What is Business About?

What is the aim of your business?

I would hazard a guess that the response to that question will be dominated by the growth of turnover and profits. That the primary goal will be a financial metric.

This is very much the culture in the United Kingdom.  Company boards are dominated by finance executives with backgrounds in banking and accountancy.  When business journalists report on annual reports, when press releases are drafted, the headline is often about profit growth or an explanation as to why losses were incurred.

However, such a reliance on financial statistics can be misleading and it can mask the true health of a business.  Carillion, the failed construction and public procurement firm posted profits year after year.  When the firm collapsed, it was found that those profits were being generated by dodgy accounting practices, using subcontractors as a line of credit and by bullying subcontractors to accept payments far below the actual value of the contract.  Carillion may have been profitable but its strategy of growth by always being the cheapest option backfired spectacularly.  Contracts were drawn up in such a way that even the shortest delay in the completion of the work made contracts unviable.

Marketers view business differently and although we respect the need for financial prudence and the need for income generation, we also look to other metrics to define the health of a business.

Theodore Levitt, the long-time Professor of Marketing at Harvard University, said:

“The purpose of a business is to create and keep a customer”.

To many business leaders, that sentence ends at the word create: little or no attention is paid to the ‘keep a customer’ bit.

It is true that for a business to survive in the long-term it needs a constant stream of new customers but the business shouldn’t focus solely on new customer acquisition. Supporting and serving your existing customer base is as important.

The United Kingdom is a mature market.  That means that for most businesses to gain new customers, the primary strategy is to take those new customers from your competitors. Market share is gained at the expense of your competitors.

Of course there are exemptions to this rule, particularly if you are dealing with new technology but most major market sectors, from automobiles to food, there will be an existing option available and your task is to take business from that option.

In his book, The Loyalty Effect, Frederick Reichfield looked at the results obtained when businesses lost fewer customers each year.

The book attracted a lot of interest amongst business leaders, until many of them discovered how difficult and costly customer retention can be.  Many of these business leaders thought they could achieve the customer retention targets promoted by Levitt by tweaking existing tactics.  They failed to recognise that increasing customer retention was a strategic issue which involved major changes in the way their companies operated.

Many of these businesses thought they could improve customer retention levels by automating their customer relationship management.  They thought the focus was on reducing the cost of customer retention. They were wrong. Costs were reduced, the return on investment improved, but retention levels remained static.

However, businesses which treated customer retention as a strategic, not a tactical issue, and who gave customer retention priority, showed some startling results.

Where businesses set a target to increase customer retention by 5%:

  •  Credit card businesses increased profits by 120%
  •  Credit insurance, the lowest benefitting sector, showed a profit increase of 20%
  •  Other sectors examined showed a profit increase, on average, of 40%

This clearly showed that in a mature, sophisticated market, customer retention is critical to the generation of increased profits possibly more important than new customer acquisition.

As stated in previous blog entries, customers are fickle.  They will only stay loyal to a business as long as a better offer is unavailable (or what they perceive to be a better offer).  Customers will only stay with a business as long as they believe they are getting better value from that business than from its competitors.  They must get their needs and wants satisfied in a way which answers the question; What’s in it for me?”

For example, when FairTrade promoted their offer as: Protecting the Environment; Trader Rights; and Animal Welfare: returns fell.  But when the promoted their brand as: Healthier Food; Quality Food; and Child Friendly: results improved and the brand improved its customer retention.

So what are the steps involved in developing customer retention:

  1. Constantly add customer value. Products and services cannot be static in a dynamic market.  There needs to be new reasons for customers to buy your product over that of your competitors. that is why washing powders and toothpastes are constantly being reformulated.
  2. You need to know what your customer base wants.  Too many businesses assume they know what customers want and do not ask them.
  3. Satisfy customer needs and wants.  Give customers what they actually need and want not what you think they need or want.
  4. Make sure that customer get more of what they need and want from your businees than from your competitor’s offer.
  5. Make sure customers Know that they will get more of what they need and want from your business than from those of your competitors.

And beware customer value migration.  Consumer needs and wants will drift over time.  Things that were highly valued five years ago, and seen as factors which differentiated your product from that of your competitors, may now be seen as generic and of lower worth.

Is Marketing Planning a Strategic or Tactical Process?

Last week in this blog I complained that too many small and medium-sized enterprises see marketing solely as a tactical exercise. I regularly see small businesses advertising for marketing staff and predominantly the job description focuses on day to day activities such as writing social media content, designing print adverts or entering product content onto websites. These activities are no doubt related to marketing; BUT THEY ARE NOT MARKETING.

That last statement may seem counter-intuitive but bear with me.

Advertising is an activity closely linked to marketing.  It is the process which will likely follow the determination of a marketing mix. You can also say the same of sales force management, copywriting and web design.  Those are all activities which derive from the creation of a marketing mix. Marketing isn’t the derivative activities needed after the creation of a marketing mix; it is the analysis of the market, and of an organisation within that market, and the development of a plan which allows that organisation to make best use of profitable gaps in that market.

Marketing is the process of taking the aims, goals and mission of an organisation and putting a consumer focus upon them.  Marketing is the process of giving an organisation a clear and differentiated identity in the minds of consumers.

Business Planning should be structured and systematic process.  It has three main components:

  1.  Objectives: which have to be achieved,
  2.  Actions: which define how objectives are to be achieved
  3.  Resources: what is required to implement those actions

Corporate planning involves creating objectives for all parts of a business.  It is the overall coordination of an organisation’s functionality. Different functions contribute to common organisation wide goals e.g. turnover, profit generation and dividend value. A corporate plan will integrate functional objectives e.g. productivity levels, creation of market share, sales volumes, cash flow, efficiency, quality assurance.

So a corporate plan which aims to improve customer retention will likely lead to a marketing plan focused on key account management and customer service; a human resources plan aimed at attracting high quality staff and an operations plan focused on quality control and assurance.

A strategic corporate plan will be integrative; coordinating functional activity towards common goals.  It will take a whole organisation view and provide collective targets for functional groups.  It’s aim should be to provide focus by defining the overall scope of a business e.g. the markets served, the nature of its activities, so appropriate functional strategies and tactics can be developed.

Corporate plans should be concerned with making major business decisions over the long-term and set required resource profiles.  A corporate plan should match the organisation to the current and future business environment.

I suspect the senior management of many small businesses get the fact that corporate plans are long-term strategy documents. What they then do is assume that anything below the corporate plan level is a short-term tactical planning process.  So marketing is a campaign to campaign process where ad hoc activities are collated in the short-term. So a corporate plan is for five years, but a marketing plan is annual, or seasonal.

Many businesses will also see a marketing plan as being at the same level as other functional plans. I do not see marketing planning in this way.

Marketing is about having a consumer focus to your business.  That focus should be represented in your marketing mix. We know the seven Ps of that mix; Product, Price, Promotion, Place, People, Physical Evidence, Process.

So a marketing plan will directly influence other ‘functional’ plans.  So the process element of the mix will directly affect your operations planning; the price element of the mix will affect your financial planning; the place element of the mix affects your distribution and logistical plans; the people element will affect your human resources planning; The physical evidence element will affect your location and facilities planning; and so on.

So marketing planning is not a traditional functional plan. It sits between your corporate plan and your functional planning because your marketing plan reflects your corporate plan and influences your functional plans.

In truth marketing is both a long-term strategic process and a short-term tactical process. Your marketing plans should have both long-term goals and targets and short-term activities which deliver those long-term goals.

A marketing plan should have a broad focus that defines the market and your organisation’s place in that market.  Bear in mind that the information and problem-solving at this level may appear unstructured, external to the organisation and speculative.

So marketing can impinge on long-term strategic processes such as new product development.  This is strategic marketing planning.

Marketing planning can also be short-term.  These are the day to day activities involved in keeping your organisation on track with its strategic goals.

For example, your strategic plan may require your business to be the market leader (in terms of market share) within five years. However, the market is not static. it changes constantly. New competitors enter the market; others leave; consumers are fickle and change their preferences. So to achieve your long-term strategy, you need to constantly tweak the tactics used to achieve your goal of gaining market share.

So tactical marketing is the process of adapting your plan to the changing market.  This often involves addressing structural processes which are internal to your organisation and which may be repetitive.

Too many SMEs view marketing as only a short-term, tactical, exercise.  They ignore its strategic intent. Marketing is both a long-term corporate process AND a short-term functional process.

Marketing planning is key to adapting to environmental change, allocating resources, consistency in business practice, integration of activities via the marketing mix, motivating and communication with stakeholders and developing control over your organisation.  Marketing is not simply the process of producing some adverts or putting up social media content.

 

Positioning Services

In the Brexit debate, much attention has been paid to UK having some form of custom’s union with the European Union.  Conservative politicians who support Brexit, fear such a union will remove the UK’s ability to make trade deals with other nations.  Jeremy Corbyn speaks of a unique ‘custom’s union for goods’; different from the existing EU custom’s union which includes Turkey but which does not include Norway and the other EFTA nations.

What these statements from UK politicians shows is that very few of them understand the details of international trade.  They talk of WTO rules as if they are some sort of magic bullet; not the least worst option in trade; the fall-back position; the last resort of world trade; trading terms so ‘favourable’ not a single nation in the world uses them.

Corbyn’s comment about a ‘custom’s union for goods’ is a clear indication that our politicians don’t know what they are talking about.  Custom’s unions are almost universally focused on goods.  They do not deal in services.  Service markets face different restrictions such as compliance with professional standards and government legislation.  The EU, in recent years has worked hard in recent years to remove such barriers from its single market.  The EU Services Directive, is one piece of legislation that looked to ensure that service providers could operate across the bloc.  This included attempts to provide a level playing field in terms of professional qualifications and standards.  The Consumer Credit Directive, which was largely based on the UK Consumer Credit Act 1974, looks to create a single legislative framework for the sale of unsecured loans across the whole of the EU.

In debating a ‘custom’s union for goods’, UK politicians appear to ignore the fact that since the 1980s Britain has developed as a services-based economy.  Politicians seem focused on manufacturing; they are ignoring the needs and necessary environment for service providers: Which are now the majority part of the UK economy.

Marketing services is different from marketing goods.

Services have immediacy.  They are time dependent.  Once an aircraft has taken off, you can’t put any more passengers on it.  You can’t put any more diners in a restaurant once the sitting has finished. Once a play has started, you can’t put any more patrons in the audience.  This leads to a need to balance supply and demand.  Airlines and holiday firms do this by operating fluid pricing strategies.

Increasingly services are dependent on technology.  They are often delivered remotely and by distance communication tools such as the telephone and the internet.

Increasingly, customers are involved in the delivery of services.  For example, the business who works closely with the developer to design a website.

Increasingly, customers want a customised service to meet their individual needs.  Again, a business may want a bespoke database and will employ a service provider to build it.

Positioning is about creating a distinctive place in the market for both your company and the services you provide.

This requires two decisions to be made:

  1. The choice of a target market: Where you want to compete.
  2. The creation of differential advantage:  How you want to compete.

So in positioning services, you need to be aware of the particular needs of your target customer.  These needs will determine the target segment of the market.  You then will need to create a services marketing mix which creates differential advantage based on those customer needs.

For services, the extended marketing mix was created.  This extends the 4P mix developed by Philip Kotler (Product, Promotion, Price, Place) and adds three additional ‘P’s; People, Process and Physical Evidence.

Target marketing is based on market segmentation and using positioning tools based on the needs of defined customer groups and their price sensitivity.

Using targeting tools and designing your mix for defined customer segments does not preclude sales to customers outside those groups but by targeting your marketing activity, you make best use of scarce resources such as financial budgets.  targeting marketing is targeting resources on your core customers.  Sales to those outside that core are a bonus.

As stated above, there are three additional elements to the services marketing mix:

  1. People:  People are critical to the provision of services.  Often the creation of a service and its delivery are simultaneous.  People occupy a key position in a customers perception of service quality.  Bad staff often equates to bad service so it is critical to get the right people. Training, monitoring and the REWARDING of staff is critical to good service quality.  People aren’t machines so body language, tone of voice and attitude matter. Airlines spend significant time and money training cabin crew to ensure these attributes send the right message.  If people enjoy their work, this often comes across in their body language.  Systems such as SERVQUAL aim to eliminate harmful interactions by reducing opportunities for cognitive dissonance.
  2. Physical Evidence:  This is the environment in which a service is delivered.  It is tangible evidence of service quality.  When you travel on an airline is your drink served in a plastic tumbler or a glass?  When Gordon Ramsay does a ‘Restaurant nightmare’, a big element of his revamp is to change the restaurant décor. physical evidence can be changing the ergonomics of a service e.g. the layout of equipment in a gym.  There was an outcry when Ryanair proposed ‘standing room only’ on its aircraft (although that was a likely attempt at PR spin).
  3. Process:  is the mechanisms, procedures and flow of activities by which a service is delivered.  Process changes such as the elimination of queuing can radically affect service delivery to target consumers and therefore differential advantage.  So theme parks sell priority tickets which allow patrons to dodge queues.  Airlines offer first class and business lounges. Cruise firms will pick up customers from their homes.  Others such as Amazon Prime offer reduced delivery times.

In Big Ideas in Services Marketing (Berry, 1987), seven guidelines for services marketing were declared:

  1. Marketing happens at all levels of an organisation.
  2. there must be flexibility in service provision (the ability to customise services).
  3. You need to recruit high quality staff.  You need to treat them well and communicate withthem clearly.
  4. You need to increase the usage of services by marketing to existing customers; customer retention is key.  to keep customers you will likely need to offer service extensions.
  5. You need a quick response facilities for customer service and complaint resolution.
  6. You need to engage with new technology to deliver better service at lower cost.
  7.  You need to differentiate your service through branding.  Branding works the minds of target customers.

 

 

Declaring Your Mission

On a number of occasions during my career, I have been part of teams tasked with writing an organisational mission statement.  When managers have approached the team the task the response has been one of despondency.  “it isn’t my job to define the corporate mission”, colleagues have complained. “This is not part of my job”, they gripe. “Surely our mission is obvious”, they grumble.

Often the document produced is bland, generic and tells stakeholders nothing about the individuality of the organisation.

But a clear mission statement which defines the unique purpose and which distinguishes your business from that of competitors is critical to the business planning process.  The mission statement should also define the boundaries within which you want your organisation to operate.

A properly drafted mission statement combines your primary objective and your core organisational values.

There are four major influences on the content of a mission statement.

  1.  Corporate Governance:  To whom is your organisation responsible? What is the regulatory framework in which you operate? Who oversees your organisational executive? Who does your organisation serve?  What constraints are placed on senior management to ensure the rights of stakeholders are upheld?
  2. Stakeholders:  Who are you customers? Your suppliers? Shareholders; Distributors: Retailers; and the wider public.  Are your organisational policies equitable to all groups or do you favour particular stakeholders?  What power and influence does each group wield?
  3. Business Ethics:  What are your organisation’s views on social and corporate responsibility?  What are the cultural attitudes and beliefs of the society(ies) where you operate?
  4. Cultural Context:  Your mission will be affected by the cultural environment.  there will be the internal culture of your organisation and the external culture of society.  Both must be reflected in a mission statement.

Often mission statements are either too narrowly or too broadly defined.  An American shipbuilding firm’s mission statement simply says, “We make good ships”.  this statement has only a product focus and tells you nothing about the organisations wider values and the environment within which it operates.

The mission statement of Scottish Power appears to be too broadly defined:

“To be recognised as a highly-rated utility-based company trading in electricity, other utility and related markets, providing excellent quality and service to customers and above average returns to investors”

What does the Scottish Power say about the organisation.  The mission statement appears to be saying the obvious, it appears generic and trying to be all things to all stakeholder groups. If anything, it reflects the public sector, bureaucratic history of the organisation.

Richer Sounds, the specialist Hi-Fi and home electronics retailer has a mission statement which doesn’t mention electronic audio; although it does say work should be fun.

Is your mission statement too broadly or too narrowly defined?

Successful mission statements are:

  1.  Credible:  It should reflect realistic ambitions from the view of your stakeholders?
  2. Specific Capabilities:  Embrace your core expertise.  Relate that expertise to your organisational future.
  3. Aspiration:  The mission statement should act as a source of motivation to the people in your organisation.  This should matter more than financial returns.  The mission statement must make individuals want to commit to your organisation and encourage internal stakeholders to make valuable contributions.

However, you need to define the boundaries of your ambition within a mission statement.

  1. Product Scope:  How do you categorise your products?  Do you do so in technological terms? Do you offer different products in different target markets or segments? Do you categorise products individually or collectively?
  2. Market Scope:  Who utilises your products?  Are you focused on a B2C or a B2B market?  What demographic groups do you target?  Do you target particular industry segments? What distribution channels do you use?  What features of the consumer do you target?
  3. Geographic Scope:  Are you a ‘local shop for local people’?  Are you regional? Are you national? Are you international?
  4. Stakeholders:  You need to consider both internal and external stakeholders.  Internal are stakeholders with a particular interest in your organisation.  Michael Porter talks of five internal stakeholder groups – ‘The Five Forces’ affecting an organisation.  This includes staff and unions, shareholders, management and business owners.  There are primary and secondary external stakeholders.  Primary external stakeholders include suppliers, distributors, financiers and your competitors. Secondary external stakeholders have a looser relationship with your organisation and include government agencies, local government, political pressure groups and society in general.

As the aim of a mission statement is to give clarity to your business purpose, it cannot be bland or poorly defined.  Some firms use the mission statement to declare strategic intent.  Others prefer to declare such intent in a separate vision statement.

You may receive the following attitudinal responses to the idea of a mission statement:

  1.  Faint Support:  Stakeholders will pay lip service to the mission statement especially if it is dominated by the views of management whose attitude is that stakeholders and corporate governance are constraints on the organisation.
  2. Passionate Support:  This is where the mission statement is central to the values and philosophy of managers.  The mission statement becomes the driver of corporate aims and aspirations.
  3. Dissipated Mission:  Strategic decisions are the responsibility of external stakeholders concerned with corporate governance and regulation.  This is common in public sector bureaucracies.  Sometimes the mission becomes lost; dominated by day to day management and tasks.  This was a criticism of BS5750 companies before the standard morphed into ISO9000 series.  Firms using the standard were criticised for having incredibly well documented systems despite the product of those systems being poor.  The mission focus appeared to be concentrated on process and not the results of that process.
  4. Non-consensual Mission:  Passionate external stakeholders dominate your mission, particularly those stakeholders with strong ideological views.  It becomes impossible to create an organisational mission which satisfies all stakeholder groups’ demands.  Your mission may become highly political.  An example is the nationalised industries of Britain in the early 1970s.  The country entered a period of industrial strife as unions argued that the organisational mission was to satisfy the demands of their members, not the customer, not management and certainly not the demands of government.  If your mission is non-consensual, your organisation will suffer.

A mission statement is a reference point for your strategic decision-making.  It is therefore critical that you take time, thought, and care over its development.

The Inevitability of strategic Wear Out

Regardless of your position in the marketplace; whether you are a market leader, a follower, a challenger or a niche marketer; you need to recognise that over time successful marketing strategies begin to wear out and will need to be replaced.  They will lose impact.

It is imperative that you continually adapt your strategy to meet new competitive challenges and to match shifting consumer needs.  Many extremely successful brands, from Kodak to House of Fraser have suffered from over-reliance on their long-standing strategies ignoring the fact that the consumer base has moved on to other new, sparkling concepts.

House of Fraser maintained a department store model based on concessions whilst the fashion brands they relied upon built direct selling through websites and brand-specific stores.

Kodak, despite inventing the digital image sensor, failed to invest in the digital camera and continued to invest heavily in 35 millimetre colour film.

Blockbuster video tried to retain the model of DVD and cassette rental in an age of downloads and Netflix.  Similarly HMV, which has failed twice, ignored the rise of music streaming services such as Spotify and iTunes.

Often management are unwilling to change what they see as successful strategies.  They only see the need to change when it is already too late.

The following effects can contribute to strategic wear out:

  1.  Changes to market structure
  2. The entry and exit of competitors from the market
  3. Changes in your competitors’ strategic positions
  4. Competitive innovations
  5. Changes in consumer expectations
  6. Changes in the macro and micro economy
  7. Changes in legislation
  8. Technological change – including change which at first appears unrelated to your market
  9. Changes to distribution and supply channels
  10. Lack of internal investment
  11. Poor cost control
  12. A tired or uncertain management philosophy.

Perhaps one reason that businesses hold on to outdated marketing strategies is that the process of creating new ones can be painful.  Managers may feel the move away from tired and trusted methods is a black mark against their personal record.  Often, changes to marketing strategy can only be achieved through a change in personnel at board level.

However, there is a law of marketing gravity. Regardless of how big or powerful an organisation is in the marketplace, sooner or later its marketing programme will decline.  Marketing gravity is entropy, that all things break down and become dust.

Four principles are often evident in firms retaining outdated marketing philosophies and strategies:

  1.  Marketing Myopia:  That you ignore the impact of your actions on your brand.  You apply the rules of marketing whilst ignoring the spirit of marketing.  So marketing planning becomes an annual chore.  Marketing is only a sales support activity.  This is the decision by British Airways to redesign the tailfin of their aircraft in an attempt to be more exclusive and ‘international’; the redesign blurred BA’s distinctive image as a national flag carrier and by trying to focus on only high end and executive customers, they restricted the size of their potential market limiting earning potential.
  2. Marketing Arrogance:  You ignore the effect of your actions on your brand. This is the attitude of Gerald Ratner when he may a supposedly humorous after dinner speech about the jewellery sold in his shops being ‘crap’; a speech which hugely damaged the Ratner’s/H Samuel brand.  This is the manager who operates on hunches and that they know what the customer wants without carrying out any research or analysis.
  3. Marketing Hubris:  This is believing in your own PR to the detriment of your brand.  Microsoft believe it could operate free from the constraints of other brands. Richard Branson used to believe Virgin could ignore traditional strategic planning and could do things differently. Both Microsoft and Virgin have reversed these positions.  Branson now says that the strategic planning process is crucial and central to the success of his brand.
  4. Marketing Silliness:  This is putting common sense aside in an attempt at being creative.  We all see TV advertising which is glossy, has startling imagery and artistic flair; but when we are asked what the product or service on offer is, we cannot identify it.

It is also the case that ‘dead cats only bounce once’.  Once a strategy has worn out, you will likely only get one attempt to revive it and gain lost market position.  if that attempt fails, your market share and position will drop dramatically.  We live at a time where many traditional high street retailers are facing oblivion as the internet and home delivery services drive down margins.  To respond, these retailers need to focus on strategies which create unique value for consumers.  Increasingly, to get footfall, these firms will need to create experience beyond that of traditional high street shopping.  Too many of these retailers are relying on consumer inertia or consumer ignorance.  An example is high street banks and utilities firms which often only rely on consumers reluctance to switch to other providers; expecting that consumers will stick with what they know rather than try the new.

You cannot simply stick with what has worked in the past.  The future will be different.

You cannot stand still.  You must always look for the next strategic step. Break away from the past and create strategies for the future.

 

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.