing more The researchers therefore arranged to inspect bombers returning from actual raids over enemy territory shortly after they landed. describing how Japanese companies had set up surveillance posts through the heartland of the US computer industry in Silicon Valley in California. to monitor US technology development by hiring American software experts. Many companies now have in-company intelligence units to coordinate and disseminate soft data and improve shared corporate knowledge. intelligence eagles – who know these competitors are watching their every move. knowing what they are doing and responding is what matters. Intelligence is about spotting patterns of change in the market and using that understanding to respond. . trade shows. or if we all have the same information to use it more effectively than the competitor. This is not particularly sophisticated. former employees.44 If the issue is. The goal is to know something that your competitor does not. for example. compared to. suggesting no need for additional armour plating in these locations. competitors’ promotional activities. rather than measuring them. On the aircraft they examined there was little if any enemy damage to the engines and fuel tank areas.

Mo’s Bacon bar. cooperative consumption through fractional ownership of products like cars.46 and with the outbreak of peace. For example. a chat with a competitor’s employee at a meal. some companies are making substantial investments in enhancing their capabilities to identify and react to important trends in markets and customer behaviour. Trendspotters are predicting changes as diverse as: the emergence of peer-to-peer lending. which have not yet been identified • • 244 . These are all real examples. compared to the beautifully produced marketing research report complete with statistics and graphics. Trends and clues Although they may not easily be considered in conventional marketing research exercises. the world’s first ‘drive and dive’ amphibious car. It might help if you know that an agency called OTA/Off The Record Research already claims to have intelligence informants in all the world’s largest companies. many spies have moved into lucrative corporate intelligence work.47 The point is that while intelligence may be no more than a press cutting. in which lenders and borrowers meet online and by-pass banks. the world’s first bacon-flavoured chocolate. the emergence of the colour blue as the brand of popular environmentalism and good citizen ethics.com has 8000 trendspotters across the world e-mailing in daily reports on emerging products or movements on customer behaviour. a note from a salesperson about a rumoured new product coming out. but detecting the emergence of large numbers of new ‘identity groups’. the Bubelle dress that uses sensors to change colour in line with the wearer’s emotions.49 New identity groups • • • Mark Penn argues that the reality of studying trends is that the issue is no longer seismic cultural shifts.Market-Led Strategic Change You might like to raise the issue of which category your company falls into. and to identify important indicators or clues for how those changes will work out. Trendspotting • • • In some ways related to futurology. or would we just have thought they were weird?48 Web service trendwatching. the convergence of beauty and medicine as customized workouts based on personal genetic profiling to help people keep fitter and look better. consider how many of us would have predicted the run-away success of the iPod and the Nintendo Wii before the event. Before laughing at them. the sQuba. one of the major contributions of intelligence gathering is to identify important market trends and changes. if our goal is understanding then it is probably a better source. top tips for success in 2008 were: ‘aroma-emitting’ clothes which will release scents based on the wearer’s mood.

Spotting trends is the beginning. August 1 2007. but Target’s integrated operations like in-house design bring those trends to Target shoppers faster. clothing and other retail lines. General Motors has concluded that its cars are just not cool enough – young. and it provides an edge against competitors like Wal-Mart. He is connecting GM with hip-hop artists like Jay-Z and using social and music media to reposition GM brands. they are expected to do more than attend their meetings – they are also expected to write reports about various trends they come across around the world.51 245 • • . Stoute’s skill is to put urban fashion and lifestyle into the mainstream. Target’s focus of trend gathering goes beyond traditional consumer research. The company has turned to Steve Stoute to help them add a ‘hip-hop’ ethos to their brands.50 Reality Check: Trend czars at Target Corporation Target Corporation is a successful US retailer mainly of products for the home and clothing.Market sensing and learning strategy: competitive strength through knowing more by companies or policy makers. The quest for cool • • • In fact. It was Penn who identified ‘soccer mom’ swing voters for the 1996 Clinton US presidential election. ‘living apart togethers’ – couples in long-term relationships who do not live together. His 75 identity groups who are shaping the future include: ‘cougars’ – women dating younger men. more trendy audience. Latino and white consumers with the same ‘mental complexion’ and ‘shared experiences and values’. 2007. Stoute says he is helping executives to understand the ‘tanning of America’ – a generation of black. ‘We Are All Marketers Now’. to resonate with a younger. D9. popular themes in home décor. New York: Crown Business. ‘aspiring snipers’ – the one per cent of Californians aged 16 to 22 who said they expect to be urban snipers within ten years. ‘extreme commuters’. ‘internet married’ and ‘old new dads’. In the USA. He characterizes his firm as the ‘McKinsey of pop culture’. p. When Target employees travel. Of course. spotting trends may just be the first stage in participating in them. Sources: Christopher Lawton. urban trendsetters on the East and West coast are ignoring them. Wall Street Journal. The Marketing Mavens. Noel Capon. ‘vegan children’. Target’s Executive VP for Marketing says the effect is create ‘trend czars’ in every area of the company. it remains to be seen whether GM can become cool before it runs out of money. These reports supplement the work of official ‘trend groups’ whose purpose is to travel the world and uncover new.

fashion houses like Abercrombie & Fitch. ‘I can see something happen in Tokyo and watch the ripple effect across the Pacific to New York and then watch as it goes back to LA’. restaurant bookings. in 2006 the creative director of bagmaker LeSportsac noticed Tokyo shoppers gravitating towards larger sizes of their casual nylon bags. second. Anecdotal evidence appears well before anything shows in hard data. that many London homes do not have much space for a large TV because living rooms have a fireplace on the wall where Koreans would normally place a 50-inch flat-screen TV. She says. the evidence suggests this survey is a pretty good indicator of the most boring and tedious books around. Economic prosperity may be judged by what taxi drivers discuss. Deep mining • • • Some attention has been gained by companies offering ‘deep mining’ on the Internet and with services like dismantling competitor products to identify components and suppliers.54 For example. H&M and Zara are using Japan as the testing ground for new ideas.Market-Led Strategic Change Interestingly. the volume of junk mail. This provides a crude index of which books are most ‘put-downable’ and unlikely to be retained by readers. it may generate challenging new insights. for example. He is interested in how consumer electronics have become about lifestyle and emotion and how this will matter to LG.52 Now even Google uses Japan as a real-life laboratory to gather feedback on new types of search and cutting-edge hardware used by Japan’s discerning consumers. and cling to meaningless indicators.56 Where and how executives collect clues that support their market sensing is important for two reasons: first. So.53 Looking for clues • • • It is also worth bearing in mind that executives tend to have informal indicators of change that they take very seriously. Tokyo is increasingly recognized as the home of cool. He was surprised. Before you ask. closely followed by Don’t You Know Who I Am? by Piers Morgan. the hotel firm Travelodge mischievously publishes a survey of the books most often left in hotel rooms. Nam Yong’s successful leadership at LG Electronics has been built around a focus on consumers instead of competitors. the queue of limousines outside expensive hotels. in 2007 the ‘winner ’ was The Blair Years by Alistair Campbell. On his travels. High school girls started to mimic them.55 In a different context. they may get the wrong end of the stick. • • 246 . and the bigger bags caught on with cool shoppers in the rest of Japan and the world. Mr Yong pokes around people’s living rooms everywhere from Brazil and Russia to the UK and USA. She discovered that fashion stylists in Tokyo’s up-market Omotesandro district used big bags to lug their gear around. For example. For this reason.

one of the first customers was a company called iSuppli in California. ‘win at all costs’ corporate culture. Interestingly. A manager at Camelot.58 People are getting increasingly sensitive about what you know about them and how you find out. There may be very fine line between intelligence gathering and economic espionage. She was forced to resign. which Camelot wanted to beat off to win the 10-year lottery licence. In 2003 Boeing was banned indefinitely from bidding on military satellite projects. Their role was to smash the product into pieces. and specializing in the Russian market. but also to stock market investors. The data identify littleknown suppliers who may benefit from the iPhone run-away success. September 14 2007. the Trident Group is thought to be the only US corporate intelligence firm staffed by ex-KGB agents. There are both legal and ethical issues.59 Ethical concerns also surround the practice of doctors providing access to NHS patient information (paid access) to private health companies selling their services..e.60 The willingness of doctors to monetize their patient 247 • • . The reason was that Boeing was found to possess documents from rival Lockheed Martin that helped win earlier rocket contracts. This intelligence is of enormous value to other handset manufacturers. The penalties of transgression may be substantial. But play nicely and don’t be naughty There are some major constraints on what you can do in this area. and also allow predictions of how Apple’s cost of manufacturing for the device may fluctuate. p. the national lottery company.57 However. Financial Times. Many CIA operatives enter business intelligence work when they leave government service – many more than in the past. with the official later being given a job at Boeing (and then fired when the story broke). was caught out using false identities (i. it is worth bearing in mind that there are some fairly clear limits to what is acceptable in commercial intelligence gathering. 23. but on this occasion Camelot escaped penalties other than bad publicity. Boeing saw a deal to sell refuelling tankers to the Pentagon frozen when documents revealed that a Pentagon official may have tipped Boeing off about a lower bid from Airbus. ‘Banks Delve Deep to Locate Esoteric Data’. lying) to gather intelligence from rival companies.Market sensing and learning strategy: competitive strength through knowing more Reality Checking: Smashing research When Apple launched the iPhone in June 2007. ‘Teardowns’ like this provide the means to identify which companies have won contracts to supply internal components. The Pentagon also transferred $1 billion of future business to Lockheed Martin. Source: Adapted from Chris Hughes. Long known for a macho. The CEO and Chairman of Boeing left the company abruptly in 2003.

including customer contacts and changes. customer • • 248 . a recent study shows us four ways to improve the availability and use of customer knowledge so it impacts on our strategic choices:63 ● ● ● Creating ‘customer knowledge development dialogues’ – for example. Some care is needed in gathering intelligence in terms of how would you feel if people knew you were doing things this way. in the USA Chrysler’s Jeep division runs customer events called ‘Jeep Jamborees’. The challenge is to build knowledge about customers. about new markets they do not serve and new technologies that they do not yet possess. and whether you feel justified in using intelligence that has been gathered in dubious ways (even if done so by others)? Managing customer knowledge Where it all comes together is in the question of how well we manage knowledge for competitive advantage with our customers. one financial services company is already experimenting with call centres that focus on potential customer defections. about non-customers.61 We may yet see a new organizational role emerging – the Chief Knowledge Officer. for example. when forced to admit that a company working on its behalf had trawled through the garbage at Unilever to gather intelligence about its rival. Capturing customer knowledge at the point of customer contact – for example. As well as observing customers using the vehicles in skills-related events. where individuals throughout the company’s divisions and functions can exchange knowledge about particular accounts. Peter Drucker pointed out. and research opportunities that can address a customer’s emerging needs. Jeep employs engineers and ethnographic researchers to build from this a better understanding of Jeep owners’ relationships with their vehicles. Based on a combination of customer activity information and customized solutions that address customer dissatisfaction issues. Operating enterprise-wide ‘customer knowledge communities’ – for example. IBM uses a collaborative Internet workspace called the CustomerRoom. attracting enthusiasts from far and wide. Jeep employees connect with customers through informal conversations and semi-formal roundtables.Market-Led Strategic Change information may yet extend to sharing peoples’ health data with insurance companies. Procter & Gamble was embarrassed in 2001. proposals being developed.62 In case this sounds like an impossible dream that can never be realized. Diverse sources of insight into customer and markets are increasingly being brought together as key ways of building better understanding and developing better learning capabilities – the challenge is becoming to manage customer knowledge better than our competitors do. This understanding drives changes to existing models and plans for new models. that 90% of the information that companies collect is internal – market research and the like that only tells the company about itself. focused on its major accounts.

Interpretation With multiple sources of marketing knowledge that can be exploited (see Figure 6. It relies on a sense of open-minded enquiry which has often been missing in the past. of hard marketing research data. the link between sensing and management understanding relies on processes of interpretation. and encourages other employees to monitor. Intuition should be included in interpretation processes.1). One of the hardest things we have to do in building customer focus is simply to learn to listen better to customers. However. though imperfect. softer data from approaches like ethnography and intelligence gathered from activities like futurology and trendspotting. and that marketing information is about running surveys and writing reports. examples of effective and insightful market sensing suggest that market learning does not just rely on technology and formal study. if you wish. customer-related chatrooms on the Internet. market leaders across the globe are developing superior market understanding and sensing capabilities because they know that learning is the basis for developing superior strategies. the Vice President of marketing at Ford’s LincolnMercury division actively participates in. Smith and Fletcher make a compelling case that we should focus more attention on the process of interpretation. The goal is learning and sustaining learning to create competitive advantage. What it comes down to is this. This is not about 249 • • . They propose a ‘data-rich intuitive analysis’ which is more holistic than focusing on a single source or type of information. Managing customer knowledge is about building understanding and better responses to customer needs and how they are changing. though accepting that it may be plain wrong. Lessons in Learning Importantly. You work out the difference and what it means for your company. is central to what we described earlier as evidence-based management that challenges stereotypes and takes executives outside their comfort zones to confront head-on how markets and customers are changing and where the opportunities are emerging.64 The integration.Market sensing and learning strategy: competitive strength through knowing more ● service representatives can make product offers tailored to win the profitable customer back to the company. You may cling to the idea that customer focus is about running the occasional customer care campaign. giving decision makers a rounded view of what all their evidence is saying. For example. Demonstrating management commitment to customer knowledge – management has a responsibility to invest resources. time and attention in maintaining customer dialogues and communities as a commitment to customer focus.

This is what really matters to young parents. Chairman Scott Cook. but it is not what they say in conventional surveys and focus groups. . not just a waste-disposal product. If you can find better ways of listening to customers. Intuit is a computer software company. you lose the customer for about 75 years. actually.65 Some of the results are impressive: Kimberley-Clark reinvented the baby’s disposable nappy business. • • 250 . . and look over their shoulders while they use the Intuit software. whose worldwide success with Quicken personal finance software grew out of listening to customers’ problems in balancing their cheque books. K-C launched Huggies PullUps training pants in 1991. The goal is to find out the things that are missed by the conventional surveys and focus groups. They have ‘usability labs’ where non-users come in and try to make the product work. Storytelling Some major organizations have adopted storytelling as a way of listening and learning – not as silly as it sounds because it comes out of the insights of Gerald Zaltman at Harvard Business School. the pay-off may be enormous. just about listening and being prepared to learn. The surprise again and again is that customers will actually talk to you and help you learn how to be better if you are just prepared to listen. and by the time the competition caught-up they had a $400 million business. and the method is to get real-life stories from customers about how they behave and what they really feel. says ‘People don’t buy technology. Customer stories are the basis for product improvement and the creation of highly user-friendly software. and dread of someone looking at their child in horror and asking ‘Oh. but that is another story . is your child still in nappies?’ Nappies are an indicator of child development. What they discovered was that the real stress in toilet-training came from parents’ feelings of failure. They also leave a cassette recorder so when it all goes wrong the customer can hit the Record button and say what happened. The paradox in this market is that every time a baby graduates to underpants from nappies you lose the customer forever. They have gone to a lot of trouble to listen to customers. let along getting a computer to do it for them.* The issue was would people buy ‘training pants’ – a transition product that looks like underpants but works like a nappy? K-C sent small teams of individuals (many themselves in the midst of the trauma of toilet training their own children) into consumers’ homes to hear real-life stories.Market-Led Strategic Change sophisticated surveys and tests or huge computer databases.’ He concluded that personal finance software that could only be operated by the computer-literate 12 year old in the family would just get turned off. They buy products that improve their lives. have a tour of their cheques and bills boxes. and also new products – they found that small business owners were using Quicken home *Well. They have a programme called ‘Follow Me Home’ – a kind of formalized stalking when employees go home with the customer.

but meeting them in the real world. or do it well. The fancy name is generating ‘holistic customer insights’. pop stars and so on. so let’s give them the product to take home and test. For example. a key aspect of implementing a vertical marketing strategy with one manufacturer was that the company was not organized around markets. Today. Intuit’s ‘QuickBooks’ is used in thousands of small businesses around the world. and then they can tell us about it. Just talking to people walking round the supermarket will tell you more about what they like or don’t like. This is not high technology stuff. when was the last time anyone in your company came back with some ‘war stories’ from customers and got taken seriously? Watching customers Other companies have discovered you can learn just by watching the people who set the standards. but people preferred it to conventional business accounting software that forces you to learn double-entry bookkeeping. sports stars. and was received favourably in market tests. to follow and observe the setters of trends in fashion – urban youth. The product was not designed for this purpose. This is pretty simple stuff.66 Similar effects exist in the business-to-business setting. when you don’t need to. is likely to tell you things you will not otherwise learn. For example. of course. marketing innovative consumer electronic products. one bank went for a glass-wall design for its offices for customer contact staff – the design won prizes. but the evidence is few companies do it. it is fashion – so they employ ‘trend observers’. Meeting customers There is actually a big learning experience for most of us not just in meeting customers. than questionnaire surveys will.Market sensing and learning strategy: competitive strength through knowing more finance software to keep their business accounts. At Nike the business is not really sports clothing. and that was the way managers 251 • • . But. and were prepared to say so when asked. The bank thought it made staff more approachable – in the actual event customers felt robbed of their privacy and were very uncomfortable. but it’s really just about watching and learning: The power tools company Black & Decker achieves its innovative product designs and features by watching people using the tools and asking them about the experience and what would make it better (in the context. they have an even simpler logic: they say our employees are our customers. At Sony. Talking to passengers actually on the long-haul flight or waiting in the airport will tell you how angry and frustrated they are at their loss of control over the process and what really irritates them. it was structured around products. where the product or service is consumed. more so than nice controlled interviews later when the flight is just a (bad) memory. of the well-known male bonding ritual with power tools).

The effect of having senior managers meet customers informally and talk to them was fundamentally to shake the corporate belief that strategies were about products not markets. to put together the product range customers wanted. One problem the company faced was that managers believed that what they knew about their old markets would apply to their new markets. Stage three was to wait a short period while managers licked their wounds. it can be done anywhere. for example from important departments like production and logistics and customer service. Stage four was to ask managers to compare the two lists and their recommendations of how the company needed to change its approaches to attack the new market. two • • 252 . he organized Customer Days.67 For example. He says this was a brutal process but changed managers’ minds about a few important issues. The marketing vice-president confronted this problem in stages. For instance. Customer days Following the same logic. that identify the whole context in which customers buy. when groups of customers visited the company to tell managers what they believed were their needs and preferences. to ‘waste’ time on visiting customers. Surveys and research reports may be excellent things (or not) – generally they do not seem as powerful a form of communication as real customers who come to spit in your eye. and tell you face-to-face what they really think of you. Unhappily the frequent experience in meeting executives is their carefully rehearsed reasons why it is not appropriate for managers. one very powerful way of getting customers taken seriously in the company is if we can get them to come to us – to enter the corporate lair and tell us what they think of us and our products. or meet the challenge to ‘get inside the lives of your customers’. to marketing to employees.Market-Led Strategic Change liked things. There was much resistance to an industry sector-based strategy which cut across different product departments. Although this is most obviously applicable to business-to-business market. CIGNA. Put it this way. if Lou Gerstner was able to run IBM and still spend 40% of his time talking to customers – what are the rest of us doing? Building customer scenarios Another approach is to map out broader ‘customer scenarios’. One of the most influential ways that this resistance was reduced was simply by organizing events and social functions around the target industrial sectors (actually in the form of training seminars and charity events). First he asked teams of managers to specify the key customer needs and preferences for the new market. It did not. Second. a major health insurance organization in the USA. has faced a process of strategic change from marketing to employers.

perhaps the single most difficult thing to confront in this whole area is that customers may see things differently to us. not rubbishing those priorities. while the second is looking for a fridge for the house he is building that will not be finished for months..Market sensing and learning strategy: competitive strength through knowing more shoppers arrive at an electrical goods store looking for a refrigerator – they seem identical and probably get treated the same. the business traveller frequently needs to change air flights. or guests should not walk on the grass in front of the hotel. In fact. listen and learn.g. dissatisfied customers buy less and seems to do their 253 • • . We do not live in an ideal world. They may have very different ideas about what matters about our products and services. In fact. If we do not receive any customer complaints it does not mean all is well – do not confuse silent customers with satisfied customers. and of the second ‘furnish a new home’. to sell a whole kitchen to the home furnisher. They have very different needs – the customer scenario of the first is ‘emergency replacement’. respecting. the first shopper needs the new fridge to replace one that died the night before. and insurance to the emergency buyer. Originator of the concept Patricia Seybould describes customer scenario building as focusing on the goal a target customer needs to fulfil in a particular situation. For example. It may be one of the most powerful sources of competitive advantage and real customer focus. then surely people should bow to our superior wisdom and professional expertise? I think not. The figures about dissatisfied customers and complaining behaviour are depressingly well-known: most dissatisfied customers do not complain to us – probably only 4–5% bother. suggesting the potential for Internet-based in-room services to facilitate flight re-booking. Our role is to keep quiet. our role is not to evaluate and disagree because we know better. It probably means our customers think so poorly of us they cannot even be bothered to tell us how bad they think we are. This is very unfair – we are the experts. dissatisfied customers tell everyone except us. after all. to save the frozen food from melting. Treating them the same misses major opportunity – e. and doing something about them is likely to be a painful process for many of us. What about the complainers? In an ideal world where we got everything right there would be no customer complaints. Taking the trouble to find out what matters to paying customers. or the office has to shut at lunchtime so people can eat. Listening not evaluating If we are privileged enough that our customers will tell us things. If we say the computer switch belongs on the back of the box. mapping the scenario and looking for ways to improve it from the customer’s perspective. or you cannot have a TV rental delivered on a Sunday or in the evening. and it may be staring us in the face. but receives no support in the hotel.

We have shown that understanding is not the same as information. This is for a number of reasons. corporate culture may be such a barrier that they simply do not believe us. Finally a World War I veteran looked at the film and said ‘Ah. . and all the assumptions we make inside the organization about the outside world – what works in this market and what does not. and so on. of course . No one could explain what this was for. This is not something to be taken lightly. who the competitors are and how they respond to competitive challenges. what matters to customers. It is about developing new ways of looking at the outside world. but a useful definition of culture is ‘the way we see things here’. This is a process that we can manage for greater effectiveness in most companies. What we are building up to is no less than a challenge to the organization’s culture. often people do not complain because they know we will make complaining a horrible and demeaning experience. yes. has proved to be a singularly ineffective approach to winning peoples’ commitment and achieving effective strategy implementation. the issues we monitor and those we ignore. This includes the process of selecting the information we accept and what we reject. looking for ways of improving efficiency. . They found that in slow-motion the film showed that at the end of the drill. The underlying point is that people • • 254 . Reality Check: Challenging the status quo An interesting story from the operations research literature of World War II illustrates the importance of challenging the way things are. two soldiers who played no other role stood to attention behind the gun. Culture has been defined in many ways. just before firing the gun. to improve the way in which we develop our market strategies and deliver our marketing programmes. but assumed it was essential because that was how it was always done. how the market is changing or not changing. First. they used to hold the horses to stop them bolting!’ The underlying problem is that telling people what their problems are.Market-Led Strategic Change best to get others to buy less as well.68 But perhaps the real point is – what does a company learn from the customers who complain? Enhancing Sensing Capabilities69 The focus of market sensing is managers’ understanding of the market. but typically the cost of complaint resolution is 10–25% of the cost of finding a new customer. Researchers made a film of the military drill used by soldiers to load and fire the big guns. and by implication to get their act together.

we need to specify: which environment facing the company we are evaluating and the dimension of the environment to be analysed (see comments below on how to manage these choices for maximum effect). The task then is to brainstorm the events in the chosen part of the company’s environment which might take place or which are currently developing. and the market in question also should be specified. This suggests the need for an approach to improving the understanding that managers and specialists have of their markets. Second. it is too easy to be simplistic in assuming that we know how managers search for information and use it when they have it for decision making. The problem arises when that shared understanding becomes out-dated and inflexible. and the likely effect of the event on the business if it does happen (the suggested scale runs from 1 Disaster to 255 • • . and to identify the most critical gaps in that knowledge. we must be right because everyone around us agrees. There are two stages. we need to do two further things: assess the current view of the probability of the event happening (initially a subjective ‘guesstimate’ which we may want to test and evaluate further). ‘telling’ people what their problems are is unlikely to gain their ‘ownership’ of those problems – communication effectiveness demands that we recognize the importance of employee and manager perceptions of events and the strength of two-way communication to identify problems in those perceptions. after all. Third. The most important events are listed (and also mnemonic codes for ease of reference). The goal is simply to provide a structure for executives and planners to articulate what they know about changes outside the company. But.Market sensing and learning strategy: competitive strength through knowing more in organizations develop simplified models. or it is unimportant to our analysis. It follows that a critical precursor to strategy implementation and change is that the people who have to change in a company see the need and reasons for change. First. not just being told. If we cannot do this – the event is too broad and should be defined more narrowly. Then. the time-frame (normally 3–5 years). which uncovers the problems to be solved and identifies the new challenges to be met. There is abundant evidence to suggest that the information search and use in organizations is complex and reflects many needs other than making better decisions. In this situation the role of the marketing planner or analyst becomes one of managing the process of market sensing. Quite simply. which become their shared understanding of the world. and yet we still cling to it – and. just telling them does not seem to work. but which involves ‘finding out’ what matters. the framework also requires that we identify specific effects on the company if this event takes place. The approach described below is a simple method of achieving some of these things. However. A structure for market sensing This approach is simple and accessible to managers. it is naive to expect attempts at one-way communication to change people’s minds about things. not simply the provision of information and conclusions.

Managing the market sensing process The approach described above is very simple to implement. which we can use for testing the robustness of proposed market strategies. field of dreams – events that are highly desirable but seem unlikely to happen the way things are at the moment. danger – events that are very threatening to the company and are very likely to happen. things to watch – where we do not see the probability as very high and the impact is relatively neutral. 4 Good. The broad categories of event are categorized into: utopia – events with a very good effect which are very likely to occur. We should try to build a full view of the most important aspects of the environment as they impact on the company. What we now have is a model of the outside world. Secondly.3 A framework for market sensing 7 Ideal). It is accessible and provides a structure for the information and intelligence in the company. and captures a picture of the outside customer and competitor • • 256 . 6 Very good. 7 Ideal Neutral. the events (or their codes) are then entered on the model in Figure 6. However. and.Market-Led Strategic Change Probability of the event occurring High 7 6 5 Effect of the event on the company* 4 3 2 1 *1 5 Disaster. but where monitoring is needed in case either of these changes. Danger Future risks Things to watch Utopia Field of dreams Medium Low Figure 6. identifying information gaps and evaluating market attractiveness. 3 Bad. making this truly effective is far more about how the process of market sensing is managed. but which we may want to monitor in case they become more likely. rather than just filling in forms and building models.3 – positioned by the scores we have placed on the probability of each event occurring and the effect of the event if it does occur. future risks – undesirable events that seem unlikely to happen. 2 Very bad.

International Environments Business Environment: Political. Competitive. Planning team. suppliers. Social and Technological Impact on customer relationships Impact on market size and share Managers to specify: how are we exploiting the good things and defending against the bad things in our strategies. cross-functional representatives. and how are we monitoring the most critical issues Plans must state explicitly how they reflect changes.1. customers. line managers. This is. reports.Market sensing and learning strategy: competitive strength through knowing more world as it is currently understood in the company. Market. Technological. only a starting point in achieving our goal of building and sharing real market understanding so that it impacts on strategic decisions and implementation. Choosing the environment • • • The first issue is what approach to the outside world is potentially most needed to confront change and influence behaviour in the company. and the last points address the issue of how to enrich the sensing process.1 Checklist for Managing Market Sensing Questions What environment needs addressing to improve our market understanding. opportunities and risks in the most critical areas of the environment Published studies. customer focus and market strategies? How should we subdivide the environment to understand it better? How should we interpret the impact of changes we identify in the chosen environment? Who should interpret the picture built and what are the critical questions they should address? Examples Business. The first two points relate to how to focus thinking to the maximum advantage. Table 6. Economic. outside experts Goals FOCUS on the area where our assumptions are weakest and our market understanding is poor FOCUS on the most critical aspects of the chosen environment LINK TO PLANNING by confronting the importance of changes to our strategies LINK TO PLANNING by challenging conventional views about strategies and information needs and use How do we link our new market understanding to decision making? What information should be provided? Who should be consulted/involved? LINK TO PLANNING by demanding that implications are addressed in detail and not ignored ENRICH THE SENSING PROCESS by stimulating ‘out of the box’ thinking ENRICH THE PROCESS by bringing more viewpoints to bear to challenge conventional company management assumptions 257 • • . There are a number of key issues to be addressed in managing this process. which are summarized as a checklist in Table 6. the next three are concerned with linking market sensing to planning. Legal. corporate intelligence etc. however. research studies.

and the Technological Environment. different technologies capable of serving the same customer needs). When asked if they had considered re-naming the company the ‘Smug Corporation’. one glaring omission in management thinking was about competition – as evidenced by recent new product failures and as claimed by the company’s marketing manager (who felt he was largely ignored). for example.e. only imitators. developing. There is advantage therefore in addressing at the earliest stage what these impacts may be. the executives said things like ‘You have to understand. This was subdivided into: Direct Competition (i. in viewing the Market Environment we could ask for each event to be analysed in terms of its impact on customer/supplier • • 258 . For example.3. other companies in the same industry producing the same type of product). This suggests that managers believe they know everything and everything is certain. For example. Subdividing the environment to focus attention • • • The second point of focus is how to subdivide the environment to ensure that people address the most important aspects. and the model produced by executives was ‘Utopian’ in the extreme – i. because their views on market positioning have changed dramatically. we do not have competitors. Identifying the impact of environmental changes • • • If events that happen outside are of any importance it is because they influence something that matters to the company. in different companies and to deal with different types of problems.e.e. For example. Customer Competition (i. This has become a permanent and essential part of the company’s new product planning. with one high-technology company. their views started to change quite dramatically. into deals with key customers to help them produce their own products and collaborations with companies outside the industry to use the newer technologies becoming available to meet customer needs.e.’ When the scanning was re-focused onto the competitive environment. the Legal Environment and the International Environment. in one clothing company we used the most general version of the model (the Business Environment). the Competitive Environment. Generic Competition (i. which was led by R&D and driven by scientific innovation in products. This problem was approached by asking teams of managers associated with new product projects to specifically address the Competitive Environment in their planning. the Market Environment. the tendency in key markets for customers to develop their own materials and to substitute this for product purchase).Market-Led Strategic Change The basic framework described above can be used to evaluate the Business Environment. and highlight the gaps in understanding that are most critical. every event they could identify in the environment around their business fell into the Utopia cell of the model shown in Figure 6.

The aim is to encourage thinking to be very specific to the company and its goals. Interpreting the model for strategy building • • • The most important issue is how we interpret the model of the environment that has been built. This is not always necessarily true. 259 • • .Market sensing and learning strategy: competitive strength through knowing more relationships. or with the Competitive Environment. one major unknown at the time was the form that privatization would take. are there things we can do to change the position of events in the model? An initial response to the first of these questions may be negative. Here there are three questions to stress and demand attention. the impact of each event on our market share. Given that the model is a picture of the things happening outside which we regard as most important to the survival and prosperity of the company. explicitly and realistically are we exploiting those factors in our market strategies? We have also identified the changes in this market which are potentially major threats. which is what the company did. Even more surprising are situations where managers are forced to admit that their information systems do not focus on the things that really matter to their performance – the systems report the figures and statistics that are easiest to report and that have always been reported. For example. because managers are confronted with their own logic. explicitly and realistically are we defending against these changes in our market strategies? If it has been done properly then the model we have produced shows the things that are most important to our position in this market – the question is: are we monitoring and evaluating these factors in our marketing information system? It is amazing how often executives have to admit that their plans and strategies do not address the real changes in the marketplace where they intend to operate – this is the moment when new thinking about strategies may become possible for the first time. to improve the power of the model. and. in work with a company targeting the water industry in the build-up to privatization. then we should demand responses to the following questions: ● ● ● We have identified the changes in this market which are potentially very advantageous for our performance in this market. and which are likely to happen (Utopia in the model) – the question is: where. which was a barrier to developing market strategies. Clearly the government is unlikely to provide such information ahead of time – but it was possible to go to a specialized agency in contact with senior civil servants and politicians and to get a pretty good idea of the plans. There is also another type of question that can be raised around our model of the environment: are there things we can do to reduce uncertainties around important issues. and which are also likely to happen (Danger in the model) – the question is: where.

This may take no more than agreement that strategic market plans must state explicitly how they reflect changes in the most critical aspects of the environment. not to truncate it. instead of being in October. the chocolate company. The reason is because parents do not like their small children making ‘trick or treat’ visits to houses after dark – an extra hour of daylight on October 31 (Halloween) is worth several million dollars’ worth of extra chocolate sales in the USA. presentation by outside experts. the point of making the whole exercise focused bears fruit here. but this is unlikely to impact on the problems we set out to • • 260 . which should not be underestimated.Market-Led Strategic Change To some the second question may appear even more outlandish – how can a company change the environment? Clearly in the general sense it cannot. For instance. If. Who should be consulted and involved? • • • Perhaps the most actionable lever for enriching the sensing process is consultation and participation. the largest issue in the ‘Danger ’ area is competitive entry with a new product. given the chance. for example. the marketing analyst can use the framework provided here to undertake an appraisal of the market environment as an individual exercise. it is disastrous at any point to suggest to people that they are wasting their time because everything has been done before by ‘Corporate Intelligence’ or by ‘Market Research’ departments. as we ease people away from the status quo represented by corporate culture. This follows the principle that giving discretion to managers and empowering them to find solutions and innovations is a powerful lever for strategic change. Hershey. came very close to persuading the federal authorities to change the date of the change to daylight saving time into November. The aim here is to enrich the sensing process. The key to handling this seems to be not to overload people with new information but to provide enough that is new to help people break the mould. This is an area where creative thinking may become possible. then the conclusions reached by understanding the environment that matters should be linked to the decisions made about market strategies. Clearly. in the USA. The company failed in this attempt. However. Certainly. through written reports. The argument is clear: it is that consultation with managers and employees and their participation is critical to determining their responses to market developments. then maybe the strategy to pursue is one of collaboration. Linking market sensing to plans • • • If the benefits of this approach are to be realized. Providing information as a stimulus to thinking • • • Another decision requiring careful thought is what information should be provided to the executive and planning teams scanning the environment. and so on. but it remains surprising how creative thinking may be about ‘unchangeable’ events in the environment.

different types of customer segment. There is also the question of gaining credibility and ‘buy in’ from line management as a foundation for effective implementation of resulting strategies. Line and staff specialists – similarly.1 as a checklist for consideration in managing the process of building and sharing market understanding with managers. At the simplest level. then we need to involve the key players in implementation in the analytical stage of planning. if we expect cooperation and support across departments for market strategy implementation. Culture shakers – it is sometimes good to include company ‘non-conformists’ to shake some of our conventional beliefs and assumptions. which pools specialized expertise around a focused problem. and ignores a major opportunity to build consensus on the need and direction for change. it may be that people from operations and R&D can contribute useful insights into market change. The issues to consider in managing participation in this type of exercise are: ● ● ● ● ● ● A team – if we want ‘ownership’ and commitment. the problem is predicting the past. but also ‘hardening of the categories’ – the traditional ways in which we look at information in the company – and we risk becoming ‘prisoners of our categories’. At a deeper level. and challenge conventional ways of addressing the market. This might include suppliers.’ It may not be possible to exploit all these sources of influence over the creation of market understanding in all cases. for how else can we get a ‘buy in’ to new strategic directions? Cross-functional representation – one of the most powerful levers for change in major corporations is the use of the powerful and informed cross-functional team. then it makes sense to have them involved and consulted in the process. and so on. Unhardening the categories – Alan Kantrow70 suggests that all humans suffer not just from hardening of the arteries. Remember the (alleged) quotation from former US President Ronald Regan: ‘It is not interpreting the future that is difficult. managers from line roles and staff roles may bring very different insights and sources of intelligence to the table. Part of our task is to break the information we have into different categories to see what we learn – new market definitions. different ways of comparing ourselves to our competitors. and it may not be necessary to do so. The point of this is very simple – the tools for building and refining market understanding have to be placed in the hands of the line managers and technical specialists upon whom we depend for the 261 • • . The principal points are summarized in Table 6. or experts from the relevant research institutes and universities. Outsiders – in some situations it may be possible to gain from the involvement of outsiders who bring new information and understanding of the markets we are appraising.Market sensing and learning strategy: competitive strength through knowing more solve. customers. different ways of grouping customer priorities.

Market-Led Strategic Change effective implementation of market strategies. Force managers to confront and cope with a different view of the world. We create resistance to change. but because it is a way of getting on with the things that we think matter. and to track the implications for strategy. Key managers have adopted a simplified model of what works in the market and what matters to customers. Managers become so fearful and intimidated by the speed and complexity of change in the outside world. which means they will not look at new information or new ways of doing things. conflict between groups. People do not adopt simplification mechanisms. group consensus. a word of warning. How can we expect people to commit to something when they do not see the reason for it? These market sensing procedures have been developed to work with line managers and planning teams to enrich and enhance their understanding of the most critical aspects of their markets. For the most part people in organizations do not cling to the familiar way just out of perversity or bloody-mindedness (although there are exceptions to this). The Opportunities Increase the flow and amount of information to put more important issues on the agenda. These are mechanisms which allow us to make sense of things (however arbitrarily and inflexibly) and to get on with things (like making decisions and doing the work). and so on. to use this as the basis for developing market strategies of which they may take ‘ownership’ and drive through to effective implementation. Develop new sensing approaches that change our view of what is happening. We may have to change some of these things to get a new strategic direction – but slowly and with care may be advisable unless chaos is the intention. which is invalid. and how we need to change our strategy. These are fundamental issues not to be taken lightly – there are risks as well as opportunities. uncertainty and self-doubt which ‘freezes’ decision makers. The Risks Information overload. For example. Abandoning the accepted and assumed model of the world creates confusion. We ignore the impact of major changes in the marketing environment. Strong group consensus in our decision making. internal competition and political in-fighting. When we start to tamper with the flow and use of marketing information we have to run the risk of reducing performance in the short term. they cannot make decisions. for the hell of it. a false sense of stability. A note of caution However. • • 262 . Operate on the inertia and ‘group think’ by redesigning group memberships and the ‘ownership’ of critical information. with all that is implied in terms of organizational change and disruption to the status quo. we can compare the opportunities and risks like this: The Problem There is too limited a flow of customer and market information.

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Fletcher. Marketing Business. 1996. Peter. ‘Storytelling: A New Way to Get Close to Your Customer ’. pp. pp. ‘Marketing Implementation: Building and Sustaining a Real Market Understanding’. 2(3). Lesser.. Walther. Kay. Unpublished London Business School report. 1-7. Smith. 61. Sarah-Kate. Hemel Hempstead: Prentice-Hall. Leiber. quoted in Richard Donkin. Marketing Management and Strategy. and Nikala Lane. Peter. New York: Profile Business. Ronald B. ‘Get inside the Lives of Your Customers’. ‘Doing the Knowledge’. Patricia B. Peter Drucker On the Profession of Management. 1997. 2006. 1-5. D. 63. Alan. Sunday Times. H. Journal of Marketing Practice: Applied Marketing Science. 68. September 1994. MA: Harvard Business School Press. Financial Times. January 6 1997. 60. Kantrow. pp. February 24 2008. David. Boston. George R. ‘Looking for Trouble’. Barley. L. V. ‘Camelot Knew Manager Was Spying on Rivals’. 65. Templeton. 2004. The Constraints of Tradition. This section is based on: Piercy Nigel F. 66. 70. and J. Seybould. 1994. Journal of Business Strategy. pp. 2nd edn. • • 266 . Peter. David Mundel and Charles Wiecha. July 15 1998. Dipesh. February 3 1997.. 15–28. 67. Harvard Business Review. 1998. Drucker. 69. Sunday Times. 35–37. November/ December 2000. New York: McGraw-Hill. 81–89. 64. Marketing News. 21–24. 62. p.Market-Led Strategic Change 59. Upside-Down Marketing. Fortune. The Art and Science of Interpreting Market Research Evidence. p. Chichester: Wiley. ‘Managing Customer Knowledge’. ‘Patient Access Is “Sold” by GPs’. May 2001. ‘Go Where the Consumers Are and Talk to Them’. Doyle. August 19 2007. Gadher. Eric.

Seen in strategic terms. Marketing people love market segmentation – dividing markets into groups of customers to provide targets.C H A P T E R • • • • 7 Strategic market choices and targets: where to compete and where not to This chapter . throw-away that we do just so we can worship the false god of market share. . market positioning is about the identification and domination of uncompeted market space. . rather than more conventional comparisons . Conventional market segmentation obsesses with techniques and is largely tactical – where best to place ads to reach the same targets as everyone else. A strategic approach to segmentation highlights the priorities of aligning company resources around benefits delivered to customers and the barriers to achieving this. where they will perish. This is less straightforward than is often suggested. Markets are fluid. The focus is now on market strategy – choosing the markets and segments where we are going to compete. This is great except for one thing – it completely misses the point. and those who fail to see this get trapped in a competitive box. Defining markets is not a one-off. Close study of shifting products and customers in a competitive domain and mapping market structures may help move from fixed views of markets to more useful ones.

market segmentation and targeting – how we identify groups within the market as targets for our products and services. and the choices we make about where to concentrate and to establish our marketing priorities. leading then to considering our value proposition and key relationships.1 Strategic market choices and targets • • 268 . market positioning – where we want to be in a market relative to the competition. and avoid the trap of shortsighted.1): market definition and the competitive box – how we select part of the outside world and identify it as our market. Market definition and the competitive box Market segmentation and targeting Strategic market choices and targets Market positioning Market choices Figure 7. This is the topic for this chapter. A critical part of building and designing an effective market strategy is the key choices we make about our markets (Figure 7. and market choices – what we decide makes a market or segment attractive to us and a position we take good or bad.Market-Led Strategic Change between ourselves and the competition. The first area where superior market understanding should impact is on the market choices that we make and then re-make as we learn more. Making market and segment choices is complex and overwhelmingly important to get right – it is based on the attractiveness of the customer opportunity and how well we can exploit it. Market choice then links to value propositions – what do we have to offer our chosen customers – and key relationships – can we manage the relational demands of this market? Introduction We took the first step in our strategic pathway as the development of market sensing capabilities. fixed market definitions.

we go to the same trade fairs and exhibitions as they do.Strategic market choices and targets: where to compete and where not to Market Definition and the Competitive Box The first point is simple but dogmatic – in an era where the Internet is daily fuelling the blurring of traditional product-market boundaries.2 The trap of the competitive box 269 • • . that is you). The danger is that you can be trapped by the ‘competitive box’ into believing that markets stand still and the boundaries stay the same. You can try this. The competitive box puts a ring-fence around familiar competitors using similar technology to produce similar products and services for a shared customer base – these are the ‘usual suspects’ we mean when we talk about our competitors. new business models are being created. which can destroy the incumbents if they do not open their eyes (yes. The competitive box The usual suspects Known competitors. The trap of the competitive box reflects the tendency of managers to build a fixed mental map of the industry in which they compete. we belong to the same trade associations. known customer base and competing for market share through incremental innovation New types of competitor New business models Conventional value propositions New customers Existing customer base New customers New customer base Figure 7.2 is a way to convince the non-believers that there are big things going on in most markets. The competitive box The competitive box model shown in Figure 7. operating in traditional ways with the existing. radical innovation is changing the rules – there is nothing fixed or static about the definition of the market where you hope to earn a living. We know these people well – we probably swap personnel with them every so often.

the new players bring new customers into the market – for example. In some companies. Competition is probably based on brand. while weakening its image and watering-down its product innovation. and forcing it back inside the box. They will probably succeed. which it never was.1 In fact. The ‘rules’ say you have to be a manufacturer or a retailer. A major challenge to managers is to understand the competitive box they have created and to identify the real challenges posed by how markets are reshaping and redefining themselves. you see managers taking an operation that has developed an unconventional business model outside the competitive box. more people fly because of the low-cost airlines – and dominate this growth. so you have to choose one or the other. booksellers who did not believe that anyone would buy books off the Internet. this way the stock market knows what to compare you with. New management became determined to make Body Shop into a conventional retailer. Competitors copied the image and the products and brought Body Shop down with a bump. Body Shop is a case in point. that they can sell to someone else. and this determines which competitors they take seriously. The alternative is to sit back and watch the business being taken away – probably ending up as a low-profit commodity supplier. Worse.Market-Led Strategic Change and so on. The examples of managers being suckered by the competitive box are numerous: banks who simply did not believe that grocery retailers and Internet sites could be retail banks. and in so doing they will create a chain of quasi-conventional cosmetics shops. and the measure of success is probably market share in the familiar customer base. airlines who did not believe that business travellers would use a ‘no-frills’ carrier with no ‘free’ food and drinks. it is someone you probably never even heard of (and if you did. It survived this shortcoming by virtue of its image of environmental responsibility but also a steady flow of exceptionally innovative new products. Established firms sit back and watch as new types of competitor and new business models take their customers away. what you see in sector after sector is that the most deadly competitor is not the person you sat next to at last year’s trade convention. a travel industry that did not believe that people would buy flights and holiday packages online or direct. with great excitement about small percentage point changes in brand market shares. Body Shop was always one of the worst and most inefficient retailers in the world. Research confirms this observation – studies suggest that when they identify their competitors managers tend to think of a relatively small number of firms and they use supply-based attributes (what firms are and what they do) rather than demand-based attributes (how customers see substitutes). The fences we build – the boundaries of the competitive box – are what blind us to the real sources of competition and prevent us from developing appropriate strategies. you didn’t take them seriously). by taking conventional advice and following industry rules.2 • • 270 . There is another problem.

and planning. the own-label initiative had had no impact on the whisky brand because they were selling to different customer groups. in terms of specific products and services. the product/service applications or customer needs. the industrial sectors included. which also weakened its ability to respond to its real competitor for its customer – new white spirits. and frequently reviewing. but the customer-defined market is lunch. We know that markets change – so surely how we define the markets that matter to us should be constantly under review and revision? To start with. What we are interested in is markets. allowing the player to translate physical moves into changes on the screen – has massively outsold Sony’s pioneering Playstation 3 (and also Microsoft’s X-Box). the practical definition of our markets. In fact. The truth is customers just do not fit traditional industry definitions of markets: you think you make crisps. the company alienated its customers and ended up with weaker margins and sales. one well-known whisky brand cut its price in response to a similar move by an own-label version. the range of products/services that go into the market to meet these needs. and the broad types of customer within this need market. Compare the market perspectives at Sony and Nintendo and the different strategic direction that results.3 The way in which management understands and defines the market may be one of the most significant strategic issues of all. Not enough people do this on a regular basis. The motion-sensitive controller allows people to stand up off the couch to serve the virtual tennis ball or hit the imaginary 271 • • . and specific customer types. Reality Check: Going for a Wii? In the computer games console business. But this is not about a conventional statistical analysis using traditional categories and measurements. there are obviously some basic parameters that should be defined so we know where we are competing. the type of consumer in demographic terms. By cutting price. and so on: the geography of the market. Nintendo’s Wii – based around a motion sensitive ‘Wiimote’ or wand. For example. Markets are based on customer needs and demands. Conventional market definitions reflect industries which are groups of companies linked by technology or product similarities. The results of re-thinking market definitions may be surprising. This can lead to a very productive analysis of the customer differences and thus potential segments within the total market. the retailer thinks that the category is salty snacks.Strategic market choices and targets: where to compete and where not to Redefining markets There are valuable insights to be gained in most organizations by looking at.

p. • • 272 . and so on.Market-Led Strategic Change baseball. July 10 2007. watch clips on Grouper. This matrix is simple: all it asks us to do is to identify the different types of product or service going into the market we have chosen.e. p.3). Notwithstanding the emergence of player injuries with the Wii (bloody noses and fractured collarbones from playing baseball. use the PS3’s Blu-ray disc drive to watch movies. the USA and Europe. p. ‘Nintendo Aims to Keep Virtual Players Off the Sofa’. Currently. the underlying strategic challenge for Sony is much greater than this. there are some important angles here. Sony wants to convince consumers that its games consoles are ‘essential living room hardware’. use the PS3 to download music and films from PlayStation Network. Nintendo’s CEO knew from the outset that he could not compete with Sony and Microsoft by attempting to attract 18–35 year old men who wanted to play ‘shoot-em up’ games. This is the first catch – we are only interested in products as they are seen to be different by the customer. 19. The product–customer matrix One practical approach that has great leverage in helping to get executives to look at markets in a new way is described below – the product– customer matrix (Figure 7. Financial Times. adults and senior citizens alike. ‘Nintendo Beats Sony in Christmas Console War’. Financial Times. January 5/6 2008. Sources: Mariko Sanchanta and Chris Nuttall. Sony’s market is the consumer’s living room. as they are felt by the customer. broken teeth and pulled hamstrings from bowling). Sony’s video-sharing site. and knew he could only succeed by reaching out to a broader market. This is a very challenging strategy based on a different market perspective. The triumph of the Wii strategy was to expand the market for the Wii (and its companion DS machine) – more than half Wii users are women and the game has attracted children. Sony has fought back against the Wii with dramatic price cuts on the Playstation to regain sales momentum. which defines the total market. The vision is that the consumer will buy Playstation 3. But. capable of seamless integration with other Sony devices. in 2007 the Wii was outselling the Playstation by three to one in Japan. i. Mariko Sanchanta. ‘Sony Slashes Cost of Playstation 3’. Sony loses money on every Playstation sold. January 8 2008. Mariko Sanchanta. 14. connect it to a high-definition Sony Bravia LCD TV. and the different types of different customer. they meet different needs. Financial Times. 22. This strategic direction is reinforced by the launch of WiiFit – an exercise game based on a balancing board enabling users to practice virtual yoga or skiing. Let us consider products first. However.

4. 3. and so on. 5. pay bills via cheques and debits. As a customer I want to: ● ● ● ● ● ● lay my hands on ready money when I need it. 3. buy things before I have the money to pay for them. because they had some 600 or more different products.3 The product–customer matrix Total Reality Check: Products in retail banking In attempting to identify their product groups. significant differences in their behaviour. The customer does not really care how many different ways the bank has of producing an overdraft. 7. have my savings held safely. Customers need to be grouped on the basis of important differences between them that matter to how we get to market – their most important needs. in a corporate bank (i. one 273 • • . 6. For example. This did not fit the matrix. But if you think not about the bank’s back office operations. managers from a retail bank produced a computer printout listing their retail bank products. 4. there are only six customer benefits in the retail bank market and thus only six types of product.e. their priorities. 6. s/he just wants to buy a car before s/he can afford it. which was fully five inches thick. Figure 7. 7. 2. there are only six retail bank products. but what matters in the front office to the customer. 5. and acquire some services like insurance. investment advice.Strategic market choices and targets: where to compete and where not to Market: Products 1. 2. get income from my savings. In this sense. Total Customers 1. Now we can talk about customers.

Mapping market structure is an excellent way to open eyes about these issues. For example. For example. product by product. the FedEx airplanes are the warehouses. incidentally. and thus the best way to grow the business. find out where we make most of our profit in the market. these executives decided to classify corporate customers according to the strategy the customer is pursuing – because that predicts the customer’s need for financial services. and specializing the total ‘offering’ around the customer’s needs. (This incisive and deeply-analytical model. Once the product–customer matrix is constructed it can be used for a number of significant purposes: ● ● ● ● ● ● ● ● look at market size and trend. look at our real market share in the market we really compete. managers’ definitive list of customer types in the corporate banking market was: small companies. not retail customers). from different products and services going to different customers. One attraction of this matrix approach to market redefinition is that it opens up questions about who is the real customer and the structure of the value chains operating in this market. and the critical products and success factors. ‘market share strategy’ companies need good liquidity products. After a lot of debate. evaluate whether our real strength is in products or relationships with particular customers. by defining the needs of different customer segments in a better way to offer customers in each target segment expertise and service tailored to their specific needs – the value proposition is different for each customer segment.Market-Led Strategic Change dealing only with companies.) In fact. isolate those parts of the market where we have the greatest competitive advantage over our competitors. look at our present strategic position product by product and customer by customer.e. look at the market and product life cycle stage. this grouping tells you nothing of any real importance about customer differences. product by product. medium-sized companies and large companies. and so on. but companies pursuing a ‘profit-reconstruction strategy’ are likely to value most highly financial efficiency products. for example is that Intel does not have warehouses in China. • • 274 . This provided them with a novel and creative way of choosing customer targets. represents how most bankers traditionally view this market. identify the parts of the market in which we are actually doing business – the ‘competed market’. identify where we are achieving the highest levels of customer satisfaction and loyalty. The value of this type of analysis is demonstrated by the performance of Federal Express – one of the most successful companies in the world – in a strategy of improving customer satisfaction and profitability. and customer by customer. i. companies like Intel are offered a specialized international logistics support system because this is a critical customer need – the effect. and customer by customer.

000 units 2. There are two customer groups: construction companies using heating units in new buildings. retailers and other marketing intermediaries in reaching end-users.000 units Commercial construction companies (85.000 units) 84. For example.000 units subcontractors 7. This is very shortsighted and blinds executives to real market trends.000 units Construction 75. The customers are reached through independent distributors.000 units Direct sales 10. Cravens and Nigel F. Burr Hill. construction sub-contractors.000 units Large hardware retailers 1.4 shows a market structure map compiled for one region’s annual use of central heating units. One of the most frequent difficulties is that managers see intermediaries as their customers. 9th edn. 275 • • .000 units 40.000 units distributors 42. 2009. Strategic Marketing.000 units Independent 42.4 Mapping market structure and trends for central heating units Source: Adapted from David W.Strategic market choices and targets: where to compete and where not to Mapping market structure and change It is often very insightful to produce a map of existing or future structure of the market. A well-constructed market structure map indicates clearly the end-user customers. to allow comparison with competitors and to identify new opportunities. by calculating market share for each link – and to aid establishing market Production 100. and domestic customers upgrading their homes. small hardware retailers.000 units 5. Piercy. and never look at the impact of the real end-use market. Market structure map analysis should emphasize end-users.000 units Domestic customers (15. The figures shown in the market structure map are for all suppliers to the market in the region.000 units Production of central heating units Small hardware retailers 5. construction sub-contractors and direct sales by the manufacturers.000 units Consumption 100. Figure 7. to clarify who the real customers are. IL: McGraw-Hill/Irwin. They can be compared to existing and planned sales of an individual company through each structural link to identify areas of weakness and strength against competitors – for example.000 units) Direct sales Figure 7. large retail hardware chains. and shows the relative roles of distributors.

geographic location. Redefining markets in this way and looking outside the competitive box to the underlying market structure provides the foundation for looking at market segmentation and targeting issues. from an industry and an individual company perspective. socio-economic group or lifestyle for consumers.5 Consistency versus differentiation in market segmentation • • 276 . Market Segmentation and Targeting4 One big difficulty in working on market segmentation is that everyone thinks they know what it is. It is. with potentially different marketing approaches for each segment (see Figure 7. We divide a market into groups of buyers who make coherent targets – for example. Market segments A Product Marketing actions Price Communications Distribution & service Differentiated marketing actions across market segments B C D Consistent value offerings for each market segment Figure 7. Market segmentation The theory is simple. Trend and forecasts can be incorporated to highlight shifts in channel importance and necessary changes in channel strategy. gender.Market-Led Strategic Change strategy priorities. by age. Anticipated changes in product use by different customers is also highly significant. Profitability data will highlight differences between different links. and no one thinks it is strategic. They don’t. industrial sector and the like for industrial buyers. Conventional thinking is that we can then develop consistent marketing programmes based on the important characteristics of the customers in a segment.5). or company size.

notwithstanding the wonders of database marketing. and ‘price sensitive’ customers (‘stretching the budget’ and ‘cheapest I can find’). an ethnic recipe or traditionally British. won’t cook’. However. The information is used to build a detailed picture of the type of people shopping at Tesco – it can tell the retailer if you have just had a baby. then the ‘right’ segments would be identified automatically by the computer. 277 • • . In fact. In the real world. by ‘layering’ Dunnhumby can build richer analyses longitudinally and by adding other data sources. The programme is operated by Dunnhumby – mostly owned by Tesco. approaching segmentation like this would miss the whole point about the power of creativity in segmenting markets to create competitive differentiation. This is one of the many reasons why markets are too important to be left in the hands of marketing executives. ‘Less affluent ’ shoppers make up 27% of Tesco’s market (with sub-categories such as ‘traditional’ and ‘price sensitive’). Some 29% are more discerning and opt for ‘finer foods’ (whether ‘natural chefs’ or ‘cooking from scratch’). Dunnhumby makes about £30 million a year selling the data to consumer goods companies like Procter & Gamble and Unilever. market segmentation is quite simply about tactical issues like: where to advertise to get the best audience ‘reach’ for our promotional messages. food-rich’ and ‘can’t cook. data from systems like CRM can be a stimulus to creative approaches to segmentation. your social class and what sort of a cook you are. Clubcard has tracked the shopping habits of up to 13 million British families for more than a decade. dominant British retailer Tesco has what is probably the biggest collection of people’s personal data in the UK. and where the sales force can locate potential customers. Nonetheless. Tesco divides its customer into ‘convenience shoppers’ (subdivided into ‘time-poor. if your children have left home. which types of distributive outlet have the optimum customer profile. Each product like a ready-meal can have up to 45 values associated with it – expensive or cheap.e. but even if you could. market segmentation). Reality Check: Market segments at Tesco By virtue of its Clubcard loyalty programme.Strategic market choices and targets: where to compete and where not to To many operational marketing and advertising executives. At the simplest level. The other misconception about segmentation is that if you could simply collect enough statistical information about the market. ultimately the only real logic for how we organize the whole company is our understanding of the structure of the market (i. Tesco-branded or Birds Eye. segmentation is a fundamental issue of market strategy with far-reaching effects – indeed. and so on. in most cases you cannot get ‘enough’ information anyway. The ‘mainstream customers’ (who buy lots of ‘kids stuff ’ or ‘commonplace brands’) are the mid-market group.

Surely. A major piece of market research conducted by Haley5 in the USA in the late 1960s remains the model for this marketplace. and price sensitive looking for staples at good prices. Nirmalya Kumar and JanBenedict E. Stefan Stern. and are oriented towards healthy eating and environmental benefits. consider the following case. Private Label Strategy. However. FTMagazine. the anxious segment – primarily families concerned about the decay prevention properties of the toothpaste. More than half Tesco’s sales come from own-label products (twice the level of a decade ago). M. The customer data and groups identified within the market have underpinned strategic moves at Tesco. • • 278 . and the own-label range is divided into three tiers to match the major market segments: ‘value’. Financial Times. November 11/12 2006. and the independent segment – value-oriented buyers who choose on the basis of price. midmarket (53%) – including the mainstream (younger consumers with broad tastes). p. and the development of new offers like the Tesco mobile phone. such as: the move into smaller-format stores. at the strategic level segmentation is really about one thing and one thing only – the customer benefit from the product or service. younger consumers who are time-conscious. ‘standard’ and ‘finest’. the sociable segment – young adults for whom the product is a cosmetic. the launch of the Internet shopping site. Haley’s model distinguishes between: the sensory segment – mainly children influenced primarily by the favour and appearance. enjoy luxury. MA: Harvard Business School Press. Sources: Elizabeth Rigby. 12. chemically very similar to the compound used to remove surface blemishes on the paintwork of a car (although there may be differences in flavour). Take the absolute classic example of segmentation – in the toothpaste market. pet insurance and the ‘Finest’ food range. Functionally the product is a grinding compound. Boston. are willing to experiment. 2007. and the cost-conscious (23%) – younger. March 14 2007. pp. if ever a product should rationally be an undifferentiated commodity product it is toothpaste. the customer benefit segmentation of this market shows that it is far from being a price-led commodity market. Lest it be suspected that this is all a bit theoretical and you can only get into customer-benefit segmentation if you have a king’s ransom to spend on clever market research. tends to like the art of cooking and with a fixed shopping list). ‘Eyes in the Till’. in the market for kids products. ‘Quality Becomes Commodity in Brand Battle’. 16–22.Market-Led Strategic Change The lifestyle analysis of the Dunnhumby customer segmentation data identifies: upmarket (24%) – affluent. more than forty years later. the convenience buyer (to whom food is ‘fuel’ and microwaveable foods are popular) and the traditional buyer (older. Steenkamp. However.

and the Dealers (pp.Strategic market choices and targets: where to compete and where not to Reality Check: An exhausting market The General Manager of the Spares Division of one of the imported car firms in the UK had a beef about replacement exhausts. the Hostages. only the back pipe needed replacing. who rely on the car for income. The model is probably not exactly right. Kwik-Fit has beaten you to it! The General Manager concluded that this was not a market worth the cost of fighting. s/he would probably be sold a complete new exhaust system for about £100. or the elderly. In fact.6). If the customer went to a high-street exhaust and battery outlet. with the Hostages the goal should be to focus on building positive commitment. His case was that with the first exhaust replacement. In fact. as he actually put it. Markets may also look very different if we adopt customer loyalty segmentation. with the Happy Wanderers we may emphasize innovations in the value offer to retain their interest. Think back also to the view we took of the relationship between customer satisfaction and customer loyalty – we distinguished between the Satisfied Stayers. the ignorant driver – who wants expertise to solve the problem. this model gives us a novel basis for thinking about the link between ‘loyalty segments’ and market strategy (Figure 7. the Happy Wanderers. and the value-seeking driver – whose main interest is price. if purchased from the manufacturer’s distributor. The sort of segments that appeared were: ● ● ● ● ● the wealthy high dependence driver – people like the selfemployed. 35–36). This appears to be economic madness to an engineer with expert knowledge of the motor business. costing on average £40. What it does do is suggest why the majority of the car exhaust market is not driven by price. instead of relying on inertia to retain the business. and who also seek dependability above all else. This suggests that appropriate strategies may be very different for each loyalty segment: with the Satisfied Stayers we should invest to reward and reinforce loyalty to stimulate referrals and continued retention. the scared driver – who just wants the fear of mechanical breakdown taken away. the impoverished high dependence driver – people like singleparent families. in the majority of cases. while being aware of the 279 • • . the conclusion reached was that whatever customer-benefit you identify. whose life-style crashes if the car breaks down. ‘stupid’. He could not understand why his potential customers for replacement exhausts were so ‘irrational’ – or. We worked out a benefit-segmentation model in a couple of hours over discussions with him. whose primary product benefit is dependability.

may be vulnerable to competitors Repeat buyers for competitors. not just demographics.6 Customer loyalty-based segmentation different balance between costs of retention and the benefits with this type of customer (they may not be retained long however much we spend). This time the logic is that the type of relationship that customers want to have with their suppliers is the major determinant of their receptiveness to different relationship marketing strategies.7. but this may only be inertia. The exact characteristics of the satisfaction/loyalty segments will vary between companies. where the best strategies for our own and the competitors’ customer differ substantially between segments. may be interested in our offer Dealers Show strong preference for the best ‘deal’ on the market. This suggests the type of customer relationship-seeking segments shown in Figure 7. Recall earlier we distinguished between customers on the basis of the type of relationship they want with suppliers and the intimacy of the relationship they want. so we may emphasize transactional efficiency.6 Going further in this direction. but loyalty segmentation provides a platform for developing market strategies that truly reflect important customer characteristics. but may be interested in us Happy Wanderers Show little positive commitment. there is much untapped potential in segmenting markets on the basis of customer relationship-seeking characteristics. while with the Dealers investments in relationships and retention are likely to be unproductive.Market-Led Strategic Change Loyalty segments Our customers Committed to us and rate us highly. may become interested in alternatives Little commitment to competitors. research suggests loyalty-based segmentation can be a powerful route to enhanced profitability. Bain & Co. This may be worth trying out for part of your business to see what you learn. with low supplier loyalty No commitment to competitors – open to superior offers Figure 7. they show little interest in competitors Competitors’ customers Committed to competitors and rate them highly. as an antidote to relationship marketing myopia (treating all customers the same). • • 280 . show little interest in us Satisfied Stayers Hostages Loyal customers.

Broad segmentation approaches are illustrated by a bank’s research examining clues in customers’ statements to identify: hedonistic grazers – impulsive and spontaneous with a tendency to live for the moment. Broad segments often reflect management enthusiasm for developing stereotypes of different buyers in the market. Broad segments and micro-segments An interesting and topical distinction is between broadly conceived market segments and those with a much narrower definition. control freaks who plan purchases in advance and prefer to buy furniture than to go out. compared to Bridget Jones. and steady builders – mature. settled and stable. but control costs to allow for short retention Demonstrate superior value offering and lack of ties or barriers to switching Loyal buyers Relationship exploiters Arm’s length transactional customers Figure 7. while narrow or microsegments reflect the growing market granularity we discussed earlier. and the details of the relationship seeking characteristics of customers will vary greatly between markets and companies. The point is that segmentation is about a lot more than descriptive customer demographics.g. a strong sense of responsibility and debate expenditure rather than buy spontaneously. A number of companies who have tried this model have found it insightful.7 Customer relationship-based segmentation Again this is speculative. material martyrs – extremely organized. instant fun seekers who do not like to postpone fun and extravagance longer than necessary.7 The goal is a deeper understanding of how financial services relate to different lifestyles. through Internet Emphasize value offering and avoid relationship investments unless can be converted to loyal buyers Competitors’ customers Find ways to offer a relationship that is superior in the customer’s terms to attract away from competitors Emphasize superiority in value offering and rewards for long-term retention superior to those of competitors Offer relationship-based incentives to switch suppliers. 281 • • . introverted and home-loving they are careful and frugal.Strategic market choices and targets: where to compete and where not to Relationship segments Relationship seekers Our customers Invest in customer relationship management and loyalty programmes to give a close relationship that is long term Focus on retention through the value offering and not through relationship emphasis Control expenditures on loyalty incentives and provide economic contact. e.

A technology master. To him. White-van Culture – young couples who have bought their own council house. to whom consumerism has a deeper meaning associated with quality and beauty rather than mere commerce. active pursuits. but • • 282 . many with long-term sickness or unemployed. Men’s grooming will never be the same again. traditionalists. responsible. professional occupations. Beiersdorf and Polo Ralph Lauren do good business with the Metro. energetic and optimistic. D&G. striving to achieve status through ownership of designer label clothes or cosmetics and self-indulgent and reckless spending. stability is important to them. A bigger shopper than his Dad. a sophisticated consumer in his 20s and 30s. aged 25–34. adept at online research – the in-house shopping consultant.8 Reality Check: A guide to the male shopper In turning attention from female consumers to males. Experian’s MOSAIC system identifies 61 types of people – or British tribes – largely based on postcodes. living on large suburban estates. A fun game for females is to locate males of their acquaintance in this framework: The Metrosexual – the affluent urban sophisticate. children will own a pony. The Modern Man – neither Retro nor Metro. enjoy DIY and gardening. The Maturiteen – knowledgeable. mature and pragmatic. a mix of single. Sony and Unilever are good at playing along with the Maturiteen. well-off and living in expensive areas.Market-Led Strategic Change At the broadest level. with poise attributed to baby boomer parents who treated their children as equals. shoes are objets d’art. A radical view of brands – Adidas. but may enjoy active sports. Green-belt Guardians – wealthy commuters and farmers in traditional village communities. earning a good living as a tradesman. liberated from work and family responsibilities. conservative tastes and a bias towards buying British. smart appearance. Tower-block Living – live in deprived neighbourhoods. strong loyalty to employer and family. High-spending Elders – retired early. Sprawling Subtopians – middle-aged families with adult children. aged 20–50. the following archetypes have been identified. with a hedonistic lifestyle. lovers of wildlife and the environment but drive 4 4s. Their tribes include: ● ● ● ● ● ● Global Connections – high earners in expensive homes. older and younger people.

But while broad segmentation deals in customer stereotypes based on factors like demographics. Philips Norelco used locker room humour to get the modern man comfortable with its Bodygroom below-the-neck shaver. ‘Secrets of the Male Shopper’. lesbian. Moisturiser and hair gel are perfectly ordinary to him. Kimberly-Clark has followed this with its Supreme Gentle Care line for small babies and Supreme Natural Fit 283 • • . September 4 2006. bisexual and transgender market (GLBT) with its own GLBT website to make its image more attractive to this market. pp. The Retrosexual – if the Metro champions the female ethos. many applications now focus on much more narrowly defined segments as targets. . Yet they are at peak earning power. He yearns for the way things were in the good old days before moisturiser for men. particularly gay. Dyson and Patek Philippe are reaching out to Dads.Strategic market choices and targets: where to compete and where not to still a sports fan.11 In part. at one stage the disposable baby nappy market was really just Huggies and Pampers. BusinessWeek. Marriott Hotels is developing designer. though possibly not manicure. and Procter & Gamble has launched Pampers Swaddlers. KimberlyClark has branched out into Huggies Convertibles. the Retrosexual is screaming ‘Stop!’. but rejects feminism and happily wallows in traditional male behaviour. wealthier. car-makers are tuning incentives to carefully defined slivers of the car-buying public. . For example. This traditionalist has lived through the same cultural turmoil and consumerism as Modern Man and the Metro. He worries about getting clean – the more expensive the soap product. as does P&G’s Old Spice brand.10 More extreme. In the face of intense private label competition. Cruisers and Easy-Ups. Burger King has this guy nailed. It is also related to the tendency for mature markets to fragment into slivers and niches. in some cases tying an incentive like a price-cut to an individual car or truck. as competitors seek out new opportunities. For example. the girlier it is – how clean can you get before other guys notice . Chicago-based Hyatt Hotels & Resorts has targeted the gay. male travellers. The Dad – largely off the radar and when he does appear it is as the embarrassing father looking for advice from his kids on how to become cool. more fashionable traveller – the fastest growing niche in the US hotels market. Overnites and Little Walkers. Source: Adapted from Nanette Byrnes.9 On the other hand. this micro-segmentation is driven by ‘microtrends’ and the new ‘identity groups’ we discussed earlier (Chapter 6). 45–54. boutique hotels to specialize in the needs of the younger. social and residential characteristics (which can be useful counters to the belief that all customers are the same).

radically shifting the company’s strategic emphasis from products and technology to customers.Market-Led Strategic Change Strategic segmentation Corporate mission Values Strategic intent Market position Managerial segmentation Figure 7.12 Strategic market segmentation Where this is leading us is into another way of opening up the market segmentation issue.8 Strategic and managerial segmentation Resource allocation Marketing plans Operational management (sales. nonetheless 2003 saw the piloting of Best Buy’s ‘customer-centricity’ strategy. The development of segmentation strategy at US electronics giant Best Buy illustrates the power of a strategic approach to segmentation in transforming how a company understands its customers and goes to market in new ways.8. Although the company was accounting for around 17% of the US and Canada consumer electronics market. advertising) for older babies and toddlers. • • 284 . consumer electronics retailer Best Buy provides an interesting example of strategic market segmentation. Reality Check: Soccer mom scores at Best Buy In the USA. Most people only see the managerial aspects of segmentation and ignore its strategic significance. Strategic segmentation is led by customer benefits and relates to broad issues like corporate mission and value and strategic intent and market position. Both brands are fragmenting the market to promise parents more comfort for their baby and to maintain a premium price position against retailer brands. which is to distinguish between strategic and managerial segmentation issues – as suggested in Figure 7. Managerial segmentation is the more familiar level of managerial planning and resource allocation and operational issues of sales and advertising allocation.

wants to enrich her children’s lives with technology. Ray – the family man. who wants technology and entertainment. Inc. High priority target groups are described as: Jill – the ‘soccer mom’. The goal is to focus on the most attractive customers based on the important differences between them in their purchasing and preferences in consumer electronics. who is the main shopper for the family. well-educated and confident. Mr Storefront – the small business customer who can use Best Buy’s product solutions and services. 285 • • . single females) and the Helen and Charlies (older couples whose children have left home). who wants technology that improves his and his family’s life. The customer base has been segmented into basic lifestyle groups. Barry – the wealthy professional man.Strategic market choices and targets: where to compete and where not to Courtesy of Best Buy Co. yet intimidated by technology and jargon. who demands the latest technology and best service. Other interesting segments are the Carries (young. but often avoids electronics stores. Buzz – the young ‘tech enthusiast’.

or ignore segment differences and treat all customer groups the same (undifferentiated marketing). But let’s consider the conventional view of segmentation and then get a bit more real about segmentation strategy. ‘Best Buy’s Giant Gamble’. Washington Post. Profiling for Profit’. Wednesday August 17 2005. This may explain why there is growing evidence that companies do not use segmentation theory to much extent beyond targeting advertisements into media based on demographics. then we have provided the technical underpinnings elsewhere. It is concerned only with the operational aspects of marketing. focus efforts on certain segments (concentrated marketing). and supporting the segmentation strategy at store level. and stable enough to make good targets. accessible. If this is not clear. The managerial issues are concerned with identifying target segment members. employees are trained to recognize and focus on the needs and preferences of the target segments for that store. ‘In Retail. At the store level. are segments measurable. A01. Sources: Ariana Eunjung Cha. dividing markets by geographic or demographic characteristics. • • 286 . actionable. It ignores the strategic issues almost entirely. Fortune.Market-Led Strategic Change Stores are being adapted to serve at least one dominant customer segment shopping at the store – though Jill and Barry stores are a frequent combination of segments in the same store. or more sophisticated statistical clustering techniques. Conventional views of market segmentation • • • Traditional views of segmentation are concerned with: the methodology of identifying segment targets – for example. The Best Buy example illustrates the levels of segmentation: the strategic issues are concerned with consumer lifestyles and the benefits that different types of consumers seek in choosing and purchasing consumer electronics. p. Matthew Boyle. the criteria for testing the robustness of the segments identified as marketing targets – for example. redesigning stores to serve chosen segments and providing employees with the training and power to focus on the segment targets. April 3 2006. and the segmentation strategy decision – do we develop separate products and/or marketing programmes for different segments (differentiated marketing). sustainable. Operational segmentation issues are concerned with delivering relevant messages to targets. Indications are that stores converted to focus on the target segments perform substantially better than other stores.13 The only problem with this conventional approach is that it largely misses an important point.

but they do not fit the marketing plan and they don’t get budgeted for. strategic–explicit issues relate to strategic segmentation and the goal is to focus on the fundamental customer benefits sought in different parts of the market. as suggested in Figure 7. whether from physical product differences or from non-product attributes. The pursuit of a strategic market vision may quite reasonably be judged by criteria other than measurability. The suggestion is that in each of these areas the managerial agenda to be addressed is different. and often the same databases – surely we all end up with the same segments and no competitive advantage (indeed. It is quite possible that the conventional criteria of segment evaluation do not validly or usefully apply to what is built here. It is fine being imaginative about basing segments on customer needs and benefits sought. we all pursue the conventional. we should recognize that different approaches to segmentation can be used for different purposes. that there is a need to distinguish between strategic and operational organizational levels in dealing with the segmentation issue.Strategic market choices and targets: where to compete and where not to Indeed. the typical (but recurring) responses of managers in workshops to conventional segmentation are revealing. and the 287 • • . This model is based upon two important propositions: first. because those are the only things we can easily measure.14 An extended model of market segmentation • • • Our extended model – which can be used as a diagnostic framework to sort out segmentation issues for a company – is shown in Figure 7. Importantly. secondly.9. as competitors. To begin with. as well as the external marketplace in considering segmentation. and to confront the practical issues they raise. mechanical approaches.9 and outlined below. using the same techniques. but how do you turn that into quantifiable targets with specific customers for the sales force? Don’t we have to revert to demographic and geographic segmentation anyway. They say things like: ● ● ● ● ● ● ● Is the fact that we can segment markets any reason why we should segment markets? Should we allow our marketing strategies to be driven primarily by the availability of the information technology that facilitates sophisticated market segmentation? If. and see what we’ve got and where we’re going? Such responses have led us to build an extended model of segmentation to use with executives to work on market segmentation questions. maybe more competition in the critical segments because everyone goes after them)? What’s the use to anybody of identifying and choosing market segments that nobody in the organization owns? Fancy segment labels are all well and good. that in order to address the issue of implementation it is necessary to examine the internal organizational context.

innovativeness in how the market is attacked. the compatibility with mission.9 An extended model of market segmentation Operational like. and consistency with corporate value and cultures. and the goals are primarily managerial in allocating resources. This is a set of issues that have been largely neglected by conventional segmentation. The relevant techniques for generating strategic segmentation in the first place are more likely to be qualitative and creative than quantitative and scientific. it is at this decision-making level that we must also recognize the other characteristics of strategic decision making: levels of uncertainty and ambiguity are high.Market-Led Strategic Change Explicitness and focus Explicit/external Strategic Implicit/internal Strategic segmentation • Customer benefits • Qualitative approach • Links to mission and vision • Organizational structure • Information processing • Corporate culture and history Organizational decision-making level Managerial segmentation • Conventional segmenation bases • Quantitative approach • Conventional tests and criteria of choice • Sales and distribution organization • Advertising and promotion • Media buying • Pricing tactics Figure 7. On the other hand. At this level. These issues are likely to include the following • • 288 . This is arguably the practical link between corporate mission and the marketplace – it is where the broad concepts and ideas in the mission statement can be related to customer needs and benefits in a specific marketplace. but which are also the most familiar ones: the choice of conventional segmentation bases and the application of quantitative methodology to identify segment characteristics. and operational in the tactical management of marketing programmes. Here the conventional tests probably do apply. These issues are concerned with the fundamental implications of market segmentation for the ‘inner workings’ of the organization. information is scarce. operational–explicit issues are critical issues. and the market environment is enacted or constructed rather than objectively known. although they are likely to be critical to successful implementation of segmentation strategies. segmentation models might be better judged by such criteria as: the ability to create and sustain competitive differentiation and advantage. However. Where it gets more interesting is with strategic–implicit issues. providing a coherent focus for thinking in the organization.

However. though frequently hidden and ignored. there may well be hidden barriers to implementation which are powerful. segments of the type proposed.10. evaluation systems and the like. or differentiate between. allocate responsibilities. advertising and promotion campaigns – are the segment targets reachable as separate targets through our existing procedures and capabilities for marketing communications. there is the question of operational–implicit issues: internal organizational issues. because they fall between the jurisdictions of existing departments or SBUs. pricing and market research systems are not set up to deal with. 289 • • . to identify such issues of internal compatibility may require more detailed analysis of the kind discussed below. when this construction of the market produces segment targets in which the people in the organization have little belief or confidence. in the way suggested in Figure 7. If new segments represent radical change and are potentially threatening to the status quo and the current distribution of influence and control. internal rules. both overt and covert. It is the neglect of issues such as these that really lies behind the observed failure of many innovative customer-benefit based segmentation models. The practical conclusion is that we should screen segments not just in terms of ‘market attractiveness’ (the conventional criteria). and to evaluate our performance. information and reporting systems – fundamental problems may be that new segment targets may be incompatible with existing information processing systems and difficult to identify and evaluate in conventional terms or to set targets. ethos. but at an operational level: sales and distribution organization – are the segment targets easily identifiable by salespeople and accessible through existing distribution channels and are they compatible with the way these processes are currently structured. or monitor progress. internal decision-making process – if segments are conceived and defined in a radically different way to the conventional market targets a major implementation barrier may arise concerned with whether the new segments will become a genuine focus in marketing plans and whether they will be recognized and gain resources in the budgeting process. where marketing communications.Strategic market choices and targets: where to compete and where not to areas: organizational structure – strategic market vision may be incompatible with organization structures (and the related organizational decision-making processes and information flows) raising a variety of practical questions that are central to the ability of an organization to implement a segmentation strategy because segments are never ‘owned’ or taken seriously. market research – do we have information organized around these segment targets to identify them. but also in terms of ‘internal compatibility’. pricing tactics – do we currently have the facilities to price differently to segment targets? These issues. The critical implementation issue is compatibility and consistency between segment targets and organizational attributes. to size and measure opportunities. Lastly. corporate culture – here the issue is the acceptability of new segments to the people in the organizations in terms of values. are with tactical problems in implementing segmentation: where segments cut across sales and distribution systems and cannot be adequately serviced by either.

for instance. The new segments did not ‘fit’ with the established planning system and were largely ignored when targets were set and when promotional resources were allocated. The new ‘marketing’ idea of segmenting the bank’s customers by need and • • 290 . many problems emerged in attempting to implement this segmentation model in the bank. However.10 Segment attractiveness and internal compatibility Reality Check: Segmenting a market to the death Pursuing the corporate banking example. As we saw.Market-Led Strategic Change Internal compatibility High High Attractive segments that match with company capabilities Attractive segments but with poor match with company capabilities Low Market segment attractiveness Unattractive segments but with match to company capabilities Low Unattractive segments that do not match with company capabilities Figure 7. and so largely ignored them. Lack of information meant that salespeople were given little support in how to identify corporate customers in terms of the new segments. ‘market-share driven’ companies as compared to ‘profitreconstruction strategy’ companies. with product offering and marketing programmes built around. the strategic vision of top management was to target corporate customers for financial services according to the customer’s own corporate strategy (which would predict customer needs and priorities for financial services). The powerful branch network in the bank saw the new corporate market segmentation as a threat to their own business – they called it ‘cherry-picking’ – and lobbied against it. It was impossible to value or target the new segments because the bank’s information system coded only customer size and industry type. this defined an unusual and novel strategic segmentation model which offered considerable potential competitive advantage. as well as effectively withholding cooperation.

291 • • . people and so on? Although it cannot provide easy answers. The corporate banking operation was closed. planning. market research systems. These critical issues relate to: questions of consistency. or the relationship between strategic and operational aspects of segmentation. and between internal issues at both these levels. stimulus questions for executives are: ● ● ● ● What is the existing or achievable ‘fit’ or internal compatibility between the ‘strategic segmentation’ model of the external customer marketplace. To go about addressing these issues. and the internal organization structure. and the sales and distribution organization. advertising and promotion management. information. questions of integration. The strategy was a complete failure. In practical terms this is a useful device for bridging the gap between the conventional theory of market segmentation and the implementation of segmentation strategies. or the internal compatibility of segment targets with organizational characteristics. integration refers to the ‘fit’ between the strategic segmentation model and the managerial/ operational level.Strategic market choices and targets: where to compete and where not to benefit found little support among management. media buying. but it illustrates the pointlessness of market segmentation – however innovative – that ignores issues of integration and consistency inside the organization. This may be an extreme case. and pricing administration? How compatible is the strategic segmentation at the managerial/ operational level. and corporate culture? What is the existing or achievable ‘fit’ or internal compatibility between the ‘managerial/operational segmentation’ model of the external customer marketplace. in terms of whether it can be implemented at all by a given organization. at both the strategic and at the managerial/operational levels. processes like planning and budgeting. this framework provides a structure by which managers may evaluate the real nature of market segmentation for their companies and for identifying implementation barriers to segment-based strategies. and. This is illustrated in Figure 7. On the other hand.10. Consistency is concerned with the ‘fit’ between the explicit/external and implicit/internal issues in segmentation. budgeting. can customer benefit groups be translated into accessible target segments? How compatible are the internal issues at the ‘strategic’ level with their counterparts at the ‘managerial/operational’ level – in terms of organization. information systems. Consistency and integration • • • The argument above suggests that overall we can reduce the market segmentation issue to two critical questions to evaluate relevance and the practical usefulness of a given segmentation model. who defended the status quo as ‘prudent banking’ practice.

Tesco – very broad appeal. the more price-conscious. or we end up with a brilliant market strategy that does not work. well-educated shoppers who are cosmopolitan in their tastes. typically from coalfield regions. pensioners. such approaches to market positioning are very crude. They are also in danger of blinding us to change – Aldi and Netto. Asda – attracts more ‘down to earth types’. research by Experian links British supermarkets to the social characteristics of consumers in the following way: ● ● ● ● ● ● Waitrose – the supermarket to be seen in. classified by Experian as the ‘ties of community’ group.Market-Led Strategic Change Segmentation is a powerful strategic tool for focusing on customer needs and building competitive advantage from that focus. though the integration of Safeway stores provides a broader appeal including those defined as ‘rural isolationists’. They can fit into the spaces between traditional competitors. and for retailers probably reflect geographic location of stores and historical origins as much as anything else. Netto – the bottom of the social heap. Morrisons – attracts those from close-knit. Sainsbury’s – broad appeal but particularly favoured by young.15 Of course. more to the point is the question of choice – how does a company want to be located and perceived in a market. However. and professionals. largely as judged by customers. and less likely to have children. compared to the rest. Market Positioning At one level. attracting families. old steel and shipbuilding towns. For example. compared to the alternatives? The logic of ‘blue oceans’ and ‘red oceans’ Milind Lele considers the goal of strategy to be the creation of monopolies. attracting families on low incomes often living on large council estates found in the outer suburbs of provincial cities. the low-cost format European retailers. on the grounds that research shows that nimble companies can create dominance in niche markets through creativity in how they go to market and deliver value. frequented by career professionals and the well educated. and places with docks and chemical plants. But we have to be realistic and think segmentation through to the capabilities and characteristics of the organization as well. mingled with younger families living in newer homes. market positioning is about where you are located in the marketplace. inner-city and manufacturing town communities. are increasingly competing with Tesco for ‘middle England’ by offering luxury goods like lobster and champagne at very low prices. liberal in their outlook. They grow by identifying and exploiting a • • 292 .

This section leans very heavily on their work and the companies they have studied. . but too often they interpret this as head-to-head competition with rivals for a bigger share of existing markets. They set themselves up to deliver cars to customers at home. and growth will come primarily from blue oceans. Enterprise Rent-ACar manages to earn bigger and more consistent profits than Avis and Hertz. Creating new market space The ground-breaking body of research compiled by W. This approach underlines the importance of our earlier view of ‘thinking strategically’ (Chapter 4). spotting that people also rent cars when their own vehicle is being repaired. as opposed to trying ‘red ocean’ strategy in existing heavily competitive market space. and suggest that the real opportunity is to create ‘blue oceans’ of uncontested market space. Find uncontested market space Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Set the company’s operations up to pursue differentiation and low cost In this sense. Similarly. tapping and dominating a market untouched by Hertz and Avis. .Strategic market choices and targets: where to compete and where not to monopoly neglected by their peers. Enterprise challenged the industry belief that people rent cars when they want to travel. Kim and Mauborgne put forward a compelling argument that competing in overcrowded industries is no way to sustain high performance.16 Market and segment choice becomes about finding spaces where there is no competition.17 They contrast the imperatives in red and blue oceans: Red oceans .18 What they describe is how managers in high-performing companies across the world have succeeded in systematically looking outside the conventional boundaries and structures to find the unoccupied territory that represents a real breakthrough in value. Chan Kim and Renée Mauborgne at INSEAD constitutes a compelling case that successful companies reshape their industries and sometimes create new ones. Successful growing companies innovate by creating 293 • • . Compete in existing market space Beat the competition Exploit existing demand Equal the conventional value/cost Set the company’s operations up to align with a strategic choice of differentiation or low cost Blue oceans . For example. They argue that the prospects in red oceans are shrinking in most sectors. . market and segment choice is far more creative and has far greater strategic significance than conventional approaches would allow. This is the route to long-term decline. Kim and Mauborgne tell us that companies know that they must innovate to succeed. .

It is in the space between industries that opportunities Table 7. The difference between conventional strategic thinking and that needed to create new market space is summarized in Table 7. Harvard Business Review. • • 294 . e-mail competes with postal services. but using different technologies.1. actually companies do not just compete with each other within the industry – they compete with substitutes in seemingly unrelated industries. 83–93.Market-Led Strategic Change new markets or reinventing existing ones. However. By focusing on ease of use and cheapness to compete with the pencil. For example. applicable to all industries. and discussed below. He saw the main competitor as the pencil. They identify six basic paths to creating new market space. because both get messages from one place to another. January/February 1999. did not see his competitor as other software producers. Intuit created a new market space for personal finance software. Chan Kim and Renée Mauborgne. pp. ‘Creating New Market Space’.1 Creating New Market Space* Conventional ways of looking at competition The industry Conventional head-to-head competition Focuses on conventional competitors and market share Focuses on competitive position within a conventional group of competitors Focuses on better performance with the conventional buyer group Focuses on improving the value of the product service offering within the conventional industry boundaries Focuses on improving price and performance in line with the functional-emotional orientation of the conventional industry Focuses on adapting to external trends Strategic thinking to create new market space Emphasizes looking across substitute industries for opportunities Emphasizes looking across the strategic groups within the industry Emphasizes redefinition of the buyer group Emphasizes complementary product and service offers that go beyond the conventional industry boundaries Emphasizes taking a different perspective on the functionalemotional orientation of the conventional industry Emphasizes participation in shaping external trends The strategic group The buyer group Scope of product and service offering Functional-emotional orientation of the industry Environment *Source: Adapted from W. Looking across substitute industries • • • Conventional strategy focuses on competing directly with known competitors offering similar products and services to ours (the competitive box). famed for its low-cost and easy-to-use personal finance software packages. because it is cheap and easy to use. The founder of Intuit software. and grew the market by a factor of 100.

Their frequent flights counter the advantage to the car driver of leaving when they want. let alone worry about multiple-class seating or designated seats. In mid-2007 Southwest reported its 64th straight quarter of profitability – a record unmatched in the industry. surface transport.’ Sources: W. Southwest now flies more domestic passengers in the USA than any other airline.Strategic market choices and targets: where to compete and where not to exist for creating new markets. pp. Polo Ralph Lauren and Toyota’s Lexus are all ideas that created new markets by breaking free of the conventional strategic 295 • • . Orit Gadiesh and James L. One way of breaking free of competition with rivals in an industry is to find substitutes and to look at why buyers choose one substitute over another – the goal is then to concentrate on the strengths of both substitutes and eliminate everything else. They focused on the reasons why people choose to fly instead of driving – it is to save time. which is to: ‘Meet customers’ short-haul travel needs at fares competitive with the cost of automobile travel. This is encapsulated in their strategic principle. and used secondary airports to avoid the delays in getting to and through congested major city airports. While conventional US airlines were locked in head-to-head competition based on traditional tactics. Southwest created the concept of frequent point-to-point flights – its average flying distance is only 425 miles – with fares up to 60% below conventional airlines. Southwest created point-to-point flights to make short-haul travel even quicker. May 13 1999. ‘Southwest Airlines’ Route to Success’. For short-haul destinations. 73–79. i. Financial Times. is a substitute for flying. Southwest side-stepped all of that and created a new market: short-haul air transport. May 2001. on which the European airlines easyJet and Ryanair have successfully based themselves. ‘Transforming Corner-Office Strategy into Frontline Action’. Harvard Business Review.. The Southwest strategy was to move across substitute industries. not to watch films. The airline has substantially grown the market on the routes it flies. eat meals. An illustrative example is Southwest Airlines. the car. The effect is that Southwest has created a market space between conventional flying and surface transport. less-congested cities. Chan Kim and Renée Mauborgne. Looking across strategic groups within the industry • • • The Sony Walkman. Reality Check: The real secret of the success of Southwest Airlines Southwest is famous as the innovator of ‘no frills’ flying. Gilbert. The other ‘benefits’ of flying were eliminated.e. The factors underlying Southwest’s success go far beyond cost savings achieved by eliminating in-flight meals and drinks. using airports in smaller.

Existing competitors competed by trying to improve against each other. By 1999. in the US luxury car market. Accor’s strategy was to focus on the distinctive strengths of both strategic groups and eliminate or reduce everything else – its Formula 1 hotels offer cleaner. poor profitability. one and two-star hotels in France were in trouble – no growth. Similarly.Market-Led Strategic Change groups in their industries. Reality Check: Breaking free of strategic groups In the mid-1980s. The other amenities such as larger rooms and restaurants were irrelevant. Source: Adapted from W. varying from joggers to commuters. the Sony Walkman combined the transistor radio and the ‘ghetto blaster ’ to create the personal stereo – combining convenience with ‘coolness’ – and took business from both the existing strategic groups and attracted new customers. Chan Kim and Renée Mauborgne. ‘Finding Rooms for Manoeuvre’. The critical issue is focusing on the factors that make buyers trade up to a higher price strategic group or trade down to a lower group. For example. Polo Ralph Lauren created a market worth $5 billion for ‘high fashion with no fashion’ by combining the appeal of haute couture with classic designs. low occupancy rates. Toyota’s Lexus was positioned between the high-end group of Mercedes. noisy and had bad beds. Its operating costs are lower than the traditional two-star hotel because it eliminated restaurants and lounges. They had created a new market space in between the traditional strategic groups of competitors. One-star customers went there for the very low price – often half the rate of the two-star hotel. BMW and Jaguar and the lowend group of Cadillac and Lincoln. Existing industry players or new entrants can achieve major gains by changing the way in which they compete. room size and other amenities to a minimum. Financial Times. and eliminating everything else. Strategic groups are mainly companies pursuing similar strategies obsessed with improving their competitive position within the group. In creating the Formula 1 budget hotel chain Accor asked the fundamental question of why do people looking for cheap accommodation trade up to a two-star hotel or trade down to a one-star hotel? They found that two-star hotel customers trade up for the ‘sleeping environment’ – one-star hotels were dirty. • • 296 . with better beds like the conventional two-star hotel. May 27 1999. It took custom from both strategic groups and expanded the market. Another example is the Formula 1 low-budget hotel chain. into the market. quieter rooms. creating more of the same. and kept furniture. Formula 1 had a market share larger than the sum of the next five largest competitors. but at the price of a traditional onestar hotel room.

an environmentally friendly bulb. Compaq looked beyond 297 • • . computer games. when the Bert Claeys Group in Belgium built Kinepolis in 1988. Philips changed its focus away from corporate purchasing officers to chief finance officers and public relations departments. users and influencers – with different concepts of what is good value identifies opportunities to recreate the market by focusing on the buyer group neglected by conventional competitors. Compaq provides another illustration of the power of complementarity in creating new markets. In another example. Reality Check: Compaq’s server strategy Compaq created the computer server industry in the early 1990s. The Dutch company Philips understood that price and bulb-life do not account for the full cost of lighting – these lamps contain toxic materials that involve customers in high disposal costs (in which purchasing officers. taking 50% of the market within a year. For example. Separating members of the chain of customers – purchasers. The Alto replaced more than 25% of the total market for traditional industrial fluorescent lamps in the USA. videos. one of the factors they addressed for customers was the cost and difficulty of getting a babysitter. For example. Virgin Megastores combined CDs. Compaq tried to reinvent the market it had shortly before created. It launched Alto. competitors converge on a common and shared definition of the target customer – and then compete hard for a share of that customer’s attention and business against each other. in the industrial lighting business. have little interest).Strategic market choices and targets: where to compete and where not to Redefining the buyer group • • • In conventional thinking. but found that the speed of imitation in the computer industry meant they quickly faced many competitors. and stereo and audio equipment in a single store to solve their customer’s complete entertainment needs. Look across to complementary products/services • • • Often the convergence of existing competitors on maximizing the value of their products within the boundaries of the industry’s products and services makes them blind to the opportunities represented by complementary products and services (often from outside the conventional industry boundaries). traditional strategies focused on corporate purchasing managers who buy on the basis of how much light bulbs cost. to appeal to chief finance officers (on lower total user costs including disposal) and to PR departments (on environmental image issues). the world’s first megaplex with 25 screens and 7600 seats. quite reasonably. and how long they last – so all suppliers compete head-to-head on these value drivers. Rather than try to compete with the others on product improvements.

‘Try Complementary Medicine’. used solely to keep track of time. Rethink the functional-emotional orientation of the industry • • • Competition in industries tends to be on one of two bases of appeal. The industry leaders were Citizen and Seiko. so rational industries become more functional and emotional industries become more emotional. Suppliers were united in focusing on maximizing the price-performance of the server hardware. The Compaq product came with new software – to automatically configure the server hardware making installation simple and error-free. sold cheaply. Financial Times. or vice versa. Source: Adapted from W. Other industries compete largely on emotions. It is rare that there is only one way to compete in any industry. and only 10% from buying the hardware. and to diagnose maintenance needs before components broke down. cosmetics. or if it is possible. companies’ strategies educate customers in what to expect. for example. to add emotion and pleasure of use to a previously functional industry. budget watches were a functional item. Compaq remains leader in the server market. Chain Kim and Renée Mauborgne. Compaq’s 1993 launch of ProLiant servers had some important differences. However. even though this was the least costly element for the buyer. Some industries compete mainly on price and functional performance. The aim is to appeal to a different customer motivation by transforming a product or service whose appeal is functional into one that is emotional. June 3 1999. the appeal of these industries is ‘rational’. These opportunities may be even more attractive if they allow the company to develop a simpler lower-cost business model (by removing the ‘extras’ that add to price in an emotion-orientated industry).Market-Led Strategic Change the server itself to the network of complementary services that surrounded it – finding that 90% of the customer’s costs came from installing and maintaining servers. Swatch and The Body Shop provide good illustrations. Companies can create market space by breaking out of this convergence and shifting the functional-emotional orientation of the industry. competing by using quartz technology to improve • • 298 . but it is a market which they have made attractive to many additional customers by reducing the costs of owning a server. Reality Check: Making the functional fashionable and the emotional functional Until the early 1980s.

299 • • . May 6 2001. and digital displays to make reading the time simpler. which it is more difficult for competitors to enter. ‘Coffee Blended with Emotion’. October 4 2000. mood and social occasion. A fresh counter. the Body Shop used simple. Source: W. but from one of its former suppliers – Lush. had a design mission to combine powerful technology with artwork. They are vehemently opposed to animal testing of ingredients. Unlike conventional cosmetics companies. at reasonable prices with no hype. May 20 1999. Lush stores are laid out like ‘beauty delis’ with soap shaped like slabs of cheese and round ‘bath bombs’ piled high like apples. Swatch created a market space by making the budget watch a fashion item – they transformed the industry’s conventional functional orientation into an emotional one. imitative competitors are likely to flood in (as the Body Shop found in particular). The Body Shop created a new market space by shifting the appeal from emotions to functionality. ‘Lush Cosmetic Chain for Grafton Street’. Once you have created a market space. Sunday Telegraph. natural products. ‘Market Miscellany’. like those used to sell fish. Financial Times. it sold health and well-being in cheap. Irish Times. hope and fantasy’ in expensive packaging. They also grew the size of the market – traditionally people owned only one cheap watch. vegetables and cream. colours and flamboyance. making the products freshly by hand. Low price was critical. so the challenge is further reinvention. The Body Shop’s market space was steadily invaded by direct imitations as well as ‘natural collections’ from large companies like Boots. SMH.Strategic market choices and targets: where to compete and where not to accuracy. Lush has created a new market space. Chan Kim and Renée Mauborgne. Lush is dedicated to producing effective personal care products out of fresh fruit. is piled with ice chips to preserve beauty products that must be used within 24 hours. refillable plastic bottles. Founder Mark Constantine says ‘Our aim is to have the youngest. While conventional competitors spent heavily on R&D and image-creating advertising. Bernice Harrison. printing their own labels and making their own fragrances. Swatch’s Swiss parent company. The Body Shop created a new market in the cosmetics industry by shifting the appeal from an emotional one to a functional one. Swatch achieved multiple repeat purchases from buyers encouraged to match the wrist watch they wore with their clothes. Both examples illustrate a further issue. because that met the functional need to tell the time. freshest products in the history of cosmetics’. the Body Shop did not sell ‘glamour. Prices are by weight and products are wrapped in greaseproof paper complete with stickers with sellby dates. The latest reinvention has come not from Body Shop.

Getting ahead of this trend. 80% of Internet traffic flowed through Cisco products. ‘From Trend to Quantum Leap’. Financial Times. Cisco invested heavily in developing routers. innovativeness and technology. partners. June 10 1999. and which we should evaluate before getting carried away with the creativity. at the same time that demand for network computing was exploding – at that time the number of Internet users was doubling every 100 days. They suggest that the ‘Winning Business Idea’ index comprises: ● ● ● ● Buyer utility – what is the compelling reason why customers should buy the new product or service? Strategic pricing – how is the price approach going to attract the mass of buyers and grow the market? Business model – how can the company profitably deliver the new idea to the market – does it have the appropriate capabilities and cost structure? Adoption hurdles – are there any compelling ideas why the new idea may be rejected by employees. Chan Kim and Renée Mauborgne. Will the Big Idea Work? Good ideas tend to find backers – but the question is: how do we figure out which ones will work and make money? Research at INSEAD suggests that there are four sets of economic conditions that successful business ideas have in common. Reality Check: The Cisco kids are not kidding Cisco Systems was quick to recognize that the world was hampered by slow data exchanges and incompatible computer networks. or society/lawmakers? • • 300 . switches and other networking devices that offered fast data exchanges and contributed towards achieving a seamless computing environment. constraining the trend towards networking. But. By 1999. Source: Adapted from W.19 This framework provides us with an excellent structure for asking the big questions about the ‘big idea’. They could see that the data exchange and compatibility problems would only get worse.Market-Led Strategic Change Participate in shaping external trends • • • Industry changes can be important sources of new market space. and its margins in this new market were in the 60% area. The danger is that conventional company responses are incremental and passive as events unfold. The issue is how a trend will change the value that a company can deliver to a customer.

just not on buyer utility. The CD-I was promoted heavily as the ‘Imagination Machine’.. e.g. The product also lacked attractive software titles – while in theory it could do almost anything. Technology innovation is not the same thing as buyer utility. Source: Adapted from W. There was simply no compelling reason why the customer would buy it. The CD-I player did so many different things that customers could not understand how to use it. 301 • • . in spite of its outstanding engineering and innovativeness. Virgin’s limousine service from home to airport and back for business class travellers removes one of the biggest sources of inconvenience for them. The INSEAD research suggests that there are six ‘buyer utility levers’.g. Chan Kim and Renée Mauborgne. in delivery and use of the product. Intuit’s Quicken personal finance software takes accounting jargon out of personal accounting. Many failures score highly on technology. games player and teaching tool in a single package.. January 23 2001.. and in disposing of the product. in supplementing and using the product. Reality Check: Philips’ CD-I The Dutch electronics group Philips invested the time of its worldclass R&D staff and several billion dollars on developing CD-I – a video machine. The product was a failure. Buyer utility • • • The novelty of the technology and the ideas it creates may blind us to the rudimentary question of the value of the innovation and whether there is a reason for people to choose it in preference to alternatives. e. convenience – does the innovative product or service remove the hassle from a major inconvenience faced by the customer. The utility levers are: customer productivity – does the innovative product or service remove important barriers to the customer’s productivity. Tesco’s Internet grocery shopping saves the consumer time and effort in basic shopping activities and frees them from conventional shopping hours. and we should think carefully about which of these levers we can use in each stage of the buyer’s experience: of purchasing. The company’s thinking was that this machine would be the most important innovation in the industry since the video player. The second two tests concern the ability to generate profitable growth.Strategic market choices and targets: where to compete and where not to The first two tests determine the new idea’s potential to generate sales and win customers.g. simplicity – does the innovative product or service reduce the most significant sources of complexity for the customer. e. music system. ‘How to Tell a Flyer from a Failure’. Financial Times. in practice it could do very little.

These cost tens of millions of pounds and hold a tiny share of the total corporate travel market. time-share.g. environmental friendliness – does the innovative product or service reduce or eliminate the things causing greatest harm to the environment. ‘slice-share’ (e. environmentally friendly light bulbs use less mercury and eliminate the need for special disposal.g. but also from other industries. Chan Kim and Renée Mauborgne. Profitable strategic pricing can take several forms: direct sales. There are many options to straightforward price lists and payment on the purchase. a Berkshire Hathaway company.. Financial Times. devised a pricing model whereby companies got the convenience and cachet of private air travel. Source: Adapted from W. • • 302 . e. ‘Now Name a Price That’s Hard to Refuse’. Strategic pricing • • • The INSEAD research suggests that successful innovations are also characterized by strategic prices that create demand and win customers not just from within the current industry. ‘equity for price’ (e. unit trust investment). The cost of this level of travel accounts for the bulk of corporate travel budgets. and also from customers preferring a time share rather than continuing full ownership of their own corporate jet that would spend much of its time sitting in the hangar. not just prevailing prices in their own industries. e. Hewlett–Packard exchanges servers for a share of the customer’s revenue). These are expensive – a trip from London to the USA may cost £5000. but at the price of the annual business class travel budget. and have suffered as this is what they have become. Reality Check: Strategic pricing across industries Corporate executives tend to buy first. fun and image – does the innovative product or service counter blocks to customer enjoyment by adding emotion and image.Market-Led Strategic Change risk – what does the innovative product or service do to counter the greatest uncertainties that buyers face. January 24 2001. Successful companies focus on the costs of alternatives and substitutes. Their model consisted of selling shares of time in using a corporate jet. Executive Jet. Starbucks coffee shops were originally far more than a place to drink coffee.g.g. They took business from premium-ticket airline customers.or business-class tickets for air travel. renting or leasing.... An alternative is to use a corporate jet.

Most of these claims were scientifically verifiable. Source: Adapted from W. Using partnerships to build and reinforce capabilities is also critical. it was Monsanto that paid the price. digitizing activities. less need for pesticides. ‘Are You Sure the World Is Ready?’. lower costs.. e. a longer shelflife for some products. While the UK supermarket firm Tesco staged the grand gesture of removing all GM-food from its shelves. Chan Kim and Renée Mauborgne. distributors side-stepped by direct sales channels). as well as entrenched objections from supporters of organic farming. The main adoption hurdle was posed by the green movement. or society at large.Strategic market choices and targets: where to compete and where not to Business model • • • Successful innovators start with a strategic price. that claimed the company was defying the laws of nature for the sake of profit. January 25 2001.g. eliminating or outsourcing low added-value activities in the supply chain. Monsanto totally underestimated the acceptability of its innovation. Hurdles to adoption may come from: employees (threatened by the launch of the innovation and what it does to their role). Yet the failure Monsanto experienced was severe enough that to survive it had to merge with the drugs group Pharmacia and Upjohn in 2000. Obstacles should be identified at the outset and dealt with fairly and effectively. The business model then has to hit the cost target without losing utility or increasing price: replacing conventional raw materials with newer cheaper ones. The new seeds had many advantages over traditional products for farmers – less risk of crop failure due to disease or bad weather. allow for profit and work back into what this makes the cost target. and a cleaner environment and food quality benefits to consumers. partners (e.. and its media support. Reality Check: Monsanto’s genetically modified seeds Monsanto developed genetically modified seeds and created a completely new market. Financial Times.20 303 • • . there is evidence that the best innovators turn their customers and colleagues into collaborators by presenting them with an idea they can improve on – not a fait accompli – so they have a stake in the innovation.g. Adoption hurdles • • • Major barriers in understanding and attitudes towards the innovation may be of decisive importance to success. Internet ordering and exchanges. In fact.

‘Iridium: Born on a Beach but Lost in Space’. It was expensive – $3000 for the phone and call charges of $7 a minute. August 20 1999.000. The phone was heavy and it needed a range of attachments to work. This product was launched in 1998 with the goal of redefining the world of mobile phones. Importantly. in many geographical areas rapidly expanding demand for ground-based digital wireless systems had reduced the need for global satellite systems. • • 304 . unable to find a last minute buyer. It could not be used in cars or buildings (which tends to be where business people want to use mobile phones). and its pricing was unattractive to target users. its 66 satellites are expected to crash into the sea and the company took its place among the 20 largest bankruptcies in US history. At its peak the Iridium venture attracted less than 100. via a global system of satellites linked to ground-based digital services. compared to the break-even figure of 500. The company greatly overestimated customer take-up. which we can use operationally to evaluate whether demand can be built for the innovation. While the technological capabilities were fantastic.000 subscribers. It was the first mobile phone that could provide uninterrupted wireless communication anywhere in the world. Demand estimates had been optimistic – more emphasis had been placed on solving technology challenges than evaluating global use potential and how to access it. Financial Times. and whether we have the capabilities to develop a business model to meet that demand and to overcome the obstacles to adoption that we face in the marketplace. regardless of country or terrain. For example. and how we see segments within our markets. Iridium faced problems in matching its cost structure to an acceptable price for customers. and the company’s forecast of 2 million users by 2002. Anywhere’. Source: Adapted from Christopher Price. Iridium failed to provide a compelling reason why customers should buy. compared to conventional $150 cell phones and competitive call charges. Reality Check: The Iridium phone Motorola and its partners spent $5 billion developing and $140 million launching Iridium – a satellite communications system – with the slogan ‘Anytime. In March 2001 Iridium closed. Hurdles to adoption were not considered until it was too late to do things to overcome them.Market-Led Strategic Change Evaluating new ideas • • • This framework is an excellent one. the issues surrounding the creation of new market space demand that we rethink how we define and understand markets and substitutes (avoid the trap of the competitive box). It leads us directly to the question of how to choose when we face alternatives.

While direct marketing operations are planned for Switzerland and Canada. 305 • • . while a company like Zara has a different business model. Kleenex owns tissues. and can produce a new fashion line in days. Market attractiveness and market position can both change. fast-moving fashions in clothes may make a market unattractive for some retailers. Accepting that things change. the value proposition and so on. Perhaps the most straightforward is one that prioritizes by looking at: market (or segment) attractiveness – the degree to which an opportunity fits with our goals and capabilities. but highly attractive to another. Issues like how well buyers in this market will receive our value proposition and niche opportunities should also be considered.21 We saw several examples of the importance of the timing of such moves in Chapter 5. and the position we take as strong or weak. the Body Shop International is expanding its branch and distribution network to channel its cosmetic products to new international markets – but in different retail formats depending on customer needs and behaviour in each market. the ‘micro-store’ outlet is more suitable for expensive large city sites and markets like Japan. For example. high market volatility is extremely unattractive to one competitor. if we cannot attack all the segments we can see – then how do we set priorities and decide where to focus? We have been warned of the strategic weakness in trying to be all things to all people – but how do we set our priorities? At the corporate level.Strategic market choices and targets: where to compete and where not to Market Choices Re-thinking market definitions. market segments and targets is likely to very quickly confront us with choices. our logic is shown in Figure 7. Obviously. more and more strategy is driven by market focus in the fight for market leadership. then the options and priorities are: ● Core business – areas where the market offers the potential for us to achieve our goals and which fits our capabilities and competence. but also making a timely exit from industries where it is no longer possible to compete profitably. There is strong evidence that one key to sustained performance and the survival of a company is choosing attractive markets and entering early. Xerox owns copiers. But how do we confront the market choices important to our business? The world is full of portfolio models and decision aids. In other words. The market position you can take will depend on what you do – the strategy. The thinking is that focus creates a strong position in the minds of the customer: Volvo owns safety. and. For example. Bear in mind too that the factors that make markets attractive are not the same for all companies. neither of these things is static.11 – assuming we grade a market or segment as high or low in attractiveness. market position – how well we believe we can do in this market or segment. designed to offer ‘live collections’ that change every week in response to short-lived fashion trends. If we cannot pursue all the markets we have identified.

because it forces us to face up to realities. but where we can or do take a weak position. but unless they bring us other benefits they are not a high priority for investment. experience suggests we may flush out some interesting things: ● ● cases where all our thinking is about defending our market position in peripheral business – because it is where we have always been. However. These markets and segments are an illusion because the market looks great – but we can never get a pay-off. When we add to this our thoughts about our strategy – our competitive advantage with different customer groups. i. and we can only take a weak position. margins are low. the robustness of our brand or value proposition.e. It can be a very useful tool. These may be areas where we continue to do business. and so on). Dead-end business – these are the lowest priority because the market is not attractive to us. executives who champion new markets and segments but can see no way of taking a strong position – they drive us into the illusion business. • • 306 . the sustainability of our market position. movement from one issue to another within the market strategy – then the picture may be even more valuable.11 Market attractiveness and position ● ● ● and where we believe we can take a strong market position. Peripheral business – where the market is less attractive to us (there is no growth. this is a crude and often uncomfortable view of the markets and segments we have identified. but we can take a strong position. Such areas are a high priority for investment. Clearly. competition is tough.Market-Led Strategic Change Market attractiveness High Strong Core business Market position Low Peripheral business Illusion business Weak Dead-end business Figure 7. Illusion business – these are highly attractive markets that offer everything we want.

Markey. because we just refuse to accept that one of our traditional markets has become less attractive or that we have been overtaken by new competitors. Marketing Business. ‘Benefit Segmentation: A Decision-Oriented Research Tool’. Cravens. Sunday Times. 7. pp. 16. Nigel F. February 11 2008. 6. forthcoming. July 15 2007. 5. 307 • • . Montgomery. David W.. Report No. Russell I. 32–37. September 13 2007. 35(3). ‘Carmakers Tailor Their Promotions to Rev Up Sales’. 9. November 19 2000. and David B. unless we know what it is based on and whether we can sustain it through collaborations and employees and defend against competitors? These are our next topics.. Sean. ‘Marketers Seek Oasis from Blur ’. 1. Do not forget. Financial Times. ‘Strategic and Operational Market Segmentation: A Management Analysis’. Daily Mail. 10. Mitchell. and Neil A. Journal of Strategic Marketing. pp. 98-127. pp. ‘Divide and Conquer ’. Alan. Journal of Marketing.Strategic market choices and targets: where to compete and where not to ● the deep-seated and vigorous defence of markets which are deadend business. 2009. 1998. pp. 2007. John. 30–35. however. p. Bruce H. 2. Marketing News. 32–33. ‘Forget Class. Poulter. Cambridge. 1993. ‘Winning New Customers Using Loyalty-based Segmentation’. ‘Bank Asks Lying Expert to Study Accounts’. Haley. 123–140. September 27 1996. Vence. that we need to think also about the value proposition and key relationship components of market strategy in making these judgements – how else can we be sure about the strength of our market position. Strategy and Leadership. Piercy and Artur Baldauf. 3-7. John Ott and Gerard du Toit. Arlidge. Deborah L. This section of the chapter leans heavily on: Piercy. p. 3. Managerial Identification of Competitors. 15–20. Sunday Times. Its Postcodes that Count’. Clark. References and End-notes 1. p. ‘Management Framework Guiding Strategic Thinking in Rapidly Changing Markets’. Rob.. ‘Marriott Goes for Boutique Hotels’.: Marketing Science Institute. 4. Journal of Marketing Management. What Next? These are vitally important questions to confront before we commit to a market strategy. 8. MA. Simon. Bernard. 11. 32 July 1968. pp. November 11 2007. 3-1. Nigel F. Morgan.

102–112. David. 21. W. Michael. Daniel and David Meer. W. London: Kogan Page. Harvard Business Review. pp. and Nigel F. 83–93. IL: McGraw-Hill/Irwin. August 28 2000. Wilkes. Daily Mail. Capture. pp. Chan and Renée Mauborgne. 18. Kim. pp. Financial Times. Harvard Business Review. Kim. Harvard Business Review. Kim. August 25 2006. 1999. David W. pp.. Yankelovich. September/October 2000. pp. 122–131. January/February 1997. Monopoly Rules: How to Find. 13. September/October 2000. January/February 1999. Piercy.Market-Led Strategic Change 12. W. Birchall. 8. ‘Rediscovering Market Segmentation’. 2007. Strategic Marketing. 25. ‘Creating New Market Space’. W. ‘The Secrets of Corporate Survival’. Burr Ridge. 2009. Serious Play. 129–138. 9th edn. Milind M. W. February 2006. p. Harvard Business Review. Harvard Business Review. Financial Times. Chapter 3. 16. Chan and Renée Mauborgne. Boston. ‘Value Innovation: The Strategic Logic of High Growth’. ‘Supermarket Snobs’. • • 308 . ‘Blue Ocean Strategy’. ‘Knowing a Winning Business Idea When You See One’. Chan and Renée Mauborgne. 129–138. Chan and Renée Mauborgne. ‘New Tactics in the Battle for Babies’ Bottoms’. 17. 20. Jonathan. pp. Kim. Owen. ‘Knowing a Winning Business Idea When You See One’. 76–84. MA: Harvard Business School Press. Geoffrey. Kim. 15. 14. Lele. 19. October 2004. and Control the World’s Most Lucrative Markets in Any Business. Schrage. p. Chan and Renée Mauborgne. October 10 2007. Cravens. Harvard Business Review.

. But this has to be a bit more than the strap-line from an advertisement (which nobody much believes anyway). Making smart choices of market targets should reflect your ability to offer . Deeper market understanding (market sensing) gives you a better chance of knowing what drives value for different types of customer. .C H A P T E R • • • • 8 Customer value strategy and positioning: what have you got to offer. how does it make you different to the rest? This chapter . The purpose of this chapter is to underline the importance of developing and communicating a rigorous understanding and statement of the value that we offer to a customer.

and. Introduction Our progress along the strategic pathway so far has involved trying to put a handle on the things we can do to learn better from the customer through our market sensing capabilities. and then look at the company issues we may need to work on to refine and articulate our value proposition.Market-Led Strategic Change value to target customers. or create new areas of customer benefit. these tools consist of: market mission and values – what do we want to be and to stand for in this market. how does this relate to corporate goals and mission (if it does). But the most critical issue is whether we know what value means to our customers in the first place. like company reputation. The third stage in developing the strategic pathway is concerned with the value proposition to our customers. because these resources create value for customers? These are tools that can help us address the issue of customer value in the company. As pictured in Figure 8. unique capabilities and brand identity. • • 310 . Your value proposition needs to be clear and to focus on what drives value for the target customer. we consider what value is to a customer. based on superior customer value. which segments. Corporate social responsibility is increasingly linked to competitive advantage. Your corporate values may undermine any other advantage you have in a market.1. marketing assets – what competitive advantages do we have in intangible assets. competitive differentiation and positioning – what do we have to build a difference between what we offer and what our competitors offer in the customer’s eyes. that can be used to build our market strategy. Your value strategy is more than a simple cost/benefit analysis. Customer value is more complex than having the lowest price or the highest technical quality. Your value offering is the basis for how you differentiate against the rest and for the position you occupy in the market. Customer value reflects what you stand for – your corporate values. and how do our values enhance customer value. and how do we use this to build a sustainable and profitable competitive position in the market. and then to exploit this market understanding in the critical market choices that we make – which markets. as well as your prices. Your value offering comes out of your marketing assets. which niches should we make our targets? This only makes sense if we also have the capability to offer superior value to those customers in those target markets. This amounts to a substantial challenge in a world where many executives do not have the faintest idea what really matters to their customers. First.

It follows that superior customer value is created when the buyer’s total experience is very favourable compared to expectations. We saw that the new customer wants high quality and low prices. 311 • • . We saw that customer value is about much more than leaning the operation to get prices lower or quality higher. particularly as it is posed by the sophisticated customer. customers develop value expectations and make purchases based on their perceptions of a product’s benefits compared to the total cost of the purchase (in price but also time. that matters to the customer. our organizational processes. as well as products and prices. difficulty and so on).1 Customer value strategy and positioning Customer Value Because it is just about the most important issue for managers to confront. skills and resources – what we are good at doing and what we are able to do.2: our capabilities. if we go back to basics. how does it make you different to the rest? Market mission and values Competitive differentiation Customer value strategy and positioning Competitive positioning Marketing assets Figure 8. but that we face constant surprise and paradox in what creates customer value. to do things the way the customer wants. is suggested in Figure 8. We saw that value is defined by customers not companies. which we can exploit to meet the value demands of customers. and compared to their perceptions of the equivalents provided by competitors. We saw that value is influenced by how we treat customers. how we respond to them and how they judge our qualities. effort. not the way that happens to be most convenient for us. of service delivery and value creation.Customer value strategy and positioning: what have you got to offer. However. One of the greatest challenges we face in market sensing is identifying and tracking the value drivers for different types of customers. we spent a lot of time in Chapter 4 describing the value challenge we are facing. An overview of the sources of superior customer value. and that the most important drivers of value change dramatically over time and are different for different customers.

skills and resources Commitment and service capabilities Superior customer value Organizational processes Figure 8. there is another point we really have to expand here. illinformed. misguided. As we suggested in looking at market sensing and learning – we may just have to get better at listening to customers and learning from them. We may get nice surprises or we may get nasty surprises. However. You may say the customer is irrational. it did just that. Royal Mail was plagued by customers demanding that it cut the length of queues in Post Offices. short-sighted and so on. So. otherwise we have little chance of bringing our capabilities to bear on customer value. Knowing what means value to our customers is therefore rather important. Customer perception is reality The truth is that value is not created in the factory or the back office. which is what we do say. customer value exists only on the customer’s terms and reflects the customer’s priorities and preferences – look back to the illustrations in Chapter 2 of the demands of the sophisticated customer. and to respond to shifts in customer needs and preferences. if you need convincing all over again. because it is the one that managers really struggle to capture – customer perception is reality. The trouble was • • 312 .2 Sources of superior customer value Innovation and change processes the commitment and service capabilities of our people – what the customer finds when dealing with us.Market-Led Strategic Change Capabilities. and innovation and change processes – our ability to get better at doing the things that matter and to find new ways of ‘delighting’ customers. but value exists only when the customer decides it does.

Look. but the cost of batteries is prohibitive. one company believed speed of service was the key to customer value. but on whether customers believe they are meeting those targets. it’s the weight – if it weighs more than three pounds. Things change – value ‘migrates’4 • • • This suggests that value propositions become less effective over time and unless you find ways to enhance or re-focus the value in your product or service. with fewer shopping trips involved). even though it was not true. Peacocks and supermarkets like Asda and Tesco thrived. and what customers actually value most is getting the parcel. radio ownership is high priority. Customers in clean. redecorated Post Offices reported they had queued for a shorter time. Now. Value to many buyers of jeans is that they fit tight round the bum. there are growing signs that this is over – the consumer is now suffering from ‘fast fashion fatigue’ and is moving towards ‘slow fashion’ (more expensive clothes. it is queuing in squalor. for example. how does it make you different to the rest? that its customers believed the (actually shorter) queues were longer than ever.1 If we do not know what the value drivers are for our customers. Individualization of value • • • Don Peppers uses the term ‘one-to-one marketing’ to focus on value issues at the individual customer level. its battery life (to last the transatlantic flight) and the brightness of the screen. For example. I don’t want it.2 When Federal Express went for faster delivery speed to please customers they also achieved the reverse – the extra speed caused more misdirections and errors. buyers will migrate to alternative value concepts. which created a sensation in the developing countries – where for large parts of the market. developed the ‘Personal Pair ’ (later Original Spin) customized tailoring service for 313 • • . Only a few years ago the big deal with the laptop computer was its power (to run big programs). and firms like Primark. For example. we are likely to do the wrong things for the right reasons. but lost market share because in fact customers wanted time to chat and resented being hassled. There are a couple of additional complications to really knowing what value is to your customers. The giant Levi-Strauss and Co. pp. The issue is not just standing in line. 280–281) and more surprisingly in different markets. Managers found the quickest way to cut customer perceptions of queuing times was to repaint Post Offices. at the portable clockwork radio.Customer value strategy and positioning: what have you got to offer. Different customers buy different kinds of value3 • • • This is true both within the market (see market segmentation by customer benefits. Royal Mail managers’ bonuses now depend in part not just on meeting performance targets. kept longer. after a decade when ‘fast fashion’ ruled the High Street in the UK. so trained telephone staff to be quicker. and the need to customize products and services accordingly. designed by a British inventor and manufactured in Africa.

and these measurements go to the factory electronically. However.Market-Led Strategic Change its famous blue jeans. substantiating value propositions – quantifying the value advantage to customers. It links naturally to the growing demand by corporate purchasers for suppliers to quantify and ‘prove’ the value they add through their products and services. as a key way of selling value to customers instead of products and services. measurable cost-benefit analysis suggested by the operations literature. such as the concern for suppliers to support a customer’s stance on corporate • • 314 . Harrods in London and Bon Marché in Paris use body scanning to measure dimensions and produce clothes customized for the individual. input by a trained sales assistant. The product is coded to allow easy re-ordering of an identical fit.8 There is a compelling logic in turning salespeople into ‘value merchants’ in this way. and may be idiosyncratic to the individual customer. profiting from value-added – through higher prices and a fair return. the emphasis on customer value is underlined by the move towards ‘customer value management’. The program identifies a ‘prototype’ which is closest to the customer’s size. that intervening factors may negate a supplier’s advantages in costs. that short-term benefits in cost savings may be less significant in a relationship with a strategic supplier than building a shared platform for long-term growth. Selling value In business-to-business markets. This is an important part of Levi’s fight-back strategy. This approach identifies the stages of: conceptualizing value – being specific about what constitutes value in this market. This does not mean customer value should be ignored – just that it is harder to work with than some suggest. tailoring market offerings around value and transforming the salespeople into ‘value merchants’ – more refined targeting with a sales force selling value not product. it may be highly unstable and shift from one product attribute or service characteristic to another.5 Worldwide. developing value propositions – statements of the advantage we have on the issues that matter most to customers. the application is limited by several factors: that buyers may be motivated by factors other than measurable cost savings and service value. unemotional and rational. It is rarely the stable. final adjustments are made to perfect the fit. from where the perfect fit individually-tailored Levi’s go to the customer. Stores as diverse as Brooks Brothers in the USA. the clothing industry is adopting mass customization technology to allow clothing to be designed and produced for the individual consumer.6 Customer value may vary across customer groups.7 This approach focuses on gathering and analysing data to demonstrate in monetary terms the value that products bring to customers. Customized software is used to design taperedleg jeans to the individual customer’s body measurements. Their next move was to put touch-screen computers in ‘measure me up’ kiosks to allow customers to design their own jeans. and. and.

Mission statements Perhaps the strategic analysis most demanded by companies and executives.Customer value strategy and positioning: what have you got to offer. The logical sequence is that we start with basic purposes (mission). but all too often the least rewarding aspect of working with companies on market strategy. mediating factors between quantified value and purchase include issues like what does the supplier stand for and what corporate values do they demonstrate – is there reasonable fit between the buyer’s values and the supplier’s? At the extreme. because it tells us the broad purpose of the operation and gives us the framework within which to develop sets of specific objectives and programmes – as suggested by Figure 8. a customer’s judgement of your mission and corporate standards may actually rule you out as a supplier – the purchaser may not want to be seen dealing with you because of your reputation and behaviour – or more positively may overcome your shortcomings in product standards and process.3 Mission and marketing strategy 315 • • . In theory. This last issue links in neatly to the next section – the impact of market mission and corporate values on customer value. figure out what we need to do to achieve these things (market strategies) and how we are going to do it in the marketplace (marketing programmes). Market mission and values9 Although quantifying added-value is an important challenge to sellers. how does it make you different to the rest? social responsibility issues like environmental protection and employment conditions. mission is where we start. determine specific goals (objectives). is mission analysis. because your values reinforce those of the customer.3. Mission Starts the process of strategizing and planning Objectives Results from strategizing Results from planning Market strategy Marketing programmes Figure 8.

3 M – ‘to solve unsolved problems innovatively’. He wanted profound changes in structure. following in the footsteps of charismatic and visionary leader Lord John Brown. The vision statement has become the basis for BP’s new organizational and business strategy across its global operations.11 Indeed. ‘to give ordinary people the chance to buy the same things as rich people’. the results of this corporate soulsearching seem mixed at best. much famed for his ‘Beyond Petroleum’ slogan for the company. Reality Check: Back from Beyond Petroleum In 2007. and consume many hours of management time in their construction. Enron’s mission statement famously declared the company to be ‘open and fair ’. was seen as his (successful) pitch for the top job. Financial Times. Hayward’s vision statement for the company. He emphasized the need to rebuild a safety culture (following several disasters at BP refineries). ‘Hayward Outlines His “Vision” for BP’. Avis – ‘We Try Harder ’. .10 Other mission and vision statements run to many pages and hundreds of words. McDonald’s has the mission of existing to ‘provide great-tasting food backed up by excellent operations and friendly service in a relaxed. However.Market-Led Strategic Change The results of mission analysis tend to be statements of varying length that state what we want our business to be. 19. p. but for the company to remain at the edge of technology – doing big things. Walt Disney – ‘to make people happy’. Wal-Mart – ‘Low prices every day’ . and Google – ‘not to be evil’. Examples of the shorter ones include: Pepsi – ‘We will be an outstanding company by exceeding customer expectations through empowering people guided by shared value’. . safe. and consistent restaurant environment’. Collins and Porras • • 316 . The effectiveness in creating service quality should be considered in the light of the (hopefully untypical) customer experience in Chester of receiving a printed receipt reading ‘One regular Coke – no f***ing ice’. Interestingly. for many companies. Sony – The ‘BMW’ slogan: ‘Beat Matsushita Whatsoever ’. Tony Hayward became CEO of BP. Source: Adapted from Sheila McNulty. Kentucky Fried Chicken – ‘To provide families with affordable. January 15 2007. which appeared on the company intranet. Some are more purposeful than others. culture and behaviour and vowed to get BP back to being industry leader by cutting unacceptably high costs and aggressively growing revenues. His vision statement focused on the changes he wanted to see at the top of the organization and a leadership style that ‘is too directive and doesn’t listen sufficiently well’. delicious chicken-dominant meals’.

managers.12 Nonetheless. then they must: reflect our core competences and how we intend to apply them to creating customer value. But. and has little to do with running the business and providing value to the customer. that we are prepared to provide them with the ‘Instant Mission Kit’.4. on the office wall. how does it make you different to the rest? take the view that if you actually have a raison d’être or real sense of vision and purpose. suppliers and partners what contribution is required from them to deliver our promise of value to the customer. and we are trading at a loss. Anything that forces us to go back to the basics of asking us what we are doing and why. most of the time they do not. tell our employees. be closely tied to the critical success factors in the marketplace – the things we have to be good at to survive. Reality Check: Mission and competitive differentiation Chief Executive: Sales have gone through the floor. and how we plan to sustain them. and goodness knows where else besides. But I think our mission statement – ‘Frankly we couldn’t care less’ – has the competition worried. on plastic cards. often.Customer value strategy and positioning: what have you got to offer. but which will not change a single thing in the business and the value it provides to the customer – but at least it is quicker than the usual weeks of heart-searching. people insist on putting mission statements on paper. non-operational motherhood. then ‘a visitor could drop into your organization from another planet and infer the vision without having to read it on paper ’. Probably the best part of the whole thing is challenging our business definition. so we should probably take the issue seriously. has the potential to make a contribution. Frankly. it does seem to work for some companies.13 Does it ever do any good? • • • Perhaps surprisingly – yes. nonoperational. in reality. The trouble with talking about mission is that at the extreme it becomes top management ego-massaging and ‘holier than thou’ posturing. and. Indeed. If mission statements are to contribute anything. they do not. with which no one will disagree. motherhood. If they do not do this – they are of no use in building market strategy. This kit is guaranteed to produce a mission statement of bland. shown in Figure 8. so you will not waste as much time. Bear in mind it took 300 people to come up with British Energy’s somewhat bland statement of mission. 317 • • . I have been driven to suggest to some companies whose version of mission analysis is pure.

mission analysis was useful in identifying different ways to define the business of a British gardening centre firm. at different levels of abstraction from its core business of simply growing plants and selling them. For these managers mission analysis was central to the practical issue of sorting out how they identified the market. *I have referred to this case in a lot of speeches and talks over the last couple of years. do-it-yourself. gardening services – we add value by providing advisory and information services to support the sale of plants and equipment. and can develop the business by doing more of the same. caravanning. the target customer and the appropriate direction in which to take the business. and we may grow into new markets like garden design services. estate maintenance. The levels mission analysis identified were: horticulture – we grow plants and sell them. if only I could tell them where it was! This just goes to show none of us should forget about finding out what really matters to the customer. and rationalized their operation around this. I stopped after being attacked by a group of very affluent senior managers. I used to scoff at the ‘dream fulfilment’ mission. so we add leisure facilities – catering. before jumping to ‘obvious’ conclusions! • • 318 . children’s entertainments to create a ‘day out’ and we develop (probably by leased areas) into new outdoor leisure product areas – camping. who came up to me after my speech and pointed out that the one thing they loved in life was their house and garden – and they would willingly drive hundreds of miles to get to a gardening centre that understood their dreams.4 Nigel’s instant mission kit For instance.Market-Led Strategic Change Mission statement components We wannabe: … … … … … … … … … … … … … … … a market leader a total quality supplier a socially responsible producer a green/environmentally friendly firm a caring employer a safeguarder of shareholder interests a global player a provider of excellent service dedicated to improving life on this planet a good corporate citizen a customer-oriented organization a responsible partner with distributors a builder of human dignity with the imagination to think bigger respectful of nature and living things Tick as required Figure 8. leisure/entertainment – we see our role as filling people’s leisure time. and dream fulfilment – we specialize in meeting the needs of the person to whom the perfect home and garden is the ideal and central to their lifestyle. landscaping.* In fact this company chose to pursue the leisure/entertainment mission.

The critical issue is whether an activity matches our core capabilities. and unhelpful to the people who actually have to run the business. The unavoidable by-product of brewing. The expertise is filling peoples’ leisure needs. This said. Acquire restaurants. resources and capabilities and using these in markets where they give a competitive advantage. However. tour operators. Defining core business is about identifying our distinctive skills. Acquire hotels. holiday camps. how does it make you different to the rest? The danger is that we get carried away with the excitement and creativity in mission analysis and with the insights it can provide. One well-known example is a UK brewery that undertook mission analysis at the corporate level with the results described below: The brewery’s missions Drink Organizational and market characteristics A static market leading to a traditional bureaucratic organization driven by the pressure of production efficiency and economies of scale. Pubs are leisure centres. Strategy of R&D-based collaborations with third parties to exploit the chemical materials in markets as diverse as blood replacement. in some organizations. At the time. This is why Marks & Spencer did well in financial services (capitalizing on its reputation with customers). fish food and genetic engineering. on the basis of capabilities in the different customer or user markets to be competed. Strategies developed Compete for market share against competitors by large advertising spends and new brands. private sports clubs. Indeed. Catering Entertainment Chemicals In this instance mission analysis provided an enduring structure (lasting more than 20 years) for developing organizational planning. while BT did badly in buying equipment manufacturers (BT was a phone company). things 319 • • . mission analysis has provided the broad logic for divisionalizing and developing strategies for complex businesses in very simple terms. a by-product of being in the business of running public houses. Compete for customer spend by greater variety of food in pubs. Acquire new outlets where possible. and identifying strategies. certainly many companies will tell you that mission analysis was the single most valuable thing they have ever done. Acquisition of gaming clubs. gambling machines. Mission analysis which forgets the realities of our core business is dangerous.Customer value strategy and positioning: what have you got to offer.

The problems with mission statements (aside from pretentiousness) seem to be lack of clarity. and the firm’s role in society. Nonetheless. and. but needs to be used with care to avoid some of the stranger conclusions to which I have alluded. the identification of critical success factors in the marketplace or industry faced. definition of organizational key values for participants. mapping out the different types of customer market in which we need to develop different types of market strategies and programmes if we are to be a serious player. how do we sort out a market mission? • • • It is clear from the above that mission analysis is potentially confusing and open to abuse – personally I hate being asked about mission. So. Many views suggest that the centre of mission is the definition of the central purpose. lack of focus on markets and ambiguity. The sorts of benefits that this kind of market-based mission analysis can give us are: defining the market from the customer’s perspective. and where it is going to emerge. guidelines. executives show great enthusiasm for building statements of their vision and mission. beliefs. More focused perspectives emphasize specific service to internal and external stakeholders. i. finding us new areas into which we can develop where the link to our current business is our customer base and our capabilities. If we are going to get involved in this analysis as part of building market strategy and clarifying our value proposition. the company withdrew altogether from the drinks and catering business and no longer brews beer. we can distinguish four major areas: statements relating to organizational philosophy. Structuring mission content • • • Views about the desirable content of Mission Statements are many and varied. and the identification of values. the underlying question here is ‘what do we want this organization to be and to stand for?’ • • 320 .e. These issues vary in focus – internal or external – and scope – broad and narrow as shown in Figure 8. aspirations and thus the creation of a unifying force in the organization. However. quality orientation and atmosphere of the enterprise. or the combination of managerial culture and ethos with social responsibility and public image.Market-Led Strategic Change change – sometimes dramatically – eventually. helping us to see where the real competition is coming from. so we get better insight into what matters to the customer. focusing wholly on the entertainment mission. then at least let’s do it systematically. On this basis mission analysis can be used productively. or organizational philosophy – even creating a form of ‘corporate constitution’.5. and. the specification of the productmarket domain or scope for the organization. the need or problem to be solved. Some see this area as encompassing the broad issues: the grand design. In the simplest terms.

the central question to be addressed here is ‘where are we going to compete. In the simplest terms. Some see this area as building corporate culture and ‘selling’ corporate beliefs to employees. and how do we want them to behave?’ Less easily identified in the traditional approach are suggestions about the external impact of mission. location or geographic coverage. and the core technologies or capability to be exploited. or what is our field of operation and what are our core capabilities?’ Providing guides to action for members of the organization means defining organizational key values – this relates to ideas about defining the core values or principles which. how does it make you different to the rest? Internal External Organizational philosophy What do we want to be? Productmarket domain Where are we going to operate? Broad Narrow Mission statement Broad Narrow Organizational key values How do we want our people to behave? Critical success factors What do we have to be good at? Figure 8. which shifts from a focus on internal to external issues: the definition of the customer-base. underpin the distinctive competence and value system.5 A structured model of mission Internal External Others look to mission to define product-market domain – where the organization is to operate. These are taken here as the identification of critical success factors in the market or industry faced. In the simplest terms the central issue here is: ‘What do we have to be good at to succeed in this market or industry?’ 321 • • .Customer value strategy and positioning: what have you got to offer. In the simplest terms. or the policies and behaviour that. and even providing the basis for appraisal and reward. the product/service offering. the central question here is ‘what do we want people in this organization to be good at. or motivating employees to achieve the organization’s objectives.

what are the boundaries of our markets. the consistency between internal issues of philosophy and key values. we can test our Mission Statement with: our managers. norms. guidelines. what things do we want people to have in their minds when they make decisions. do we think are important in our organization. product-market domain – where do we intend to operate and compete. Experience in testing this approach in-company suggests it can be a good way to find if there is anything useful here to build market • • 322 . organizational key values – what values. If nothing else. what needs do they meet. or are there inherent conflicts because we have not thought things through enough? Do these key values (services. From those key points identify the following dimensions of mission: organizational philosophy – what do we see as the enduring purpose of our organization. quality. and. what are our core capabilities. and carry things out for us. our employees. waffle that some executives produce. and external issues of product-market domain and critical success factors? Our conclusions may lead us to revise what we want to reflect in our Mission Statement. testing. our customers and our suppliers. the critical requirement is to move backwards and forwards between these stages – discussing. our shareholders. or in evaluating an existing statement. its unique characteristics.Market-Led Strategic Change Analysing mission statements • • • We can use the structures in Figure 8.5. either in building a Mission Statement for the first time. and what it wants to achieve. The procedure is: ● ● ● ● ● Summarize the key points of our existing or proposed new Mission Statement.5 as a diagnostic tool to confront the mission issue in organizations. look at the consistency between the different parts of our mission: do the critical success factors derived from the mission actually make any sense in terms of the productmarkets the organization has chosen – or are we trying to be good at things that don’t matter? Does the organization’s ‘philosophy’ relate to the key values we try to transmit to people who make decisions in the organization. or to revise the draft Mission Statement. or whatever) relate directly to the critical success factors in these product markets – or do our internal values have nothing to do with what matters in the marketplace? Has the organization chosen sensible product-markets where its philosophy or sense of purpose makes sense? If we work through this process. revising. who are our customers. social responsibilities. what technologies will we apply. re-thinking – until we can move from the draft Mission Statement to the final version. what conclusions can we reach about: the adequacy of our mission statement. Finally. a systematic structural analysis of the mission issue takes us forward from the vague. critical success factors – what things do we have to be good at to survive and prosper in our market place? Using the structure in Figure 8. open-ended. what are our products.

and how that position is perceived by customers. a stupid voice. a terrible sex-life. In modern markets. Financial Times. ugly. The goal is a statement or a clarity that can be understood by customers (and other stakeholders) which communicates what type of company you are and what you stand for. 323 • • . and to highlight the process of matching our core capabilities with our internal values and with the critical success factors we need outside. it is increasingly mandatory to consider a company’s position on social responsibility issues. Scott has been winning the trust of activist investors and other vocal critics in his drive to refashion Wal-Mart’s reputation. One driver of customer value (which may be positive or negative) is the organization’s stance on major issues like sustainability. Reality Check: Changing Wal-Mart Lee Scott. aims to transform the company from a focus on low prices into a leading business advocate for environmental and social sustainability – responding to an unremitting wave of criticism from socially concerned investors and environmental campaigners. but very green. But he says ‘I had to go out and meet with people who just did not like us. the company avoided becoming a target for the Democrats in the run-up to the November 2008 presidential elections.Customer value strategy and positioning: what have you got to offer. Business necessity has forced Wal-Mart to change its stance. In mission analysis. CEO of Wal-Mart since 2000. environmental damage and employment issues. p. these issues are of escalating importance to consumers and business buyers. ‘I Had to Go Out and Meet With People Who Just Did Not Like Us’. when considering organizational key values and philosophy in the light of critical success factors in our market domain. how does it make you different to the rest? strategy.’ With a low-key style and apparent sincerity. Corporate values and customer value One of the important themes for 21st century business that we introduced in Chapter 1 was corporate social responsibility (CSR). 16. . Tellingly. April 7 2008. Source: Adapted from Jonathan Birchall. The Kermitization of business* • • • CSR has been defined by a European Commission Green Paper as ‘a concept whereby companies integrate social and environmental concerns *Like Kermit the frog in the Muppets . . We further underlined the issue of social legitimacy as part of our process of thinking strategically about how and where we go to market (Chapter 5). Corporate values have a growing impact on customer value at several levels. Traditionally. Wal-Mart simply ignored its critics including trades unions.

They point to the ‘little green lies’ that suggested it was possible to make a company environmentally friendly while still being cost-effective and profitable. The issue then becomes the ways in which CSR impacts on the value offering made to customers. A powerful piece of advocacy by Porter and Kramer offers the prospect that: ‘If .15 A more extreme perspective suggests incompatibility between business and social aims. while in South Africa what matters most is a company’s contribution to social needs like healthcare and education. . corporations were to analyze their prospects for social responsibility using the same frameworks that guide their core business • • 324 . but of developing new kinds of competitive strength based on innovative business models. In this view. and for them to disburse earnings as they wish. CSR attracts a mixed press among businesspeople. which seemed a great idea. Some argue that it is not the role of business to become involved in social issues – the goal of management is to deliver value to shareholders.17 They argue that. in the context of globalization and industrial change. However. high-quality products. this view has developed into a case that social initiatives are not simply a way of making good damage done. when really it isn’t. then it is up to lawmakers to produce appropriate regulation to enforce society’s wishes. customers have different concerns in different countries and hence different perceptions of what constitutes good corporate responsibility – in China the hallmark of a social responsible company is safe. but actually entailed the eviction of Uganda farmers from their land – some at gunpoint – to make room for a forest. and the new transparency of business activities created by new media and new information communications technologies. This line suggests that if society requires certain behaviours from business (or that business should desist in certain actions). and for society to pick up the bill through higher prices.16 They point to the unintended consequences of CSR initiatives – such as the planting of trees in Uganda to off-set greenhouse gas emissions in Europe. . in any case. public authorities and investors.18 The contrasting view suggests that since business is part of society it has an obligation to pursue social initiatives that are to the benefit of the communities they populate – at the very least to minimize and repair damage to the environment created by value chain operations. corporate philanthropy – voluntarily funding ‘good works’ like charities and the arts – is tolerated within limits as a contribution to reputation as a ‘good corporate citizen’. social criteria influencing investment decisions of individuals and institutions.’14 The Green Paper identifies four factors underpinning growing attention by executives to CSR issues: the new concerns and expectations of consumers.Market-Led Strategic Change in their business operations and in the interactions with stakeholders on a voluntary basis. increased concern about the damage caused to the physical environment by economic and business activity. Nonetheless. and possibly much more.

if you cannot meet a customer’s requirements for your company’s standards in environmental and employment standards. As noted earlier. on the grounds that sustainable companies are more likely to be profitable companies. we have seen a company like Microsoft dropping suppliers because they fail to meet Microsoft standards on employee diversity. sustainability is about conducting business in such a way that it benefits customers. Buyers will either genuinely not want to do business with you because of what you stand for. is the link between CSR and the value offering made to customers. and competitive advantage.000 women to distribute its products to rural customers. business partners. In these terms. CSR destroys customer value • • • For better or worse. It matters little if the customer’s motivation is a genuine concern for social issues.22 as well as demanding that all suppliers measure the greenhouse gas emission and label products to show how much carbon went into their manufacture.Customer value strategy and positioning: what have you got to offer.20 The most pressing issue. communities and shareholders at the same time – ‘the art of doing business in an interdependent world’. you have no value and they cannot buy from you. Wal-Mart is pushing for greater diversity in the upper levels of its top law firms. or they will not want to buy from you for fear of sin by association – they do not want to be castigated by their own shareholders or by the media and lobby groups for dealing with you. Recently. however.21 Meanwhile. in common with a variety of other companies adopting similar approaches. your value offering may be undermined because of your company’s CSR position. following allegations of forced child labour at Indian sub-contractors. how does it make you different to the rest? choices. only for the world to find out they have been telling porkies. and in 2007 stopped working with 23 factories. they would discover that CSR can be much more than a cost. Gap monitors the behaviour of suppliers in its value chain. 325 • • . One way for companies to cope with the pressure to support social causes is to pass the buck onto their suppliers.’19 Others refer to the ‘sustainability sweet spot’ where shareholders’ and society’s interests overlap – such as Unilever’s Project Shakti in India. The other problem is when a company tells the world how responsible they are. or the desire to look clean. innovation.24 In a growing number of cases. or a charitable deed – it can be a source of opportunity. In common with other clothes retailers. sanctions threaten non-conforming suppliers. Gap withdrew a line of children’s clothes from its shelves. You have become too hot to handle. The argument gaining currency is that it makes commercial sense for a company to anticipate and respond to society’s emerging demands. to establish its credentials as a socially responsible company. training 13. a constraint. providing increased family incomes but also expanding Unilever market penetration.23 Clearly.

’27 Interestingly. each claiming to be greener than the other. just to avoid being screened out by buyers. Pre-emptive social initiatives may also be important to maintaining a value offering. Dell and Hewlett–Packard both actively exploit the energy-saving characteristics of their new computers as part of their value propositions – reflecting big business enthusiasm for environmental initiatives that pay their own way. Marks & Spencer’s announcement that it intended to be carbon neutral by 2012. in response to claims that retailers provide too much wasteful packaging. pick up the tab for doing so).25 Both consumers and business customers are rapidly wising up to half-hearted environmentalism. Falling behind the rest may make you unacceptable to the customer – you have no value offering.26 CSR parity strategies • • • In other situations. • • 326 . 2007 saw the start of an ‘environmental arms race’ between UK supermarkets. One analyst noted: ‘Whether M&S wants to save the rainforest or save itself from Tesco is the question. the issue is maintaining parity with competitors in CSR initiatives. claiming that such a policy would send the ‘wrong signals’ to British industry. CSR becomes an active part of the value proposition. the US cola giants have undertaken to restrict the sales of their products in schools. of course. The positive side of all this is that your company’s stance on CSR may add to the value of what you offer customers – even to the level of becoming a selling point. For example. and then being found to be an ‘eco-hypocrite’. ministers went into a frenzied panic and refused. For example. was followed by claims from Tesco that it would carbon label all its products. as a way of avoiding the tough measures proposed by activists concerned with obesity and diabetes in young people. the green competition between supermarkets has rapidly moved to criticisms of suppliers’ excessive product packaging policies and promises to sanction suppliers who do not reduce packaging (and. CSR as a competitive tool • • • Social policies may be used more proactively to establish a new form of competitive differentiation in some situations.Market-Led Strategic Change There is additional risk for suppliers in making promises regarding social initiatives and standards. Others thought maybe the government was failing to live up to its green rhetoric. and similar eco-promises from Sainsbury’s. Keeping up with the competition in social responsibility initiatives may be the minimum requirement for staying in the market.’ Certainly the new retail mantra is ‘Green pays.28 In this sense. For example. Green brings in customers. When it was proposed that Cabinet ministers should give up their gas-guzzling Jaguar cars for more environmentally friendly vehicles like the Toyota Prius. A nice example of eco-hypocrisy was demonstrated by the British government in 2008.

Ecomagination grew out of GE’s longterm investment in cleaner technologies. The company is rigorous in selecting projects that are both wanted by customers and financially viable. May 24 2007. p. and places these technologies under a single brand. Sources: Fiona Harvey. ‘GE Doubles Eco-Friendly Sales’. The focus on greener products is part of CEO Jeffrey Immelt’s plan to reduce GE’s exposure to low-growth industries and reshape its portfolio to more profitable sectors. In 2007. Financial Times.29 Accordingly. CSR creates customer value • • • The most extreme case is where CSR becomes the value proposition. a growing number of companies are thinking ‘beyond the green corporation’ to a situation where eco-friendly and socially responsible practices drive business performance. Francesco Guerrera. how does it make you different to the rest? Reality Check: Ecomagination In 2005. products must significantly and measurably improve the customer’s environmental and operating performance. Unimpressed by conventional philanthropic commitments. ‘GE Looks Out for a Cleaner Profit’.30 327 • • . 13. GE reported it had doubled sales of environmentally friendly products to $12 billion over the previous two years. Courtesy of General Electric Company.Customer value strategy and positioning: what have you got to offer. The ecomagination vision is driven by the principle that its green initiatives will have a positive impact on GE’s competitive position and financial performance. USA To qualify for the ecomagination brand. In sectors as diverse as automotives. and health and beauty. Financial Times. high technology. the ethical consumer is focused on environmental impact and the treatment of staff and suppliers. on track to meet its target of £20 billion in green sales by 2010. retailing. p. ethical consumerism is at work. July 1 2005. 28. General Electric – the world’s largest company – launched its ecomagination initiative.

Whether the impact is negative in undermining other aspects of the value proposition. impact on customer value. BusinessWeek. pp. 96–97. p. and to do this we have too find and exploit our core capabilities. 39–46. Sources: John Authers. May 18 2005. 13. BusinessWeek. Started in 1976. ‘The Ugly Side of Micro-Lending’. Micro-loans of $100–150 are enough to allow the purchase of a loom or a farm animal and make a huge difference. Financial Times. neutral in simply keeping up with the competition. and your standards of behaviour. venture capitalists and other big investors are being attracted into the microfinance business. or positive in creating a competitive advantage in the customer’s eyes. Grameen loaned very small amounts to women seeking to start small enterprises. but who could not borrow from banks because they did not have accounts or a high enough credit rating. they are about delivering what the customer values. the interest payments are high enough on micro-loans that they are profitable business for the lender. July 9/16 2007. In fact. What you stand for.5 billion in loans to 7 million people in the country. headed by Muhammed Yunus. December 24 2007. ‘Major Victories for Micro-Finance’. perhaps because they sound like vague theoretical notions. Microfinance is expanding from Asia into Latin America. the relationship between CSR and customer value is complex and increasingly important. If balanced. Grameen has made more than $6. • • 328 .Market-Led Strategic Change Reality Check: Microfinance Microfinance is best-known for its application in the rural areas of Bangladesh by Grameen Bank. The fear is that the balance will be lost and the new lenders will simply trap poor borrowers in a maze of debt. These words seem to be ones that create problems for executives. ‘Microfinance Draws Mega Players’. Keith Epstein and Geri Smith. and the result that it achieves in positioning one company’s offering as providing distinctive value in the customer’s judgement – and hopefully in the target customer’s eyes better and preferable to the alternatives. microfinance offers social benefits and high profits. These qualities may be an important determinant of our ability to differentiate our value offering and position advantageously against the competition. Let us turn our attention to these broader issues. Keith Epstein. to get the results we want. pp. Competitive differentiation and positioning are neither vague nor academic. Hedge funds. Competitive Differentiation and Positioning A further difficult issue on which to work with companies is that of competitive differentiation.

differentiated by branding. Sources of competitive advantage Low cost Differentiation Broad Competitive scope Cost/price leadership strategy Differentiation strategy Narrow Focus strategy Figure 8. what are the ‘strategic groups’ and how well do these groups perform.6 Porter’s generic strategies 329 • • . It is often very revealing of the reality of what works competitively and what doesn’t (i. etc. The two most relevant points from Porter’s work for our present purposes are: first. how does it make you different to the rest? Competitive differentiation The best-known approach to simplifying this issue is that provided by Michael Porter of Harvard Business School. but that we are then either a price leader or a differentiator. narrow scope/differentiators – exclusive brands like Cross. and only two. narrow scope/price leadership – ownlabel pens.Customer value strategy and positioning: what have you got to offer.31 Twenty years on. and second. as in Figure 8. to try this simple way of reducing a complex competitive market to a few basic groups.e.6.. we might be able to break the complex market for personal writing instruments into: broad scope/price leadership – throw-away ball-point pens. For instance. Parker. etc. generic products. design. what value means to different customers).e. Porter insists that in spite of the apparent complexity of competitive strategy. we can use the structure to see how groups of our competitors are positioned in terms of their strategies – i. Porter’s view of our competitive choice is that we can compete on a broad or narrow scope (in the same way we have already discussed segmentation). This leads to the identification of three generic strategies. packaging and so on.. Schaeffer. etc. Mont Blanc. badged hotel pens. broad scope/differentiators – mass market brands. because it is neither one thing nor the other – neither a differentiator nor a price leader). there are two. sources of competitive advantage: low cost and differentiation. we should think in terms of our own competitive strategy type (to avoid the danger of becoming a ‘stuck in the middle’ firm which is weak and vulnerable. Porter’s model is still current in the debate about strategy.

become a specialist. In broad terms this asks us to choose: are we a product specialist or a customer specialist? Porter also points out that approaching competitive differentiation and positioning in this way only produces a sustainable competitive advantage if two further conditions exist: competitors cannot imitate or equal our position with their current operations. Superficial differentiation of products and services that are essentially identical does not fool customers indefinitely (if at all). this leaves untouched the question of how differentiation can be achieved. Strategic positions are suggested to come from three distinct sources: variety-based positioning – producing a specialized sub-set of an industry’s products or services. i. for example the rural cinema company Carmike provides small cinema services tailored to the needs of rural communities. or choosing to perform different activities than our rivals. IKEA is differentiated from conventional furniture stores by substituting selfservice for personal selling. The issue is real differences that matter to customers – which we can sustain. For example. greater efficiency results in lower average unit costs. On the other hand. Porter’s argument is that if competitive strategy is about being different. and the activities needed to support the position we want to take in the market fit to each other and to our capabilities. needs-based positioning – targeting a particular group of customers. ‘best practice’. or. but First Direct and Direct Line introduced direct marketing compared to conventional branch networks and face-to-face selling. shared technology and distribution. or First Direct’s 24-hour telephone banking service in the UK reaches those who work through conventional banking hours. then the essence is positioning ourselves by choosing to perform activities differently. for example in exclusive private banking. and having customers do their own pickup and delivery.33 and in this sense it is highly entrepreneurial. The logic is that competition can be seen as ‘the process of perceiving new positions that woo customers from established positions or draw new customers into the market’. access-based positioning – where customers differ on the best way of reaching them. or in home furnishings by specialized firms like IKEA and Habitat.’32 This comment is important. • • 330 .Market-Led Strategic Change However.e. Porter is adamant that differentiation must be added to operational efficiency if we are to perform well: ‘The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher unit prices. all banks and insurance companies offer the same products (as far as customers are concerned). drives out real differentiation between competing firms and products. and raises three significant questions for us in building a market strategy: (1) What differences can we establish or exploit between ourselves and the others in this market? (2) In what ways do these represent superior value to all or some of our customers in this market? (3) Can we sustain this form of differentiation and defend it against ‘me-too’ imitation by existing or new competitors? One of the problems we face is that in many markets the spread of approaches like benchmarking.

and the marketing assets we have at our disposal to create the value which underpins competitive positioning. imaging and microprocessors. and suggest even the largest company is unlikely to have more than five or six core competences. then CEO. They concluded that the common characteristic is that these companies understand. invest to create and sustain their core competences. don’t compete. quickly entering new markets and dramatically shifting patterns of customer choices in established markets. Core competences We need to combine what we are good at doing with the model of competitive differentiation and positioning – how can we differentiate effectively if we do not understand our competences and capabilities? Then we can focus on the issue of value to the customer. Differentiating capabilities Differentiating capabilities put together the theories of differentiation and core competences in a specific market. this says for our strategy to be effective. C. Canon – skills in optics. 3 M – competence with sticky tape. exploit. segment and customer. Citicorp – competence in systems. K. which leads to success in apparently diverse markets and products. In a widely admired Harvard Business Review article in 1990. They see competences as the most basic corporate resource. Casio – competence in display systems. which of our capabilities or competences create value for a customer. Prahalad and Gary Hamel34 examined the characteristics of companies that have succeeded in inventing new markets. General Electric 331 • • . Philips – optical-media expertise. Black and Decker – expertise with small electrical motors. how does it make you different to the rest? In short. differentiate us from competitors. Examples of focus on core competences include: Sony – the capacity to miniaturize. and around which we can build a sustainable market strategy? A company’s core competences may not produce differentiating capabilities at the market or customer level – you may be the best in the world at something which no one is prepared to pay for. This notion has become a central idea in strategic thinking. it needs to reflect what we are best at doing – our core capabilities – not what our competitors can do just as well.Customer value strategy and positioning: what have you got to offer. At this level our concern is when we have to build a market position – what competitive differentiation can we use to create value for a customer in this market or segment? Reality Check: Jack’s Rules ‘If you don’t have a competitive advantage. This view of core competences can be combined with our earlier view of competitive differentiation by thinking about our differentiating capabilities – at the level of the market.’ Jack Welch.

neither fully broad nor focused in scope.Market-Led Strategic Change We need to think very hard about which of our company’s core capabilities are valuable to us in a particular market: ● ● ● ● ● ● does this capability create value for the customer in this market – if not. as operational excellence. or necessarily cheap. but anything and everything can be differentiated. but let us consider it for a moment.35 Their view is that market leaders dominate their chosen areas by achieving the highest value in the customer’s eyes where: since different customers buy different types of value. there is no competitive advantage. is the capability we believe we have really superior to the competition. who is the primary beneficiary of the capability – does it relate to particular segments of the market. The choice of value discipline commits the company to a particular • • 332 . of course. because market leaders excel in offering a specific dimension of value. 137). what is the probably duration of the uniqueness – how long have we got before the competition can catch us up. at the market level. as value standards rise. because we all offer the same value proposition. the leaders choose a value discipline and ruthlessly specialize in it. Actually. that price and product specifications do matter in most markets. there are differentiation opportunities everywhere. Useful insights into the question of differentiating capabilities come from Treacy and Wiersema’s study The Discipline of Market Leaders. so you have to improve every year or be outpaced by competitors. Treacy and Wiersema argue that. competing on capabilities is a moving target. However. and producing an unmatched level of a particular value requires a superior operating model dedicated to that kind of value. so do customer expectations. where we should focus. few companies excel at everything. and consequently the only thing that matters is price and product specification. No one is saying it is easy. In the same way that Porter tells us not to be a ‘stuck in the middle’ company. The reality is. but with creativity and a simple focus on innovation and novelty in what matters to the customer. will competitors find it hard to copy this capability – if every company can do this as well as we can. product leadership and customer intimacy (see p. or are we kidding ourselves? In the real world. that is neither low-cost nor differentiated. perhaps the greatest single barrier to getting market strategy to work effectively is the fact that many executives will tell you that in their business the market is a commodity market. does another capability satisfy the same market need – we face competition from substitution. This leads Treacy and Wiersema to identify the ‘value disciplines’ followed by market leaders. nothing has to be a commodity. it is no use to us in developing a strategy for this market. so the issue is one of choosing customers and narrowing the value focus. This may sound preposterous.

they are almost impossible to monitor or even to measure in most conventional management accounting systems. What are marketing assets? There is no universal framework for listing marketing assets that works for all companies. Marketing assets are revenue. marketing assets are a bit of a problem for three reasons: they are intangible. However. Marketing assets refers to all those intangibles. which normally cost us a small fortune to create and maintain. However. This includes our history. how does it make you different to the rest? strategic pathway. and our brands. our customer relationships. accordingly. but we can make a start by thinking about: our differentiating capabilities. Looking at competitive differentiation and positioning should involve us in some painful soul-searching about our core competences and capabilities. it is useful to be brutally honest about what marketing assets a company has compared to its competitors (and in some cases. Nonetheless. most businesses do not place any accounting value on them (or if they do it is written off as quickly as possible as ‘goodwill’). our strategic positioning options. our reputation. Marketing Assets As we move from issues like core competences and strategic position to asking what we have got that can create value for a customer in our market. the important point at this stage is to force us to confront issues of competences and capabilities. the scope and form of differential advantage and whether any of this creates value for the customer – because no advantage in customer value equals no strategy. and we may not be able to make decisions here until we have worked through issues of marketing assets and the key relationships involved in the strategy. which may impact on the customer’s perception of us and our products and services. we cannot finalize our views on competitive differentiation and positioning without examining also our available marketing assets. and which probably distinguish between the winners and the losers in most markets. Of course. these issues force us back to reconsidering how well we understand our customers and how we define and segment the market. Differentiating capabilities were discussed earlier as our cutting edge in the marketplace that grows out of our core corporate competences 333 • • . what ‘marketing liabilities’).Customer value strategy and positioning: what have you got to offer.and income-generating resources of the business. and the route to achieving higher value for a target customer through our differentiating capabilities. as we will see. our channel power. our expertise. and our brands. our corporate reputation.

Mars could not compete effectively in this market because it did not have the critical marketing asset in distribution needed to succeed. With the best branding and marketing communications in the world. Mars launched the Mars Ice Cream bar (in fact. We will focus on advantages of superior customer relationship management in the next chapter. is widely acknowledged as the industry leader in customer service delivery. the market leader. However. Customer relationships provide a marketing asset in the sense that loyalty and trust give us the ability to defend market share and open up new markets. where the documentation needed to take such materials across national boundaries is fiendish. The strategy of turning chocolate bars into ice creams has been imitated by countless competitors. Intuit’s ‘Quicken’ personal finance software dominates the market because this company’s culture and organizational processes are totally connected to making the product so customer-friendly that anyone can use it (see back to pp. and put to shame so many other software producers).Market-Led Strategic Change and our strategic positioning choices.36 Market information can be a critical marketing asset in the sense that being able to understand the market or customer better and to respond faster and more effectively to customer demands creates competitive • • 334 . The product created a new quality threshold – it turned a child’s treat into an adult indulgence. Mars lost money on this product. 250–251 for more information about how they do it. Channel power concerns our dominance or weakness in the distribution channel – our market share in key outlets and share of shelfspace in supermarkets for consumer packaged products. Nycomed Amersham (now part of GE Healthcare) – a specialized producer of radioactive and related products for medical diagnosis and treatment is renowned for its R&D and new product development. The test for whether something is a differentiating capability is simple – does it use our resources to give us an advantage over the competitor in the customer’s eyes? Examples of what this can mean in practice include: ● ● ● Singapore Airlines – while performing a great many commercial air transportation functions well. but has a logistics systems that can process orders for radioactive products instantly and deliver them safely and quickly to locations anywhere in the world – with products that are decaying from the moment of production. The reason – Unilever-owned Walls. Walls literally owned the freezers in these outlets and did not allow other manufacturers shelf space. If this does not sound important consider the following case. then this company’s expensive expertise in logistics gives a unique competitive advantage from the customer’s point of view. and where the doctor needs the product tomorrow at the latest. an obscenely wonderful product) as a major new market entry. owned the distribution channel that mattered: it had a stranglehold on impulse-buying outlets like local newsagents.

They are a means to an end. for example. providing you with a feeling of satisfaction that comes from being among people who care about you as an individual. and have linked our vision and mission to our strategic positioning and 335 • • . pleasant surprises. Marketing assets. Perhaps the most widely-recognized marketing asset is the brand. The next question is whether from our marketing assets. ‘Why would I ever stay anywhere else?’ you wonder. We also recognized the vulnerabilities of brands as a basis for strategy and the imperative of taking a strategic brand perspective that focuses branding onto customer value. Similar comments could be made about other assets like corporate reputation. Do We Have a Value Proposition? If we have got a good idea about our target markets and segments. As buyers become more sophisticated and judgemental this is becoming an even more significant factor – the company’s reputation may impact very directly on brand value for customers (see Chapter 3). Coca-Cola now talks about ‘value marketing’ not ‘brand marketing’.37 Corporate reputation has always been recognized as a marketing asset (or liability). whether you want a non-smoking room. value propositions and market strategy Intangible marketing assets are a central issue in developing what we will offer the customer as our value proposition.Customer value strategy and positioning: what have you got to offer. you sense that the hotel staff is somehow able to anticipate and respond to your every need. What we are starting to realize is that the ‘end’ in question is customer value. and the chief marketing officer is clear: ‘You have to really understand how your brand creates value’38 (or otherwise). We discussed branding in the context of customer value-based strategy in Chapter 4. We recognized the power of strong brands to create and change markets and the unique contributions of ‘cool brands’. All this information was obtained during your previous visit to the Ritz–Carlton . your home address. or if your preference is for a nonallergenic pillow. capabilities and values we actually have a value proposition. The impact of company reputation on brand value is far more important than the endless (and boring) debate about corporate logos and headed notepaper. . Consider the scenario below and ask where the competitive advantage comes from: Check into any Ritz–Carlton hotel anywhere in the world and you will be greeted not only by the doorman. but also by a number of small. . The hotel does not need to ask the name of your employer. Brands and other marketing assets are resources. how does it make you different to the rest? advantage. This is why.

divide them into components and ask for each. using its direct business model for superior supply chain efficiency. Dell’s traditional value proposition did not provide value in this market and Dell now sells through Gome retail stores in China (and is moving towards a global multi-channel strategy). with the risk they claim advantage from features that actually provide no benefit to target customers. companies following an operational excellence strategy need to excel at competitive price. In the B2B context. and which is no more than a general requirement in the market (which all competitors are likely to have)? In these terms. when they encountered the China market they found buyers who placed a high value on face-to-face contact and relationship quality in commercial transactions.39 One approach that may be useful in getting specific is provided by Kaplan and Norton. researchers identify three kinds of value proposition: all benefits – when asked to construct a value proposition. identifies what differentiates the offering from the next best alternative. is the value proposition. companies use their mission and value statement as the value proposition as well because this is the best statement they have of what they stand for that they believe matters to buyers. managers list all the benefits they believe their offering might deliver to target customers. However. Those with a product leadership strategy must excel at product functionality.Market-Led Strategic Change thought through our differentiating capabilities. What type of value proposition? In business-to-business markets. However.40 They take the Treacy and Wiersema ‘value disciplines’ we considered earlier. which connects internal processes to improved performance with customers. the match between what we believe creates value and the customer’s perspective is critical. and how the company will differentiate itself from the rest in its target market segments. A customer intimacy strategy stresses the quality of relationships with customers and the completeness of the solution offered. there is no real agreement on what constitutes a value proposition or makes it effective. For example. research suggests as many as 75% of executive teams do not have a clear consensus around the customer value proposition. particularly in terms of our marketing assets and brands – the question is: do we have a value proposition for our customer? The central part of the business strategy. favourable points of difference – recognizing that customers have alternatives. The value proposition describes the unique offering we make to the customer. Nonetheless. with all its hard and soft dimensions. value propositions may be even more precise and even more critical to business performance. customer-perceived quality and lead-time and on-time delivery for purchasing. which • • 336 . which provides a differentiator. In other situations. features and product/service performance. Dell Computers drove its growth for nearly two decades offering value based on technology and choice. Worryingly. although the term ‘customer value proposition’ is widely used.

Customer value strategy and positioning: what have you got to offer. you are probably only going to get the business on low price. and resonating focus – concentrates on the one or two points of difference that deliver. though this relies on deeper knowledge of what drives value for the customer. although this logic has been developed in the B2B context. So. means you stand a good chance of reducing prices and profits to get the business. If we do not know what we have to offer each of our customers that makes us more attractive than the next to that customer. 337 • • .41 They distinguish between these approaches to describing value to customers in the following way: All benefits value proposition Approach: Lists all the benefits customers receive from the market offering Favourable points of difference value proposition Identifies all favourable points of difference in the market offering. Without a value advantage in the customer’s terms. then we do not have a market strategy. The researchers conclude that customer value propositions with resonating focus should be the gold standard. Try writing it down. not just in terms of what you are good at or how superior you feel to the competitor. Interestingly. Not understanding your value advantage in the customer’s terms. and with improvement will continue to deliver. it is quite persuasive in examining value propositions in consumer markets as well. when in fact you already had it. greatest value to target customers. that we know we can deliver to that customer. how does it make you different to the rest? risks assuming that all favourable comparisons create value for the customer. compared to alternatives Resonating focus value proposition Focuses on the one or two points of difference whose improvement will deliver the greatest value to the customer What is the most important thing for us to know about your offering? We need deeper knowledge of what drives value for the customer Responds to Why should we the customer’s buy your offering? question: Risk/cost: We may assert benefits which do not really create customer value Why should we buy your offering instead of your competitors’? We assume favourable differences create value for the customer This is a neat way of delivering the central message about the value proposition to the customer – it has to make you the best alternative in terms that matter to the customer. do we have a value proposition or not? Do not just say ‘yes’ and move on.

. . The small independents can compete only through a value proposition of • • 338 . . a regional chain and small independent stores in the same product market. which creates cost savings to reinforce the price advantage. Similarly. the written value proposition for a leading financial services company called their Customer Proposition reads as follows. Another way of expressing the value proposition is shown in Figure 8. . I get the best possible service from . Within two years. then these are the aspects of the customers’ experience that the company aims to over-deliver relative to the competition. GM paid the ultimate compliment to Daewoo’s value proposition: they changed the name of the company to Chevrolet and dismembered the Daewoo value offering. . . All my personal financial needs are met by . .7. General Motors bought Daewoo Motors. Interestingly. . I can understand . and describes the position they aim to take in the customer’s mind: ● ● ● ● ● ● ● ● ● ● ● I am more than just a customer with . . the clarity and power of the Daewoo value proposition to its target in the UK was so clear and compelling that the conventional car companies never developed an effective response. then you must be on to something. My money is safe with . to look after my interests . I would always recommend . which compares retailers’ value delivery for a national discounter chain. Underperformance against purchase criteria like personal assistance and store appearance/atmosphere can be see as a deliberate strategic choice. . . with no intermediaries HASSLE-FREE – no sales pressure or haggling about prices PEACE OF MIND – features that are traditionally ‘extras’ are bundled in with every car COURTESY – openly respecting customer needs and preferences throughout the purchase and use process. . . . in automotive Daewoo took fast market share at its launch in the UK through an explicit value proposition that formed the core of its consumer advertising: ● ● ● ● DIRECT – treating customers differently. .Market-Led Strategic Change For example. supports people with more than money. . . . . I can trust . . I get top value prices from . is where I want to work I know that . I find it easy to deal with . If the national chain offers low prices for a broad range of goods always in stock at convenient locations (the usual discounter proposition). . If you are that much of a threat that they have to take your name away and hope people forget you ever existed. through the financial collapse of the Daewoo conglomerate parent organization in Korea. When the opportunity presented itself. .

Customer value strategy and positioning: what have you got to offer. we have not finished yet.7 An illustrative retailer value proposition Performance against customer criteria convenience. Financial Mail on Sunday. March 6 1995. the last strand that links to our market choices and our value proposition is the key relationships that will drive the strategy. However. Financial Times. August 6 1995. personal assistance and store quality. The regional chain is likely to struggle to construct a value proposition that is convincing relative to the two main competitors. You can use the framework we have developed in this chapter (and might also look back to Chapter 4 on strategic thinking) to check that you have considered all the issues that help. ‘The Art of Delighting Customers’. Heller. that will establish a strong position for us in this market. how does it make you different to the rest? Small independent Customer purchase criteria stores Low prices Wide product selection Rural location convenience Reliability Products are in stock Product quality City location convenience Selection within categories Personal assistance Store appearance/atmosphere Poor Regional chain National discounter chain Excellent Figure 8. 339 • • . ‘Letters Chiefs Aim to Deliver Quality’.42 There is no fixed format for what a value proposition should look like. Robert. We turn attention to this in the next chapter. Summers. These are rich and complex issues. References and End-notes 1. 2. and can track how each contributes to building a statement of the value for our customers. Diane. but they are the ones which are essential to building an effective and strong market strategy.

pp. Nirmalya Kumar and James A. 13. Hadley.. ‘Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility’. ‘A Responsible Balancing Act’. Sunday Times. March 20 2000. James C. Hewson. March 25 1995. Porras. Harvard Business Review. • • 340 . September 6 2006. BusinessWeek. Marketing Week. Anderson. June 1 2005. ‘Mission Analysis: An Operational Approach’. Social and Environmental Success and How You Can Too. ‘Little Green Lies’. Sanghera. December 2006. Thomas. ‘Transforming Corner-Office Strategy Into Frontline Action’.. Gilbert. ‘Millions Spent on Firing Firms With Missionary Zeal’. Maitland. The WiseMarketer. September 3 2007. 14. 7. 12.: Harvard Business School Press. New York: Random House. Financial Times. 4. and Jerry I. 45–52. September 17 1998. Alison. ‘Jean Genius: One to One Marketing’. 1996. Kellaway. Guardian. David. Freeman. Kramer.com. Built to Last: Successful Habits of Visionary Companies. Lesley. Fortune. Green Paper: Promoting a European Framework for Corporate Social Responsibility. Nigel F. pp. 67–74. 19. 5. Gadiesh. ‘Levi’s Woos Youth With Custom-Made Jeans’. The Discipline of Market Leaders. Value Migration. ‘The Debate Over Doing Good’. 2005. Lucy. MA: Harvard Business School Press. Sunday Times. Commission of the European Communities. 2006. Slywotsky. 13. and Neil A. ‘The Other Side of Carbon Trading’. Brian. Faris. Michael and Fred Wiersema. Treacy. 16. Anderson et al. 2007. September 6 2006. 9. ‘Nothing in Your Size? Stores Seek to Measure Up’. ‘Levi’s Extends Its “10 Second Fitting Kiosk” Market Tour ’. 8. Boston. p. September 5/12 2005. The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic. pp. Financial Times. BusinessWeek. pp. pp. 6. Boston. 1995. San Francisco. pp. ‘Why So Many Mission Statements Are Mission Impossible’. Savitz. 17. 15. 73–79. Ben. Journal of General Management.Market-Led Strategic Change 3. July 2001. Porter. COM. 1994. New York: HarperCollins. Michael E. Harvard Business Review. Adrian. Morgan. 11. and Mark R. May 2001. Stephen. James C. Narus. This section has its origins in: Piercy. June 11 1995. 18. Elgin. 10. MA. p. Orit and James L. ‘Statements that Sum Up Mission Impossible’. Andrew and Karl Weber. CA: Pfeiffer Wiley. Collins. 78–92. 20. 6. Value Merchants: Demonstrating and Documenting Superior Value in Business Markets. 11. Financial Times. Value Merchants. 1–19. Grow. 78–80. 19(3). July 22 2005. Sathnan. October 29 2007. p.

‘Wal-Mart Lays Down the Law’. 42. 10–13. March 19 2008. ‘Changing Channels’. 26. 32. 1. p. p. August 19 2005. Ibid. Competitive Advantage: Creating and Sustaining Superior Performance. Hart. Jo and Aline van Duyn. March 24/25 2007. 28. ‘Soft Drinks Producers Act to Deflate Calls for Regulation’. 78–93. The Strategy-Focused Organization. Davey. David J. p. 2001. 24. James A. 35. Michael E. Anderson. Andrew. Alan. April 2008. January 29 2007. Jenny and Ben Laurance. p. 28. January 21 2007. ‘Trading Bright Green Ideas’. Birchall. March 2006. Marketing Business. Mitchell. pp. Harvey. Christopher W. Fiona. ‘Customer Value Propositions in Business Markets’. BusinessWeek. 40. Parker. 91–99. Harvard Business Review. Engardi. 30. Alan. 5. ‘Dell and H–P Cast Energy Savings as an “Eco-Push” that Pays Its Way’. p. ‘Winds of Change Beginning to Blow’. 22. Harvard Business Review. ‘What Is Strategy?’. MA: Harvard Business School Press. Financial Times. Michael E. May/June 1990. 1985. 31. ‘The Five Competitive Forces That Shape Strategy’. ‘Microsoft Drops Supplier Over Diversity Policy’. ‘Evolution’. Porter. Financial Times: Special Report on Sustainable Business. Financial Times. Treacy and Wiersema. how does it make you different to the rest? 21. 79–91.. Narus and Wouter van Rossum. Kaplan. Discipline of Market Leaders. 27. February 1995. 41. Quoted in Mitchell.Customer value strategy and positioning: what have you got to offer. Financial Times. ‘Ethical Consumption Makes Mark on Branding’. October 12 2007. New York: Free Press. Financial Times. 34. Financial Times. Michael E. Marketing Management. James C. October 29 2007. February 1999. 82–90. 33. 11–23. Prahalad. pp. pp. Sunday Times. p. K. February 21 2007. Wall Street Journal. Norton. Rukstad. C. November/December 1996. Boston. 23. Harvard Business Review. pp. Anders. 37. February 20 2007. This illustration is adapted from: Collis. p. pp.. Marketing Business. Harvard Business Review. 36. Harvard Business Review. pp. pp. November 21 2007. 3-5. 38. George. Pete.. 39. 7. ‘Can You Say What Your Strategy Is?’. 6. 24. Grande. Summer 1996. p. ‘Pressure on Clothes Retailers After Gap Child Labour Allegation’. 11. 50–64. Andrew. 5. Robert and David P. and Michael G. ‘Beyond the Green Corporation’. Porter. Ward. ‘The Core Competence of the Corporation’. 341 • • . 25. Jonathan. and Gary Hamel. 29. ‘Made To Order ’. p. Carlos. Ibid. 5.. Taylor.. Porter. Johnson. pp. January 2008. George. 61–78. p. Financial Times. ‘Cabinet Splits on Ditching Jaguars for Hybrid Prius’.

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. This is not helpful. for reasons we discussed in Chapter 4. but I digress . What we can see in this chapter is that strategy is underpinned by a network of relationships that determines in large part whether the strategy stands up and whether it can be implemented.C H A P T E R • • • • 9 Strategic relationships and networks: building the infrastructure to deliver the strategy This chapter . Strategy is about customers obviously. and then assume that everything is taken care of with Customer Relationship Management (CRM)* technology. CRM should probably stand for ‘Customer Relationship Myopia’. One of the problems with marketing folks is that as soon as you use the word ‘relationship’ they think you mean with customers. . This provides the remaining component of the strategic pathway. where we stand with competitors and the contingent influencers who shape the landscape. and with the people in our own organization. . Here we look at several different elements of the relationship networks surrounding strategy. but it is also about our relationships with collaborators in alliances and partnerships. . . *In fact.

and so on. This underlines that critical relationships are with customers. with collaborators – does our strategy rely on partnerships with other organizations such as suppliers. with competitors and contingents – how vulnerable is our market strategy to competitive attack. However.1. then what are the key relationships they will drive this through. in the real world the issue is also networks of linked relationships. and can we rely on and successfully manage those relationships.1 Strategic relationships and networks *Apologies for using the word ‘co-workers’ to refer to the employees and managers in our company. government regulators. including these relationships: with the customer – can we keep the promises we have made in the value proposition to our customers. what we need is an approach that addresses the critical issues. supply chain partners. City analysts. The first question is – relationships with who and why? The areas where relationship-building is most critical in an era of value-based strategy are those shown in Figure 9. • • 344 . or key players who exert influence over the customer and the competitor. as well as with competitors and contingents. and external collaborators. but also with employees and managers in the company (co-workers). but it alliterates too well with the other relationships and I could not resist. how well do we understand our competitors’ capabilities and will the strategy survive.Market-Led Strategic Change Introduction The issue we have to confront next is: if we are going to deliver our value proposition to our target markets and segments. on the basis of how we understand these markets. and how well do we stand with the market controllers – for example. shareholders. and with co-workers* – can and will Customer relationships Competitor and contingent relationships Strategic relationships and networks Collaborator relationships Co-worker relationships Figure 9. Accordingly. distributors. and can we manage these relationships effectively.

but the companies concerned would just as soon not have their names published). (This is a real situation. Company X had the production facilities for the new compound. This arrangement has proved profitable for all concerned. Company X and the customer both sell the bulk material and the packaged material to other healthcare companies. do we undermine the original business. but did not have access to the raw materials needed or the packaging plant required. and arranged for Company X to lease packaging line time at Company Y (Company Y also supplies the customer but is the major competitor of Company X). This is a neat and tidy model. Company X supplies the new material to the customer in bulk for re-packaging and in specialized packaging for laboratory use. for example? If we form a partnership with a company. how does it affect relationships we have with other companies? Customer Relationships We looked at the relationship marketing ‘revolution’ in Chapter 4. – but 345 • • . X was approached by a customer for a new material to be supplied for clinical diagnostic purposes. it just isn’t neat and tidy. competitor and collaborator relationships when it is the same company we are talking about in each relationship. Our conclusion was that relationship focus has a great deal to offer – better information about customers. including Company Y. The customer agreed to supply the raw materials from another source. and were warned off the ‘rhetoric of relationship’. The customer packages the bulk material itself. Reality Check: The tangled relationship network Company X produces speciality pharmaceutical chemicals for the healthcare industry.Strategic relationships and networks: building the infrastructure to deliver the strategy the employees and managers in this company deliver the quality. which had been designed by the customer’s R&D Department. customers who forgive us when we get things wrong. etc. the service. We may have to look at customer. It is often difficult to sort out the type of relationships we have with different parties. Things are often somewhat less clearcut in the real world. and this may pose particular problems – if we attack a competitor with a new product which is also a customer for existing products. and the brand values on which the market strategy relies? The result of all these is a relationship network that can support our strategy or provide major barriers.

Do we know what we want the relationship to be? If we have got this far and the answer to the question is ‘no’. the qualities needed in the relationship – what do we need to have customers believe about us. when we should be focusing on hard relationship reality.g. if our strategic position and value proposition are going to stand up: how close does the relationship have to be – the choices range from essentially a transactional relationship (we are only interested in the one-off sale) through to almost partnership with the customer. it certainly made my day (not) – and loyalty programmes. That statement should tell us. e. our integrity. If the relationship positioning we want depends on customer beliefs about us – let us find out what they do believe about us by asking them. None of this seems particularly related to the philosophy of mutual interdependence that we know is what relationship marketing is really about.Market-Led Strategic Change that the real test is whether the relationship we have with our customers enhances the value of what we offer them (in their eyes not ours). or as they have been called ‘customer detention’ programmes that are intended to tie-in business (or restrict the customer’s freedom and choice as some would say). it is time to ask some searching questions about customer relationships: do we know what the relationship with the customer has to be. and the life-cycle of the relationship – how long has it got to last for the market strategy to be viable? Do we have that relationship or can we get it? This is about getting realistic and challenging any belief that we can take a strong competitive position just by telling customers that we are going to be nice to them (countless millions of pounds have been spent over the years on advertising to do just that. However. Try it. our quality. does having a strong customer relationship necessarily make a customer attractive to us? In short. A lot of companies are shocked to find that customers have long memories – they remember you and what you did before you got the relationship marketing rhetoric. and our value proposition. can we actually deliver that relationship in the customer’s terms. for our market strategy to work. our technology compared to the competition. The critical issue is – are • • 346 . does the customer know and accept this. our service level. we need to be really sure we are not making the mistake of being taken in by ‘relationship rhetoric’. and it has not proved very effective). before we go any further. then we need to think again. Do not forget that what customers actually see of your ‘relationship strategy’ is: sales promotions and direct communications based on database information – and I personally am delighted to get a personalized letter from the CEO about Heinz Baked Beans. We should be able to write down the relationship with the customer that grows out of our market focus.

pp. it would be a little optimistic to believe that bank customers trust banks and believe in their integrity. p. Daily Mail. If our market strategy rests on the assumption that customers trust us – then maybe we should find out if they do. In the USA. Charging illegal and unfair fees for services like overdrafts and letters has done little to enhance their reputation with consumers. What we have to avoid is building a market strategy that relies on beliefs and trust which do not exist.Strategic relationships and networks: building the infrastructure to deliver the strategy customer beliefs about us supportive to our market strategy or are they a barrier? The same applies to trust. They are tightly managed to deliver value to their shareholders. The costs of events like the credit crisis caused by the US sub-prime lending feeding frenzy are passed on to their customers. But to build a strategy that relied on customer beliefs in integrity. November 16 2007. they expect the government to pick up the bill. in order for you to do business. November 7 2007. Robert Burner and Brian Grow. ‘OFT Rebuts Case on Bank Charges’. p. 14. Michael Peel. Neither are many bank customers overly impressed with the raft of new charges introduced after banks were banned from using ‘unfair and illegal’ penalty fees. Financial Times. to replace the lost profits. which it does. Financial Times. p. Gwyneth Rees. Banks behave the way they do because they can. ‘Banks Put Profit First. Say Customers’. fairness or customer trust would be unwise. In the event of a disaster like the Northern Rock collapse. an interesting bank business has built up around reviving the discharged debts of bankrupts. 17. August 29 2007. November 12 2007. 4. 44–51. Does our company reputation support our market strategy or create a barrier? Customers do not have to believe you are a wonderful company or trust you with their lives. British banks may have missed a trick. Reality Check: British bankers British banks are incredibly profitable. The bullying and lying tactics adopted by the banks to deter customers from claiming refunds on unfair overdraft penalties did not impress the Financial Services Authority. However. ‘Prisoners of Debt’. A European survey suggests barely more than a quarter of European consumers believe that their bank acts in their best interests rather than doing what is best for bank profits. they have created debts that do not die whatever the law says. However. Sources: Jane Croft. ‘Banks Are Clawing Back Lost Penalty Fees’. People often do business with companies they do not trust. BusinessWeek. mainly based on banks ‘failing’ to update credit reports after debts have been discharged by the court. 347 • • .

• • 348 .Market-Led Strategic Change Can we deliver that relationship? Getting customers is not the same thing as retaining them. systems. as we saw in Chapter 4. procedures and structures) but also to the other key relationships we have to manage to maintain the customer relationship. and vice versa. do we have the capabilities to maintain and enhance that relationship? This forces us to look at our internal resources (our people. Relationships versus attractiveness There is also the complication that how attractive a customer is to us (the prospects of achieving our goals and building profitable business). good future prospects. If we cannot resolve this issue we need to go back to the value proposition and think again. Figure 9.) may make sense if you are sure you can pick them. and who ever went to a dance. Attracting customers is largely about making promises. etc. who were ever teenagers. and more time with customers who are the best prospects (who are often argumentative and demanding because they know how important they are). We saw in Chapter 2 the risks in mismanaging customer expectations. It may be lost on others. The question at this stage is: when we look at the customer relationship defined by our market strategy. Making customers promises that you cannot keep is dangerous.* Building and reinforcing the loyalty of customers who are attractive (profitable.2 illustrates the dance-hall dilemma – why do the ones I fancy never fancy me. end of discussion Customer attractiveness High Figure 9.2 The dance-hall dilemma – the ones I fancy never fancy me and vice versa Low *The analogy will be readily understood by all male readers. but you need to have effective ways of Customer relationship Strong Weak Prime target customers – achieve synergy as we retain the ‘best’ customers (we hope) Sticky customers – they want us. so what do we do? Targets for conversion – are they attractive enough to be worth chasing? Mutual antipathy – they don’t want us. A classic dilemma for the sales manager is to persuade salespeople to spend less time with customers who are really nice to them (lots of coffee and cakes). we don’t want them. is not necessarily the same as the strength of the relationship we have with the customer. we don’t want them. Retaining customers is much more about keeping these promises.

let us get some fundamental issues out in the open before continuing: ● ● Every organization has competitors – whether you accept it or not. but many companies are very poor at putting strategy development into the real competitive environment. Customer divestment decisions involve a variety of different situations and possible responses. terminate the relationship – if there is complete incompatibility between our goals and the customer’s. educate the customer – is the customer inclined to understand our position. and can this transition be managed. and would the customer agree to this.Strategic relationships and networks: building the infrastructure to deliver the strategy handling other customers too (and ways of recovering the situation if you invest in customers who do not pay off). We know who our competitors are – just about every organization says this. and continually up-dating our view of the sources of competition in our market – not just the existing ‘me-too’ competitors but new entrants. Everyone has competitors. An awful lot of them are wrong. Take the examples 349 • • . This is a route to nasty surprises. or (last resort). A particular challenge surrounds the issue of what to do about customers who provide unattractive prospects. This sounds so obvious.1 The point we made in Chapter 2 that knee-jerk reactions to ‘bad customers’ are dangerous is underlined by the network of relationships in a market – actions we take in one network relationship may easily reverberate elsewhere in the network. and perhaps withdraw from the relationship. Talk to senior people from the police service. we need to be realistic about the type and level of competition in our target markets. For a start. migrate the relationship – might the customer be a more attractive prospect for other providers. then we exit. We need to give some serious attention to issues like: really understanding the competition. However. particularly in terms of their ability to respond or retaliate to our market strategy. Competitor and Contingent Relationships Now let’s talk about relationships with competitors and contingents – they share the characteristic that they may react to what we propose to do and they may stop us. because then we can focus on the level and type of competitiveness in this market. but who have or want a close relationship with us. These managers say they have no competitors – there is only one police service. renegotiate the value proposition – is there a way to make the customer’s business more attractive by removing some elements of cost. What else do you call the amazing growth in private security firms for the home and the business? Then ask yourself why there are more alternative health practitioners in the UK than there are doctors in general practice. Relevant actions in different circumstances may be: reassess the relationship – have we misunderstood or mishandled the customer – is there a way to improve their attractiveness.

This should help in confronting the likely reactions to our market strategy from each competitor. • • 350 . simply ignore us and leave us alone. Really understanding the competition Getting to grips with competition is about far more than just listing the companies that sell similar products and services to us. understanding their strengths and weaknesses. This involves identifying competitors who will: fight to the death in this market. Competitive myopia is a common condition and can prove fatal.3. and their likely strategies. as us: this is the industry (see back to the Competitive Box in Chapter 7 if you don’t believe me). Customers are not interested in the ‘industry’. and they are not equipped for a fight anyway. their limitations and problems. Sorting out these basics goes before evaluating our relationships with competitors. an insightful competitive profile should also take into account the psychology of the competition in this market – basically how mean and aggressive are the competitors? For example. the airlines who did not believe that ‘no frills’ operators like easyJet and Ryanair could survive. or. make a weak counter-attack to protect their own position. However. because this is their home turf. This is a minimum requirement.Market-Led Strategic Change ● we looked at earlier: the retail banks who persistently claimed that building societies and insurance companies could not compete in the retail banking market. only in meeting their own needs. or because they just like a good fight. to fund stockholding). The real competition may come from outside our industry: electronic communications reduce the need to travel or freight paper around the world. Competitors are in our industry – many of us tend to identify competitors as firms with the same technology. but not very aggressively or competently. possibly regardless of the short-term commercial consequences. management consultants compete with corporate banks by reducing the need for companies to borrow (e. This framework suggests we should build a competitor response profile for each key player in the market and constantly revise it. show disdain by not reacting to our strategy. industrial companies produce their own raw materials instead of outsourcing and turn from customers into competitors. the same type of products and services. try categorizing competitors in the way show in Figure 9. because they do not see us as a serious threat worth worrying about.g. music competes with clothing for the young consumer’s leisure spend.4. It is far more about challenging conventional assumptions about what drives our key competitors. A conventional framework for structuring this is shown in Figure 9. for one reason or another – they don’t think we are worth the effort.

because these conflicts are a fast way of losing a lot of money. what is most likely to provoke a competitive reaction? Figure 9. BusinessWeek was advising its readers that a key survival skill in the IT business was ‘getting out of Microsoft’s way’. that advice looks a bit out-of-date.2 In the Google-era.Strategic relationships and networks: building the infrastructure to deliver the strategy Competitor’s goals What are they trying to achieve in this market? Competitor’s strategy What is this company’s current strategic position? Competitor’s response profile Is this competitor satisfied with its current position? What are the likely moves they may make? Where is this competitor most vulnerable? What is this competitor sensitive about. New York: Free Press. As recently as 2002. It is not a wasted effort if you identify the real threats of aggression in the market. Competitive Strategy. Competitor’s strategic assumptions – How does management look at the market? Competitor’s capabilities – What are their strengths and weaknesses Competitive reaction to our move? Yes No Competitive aggression High Fight to the death Show disdain Low Weak counter-attack Ignore us Figure 9. 1980. Porter.3 Competitor analysis Adapted from Michael E.4 How ugly are the competitors around here? Analysing like this can be surprisingly revealing. The thing to avoid at all costs is the ‘fight to the death’ competitor. 351 • • . This is an analysis that needs to be carried out regularly in each important market – things change.

VMware founder. The nature of Tesco’s competitive stance can be judged from an often-repeated anecdote from the days of restricted Sunday trading in the UK. consider the continuing competitive war between Tesco and Sainsbury. ‘VMware undaunted by Rival’s Catty Comments’. Tesco will hit back immediately and fully. that ‘If his very smart cat could write it.Market-Led Strategic Change Reality Check: Cat fight! VMware produces software that supports virtualization – allowing companies to run tasks simultaneously on a single server by fooling each application into thinking it has sole use of the machine. Further petrelated competitive insights are awaited. every Sainsbury in a 50-mile radius of that Tesco store was systematically reported for illegal trading and consequently ordered to close. Safeway • • 352 . It is one of the most important companies to emerge from the software industry in the mid-2000s. and declares that the base level of software on which virtualization depends was ‘so simple. January 19/20 2008. A Tesco store was reported on Sunday for illegal trading and was fined and ordered to close.3 Reality Check: These guys really don’t play nice The retail grocery market in Britain is not above playing tricks. 19. The point is that when Sainsbury talked about the possibility of a price cutting campaign and Tesco immediately said it would match every price cut made every inch of the way – everybody believed that Tesco would do exactly that. It does not matter if this story is true – it is probably not (it was more likely a 100-mile radius). his cat could write it’. Source: Adapted from Richard Waters. Following the takeover of Asda by US retail giant Wal-Mart. This may have been an unhappy coincidence. In case this proposition that competition is about psychology as much as economics sounds dubious.’ These guys are not going to play nicely together. responded in an interview with the FT. The following Sunday. Diane Greene. founder of Oracle. and we should never let the facts get in the way of a good story. p. The market knows. Financial Times. Stalk and Lachenauer call this playing ‘hardball’ and suggest that winners in business play rough and do not apologize for so doing. if the major competitor attacks Tesco on price. takes a different view of his new rival. my very smart tortoise could write his database. but most people suspect not. Larry Ellison. He dismisses VMware’s prospects in competition with Microsoft.

‘Safeway’s Saboteur Shoppers Wage War on Asda’. Safeway’s strategic goal appears to have been to cause so much market disruption that sooner or later one of its competitors would buy their company to shut them up. In 2004. If our analysis suggests that we are targeting the same markets with the same value proposition and the same marketing methods as strong. August 12 2000. when Virgin accused BA of unfairly poaching customers with some very dubious tactics like hacking into Virgin’s booking system. Revenge is sweet – but who at BA thought that they could play games like this with Virgin and get away with it – did you think they were your friends all of a sudden?4 Part of the objective in putting strategy into a competitive context is to avoid being trapped in vulnerable positions. pretending to be customers. Another tactic is large groups of staff arriving outside Asda stores and bombarding customers with Safeway leaflets – at one point in 2000 estimated to be 10 million leaflets a week. The Safeway report gloated of one such campaign: ‘The queues on the tills were about 45 feet long and customers were dumping their baskets and leaving . and selected stores shared out between the other supermarket firms. . they will fight back. ‘Talking Heads’. Similarly. Virgin was part of the cartel but escaped punishment as a reward for blowing the whistle on the deal. BA was forced to apologize ‘unreservedly’ and pay damages to Virgin. causing long queues at counters. the animosity between BA and Virgin Atlantic began in the early 1990s.’ A friendly business this is not. Daily Mail. but may have been more worried by the reaction of Tesco’s spokesman on the arrival of Wal-Mart in the UK: ‘The Yanks have got a reputation for turning up for wars late and claiming they won them. But the antagonism between the companies has never reduced. That success is also about playing to your own strengths and to your competitors’ weaknesses. Safeway was taken over in part by Wm Morrison. Sunday Times. Success often comes by avoiding head-on conflict and outmanoeuvring the competition. . If you get into headon competition with an aggressive market leader. Sources: Richard Price. Internal company documents reveal Safeway’s ‘saboteur shopper’ tactics – sending its employees into its rival’s stores to cause confusion at busy times. and if they are strong enough they will win. aggressive competitors – why would we expect to be successful? 353 • • .’. In 2007 BA was fined a record £270 million for participating in a pricefixing cartel. Asda simply laughed the tactics off. August 15 1999. clogging up checkouts by demanding price checks at the last minute.Strategic relationships and networks: building the infrastructure to deliver the strategy regarded Asda as its main competitor.

• • 354 . In fact. We also want to know where the new competitors will come from: potential new entrants to the market – such as retail firms entering the financial services industry. the point to be made is that we need to continually monitor for new competitive threats that may radically change the attractiveness of the chosen market and undermine our value proposition. whatever that is supposed to mean. for example Dyson’s entry to the carpet cleaner market. one of the defining characteristics of the era of value-based strategy is that there is a whole bunch of people and organizations apparently dedicated to stopping you from putting your strategy into action. so that we can build a strong and defensible foothold in the market? If we do not have a competitive differentiation that separates us from the competition in the customer’s eyes – then we have no competitive advantage and this market strategy will fail. At least so it seems. In this case. if you look at the examples given above – the financial services sector had been told for the best part of two decades that multiple retailers could easily and forcefully attack their sector. what about ‘contingents’. and the Dyson product innovation was actually offered to the main competitors (Hoover and Electrolux) before Dyson launched it himself. This issue has proved so problematic in working with executives. we have developed a specific market sensing technique that focuses on competition (see pp. 257–258). The test of whether we are getting there is: ● ● ● Do we understand the competition well enough to predict their strategic moves. Now. To be fair. it just does not seem *Well. and potential new technologies coming into the market? Does our value proposition give us a specific positioning that plays to our strengths and avoids head-on competition. and to maintain our competitive advantage? Does this include existing and potential competitors.* Allowing for critical contingents As we saw in Chapter 4. they could also be one of your major strengths in getting things done faster than your competitors. with a radically different technology and value offering. it may not be elegant English. but yet again it alliterates with the other relationship themes and that is good enough for me.Market-Led Strategic Change But where is the competition coming from in this market? At one level this simply says we should know who the competitors are in this market. but may come from a different industry or technology. Undoubtedly true – but not the full story. we need to think again. both are difficult to track. 269). Nonetheless. Both are vital to know. Maybe some nasty surprises shouldn’t be? If you need further convincing – go back to the competitive box (p. and the threat of substitute products and services that meet the customer’s needs.

this extended to the pharmaceutical business to find if drug companies are using their strong market position to block competitors from selling cheaper generic copies.e. i. the media. Indeed. However. The European Union Competition Commissioner is dedicated to a continuing series of sector-wide investigations. Shapers • • • Increasingly. in 355 • • . For example. and the relationship you have with them may be a critical determinant of your ability to put your strategy into effect and deliver your value proposition to your customers. It is not easy to come up with a definitive list of contingents – it varies too much between companies and markets. For example. Relationships with regulators may be a critical implementation capability. stopping you from doing what you want to do. there are forces in the market that shape and change attitudes and beliefs about the industry and our company. they have the potential for restricting your freedom of action. One of the most direct impacts of poor relationships with such commentators is that they influence shareholder opinion – possibly more than company management can.Strategic relationships and networks: building the infrastructure to deliver the strategy to work out this way too often.5 Regulators • • • Whether stimulated by competitors. City analysts and the information they provide to the media are a major determinant of a company’s freedom of action. the move towards a strategy of becoming a ‘virtual airline’ is being driven by shareholders not by management.7 Recommenders • • • Those who lead opinions for or against your products and services may be a critical target for relationship-building and sustaining efforts. opening with dawn raids on the offices of Britain’s leading drugs companies. for some this may be the most critical area. either literally or because their actions add to the cost of implementing your strategy.35 billion fine in 2008 for failing to comply with a 2004 antitrust order – her dogged determination to rein in Microsoft saw another two cases being opened as this last fine was extracted. government pressure.6 This Commissioner is the same sweet lady who hit Microsoft with a $1. For large companies. but they may react in a similar way to your market strategy. or public opinion. the growing role of regulators in restricting the freedom of actions of companies may be critical. The defining characteristics of our contingents are: they are not strictly speaking competitors. American Air is under intense shareholder pressure to sell strategic assets to lift its share price (which halved during 2007) – effectively. the list below is illustrative of what we should be thinking about in assessing the strength and direction of the relationships we have and what this means for our ability to implement our intended market strategy. In 2008. The management of relationships with vocal shareholder groups is becoming increasingly critical for some companies.

you are shut out of the customer’s business. The Gate Gourmet debacle is estimated to have cost BA £40 million plus lost business. the Apple iPhone featured on more blogs than the US president. As Gate Gourmet’s key customer (80% of its sales). professional purchasing officers adopting a strategic perspective on sourcing are a powerful determinant of the relationship you can have with a customer – if you do not fit the sourcing strategy. Online commentators may be a critical factor which is particularly difficult to influence: when it was announced on January 9 2007. in the building products marketplace. but to collaborate on product and service innovation.Market-Led Strategic Change the medical products area. Suppliers • • • Your relationships with important suppliers may be critical. recommenders turn into gatekeepers. Relationships with recommenders may be an important advantage or disadvantage for your strategy. and a £10 million hike in the payments to Gate Gourmet for food. not just to cut costs. For example. Wikipedia had an iPhone entry within minutes of the Apple announcement. the relationship of a company with its supply chain collaborators may define its strategic freedom. having outsourced its catering to cut ‘costs and complexity’ from the business. But. and threatening to go into bankruptcy. It was taken out of the air by baggage-handler strikes in sympathy with workers at Gate Gourmet – supplier of BA’s food. Online commentary is an as yet poorly understood source of product recommendation (or the reverse). BA did not have an alternative supplier.8 The challenge is finding new ways to form productive relationships with suppliers. Similarly. in the mainframe computer business it was always the case that the company’s IT Department acted as a determinant of whether your products were even considered by management. trying to change out-dated employment practices unilaterally to cut costs. as supply chains are managed as single entities. For example. For example. to reduce • • 356 . Gatekeepers • • • In some markets. in August 2005 BA cancelled around 700 flights and could not feed its passengers.9 Supply chain partnerships • • • Further. in the retail grocery sector there is a strong push to reduce the number of new product launches. architects and designers do not buy the products but they have a decisive role in recommending and specifying them to builders. your standing with medical journal writers and medical schools may be a crucial determinant of whether your new products and ways of doing business are accepted by the medical profession. Companies that cut themselves off from employment issues at their suppliers are taking a big risk. and YouTube accumulated more video clips for the iPhone than for Gucci or the Pope. BA had pressured prices down to the point where the company was collapsing. As we saw in Chapter 3.

Financial Times. and whether this is a barrier to successfully implementing your strategy. Beneficiation is also taking place in Namibia. March 17 2008. De Beers’ managing director says: ‘Beneficiation is not about altruism but about good business. you need to identify and profile a range of contingent forces as well. De Beers. 6. Only by cooperating with governments’ development aims has De Beers maintained its market position as the biggest producer of rough diamonds. location of two of De Beers’ most valuable mines. Michael Skapinker. the Democratic Republic of Congo and Angola. the ability to implement new market strategies is likely to depend on the ability to successfully negotiate with supply chain partners – suppliers. 14. However. De Beers has 120 years’ experience of weaving its way through African politics. diamond sorting has been placed in a desert estate next to Gaborone’s airport. This fundamentally restricts the freedom of supply chain members to innovate. The political imperative of ‘beneficiation’ has led to the location of profitable operations like diamond cutting and manufacturing in countries where the stones are mined. In South Africa a black empowerment consortium owns 26% of De Beers mining operations. p. ‘De Beers Chief Seeks Fresh Settings’. Reality Check: Re-shaping the diamond business Traditionally. to the company’s dealings with South Africa’s apartheid regime. The decision to ‘Africanize’ a function previously conducted in London was made by the Botswana government. distributors and even competitors. What I am saying is that you do not just have to profile and understand your direct competitors. the opening of big mines outside its control in the 1990s shifted De Beers’ focus away from controlling the supply of rough diamonds to fostering demand for them. In Botswana. the world’s largest diamond miner. For companies involved in these type of supply chain integrations. The loosening of De Beers’ control on the market was driven by the powerful trend of ‘beneficiation’ – the demand by African states for a greater share of their own diamond wealth. to get a view about what type of relationship you have with the important ones. acted to set diamond prices and to control supply – acting as buyer of last resort for other producers. and now to the demands from African governments for a share of the business. November 29 2007.Strategic relationships and networks: building the infrastructure to deliver the strategy the number of products that retailers have to stock. Financial Times. ‘De Beers Cedes Diamond Grip to African States’. from founder Cecil Rhodes’ imperialist dreams. it creates much closer relationships with our partners. p.’ Sources: William MacNamara. 357 • • .

We have always been vulnerable to failure in supply or blockages in the distribution channel. Let us consider the following issues: the move from outsourcing (buying-in products and services) to strategic alliances and networks (partnerships of various kinds). advertising agencies. and the problems of managing partnerships in implementing market strategy. Cisco Reassure Clients’. Microsoft and Cisco products would be designed not to work with each other. it is in more direct competition with Cisco. Reality Check: How much competition do customers really want? In 2007 the CEOs of Microsoft and Cisco launched an unusual campaign to reassure customers that a new era of head-to-head competition between their companies would not hamper the development of big new technology markets. 19. ‘Microsoft. The idea that our market strategy relies for success on collaborating effectively with others to get the product or service to the customer is hardly new. As Microsoft attacks the ‘unified communications’ market bringing together voice.Market-Led Strategic Change Collaborator Relationships For most firms. creating joint teams of engineers to collaborate on areas of overlap. August 21 2007. p. the risks of collaboration. and to see how vulnerable this makes us. Enterprise customers were uneasy with the prospect of all-out war between Microsoft and Cisco in unified communications. This increases our dependence on others to drive our market strategy and suggests areas of risk to consider in putting the strategy in place. and were delaying purchases of equipment. The goal is to identify the critical collaboration links that lie under our market strategy. Cisco’s move from network ‘plumbing’ into applications like video conferencing raises the potential for competition with Microsoft on a broader front. However. Source: Adapted from Richard Waters. distributors. the issue of collaboration goes a lot further – it includes various forms of partnership with other organizations. and so on. Customers were concerned that the overlap meant that in all-out competition. e-mail and instant messaging. The companies pledged more cooperation. Financial Times. going to market has always involved dependence on other firms – suppliers of raw materials and components. • • 358 .

advertising. Quite simply. However. the use of collaborative arrangements has escalated Closeness of relationship Outsourcing Arm’s length Low Nature of the relationship Purchase of goods and services from outside the company. but coordinated activities between partner companies Longer-term focus with integration of activities between partner companies ‘Permanent’ arrangement with partner companies highly integrated Shared ownership in an operation with a collaborator company Full ownership of the activities or operations Short-term Partnership Long-term Permanent Alliance Joint venture Ownership Vertical integration High Figure 9. This suggests that getting progressively closer to collaboration with others.5 Types of collaborative relationship 359 • • .g. possibly over the long term Short-term focus. Some outsourcing may involve enduring relationships and close cooperation.Strategic relationships and networks: building the infrastructure to deliver the strategy From outsourcing to alliances and networks One way of categorizing collaborative relationships is shown in Figure 9.5. market research and direct marketing expertise are typically boughtin expertise. and there are varying degrees of intercompany coordination and integration. e. Vertical Integration – we fully own the activity or operation. we can distinguish between: ● ● ● ● Outsourcing – an ‘arm’s length’ relationship where we simply contract to buy goods and services on a normal basis. Alliance – a joint venture where ownership of an activity or operation is shared with a collaborator. we need to consider also the trend to outsourcing critical activities like personal selling and for most firms the unavoidable reality that they will rely on distributors to get their products and services to customers. Partnership – a closer type of relationship where companies recognize each other as partners.10 There are many factors driving companies to explore partnerships and strategic alliances as critical components of their market strategies.

exotic locations. and Procter & Gamble outsources basic sales roles because it is more efficient to do so. The first big co-production of a locally produced Bollywood movie by Sony and its partner in 2007 – Saarwariya – was a milestone. and access to more markets and higher market share are the goals of partnership – more broadly. Worldwide. The goals we seek in partnering and alliance include: cost efficiency – it may be cheaper to use the expertise of a specialist than to do something in-house – McDonald’s has partnerships with regional distributors servicing all outlets in a region to reduce delivery and ordering costs. Bollywood has benefited from the growing economic power of the Indian middle class and the NRI market. and provide better access to technology and innovation – for example.1 billion tickets sold every year (more than Hollywood’s 2. In 2005. gain entry to new markets. reducing costs and retaining price competitiveness. Bollywood’s success and market access has attracted Hollywood’s attention. • • 360 . marketing advantage – integration can acquire greater marketing expertise.Market-Led Strategic Change because of conditions of rapid change and high risk in the marketplace. Other Hollywood studios are looking to develop local Indian partnerships to get access to this market and the NRI film consumer globally. characterized by movies with extravagant story lines. to deliver and install equipment. together with demands for skills and resources that exceed a single firm’s capabilities. Bollywood’s most lucrative audience is the ‘brown pound’ – non-resident Indians (NRI) in the UK. alliances may provide the opportunity to learn and absorb other companies’ skills (although that works both ways). In addition to the domestic Indian market. America. and profit stability and growth – for many companies. prospects of reduced costs and enhanced profits. and colourful music and dancing.5 million compared to an average of $51 million in Hollywood. in marketing office equipment in the USA. strategic advantage – an alliance may offer greater market access and control. while Bollywood made twice as many films as Hollywood. Production costs of Bollywood films are very low compared to Hollywood – an average of around $1. enabling Sony to distribute Hindi films in the USA. customer service – integration between firms in the supply chain can improve service (and prices) for customers. The first major partnership is between Sony Pictures and Eros International. though poorly received by local critics in India. Bollywood is a $10 billion industry with 3. Sony has marketing expertise but as yet a weak understanding of the local market.9 billion). Xerox partners with Ryder. Reality Check: Bollywood partnerships Bollywood is the Indian film industry. the transportation firm. Canada and Australia. they gained less than 10% of the revenue of Hollywood movies.

and areas like utilities.Strategic relationships and networks: building the infrastructure to deliver the strategy In 2008. India’s entertainment giant Reliance pursued its ‘Hollywood strategy’ by teaming up with Steven Spielberg’s Dreamworks in a $600 million deal to start a new studio. Similarly. Financial Times.11 Established in 1989. Ronald Grover. 34. it does not grow flowers. automotive and computer businesses. August 26 2007. This is already becoming a significant issue in the airline. Network organizations In fact. Korma. this is a ‘virtual’ or ‘hollow’ organization – C&C adds value through a catalogue and computer links. by selling perishable cut flowers from catalogues (and an Internet site). Sources: Tarquin Hall. The C&C network is shown in Figure 9. p. and Federal Express collects the flowers from the grower (branded with the C&C logo and packaging) and delivers them to the customer. C&C passes the order electronically to the selected grower (based on stock availability). 3-7. Second. partnership and alliance strategies has led in many industries to the emergence of a wholly new organizational form: the hollow or network organization. ‘London. For example. While Disney has not been 361 • • . own warehouses. Joe Leahy. January 2 2008. and it operates with only a small core staff. it cuts out three middlemen from the traditional channel for cut flowers (wholesalers. p. but between alliances of firms. operate retail outlets. This case is remarkable in two aspects. In some industries commentators are suggesting that competition in the future will no longer be between individual firms. ‘For Dreamworks. 18. a Dream Deal’. the True Heart of Bollywood’. Reliance aims not just to be an investor but a strategic partner. June 30 2008. Sunday Times. C&C was the first ‘virtual’ flower company (and was acquired by Vermont Teddy Bear in 2004). in the US mobile phone business mobile virtual network operators (MVNO) buy wholesale capacity from established mobile carriers and resell branded mobile services. Action for Hollywood’. distributors and retailers) and gets flowers to the customer that are up to nine days fresher than flowers bought from a conventional retailer. First. not individual organizations. C&C has in effect reinvented the way Americans buy flowers. in the US Calyx and Corolla (C&C) is a good example of a prototype for the network organization. so can quickly reposition to follow changing customer requirements. These industries are all illustrative of a new type of competition – between alliances and consortia. there is more to consider – the spread of collaboration. p. or run a distribution or delivery fleet. BusinessWeek.6 – customers order flowers from C&C’s catalogue pictures or website. which may cause us to re-think some of our assumptions about who can do what. ‘It’s Lights.

Virgin Mobile US operates a profitable and expanding MVNO targeting the youth market.12 In the UK Tesco has developed a no-frills. collaborating with established carrier Sprint. so developers can write one application which will run on all networks complying with OpenSocial standards.4 million customers. Federal Express collects flowers Flower growers able to make this model work and has withdrawn from the market. Federal Express delivers flowers Calyx & Corolla Federal Express Figure 9. e-mail 4. C&C notifies order to Federal Express and the chosen flower grower by computer 3.13 Reality Check: Googlification Alliances and partnerships are becoming characteristic of strategy in the IT sector. Customer orders from catalogue: phone. Yahoo! and others have joined – and pressure is on Facebook to do likewise. OpenSocial – aims to reduce Facebook’s social networking dominance by building an alliance of more than 50 peers and competitors of Facebook. The Google initiative provides common standards for social networks. mail.Market-Led Strategic Change Customers 1. Both were concerned with building platforms for collaboration. pay-as-you-go mobile phone business aimed at the less well-off with 1.6 The Calyx & Corolla hollow networked organization 2. The goal is ‘net neutrality’ so network service providers should not be allowed to deny people access to certain websites or prioritize certain content. Conventional telecom • • 362 . MySpace. Open Handset Alliance – this initiative to redefine the mobile phone business offers software and programming tools for others to use in building a new class of smartphone handsets and information services. by utilizing spare capacity on O2’s network. The end of 2007 saw Google announcing two ambitious strategic initiatives in the span of a week. fax.

to create a new international chain of ‘lifestyle’ hotels under the name Hotel Missoni. November 19 2007. December 10 2007. The collaborative network offers a new way of doing business that matches radical change in the communication industry. has a deal with St Lawrence Homes in the USA to create the prestigious John Deere Signature Community. Financial Times. p. media specialists and so on. Sources: Spencer E. John Deere – the tractor company. 25. social networks and buzz marketing. Partnering in brand alliances provides a route to collaborative innovation: Rezidor – owner of Radisson Hotels. Major agencies are struggling to adopt a ‘brand navigator ’ role. pp. Philips – the Dutch electronics company. then farms the work out to relevant people – interactive agencies. Fortune. p. an Italian fashion house. has partnered with Missoni. but importantly also a John Deere riding lawn tractor to get around the grounds.15 Reality Check: The mania for brand alliances Co-branding is when two previously unrelated companies combine their brands to create a new product or service. ‘Yahoo Backs Google’s Standards Drive’. each home with a John Deere-designed landscape. creative hotshops.Strategic relationships and networks: building the infrastructure to deliver the strategy carriers believe they have the right to do exactly this – Google and its partners disagree with them. Ante. TBWA. direct marketers. 23. Agencies repositioning as brand navigators at the centre of a network of suppliers of specialized expertise include Saatchi & Saatchi. Freedom Fighter’. co-brands its Senseo coffee machine with the Douwe Egbert coffee company. Brent Schlender. Siemens and Porsche Design have collaborated on a range of kettles. Google and collaborators are working to make the mobile phone business work more like the Internet. 88–90. March 26 2008. BBDO and Ogilvy & Mather.14 Progress in this direction of hollow entities delivering value through loose-knit collaborations is driven by the efforts of firms like Procter & Gamble and Johnson & Johnson to create new types of advertising ‘holding companies’ to blend different functions from multiple sources. Chris Nuttall. toaster and coffee machines. BusinessWeek. 363 • • . ‘Is Google Spinning Out of Control’. We saw earlier that in the advertising world many conventional advertising agencies lack the skills to deal with digital communications. The brand navigator devises an overall message. ‘Tim Wu.

Airbus and Boeing decided to collaborate on the project. The 10-year project to develop the A380 was both expensive and complex. 2 5 Effect’. Until 2001. Airbus had sold only 192. The A380 will break even when 370 are sold. The stakes were so high that in spite of deep animosity and rivalry. the A380 was running two years late and billions of euros over budget. the Franco-German aerospace and defence company. and continued *The so-called ‘2 of its parts. collaboration creates dependence. The A380 gives airlines a new choice – previously if they wanted a plane to carry more than 350 passengers it had to be the Boeing 747 (the ‘jumbo jet’).Market-Led Strategic Change Collaborations that crash However. making finance and control of the project difficult. where the new entity is worth more than the sum • • 364 . and we need to think very hard about that vulnerability – how good are we at managing in partnerships. and our capabilities in managing partnerships with other companies. However. March 2008 saw the first commercial flight when Singapore Airlines first A380 landed at Heathrow. Developing networks of collaborating and allied organizations can provide powerful competitive leverage. the search for competitive advantage by developing networks based on strategic alliances and partnerships has also seen some major failures: indeed. The collaboration began and soon ended in acrimony. despairing of companies’ claims that every alliance and acquisition they make represents ‘synergy’. Airbus became a single company under the ownership of EADS. Airbus was a loose amalgamation of national aerospace companies. when the two sides could not even agree on what the plane would look like. Reality Check: The Airbus experience of the joys of collaboration The Airbus A380 is the world’s largest airliner. and where will we be left if the partnership fails? More generally. the potential attraction of collaboration and alliance in implementing our market strategy needs to be evaluated carefully against how well partners will carry the value proposition forward. Nonetheless.* one commentator has coined the term ‘ygrenys’ to describe what they actually get.16 This word is not actually Welsh – it comes from reversing the word ‘synergy’. It describes situations where combining businesses reduces their value instead of increasing it. how vulnerable we will be if the collaboration or alliance does not work out. but by mid-2008. The delays led Federal Express to bail out and order planes from Boeing instead – penalty payments owed to FedEx may reach $100 million.

The project involved expenditure of $12 billion. ‘Airbus’s Big Jumbo Killer Gets to Work’. 3-9. Political pressures constrain production choices and complex arrangements were made to bring components made in the other countries to the Toulouse factory for assembly – wings are made in Wales and tails in Spain. November 14 2006. ‘Big Plane. March 5 2007. but anticipates bitter conflicts as the individual Airbus countries seek to protect their turf.9 billion – 25 aircraft had to be completely rewired. The Airbus operation spans four countries: France. 53–55. Sources: Dominic O’Connell. Financial Times. Fortune. 17. March 23 2008. pp. Big Problems’. For example. 46–48. French and German engineers used different and incompatible computer systems. Spain and Britain – each comes with a government attached and constant political meddling. Source: Getty Images The new arrangement showed much division between the French and German owners. This cross-border clash led to one of the most expensive errors in the history of commercial aviation. Germany. p. Sunday Times. p. leading to an expensive redesign of the plane’s wiring and extra costs of around £3.Strategic relationships and networks: building the infrastructure to deliver the strategy the A380 project alone. 365 • • . pp. Boeing’s screams of ‘illegal subsidy’ to the US government and the European Union are still reverberating. panEuropean entity. ‘House of Conflict: How Rivalries Have Disrupted the Steep Climb of Airbus’. BusinessWeek. Schwartz. but in reality is a mix of four national companies. October 23 2006. Peggy Hollinger and Gerrit Wiesmann. a third to be recouped from aid by four European governments. ‘Wayward Airbus’. The company needs to rationalize and restructure. Work was parcelled out to countries on the basis of national rather than commercial interests. Nelson D. The company tries to project an image as a seamless. Carol Matlack. each clinging to its own traditional operating procedures and harbouring cross-border jealousies.

. The alliance died because the partners were both going after the same market – IBM with OS/2 that Microsoft had produced for it. • • 366 .Market-Led Strategic Change Managing partnerships and collaborations The signs to look for to judge if a partnership is going to work include the following: ● ● ● ● Corporate compatibility – for a partnership to work the cultures and business objectives must mesh. Mutuality – the partnership is stronger if both sides get benefits not otherwise obtained. getting out of the partnership – given the high failure rates of alliances and partnerships. not simply plugging in the old ways. McDonald’s and Coca-Cola share a similar management approach and have an effective and highly integrated partnership. Microsoft won. some recent research suggests that many of our original ideas about how to manage collaborations are ineffective and we have to think about organizations that form alliances ‘co-evolving’ through shifting webs of relationships – importantly. We all believe in marriage. Management style and techniques – similarities in operating styles help. Symmetry – partnerships between ‘equals’ stand the best chance. The IBM/Microsoft collaboration probably never stood a chance given the totally different cultures of Bill Gates’ irreverent and entrepreneurial software company. much more attention is being given to agreeing the way out when the relationship has reached the end of its useful life. which is why so many of us have several of them . Perhaps the most critical issues are vulnerability and capability – how fragile is our strategy to a failure in key collaborations. . and Microsoft with Windows that it had produced for itself. and IBM’s bureaucracy.* Part of our thinking needs to be given to identifying the collaborations and other relationships that underpin going to market with our value proposition. and if there is trust and commitment on both sides. and do we have the capability to manage collaborations where *As they say. strengthening the partnership – where necessary investing time and effort in the joint activities needed to improve the effectiveness of the partnership. monitoring the partnership – carefully evaluating the effectiveness and strength of the relationship.17 In fact. then it is also necessary to consider the costs and time involved in managing these issues: establishing the partnership – identifying.19 However. if any kind of partnership-based strategy is to be pursued. corporate alliances are like a form of marriage.18 We probably also have to get used to the idea that most of the things we measure to plan and control need to be different in an alliance as compared to a single organization. negotiating with and striking a deal with another organization. the issue is learning new ways of managing. and.

For example. American Air) – presumably if we had wanted to fly American Air (highly unlikely). a programme of enhanced maintenance and repair services effectively and unwittingly killed the sales of a system upgrade that sales were launching with a major customer. and the importance of pan-company marketing that integrates all the factors that impact on the customer into a single value proposition. We also need to think about the degree to which collaboration may actually undermine our value proposition. the launch was marked by a squabble between product managers and sales managers – the product managers wanted the computer released quickly. Second. The risk is that we make promises to our customers that will not be kept if the company’s internal values do not match. do not assume that because we have developed a great new market strategy everyone else in the company is going to agree.. The launch was then plagued by lack of cooperation from sales management. many air travellers are beginning to question the honesty of an airline that takes your booking (e.20 Several points are worth adding. First. these traditions..Strategic relationships and networks: building the infrastructure to deliver the strategy they underpin the market strategy? Negative conclusions here may also drive us back to questioning our market choices and the robustness of the value proposition in the real marketplace. and poor product sales. these skills. Why would they – it’s not their strategy. We will not repeat these arguments here. then we would have booked American Air? Co-worker Relationships We have emphasized already the importance of our people in delivering service and value to put our strategy into effect (Chapter 2). these processes. The question is: can we deliver this strategy to the customer. The task at this stage is to look at our value proposition and to question whether our people can and will deliver the promise to the customer. BA) and then puts you on another airline’s plane (e. 367 • • . this culture. The product managers won.g. Frank Cespedes describes the sort of problems faced inside organizations in making strategy happen: ● ● When IBM planned to release its System 9370 mainframe. At a telecoms firm. it’s yours. with these people.’21 Most of us have to live with legacy rather than start from scratch. these structures and boundaries? The question is not (usually) if we started again from scratch could we deliver the strategy? As Cisco’s Chief Globalization Officer responded when asked why all the innovation in networks was coming out of Asia: ‘The reason God was able to create the world in seven days is because there was no installed base.g. but the sales managers wanted to meet quotas of existing products before the launch (when customers would stop buying until the new product was out). we need to be realistic about our capabilities.

495–510). and with new personnel policies that reflect the new priorities in training and career paths.23 The face of the business seen by the customers is about your people. Our conclusions may even challenge the market choices we have made. More of this when we look at internal marketing (see pp. Google-envy was rampant. . but by carefully developing mechanisms for cross-functional cooperation with clear lines of primary and joint authority. explain. it is easy to underestimate people’s capabilities – what they can really do if they are given the chance. the light at the end of the tunnel has been turned off until further notice. problem-solve and bargain – why would we expect the people in the organization to drive the value proposition for us? Yet. He has developed the idea of ‘concurrent marketing’ – the goal is better coordination of product. The CEO appointed a new type of HR person focused on: re-recruiting the people the company did not want to lose. as we saw in Chapter 2. However we do it. sales and service management. However. not your fancy systems and software. The floggings and hangings will continue until morale improves. In 2007 staff morale at Microsoft was low – share value was static. Relationships between the units are plagued by misunderstanding and mistrust because they are using different information systems. Reality Check: Motivation Due to the present economic situation. then we have to work for it. Reality Check: Just getting the geeks to stay would be a start . How to make a ‘Microserf ’ smile? Appoint a Chief Happiness Officer. in most organizations relatively few of our employees and managers are skilled in mind-reading. we need to evaluate our emerging market strategy against the co-worker relationship issue. Third.Market-Led Strategic Change ● At a packaged goods firm. brand and sales units use different measures of retail distribution. If we do not discuss.22 Frank’s point is that if we want a seamless process of going to market. listen. . and undermine our belief in the value proposition – then we need to do more thinking. poor customer service is still the main reason why people switch suppliers – it is even more important than price. Retaining key staff was a challenge – they all wanted to work for Google. but not by vague demands for better ‘teamwork’. and added perks – she • • 368 . providing a more flexible workplace. and the delays to Vista were depressing everyone.

in terms of the promises tied up in our value proposition and brands. entitled ‘Just Say No to Google’. Stacy-Marie Ishmael. Financial Times. Microsoft now has its own wine – Blue Monster. At each stage we have identified new opportunities – to use relationship marketing.Strategic relationships and networks: building the infrastructure to deliver the strategy won undying love by introducing 458 new Starbucks I-cup machines and providing a restaurant-based meal delivery system. After her first two years a memo pops up on Microsoft message boards listing all the ways that Microsoft is superior to Google. A last point is that. the relationship with collaborators of various kinds. But we have also stressed that our conclusions about these relationships and their impact on the market strategy may well drive us back to re-thinking market choices and re-working the value proposition. in reality. to segment the market by relationship type. ‘How to Make a Microserf Smile’. Blue Monster reminds people that Microsoft still has a sense of humour. 57–59. and so on. and with different market segments. ‘Microsoft Drinks to the Blue Monster’. to examine new networking possibilities. the label showing a sharptoothed blue creature and the tagline ‘Microsoft – change the world or go home’. and the impact of external actions by others. But in particular this chapter has asked us to test our market choices and our value proposition very hard against a number of key relationships: ● ● ● ● the relationship with the customer. which go a long way towards defining our real implementation 369 • • . but part of a hidden network of relationships. 14. the relationship with competitors and contingents of different kinds. are actually going to work. pp. September 17 2007. these areas of relationship management are not really separate. September 10 2007. BusinessWeek. and the relationship with co-workers – the people we rely on inside the company to implement and drive the value proposition. to position against competitors. p. and whether we can keep those promises. Sources: Michelle Conlin and Jay Greene. It is authored by a Microsoft engineer who left and came back. and in particular whether the competitive differentiation and strategic position we have built will stand up against the level and type of competition we will face. and the degree to which outsourcing and partnerships and alliances we may have assumed in developing our market strategy. The Network of Key Relationships We have looked at relationship marketing and alliances and partnerships as components of our market strategy.

Certainly. travel agents are hostile Co-workers Climate surveys go down. industrial action takes place and more is threatened Figure 9. American Air alliance stalled. In many ways what is most worrying is how problems in one area feed off problems in another area of the relationship network. alliances. premium passengers switching brands. failure in each area of the relationship matrix fuels problems in the others – alienated employees do not deliver good service to customers. Part of our thinking should be about the network. the company had antagonized a range of competitors into hostile actions. Ayling’s strategy of globalization. alliances and distribution channels were a shambles. no help from government BA Strategy Collaborators USAir alliance crashed. cost-cutting and premium branding (focused on business class and first-class passengers) was in ruins by the end of the 1990s. and so it goes on. higher service image weakened Competitors and contingents Virgin antagonism continues. collaborators and competitors stimulate the regulator’s interest.Market-Led Strategic Change capabilities and the real implementation barriers our strategy faces. and the situation deteriorates fast. and there had already been industrial action with the prospect of more.7 summarizes the network of relationships that undermined Robert Ayling’s strategy at British Airways in the late 1990s. Over and above these individual problems. not just the individual relationships. For example. Figure 9. Customers Customer satisfaction levels falling. ignoring the fact that the company did not have the skills and capabilities required to do this. The ability of BA to manage the key relationships needed to support that strategy had failed to materialize: employees were alienated. new branding is resisted. low-cost operators attacking through courts. hostile competitors impact on employee perceptions of the company. European regulator investigates. BA under Ayling is an excellent example of a company developing a strategy that was wholly dependent on the company’s ability to manage a complex network of relationships. customers were switching brands both to higher service providers and low-cost airlines.7 British Airways relationship network • • 370 .

The 787 is the best-selling new aircraft in Boeing’s history. as well as a quieter and more comfortable ride for passengers. Aircraft manufacturers have always faced tough questions about whether airlines have ordered more planes than they can afford – some buyers will renege or disappear before the planes are made. but it appears they cannot manufacture it to deadline. Airline purchasing is both complex and fluid. in January 2008 Qantas became the first airline to announce it was seeking damages from Boeing for latedelivery of the 787. Airlines can place firm orders for planes or options to buy. is the one surrounding the Boeing 787 – the ‘Dreamliner ’. In March. or demanding large penalty payments. Competitor and contingent relationships: Boeing has a deepseated rivalry with Airbus. Reality Check: The Boeing Dreamliner The Boeing 787 – the Dreamliner – was developed as the Boeing challenge to the Airbus A380 super jet. However. and was effectively sold out until 2014. because of problems in completing the final assembly – it emerged that the first aircraft displayed in July 2007 was actually held together with temporary fasteners. About 50% of the primary structure of the 787 is made of plastic composites. Although Boeing had expected customers to accept ‘modest delays’ in agreed delivery dates. so the risk is adding excess capacity or too many planes in the market if they misjudge the dependability of customers. The Dreamliner is a radical design shift – built out of lightweight carbon-reinforced plastics. Customer relationships: Boeing has close relationships with airline buyers. it became clear there would be substantial delays in delivering the aircraft on time. Boeing had logged 642 orders. but underestimated Airbus’s determination to develop the massive A380 and take leadership in the commercial 371 • • . airlines have no hesitation in resisting supplier ‘rationing’ and switching purchase to another manufacturer.Strategic relationships and networks: building the infrastructure to deliver the strategy Another relationship network that demonstrates the powerful links between different relationship domains. as the 2008 delivery dates loomed. though probably no closer than Airbus’. if faced with delays in deliveries. expected to lead to a large claim for compensation. While Airbus has opted for the giant A380. However. With further delays announced All Nippon Airways issued a blistering statement attacking Boeing. and how strategy can unravel because we fail to manage relationship networks effectively. When the first 787 was displayed in Seattle in July 2007. Virgin Atlantic joined the list of those looking for large compensation for late-delivery. This is Boeing’s main weapon in the battle to dominate the market for mid-sized jets – those that seat between 200 and 400 passengers. it promises a 20% reduction in fuel. Boeing chose the more efficient mid-size jet. potentially seating 800 passengers.

In the event. Lockheed Martin Corp. and there have been major problems with missing and poorly fitted components and delays. he inherited an organization with problems. sourced from a global network of 900 suppliers. Boeing itself is responsible for about 10% of manufacturing (by value) – the tail fin and final assembly. Nonetheless. The selling point of novelty and economy achieved through outsourcing has turned out to be the biggest source of problems for Boeing. Widely publicised corporate misbehaviour was highlighted by the jailing of Boeing’s former chief financial officer for holding illegal job negotiations with a senior Pentagon official. promising further delays. Part of an on-going dispute with Airbus. delays and overspends at Airbus in getting the A380 to market gave Boeing breathing space. bond repayments ‘forgiven’ in Kansas. and struggle with aircraft development and production as a result. and the landing gear in France. Internal controls were weak – for example the links between sales and operations had a long history of orders being won for planes the company could not • • 372 . Part of the strategy is to signal to the markets that Airbus may lose its government loans. the carbon composite fuselage in Italy and the USA.000 pages of documents from his former employer. Moreover. as well as benefiting from Japanese and Italian government aid to local contractors. The Dreamliner is the first plane in Boeing’s history to be designed largely by other companies. in 2005. Boeing has shut Airbus out from this technology for the time being. As the leading US aircraft manufacturer.000 parts. leaving bitter rivalries between management groups. By March 2008. Multiple forms of misconduct in scattered geographical locations suggested the company was plagued by a ‘poisonous’. ‘win-at-all-costs’ culture.Market-Led Strategic Change jet business. with the wings built in Japan. Boeing was struggling with redesign of the attachment of the wings to the plane. The smaller Airbus A350 offers direct competition to the Dreamliner as well. the company had never fully integrated the business after the merger of Boeing with McDonnell Douglas Corp in 1997. the indictment of a manager for allegedly stealing some 25. By commandeering the makers of composite fuselages. Collaborator relationships: A key element of the Dreamliner strategy is the widespread outsourcing of manufacture. managing a supply chain this complex stretched Boeing’s capabilities. The Dreamliner has 367. Boeing has received support from the public authorities – tax breaks from Washington State. and the judicial finding that Boeing had abused attorney-client privilege to help cover up internal studies showing that female employees were paid less than men. The rest is done by 40 partners. Co-worker relationships: When W James McNerney became CEO in 2005. Boeing started formal litigation at the World Trade Organization over government subsidies for Airbus. Boeing is positioned as the ‘systems integrator’ rather than manufacturer – 70% of the components in the Dreamliner are sourced from outside the USA.

What Comes Next? The relationship network analysis completes our review of the strategic pathway. the Dreamliner issues that are most problematic rely on relationship management capabilities more than technology and selling. 373 • • . The most interesting part of a strategic gap analysis is that it uncovers the barriers to making the strategy real. a lot of those barriers reflect the way we organize a business and how we manage the implementation of strategy rather than external factors like competition and technology. July 9 2007. ‘Boeing: What Really Happened’. December 15 2003. March 13 2006. March 24 2008. This chapter also looks at strategic gap analysis as a way of trying to pin down the difference between what we want (our strategic intention and plans) and what we have got (the strategic reality). international competition and is severely affected by economic and currency conditions. The aircraft business is tough and involves high technology. Management was not well set-up to deal with radical new operations and supply chain challenges. ‘A Cleverer Way to Build A Boeing’. Sources: Stanley Holme. Financial Times. BusinessWeek. Our Chapter 10 analyses lead us towards examining the management of structure and process in Chapter 11 (how we run the business) and implementation and internal marketing strategy in Chapter 12 (how we get things to happen). John Gapper. Keith Epstein and Judith Crown. The most interesting part of auditing the strategic pathway is that it gives a good indication of whether we actually have a strategy for the market in question. 11. Stanley Holmes. 35–39. pp. It completes our model of the tests to determine if we have a robust and innovative strategy for a market. One important test of the robustness of a market strategy is to identify the relationships upon which it relies and then to question hard the ability of the company to manage those relationships effectively and successfully. In Chapter 10 we will look at a checklist of the questions to ask in conducting an audit of the strategic pathway. In practice. ‘Cleaning Up Boeing’. the head of the Dreamliner project was removed. 32. The Dreamliner project has been delayed through unsolved technical problems and manufacturing hold-ups. Trades unions are unhappy with the loss of jobs at Boeing resulting from outsourced manufacture. it is beginning to look like the capability to manage complex networks is a core resource in companies. ‘Globalization Bites Boeing’. Nonetheless.Strategic relationships and networks: building the infrastructure to deliver the strategy make. Unfortunately. In October 2007. BusinessWeek. p. and whether it is any good. While relationships and the networks they form are intangible and easy to ignore. BusinessWeek. p. pp. 63–68. it also starts to look like it is a scarce resource.

Karen S. Garder. Doug. 7(3). Cameron. Harvard Business Review. Paul. ‘The Right Way to Manage Unprofitable Customers’. ‘So You Think You Want a Partner?’. 18. Donkin. p. January 2 2008. Steve. Summer 1996. pp. p. 62–71. pp.. Harvard Business Review. ‘Tesco Mobile under Threat’. Charles Forelle. Matthew Sarkees and Feisal Murshed. 1996.35 Billion’. ‘The Small Step from Outsourcing to Out of Control’. Daily Mail. Financial Times. ‘Coevolving: At Last a Way to Make the Synergies Work’. 17. Cravens. February 28 2008. 12. April 2008. 94–102. Charles Galunic. Eisenhardt. 6. 11. 25–41. 13. p. Cravens. August 2 2007. pp. Financial Times. Lambert et al. December 27 2007. pp. Nigel F. Mittal. Sunday Times. Massey. pp. January 17 2008. 15. 17. Vranica. 2005. Wall Street Journal. Harvard Business Review. December 3 2007. Douglas M. pp. Financial Times. Parker. April 2004. ‘EU penalizes Microsoft a Record $1. British Journal of Management. p. 5. p. November 18 2002. ‘Assessing the Performance of Strategic Alliances: Matching • • 374 . ‘Transformed by the Internet’. Wall Street Journal. ‘Hardball: Five Killer Strategies for Trouncing the Competition’. 28. January/February 2000. Dominic O’Connell. Suzanne. 28. Hagel. 4. ‘Mobile Phone Resellers Forced to Take Stock’. 91–101. ‘The £270m Revenge’. ‘What’s a Rival to Do?’. Helm. August 21 2005. ‘EU opens Up Antitrust Probe with Raid on Drug Makers’. ‘So You Think You Want a Partner?’. BusinessWeek. Burt.. George and Rob Lachenauer. Stalk. Boston. 6. Wall Street Journal. Richard. Kathleen M and D. ‘Dog’s Dinner ’. p. 2. pp. 3-5. 16. 10. Financial Times. 7. Emmelhainnz and John T. February 22 2000. 14. Vikas. Charles Forelle and Jeanne Whalen. September 8 2005. Richard. 8. Hamm. 9. 44–50. 19.Market-Led Strategic Change References and End-notes 1. Piercy and David W. Nigel F. 3. Shipp. ‘Network Organizational Forms for Competing in Highly Dynamic Environments: The Network Paradigm’.. Financial Times. 25. Lambert. MA: Harvard Business School Press. David W. Northedge. John and John Seely Brown. ‘American Airlines Urged to Sell Off More Assets’. 93–94. Andrew. September 28 2007. p. Cravens. 1. p. p. Ray. Taylor. 13. Piercy and Shannon H. Margaret A. 4. BusinessWeek. ‘Struggles of a Mad Man’. The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization. ‘Ygrenys: When 2 2 No Longer Equals 4’. Market Management. 203–218. October 3 2007..

23. 375 • • . ‘Cisco’s Display of Strength’. 18(5). Cespedes. European Management Journal. pp. Frank V. Brand Manners – How to Create a Self-Confident Organization to Live the Brand. Kirkland.html. London: Wiley. William and Hamish Pringle.Strategic relationships and networks: building the infrastructure to deliver the strategy 20. 5(1). ‘Bad Customer Service Is Top Reason Consumers Switch Carriers’. 25–37. ‘Beyond Teamwork: How the Wise Can Synchonize’. 21. pp. Rik..com/news/33661. Metrics to Strategies’. 2000. November 12 2007. Fortune. 28–35. pp. Marketing Management. Gordon. 529–541. 22. 2001. www.mobilemedia.

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It offered the revolutionary new concept of compatibility. IBM had reached a plateau. Watson and his son. live markets. IBM was a paragon of power. Costing more than $5 billion to develop. (2) what is likely to happen next. From the days of tabulating machines all the way to the Space Age (when IBM mainframes helped chart the path for man to the moon). Bold gambles characterize IBM’s history.. I think the best questions to be asking are the simplest: (1) what is going on here. pushing IBM to the edge of insolvency. prestige and far-sightedness. Also. International Business Machines (IBM) ruled computing and defined the US multinational. Thomas Jnr. and Watson gambled everything on the first mainframe – the System/360. it was the biggest ever privately financed commercial project of its time. During the Great Depression. under the leadership of founder Thomas J. as before. but with a big pay-off when the US Social Security Act of 1935 required the government to keep records – only IBM could meet the demand for data-processing machines. allowing customers to use the same printers and other peripherals with any 360 machine.P • A • R • T • II End-of-part cases As before. . and (3) what lessons can we acquire from these events that we can take away and apply elsewhere? Case 4: Big Blue Gets Transparent Through much of the 20th century. In the early 1960s. I suggest that the material covered in the preceding part of the book should be reviewed in the context of some stories from real. Watson increased manufacturing capacity for tabulating machines.

Senior executives. Opel unveiled the IBM Personal Computer.Market-Led Strategic Change Around this time. even though IBM was not able to sustain its early success. including Gerstner’s predecessor John Akers. when CEO John M. they manage to escape’. • • 378 . IBM had become a slow-moving maker of computer hardware. the world of information technology appeared to have left IBM behind. but turned it around to once again deliver good returns to shareholders. when it was at the height of its success. had given up on the idea that the group could be saved and were preparing to break it up into a series of ‘Baby Blues’. by the 1990s. At this stage. with a services business that was an afterthought to mainframes and PCs. Indeed. and 1994 when Gerstner’s leadership started to have an effect. The PC became an overnight sensation. late of Harvard Business School. Source: Getty Images Bringing Big Blue back from the brink Lou Gerstner’s turnaround of the giant computer company has become management history. IBM lost 200. 128 chief information officers and 339 different surveys for measuring customer satisfaction. IBM acquired the nickname ‘Big Blue’ because of the colour of its muscular blue mainframe computers (mirrored in the blue suits adopted by IBM executives). McKinseys and American Express. Gerstner. cash was draining fast from the business. the organization was acutely unable to innovate – a contemporary IBM quip was that ‘new products don’t get launched at IBM. the company’s market share was plummeting. The next big leap of faith was in 1981. did not break the business up. When Gerstner arrived at IBM. When he arrived at IBM on April Fool’s Day 1993. he found a company with 266 book-keeping systems.000 jobs and £10 billion between 1986.

It may also have been short-sighted to allow new upstarts. Early signs that Palmisano planned to manage the company differently to Gerstner came at the first IBM board meeting of 2003. Palmisano also put an end to the 92 year old IBM Executive Management Committee – the 12-person inner sanctum that had presided over IBM’s strategy and initiatives. There are also concerns that Gerstner’s focus on making IBM a services business. the freedom to become market leaders in these fields. a revenue growth of 4% a year is not spectacular. given this period was one of very high information technology spending growth throughout the world. Nearly all the growth (and all the new jobs) came from IBM Global Services. Moving on from the trauma of turnaround In 2002 Samuel J. For example. adding 100. net income by 83% and earnings per share by 250%. were thought to have no place in the new fragmented world of technology. Cisco walked away with the multi-billion dollar market for networking equipment. 379 • • . Similarly. Instead. In fact. making everything from microprocessors through to operating systems and finished computers and software. Sales of hardware stagnated and software did not do much better. commentators saw Palmisano as no more than a caretaker of Gerstner’s strategy. blinded him to important competitive shifts. and change strategy in an instant. In fact. the consulting and outsourcing unit. Gerstner’s services-led strategy aimed to turn IBM into the integrator of choice for large corporations. in which IBM lost out. management and strategic direction. At the time industry thinking was that the future belonged to specialist technology companies that could bring new products to market extremely quickly. It is also the case that the mid-1990s were a period of drastic and painful middle management blood-letting at IBM. Admittedly. like BEA in middleware and EMC in storage. when he asked the board to cut his 2003 bonus and set it aside as a pool of money to be shared by about 20 top executives. Palmisano provided far more in changing IBM structure. Gerstner increased IBM’s revenue by 19%. Vertically integrated giants like IBM. based on their performance as a team. Following Gerstner’s dramatic strategic shift at the company. IBM failed to counter Sun Microsystems’ spectacular late-1990s push into the Unix server market.End-of-part cases His central strategy flew in the face of conventional wisdom: IBM would use its size to become an ‘integrator ’ – assembling systems from the mass of components provided by its own product divisions and by its competitors. In the six years up to 2001. covering operations. even though much of the technology was developed in IBM laboratories. Palmisano succeeded Lou Gerstner in the top job at IBM. Palmisano favoured working with three new teams of people. IBM’s very poor performance from the late-1980s onwards seemed to justify this view.000 new employees to the payroll. and the company was slow to challenge Oracle in relational databases (another invention of IBM laboratories).

Certainly. Palmisano planned to have IBM get back to the position where it set the industry agenda. to bring the best ideas to the table. Gerstner’s reforms started the process. and to move more quickly than the old IBM bureaucracy permitted. drawn from throughout the company. Much of the traditional • • 380 . His goal was to build a new strategy to put IBM back at the forefront of technology. but Palmisano’s ‘e-business on demand’ went much further. and new Web-based services will speed up tasks yet more. it would buy computing power from a supplier. many of the heavyweights in technology – from Hewlett–Packard to Microsoft – are pushing research into nextgeneration computing systems that will rival IBM’s. chips and computers.000 managers to lead. If we don’t move fast. as needed. while this was a brave initiative. Palmisano is building a flatter organization with fewer bureaucratic levels.] Gates and [Steven A. and then getting back to the top.] Balmer felt pity on us. The ‘e-business on demand’ strategy had the potential to cut technology user costs by 50%. New offerings already include servers running the free Linux operating system and grid software that pools the power of scores of networked computers into a virtual supercomputer. using its R&D to leap ahead with grid computing and self-healing software. by shifting IBM towards software and services. they will pass us. Palmisano has the goal of freeing IBM from the confines of the $1. ‘e-business on demand’ took a third of IBM’s $5 billion R&D budget. if a company ran out of capacity. instead of building a new data centre. Called ‘e-business on demand’ the initiative aimed to allow IBM to supply computing power as if it were water or electricity. [Microsoft’s William H. based on a small number of servers.2 trillion computer industry. using open standards so all machines can speak to each other. IBM’s general manager for ‘e-business on demand’ notes: ‘in 1996. which is growing at just 6 per cent a year. bring closer together the almost autonomous ‘fiefdoms’ in software.Market-Led Strategic Change strategy and technology. He was counting on the initiative to create the best IBM sales growth since the 1990s. we had the benefit of being considered irrelevant. and allocating $100 million to teach 30. to achieve efficiency in server and software usage. Managing the next transformation Far from simply under-studying Lou Gerstner. In its first year. virtualization (a process in which many machines appear to be one) gets more work out of equipment by farming work out across them.’ The new initiative provided Palmisano with the tool to remake IBM. all networks and data centres would have to be linked to create a giant computing grid allowing access to more information and computing power. Nonetheless. The strategy was to be a unifying force for IBM. not control their staff. few technology companies have succeeded in falling as far as IBM did. though achieving this was dependent on a decade of rolling out new technologies and new ways of doing business: companies would have to simplify into a unified network. Now they are all watching us.

IBM’s traditional information 381 • • . IBM is using its resources to help companies rethink and remake how they run their businesses. Turning services – by definition delivered by people – into repeatable processes is a massive organizational and cultural shift for the business. IBM sells customers business transformation services. After selling the loss-making PC division to China’s Lenovo Group. rather than drowning in it. the lack of a standardized approach had led IBM to miss out on some of the hottest markets. With services performance continuing to disappoint. out of a total of 330. Instead of just selling and servicing technology. Mistakes in implementation will give slower growth and lower profits. without offering overly favourable terms – technology companies have a long history of underestimating the actual costs of running customers’ computing operations. Palmisano’s vision also involves reinventing the services industry by injecting disciplines of product development and delivery. The initial challenge was to make the grand vision – now known as business process transformation services – into a ‘must have’ for corporates. many of whom actually face very similar problems. Challenging both IBM and Accenture are aggressive Indian outsourcers like Wipro and Tata Consultancy Services. Meantime.End-of-part cases world of computing has become a commodity business. it is stronger in business expertise. The number of employees focused on business services rather than pure technology had gone from 3500 in 2002 to more than 50. The era of multibillion dollar outsourcing contracts had come to an end. The risks are considerable. Critics saw underlying weaknesses exposed in IBM’s services strategy: that it did not deliver on the original promise of services. Falling short in delivery could put IBM back to where it was in the 1990s. While Accenture cannot rival IBM’s technology skills. By 2005. more usually found in product markets. Palmisano is looking for an annual revenue stream of $50 billion in business consulting and outsourcing services. the success of Palmisano’s services strategy was far from assured. One potent rival is Accenture – the services company that has interests in business process outsourcing. By 2005. Palmisano has been buying business services companies. such as security. IBM faces strong competition in a new area.000 IBM people. merging services into software to allow services developed for one project to be applied to others subsequently. undermining IBM’s research-driven business model and its position in the corporate technology world. the change at IBM was remarkable. and doing this on a global scale. By packaging low-cost technology augmented with sophisticated software. The move blurs the line between the services and software business models – for example. that its method of delivering services did not bring consistent benefits for customers around the world. IBM aims to ride on top of the commodity wave. a 6000-employee Indian customer-relations company. in spite of early IBM successes in the outsourcing area. and. including Daksh. Sales growth was slow.000. in 2006 IBM began shifting executives from its traditional computing business into senior positions in the services arm in an effort to inject new momentum into the flagging division.

compared to 31% for hardware and 87% for software. Infosys or Tata Consultancy Services. low-wages business models. In 2006 Palmisano unveiled an additional $6 billion investment in India. mainly in Europe. The commoditization threat • • • A major challenge posed by low-cost generic competition like Wipro is commoditization.500 jobs.Market-Led Strategic Change technology businesses remained under substantial pressure from low-cost competitors. he aimed to challenge newcomers like Wipro by taking the low-cost model right back at them. for example). about half (26. were turning to Indian companies like Wipro in Bangalore for tech services solutions. like Louis Vuitton and Target in retail.000 pensioned retirees. increasingly major customers. on the other hand. By now India accounted for the largest number of IBMers outside the USA. hiring 14.000 or so) were already located in India. with 10% of the industry workforce. However.000. had 260. IBM experienced the effects of commoditization in hardware (the much copied IBM PC. more than a quarter of all services personnel and one-sixth of all IBM employment would be in India – making it larger in India than Wipro. this means adding the equivalent of a Wipro every five months. for example. together with a much tighter ‘services supply chain’. New Indian competitors. and Bangalore and New Delhi were home to IBM’s largest research and development • • 382 . Brazil or China.000 were in lower-cost regions). the services business is less profitable than other IBM activities: operating margins in services in 2004 were 25%. but now is looking at commoditization in services as well. Of the services group programmers writing customer code. However. IBM. only services offer the growth on the massive scale that IBM wants. operate low-cost. By late 2007 IBM was recognized as the leader of the Indian tech services industry. Palmisano is committed to growing IBM revenues 5% a year and earnings per share least 10% – for a company IBM’s size. The head of the IBM services operation positions growth in the developing world as part of implementing a ‘global delivery model’ for services. to deal with the India-threat. Strategic geographies • • • First. adding to IBM’s increasing staff rosters in emerging markets – ‘strategic lowcost geographies’ in IBM terminology.000 employees in the USA and other developed countries (the other 60. Learning to compete in new ways In 2004 almost half IBM’s $96 billion revenues came from tech services like outsourcing (after the sale of the PC business to Lenovo). the company eliminated 14.000 people in India in 2005. Following disappointing sales in services in 2004. With India-based employment exceeding 50. Palmisano’s strategic response has two main components. and 164. In fact.

A retail industry group has been given rights to patents for Internet access in stores.000 constituted 15% of the worldwide total IBM employment.4 billion of long-term contracts in India. Europe and Japan. By 2005 this programme had cost IBM $10 million. Top university engineering and business schools are receiving money and expertise to create a new academic discipline called Services Sciences.000 jobs in high-cost markets such as the USA. IBM research labs has 600 programmers spending all their time improving Linux – but they cost less than the $500 million a year it would take IBM to develop and maintain its own operating system.7 billion a year on R&D. IBM has co-developed with Sony and Toshiba a break-through chip called the Cell. His thinking is that spreading these riches around means the entire industry will grow faster. Giveaways to open-source software groups. patents and ideas.End-of-part cases laboratories outside the USA. The secret is that IBM seldom gives away a technology unless is has intellectual property and expertise that will enable it to make money 383 • • . but by sharing discoveries wants to make the industry grow faster. Funds saved are channelled into proprietary software that works on Linux. with value at least $10 million. Palmisano is gambling on a strategy of giving away intellectual property in software. In hardware. The IBM Indian workforce of 53. Management and Engineering. The company has organized a ‘patent commons’ – giving away over 500 software patents in 2005. to be used free by anyone working on an open-source project. opening new opportunities for IBM to sell high-value products and services that meet this new demand. which could eventually transform all IBM computers. In software. By adopting a strategy of ‘openness’. integrating India into global operations has allowed IBM to eliminate 20. The company spends $5. Expansion has been rapid – in the first half of 2007 alone IBM signed up $1. In addition. embracing Linux and other open-source software has given IBM new platforms on which it is building most of its new high-growth applications. A big part of this sharing plan is collaborating with customers and even rivals to invent new technologies. Strategic collaboration initiatives • • • Second. Estimates suggest the IBM giveaways to be worth at least $150 million a year. customer groups. universities and other IT companies have been extensive and diverse: ● ● ● ● ● IBM contributed management software to the Apache Geronimo project – a collaboration of programmers aiming to create an opensource version of the software most businesses use to run their most demanding applications. to make it easier to collate information about customers as they are served. IBM aims to tap into a major new ‘spur to innovation itself ’.

But this approach is too top-heavy at a time when lean Indian tech companies and Chinese manufacturers produce high-quality goods and services at a fraction of the costs of multinationals. and has reduced administrative • • 384 . Accenture is seen by many customers as a better problem solver than IBM. This model groups people around the world into competency centres (collections of people with specific skills). Dell has started to look at the tech services marketplace. and to build a culture of connection and collaboration – within the company as well as outside. The thinking is that in areas like tech services low-cost labour is essential (to equal Indian and Chinese competitors’ costs). For example. IBM’s radical makeover in its 200. with the aim of having low costs in some places but in others having highly skilled employees close to customers. but not sufficient (to supply high levels of specialized skills). IBM now pioneers what it calls ‘globally integrated operations’. For example. IBM is in a highly competitive marketplace with a growing list of rivals. IBM has changed from a company once dominated by lifetime employees selling computer products to a ‘conglomeration of transient suppliers’. where low-end work like computer maintenance could provide major growth. Global integration • • • IBM is also revamping its ‘people supply chain’. For example. IBM has worked to get rid of the command and control structure of the past. Germany and the UK designing a solution to the problem. The new IBM organization The strategic evolution of the IBM business model has been reflected in the way the business is managed and what the organization has become. Nonetheless. manufacturing and services operations. The support for open-source software is a challenge to Microsoft’s proprietary applications software. Although it is only one-third of IBM’s size.000 person services workforce includes: not being a multinational but a globally integrated enterprise – IBM no longer runs a mini-IBM in each country and region.Market-Led Strategic Change if the technology is widely adopted. Rather than each country’s business unit having its own workforce entirely. with the goal of lowering its costs but also providing superior service. In the 20th century IBM was the pioneer of the multinational business model – creating ‘mini-IBMs’ in each country with their own administration. and a team of IBM staff in the USA. resolving a technical problem in the wake of Hurricane Katrina meant using the company’s Blue Pages Plus expertise locator on the corporate intranet. locating the right people. many people are drawn from competency centres. in China IBM is working to convince policy-makers and business leaders that using open-source software makes more sense than buying Microsoft’s. establishing a web page that can be edited by anyone with access to act as a virtual meeting room.

The $16. and customers who buy new software typically spend five times as much on services to install and maintain it. At the start of the 2000s. making it possible to run complex IT systems. assembling A-Teams – when IBM wins a new client. selecting people from around the world with the right skills and costs. However. Tivoli. while milking mature products for profits. build on them and adapt them to new business purposes. Second. it picks a team to suit that client’s needs. Websphere. Middleware is more than half IBM software sales. new software products also benefit services – sales often include huge service contracts. In part fuelled by a rapid sequence of software acquisitions – more than 30 software companies purchased in four years – the plan is to use the acquisitions to tap new software lines. by late 2006 it was apparent that software had become IBM’s fastest-growing business. a rapid escalation in acquisitions of software companies has extended software opportunities for IBM.End-of-part cases employee numbers and reassigned technical specialists. IBM’s software strategy now shows a dramatic contrast to the business models of rivals like Microsoft. or broader and 385 • • . IBM has concentrated on creating a ‘horizontal’ layer of middleware that lies at the centre of IT systems. the software division performance was held back by the slow decline of the operating systems business. While these companies have been rushing to create vertically integrated ‘stacks’ of software. and avoiding commodity businesses – IBM cannot operate as inexpensively as Indian challengers. where most workers never encounter it. The software bounce Notwithstanding Palmisano’s emphasis on making IBM the leading tech services business in the world. measured in trillions of dollars of value. software grew by 5%. IBM has built five middleware brands – Lotus. Interestingly. IBM’s middleware strategy aims to position the company to take advantage of the major shift taking place in the global software market – the growth of ‘service-oriented architecture’. Margins are significantly higher for software compared to services. Two factors explain this. Oracle and SAP. moving beyond outsourcing – performing work for clients where it can be done most competitively. Software now looks to be the driving force behind improving IBM’s performance. require extensive work as companies try to integrate them better. The IBM strategy rests on a single belief – that legacy corporate IT systems. so focuses on taking human labour out of tech services. extending all the way up to applications used by individual workers.8 billion software division – second only to Microsoft in the world software business – was emerging as the most reliable growth engine. While the overall company grew by 1% in 2006. Rational and the DB2 database business – each of which as a standalone business would rank among the world’s 25 biggest software businesses. by the mid-2000s the focus was on middleware – software that acts as a layer between operating systems and applications.

it has the technology that could disrupt the storage industry again. A second challenge for IBM comes from the emerging trend towards ‘software as a service’ – the business of providing applications online as a service to companies. Late-2007 IBM unveiled its biggest ever acquisition. that displaced IBM’s in data centres around the world – IBM’s market share went from 80% to 35% in a five-year period and has not recovered. Although XIV has only 50 engineers and a handful of customers. with the $5 billion cash purchase of software company Cognos – Canada’s largest software company with 4000 employees. Open-source software has been championed by IBM in its support for the Linux operating system.Market-Led Strategic Change more flexible software platforms on which companies can build more adaptable technology. which has underpinned its profitable partnerships with other software producers. IBM bought Moshe Yanai’s XIV Corporation for $300 million. IBM hopes to be the first with a new storage platform that will fuel growth for companies with very large content archives. The deal represents IBM’s response to the rapid consolidation of the business intelligence software market. including its websphere and DB2 database products. like application server software. other broad trends in the software market are more challenging for IBM. which by this stage accounted for 20% of IBM revenues and 40% of gross profits. Owning Cognos should help IBM sell more of its other middleware. when he designed computer storage discs for EMC. low-margin open-source software is moving into other parts of middleware. instead partnering with other software companies. If more advanced parts of middleware are commoditized. IBM’s position could be threatened. The move accelerated IBM’s acquisition-based drive to boost the size of its software business. Business intelligence software draws data from a range of corporate systems to give managers a view across their operations. such as Google and MySpace. Customers buying these services will no longer need to buy IBM hardware systems and IT integration. However. • • 386 . Mr Yanai was responsible for one of IBM’s most stunning defeats in the 1990s. This market shift vindicates IBM’s decision in the late-1990s to move away from the applications business. and opens up new opportunities in data storage. which was triggered by Oracle’s purchase of Hyperion and SAP’s agreement to buy Business Objects. However. IBM itself offers open-source versions of some of its middleware for the low end of the technology market. pioneered by Salesforce. unless it can continue to move up into higher value areas of software. to challenge Microsoft. which would mean reversing the decision to keep IBM out of the applications business. capable of changing with their business needs. XIV’s Nextra technology is more efficient and economical than the current generation of storage.com and taken up by Google. in an attempt to restore its position in the $20 billion a year data storage market. while it builds broader platforms. This could pressure IBM to step up as a full service provider. such as storing and analysing feeds from security cameras. It is seen as a strategically important part of the software market. In 2008.

questions surround the ability of the company to implement that vision effectively. 387 • • . IBM is creating new markets groups for the Americas. Africa and Eastern Europe. BusinessWeek. developers and competitors. ‘How Big Blue Came Back from the Brink’. but are growing at a 20% annual rate. Palmisano’s major emphasis was now on emerging markets. After a period of decline. The company is looking at 50 target countries which are currently small markets. IBM was in the process of reorganizing to tailor its structures to the needs of developing countries. Growth driven by acquisition. where its sales account for 21% of total revenues. revenue has grown only slowly – in 2008 it was up just 15% from when he took over. European and Japanese markets. globally and rapidly enough to meet competitive threats. for the Middle East. moving towards the end of the first decade of the 21st century. sharing R&D with customers. Financial Times. However. there are major concerns about the continuing transformation of IBM. Steve Hamm. ‘Beyond Blue’. the growing emerging markets emphasis provided IBM with some protection against the declining economic situation in the USA.End-of-part cases Evolving strategy at IBM By early 2008 Palmisano’s review of progress at IBM suggested that the repositioning was going broadly to plan. Sources: Simon London. based in Brazil. The dilemmas for IBM IBM exemplifies many of the strategic renewal challenges faced by companies in rapidly changing markets and the types of organizational transformation needed to implement new strategies. rather than organically by in-house or collaborative R&D. and for Asia – breaking them away from the mature US. although earnings have grown 35%. may undermine the coherence of the business and its knowledge generation for superior IBM service offerings. The separation is aimed to protect the investments from being traded off against issues in the mature markets. The commitment to open-source software development and attempts to make open-source the industry standard. may backfire and undermine the strength of the IBM software division. Worrying questions are being asked about whether the transition to becoming a tech services company has stalled in the face of low-cost competition. 12. In 2008. where new ideas are exploited more effectively by others than by the originators. Moving towards a collaborative business model. In Palmisano’s first six years at the company. IBM stock was back above the $103 level of the date when Palmisano took over. While the vision of a new type of globally integrated enterprise focused on new types of service product is compelling. aggressive competition and market change. raises the spectre of another Xerox. p. which is currently the main source of revenue growth for the company. but which will be big in the future. since corporate spending appeared more robust outside America. November 12 2002. Mid-2008.

Richard Waters. the surliest staff. the most unpleasant security shambles. The UK airports group was privatized in 1987. 26. The attention of regulators both at the Civil Aviation Authority and the Competition Commission was focused on the company from 2007 onwards. Richard Waters. including Glasgow and Edinburgh. and the private equity arm of the Government of Singapore Investment Corporation. ‘IBM Earnings Jump 26% on Strong Overseas Sales’. Heathrow has only two runways. In fact. 30. February 28 2008. the Canadian pensions institution. BAA has become one of the most vilified brands and companies in the UK. the dirtiest public areas. BAA styles itself ‘the world’s leading airport company’. Wall Street Journal. 36–42. p. Case 5: Oh. David Kirkpatrick. 5. compared to four in Paris and six in Amsterdam. Bulkeley. January 11–13 2008. July 11 2006. 12. the highest prices for food and drink and the most misdirected luggage of any airport in the developed world. pp. Richard Waters. Gatwick and four other UK airports. William M. excessive charges for airlines using their airports. the fewest lounges. Hopes that the opening of the new Terminal 5 in 2008 would recover some of BAA’s reputation were misplaced. The company has experienced difficulties in retaining managers. 60–67. p. Nonetheless.Market-Led Strategic Change April 18 2005. ‘IBM Repackages Its Brainpower’. and an obsession with manipulating passengers ‘trapped’ in their airports to spend money at BAA’s retail operations and concessions. Bulkeley. William M. September 5 2005. p. In particular. p. in 2007 handled 67 million passengers in facilities designed for 40–45 million. The consortium includes CDP. since the March opening was • • 388 . p. Wall Street Journal. The organization is closely linked to the deplorable standards of service for passengers at British airports. April 17 2008. lack of runway capacity will inevitably continue to constrain further growth and cause delays. but became a subsidiary of an international consortium led by Spain’s Grupo Ferrovial in 2006. ‘IBM Shares Its Secrets’. the worst baggage restrictions. many of the worst aspects of BAA’s performance actually reflect the issue of airport capacity – Heathrow. but also the negative impact of British airport standards on the success of the 2012 Olympics on which many British politicians’ futures rest). IBM Calls in Old Foe’. ‘Big Blue Looks to Be More in the Pink after Changing Tack’. the Tangled Web They Weave at BAA BAA (the British Airports Authority) owns Heathrow. William M. 33. 5. for example. Financial Times. Fortune. Wall Street Journal. February 14 2008. Financial Times. November 13 2007. reflecting growing tensions between BAA and its Spanish owners. Bulkeley. failing miserably in managing airport security emergency measures. ‘IBM’s Palmisano Eyes Developing Markets’. ‘IBM Agrees $5bn Cash Deal for Cognos’. Certainly. Heathrow is the busiest airport in the world and the second most profitable airport. and vocal critics range from the airlines to the government (the latter concerned not simply about anti-competitive practices at BAA. Financial Times. p. pp. ‘To Play Storage Game. Heathrow is world-renowned for having the longe