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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
MARKET-D RI VEN ST RATE GY
Market-Driven Strategy Becoming Market Oriented Distinctive Capabilities Creating Value for Customers Becoming Market Driven Challenges of a New Era for Strategic
MAR KE T-D RI VEN STRATEG Y
business strategy decisions should start with a clear understanding of markets, customers, and competitors. market and the customers that form the market should be the starting pint in shaping business strategy.
Cha racteri sti cs of a Mar ket-D ri ven Strategy
Achieving Superior Performance
Determining Distinctive Capabilities
Customer Value/ Capabilities Match
Wh y Purs ue a Market -D ri ven Strateg y?
Strong supporting logic Achievements of companies displaying market-driven characteristics are impressive
Examples include: Dell Inc. Louis Vuitton Southwest Airlines Tesco Tiffany & Co. Wal-Mart Zara
BECOMING MARKET ORI ENTE D Customer is the focal point
of the organization Commitment to continuous creation of superior customer value Superior skills in understanding and satisfying customers Requires involvement and support of the entire workforce Monitor rapidly changing customer needs and wants
Determine the impact of changes on customer satisfaction Increase the rate of product innovation Pursue strategies to create competitive advantage
Characteri sti cs of Market Customer Focus ati on Or ient
What are the customer’s value requirements? Competition Intelligence Importance of understanding the competition as well as the customer Cross-Functional Coordination Remove the walls between business functions Performance Consequences Market orientation leads to superior organizational performances
Becoming a MarketOriented Organization
Cross-Functional Analysis of Information
Shared Diagnosis and Coordinated Action
Delivery of Superior Customer Value
Market Orien tati on Information Acquisition
Gather relevant information on customers, competition, and markets Involve all business functions
Share information and develop
innovative products with people from different functions Zara Shared diagnosis and
action Deliver superior customer value
DIST INCTI VE CA PABI LITI ES
“Capabilities are complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.”
George S. Day, Journal of Marketing, October 1994, p.38.
So uthwe st Airlin e’s Dist in ctive C apabili tie s
Organizational Processes Southwest uses a point-to-point route system rather than the hub-and-spoke design used by many airlines. The airline offers services to 57 cities in 29 states, with an average trip about 500 miles. The carrier’s value proposition consists of low fares and limited services (no meals). Nonetheless, major emphasis throughout the organization is placed on building a loyal customer base. Operating costs are kept low by using only Boeing 737 aircraft, minimizing the time span from landing to departure, and developing strong customer loyalty. The company continues to grow by expanding its point-to-point route network. Skills and Accumulated Knowledge The airline has developed impressive skills in operating its business model at very low cost levels. Accumulated knowledge has guided management in improving the business design over time. Coordination of Activities Coordination of activities across business functions is facilitated by the point-to-point business model. The high aircraft utilization, simplification of functions, and limited passenger services enable the airline to manage the activities very efficiently and to provide on-time point-to-point services offered on a frequent basis. Assets Southwest’s key assets are very low operating costs, loyal customer base, and high employee esprit de corps
Disproportionate (higher) contribution to superior customer value
Compelling Logic of Distinctive Capabilities
Provides value to customers on a more cost-effective basis
Source: George S. Day, Journal of Marketing, October 1994, p. 38.
Applicable to Multiple Competition Situations
Superior to the Competition
Difficult to Duplicate
Source: George S. Day, Journal of Marketing, October 1994, 49.
Types of Capabil iti es
Organi zati on’ s Proces s
EXTERNAL EMPHASIS Outside-In Processes Spanning Processes
Market sensing Customer linking Channel bonding Technology monitoring Customer order fulfillment Pricing Purchasing Customer service delivery New product/service development Strategy development
Source: George S. Day, Journal of Marketing, October 1994, 41.
INTERNAL EMPHASIS Inside-Out Processes
Financial management Cost control Technology development Integrated logistics Manufacturing/ transformation processes Human resources management Environment health and safety
Mat chin g Cust omer Value and D istinct ive Capabilities
CREATI NG V ALUE FOR C US TOME RS
Value for buyers consists of the benefits less the costs resulting from the purchase of products.
Superior value: positive net benefits
“Customer value is the outcome of a process that begins with a business strategy anchored in a deep understanding of customer needs.”
Source: C. K. Troy, The Conference Board Inc., 1996, 5.
Creati ng Val ue for Cust omers
Val ue Composi ti on
Monetar y costs Time
Psychic and physic costs
Be comi ng Market Dr iven
Market Sensing Capabilities
MARKET – DRIVEN STRATEGIES
Customer Linking Capabilities
BECOMING MAR KE T DRI VEN
Market Sensing Capabilities
Customer Linking Capabilities
Market Dr iven Ini tiat ives
Market Sensing Capabilities – Effective processes for learning about markets – Sensing: Collected information needs to be shared across functions and interpreted to determine proper actions. Customer Linking Capabilities – Create and maintain close customer relationships
Aligning Structure and Processes
– Potential change of organizational design Improve existing processes Process redesign – Cross-functional coordination and involvement – Primary targets for reengineering: Sales and marketing, customer relations, order fulfillment, and distribution
Strategic marketing faces unprecedented challenges and opportunities:
Turbulent markets Intense competition Disruptive innovations Escalating customer demands
CHAL LEN GES OF A NE W ERA FOR STRA TEGI C MAR KETI NG
Ethical Challenges Societal and Global Change Social Responsiveness of Organizations
Escal ati ng Gl obal izat ion
It is important to understand the differences (and similarities) between the developed economies and the new world beyond. Market opportunities Competitive threats
Partnering opportunities Outsourcing initiatives The world’s poor
Technol ogy Di vers it y a nd Unce rtai Radical New Productnty
Nanotechnology Private space travel The digital home Self-cleaning windows
Finland was ranked #1 in global competitiveness in 2004 by the World Economic Forum because of strong skills in adapting to new technology, proactive business practices, and nurturing a culture of innovation (www.weforum.org).
Ethic al Beh avio r and Social Responsi veness
Increasingly demanding ethical challenges Corporate responsibility Responsibilities to stakeholders