CRAVENS

PIERCY

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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Market-Driven Strategy

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

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MARKET-DRIVEN
STRATEGY

 Introduction to Strategic
Marketing
 Market-Driven Strategy
 Becoming Market Oriented
 Distinctive Capabilities
 Creating Value for Customers
 Becoming Market Driven
 Challenges of a New Era for
Strategic Marketing
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Introduction:
Doyle (1997) categorized
strategies as
Radical: may help sales growth
and profits but may not through
superior value or product and
no long-term shareholder value
(Marketing department oriented
e.g. high level of advertising)
Rational: can help in short-term
profits but again no long-term
focus. Product and process
innovation but can be imitated
by competitors.
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Robust strategies:
 Steady performance over long-
term
 Strategies that are focused on
long-term customer
relationships
 Long-term investment in
supplier relationship programs
 Process of continuous learning

 Development of effective supply

chains and information
technology
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 Marketing is design and

management of all the business
processes necessary to define,
develop, and deliver value to
customers (Webster, 1997)
i.e. value-defining processes
 studies in customers and market
research
 Understanding company’s own resources
value-developing processes
 Product procurement strategies
 New product development strategies
 Strategic partnership
value-delivering processes
 Customer relationship management
 Advertising, customer support, distribution
and logistics etc.
 MARKET-DRIVEN
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STRATEGY
 All
business strategy
decisions should start
with a clear
understanding of
markets, customers, and
competitors.

 The market and the

customers that form the
market should be the
starting pint in shaping
business strategy.
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Characteristics of a
Market-Driven
Strategy
Becoming
Market-
Orientation

Achieving Determining
Superior Distinctive
Performance Capabilities

Customer
Value/
Capabilities
Match
Why Pursue a Market-
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Driven Strategy?

 Strong supporting logic

 Achievements of companies
displaying market-driven
characteristics are
impressive
 Examples include:
Dell Inc.
Louis Vuitton
Southwest Airlines
Tesco
Tiffany & Co.
Wal-Mart
Zara
BECOMING MARKET
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ORIENTED
 Customer is the focal point
of the organization
 Commitment to continuous
creation of superior
customer value
 Superior skills in
understanding and
satisfying customers
 Requires involvement and
support of the entire
workforce
 Monitor rapidly changing
customer needs and wants
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 Determine the impact of

changes on customer
satisfaction
 Increase the rate of product
innovation
 Pursue strategies to create
competitive advantage
 Characteristics of
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Market Orientation
 Customer Focus
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
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Becoming a Market-
Oriented Organization
Information
Acquisition

Cross-Functional
Analysis of Information

Shared Diagnosis
and Coordinated
Action

Delivery of
Superior Customer
Value
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Market Orientation
 Information Acquisition
 Gather relevant information on
customers, competition, and
markets
 Involve all business functions
 Intuit’s Quicken
 Inter-functional Assessment
 Share information and develop
innovative products with
people from different functions
 Zara
 Shared diagnosis and
action
 Deliver superior customer
value
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DISTINCTIVE
CAPABILITIES

“Capabilities are complex

bundles of skills and
accumulated knowledge,
exercised through
organizational
processes, that enable
firms to coordinate
activities and make use
of their assets.”

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

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Southwest Airline’s Distinctive
Capabilities
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
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Capabilities

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.

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Capabilities

Desirable
Capabilities

Applicable to Superior to
Multiple the
Competition Competition
Situations

Difficult to
Duplicate
Source: George S. Day, Journal of Marketing, October 1994, 49.
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Types of
Capabilities
Outside-In
Processes

Spanning
Processes

Inside-Out
Processes
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Organization’s
Process
EXTERNAL INTERNAL
EMPHASIS EMPHASIS

Outside-In Inside-Out
Processes Processes
Spanning
Processes

 Market  Customer order  Financial

sensing fulfillment management
 Customer  Pricing  Cost control
linking  Technology
 Purchasing
 Channel development
bonding  Customer service
delivery  Integrated
 Technology logistics
monitoring  New
product/service  Manufacturing/
development transformation
processes
 Strategy
development  Human
resources
management
 Environment
health and safety
Source: George S. Day, Journal of Marketing, October 1994, 41.
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Matching Customer
Value and Distinctive
Capabilities

Value
Requirements

Distinctive
Capabilities
 CREATING VALUE
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FOR CUSTOMERS
Customer Value:
 Value for buyers consists of the
benefits less the costs resulting
from the purchase of products.
 Superior value: positive net
benefits

Creating Value:
“Customer value is the
outcome of a process that
begins with a business
strategy anchored in a deep
understanding of customer
needs.”
Source: C. K. Troy, The Conference Board Inc., 1996, 5.
Creating Value for
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Customers

Customer
Value

Benefits Costs
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Value Composition

Product

Services

Benefits
Employees

Image
Value
(gain/loss)
Monetary
costs
Costs
Time (sacrifices)

Psychic
and physic
costs
 Becoming Market
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Driven
Market Sensing
Capabilities

MARKET –
DRIVEN
STRATEGIES

Customer Linking
Capabilities
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BECOMING MARKET
DRIVEN

Market Sensing
Capabilities

MARKET-DRIVEN
STRATEGIES

Customer Linking
Capabilities
 Market Driven
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Initiatives
Market Sensing Capabilities
– Effective processes for
learning about markets
– Sensing:
Collected information
needs to be shared across
functions and interpreted
to determine proper
actions.
Customer Linking Capabilities
– Create and maintain close
customer relationships
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Aligning Structure and

Processes
– Potential change of
organizational design
 Improve existing processes

 Process redesign

– Cross-functional coordination
and involvement
– Primary targets for
reengineering:
 Sales and marketing,
customer relations, order
fulfillment, and distribution
 CHALLENGES OF A
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NEW ERA FOR

STRATEGIC
MARKETING
 Strategic marketing faces
unprecedented challenges and
opportunities:
Turbulent markets
Intense competition
Disruptive innovations
Escalating customer demands
 Ethical Challenges
 Societal and Global Change
 Social Responsiveness of
Organizations
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Escalating
Globalization
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
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Technology Diversity
and Uncertainty
Radical New Product
Opportunities
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).
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Ethical Behavior and

Social
Responsiveness

Increasingly
demanding ethical
challenges

Corporate
responsibility

Responsibilities to
stakeholders