Marketing strategy

Marketing strategy has the fundamental goal of increasing sales and achieving a sustainable competitive advantage.[1] Marketing strategy includes all basic, short-term, and long-term activities in the field of marketing that deal with the analysis of the strategic initial situation of a company and the formulation, evaluation and selection of market-oriented strategies that contribute to the goals of the company and its marketing objectives.[2] Marketing strategies cover everything from Pay per click, search engine marketing, public relations (PR), Engineering with Marketing & the much more.

Marketing management versus marketing strategy

The distinction between “strategic” and “managerial” marketing is used to distinguish "two phases having different goals and based on different conceptual tools. Strategic marketing concerns the choice of policies aiming at improving the competitive position of the firm, taking account of challenges and opportunities proposed by the competitive environment. On the other hand, managerial marketing is focused on the implementation of specific targets." [3] Marketing strategy is about "lofty visions translated into less lofty and practical goals [while marketing managment] is where we start to get our hands dirty and make plans for things to happen." [4]

Developing a marketing strategy

Strategic planning begins with a scan of the business environment, both internal and external, this includes understanding strategic constraints.[5] An understading of the external operating environment, including political, economic, social and technological which includes demographic and cultural aspects, is necessary for the identification of business opportunities and threats.[6] This analysis is called PEST, it stand for Political, Economic, Social and Technological. A number of variants of the PEST analysis can be identified in literature, including: PESTLE analysis (Political, Economic, Social, Legal and Environmental); STEEPLE (adds ethics); STEEPLED (adds demographics) and STEER (adds regulatory).[7]

PEST analysis: variables that may be considered in the environmental scan

The aim of the PEST

analysis is to identify opportunities and threats in the wider operating environment. Firms try to leverage opportunities while trying to buffer themselves against potential threats. Basically, the PEST analysis guides strategic decision-making.[8] The main elements of the PEST analysis are:[9]
  • Political: political interventions with the potential to disrupt or enhance trading conditions e.g. government statutes, policies, funding or subsidies, support for specific industries, trade agreements, tax rates and fiscal policy.
  • Economic: economic factors with the potential to affect profitability and the prices that can be charged, such as, economic trends, inflation, exchange rates, seasonality and economic cycles, consumer confidence, consumer purchasing power and discretionary incomes.
  • Social: social factors that affect demand for products and services, consumer attitudes, tastes and preferences like demographics, social influencers, role models, shopping habits.
  • Technological: Innovation, technological developments or breakthroughs that create opportunities for new products, improved production processes or new ways of transacting business e.g. new materials, new ingredients, new machinery, new packaging solutions, new software and new intermediaries.

When carrying out a PEST analysis, planners and analysts may consider the operating environment at three levels, namely the supranational; the national and subnational or local level. As businesses become more globalized, they may need to pay greater attention to the supranational level.[10]

A SWOT analysis, with its four elements in a 2×2 matrix.

In addition to the PEST analysis, firms carry out a Strengths, Weakness, Opportunities and Threats (SWOT) analysis. A SWOT analysis identifies:[11]

  • Strengths: distinctive capabilities, competencies, skills or assets that provide a business or project with an advantage over potential rivals; internal factors that are favourable to achieving company objectives
  • Weaknesses: internal deficiencies that place the business or project at a disadvantage relative to rivals; or deficiencies that prevent an entity from moving in a new direction or acting on opportunities. internal factors that are unfavourable to achieving company objectives
  • Opportunities: elements in the environment that the business or project could exploit to its advantage
  • Threats: elements in the environment that could erode the firm's market position; external factos that prevent or hinder an entity from moving in a desired direction or achieveing its goals

After setting the goals marketing strategy or marketing plan should be developed. This is an explanation of what specific actions will be taken over time to achieve the objectives. Plans can be extended to cover many years, with sub-plans for each year. Although, as the speed of change in the merchandising environment quickens, time horizons are becoming shorter.[6] Ideally, strategies are both dynamic and interactive, partially planned and partially unplanned. To enable a firm to react to unforeseen developments while trying to keep focused on a specific pathway, a longer time frame is preferred. There are simulations such as customer lifetime value models which can help marketers conduct "what-if" analyses to forecast what might happen based on possible actions, and gauge how specific actions might affect such variables as the revenue-per-customer and the churn rate. Strategies often specify how to adjust the marketing mix; firms can use tools such as Marketing Mix Modeling to help them decide how to allocate scarce resources for different media, as well as how to allocate funds across a portfolio of brands. In addition, firms can conduct analyses of performance, customer analysis, competitor analysis, and target market analysis. A key aspect of marketing strategy is often to keep marketing consistent with a company's overarching mission statement.[12]

Marketing strategy should not be confused with a marketing objective or mission. For example, a goal may be to become the market leader, perhaps in a specific niche; a mission may be something along the lines of "to serve customers with honor and dignity"; in contrast, a marketing strategy describes how a firm will achieve the stated goal in a way which is consistent with the mission, perhaps by detailed plans for how it might build a referral network. Strategy varies by type of market. A well-established firm in a mature market will likely have a different strategy than a start-up. Plans usually involve monitoring, to assess progress, and prepare for contingencies if problems arise.

The customised target strategy

The requirements of individual customer markets are unique, and their purchases sufficient to make viable the design of a new marketing mix for each customer.

If a company adopts this type of market strategy, a separate marketing mix is to be designed for each customer.[13]

The differentiated strategy

Specific marketing mixes can be developed to appeal to most of the segments when market segmentation reveals several potential targets.[14]

Diversity of strategies

Marketing strategies may differ depending on the unique situation of the individual business. However, there are a number of ways of categorizing some generic strategies. A brief description of the most common categorizing schemes is presented below:

Strategies based on market dominance

In this scheme, firms are classified based on their market share or dominance of an industry. Typically there are four types of market dominance strategies:[15]

Entrant strategies

According to Lieberman and Montgomery, every entrant into a market – whether it is new or not – is classified under a Market Pioneer, Close Follower or a Late follower [16]

Pioneers

Market Pioneers are known to often open a new market to consumers based off a major innovation.[17] They emphasise these product developments, and in a significant amount of cases, studies have shown that early entrants – or pioneers – into a market have serious market-share advantages above all those who enter later.[18] Pioneers have the first-mover advantage, and in order to have this advantage, business’ must ensure they have at least one or more of three primary sources: Technological Leadership, Preemption of Assets or Buyer Switching Costs.[16] Technological Leadership means gaining an advantage through either Research and Development or the “learning curve”.[16] This lets a business use the research and development stage as a key point of selling due to primary research of a new or developed product. Preemption of Assets can help gain an advantage through acquiring scarce assets within a certain market, allowing the first-mover to be able to have control of existing assets rather than those that are created through new technology.[16] Thus allowing pre-existing information to be used and a lower risk when first entering a new market. By being a first entrant, it is easy to avoid higher switching costs compared to later entrants. For example, those who enter later would have to invest more expenditure in order to encourage customers away from early entrants [16]). However, while Market Pioneers may have the “highest probability of engaging in product development” [19] and lower switching costs, to have the first-mover advantage, it can be more expensive due to product innovation being more costly than product imitation. It has been found that while Pioneers in both consumer goods and industrial markets have gained “significant sales advantages”,[20] they incur larger disadvantages cost-wise.

Close followers

Being a Market Pioneer can more often than not, attract entrepreneurs and/or investors depending on the benefits of the market. If there is an upside potential and the ability to have a stable market share, many businesses would start to follow in the footsteps of these pioneers. These are more commonly known as Close Followers. These entrants into the market can also be seen as challengers to the Market Pioneers and the Late Followers. This is because early followers are more than likely to invest a significant amount in Product Research and Development than later entrants.[19] By doing this, it allows businesses to find weaknesses in the products produced before, thus leading to improvements and expansion on the aforementioned product. Therefore, it could also lead to customer preference, which is essential in market success.[21] Due to the nature of early followers and the research time being later than Market Pioneers, different development strategies are used as opposed to those who entered the market in the beginning,[19] and the same is applied to those who are Late Followers in the market. By having a different strategy, it allows the followers to create their own unique selling point and perhaps target a different audience in comparison to that of the Market Pioneers. Early following into a market can often be encouraged by an established business’ product that is “threatened or has industry-specific supporting assets”.[22]

Late followers

Those who follow after the Close Followers are known as the Late Entrants. While being a Late Entrant can seem very daunting, there are some perks to being a latecomer. For example, Late Entrants have the ability to learn from those who are already in the market or have previously entered.[22] Late Followers have the advantage of learning from their early competitors and improving the benefits or reducing the total costs. This allows them to create a strategy that could essentially mean gaining market share and most importantly, staying in the market. In addition to this, markets evolve, leading to consumers wanting improvements and advancements on products.[23] Late Followers have the advantage of catching the shifts in customer needs and wants towards the products.[16] When bearing in mind customer preference, customer value has a significant influence. Customer value means taking into account the investment of customers as well as the brand or product.[24] It is created through the “perceptions of benefits” and the “total cost of ownership”.[24] On the other hand, if the needs and wants of consumers have only slightly altered, Late Followers could have a cost advantage over early entrants due to the use of product imitation.[19] However, if a business is switching markets, this could take the cost advantage away due to the expense of changing markets for the business. Late Entry into a market does not necessarily mean there is a disadvantage when it comes to market share, it depends on how the marketing mix is adopted and the performance of the business.[25] If the marketing mix is not used correctly – despite the entrant time – the business will gain little to no advantages, potentially missing out on a significant opportunity.

Raymond Miles' strategy categories

In 2003, Raymond Miles proposed a more detailed scheme using the categories:Miles, Raymond (2003). Organizational Strategy, Structure, and Process. Stanford: Stanford University Press. ISBN 0-8047-4840-3. 

Growth strategies

Growth of a business is critical for business success, so using strategies such as horizontal integration, vertical integration, diversification and intensification will all benefit a business’s growth, be it long term or short term. Refer to Ansoff's Matrix for a simpler explanation of the various growth strategies if those mentioned below are difficult to understand.

Horizontal integration

Some benefits of the horizontal integration strategy is that it is good for fast changing work environments as well as providing a broad knowledge base for the business and employees.[26] High levels of horizontal integration leads to high levels of communication within the business. Another benefit of using this strategy is that it leads to a larger market for merged businesses, and it is easier to build good reputations for a business when using this strategy.[27] A disadvantage of using the horizontal integration strategy is that this limits and restricts the field of interest that the business is expanding the new products into.[28] Horizontal integration can affect a business's reputation, especially after a merge has happened between two or more businesses. There are three main benefits to a business's reputation after a merge. A larger business helps the reputation and increases the severity of the punishment. As well as the merge of information after a merge has happened, this increases the knowledge of the business and marketing area they are focused on. The last benefit is more opportunities for deviation to occur in merged businesses rather than independent businesses.[27]

Vertical integration

Vertical integration is when business is expanded through the vertical production line on one business. An example of a vertically integrated business could be Apple. Apple owns all their own software, hardware, designs and operating systems instead of relying on other businesses to supply these.[29] By having a highly vertically integrated business this creates different economies therefore creating a positive performance for the business.[30] Vertical integration is seen as a business controlling the inputs of supplies and outputs of products as well as the distribution of the final product.[30] Some benefits of using a Vertical integration strategy is that costs may be reduced because of the reducing transaction costs which include finding, selling, monitoring, contracting and negotiating with other firms. Also by decreasing outside businesses input it will increase the efficient use of inputs into the business. Another benefit of vertical integration is that it improves the exchange of information through the different stages of the production line.[30] Some competitive advantages could include; avoiding foreclosures, improving the business marketing intelligence, and opens up opportunities to create different products for the market.[31] Some disadvantages of using a Vertical Integration Strategy include the internal costs for the business and the need for overhead costs. Also if the business is not well organised and fully equipped and prepared the business will struggle using this strategy. There are also competitive disadvantages as well, which include; creates barriers for the business, and loses access to information from suppliers and distributors.[31]

Diversification

Diversification is an area included in the Ansoff Matrix strategy, where the most risk for a business is situated. This is due to the use of a new product being introduced to a new market, so there are no already existing target markets or competition.[32] There are two types of diversification, vertical and horizontal. Horizontal diversification is when a new product is introduced but doesn’t contribute to the already existing product line. Meaning horizontal diversification focuses more on product that the business has knowledge about, whereas vertical diversification focuses more on the introduction of new product onto new markets, where the business could have less knowledge of the ne market.[28] A benefit of horizontal diversification is that it is an open platform for a business to expand and build away from the already existing market.[28] A disadvantage of using a Diversification strategy is that the benefits could take a while to start showing, which could lead the business to believing that the strategy doesn’t work.[28] Another disadvantage or risk is, it has been shown that using the horizontal diversification method has become harmful for stock value, but using the vertical diversification had the best effects.[33]

Strategic models

Marketing businesses often use strategic models and tools to analyze marketing decisions. There are three main models that can be applied and used within a business to receive better results and reach business goals. These include:

The 3C’s

The 3C’s stand for: Customer, Corporation and Competitor, is a strategic model that uses these three key factors which lead to a sustainable competitive market. This strategy was developed by a Japanese strategy guru called Kenichi Ohmae.[34] Each factor is key to the success of this strategy; The corporation factor mainly focuses on maximizing the strengths of the business from which the business can influence the relevant areas of the competition to achieve success within the industry.[34] Customers are the basis to any business. The most important factors of customers and the wants, needs and requirements that the business needs to fulfill in order to attract buyers. The competition can be looked at in various different ways such as; purchasing, design, image and maintenance. The more unique steps a business takes the less competition a business will face in that field.[34]

The Ansoff Matrix

The Ansoff Matrix model invented by H. Igor Ansoff; is a model that focuses on four main areas; Market penetration, Product development, Market development and Market Diversification. These are further split into two areas known as the ‘New’ and ‘Present’. From this strategy, businesses are able to determine the product and market growth. This is done by focusing on whether the market is a new market or an already existing one, and whether the products are new or not.[35] Market penetration covers products that are familiar to the consumers, this creates a low risk as the product is already on the established market.[35] Product development is the introduction of a new product into an existing market. This can include modifications to an already existing market which can create a product that has more appeal.[35] Market development, also known as market extension, is when an already existing product is introduced to a new market in order to identify and build a new clientele base. This can include new geographical markets, new distribution channels, and different pricing policies. Diversification, is the riskiest area for a business. This is where a new product is sold to a new market. There are two type of Diversification "Related" which means the business remains in the same industry that they are familiar with. The other is "Unrelated" which is when there are no previous relations or market experiences for the business.[35]

Marketing Mix Model (4P’s)

The 4P’s also known as Price, Product, Place and Promotion is a strategy that originated from the single P meaning Price. This strategy was designed as an easy way to turn marketing planning into practice. This strategy is used to find and meet the consumer needs and can be used for long term or short term purposes. The proportions of the marketing mix can be altered to meet different requirements for each product produced.[36]

Real-life marketing

Real-life marketing revolves around the application of a great deal of common-sense; dealing with a limited number of factors, in an environment of imperfect information and limited resources complicated by uncertainty and tight timescales. Use of classical marketing techniques, in these circumstances, is inevitably partial and uneven.

Thus, for example, many new products will emerge from irrational processes and the rational development process may be used (if at all) to screen out the worst non-runners. The design of the advertising, and the packaging, will be the output of the creative minds employed; which management will then screen, often by 'gut-reaction', to ensure that it is reasonable.

For most of their time, marketing managers use intuition and experience to analyze and handle the complex, and unique, situations being faced. This will often intuition coupled with the knowledge of the customer which has been absorbed almost by a process of osmosis. This will determine the quality of the marketing executed. This almost instinctive management, is what is sometimes called 'coarse marketing'; to distinguish it from the refined, aesthetically pleasing, form favored by the theorists.

Few notable exceptions of "Real life marketing" are based on gut instinct as opposed to trained, vetted and backed by high investment data. This may lead to producing low results and income.

Many entrepreneurs and small companies think they can manage the marketing sector without training but this is to the detriment of their business.

A Start up or a company's strategy combines all of its marketing goals into one comprehensive plan. A good marketing strategy should be drawn from market research and focus on the product mix in order to achieve the maximum profit and sustain the business. The marketing strategy is the foundation of a marketing plan.

See also

References

  1. ↑ Baker, Michael The Strategic Marketing Plan Audit 2008. ISBN 1-902433-99-8. p.3
  2. ↑ Homburg, Christian; Sabine Kuester, Harley Krohmer (2009): Marketing Management – A Contemporary Perspective (1st ed.), London.
  3. ↑ Volpato, G. and Stocchetti, A., "Old and new approaches to marketing: The quest of their epistemological roots," MPRA Paper No. 30841, 2009, <Online: https://mpra.ub.uni-muenchen.de/30841>, p. 34
  4. ↑ Cited in Dann, S. and Dann, S., E-Marketing: Theory and ApplicationLondon, Palgrave-McMillan, 2011, p. 109
  5. ↑ Aaker, David Strategic Market Management 2008. ISBN 978-0-470-05623-3.
  6. 1 2 Aaker, David Strategic Market Management 2008. ISBN 978-0-470-05623-3
  7. ↑ Sammut-Bonnici, T. and Galea, F., "PEST Analysis" in Wiley Encyclopedia of Management,John Wiley, 2015, p. 1 <Online: https://www.researchgate.net/publication/257303449_PEST_Analysis>
  8. ↑ Oxford Reference Online <http://www.oxfordreference.com/view/10.1093/oi/authority.20110803100319664>
  9. ↑ Sammut-Bonnici, T. and Galea, F., "PEST Analysis" in Wiley Encyclopedia of Management,John Wiley, 2015, pp 2-6 <Online: https://www.researchgate.net/publication/257303449_PEST_Analysis>
  10. ↑ Sammut-Bonnici, T. and Galea, F., "PEST Analysis" in Wiley Encyclopedia of Management,John Wiley, 2015, p. 5
  11. ↑ Fine, L.H., The SWOT Analysis: Using your Strength to Overcome Weaknesses, Using Opportunities to Overcome Threats,Kickit LLC, 2010,
  12. ↑ Baker, Michael (2008 ) The Strategic Marketing Plan Audit. p. 27. ISBN 1-902433-99-8.
  13. ↑ foundations of marketing. 2016.
  14. ↑ foundations of marketing. 2015. p. 128.
  15. ↑ "Market Dominance Strategy". Retrieved 2016-04-13.
  16. 1 2 3 4 5 6 Lieberman, M.; Montgomery, D. (1998). "First-Mover Advantages" (PDF). Strategic Management Journal (9): 41–58. JSTOR 3094199.
  17. ↑ Farris, Paul W.; Moore, Michael J. (4 November 2004). The Profit Impact of Marketing Strategy Project: Retrospect and Prospects. Cambridge University Press. p. 81. ISBN 978-0-521-84053-8.
  18. ↑ Kalyanaram, G.; Gurumurthy, R. (1998). "Market Enrty Strategies: Pioneers versus Late Arrivals". Strategy and Business: 74–84.
  19. 1 2 3 4 Robinson, W.; Chiang, J. (2002). "Product Development Strategies for Established Market Pioneers, Early Followers, and Late Entrants". Strategic Management Journal. 23 (9): 855–866. doi:10.1002/smj.257.
  20. ↑ Boulding, W.; Christen, M. "First-Mover Disadvantage". Harvard Business Review. Retrieved 31 March 2016.
  21. ↑ Fifield, P. (2008). Marketing Strategy. Routledge.
  22. 1 2 Robinson, W.; Fornell, C.; Sullivan, M. (1992). "Are Market Pioneers Intrinsically Stronger Than Later Entrants?". Strategic Management Journal. 13 (8): 609–624. doi:10.1002/smj.4250130804.
  23. ↑ Haleblian, J.; Mcnamara, G.; Kolev, K.; Dykes, B. (2012). "Exploring Firm Characteristics That Differentiate Leaders From Followers In Industry Merger Waves: A Competitive Dynamics Perspective". Strategic Management Journal. 33 (9): 1037–1052. doi:10.1002/smj.1961.
  24. 1 2 Christopher, M. (1996). "From Brand Values to Customer Value". Journal of Marketing Practice: Applied Marketing Science. 2: 55–66. doi:10.1108/EUM0000000000007.
  25. ↑ Wilkie, D.; Johnson, L.; White, L. (2015). "Overcoming late entry: the importance of entry position, inferences and market leadership". Journal of Marketing Management. 31 (3–4): 424. doi:10.1080/0267257X.2014.981567.
  26. ↑ Teixeira, R., Koufteros, X. A., Peng, X. D. (2012). "Organizational Structure, Integration, and Manufacturing Performance: a Conceptual Model and Propositions". Journal of Operations and Supply Chain Management. 5 (1): 69–81.
  27. 1 2 Obara, Ichiro; Cai, H (2006). "Firm Reputation and Horizontal Integration" (PDF). The RAND Journal of Economics. 40 (2): 340–363.
  28. 1 2 3 4 Ansoff, I. (1957). "Strategies for Diversification" (PDF). Harvard Business Review. 35 (5): 113–124. Archived from the original on 2015-04-13.
  29. ↑ Isaksen, John R. "The Impact of Measurements and Industry" (PDF).
  30. 1 2 3 Zhang, Dongli (2013). "The Revival of Vertical Integration: Strategic Choice and Performance Influences". Journal of Management and Strategy. 4 (1). doi:10.5430/jms.v4n1p1.
  31. 1 2 Harrigan. "Formulating Vertical Integration Strategies" (PDF).
  32. ↑ Haq, F, Wong, H and Jackson, J (2008) Applying Ansoff’s growth strategy matrix to Consumer Segments and Typologies in Spiritual Tourism. Eighth International Business Research Conference
  33. ↑ Pozzi, Carlo; Vassilopoulos, Philippe (2007). "The Impact of Vertical Integration and Horizontal Diversification on the Value of Energy Firms". The Econometrics of Energy Systems (PDF). p. 225. ISBN 978-1-349-54149-2. doi:10.1057/9780230626317_11.
  34. 1 2 3 Vliet, Vincent van (February 17, 2015). "3C model by Kenichi Ohmae". toolshero.com.
  35. 1 2 3 4 "Ansoff Matrix".
  36. ↑ Goi, Chai Lee (2009). "A Review of Marketing Mix: 4P's or More". International Journal of Marketing Studies. 1 (1). doi:10.5539/ijms.v1n1p2.

Further reading

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