Tag: Business Planning

Competitive Forces Shape Strategy

Market analysis is central to strategy formulation. Dealing with competition is the essence of strategy formulation.

However competition isn’t only defined by other market players.  There are a host of underlying economic and social forces affecting competition.

There are two elements to market analysis: An examination of the macro-environment and an examination of the micro-environment.

The mnemonic PESTEL (or PESTLE) is often used to describe the analysis of the macro-environment. It stands for POLITICS, ECONOMICS, SOCIETAL, TECHNOLOGY, ENVIRONMENTAL, LEGAL.

SO UK businesses over the last five years should have been examining the effects of Brexit on their market, it’s impact on politics, it’s impact on the economy, how it has changed UK society, what technological effects it brings, its effect on environmental policy and how it is going to change the law.

An analysis of the micro-environment also has to take place.  These are factors directly affecting a particular market or market segment.  Michael Porter described these as five forces: Industry Competitors, New Market Entrants, Suppliers, Buyers and Substitute Products.

These collectively impact the profitability of an industry or market segment.

Some economists model on the basis of perfect competition.  However, perfect competition only exist in those models it does not exist in the real world.  More enlightened economics now apply scientific rigour and evidential standards to their modelling.  Yes, this makes models more complex as factors beyond price need to be accounted for in modelling but the results of such models are more realistic.

If Porter’s five forces are strong, entering a market can be incredibly difficult and costly.  Even if the five forces are ‘mild’ they can combine to hamper market entry.

Market entry by new competitors can occur where there are few economies of scale; where products across a market are homogenous, where capital requirements are low or where cost advantages are independent of organisational scale.

Existing market players can leverage a learning or experience curve to protect there market position.  Where there is no learning curve, or it is short.  Where experience is limited.  These barriers to market entry are low.

Often existing market players will use legal barriers such as intellectual property rights to prevent entry.  For example, for many years Cadbury held the patent on the machinery to make Flake bars, so competitors were unable to make generic copies of the bar.  Muller Dairies hold a patent on the corner yoghurt pot and have successfully sued competitors who developed copycat products.

New market entrants can also be blocked through existing market players controlling distribution and supply chains.  This can occur through forward and backward integration of suppliers and sellers within a market.

Government policy can prevent market entry.  Governments may create licensing requirements within an industry such as the arms trade.  Governments create legislation, safety regulations, environmental standards, etc, which limit opportunities for market entry.

Currently in the UK there is a growing political argument over the lowering of food standards and animal welfare standards.  The Johnson government has legislated to lower UK standards and move away from the high common standards held when the UK was a member of the European Union.  This is seen as preparing for a US trade deal and to allow the importation of food from the USA which is often produced with low animal welfare standards and low food hygiene controls. US practices such as chlorine baths for poultry and using Ractopamine on pork cuts is common in the US but currently banned in the UK.  These US practices are attempts to cover up America’s ‘secret epidemic’ of food-borne disease and food poisoning.  Groups of varying political allegiance, including some cabinet members are opposing lowering of food standards to US levels.

Market incumbents often fight back against new market entrants through the use of discount fighter brands.  This is a common tactic in the golf equipment market where the majority of premium club manufacturers own a fighter brand to combat new entrants.

Where market growth is slower, such as in a mature market, entry can be all but impossible.  In such circumstances, significant market change needs to happen to allow entry e.g. Brexit.

Powerful buyers and suppliers affect a market through the use of their bargaining power.  Suppliers can raise prices and limit supply (as OPEC often did with oil).  Powerful suppliers, such as the large supermarket chains can use bulk purchasing to drive down wholesale prices. The tied house system for many years allowed breweries to control the price of beer and limit tenant landlords profitability.

Suppliers are powerful where there are a few dominant supply companies e.g. petrochemicals and where similar industries do not directly compete (e.g. steel fabrication and aluminium smelting).  They can also be powerful when a market is subject to forward integration (raw material suppliers buying finished product manufacturers). So TATA was an Indian steel maker which purchased Jaguar Land Rover the car maker.

Suppliers are also powerful where the supplied industry is not critical to their survival or profitability.  The Ravenscraig steelworks, built by the nationalised British steel to make plate steel for the automotive industry was a weak supplier wholly dependent on the Leyland car works at Linwood and the Ford plant at Bathgate.  When those car plants closed, there was no market for Ravenscraig’s steel.

Buyers are powerful when purchases are large, concentrated and central.  They are also powerful where large scale purchases are technologically complex e.g. supercomputers.

Buyers are also powerful where products are homogenous e.g. buying potatoes.  they are also powerful where they can buy a readily available alternative e.g. buying cane sugar compared to buying beet sugar.

Buyers are also powerful when the product purchased is not critical and can be easily cut from the buyers systems.

Buyers can also be powerful when they look to integrate back up the supply chain.

Substitute products limit profit opportunities they can reduce opportunities during market boom times and they can temper the ability to raise prices.

Existing competitors often jockey for market position.  Intense rivalries for market leadership exist if all market players are of similar size and there is no dominant market leader.  Slow industry growth (mature markets) can create fights for market share which limit opportunity.  Competitors can be strong where products are undifferentiated or where it is easy for customers to shift supplier.  In such markets, fixed costs can be high, products are often perishable (agricultural goods such as milk) or there could be a reliance on high sales volumes due to low profit margins (high street fashion).  Existing competitors can be powerful where there is overcapacity in a market (such as car production) or where markets are slow-moving such as musical instruments or antique furniture.  For example, once a pianist has bought a piano, how long will it be before they need to replace it (if they ever need to).

Often markets have high exit barriers, such as environmental clean up costs or the need for expensive specialist machinery.  This means competitors may stay in a market when in other circumstances they would have diversified elsewhere.

To succeed where industry competition is strong, you need to focus on market positioning, influencing the balance of the market and exploiting industry change. You also need to build defences so you are less vulnerable to the strategic attacks of other market players.

Marketing Strategy: Warfare or Game

We are all aware of the stereotypes of marketing and PR professionals in the media.  They are either air brained non-entities like Siobhan Sharp in W1a or Steve Coogan’s ultra-aggressive salesman, Gareth Cheeseman.

And such stereotypes seem to feed into the minds of some business managers who treat the marketing function as either a form of warfare or as a complex game.  So, if you are charged with your businesses marketing function, are you to act like a field marshal planning troop movements or like John Nash, the Nobel Prize winning mathematician and inventor of Game Theory.

In truth, running a business is not warfare; and I suspect many business owners would be extremely worried if their staff were treating strategy as a game. You are not organising the D-Day landings; you are not playing Monopoly.

However, that does not mean your business strategy cannot learn from both military strategy and game strategy.  Even I succumb to occasional quoting Sun Tzu’s The Art of War (and even Machiavelli’s The Prince).

The effective marketer will be able to learn from both military strategy and game strategy.

Some of the analogies in marketing that can be lifted from military strategy are:

  1.  Select and maintain your aim
  2. Use surprise with audacity and speed
  3. Maintain morale
  4.  Take offensive action
  5. Secure your defences and never be taken by surprise
  6. Maintain flexibility
  7. Use concentration of force
  8. Use economy of effort.

These principles can be summarised in four broad strategic options:

  • Offensive Marketing:
    • Careful consideration of the market leader’s position
    • Search for and attack weak points in the market leader’s position
    • Attack on as narrow a front as possible like the point of a spear splitting chain mail.
  • Defensive Marketing:
    • Only those in a market leadership position should consider defence as their primary strategy. Everyone else in the market needs to prioritise offense.
    • Attack is the best form of defence
    • Strong competitive moves should always be blocked.
    • Never underestimate or ignore the competition.
  • Flank Marketing:
    • Flank into uncontested areas
    • Use tactical surprise
    • The pursuit is as critical as the attack itself
  • Guerrilla Marketing:
    • Find a niche segment that is small enough to defend but also viable.
    • Regardless of your level of success, never act like a market leader.
    • Be prepared to retreat at short notice especially when faced with threats you cannot deal with.

Competitive strategy can also learn from gaming.  Like in many games, outcomes of marketing strategy are not reliant on the actions of your business alone: Outcomes are also reliant on the actions and reactions of your competitors.

Markets are becoming increasingly competitive as they mature and new technologies are leveraged. The game of marketing is becoming more difficult to win.

There is a real danger that this complexity will lead to the threat of damaging price wars as businesses desperately try to avoid losing customers, share and sales volume.   Increasingly it will appear that the only way to defend against competitors is to cut prices.  This in turn leads to a downward spiral where prices only go down, margins are eroded and profitability disappears.  This is marketing’s version of MAD; Mutually Assured Destruction.

To avoid MAD, you need to ‘manage’; the competitive process and your competitors.  This can be achieved by following these broad guidelines:

  1.  Never ignore new market entrants; particularly those focused on the bottom end of your market.  Look at the success of Lidl and Aldi as discount supermarkets and their effect on the pre-existing groceries market in the UK.  Look at Norton (a company now in administration).  Norton, BSA, Triumph and other UK motorbike manufacturers were once the dominant market leaders but they ignored the ‘cheap’, low powered motorbikes coming from Japan and lost their market dominance to Yamaha and Honda.  The UK motorbike industry went from a position of market dominance to that of also-rans.
  2. Always exploit competitive advantages (unless they are replaced by another advantage which is more attractive, powerful and meaningful to your target customers)
  3. Never launch a new product or take a new initiative without anticipating the probable response of your competitors.

Day (1996) wrote that successful businesses:

“Formulate strategies by devising creative alternatives that minimise or preclude or encourage cooperative competitive responses.  They adroitly use weaponry other than price including advertising, litigation and product innovation. They play the competitive game as though it were chess; by envisioning the long-term consequences of their moves.  Their goal is long-term success rather than settling for short-run gains or avoiding immediate losses.”

Too many businesses focus on past experience for future success.  They focus on past campaigns; they expect competitors to do as they have previously done.  These businesses often fail to ask what their competitors are likely to do in the future.  Often these assumptions are invalidated by small market changes.

Many businesses also look to simplify reality (and not just businesses, much of today’s politics, particularly Brexit, is based on simplification of often highly complex realities).  Such simplification may just be about sustainable in a static market. But ask yourself how many markets are static?

You need to put in effort to learn about your competitors; their strengths and weaknesses; their ways of doing business; their alliances; and their strategic position. You need market intelligence.

In developing business and marketing strategies you are not Napoleon at Waterloo and you are not John Nash building complex mathematical models. That said, the successful marketer will know the principles of military strategy; they will know the rules of the game; and the shape of the game board.  Knowledge of games and military strategy can have a strong influence on business success.

The Importance of Visioning

Who remembers Only Fools and Horses, the BBC sitcom in which the dodgy dealer and market trader Del Boy Trotter goes from one bungled venture to another? Del Boy’s regular catchphrase is, “This time next year, we’ll be millionaires”.

Of course, Del Boy is a dreamer. None of his business ventures, from cleaning chandeliers, to Peckham Spring Mineral Water (from a burst water pipe) or selling off second-hand sex dolls filled with hydrogen instead of compressed air, would ever get the millions he craved. When he did get the money, it was from the sale of an antique watch, which was hidden away in the back of his lock up. Even then Trotter lost his millions through bad investment.

Del Boy Trotter, like his ITV counterpart, Arthur Daly of Minder, are comic stereotypes. Like Walker the spiv in Dad’s Army, they are caricatures of a certain type of dodgy businessman.

However, all too often, I see real life examples of people who believe they can get rich quick; whether as, in my old role in Trading Standards, they are the victims (or even the perpetrators) of scams, or in my current role, they are ‘Dragons Den’ style entrepreneurs who believe they have developed a unique new product or service which is going to change the world.

I have often criticised such individuals in this blog, both real and fictional.  They are dreamers who lack SMART objectives; they are those who march on without doing the necessary market research; or they are people who assume every consumer will immediately share their individual beliefs attitudes and wants.

That said there is a place for aspiration and dreams in the world of commerce; but those aspirations must be properly channelled.

We have previously discussed the creation of mission statements and the setting of business objectives in this blog.  These are critical to the development of successful business and marketing plans.

Once you have created your business mission statement, it is critical that it is communicated to stakeholders including your employees. A mission statement is designed to provide a sense of vision and direction within your business over the longer-term.

A mission statement is of little value if your internal stakeholders are unaware of it. A mission statement should also be a living document capable of adaptation to matching external environmental change.

A mission statement should:

  •  Highlight core organisational values
  •  Be specific, not woolly or general
  •  Be realistic and not over-optimistic
  •  Rooted in organisational values so it properly reflects reality capabilities and competences

Otherwise the mission statement is just empty rhetoric.

The development of a mission statement leads to the concept of Visioning. Senior managers, heads of strategic business units and brand managers must think, in detail about what they are trying to create.  This means developing a vivid picture, a dream, of where the organisation should be in three to five years.

So a clear understanding is needed of how the trading environment might change and how organisational capabilities might change.

The visioning process should be detailed and not broad in scope. Managers must think carefully about:

  • The future size of the organisation
  • Corporate and brand values
  • The nature of your customer base and the segments you serve
  • How consumers should interact with the organisation and brand
  • How consumers should interact with the brand
  • The geographic scope of the organisation
  • Market position and corporate stance
  • Links with other organisations

Visioning does not just include a corporate of brand vision.  It can include visionary market insights and product concepts.

An organisational vision cannot be developed in isolation from the organisation’s trading environment.  It requires clarity of both insight and thinking. It must be constrained by corporate values.

The development of corporate visions has led to the growth of internal marketing; training motivation and communication designed to ensure the commitment of stakeholders to that mission.

A corporate vision is made up of ‘soft’ and ‘hard factors.

Hard factors include corporate objectives and strategies, systems of work, critical metrics, etc.

Soft factors include corporate values, priorities and styles of operating. It includes expected behaviours and attitudes.

These soft and hard factors drive performance.  the corporate vision should also inspire  the commitment to the organisation and leadership principles.

A corporate vision leads to value through innovation and develops five inspiring commitments:

  1. Market change represents opportunity
  2. Added value is competitive advantage
  3. Innovation in everything is the challenge
  4. Waste is the enemy
  5. A distinctive character is strength.

Leadership principles include:

  1. Realising the vision is a prime objective
  2. Improvement is an ambition
  3. Teamwork is the task
  4. Creativity is character
  5. The goal is to deliver results.

There are many examples of where a vison has been badly presented.

John Niven, the author and former record company A and R man, recalls one such instance.  When working for one of the UK’s larger independent record labels, he was approached by two entrepreneurs looking for investment in their firm.  the entrepreneurs pitched their belief that in future, people wouldn’t buy records. Rather than buying an LP with ten songs, consumers would buy music track by track. the entrepreneurs were laughed out of the office.  Their vision seemed as ludicrous as Del Boy’s ‘one day we’ll be millionaires’.  The entrepreneurs went on to create Spotify.

Segmentation is critical to your business

If you have ever watched the television programme Dragon’s Den, which has just begun a new series on BBC2, you will see may businesses fail to get and investment from one of the dragons.  Only a minority of the entrepreneurs are successful and many are told, “There is no market for your product”.

The problem is that many of the investors enter the room thinking they can create a market for their product or that they can create new market segments.

These businesses have a problem as the dragons are well aware that markets ‘;just are’. They already exist as an entity and cannot simply be created, however good the entrepreneur thinks their idea is, if there isn’t a pre-existing market for it, it will fail.

Of course, there are exceptions to this position particularly with new technologies, but even then new technologies are usually new answers to old questions.  They represent a technological shift in a market which already exists.

Markets also have a life of their own. You cannot invent a market and you cannot create market segments out of thin air. Busineses do not create market segments, markets segment themselves. Markets and market segments are made up of living, breathing people.  Those people have presumptions, assumptions and emotions and it is very dangerous for you to project you assumptions about market behaviour on a pre-existing market segment.

It is very dangerous to create grand theories as to how a market will segment.  It is also dangerous to prepare ‘ideal’ segmentation bases.  Segments shift and morph they are not set in stone.

Markets do not reform themselves to match your pre-conceptions. it is a real mistake to build concrete boxes and tr try and fill them with the population of a market.

I am reminded of the episode of Some Mother’s Do ‘Ave Them where Frank Spencer faces an RAF intelligence test. Spencer had to fit shaped wooden blocks into a chart on a wall within a set time period. Rather than selecting the right shape for the right hole, Spencer tries hammering any shape into any hole.  The result is disaster.  The shaped wooden blocks are jammed in the chart and when Spencer tries to remove them he pulls the chart from the wall taking bricks and plaster with it.  Spencer’s attempt to force the blocks (pre-existing segments) into his choice of holes (his concrete boxes) is equivalent to total business failure.

Rather than trying to create a market and develop new segments, you need to analayse the existing marketplace and adapt your offer to meet pre-existing segments.

To do this, you must:

  1.  Decide exactly what business you are in.
  2. Do appropriate qualitative research as to the issues affecting market segments and the market as a whole.
  3.  Do appropriate quantitative market research, measured using cluster analysis as to market demographics, consumer attitudes, and product usage (who owns what, who uses what)
  4.  Find common needs so as to define segments.
  5.  Define segments in terms of demographics and usage
  6.  Populate segments in terms of demographics
  7.  Prioritise those segments which are a best fit for your business
  8. Test segments before launch

When considering entering a market segment, You must ask:

  • Is the proposed segment identifiable?
  • Do target customers recognise the segment?
  • Do you have the resources to reach the segment?
  • Is the segment viable over the longer-term?
  • Do distributers and retailers recognise the segment?
  • Is your offer distinctive within the segment
  • Does your offer attract a price premium? If not, is it worth entering the market?
  • Does your offer attract higher than average profit margins? (this is the asset test as to whether a market segment is worth entering).

When marketing to different segments you need to prioritise segments on two factors; the attractiveness of the market segment to your business; and the skills are resources within your business that can be used to deliver customer needs.

This is where tools like the GE Matrix and the Shell Directional Policy Framework become incredibly useful.

In presenting products to market you have three options:

  1. Undifferentiated marketing: where the same offer is made to all market segments
  2. Focused marketing: where you specialise you offer to meet the wants and needs of a single market segment.
  3. Differentiation; Where you develop different marketing mixes (different offers) for different market segments.

In the modern economy, if you aren’t talking in terms of segments, you aren’t talking of markets. For the modern economy segmentation is difficult but necessary.  In may ways, the mass market is dead.

Think of the music industry.  In the early 1960s, you had a few mass markets, Popular Music, Classical Music, Jazz, and Folk Music.  Fans were pigeon-holed into these broad categories. Over time, these mass markets have splintered into a multitude of different sub-genres.  Take rock, you now have classic rock, indie rock, grunge, prog, metal, etc.  Each of these sub-genres have segments.  Heavy metal has thrash, death metal, Nu-metal and even prog-metal.  No one in the music industry talks in terms of pop fans or jazz fans anymore.  (this is also because the music consumer is likely to have access to and listens to many different forms of music).

But you also have to beware not to micro-segment.  Gibson guitars got into real financial trouble last year and part of the reason was the production of a massive number of different products trying to cope with micro-specialist markets.  They did this without putting in place the mass customisation processes common amongst manufacturing businesses.  The result was a confused product offer and huge manufacturing costs which directly impacted profit margins.

Gibson was a prime example that business is a profits game, not a revenues game.

Another important aspect of successful segmentation is to choose segments which are easier to defend. You are defending your ability to maximise profits.

What is certainly true, is that if you don’t have an accurate picture of what your target segments are, you won’t win the game.

So market segmentation is a key tool in the battle to gain customers.

Ask yourself:

  • Do you know the current state of segmentation within your business?
  • What are the key target segments for your business that make up your target market?
  • Do you know what segmentation does for your business?
  • Are your chosen segments durable?
  • Have you prioritised certain segments?
  •  Are there appropriate targets you need to target?
  • Do you want to target multiple segments and how are you going to do that?

 

 

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.