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

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CHAPTER ONE
New Challenges for Market-
Driven Strategy
 Chapter Outline:
 Market-Driven Strategy
 Corporate, Business and Marketing
Strategy
 Challenges of a New Era for Strategic
Marketing
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MARKET-DRIVEN
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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Why Pursue a Market-Driven

Strategy?
 Strong supporting logic
 ACHIEVEMENTS of companies displaying
market-driven characteristics ARE
IMPRESSIVE
 Examples include:
Google
SAMSUNG
Southwest Airlines
Tesco
Wal-Mart
 1-5

Characteristics of a Market-
Driven Strategy
(1) Becoming Market-
Orientation

(4) Achieving (2) Determining

Superior Distinctive
Performance Capabilities

(3) Customer
Value/
Capabilities
Match
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(1) Becoming market oriented
Activities need to perform
Customer is the focal point of the organization
Commitment to continuous creation of superior
customer value
Superiorskills in understanding and satisfying
customers
Requires involvement and support of the entire
workforce
Monitor rapidly changing customer needs and wants
Continued….
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Becoming market oriented

 Determine the impact of changes on customer
satisfaction
 Increase the rate of product innovation
 Pursue strategies to create competitive advantage
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Characteristics of Market
Orientation
 1. Customer Focus
What are the customer’s value requirements?
 2. Competition Intelligence
Importance of understanding the competition as
well as the customer
 3. Cross-Functional Coordination
Remove the walls between business functions
 4. Performance Consequences
Market orientation leads to superior organizational
performances
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(2) 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

Desirable
Desirable
Capabilities
Capabilities

Applicable to Superior to the

Multiple Competition
Competition
Situations

Difficult to
Duplicate
Source: George S. Day, Journal of Marketing, October 1994, 49.
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Classifying Capabilities (fig. 1.3)

Outside-In
Processes

Inside-Out
Processes

Spanning
Processes
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Classifying Capabilities
EXTERNAL INTERNAL
EMPHASIS EMPHASIS
Outside-In Inside-Out
Processes Processes
Spanning Processes

 Market sensing  Customer order  Financial management

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

and Distinctive Capabilities

Value Requirements

Distinctive
Capabilities
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Creating Value for

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
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BECOMING MARKET
DRIVEN

Initiatives:
1. Market Sensing Capabilities
– Effective processes for learning about markets
– Sensing:
 Collected information needs to be shared

across functions and interpreted to

determine proper actions.
2. Customer Linking Capabilities
– Create and maintain close customer
relationships
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Initiatives:

3. 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

Reengineering is the term used for a radical change processes in

the organization
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Corporate, Business, and

Marketing Strategy
Corporate Strategic
1-20

Planning

1 Define corporate mission

2 Establish SBU’s

3 Assign resources to SBU’s

4 Assess growth opportunities

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Defining the Corporate

Mission
Who is the
customer?

What is our
business? What is of value to
the customer?

What should
our business be?
What will our
business be?
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Mission Statements
Characteristics of good mission statements:

1. Focus on a limited number of goals

2. Stress major policies and values
3. Define major competitive scopes
4. Take a long-term view
5. Short, memorable, meaningful

Corporate Strategic plan continued…

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Vague Mission Statement

To build total brand value by

innovating to deliver customer value
and customer leadership faster,
better, and more completely than our
competition

Corporate Strategic plan continued…

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GOOGLE’S Mission
Statement
To organize the world’s
information and make it
universally accessible and
useful.

Corporate Strategic plan continued…

 Strategic Business Units
1-25

(SBU)
Three Characteristics of an SBU:
Unique competitors

A single business or
collection of related
businesses Leader responsible
for planning and
profitability
Strategic Business Units
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(SBU)
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Defining Strategic
Business Units
Customer
groups

Customer needs Technology

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Strategic Business Units

Company Product Definition Market Definition

Union Pacific We run a railroad. We are a people-and-goods mover.

We make copying
Xerox We help improve office productivity.
equipment.

Hess Corporation We sell gasoline. We supply energy.

Paramount Pictures We make movies. We market entertainment.

Encyclopaedia
We sell encyclopedias We distribute information.
Britannica

We make air conditioners

Carrier We provide climate control in the home.
and furnaces.
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Assigning Resources
GE/McKinsey Matrix
HIGH
Business Position

Boston Consulting Group Matrix

MED
LOW

LOW MED HIGH

Industry Attractiveness
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1 Build 2 Harvest
 Increase market share  Increases short-term
cash flow

3 Hold 4 Divest
 Preserve market share  Sell or liquidate
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Assessing Growth
Opportunities
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Alternative Growth
Opportunities
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Intensive Growth
Product-Market Expansion Grid

Market
New

Diversification
Development
Markets

Current

Market Product
Penetration Development

Current New
Products
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Integrative Growth

Business Wholesaler

Competitor
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Diversification Growth
it y
un
rt
po
Op
ew
N
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Business Unit Strategic

Planning
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SWOT Analysis

Internal
SW
Strength Weakness

O T
External

Opportunity Threat
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Opportunity and Threat

Matrices
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Goal Formulation

Ranked

Consistent Quantified

Realistic
 Strategy Formulation
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Porter’s Generic
Strategies

Strategic Alliances
Types:
 Program Formulation and
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Implementation
If the unit has decided to attain
technological leadership, it must
strengthen its R&D department,
gather technological intelligence,
develop leading-edge products, train
its technical sales force, and
communicate its technological
leadership.

McKinesey & Co: 7’s for

successful business practice.
H.W.
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Feedback and Control

Strong leadership
Self Study 1-44
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CHALLENGES OF A NEW ERA FOR

STRATEGIC MARKETING

 Strategic marketing faces unprecedented

challenges and opportunities:
 Relating to-
Markets
Competition
Innovations
Customer demands
 Ethical Challenges
 Societal and Global Change
 Social Responsiveness of the Organizations
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4 Challenges
1. Escalating Globalization
2. Technology Diversity and
Uncertainty
3. Internet Dynamics
4. Ethical Behavior and
Corporate Social
Responsiveness
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1. Escalating Globalization

Internationalization of business in terms of export/import trade

and the growth of international corporations

Triad economies: North America, Europe, and Japan

Multinational companies from China, Brazil, India, Russia, South Africa
and even from Bangladesh
Market opportunities
Competitive threats
Partnering opportunities
Outsourcing initiatives
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2. Technology Diversity and

Uncertainty
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3. Internet Dynamics

WEB 1.0: simple static websites (static HTML

pages)

WEB 2.0: ability to collaborate and share

information online via social media, blogging and Web-
based communities.

WEB 3.0: a more realistic three-dimensional cyber

world

WEB……..
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4. Ethical Behavior and

Corporate Social
Responsiveness
Corporate citizenship: a company's
responsibilities toward society.
Increasing level of transparency (with
fairness and justice)

Responsibilities to stakeholders

End of Ch. 1