Buying Marketing Technology

We live in a world of increased automation.  Factory production lines which used to employ hundreds are now operated by a handful of individuals.  In my old profession of trading standards I would visit factories operated by less than a dozen people which in times past would be the main employer in a town.  Manufacturing is now a world or robots.

With artificial intelligence developing at an extraordinary pace automation is now occurring in traditional white collar professions; for example, the news feed firms such as Reuters and Associated Press use AI software to write and publish short news stories rather than using a human journalist.

Marketing is no different.  In recent years a plethora of ‘Martech’ has come on the market which looks to automate processes from marketing research to social media content.

For SMEs, the picture is even more complicated as freelance social media management operatives and independent app writers constantly vie for their attention.

So how do you know that the technology or service being offered is good value.  How do you know that you are going to receive an effective automated solution. How do you avoid the panhandler’s, spivs and snake oil salesmen that currently proliferate.

In this month’s Catalyst magazine, a checklist of questions has been published which help managers responsible for the purchase of marketing IT solutions:

  1.  Investment Checklist:
    1. Do you already have the technological capability or necessary data elsewhere in your organisation?  If so, do you need the promoted technology?
    2. How do the end users in your organisation access the technology? Is it in the cloud? Do you need to by a specific brand of computer? Can it be accessed via a tablet or a mobile phone? Are you wholly reliant on a third party to deliver the product?
    3. Is the marketing data used held all in one place, or is it located in silos? How do you ensure that it is held in one place?
    4. What are the integration limitations? How well does the technology sit within your existing marketing processes and procedures? Will it ‘talk’ to your existing technology?
    5. How does the technology ensure compliance with legislative requirements e.g. GDPR?
  2. Vendor Meeting Checklist (i.e. what needs answered by the sales representative offering the Martech):
    1. How does the product meet your organisation’s marketing and business aims and objectives? Does it fit your organisational culture? Does it help achieve your business mission and your corporate vision?
    2. What implementation steps do you need to take to maximise the effectiveness of the Martech?  What issues are likely to occur and does the Martech provider have solutions to those issues?
    3. What do you need to do to manage and maintain the technology? For example, are you reliant on the provider for technical support or can your own staff carry out such maintenance?
    4. What is the product roadmap? Is it regularly updated? Is it still being developed? Do you need to pay for future updates?
    5. How does the product improve your current position? How will it make your marketing processes more efficient? How will it affect your budgeting for marketing?
    6. What system education, services and customer support does the martech provider offer? Are there additional fees for such support?  What are the lead times for such support?
    7. Can the martech provider give examples of existing users/customers?  Do those customers have similar objectives as those of your organisation? Can the representative give examples of the results achieved by existing users, the issues those users experienced and how the solutions to those issues were resolved?
  3. What you shouldn’t ask:
    1. How much does it cost? A better question is how much value the technology delivers to your organisation.
    2. What do your competitors have or do? You are unlikely to get an honest answer to this question.  In any case, do not rely on a ‘Me Too’ attitude, marketing is about doing things differently to your competitors, not imitating them.
    3. Do my competitors do it this way? Don’t limit your options or potential to a narrow field.  Take a broad view of potential opportunities.

The big issue with regard to the use of Martech is expressed in a quote from Sylvia Jensen of the firm Acquia, “(Selecting martech solutions) all comes down to what you want most – convenience or control?”

Sun-Tzu, Napoleon and the Marketing Battleground

One of the most famous comedy images of the 1990’s was Steve Coogan’s egotistical salesman, Gareth Cheeseman, giving himself a motivational speech in the full length mirror of his budget hotel room.  In the speech he famously delivers the line ‘You’re a Tiger’ whilst pretending to have ferocious claws.

This comedic trope play on the idea that business is combative and war like.  Salesmen are warriors constantly in combat and business leaders are generals barking out orders and pushing wooden tanks around giant battle maps.

Like much comedy, this is a use of exaggeration to humorous effect.  It is also funny because deep down in the comedic character of Coogan’s character, there is a grain of truth.  Cheeseman is a monster displaying the worst aspects of a travelling salesman; but it wouldn’t be funny if some of those traits did not exist in real life.

In 1981, Kotler and Singh wrote a book called Marketing War, which used military language to express the competitive nature of business.  Paul Fifield’s book, Marketing Strategy: The Difference Between Marketing and Markets, operates around the life and campaigns of Napoleon Bonaparte.  The book is littered with quotes from Bonaparte on the management of military campaigns and the organisation of his army.  I own and often read Sun-Tzu’s The Art of War and Niccolo Machiavelli’s The Prince.

However, business is competition not war.  Rather than warfare, sport is a better metaphor for marketing.  This is perhaps why Alex Ferguson, the former Manchester United manager, is a visiting Professor at Harvard and why so many retired sportsmen go on to have careers as motivational speakers to the business community.

And of course, companies competing in the same market often collaborate in joint ventures, particularly when they are developing expensive technologies or entering new geographic markets such as China.  For example, a number of automotive manufacturers have jointly developed chassis models and other components to cut costs.  Some ‘twinned vehicles’ are identical apart from the badge on the bonnet.

But military terminology is a useful shorthand for strategy.  That is why many professional marketers use it.

When a market becomes mature, it is often difficult, if not impossible to expand that market further.  For example, Coca Cola is sold in virtually every country in the world.  How do you grow the market for Coke further?  If your goal is to gain market share; to take on market leadership; your only option is to take market share from your competitors.

This doesn’t just affect big firms.  The goal of a niche, or specialist, strategy is to take a market leadership position and to gather as much market share as is needed to gain a leadership position in your speciality.

Market-leading products are often high price brands.  Market leaders have the strength to resist the demands of distributors and retailers e.g. paying for prominent shelf position.  Market leaders can demand trade discounts and discounts for bulk purchases. Market leaders can ‘weaponise’ economies of scale and experience effects to lower unit and peripheral costs.  All this creates opportunities for greater sales volumes and higher profit margins.

So if you are in a mature market, and most companies in mature western economies are, how to you compete to gain market share?

It is worth mentioning before explaining attack strategies, that the press and politicians often make much play on the high economic growth figures in countries like China and India in comparison to the UK and EU.  This is easily explained in that these countries have high capacity for market growth, they are developing economies, whilst here in the West, such opportunities for market expansion have passed.  For example few homes in the UK do not have indoor plumbing, whilst in India many potential consumers of  do not have a plumbed in toilet and the open sewer runs down the middle of the street.

The first option for attacking a competitor to gain market share is a frontal assault; to attack your competitor head on.  If you are a small firm competing against a much bigger market leader, this strategy is fraught with difficulty.  Four factors determine if you will be able to use this strategy:

  1. You need a clear and sustainable competitive advantage.
  2. You need to have proximity in other activities e.g. you need to have better customer service and more efficient supply chains than your target competitor
  3. You must be able to withstand the retaliation activities of your larger competitor e.g. through the use of intellectual property rights or the ability to put new technology in place rapidly. This is one of the reasons Nokia was slow to react to the smartphone. Apple and Samsung have regular intellectual property battles.
  4. You need to have the resources to compete.  For example, you need to give significant resources to your marketing and NPD departments.

The second option is a flanking attack.  You attack the exposed flanks of your competitor.  Ground which may be weak or unguarded.  This may mean attacking geographical regions where your competitor is weak or market segments not seen as priorities by your competitors.  Hopefully, an attack on your competitor’s flank will not attract the same type of defence as a head on attack.  If the competitor is not being challenged in their core market, the may initially ignore your attack and your attacks initial success may result them in losing ground.  The success of Dyson is one such flank attack.  Dyson attacked a customer segment who were more interested in technology and design; A high end, high quality segment.  And Dyson did so at a time when Hoover was in significant financial difficulty in the UK.  A flank attack can then be turned into a bridgehead to gain market share in your competitor’s core market.

Your third option is an encirclement attack.  You attack your competitor on all sides.  You hit them with all aspects of the marketing mix.  You cover every option a consumer in the market would want.  Seiko produce over 2000 varieties of watch.  Whatever type of watch a consumer wants, Seiko will provide.  Firms such as Mini and Brompton Bicycles use technology for mass customisation where the consumer is given a huge number of product options and effectively design their own folding bike or car.  You can vertically integrate supply and distribution chains, removing strategic space from your competitors.  You undercut your competitor’s prices.

The fourth option is a bypass attack.  You circumvent your competitor’s market position.  This is the technological leapfrog of market disruptors.  You can also bypass through diversification.  This is why supermarkets entered the banking industry, why Tesco sell mobile phone contract and have opticians in their stores.

The fifth and final option is a guerrilla attack.  This is an attack through pin pricks not big battles.  It is the strategy of being unpredictable through the use of surprise price cuts, special offers, and spates of heavy advertising.  This may be the only feasible option for SMEs dealing with a larger competitor.  It is difficult to defend against an unpredictable opponent.  But beware; a guerrilla approach may result with head on retaliation by your competitor.

It is also worth remembering that your opponent in the market will have a range of defensive strategies to cope with each of the attack options.  This could involve the creation of fighter brands or horizontal and vertical integration in the market.

 

How Your Products Influence Your Marketing Strategy

The Oxford Dictionary of Marketing describes the following major categories of consumer product:

  1. Convenience Products: Consumers buy these products with little thought or analysis. An example would be ready meals in a supermarket.  Brand loyalty and personal preference play a large part in a consumers buying decision.  These are items consumers buy regularly.
  2. Staple Products:  These are items consumers would describe as the basics, bread, milk potatoes, petrol, flour, etc.
  3. Impulse Products:  Consumers buy these products without any thought or planning.  They are purchased because of their attractiveness or their availability.  To market impulse products, you need to tempt the prospective purchaser.  This is why confectionery is placed next to the till and why prominent positions in supermarkets; aisle-ends and eye-level shelves; are so important to producers of impulse products.
  4. Emergency products: These are purchased for immediate need.  So an airport retailer will sell locks for suitcases and air sickness pills. These are the candles you buy in case of a power cut or the painkillers you buy when you have a headache.
  5. Shopping Products:  These are goods consumers spend time looking for.  The purchasing experience is a part of the enjoyment of the product.  Consumers will spend time comparing and contrasting the various options available.  There are two types of shopping product:
    1. Homogenous Goods:  These are undifferentiated in terms of quality but differentiated in relation to price.  Consumers will spend time making price comparisons before their decision to purchase.
    2. heterogenous Goods: Both price and quality vary.  Consumers will balance price and quality constantly.  When marketing these products it is important that customers are given plenty of options and sufficient information to make a decision.
  6. Speciality Products:  These products are purchased with deep and intensive search. A great deal of detail and knowledge is involved in their purchase.  Detailed comparisons between products are made. Consumers will likely want to trial the product before they purchase.  For example, motor retailers providing test drives.  Purchasing these products is often complex and time-consuming.  the perception of quality by consumers is often a critical determinant for purchase.  You need to match the needs and expectations of  potential purchases.
  7. Grudge Products:  Buyers have little interest in the product but know that at some point they will have to buy it.  Often these are products where there is no choice but to buy.  For example, in the UK it is the law that you buy car insurance.  Other products like life insurance and funerals are grudge products.  Daytime TV, often targeted at the retired, is full of advertisements for grudge products, funeral plans, mobility aids, and over-50’s life cover.

Your product management strategy will depend on whether you are a pioneer in the market or a follower.  It will also depend on the stage the product is in its life cycle.  The order in which products enter the market is important. Pioneer brands often have greater market share than later entrants into the sector. However, the costs of maintaining a pioneer product or brand are often higher than follower products.

Pioneer products have advantages on both the supply and demand sides.  On the supply side, pioneer brands can be the first to obtain raw materials; there are better experience effects, cost advantages and the ability to preempt supply and distribution channels.  On the demand side pioneer brands often have better recognition and familiarity.  Pioneer brands often set consumer perceptions of a product or product category.  They get to set the norms for a product.  They set consumer expectations.  Pioneer products get to market as being first.  They can shift the market by developing new products which cannibalize the first and which deter others from entering the market.  These products are often the source of brand extensions which reduce the available shelf space for competitors (although care is needed to avoid the extensions reducing the share and prominence of the originating product.

There are dangers in being first. Competitors can leapfrog your product through the application of technology. Market norms can be disrupted.  John Logie Baird may have invented television but he died a pauper.  Marconi’s electronic TV system, the more technological solution, was selected over Baird’s problematic physical system.  Pioneer products involve heavy research and development spending and as they set the standard for the sale of a product, there may be inflexibility.

There are four classic Price/Promotion strategies for products.  The choice of these strategies will likely depend on the type of product you have:

  • Rapid Skimming:  Where there is high promotional spend but the price of goods is also high.   This is the strategy for luxury goods which may be shopping goods or speciality goods.  It is the strategy for designer training shoes and high-end mobile phones.
  • Slow Skimming:  This is where there is a high price but low promotional spend.  Often when a high level of promotional activity is seen as conflicting with the product image.  This is a strategy for exclusive products such as Rolls Royce cars.  it is a strategy where word of mouth is seen as being a major element in product sales.  Products using a slow skimming strategy are sometimes vulnerable to new market entrants.
  • Rapid Penetration Strategy:  Where there is a low price but high promotional spend.  This is the strategy for fast-moving consumer goods and convenience products.  The aim is to gain market share rapidly and then to hold onto it.  It is the strategy of low-cost airlines and budget hotels.  It is the strategy of budget supermarkets like Aldi and Lidl.
  • Slow Penetration Strategy:  This is the strategy when prices are low and so is promotional spend.  It is the strategy of supermarket own brand products and discount chains like Poundland and Bargain Books.  It is the strategy of commodity products, staple products and some grudge products. You need a low costs base to allow the low product cost.  Often promotion is little more than the actual effort of selling.

When developing a marketing plan, you need to know what type of product you are selling; what the customer expectations of the product are, and what perceptions you want consumers to draw from your products.  Can your product be sold at a high price which generates high profit margins.

As products move through their life cycle, they often move to a high/high or a low/ low position. The majority of consumer products will be seen as necessities or luxuries.  You also need to keep products relevant as consumers needs and expectations change. If your products demand a slow skimming strategy, you will likely need to create fighter and flank brands to protect market share of your core product from attacks by competitors.

 

Identifying Competitive Advantage

Marketing strategy is about creating a consumer-focused business which has sustainable and relevant competitive advantage.

Davidson (1997) said:

Competitive advantage is achieved when you do something better than your competitors.  If that something is important to customers, or if a number of advantages can be combined, then you have an exploitable competitive advantage.”

So how do you go about identifying the competitive advantages in your business and how do you apply them to your marketing strategy to ensure you create exploitable differences in your business compared to that of your competitors? How do you turn your areas of expertise and excellence into customer-focused advantages?

The answer is a two-part process, understanding the strategic options available and understanding what attributes of your products and services customers believe to be important.  it is perfectly possible to have a strong advantage over your competitors; but if that advantage is not seen as important by your target customers, it may not be sustainable or effective.

Michael Porter of Harvard Business School identified three generic marketing strategies:

  • Cost Leadership
  • Differentiation; and
  • Focused Differentiation (or niche marketing)

Cost leadership was later split into two sub categories, overall cost leadership and focused cost leadership.

These generic strategies underpin all marketing activity.  They are crucial to developing sustainable competitive advantage.

To develop a competitive advantage strategy you need to make two decisions:

  1.  Decide on your generic strategy;
  2. Determine the strategic scope of your business.

Let’s examine each of Porter’s generic strategies and select potential areas for competitive advantage within them.

Cost leadership is about seeking overall cost leadership in your chosen market, or focused segments within that market.  Do not consider this as simply being the cheapest offer in the market.  There are plenty of products priced at their industry average level which use a cost leadership strategy.  Cost leadership is about bearing down on costs to maximise margins.  However, it can be a ‘best value’ strategy not a cheapest price strategy.

Cost leadership strategies are about creating low-cost structures and investing resources in the areas where consumers derive value.  You need to control overheads and develop economies of scale.  You need to minimise costs in subsidiary processes (including marketing!) whilst concentrating assets on primary processes.  It often requires global supply chains and sourcing of materials and labour. Manufacturing is often outsourced to regions with lower labour costs.  Cost leadership means leveraging experience effects and applying new technologies such as artificial intelligence and manufacturing automation.

Companies choosing a cost leadership strategy need to be wary of bigger, better resourced competitors entering their chosen market segments.  Creating and sustaining economies of scale are crucial to this strategy.  Such economies can be hard to achieve without significant market share and difficult to maintain if market share is falling.

It is also difficult to alter fixed costs over the short or medium term.

Cost leadership is a high volume strategy which suits commodity products.

As already stated the basic drivers of a cost leadership strategy are economies of scale, driving efficiencies, leveraging purchasing power and using experience effects in manufacture.  Another crucial aspect of cost leadership is leveraging industry relationships through joint research and development, using common manufacturing platforms and having close ties to suppliers and distributors.  it is a strategy that drives vertical integration and just in time supply chains.  You need efficient infrastructure to drive this strategy so it often requires close links to government and regulators.

Identifying those areas where a cost focus is applied is also crucial.  Take Dyson, by no means the cheapest offer in the vacuum cleaner market, they choose to design in the UK; where customers perceive difference; but manufacture in the Far East, driving down manufacturing and labour costs.

A differentiation strategy requires the development of different product offers for different market segments and customer profiles. For example, most flag carrier airlines, such as British Airways, have differentiated product offers where first class, business and economy passengers receive different levels of service on the same flight.

It is crucial to identify sources of differentiation that are perceived as important by different customer groups.  The source of differentiation is what creates customer-value.  The George Clooney film, Up in the Air, has a scene where the main character discusses the various benefits he receives from the many frequent flier offers he gets.  The level of benefits received is important to his character, it helps express his identity.

A differentiation strategy can be a means to being able to demand a price premium.

To be able to use a differentiation strategy effectively, you need to be able to create reasons for purchase.  You have to be innovative and flexible. Often perception of product or service performance is more important than the actual performance when creating difference.

In creating a differentiation strategy, costs often outweigh the benefits.  Innovations are often rapidly replicated by competitors.  Customer needs may shift over time, making chosen points of differentiation obsolete.

Take the car market.  For many years, performance was prioritised.  Then consumers became concerned about fuel efficiency.  Today, with the rise of hybrid and electric vehicles, customer seek differentiation in terms of environmental standards.  Since the recent emissions test scandal, the sale of diesel vehicles has fallen dramatically.

So what are points for product differentiation:

  • Product Performance:  Quality, durability and capability when compared to competitors’ offers.  You have to give consumers a reason to pick your product over those of competitors.
  • Product Perception:  This is often more important than actual product performance and can develop brand loyalty
  • Customer Experience: An increasingly important element in creating a successful offer and points of difference.
  • Product Augmentation:  Add to consumer value.  Use the product halo to offer better customer service, better after-sales maintenance and more efficient packaging, etc.

Focus or niche marketing means concentrating on a narrow range of activities in selected market segments.  This is the strategy of being a market specialist and often requires detailed customer knowledge.

A narrow focus increases a businesses exposure to downturns and market factors.  It is easy for consumers to shift away from a niche as fashions and interests change.

A niche can be a focus on a particular geographic region tailoring products to local needs.  It can mean serving customer groups seen as being too small for larger competitors.  However, such segments must be viable and offer adequate turnover and margins.  Niche marketing requires an end-user focus and short distribution chains.  For example Hasselblad focus on high-end large and medium format cameras used by professional fashion and art photographers and sell their products predominantly through specialist business-only suppliers.  Niche strategies require specific price points and quality standards.  often the focus is on a single product line

Porter argued that a business should select one of these strategies and that they should not attempt to combine them. He argued that to do so would mean being ‘stuck in the middle’; a marketing death zone.

Take the major airlines when the short-haul discount brands entered the market.  At first they tried to match Easyjet and Ryanair with price offers whilst also maintaining differentiated provisions in business and first class.  This strategy backfired spectacularly.  In recent times, these flag carriers have revamped aircraft and airport lounges, offering more premium priced provision to business and first class customers whilst reducing economy provision, particularly on long-haul flights.

Sources of competitive advantage must be relevant to your current and future market and they must be achievable with your existing resource base.  You must be able to defend them, putting in place barriers to replication e.g. using intellectual property rights.  Often competitive advantage is skills-based.

A useful tool in assessing competitive advantage is the Boston Consulting Group Strategic Advantage Matrix.  This compares the size of a competitive advantage with the number of ways to achieve a competitive advantage.  The result is four market positions:

  1.  Stalemate Industries: Where there are few ways to create competitive advantage and the level of such advantage is small.  This is often the position in commodity markets, and therefore infers a cost focus strategy.
  2. Volume Industries:  Where there are few ways to create competitive advantage but the level of advantage is large.  Such markets are dominated by firms able to leverage economies of scale.
  3. Fragmented Markets:  Where the size of the advantages are small but there are many ways to create competitive advantage.  This type of market suits niche businesses.
  4. Specialist Markets:  Where there are many ways to create competitive advantage and the size of such advantage is large.  These are markets dominated by specialist professionals using innovative technology.

In summary, to develop competitive advantage, you need to;

  1.  Understand your chosen market and the appropriate generic strategy for that market.
  2. Properly apply that generic strategy making the most of your organisation’s resources and expertise.

Beware the Big Bad BCG

When I say beware of the big bad BCG, I am not referring to Roald Dahl’s friendly giant.  I am also not referring to the inoculation every UK teenager gets and which produces a large purple pustule on your arm.  What I mean by the big bad BCG is the Boston Consulting Group’s Growth Share Matrix which is a prominent method of portfolio analysis.

Drucker (1963) identified that portfolio analysis was an important strategic marketing tool.  He declared that it helped firms:

  • Identify tomorrow’s breadwinners
  • Identify today’s breadwinners
  • Identify products capable of making a contribution to turnover
  • Identify yesterday’s breadwinners
  • Identify also-rans; and
  • Identify failures.

Every student studying business at college or university is taught the Boston Consulting group growth share matrix as the predominant method of analysing a company’s product portfolio.  However the matrix must be treated with care and it cannot be used in isolation.  Doing so could lead to some very expensive mistakes.

The BCG matrix plots the rate of market growth for a product or strategic business unit (SBU) against that product/SBU’s market share when compared with the largest competitor in the market. The latter is plotted on a logarithmic scale.

When using the matrix to examine product portfolios, you must consider the future potential of the market.  This can be achieved through using the market growth rate as one of the matrix elements.

What results from the matrix is an expression of a products competitive position.

The 2×2 grid produced in the matrix relies on four assumptions:

  1. Margins and funds generated increase with market share as a result of experience and scale effects.
  2. sales growth depends on cash to finance working capital and increases in capacity.
  3. To increase market share you need to invest cash which supports share-gaining tactics.
  4. Growth slows as  products reach life cycle maturity.  At maturity, additional cash can be generated without loss of market share.  This cash can be used to support new products and those which are in the growth segment of their life cycle.

Each of the four quadrants produced by the matrix has a distinctive name:

  1. Dogs:  These products have low market share and low growth.  They produce low profit levels or even losses.  They take up valuable management time.
  2. Question Marks:  (previously known as Problem Children)  These products have low market share but high growth.  They require cash investment if they are to succeed with an improved market position.  Often these are adolescent products entering the growth stage and there is a strategic choice between supporting them or divesting: picking winners and losers.
  3. Stars: These products have high market share and a high growth rate.  These are often market leading products.  Cash is needed to maintain market position and to defend against competitors.  Often star products are not the most profitable due to the cost of maintaining market position.  However, over time these products can become….
  4. Cash Cows:  These products have high market share but a low growth rate.  These are often established mature products.  These products generate cash which can then be used to support stars and selected question marks.  Often these products produce economies of scale and high profit margins.

Harris et al. (1992) expanded the matrix to add two additional ‘quadrants’:

5.  War Horses:  which have high market share but negative growth

6.  Dodos:  Which have low market share and negative growth.

A further suggested group is products which sit between cash cows and dogs.  These ‘cash dogs’ can be harvested for additional margins.

The BCG matrix suggests four potential product strategies:

  • Build:  Increase market share by investing in a product or SBU
  • Hold:  Defend your current position (useful for cash cows.
  • Harvest:  Increase short-term cash flows (Dogs and rejected question marks).  This is for products with no long-term future where you mortgage the product’s future for short-term gain.
  • Divest:  Get rid of products which are a drain on turnover and make better use of the money invested in them elsewhere.

There are significant pitfalls with the use of the BCG growth-share matrix for portfolio analysis.  It needs care in its interpretation.  It provides a snapshot of the current position.  It often results in products being required to meet unrealistic growth targets.  It also requires that products and SBUs need individual management.

Other typical mistakes in the use of the BCG matrix are:

  • Businesses investing heavily in an attempt to improve the market position of dog products
  • Businesses maintaining too many question mark products which means that resources are spread too thin.
  • Draining cash cows of funds which weakens them prematurely.  Alternatively investing too much in cash cows so funds cannot be used to support question marks and star products.
  • Seeing portfolio analysis as offering more than a contribution to management of products and that a products position produces only one potential strategy e.g. You must only defend a cash cow or that you must divest dog products.

For SMEs, the BCG matrix can be a poor tool to use.  It is unlikely that an SME’s products are going to be market leaders unless they operate is a specific niche market.

Properly used, BCG growth share matrix is a relatively easy to use tool for management and can offer a useful basis for strategic thought.  It can help identify product portfolio priorities.

However, it can be a poor guide for wider strategies as only market growth rate and market share are considered and other market factors are ignored.

It is difficult to calculate market share, particularly that of your competitors.  Smaller firms will nearly always have a smaller level of market share than that of multinationals.  The model driven by the matrix sees cashflow as being dependent on market growth.  This is not necessarily the case.

The BCG growth-share matrix fails to recognise the nature of marketing strategy and the forms of competitive advantage which will lead to success.

If you are going to use the BCG growth-share matrix, it is best to do so in conjunction with other portfolio models such as the GE strategic direction matrix,  The BCG growth-gain matrix and the Shell Directional Policy matrix.

 

Views of Academics on Strategy Development

It is generally accepted that marketing strategies are developed with assessments of the market, managerial expectations and organisational capabilities.

However, strategy and planning remain two of the most misunderstood words in the business lexicon.

Mintzberg described strategy development as having five attributes:

  • Planning – the direction of the organisation
  • Ploys – to deal with and outwit the competition
  • Patterns – a logical stream of actions
  • Position – how the organisation is located in the marketplace
  • Perspectives – Reflections of how the management team view the world.

Peter Drucker summarised these attribute as: What is our business? What should it be?

Mintzberg went on to describe eight types of strategy:

  1.  Planned strategies:  Deliberate and precise intentions
  2. Entrepreneurial strategies:  Emerging from a personal vision (emphasised by businessmen like Elon Musk and SpaceX)
  3. Ideological strategies:  The collective vision of the management team
  4. Process strategies: Which result from an organisation’s leadership taking control of a process
  5. Umbrella strategies: Based on objectives set by the organisation’s leadership.
  6. Disconnected strategies:  Set by organisational sub-units and only loosely connected.
  7. Consensus strategies:  Where members of an organisation converge on strategic patterns
  8. Imposed strategies:  Where the external environment dictates a pattern of actions upon an organisation.

The extent to which strategies are achieved is often determined by the way in which organisational resources are allocated.

The need for an organisation to plan is straightforward:

  1. Plan to co-ordinate activities
  2. Plan to ensure the future is taken into account
  3. Plan to be rational
  4. Plan to control

Richardson and Richardson (1989) found eight critical problems for planning:

  1. How best to manage and identify organisational stakeholders.
  2. How to anticipate the long-term.
  3. How to plan for the foreseeable things that can go wrong.
  4. How to turn product or market dreams into reality.
  5. How to create cost-cutting and contribution-creating opportunities.
  6. How to create a responsive team culture which combines resources to meet changing market conditions and to increase customer satisfaction
  7. How to create a base for innovation
  8. How to make the most of the unexpected; both opportunities and to survive shocks.

Over the decades academics have disagreed on the best approach to take when developing strategies.  Mintzberg describes the following strategic schools:

  1.  The Design School:  Where there is a focus on strengths, weaknesses, opportunities and threats (SWOT analysis).  This leads to clear but simple strategies and there is very much a top down approach to strategy development.
  2. The Planning School:  Where strategy is developed through formal distinct steps which are driven by planners and senior managers.
  3. The Positioning School: driven by academics like Michael Porter and the Boston Consulting Group.  Strategy development is an analytical process based on generic strategies with a focus on hard data.  This approach to strategy uses techniques like game theory and value chains.
  4. The Entrepreneurial School:  Where the focus is on the chief executive or another figurehead e.g. Richard Branson, James Dyson, or Elon Musk.  There can be real issues with this approach when the figurehead is no longer around.  Apple suffered when Steve Jobs left and there were concerns following his death. Similarly the death of Anita Roddick of the Body Shop.
  5. The Cognitive School:  Where the focus is on the mental processes underpinning strategy.  The focus is on cognitive biases and how information is processed e.g. SERVQUAL
  6. The Learning School:  where strategy is developed through a series of small incremental steps e.g. Kaizen.  Strategy and implementation are inter-related.
  7. The Power School:  Strategy development derives from those who hold power.  It results from the politicking of organisational players.  On the micro-organisational level this is the power plays of managers and union officials.  On the macro level it relates to joint ventures and both vertical and horizontal integration.
  8. The Cultural School – where strategy is based on common interest.  Social progress is created through the organisational culture.  This is best exhibited by Japanese management culture in the 1970s and 1980s.
  9. The Environmental School:  Strategy focuses on the demands placed on an organisation by its environment (‘contingency thinking’).  Environment limits strategic options.

Mintzberg argues that each of these schools only views a part of the strategic picture.  They are two-dimensional views of the strategic picture.  He proposes a further strategic school which creates a 3D image; The Contingency School; which combines the best aspects of all the other options.

Whittington (1993) describes four approaches to strategy formulation:

  1.  The Classical Approach:  Which is underpinned by economic theory.  There is a focus on profit maximisation.  This approach requires rigorous intellectual analysis and there is a view that the internal and external environment can be controlled.
  2. The Evolutionary Approach: Where strategy cannot control the environment.  Managers recognise strategic options and keep them open as long as possible.  Long-term strategies are seen as unproductive and you are better off using a series of short-term strategies.  An overall strategy emerges as short-term strategies succeed or fail.
  3. The Procession Approach:  Small steps turn into a strategic pattern.  One strategy builds on those which have come before.
  4. The Systematic Approach:  The focus on the implementation of strategies is crucial and is influenced by the organisational culture.  Strategy needs a social context.  No one strategic approach is suitable for all organisations.

Too many businesses do not consider their approach to strategy.  In SME’s, ‘the way we do things round here’ and the views of the business proprietor often dominate.  Many businesses would be best placed to employ an external expert to help them manage the strategy development process. This individual can identify and debunk organisational biases.

 

Why Market Segmentation is Important to your Business

Philip Kotler and other gurus of marketing science see three factors as central to world-class marketing:

  1. A deep understanding of your market.
  2. Correct market segmentation.
  3. Product development, positioning and branding based on that market segmentation.

Market segmentation is key to all successful marketing and the creation of sustainable competitive advantage and shareholder value.

These three factors, combined with:

  • Effective marketing planning
  • Long-term integrated strategies
  • Efficient supply chain management
  • Market-driven organisational structures
  • Careful recruitment, training and career management
  • Rigorous line management implementation

Leads to a successful, customer-focused business.

The marketing writer Ted Levitt once said, “If you’re not talking segments, you’re not talking marketing”.

Marketing segmentation is important because if you don’t understand how different parts of your market think, everything else you do is flawed.

If you aren’t segmenting your market and are treating it as a homogenous mass, you will only survive if your competitors are as equally ignorant.  Relying on your competitors being incompetent is not a sustainable business strategy.

Markets are not homogenous.  Consumers do not all have the same motivations and needs.  If your data shows a homogenous market, it is probably wrong or poorly analysed.

Segments should be distinct.  Consumers shouldn’t cross over between different segments.

Your chosen segments should be accessible.  There is not point targeting a segment if you cannot get your goods and services to it.  Segments should also be viable.  They should be big enough, stable and worthwhile entering financially.

Professor Malcolm McDonald examined the market for Global Tech and described the following market segments.

  1. Koala Bears – Like to use extended warranties and won’t repair tech themselves; they prefer to call a service engineer.  Often small offices.  28% of the market.
  2. Teddy bears  – Require lots of account management from a single service provider.  Prepared to pay a premium for service and attention. Larger companies. 17% of market.
  3. Polar Bears – Teddy Bears but colder. Will Shop around for cheap service.  Will use third-party engineers rather than those of the tech provider. Expects freebies e.g. training. Carries out ‘serious’ annual reviews of contracts. Requires a supplier who can cover several locations. Larger companies. 29% of the market.
  4. Yogi bears – A ‘wise’ Teddy Bear or Polar Bear.  Will train their staff to carry out their own service needs.  Needs a skilled product specialist via distance communication (probably on the phone 24 hours.  Requires different service levels in different parts of their business.  Can be large or small companies. 11% of the market.
  5. Grizzly Bears – Will bin tech rather than repair it.  Wants tech that is so reliable that when it breaks, it’s already obsolete. Won’t pay for training. Not small companies. 6% of the market
  6. Andropov Big Bears – Their business is totally dependent on your product.  Claims to know more about your product than you do.  You will do as they instruct.  Expect you to ‘jump to it’ when called. Not large or small companies. 9% of the market.

What is important to note about McDonald’s segments is that they are not based on traditional demographics or financial data.  They are based on attitudes and expectations.

It is also important not just to segment by product category.  For example, you may wish to segment by expected distribution channel.

Segmentation is matching your offer to meet consumer needs.  It is not easy.  It is a complex and critical task to appropriately define consumer groups, which can be fickle.