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    Chapter 4

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    Manish Sadhu

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    © All Rights Reserved
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    of 31
    Chapter 4 Developing Competitive Advantage and Strategic Focus 4.1_ Introduction Situation analysis, as discussed in Chapter 3, can generate a great deal of data and information for marketing planning. But information, in and of itself, provides litle direction to managers in preparing a marketing plan. Ifthe analysis does not structure the information in a meaning- ful way that clarifies both present and anticipated situations, the manager will be unable to see how the pieces fit together. This synthesis of information is critical in developing competitive advantages and the strategie focus of the marketing plan, As illustrated in Beyond the Pages 4.1, this synthesis often comes from enhanced innovation, a stronger focus on customer needs, and tighter integration within the firm. Understanding the connectedness of the external environ- ment is vital to enhanced innovation across a number of industries. How should the marketing manager organize and use the information collected during the situation analysis? One widely used tool is SWOT analysis (strengths and weaknesses, opportunities and threats). A SWOT analysis encompasses both the internal and external environments ofthe firm. Internally, the framework addresses a firms strengths and weaknesses on key dimensions such as financial performance and resources, human resources, production facilities and capacity, market share, ‘customer perceptions, product quality, product availability, and organizational communication. ‘The assessment of the external environment organizes information on the market (customers and competition), economic conditions, legal, demographic and social trends, technology, and government regulations, Many consider SWOT analysis to be one of the most effective tools in the analysis of market- ing data and information, SWOT analysis is a simple, straightforward framework that provides direction and serves as a catalyst for the development of viable marketing plans. It fulfills this role by structuring the assessment of the fit between what a firm can and cannot do (strengths and weaknesses) and the environmental conditions working for and against the firm (opportunities and threats). When performed correctly, a SWOT analysis not only organizes data and informa- tion but also can be especially useful in uncovering competitive advantages that can be leveraged in the firms marketing strategy. These competitive advantages help establish the strategic focus and direction of the firm’s marketing plan, ‘As a planning tool, SWOT analysis has many benefits, as outlined in Exhibit 4.1. In fact, SWOT analysis is so useful and logical that many underestimate its value in planning, However, this simplicity often leads to unfocused and poorly conducted analyses. The most common crit- icisms levelled against SWOT analysis are that (1) it allows firms to create lists without serious consideration ofthe issues, and (2) it often becomes a sterile academic exercise of classifying data 37 Scanned with CamScanner iscovering Market Opportunities Beyond the Pages 4.1 Why Innovative Companies Succeed" Innovative companies transform the world. Innovation has always bbeen important, especially with respect to developing new prod- ucts, but the focus of innovation in most companies has evolved.The twentieth-century model of innovation was about quality control, cost cutting, and operational efficiency. Today, innovation Is more about disruption: reinventing business processes, collaborating and {Integrating within the rm investing in new technology, and creating entirely new markets tomeet untapped customers’needs, The focus ‘on disruption comes from swiftly changing markets, globalization, ‘mass connectivity, and customer expectations that force marketers toffind new and innovative ways of conducting business. ‘An important lesson that many companies have learned Is that, innovation can occur across new advances and also within established product lines. These diferences in innovation style are apparent in Fast Company’ list of the Worlds Most Innovative Companies. This st changes often, asinnovation drives new leaders—yet, mostof the top 20 companies represent relatively new companies, while ony afew ‘demonstrate that established brand names can alsobe innovative (@ Microsoft: [outschoo! Si National Basketball Association “Snap E GEIS Se Asan i ae. Biobot Analytics BB Ne 1 [18 Ben & Jerry's - guar [49 "Sony Interactive Entertainment ns Seegene Several types of innovation are evident in this lst. First off, clear thatthe world has been dealing with a health crisis in the last few years, with a tie at the top of thelist between Moderna and. Pfizer BioNTech. Both firms brought a COVID-19 vaccine to market, with Pfizer's getting to market fist, while Moderna’s vaccine was found in more countries, including Canada. Seegene, a relative- ly obscure Korean medical diagnostics firm, was in the top 20 for offering a PCR test for COVID-19 that was offered in more than 60 countries. Innovation around electric vehicles had seen compa- ‘les like Tesla appear on previous ists but the 2021 list reached for the stars. Coming in at number four was another Elon Musk compa- ‘ny SpaceX. which began to offer legitimate opportunities for space travel tothe non-astronaut market. One thing that all innovative companies have In common is alaser-like focus on customer needs. Innovative companies find ‘new ways of learning from customers in addition to traditional ‘methods. For example, many companies engage in social media listening and closely watch blogs and online communities to learn what customers are thinking. Focusing on customers may ‘not sound innovative, but increasing competition and short- er product cycles are forcing marketers to shift away from the price- and efficiency-driven approaches of the past. To escape from the commodity trap, marketers must find innovation in unfamiliar places. For example, Graphika, a social network analysis firm, took on. the world of fake news'in all ofits forms. Ranking at number 10 right behind Microsoft, the digital frm stands up against misinfor- ‘mation campaigns by providing clear data on the sources of infor- ‘mation and potential motivations behind the posting of material in the wild world of social media. The company often reports on. ‘news stories dispelling myths about COVID-19 vaccines, world- wide elections, and even trying to provide clarity in warzones like Ukraine. Innovation is also good for the bottom line. Though develop- ing innovative products can be costly, increased growth, better collaboration, and a broader product mix help the most innova- tive companies to pull their products out of commodity status: ‘and increase their operating revenue. It is clear that innovation has become a key driver of competitive advantage and success Intoday’s market. Scanned with CamScanner Chapter 4: Developing Competitive Advantage and StrategicFocus 89 1st it Iau cea Our Urey Simplicity ‘SWOT analysis requires no extensive training or technical skill to be used successfully. The ana~ lyst needs only a comprehensive understanding of the nature of the company and the industry in which it competes. That being said, the analyst does have to understand how a SWOT works; otherwise, they may end up creating confusion between intemal and external factors. Decreases Costs Because specialized training and skills are not necessary, the use of SWOT analysis can actually, reduce the costs associated with strategic planning, As firms begin to recognize this benefit of ‘SWOT analysis, many opt to downsize or eliminate their strategic planning departments, Flexibility ‘SWOT analysis can enhance the quality of an organizations strtegic planning even without exten sive marketing information systems. However, when comprehensive systems are present, they can be structured to feed information directly into the SWOT framework. The presence of a compre- hensive information system can make repeated SWOT analyses run more smoothly and efficiently. Integration and Synthesis ‘SWOT analysis gives the analyst the ability to integrate and synthesize diverse information, both (ofa quantitative and a qualitative nature. it organizes information thats widely known, as wel as information that has only recently been acquired or discovered. SWOT analysis can also deal witha vide diversity of information sources Infact, SWOT analysishelps transform information diversity from a weakness of the planning process into one of ts major strengths. Collaboration ‘SWOT analysis fosters collaboration and open information exchange between different functional areas. By learning what their counterparts do, what they know, what they think, and how they fee, the marketing analyst can solve problems, ill voids in the analysis, and eliminate potential disagreements before the finalization ofthe marketing plan. and information. It is important to remember that SWOT analysis, by itself, is not inherently productive or unproductive, Rather, the way that one uses SWOT analysis will determine whether ityields benefits for the firm. 4.2 Modern Relevance of SWOT Analysis Inatime where data analytics, artificial intelligence (AI), and predictive modelling are maturing, some question the relevance of SWOT analysis. However, because of these tools, SWOT is more relevant than ever for businesses as they strategically plan, SWOT represents myriad data inputs and human interpretation of (sometimes misleading) information based on predictive analytics, trends, and past history. However, how marketers conduct a SWOT analysis is what makes the difference. ‘Whether a firm receives the full benefits of SWOT analysis depends on the way the manager ‘uses the framework and information inputs. If done correctly and diligently, SWOT analysis isa viable and relevant mechanism for the development of the marketing plan. If done haphazardly or incorrectly, it can be a great waste of time and other valuable resources—making it irrelevant. ‘Tohelp ensure that the former, and not the latter, takes place, we offer the following directives to make SWOT analysis more productive and useful. The following section and Exhibit 4.2 outline these directives. Scanned with CamScanner Part2: Discovering Market Opportunities SU ee eee Macs: race OU ed Stay Focused ingle, broad analysis ledds to meaningless generalizations, Separate analyses for each product- market combination are recommended. ‘Search Extensively for Competitors ‘Although major brand competitors are the most important, the analyst must not overlook prod- Uct, generic, and total Budget competitors, Potential future competitors must also be considered. Collaborate with Other Functional Areas ‘SWOT analysis promotes the sharing of information and perspective across departments. This cross-pollination of ideas allows for more creative and innovative solutions to marketing problems. This process will also create a more comprehensive assessment ofthe internal environment of an ‘organization that will mpact the view ofthe company through strengths and weaknesses. Examine Issues from the Customers’ Perspective CCustomers'beliefs about the firm, its products, and marketing activities are important consider- ations in SWOT analysis. The views of employees and other key stakeholders must also be consid- ‘ered, as casting a wider net will achieve that comprehensiveness of analysis sought in any SWOT. Look for Causes, Not Characteristics Rather than simply list characteristics ofthe firm's internal and external environments, the analyst must also explore the resources possessed by the firm and/or its competitors that are the true ‘causes forthe firm's strengths, weaknesses, opportunities, and threats. Separate Internal Issues from External Issues Ifan issue would exist even ifthe firm did not exist, the issue should be classified as external. In the ‘SWOT framework, opportunities (and threats) exist independently of the firm and are associated with characteristics or situations present in the economic, customer, competitive, cultural, tech nological, political, or legal environments in which the firm resides. Marketing options, strategies, lor tactics are not a part ofthe SWOT analysis. fanalysts find themselves writing about things that the company should do when completing the Opportunities and Threats, then they have to pull backand look at the external market from a trend analysis perspective. ‘Adopt a Disruptive Mindset We recommend that marketers take a final step of viewing their SWOT analysis from a disruptive perspective, Often, marketers see the world from their vantage point and may not consider how strengths may be weaknesses or weaknesses may be strengths—if only a few things were to change. We cll this a‘disruptive mindset”and suggest marketers regularly consider their situation from this new vantage point. 4.3. Making SWOT Analysis Productive 4.3a Stay Focused Marketing planners often make the mistake of conducting one generic SWOT analysis for the entire organization or business unit, Such an approach produces stale, meaningless generaliza- tions that come from the tops of managers heads or from press release files, Although this type of effort may make managers feel good and provide a quick sense of accomplishment, it does little to add to the creativity and vision of the planning process, Scanned with CamScanner Chapter 4: Developing Competitive Advantage and Strategic Focus 91 ‘When we say SWOT analysis, we realy mean SWOT analyses. In most firms, there should bea series of analyses, each focusing on a specific product/market combination. For example, a single SWOT analysis for the Chevrolet division of General Motors would not be focused enough to >be meaningful. Instead, separate analyses for each product category (cars, electric, performance, ‘SUVs, trucks, commercial) or brand (Impala, Bolt, Corvette, Taboe, Silverado, Colorado) in the division would be more appropriate. Such a focus enables the marketing manager to look at the specific mix of competitors, customers, and external factors that are present in a given market. Chevrolet’ Tahoe, for example, competes in the crowded SUV market where competitors release new models and related crossover vehicles at a staggering pace. Consequently, market plan- ning for the Tahoe should differ substantially from market planning for Chevrolet's Corvette. If needed, separate product/market analyses can be combined to examine the issues relevant forthe entire strategic business unit, and business unit analyses can be combined to create a complete SWOT analysis for the entire organization. The only time a single SWOT analysis would be appropriate is when an organization has only one product/market combination, 4.3b Search Extensively for Competitors Information on competitors and their activities is an important aspect ofa well-focused SWOT analysis, The key is not to overlook any competitor, whether a current rival or one on the horizon. ‘Aswe discussed in Chapter 3, the firm will focus most ofits efforts on brand competition. During the SWOT analysis, however, the firm must watch for any current or potential direct substitutes for its products. Product, generic, and total budget competitors are important as well. Looking forall four types of competition is crucial because many firms and managers never look past brand competitors. Although it is important for the SWOT analysis to be focused, it must not ‘be myopic (narrowly focused). Even industry giants can lose sight oftheir potential competitors. The mattress industry has been disrupted by direct-to-consumer brands such as Endy and Polysleep, catching established mattress stores off guard. These digital brands offer a modern shopping experience with free delivery, 10-year warranties, and risk-free trials. This increased competition has caused more traditional mattress retailers to improve their online presence and has even caused more digi- tally focused companies to move back to the malls. Casper, one of the early mattress-in-a-box frontrunners, started with online sales but is moving into brick and mortar to better compete in the now-crowded mattress market. 4.3c Collaborate with Other Functional Areas ‘One of the major benefits of SWOT analysis is that it generates information and perspective that can be shared across a variety of functional areas in the firm. The SWOT process should be a powerful stimulus for communication outside normal channels. The final outcome ofa properly conducted SWOT analysis should be a fusion of information from many areas, Managers in sales, advertising, production, research and development, finance, customer service, inventory control, quality control, and other areas should learn what other managers see as the firms strengths, weaknesses, opportunities, and threats. Of high importance to marketers is integration cof supply chain and logistics into the SWOT analysis. Where products are sold and how they get to customers is critical in an increasingly online marketplace that expects efficient fulfillment and delivery of orders via in-home, in-store, or drop-point delivery models. Including experts ‘on supply and logistics and other areas in the SWOT analysis allows the marketing manager to address multiple perspectives that affect the marketing plan before creating and implementing it. Including other functions should go beyond the obvious, as firms work to innovate across ll aspects of marketing activities. When combining the SWOT analyses from individual areas, the marketing manager can identify opportunities for joint projects and cross-selling ofthe firm’s products. Ina large firm, the first time a SWOT analysis takes place may be the initial point at Which managers from some areas have ever formally communicated with each other. Scanned with CamScanner 2 Part 2: Discovering Market Opportunities “elo Chisato com Starbucks senior leaders, partners, and barstas work together in the company’s innovation lab to bring ideas to action in 100 days. Such cross-pollination can generate a conducive environment for creativity and innovation. Research has shown that the success of introducing a new product, especially a radically new product, is dependent on the ability of different functional areas to collaborate and integrate their differing perspectives. For example, Starbucks is speeding up its ability to innovate with its product development lab, the Tryer Center. Cross-functional teams made up of senior leaders, partners (store managers), and baristas work together to rapidly create and test new products and processes that will benefit both customers and the company? In late 2021, Starbucks announced even more investment in new product development, including a focus on using the Tryer Center to develop new processes like a new cold brew station in stores that make those products easy to produce? 4.3d Examine Issues from the Customers’ Perspective In the initial stages of SWOT analys important to identify issues exhaustively. However, all issues are not equally important with respect to developing competitive advantages and strategic focus for the marketing plan. As the analysis progresses, the marketing manager should identify the most critical issues by looking at each one through the eyes of the firms customers. To do this, the manager must constantly ask questions such as: + What do customers (and noncustomers) believe about us as a company? + What do customers (and noncustomers) think of our product quality, customer service, price and overall value, convenience, and promotional messages in comparison to our competitors? + Which of our weaknesses translate into a decreased ability to serve customers (and decreased ability to convert noncustomers)? + How do trends in the external environment affect customers (and noncustomers)? + What is the relative importance of these issues, not as we see them, but as customers see them? Scanned with CamScanner Chapter 4: Developing Competitive Advantage and Strategic Focus 93 Marketing planners must also gauge the perceptions of each customer segment thatthe firm attempts to target. For example, younger banking customers, due to their adoption of online banking services such as Wise and PayPal, may have vastly different perceptions ofa banks con- ‘venience than older customers. Each customer segment’ perceptions of external issues, such as the economy or the environment, are also important. It matters litle, for example, that managers think the economic outlook is positive if customers have curbed their spending because they think the economy is weak Examining issues from the customers’ perspective also includes the firm's internal custom- ces: its employees. The fact that management perceives the firm as offering competitive com- pensation and benefits is unimportant. The real issue is what the employees think. Employees are also a valuable source of information on strengths, weaknesses, opportunities, and threats that management may have never considered. Some employees, especially frontline employees, are closer to the customer and can offer a different perspective on what customers think and believe. Other key stakeholders, such as investors, the general public, and government officials, should also be considered. The key is to examine every issue from the most relevant perspec- tive, Exhibit 43 illustrates how taking the customers’ perspective can help managers interpret, the clichés they might develop, and then break them down into meaningful customer-oriented strengths and weaknesses, ‘Taking the customers’ perspective is a cornerstone ofa well-done SWOT analysis. Managers hhave a natural tendency to see issues the way they think they are (eg, “We offer a high-quality product”). SWOT analysis forces managers to change their perceptions of the way customers and other important groups see things (e.g. “The product offers weak value given its price and. Exhibit 4.3 Breaking Down Managerial Clichés into Customer-Oriented Strengths and Weaknesses ‘Weare an established firm? | Stable after-sales service Olé-fashioned Experienced lnflexble Trustworthy Weak innovation “Weare alargesupplie” | Comprehensive productline | Bureaucratic uae: aia Technical expertise Focused only on large Longevity accounts Strong reputation Impersonal z ‘ | Weak customerservice “Wehavea comprehensive | Widevariety and availability | Shallow assortment product line? ‘One-stop supplier Cannot offer hard-to-find Convenient products Customized solutions Limited in-depth product expertise | “Weare the industry | Wide product adoption ‘Vulnerable to technological standard! | High status and image changes Good marketing leverage | Limited view of competion yi Extensive third-party |_Higher prices (weaker value) ‘ fs support Source: Adapted from Nigel Percy Maret-Le Straeye Chang (Oxford, UK: Bttrworth-Heineman, 2002). Scanned with CamScanner } su ruxoicorerngariet Opportunies features as compared against the strongest brand competitor”). The contrast between these two perspectives often leads to the identification of a gap between management's version of reality and customers’ perceptions. As the planning process moves ahead, managers must reduce or climinate this gap and determine whether their views ofthe firm are realistic. 4,3e Look for Causes, Not Characteristics Although taking the customers’ perspective is important, it often provides just enough infor. mation to get into serious trouble. That is, it provides a level of detail that is often descriptive, but not very constructive. The problem lies in listing strengths, weaknesses, opportunities, and threats as simple descriptions or characteristics of the firm's internal and external environments without going deeper to consider the causes for these characteristics. Although the customer’ perspective is quite valuable, customers do not see behind the scenes to understand the reasons fora firms characteristics. More often than not, the causes for each issue in a SWOT analysis can be found in the resources possessed by the firm andior its competitors. From 2 resource-based viewpoint, every organization can be considered as a unique bundle of tangible and intangible resources. Major types of these resources include: + Financial resources—cash, access to financial markets, physical facilities, equipment, raw materials, systems, and configurations Intellectual resources—expertise, discoveries, creativity, and innovation Legal resources—patents, trademarks, and contracts ‘Human resources—employee expertise and skills, and leadership Organizational resources—culture, customs, shared values, vision, routines, working relationships, processes, and systems + Informational resources—customer intelligence, competitive intelligence, and marketing information systems + Insight resources—data sources, Al, and analytics ability + Relational resources—strategic alliances; relations with customers, vendors, and other stakeholders; bargaining power; and switching costs ‘+ Reputational resources—brand names, symbols, image, and reputation‘ ‘The availability or lack ofthese resources are the causes forthe firms strengths and weaknesses in meeting customers’ needs, and determine which external conditions represent opportunities and threats. For example, Walmart’ strength in low-cost distribution and logistics comes from its combined resources in terms of distribution, information, and communication infrastruc- ture, and strong relationships with vendors. These resources not only give Walmart strengths or advantages in serving customers but also create imposing threats for their competitors. 4.3f Separate Internal Issues from External Issues For the results of a SWOT analysis to be truly beneficial, we have seen that the analyst must {g0 beyond simple descriptions of internal and external characteristics to explore the resourc- 6 that are the foundation for these characteristics. It is equally important, however, for the analyst to maintain a separation between internal issues and external issues. Some aspects of ‘SWOT are internal while some are external to the firm, Internal issues are the firm's strengths and weaknesses, while external issues refer to opportunities and threats in the environments ‘outside of the firm. Given the importance of differentiating between these issues, the key test to separateaa strength or weakness (internal) from an opportunity or threat (external) is to asks “Would this issue exist if the firm did not exist?” If the answer is yes, then the issue should be classified as external to the firm, When writing opportunites, itis vital thatthe focus remains on the industry and external environment, and there is no mention of the company of focus in the external analysis, At first glance, the distinction between internal and external issues seems simplistic and immaterial. However, the failure to understand the difference between internal and external Scanned with CamScanner ‘Chapter 4: Developing Competitive Advantag 95 issues is one of the major reasons for a poorly conducted SWOT analysis. This happens because ‘managers tend to get ahead of themselves and list their marketing options or strategies as oppor- tunities. For example,a manager might state thatthe firm has “an opportunity to move into global markets” However, stch a move is strategy or action thatthe firm might take to expand market share, In the SWOT framework, opportunities (and threats) exist independently ofthe firm and ics or situations present in the economic, customer, competitive, cultural, technological, politica, or legal environments in which the firm resides. For example, an ‘opportunity in this case could be “increasing customer demand for Canadian products}’or that a “competitor recently pulled out ofthe foreign market” Once the opportunities (and threats) are known, the manager's options, strategies, or tactics should be based on what the firm intends to do about its opportunities and threats relative to its own strengths and weaknesses. The devel- ‘opment of these strategic options occurs at a later point within the marketing plan framework. 4.3g Adopt a Disruptive Mindset A final consideration in SWOT analysis is to look atthe entire plan from a new perspective. After

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