Long tail concept

The long tail concept

Let’s go over the concept of long tail and understand what it actually is. The concept was first applied to human behavior by George Kingsley Zipf, professor of linguistics at Harvard. Zipf’s law states that if a collection of items is ranked by popularity the second item will have around half the popularity of the first one and the third item will have about a third of the of the popularity of the first one and so on.

Nowadays, this concept is used to mainly describe niche marketing and the way it operates online. Let’s try and see how online retailers can benefit from this concept. As a rule long tail marketing puts an accent on less popular products, developing a business sales model based upon products in the “long tail.” It is more about inventory management than product promotion. Provision of a greater variety of inventory gives businesses a chance to reach more customers and generate more sales with no extra costs.

Long tail marketing is most effectively employed by online retailers such as Amazon, due to the supply-side considerations of managing such an inventory.  A brick-and-mortar bookstore only has a limited shelf space available, and must devote the biggest part of its shelf space to most popular and demanded products. Less popular items compete with each other for limited space, and of course greater variety increases costs in stocking. The Internet changes that. It allows people to find less popular items and subjects. It turns out that there’s profit in less popular products as well. For instance, Amazon stocks items in warehouses, while displaying them on its website. This surely results in a much lower cost for shelf maintenance. Web-page maintenance has its costs, but they are substantially lower than physically sorting, stocking, and maintaining shelves.

TOWS Analysis

What is TOWS Analysis?

TOWS analysis is a tool which is used to generate, compare and select strategies. Strictly speaking it is not the same as SWOT analysis, and it is certainly not a SWOT analysis which focuses on threats and opportunities. This is a popular misconception. TOWS may have similar roots. TOWS is a tool for strategy generation and selection; SWOT analysis is a tool for audit and analysis. One would use a SWOT at the beginning of the planning process, and a TOWS later as you decide upon ways forward.

There is a trade-off between internal and external factors. Strengths and weaknesses are internal factors and opportunities and threats are external factors. This is where our four potential strategies derive their importance. The four TOWS strategies are Strength/Opportunity (SO), Weakness/Opportunity (WO), Strength/Threat (ST) and Weakness/Threat (WT).

TOWS Analysis

Four TOWS strategies

Strength/Opportunity (SO). Here you would use your strengths to exploit opportunities.

Weakness/Opportunity (WO). Indicates that you would find options that overcome weaknesses, and then take advantage of opportunities. So, you mitigate weaknesses, to exploit opportunities.

Strength/Threat (ST). One would exploit strengths to overcome any potential threats.

Weakness/Threat (WT). The final option looks least appealing; after all, would relish using a weakness to overcome a threat? With Weakness/Threat (WT) strategies one is attempting to minimise any weaknesses to avoid possible threat.

TOWS Analysis – Simple Rules.

  1. Like many tools, models, concepts and frameworks, TOWS is subjective. It is only as robust as the data which you include within the model.
  2. Use other models and frameworks to support your strategic choices, such as Ansoff’s Matrix Porters’ Generic Strategies and others.
  3. Strategy will include internal development for growth, merger, acquisitions and joint-ventures.
  4. Be as specific as possible and avoid grey areas.
  5. Always rely on your gut feeling. If it doesn’t feel right, then maybe it isn’t right. Tak another look at simple rule 1 above.

 

Marketing Teacher’s Strategy Page


Marketing Teacher’s Strategy Page

A selection of well known tools for deciding strategy

Value Curves

Value Curves

Blue Ocean Strategy

The term value curve appears in three key Harvard Business Review articles by W. Chan Kim and Renee Mauborgne, as well as their 2005 book – Blue Ocean Strategy. The value curve is a tool for strategic managers to see visually how their strategy works in relation to close competitors.

So to draw your own value curve you should brainstorm the factors of competition and list them along the horizontal axis. Then mark along the vertical axis the extent to which the business invests in each factor of competition. Then map your own business and the business of your close competitors. Once strategy is crafted, you need to consider the three complementary qualities which characterise an effective strategy according to Chan Kim and Mauborgne – focus, divergence and a compelling tag line.

The authors cite Southwest Airlines as an example of good practices. Here we are going to apply the strategic canvas and the complementary qualities to Ryanair – the Irish low-cost airline which is one of the largest in Europe. Ryanair has a large number of competitive factors (see Ryanair Marketing Mix) – although the most salient factors are as follows:

1. Ancillary services e.g. car hire, hotels, phone cards, coach tickets etc.
2. Low fares
3. Online booking
4. Secondary airports
5. Low cost advertising

References

Chan Kim, W. and Mauborgne, R. (2005), Blue Ocean Strategy, Harvard Business School Press.

Chan Kim, W. and Mauborgne, R. (2002), Charting Your Company’s Future, Harvard Business Review, June 2002.

Chan Kim, W. and Mauborgne, R. (1999), Creating New Market Space, Harvard Business Review, January – February 1999.

Chan Kim, W. and Mauborgne, R. (1997), Value Innovation: The Strategic Logic of High Growth, Harvard Business Review, January – February 1997.

It is not the same as a value chain since it does not focus upon internal sources of value, more so what our customers value from our products and services marketing. However value curves and value chains can be used in conjunction – bridging the internal value creation with the external factors of competition valued by our customers.

Value Curve

This lesson is based upon Charting Your Company’s Future (Chan Kim and Mauborgne 2002). There is an argument that more traditional strategic planning frameworks work sometimes, whereas on some occasions they don’t. A traditional standard planning framework ultimately ends up as a document, having gone through a series of steps. Instead managers decide upon a strategy canvas – which has three stages. Firstly managers decide upon the critical factors that affect the nature of competition in an industry. Secondly managers consider how current (and potential) competitors invest in their strategy. Finally, a value curve is drawn up which paints a picture of how your company invests in factors of competition now and in the future.

Value Chain Analysis

Value Chain Analysis

The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation.

Support Activities.

Procurement.

This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims).

Technology Development.

Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.

Human Resource Management (HRM).

Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy.

Firm Infrastructure.

This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.

The ‘margin’ depicted in the diagram is the same as added value. The organisation is split into ‘primary activities’ and ‘support activities.’ Also see value curve.

Primary Activities.

Inbound Logistics.

Here goods are received from a company’s suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation.

Operations.

This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car’s engine.

Value Chain

Outbound Logistics.

The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer.

Marketing and Sales.

In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.

Service.

This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.

Shell Directional Policy Matrix

Shell Directional Policy Matrix

A Nine Celled directional Policy Matrix

The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Along the horizontal axis are prospects for sector profitability, and along the vertical axis is a company’s competitive capability. As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions.

  • Double or quit – gamble on potential major SBU’s for the future.
  • Growth – grow the market by focusing just enough resources here.
  • Custodial – just like a cash cow, milk it and do not commit any more resources.
  • Cash Generator – Even more like a cash cow, milk here for expansion elsewhere.
  • Phased withdrawal – move cash to SBU’s with greater potential.
  • Divest – liquidate or move these assets on a fast as you can.

However decisions often span options and in practice the zones are an irregular shape and do not tend to be accommodated by box shapes. Instead they blend into each other.

Shell Directional Policy Matrix

Each of the zones is described as follows:

  • Leader – major resources are focused upon the SBU.
  • Try harder – could be vulnerable over a longer period of time, but fine for now.

Pareto Principle

Pareto principle

The Pareto principle is also known as the 80/20 rule. From your own experience you may have come across it, for example 80% of our business comes from 20% of our customers. The principle itself states that 80% of the effects come from 20% of the causes. Let’s look at this in a little more detail.

As a marketer, you will of course put more of your efforts into your more profitable customers, whilst attempting to move the 80% towards becoming more loyal customers. We are now moving towards customer loyalty, so let’s have a look at a tool that will help us with that. Also see our lesson on the loyalty ladder.

Cause and effect tend to be strongly related. If I throw a stone at a window (i.e. the cause) and the stone travels through the air, and hits the window then the window breaks. The broken window is the effect. There are many other examples in business such as 80% of profit comes from 20% of our products or services. From sport 80% of our goals come from 20% of our players. Try to think of some examples from your own experience.

The reason that the Pareto principle is used together with the marketing relationship, is that the bulk of your profits and long-term relationships will probably arises from 20% of your customers. Therefore you need to know as much about your customers as possible, and the customer database helps us with this. In fact technology today is ideal for retaining customers, as well as recording new information.

Generic Strategies


Generic Strategies – Michael Porter (1980)

Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options are considered within the context of two aspects of the competitive environment:

The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus.

Generic Strategies

1. Cost Leadership.

The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained, labor is recruited and trained to deliver the lowest possible costs of production. ‘cost advantage’ is the focus. Costs are shaved off every element of the value chain. Products tend to be ‘no frills.’ However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organizations, such as Toyota, are very good not only at producing high quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy.

2. Differentiation

Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. For example, British Airways differentiates its service.

The differentiating organization will incur additional costs in creating their competitive advantage. These costs must be offset by the increase in revenue generated by sales. Costs must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve.

3. Focus or Niche strategy.

The focus strategy is also known as a ‘niche’ strategy. Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organization focuses effort and resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A company could use either a cost focus or a differentiation focus.

With a cost focus a firm aims at being the lowest cost producer in that niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications.

The danger of being ‘stuck in the middle.’

Make sure that you select one generic strategy. It is argued that if you select one or more approaches, and then fail to achieve them, that your organization gets stuck in the middle without a competitive advantage.

Sources of competitive advantage – are the products differentiated in any way, or are they the lowest cost producer in an industry? Competitive scope of the market – does the company target a wide market, or does it focus on a very narrow, niche market?

The General Electric Business Screen

The General Electric Business Screen

The General Electric Business Screen was originally developed to help marketing managers overcome the problems that are commonly associated with the Boston Matrix (BCG), such as the problems with the lack of credible business information, the fact that BCG deals primarily with commodities not brands or Strategic Business Units (SBU’s), and that cashflow if often a more reliable indicator of position as opposed to market growth/share.

For market attractiveness:

  • Size of market.
  • Market rate of growth.
  • The nature of competition and its diversity.
  • Profit margin.
  • Impact of technology, the law, and energy efficiency.
  • Environmental impact.

…and for competitive position:

  • Market share.
  • Management profile.
  • R & D.
  • Quality of products and services.
  • Branding and promotions success.
  • Place (or distribution).
  • Efficiency.
  • Cost reduction.

At this stage the marketing manager adapts the list above to the needs of his strategy. The GE matrix has 5 steps:

  • One – Identify your products, brands, experiences, solutions, or SBU’s.
  • Two – Answer the question, What makes this market so attractive?
  • Three – Decide on the factors that position the business on the GE matrix.
  • Four – Determine the best ways to measure attractiveness and business position.
  • Five – Finally rank each SBU as either low, medium or high for business strength, and low, medium and high in relation to market attractiveness.

Now follow the usual words of caution that go with all boxes, models and matrices. Yes the GE matrix is superior to the Boston Matrix since it uses several dimensions, as opposed to BCG’s two. However, problems or limitations include:

  • There is no research to prove that there is a relationship between market attractiveness and business position.
  • The interrelationships between SBU’s, products, brands, experiences or solutions is not taken into account.
  • This approach does require extensive data gathering.
  • Scoring is personal and subjective.
  • There is no hard and fast rule on how to weight elements.
  • The GE matrix offers a broad strategy and does not indicate how best to implement it.

The GE Business Screen introduces a three by three matrix, which now includes a medium category. It utilizes industry attractiveness as a more inclusive measure than BCG’s market growth and substitutes competitive position for the original’s market share.

GE Business Screen

So in come Strategic Business Units (SBU’s). A large corporation may have many SBU’s, which essentially operate under the same strategic umbrella, but are distinctive and individual. A loose example would refer to Microsoft, with SBU’s for operating systems, business software, consumer software and mobile and Internet technologies.

Growth/share are replaced by competitive position and market attractiveness. The point is that successful SBU’s will go and do well in attractive markets because they add value that customers will pay for. So weak companies do badly for the opposite reasons. To help break down decision-making further, you then consider a number of sub-criteria:

Gap Analysis

Gap Analysis

Gap analysis is a very useful tool for helping marketing managers to decide upon marketing strategies and tactics. Again, the simple tools are the most effective. There’s a straightforward structure to follow. The first step is to decide upon how you are going to judge the gap over time. For example, by market share, by profit, by sales and so on.

Strategic Gap Analysis

You can close the gap by using tactical approaches. The marketing mix is ideal for this. So effectively, you modify the mix so that you get to where you want to be. That is to say you change price, or promotion to move from where you are today (or in fact any or all of the elements of the marketing mix).

Tactical Gap Analysis

This is how you close the gap by deciding upon strategies and tactics – and that’s gap analysis.

This will help you to write SMART objectives. Then you simply ask two questions – where are we now? and where do we want to be? The difference between the two is the GAP – this is how you are going to get there. Take a look at the diagram below. The lower line is where you’ll be if you do nothing. The upper line is where you want to be.

What is Gap Analysis?

Your next step is to close the gap. Firstly decide whether you view from a strategic or an operational/tactical perspective. If you are writing strategy, you will go on to write tactics – see the lesson on marketing plans. The diagram below uses Ansoff’s matrix to bridge the gap using strategies:

Five Forces Analysis

Five Forces Analysis

Five Forces Analysis

Five Forces Analysis helps the corporate strategist to analyse and evaluate a competitive environment. Porter (2008) says that strategy is considered ‘too narrowly,’ and the the Five Forces allows strategists to consider more market dynamics. For example, he reasons that digital technologies are a dynamic drivers of the competitive environment, and so Five Forces can be used to evaluate new and innovative digital industries.

Five forces analysis looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.

The threat of entry.

  • Economies of scale e.g. the benefits associated with bulk purchasing.
  • The high or low cost of entry e.g. how much will it cost for the latest digital technology?
  • Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up?
  • Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects.
  • Will competitors retaliate?

The bargaining power of buyers

  • Government action e.g. will new laws be introduced that will weaken our competitive position?
  • How important is differentiation? e.g. The Champagne brand cannot be copied. This desensitises the influence of the environment.
  • This is high where there a few, large players in a market e.g. the large grocery chains.
  • If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains.
  • The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another.

The power of suppliers.

The power of suppliers tends to be a reversal of the power of buyers.

  • Where the switching costs are high e.g. Switching from one software supplier to another.
  • Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft.
  • There is a possibility of the supplier integrating forward e.g. Brewers buying bars.
  • Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places.
Five Forces Analysis.
Porter’s Five Forces Analysis.

The threat of substitutes

  • Where there is product-for-product substitution e.g. email for fax Where there is substitution of need e.g. better toothpaste reduces the need for dentists.
  • Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies.
  • We could always do without e.g. cigarettes.

Competitive Rivalry

  • This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the centre of the diagram.

Of Course, Five Forces Analysis is more complex than this brief lesson 🙂 However, take a look at this Harvard Business Review Article which includes an interview with Michael Porter.

Based upon Competitive Strategy: Techniques for analyzing industries and competitors, Porter M.E., (1980), Free Press, and The Five Competitive Forces that Shape Strategy, Harvard Business Review, January 2008.

Bowman’s Strategy Clock

Bowman’s Strategy Clock

The Strategy Clock: Bowman’s Competitive Strategy Options

The ‘Strategy Clock’ is based upon the work of Cliff Bowman (see C. Bowman and D. Faulkner ‘Competitve and Corporate Strategy – Irwin – 1996).

Option three – hybrid

  • low cost base and reinvestment in low price and differentiation.

Option four – differentiation

(a)without a price premium:

  • perceived added value by user, yielding market share benefits.

(b)with a price premium:

  • perceived added value sufficient to to bear price premium.

Option five – focussed differentiation

  • perceived added value to a ‘particular segment’ warranting a premium price.

Option six – increased price/standard

  • higher margins if competitors do not value follow/risk of losing market share.

Option seven – increased price/low values

  • only feasible in a monopoly situation.

Option eight – low value/standard price

  • loss of market share.

It’s another suitable way to analyze a company’s competitive position in comparison to the offerings of competitors. As with Porter’s Generic Strategies, Bowman considers competitive advantage in relation to cost advantage or differentiation advantage. There are six core strategic options:

Bowman's Strategy Clock

Option one – low price/low added value

  • likely to be segment specific.

Option two – low price

  • risk of price war and low margins/need to be a ‘cost leader’.

Boston Matrix

 

The Boston Matrix

The Boston Consulting Group’s Product Portfolio Matrix

Like Ansoff’s matrix, the Boston Matrix is a well known tool for the marketing manager. It was developed by the large US consulting group and is an approach to product portfolio planning. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth.

You would look at each individual product in your range (or portfolio) and place it onto the matrix. You would do this for every product in the range. You can then plot the products of your rivals to give relative market share.

This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. Each cell has its own name as follows.

Dogs

These are products with a low share of a low growth market. These are the canine version of ‘real turkeys!’. They do not generate cash for the company, they tend to absorb it. Get rid of these products.

Cash Cows

These are products with a high share of a slow growth market. Cash Cows generate more more than is invested in them. So keep them in your portfolio of products for the time being.

Problem Children

These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share.

Stars

These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars.

Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds generated by your Cash Cows is used to turn problem children into Stars, which may eventually become Cash Cows. Some of the Problem Children will become Dogs, and this means that you will need a larger contribution from the successful products to compensate for the failures.

Boston Matrix

Problems with The Boston Matrix

  • There is an assumption that higher rates of profit are directly related to high rates of market share. This may not always be the case. When Boeing launch a new jet, it may gain a high market share quickly but it still has to cover very high development costs
  • It is normally applied to Strategic Business Units (SBUs). These are areas of the business rather than products. For example, Ford own Landrover in the UK. This is an SBU not a single product.
  • There is another assumption that SBUs will cooperate. This is not always the case.
  • The main problem is that it oversimplifies a complex set of decision. Be careful. Use the Matrix as a planning tool and always rely on your gut feeling.

Benchmarking

Benchmarking

Introduction to Benchmarking

Benchmarking relies upon a comparison between the activities of your own organization and those of another. Originally benchmarking was used in manufacturing operations where one process could be compared and contrasted with another.

Benefits of benchmarking (Gift 1996)

  • It is an effective approach for achieving operational change. Benchmarks are the catalyst that moves an organization to higher levels of performance.
  • Since customer requirements are so rigorously defined, benchmarking improves customer orientation.
  • It focuses upon the processes that improve results – not simply results.
  • Performance measures are often improved as a result of benchmarking.
  • Decision making improves because the organization has enhanced customer knowledge, process focus, and performance measures.
  • Benchmarking improves innovation and creativity since self-imposed barriers to success are removed.

Potential pitfalls with benchmarking.

  • Benchmarking needs to be supported and driven by senior leaders.
  • Prerequisites (such as organizational structure, processes) need to be in place.
  • Conducting benchmarking for the wrong reasons can be problematic e.g. to produce data – ignoring processes and insights gained into practices that produce benchmarks.
  • Selecting the wrong benchmarks.
  • Selecting the wrong benchmark partner.
  • Not gaining management support for plans resulting from benchmarks.

Marketing benchmarking.

When applying benchmarking techniques to an organization’s marketing activities you are essentially comparing one or a number of your company’s marketing activities to those of another part of the business, a competitor or a business that operates in another industry. Vorhies and Morgan (2005) used the following marketing benchmarks in their research:

  • Pricing
  • Product Development
  • Channel Management
  • Marketing Communications
  • Selling
  • Market Information Systems
  • Marketing Planning
  • Marketing Implementation

Essentially they focus upon the marketing mix, marketing information, planning and operations. Each of these could be sub-divided and new factors introduced e.g. Customer Relationship Management (CRM) – to suit your own organization’s marketing strategy.

References.

Camp, R.C. (1995) Business Process Benchmarking: Finding and Implementing Best Practises. Milwaukee: ASQC Quality Press, p18.

Camp, R.C. (1989 Benchmarking: The Search for Best Practises that Lead to Superior Performance. Milwaukee: ASQC Quality Press, p12.

Gift, R.G. (1996) Today’s Management Methods, P245 – 261.

Prasnikar, J., Debeljak Z. and Ahcan, A. (2005) Benchmarking as a Tool for Strategic Management, Total Quality Management, Vol.16, No. 2, 257 – 275, March 2005.

Vorhies, D.W. Morgan, N. A. (2005) Benchmarking Marketing Capabilities for Sustainable Competitive Advantage, Journal of Marketing, Vol. 69, Issue 1, p80-94.

Think about it in basic terms – you measure a piece of wood along your bench. You keep one end of the wood level/flush with the end of the bench and cut a notch in the bench itself with your chisel at the other end. Then you place other pieces of wood in the same location – the shorter ones you reject and the longer ones you cut down. A benchmark is a measurement tool.

Xerox is commonly cited as the original proponent. More recently the definition has broadened to include all business processes, competitive advantages, performance and strategies (Prasnikar et al 2005)

Benchmarking

Basic types of benchmark.

Competitive or Industry/sector benchmarking enables an organization to compare its performance with competitors trading in the same industry or sector.

Best-in-class benchmarking is similar to industry or sector benchmarking. However managers would compare their organization to the market or sector leader i.e. the best-in-class.

Internal or historical benchmarking is the internal procedure for comparing results from past performance to current or forecasted performance.

Functional or external benchmarking involves comparing your business activities with those of companies from other industries/sectors with similar processes.

Collaborative benchmarking involves two phases; firstly between two voluntary collaborators within a sector, then secondly between the two collaborators and a party outside the current sphere of competition. Of course this is better suited to the public sector e.g. hospitals, police services since commercial rivals are unlikely to collaborate in this manner.

Balanced Scorecard


Balanced Scorecard

The Balanced Scorecard is an approach that can be used by strategic marketing managers to control, and keep track of, key performance indicators. In fact the scorecard itself is designed to be wholly strategic since it contains long-term outcomes and drivers of success.

Internal Business Processes.

Internal business processes include all operations within the organisation. The measures would cover whether or not value is being delivered to target segments, and the value chain is tracked. Innovation and new product development would also be measured. Examples of internal business processes include Information Technology, manufacturing, marketing operations such as customer service, procurement and quality processes.

Customers.

As marketers we are very concerned with our customers. We need to make sure that they are satisfied with every aspect of their experience with our organisation. We need to make sure that we not only recruit more new customers, but that we also retain them and extend new products and services to them. We also need to make sure that we are meeting the needs of our target segments. So here, examples of customer measures include customer retention and recruitment, their satisfaction and so on.

Balanced scorecard

Financial.

Financial measures are vitally important for any business. A note of caution here, since traditional measures of financial success such as Return On Investment (ROI), and made secondary to ‘shareholder value.’ Shareholder value is the natural measure of success, and so it is prioritised. Information on customers, markets and technology is far more widely available today, so don’t bogged down with old fashioned financial measures.

Resources, individuals and teams within a business are then aligned with the scorecard objectives, measures, targets and initiatives for each of the four areas of measurement.

There are four zones in a balanced scorecard namely financial, customers, business processes (or simply processes), and learning and growth. Each measure is part of a longer chain of cause and effect, and all of the measures eventually lead to outcomes (read on and this will become clearer). So the scorecard is ‘balanced’ in that outcomes are in balance with each other.

The benefit of the scorecard is that is overcomes short-term quick fixes, and gives the strategic marketing manager a straightforward overview of the organisation. In fact, a scorecard should ideally fit onto a single sheet of paper. In fact Kaplan and Norton (1992), the originators of Balanced Scorecard, describe it as the dials in an airplane cockpit.

Learning and Growth.

Learning and Growth deals with measures of corporate success in relation to how it learns as it develops over time. So if the company makes mistakes in any way, then it must learn from them and there must be mechanisms in place to make sure that happens. Growth also includes the way in which it generates leaders for the future and equips employees with the necessary skills that will ultimately sustain its business. Examples include skills sets, employee relations and satisfaction, and staff competences.

Ansoff’s Matrix – Planning for Growth


Ansoff’s Matrix – Planning for Growth

This well known marketing tool was first published in the Harvard Business Review (1957) in an article called ‘Strategies for Diversification’. It is used by marketers who have objectives for growth. Ansoff’s matrix offers strategic choices to achieve the objectives. There are four main categories for selection.

Market Penetration

Here we market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.

Market Development

Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, are examples of market development.

Product Development

This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers.

Ansoff's Product/Market Mix

Diversification

This is where we market completely new products to new customers. There are two types of diversification, namely related and unrelated diversification. Related diversification means that we remain in a market or industry with which we are familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where we have no previous industry nor market experience. For example a soup manufacturer invests in the rail business.

Ansoff’s matrix is one of the most well know frameworks for deciding upon strategies for growth.

 

The Arthur D Little (ADL) Strategic Condition Matrix


The Arthur D Little (ADL) Strategic Condition Matrix

Although now slightly dated at first glance, The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation. ADL has two main dimensions – competitive position and industry maturity.

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates. The product or service which it markets, and the accesses it has to a range of geographically dispersed markets that are what makes up an organization’s competitive position i.e. product and place.

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an ‘industry life cycle.’ Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making. Now let’s consider options in more detail. Competitive position has five main categories:

  • 1. Dominant – This is a particularly extraordinary position. Often this is associate with some form of monopoly position or customer lock-in e.g. Microsoft Windows being the dominant global operating system.
  • 2. Strong – Here companies have a lot of freedom since position in an industry is comparatively
    powerful e.g. Apple’s iPod products.
  • 3. Favourable – Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place. No single global player controls all segments. Here product strengths and geographical advantages come into play.
  • 4. Tenable – Here companies may face erosion by stronger competitors that have a favourable, strong or competitive position. It is difficult for them to compete since they do not have a sustainable competitive advantage.
  • 5. Weak – As the term suggests companies in this undesirable space are in an unenviable position. Of course there are opportunities to change and improve, and therefore to take an organization to a more favourable, strong or even dominant position.

From here the strategic position of an organisation can be established. Managers then need to decide upon the best strategic direction for the business. For example they might use a Gap Analysis. According to ADL, there are six generic categories of strategy that could be employed by individual SBU’s:

  • Market strategies.
  • Product strategies.
  • Management and systems strategies.
  • Technology strategies.
  • Retrenchment strategies.
  • Operations strategies.