“Predicting the future is the easy part. It’s knowing what to do with it that counts”.
Faith Popcorn, 2001
A fundamental aspect of any competitive marketing strategy should be the anticipation of major environmental or structural change. Today marketers are operating in an environment which is increasingly volatile – and potentially malevolent. Just look at recent ‘megatrends’.
- The explosion in information and communication technologies and their increasing power.
- Market globalisation.
- A shift from manufacturing and the exploitation of natural resources to economies based on knowledge, information, innovation and added value.
- The decoupling of the physical economy from the virtual economy of financial markets.
- Geographic rebalancing and the emergence of a new world order, particularly China.
- The twilight of government. This is clearly evidenced by the current political chaos in the UK.
- Sector convergence
- The growth in new forms of business organisation e.g. social enterprises.
- The shift of the economic centre of gravity from multinational conglomerates to smaller, nimbler, more agile firms.
- The increasing influence of environmentalism.
- The increasing speed, complexity and unpredictability of change.
Such industry or sectoral changes are often referred to as industry or market breakpoints. The consequences of such breakpoints can be extensive and as a result existing strategies become obsolete. Look at how many traditional retailers have failed to adjust to the impact new technology has had on their business.
In developing forecast strategies to take account of breakpoints you must clearly understand the definition of an industry breakpoint.
Strebel (1996) describes a market breakpoint as:
“A new offering to the market that is so superior in terms of customer value and delivered cost that it disrupts the rules of the competitive game: a new business system is needed to deliver it. The new offering typically causes a sharp shift in the industry growth rate whilst the competitive response to the new business system results in a dramatic realignment of market shares.”
Note the use of the word ‘disrupts’. This is the source of the term ‘disruptors’ which is so commonly used to describe new tech start-ups.
Once a breakpoint has occurred, existing market players need to respond, often dramatically, or recognise the significant negative implications on their position and performance in the market.
There are numerous examples of market breakpoints. Consider:
- The impact of the internet on the package holiday market
- The arrival of low-cost carriers on the airline industry
- Kodak’s failure to recognise the implications of digital camera technologies (despite the fact they invented the imaging sensor).
Despite the impact of such breakpoints, you will still find business managers ignoring the impact of such change with the assumption that their industry will carry on as before. However, in today’s commercial environment, no industry is safe from such breakpoints.
Strebel defines two types of breakpoints:
- Divergent Breakpoints: There is a sharp increase in the variety of competitive offerings and consequently more consumer choice.
- Convergent Breakpoints: These develop from changes and improvements in the systems used to deliver offerings which result in lower delivery costs.
Breakpoint are created through:
- Technological breakthroughs
- The economic cycle causing a radical rethink of product or service delivery.
- New sources of supply at reduced cost
- Changes in government policy
- Shifts in consumer values/expectations
- Identification of new business opportunities and the divergence of competitors’ responses and behaviour as a result.
- Shifts in distribution networks and the changing power balance between marketers and retailers.
- New market entrants with different perspectives
- Declining returns forcing a radical rethink in how a business should develop into the future.
Marketing planners need to identify where breakpoints are most likely to occur and in what form they will take.
In your planning you need to be proactive, not just reactive.
No manager should operate within a closed environment. They all need to look beyond the internal environment of their organisation. They shouldn’t just rely on historical financial data. All managers need to take account of potential future trends. But how many managers are provided with incentives or rewards for the redefinition of products, processes or company attitudes?
The competitive cycle tends to fluctuate between convergent and divergent breakpoints. Divergent breakpoints are the creation of variety in the market. Convergent breakpoints are survival of the fittest.
- Divergence of offerings in an attempt to be different
- An emphasis on innovation and creation of variety develops
- Some innovative products succeed, others fail.
- Focus develops on the successful products
- There is a convergence of offerings to match the successful products
- Products become so similar there is little choice in the market.
- There is divergence of offerings in an attempt to be different.
A good example is video tape.
In the 1970s, if you wanted to see a film, you went to the cinema or you waited for the film to appear on television.
Then the video tape industry developed smaller, cheaper tape and the home video market took place. There was an explosion in home video technologies, the most prominent being Betamax and VHS. Betamax failed and VHS became the industry standard. Then along came DVDs. These were technologically superior. For a while VHS and DVD co-existed but it didn’t take long for VHS tapes to disappear from the market. DVD and then Blu-ray became the standard. Today the market for DVDs is under threat due to downloads and streaming services such as Netflix and Amazon Prime.
How you watch movies has gone through several market breakpoints. Cinemas have also reacted with the rise of the IMAX screens, immersive sound systems and special events such as fan preview screenings.
Faced with increasingly rapid change and the ever-faster breakpoint cycle, marketers are faced with a series of issues:
- Balancing short-term and long-term goals
- Increasingly needing to be both market-orientated and customer-driven
- Higher customer expectations
- Creative and strategic segmentation
- Achieving leadership in chosen segments
- How best to add value and differentiate market offers from those of competitors
- Pricing for competitive action
- Increasing the effectiveness of distribution channels
- New technologies
- Shifting market boundaries and globalisation
- Improving marketing and control systems
Hamel and Prahalad (1994) offer three rules on future planning:
- Step off the corporate treadmill. Don’t become preoccupied with day-to-day issues. Focus on the few really important issues which contribute to competitive advantage.
- Compete for industry foresight and learn to forget. Learn how the market is changing and forget some of the traditional roles and patterns of behaviour in the market.
- Develop a new strategic architecture. Concentrate and leverage strategy to make better use of marketing assets.