Making the most of your offer

the products and services you offer are key to the survival and growth of your business.  But if your product mix is static, its effectiveness will weaken.

As stated previously in this blog, your customers have needs that they want satisfied; they have jobs that they want completed.  Customers want solutions, not products.  They want a four millimetre diameter hole, not a four millimetre drill bit.  Their focus is on the solution that will get the job done, not the product needed to provide that solution.

Over time, it is likely that consumers will move from one product to another if it is shown that the new product option offers a better solution to the consumer’s need than the existing product.  Consumers will switch to another product if they perceive it offers a better way to get the job done – cleaner, faster, safer, more environmental – and less costly!

No product, service or organisation is indispensable if a better offer exists elsewhere.

Take the example of the mangle.  A mangle used to be an indispensable, but exceedingly dangerous, tool for doing the laundry.  no household would be without access to a mangle on wash day.  When the first washing machines appeared in the late 19th century they were fitted with a mangle to squeeze excess water from the wash. Often these mangles were electrically powered.

But no one uses a mangle today.  Modern washing machines with high speed spin cycles use centrifugal force to remove water from the laundry.  Modern machines are safer; you aren’t going to crush your hand in a modern machine (a common injury with mangles); they are less time consuming and use less effort on the part of the consumer; and because they use a lot less water, they are more environmental.

So consumers have switched away from mangles to remove water from their weekly wash; there is no longer a market for mangles in the United Kingdom.

However, in many businesses there is a problem.  Product portfolio management is seen as a tactical, not a strategic activity.  Small drops in sales levels are often dealt with at a local or regional level, not a strategic responsibility of senior management.  The solution isn’t to alter the product mix but to offer additional incentives to salesmen and agents.  Little or no thought is given as to whether the drop in sales is a result of an incorrect product strategy.

Often products are placed in organisational silos.  Issues with product management are contained within those silos and no one looks to see if the overall product strategy is at fault.

Reviewing the management of your product portfolio is more than examining sales figures.  You need to:

  •  Review customer needs
  •  Review product or service attributes
  •  Are needs changing over time?
  •  Review your customer value proposition
  •  Examine your wider business model
  •  Assess existing and potential risks
  •  Manage the product life cycle
  •  Examine distribution and supply chains; are you using the most appropriate use to market?
  •  Are you using the right tactics to implement your marketing strategy?

The starting point for considering your product mix strategy is the consideration of value.  There are two forms of value;

  1. Organisational Value: The flow of cash and the reputation gained through the sale of your goods and services
  2. Customer Value: The benifits of your products and the solutions they offer.

Successful businesses are those who gain more value from consumers than is spent delivering products and services.

Customers get value from seeing a job well done or a need satisfied.  A firm will be profitable if the customer value it generates exceeds the costs of delivering a satisfying solution to the customer.

And remember, best value does not necessarily mean cheapest price.  It is a measure of overall utility. Customers will trade off different perceived values from a range of product offers. This is often a primary source of marketing differentiation.

Remember value equals benefits of the product or service minus the effort needed to obtain those benefits, minus the risk involved in the product choice, minus the price charged for the product or service.

Reducing the price is only one way of maximising customer value. Alternatively, you can increase the benefits of usage; you can reduce the effort needed to access the benefits of your offer; you can reduce the risk inherent in a consumer choosing your product.

And it isn’t just your target customer who needs a value proposition.

Prospective customers need a value proposition to compare your products with others in the market.  Your salesforce needs a value proposition to present to customers.  Your distributors and retailers need a value proposition to ensure appropriate prominence for your products; and your internal stakeholders and shareholders need a value proposition to assess your organisation’s market value.

Teacy and Wiersema see three potential areas for a value proposition to be developed; management efficiency, product leadership and customer intimacy.

You customer value proposition must relate to all the stakeholders in your organisation and it must integrate the needs of those stakeholders as well as those of customers.  Stakeholders need to be informed of where they sit in the customer value process as well as how different stakeholder groups relate to each other.  You must state clearly how the organisation and its stakeholders create customer value in a unique and differentiated way from that of your competitors.

So:

  •  The roles of organisational stakeholders must be aligned to the process of delivering the customer value proposition
  •  The aim should be to open doors and close sales
  •  You should look to increase revenues by having a clear market position
  •  Aligning stakeholders roles should speed time to market
  •  Aligning the roles of stakeholders should reduce costs and wastage
  •  Alignment or stakeholders to the customer value proposition should improve operational efficiency and increase market share
  •  Align to the customer value proposition to improve customer retention

As the product mix cannot be static, product innovation is a necessary element.  Innovate or die.  Change should be business as usual.  Remember, not everything new will sell; failure is part of the new product development process.  You cannot be responsible for the unpredictability of consumers.

When assessing your product mix, it can be useful to reassess the business you are in.  For example, is Harley Davidson a motorcycle manufacturer or a lifestyle brand?  They don’t just produce bikes, they make clothing, luggage, and license fragrances.

Can you reassess your product mix through segmenting your market in a different way?  Do you segment based on consumer income or psychographic measures?

Do you track the value customers see in your products? Is that value declining? If so what changes can you make to reinvigorate that value?  Are product attributes once seen as optional extras now seen as necessities?  For example, few cars today are sold without a satellite navigation system or passenger airbags.

It can be important to work with your target customers in the development of your offer.  They may provide useful insight into which innovations offer sustainable value.

Management of your product mix is a strategic, not a tactical task.  It is important that development of your offer is considered across your organisation and that it is not solely the responsibility of your sales or marketing team.

 

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.

 

 

Using Portfolio Matrices to Plan for the Future

In previous blog entries, I have discussed the Boston Consulting Group Growth/Share matrix as a tool for product portfolio management.  However, this matrices is seen by many business academics as flawed.  Some academics have tried to amend the BCG model and even the BCG have attempted to mitigate the matrix’s defects through other tools, in particular their Growth/Gain matrix.

Given the difficulty in developing a model of portfolio management, several large multinational firms employed academics to build portfolio management tools.  Two of the tools developed are the General Electric Multifactor Portfolio Matrix and the Shell Directional Policy Matrix.

The General Electric Matrix compares the attractiveness of a particular market or market segment with your business’s competitive position in that market.  The matrix does not rely solely on market growth.  A number of market attractiveness measures are used including:

  1. Market Size
  2. Market Growth Rate
  3. Beatable Rivals
  4. Market Entry Barriers
  5. Social, Political and Legal Factors

Similarly competitive strength is not based solely on market share.  Again a number of criteria can be selected including:

  1. Market Share
  2. Business Reputation
  3. Distribution Capability
  4. Market Knowledge
  5. Service Quality
  6. Innovation Capability; and,
  7. Cost advantages.

When using the GE matrix, management decide which criteria are to be used.  Each factor is weighted.  The weighting of all factors combined cannot exceed ten.  Each factor is then given a relative importance out of ten.  By multiplying the weighting with the importance factor, a score for each factor is calculated. These scores are added to give a market attractiveness and competitive position score for each product line.

These scores are then plotted on a 3×3 matrix.  From this matrix, five strategic zones are defined:

  • Zone One: In this zone both market attractiveness and competitive position is strong.  The aim for products in this zone is to build and manage sales for market share growth.  This equates to star products in the BCG matrix.
  • Zone Two: In this zone, your competitive position is strong but the market is not particularly attractive.  The proposed strategy is that you manage the product for consistent profits whilst maintaining market share.  This zone equates to BCG matrix cash cows.
  • Zone Three: Here the market is highly attractive but your competitive strength is relatively weak.  It is a zone where the strategic product policy can be determined by the relative strength of your competitors.  If your competitors are weak or passive, your strategy would be to build the products position in the market. If you face strong competition, the aim would be to retain the existing market position of your product.  If your commitment to the market is low, your aim would be to harvest the product for cash.
  • Zone Four:  Here both competitive position and market attractiveness are weak.  This position is similar to a ‘cash dog’. This could be a product in a declining market or a dog product which is difficult to divest (e.g. a required accessory).  This is a product to be harvested for cash
  • Zone Five:  Here both competitive position and market attractiveness are extremely weak.  The aim should be to divest the product. To run down production or to sell it to another party.

There have been a number of criticisms of the GE matrix.  It is a richer tool in terms of content and it is therefore more flexible. However, it is much harder to use than the BCG matrix and it can be affected by managerial bias, power games and empire building.  Decisions on the use of the matrix and resulting strategies need to be made above the level of strategic business units.

The Shell Directional Policy (created by research financed by Shell Oil) does something a bit different to the GE matrix and the BCG matrix in that it looks to the future rather than relying on existing product portfolios.

The Shell Matrix compares the attractiveness of a market or segment with the potential for profitability in that market.  Again multiple weighted factors are used to give products scores. Again a three by three matrix is produced which delivers eight strategic positions:

  1. Leader: Here a firm has strong competitive capabilities and strong profitability prospects.  this is your core market where you have a leadership position.
  2. Growth Leader:  Here prospects for profitability are average but you have strong competitive capabilities. Here you look to improve the prospects of profitability using tools such as value chain analysis.
  3. Try Harder:  Here prospects for profitability are strong but your competitive capabilities are only average.  the aim is to improve those competitive capabilities through training and recruitment.
  4. Double or Quit:  Here prospects of profitability are strong but your competitive capabilities are weak.  So the decision is whether it is worth investing in improving those capabilities.
  5. Custodial Growth:   Here both profitability and competitive capabilities are average.  This and Double or Quit are similar to the Question Mark products of the BCG matrix.
  6. Phased Withdrawal:  Here profitability is average but your competitive capabilities are weak. The aim is a managed withdrawal from the market or segment.
  7. Cash Generation: Here you have strong competitive capabilities but the prospects for high profit margins are weak.  This equates to the BCG matrix cash cow.
  8. Disinvest: Here both competitive capabilities and profitability prospects are weak.  This is a dog product ripe for disinvestment.

Both the Shell Matrix and GE matrix require significant levels of information gathering and analysis. However, if your in business, shouldn’t you be doing this anyway?

All portfolio management matrices have strengths and weaknesses.  When using these tools you must be aware of those strengths and weaknesses.  perhaps the best option is to use these matrix tools in combination.

These are tools to help strategic decision-making: They are not the source of mandatory instruction.

So use these tools, in full awareness of their attributes to give a rounded and comprehensive view of your product portfolio.

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.

Sun-Tzu, Napoleon and the Marketing Battleground

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

How Your Products Influence Your Marketing Strategy

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

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

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

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

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

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

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

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

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

 

Identifying Competitive Advantage

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

Davidson (1997) said:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So what are points for product differentiation:

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

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

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

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

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

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

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

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

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

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

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