marketing startegy
From free-range meat to vegan haircare, demand for sustainable goods is rising
In a busy north London supermarket the week- end before Christmas, the meat aisle is a hub- bub. Sarah Rymer, 32, picks her way through a shelf of whole chickens. She chooses a free- range bird. ‘I’ve definitely become more con- scious of what I buy in the past few years,’ she says. ‘It can be confusing, but I think it’s worth the money.’ Ms Rymer is one of an increasing number of shoppers driving the UK’s £81.3bn market for ethical products and services. According to not-for-profit consultancy Ethi- cal Consumer, the sector has grown by more than £40bn since 2008, with households spend- ing an average of £1,263 on ethical goods last year. The ethical food and drink market alone was up 9.7 per cent, compared with 5.3 per cent growth in 2015. Businesses are seeing the appeal. For Thanks- giving this year Butterball, the US’s largest turkey pro- ducer, launched its first organic range in response to increasing consumer demand, while earlier in the year UK sandwich chain Pret A Manger opened its second and third all-vegetarian outlets. Ikea, which says that it uses its sustainable credentials to set it apart from other affordable homeware brands, intends to use only recycled or FSC certified wood by 2020. Big consumer
product groups are making concerted efforts, too. French cosmetics company L’Oréal this month unveiled its first vegan hair colour products, aimed at boosting its flagging professional haircare division. As part of a steady strategy of smaller acquisitions, Unilever bought Sir Kensington, a maker of vegan mayonnaise, and Pukka organic teas. Its sustainable brands – those the company describes as ‘combin[ing] a strong purpose delivering a social or environmental benefit’ – grew 40 per cent faster than the rest of the business in 2016, it says.
‘The purpose of marketing is to contribute to maximising shareholder value, and marketing strategies must be evaluated in terms of how much value they create for investors.’ Peter Doyle (2008)
MARKET-LED STRATEGIC MANAGEMENT
CHAPTER 1
With consumers showing increasing concern for animal welfare, demand has risen for free-range poultry
Source: Jamie McDonald / Staff/Getty Images.
Younger consumers drive shift to ethical products By Alice Hancock in London
5INTRODUCTION
Introduction
In the quote that begins this chapter, Professor Peter Doyle highlights that the primary over- arching goal for chief executives of commercial companies is to maximise shareholder value. However, is this at odds with the increasing awareness of, and attention to, environmental and social responsibility issues? Surely firms seeking to maximise shareholder value will pay scant regard to the natural and social environment in which they operate, taking what they can, irrespective of the consequences, in order to make a quick buck? Isn’t this the essence of market-based capitalism – red in tooth and claw?
Wrong! The essence of the shareholder value approach is the long-term sustainability of the organisation through the creation of lasting value. Indeed, Doyle also argues that shareholder value is often confused with maximising profits. Maximising profitability is generally considered to be a short-term approach (and may result in eroding long-term competitiveness through actions such as cost cutting and shedding assets, to produce quick improvements in earnings). Maximising shareholder value, on the other hand, requires long-term thinking, the identification of changing opportunities and investment in the building of competitive advantage.
Younger consumers are fuelling this response. YouGov data show that in the past year alone the proportion of 18- to 24-year-olds turning to veg- etarianism for environmental or welfare reasons has increased from 9 to 19 per cent. And it is not just in their consumer habits. ‘We know that mil- lennials want to work for companies that take this stuff seriously,’ says Rob Harrison, direc- tor of Ethical Consumer. ‘Lots of new start-ups have an ethical mission and it translates across into buying patterns.’ He is speaking to me on his Fairphone, marketed as ‘the world’s first ethi- cal, modular smartphone’. Ben Gleisner is the founder of one such ethically minded start-up. In 2009, while working as an economist in the New Zealand treasury, he identified what he calls a ‘massive market failure’: businesses, unaware that customers were interested in ethical prod- ucts did not invest in them, resulting in a ‘huge undersupply’. Conscious Consumers, the platform he has set up, provides retailers with data about customers’ ethical preferences. Shoppers sign up online and link their credit or debit card to the app. Whenever they spend money at businesses
registered with Conscious Consumers, data entered on their profile – from whether they would prioritise buying organic to whether they are interested in climate change or workers welfare – is sent to the retailer. In 2015 Mr Gleisner and his team ran New Zealand’s second-biggest crowdfund- ing campaign and in autumn next year it plans to launch in its first foreign market: the UK. Richard Collier-Keywood, previously managing partner of PwC UK, has come on board as a director. Mr Gleisner says that 16- to 35-year-olds – Generations Y and Z – are the strongest market. ‘Generation Z is the most environmentally and socially “aware” consumer market yet. Even more so than millenni- als,’ he says. The sticking point is cost. At higher- end supermarket Waitrose, where Ms Rymer is shopping, an Essential range chicken is £2.40 per kg while a free-range bird is £6.25 per kg – more than double the price. Josie Mallin, 27, who is shopping for a Sunday joint in the more affordable Morrisons supermarket nearby, chooses a standard chicken. ‘I try to buy ethically but say a normal chicken is £4 and an organic chicken is £10, I’m going to buy the normal one,’ she says.
Source : from ‘Younger consumers drive shift to ethical products’, Financial Times , 23/12/17 (Hancock, A.).
Discussion questions 1 What issues is Conscious Consumers trying to address?
2 How is the company trying to address them?
6 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
The role of marketing in the modern organisation poses something of a paradox. As Doyle (2008) again points out, few chief executives come from a marketing background, and many leading organisations have no marketing directors on their boards. Indeed, in many firms, the marketing function or department has had little or no strategic input, and instead is largely con- cerned with public relations (PR), advertising or sales support roles. However, there has been a noticeable change over the last decade or so regarding the importance of the marketing concept in setting strategic direction and influencing the overall culture of firms. Indeed, marketing is now routinely discussed, and embraced as being influential and important, in sectors that might have previously considered its use as irrelevant – for example in not-for-profit enterprises, such as charities and the arts, political parties and public sector organisations such as universities and the police service.
Managers increasingly recognise that the route to achieving commercial or social objectives lies in meeting the needs and expectations of their customers (goods or ser- vices). The concept of the customer has always been strong in commercial businesses, and as supply has outstripped demand in so many industries, so customer choice has increased. Additionally, there has been a vast increase in information available to cus- tomers through media sources such as the Internet, and as a result power in the supply chain has shifted dramatically from manufacturer to retailer/supplier, to end customer. In a rapidly changing and increasingly complex world, organisations that don’t have customer satisfaction at the core of their strategic decision making will find it increas- ingly hard to survive.
In the not-for-profit world, the concept of the ‘customer’ is taking more time to get established but is no less central. Public sector organisations talk in terms of ‘clients’, ‘patients’, ‘students’, ‘passengers’ and the like. In reality, all are customers, in that they receive some form of benefit through an exchange with an entity or service provider. Where customers can make choices between service providers (within the public sector or outside it), they choose providers who best serve their needs. Some private sector provid- ers have successfully identified areas where customers have not been well served by the public sector, and have provided new choices (in healthcare, education, security services and transport, for example). Additionally, and conversely, where private service providers have not delivered promised levels of service/service improvements, they have been ‘taken back’ into public hands. For example, in 2019, Her Majesty’s Prison (HMP) Winson Green in Birmingham (UK) was returned to public hands from the private provider (G4S) by the Ministry of Justice following a series of high-profile issues, and a very poor report from inspectors.
While organisational structures, operational methods and formal trappings of market- ing can, and should, change to reflect new developments and market opportunities, the philosophy and concept of marketing, as described in this chapter, are even more relevant today than ever before.
This first chapter sets the scene by examining the marketing concept and market orienta- tion as the foundations of strategic marketing, the role of marketing in addressing various stakeholders in the organisation, and the developing resource-based marketing strategy approach.
1.1 The marketing concept and market orientation
1.1.1 Evolving definitions of marketing
One of the earliest examples of codification and/or definition in the development of mar- keting as a discipline was concerned with the marketing concept. Over 50 years ago, Felton (1959) proposed that the marketing concept is:
7THE MARKETING CONCEPT AND MARKET ORIENTATION
a corporate state of mind that exists on the integration and coordination of all the market- ing functions which, in turn, are melded with all other corporate functions, for the basic objective of producing long-range profits.
More recently, Kotler et al. (1996) suggested that the defining characteristic of the market- ing concept is that:
the marketing concept holds that achieving organisational goals depends on determin- ing the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do.
At its simplest, the marketing concept holds that in increasingly dynamic and competitive markets, the companies or organisations that are most likely to succeed are those that take notice of customer expectations, wants and needs, and gear themselves to satisfying them better than their competitors. It recognises that there is no reason why customers should buy one organisation’s offerings unless they are in some way better at serving their wants and needs than those offered by competing organisations.
As it probably should, the meaning and domain of marketing remains subject to evolu- tion and discussion. To exemplify this, in 1985 the American Marketing Association (AMA) reviewed more than 25 marketing definitions before arriving at their own (see Ferrell and Lucas, 1987):
Marketing is the process of planning and executing the conception, pricing, planning and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives.
This has since evolved further, but very much embraces the broad ideas expressed in this initial definition. The AMA’s current definition of marketing (from July 2013) is:
Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.
Taken together, the definitions position marketing as embedded within an organisation, and as something that has extensive impact outside the organisation. They also reinforce the centrality of the marketing concept, value, process, mutually beneficial exchange and customer relationships. These issues may, or may not, be managed by a marketing depart- ment or function. These definitions lead to a model of ‘mutually beneficial exchanges’ as an overview of the role of marketing, as shown in Figure 1.1.
Definitions of marketing are, of course, extremely useful. However, the reality of what marketing means operationally, and in reality, is a far more difficult topic. Webster (1997) points out that, of all the management functions, marketing has the most difficulty in defin- ing its position in the organisation, because it is simultaneously culture, strategy and tactics. He argues that marketing involves the following:
● Culture: marketing may be expressed as the ‘marketing concept’ – that is, a set of values and beliefs embedded in employees that drives organisational decision making through a fundamental commitment to serving customers’ needs, as the path to sustained profitability.
● Strategy: as strategy, marketing seeks to develop effective responses to changing market environments by defining market segments, and developing and positioning product offerings for those target markets.
● Tactics: marketing as tactics is concerned with the day-to-day activities of product man- agement, pricing, distribution and marketing communications such as advertising, per- sonal selling, publicity and sales promotion.
The challenge of simultaneously building a customer (or market) orientation in an organ- isation (culture), developing value propositions and competitive positioning (strategy) and
8 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
developing detailed marketing action plans (tactics) is complex. It is perhaps unsurprising that the organisational reality of marketing often falls short of the demands suggested previously.
1.1.2 Market orientation
Marketing Science Institute (MSI) studies during the 1990s attempted to identify the specific activities that translate the philosophy of marketing into reality, and hence achieve a market orientation. In one of the most widely quoted research streams in modern marketing that stemmed from the seminal, and still influential, Kohli and Jaworski (1990) study, market orientation was defined in the following terms:
a market orientation entails (1) one or more departments engaging in activities geared towards developing an understanding of customers’ current and future needs and the factors affecting them, (2) sharing of this understanding across departments, and (3) the various departments engaging in activities designed to meet select customer needs. In other words, a market orientation refers to the organisation-wide generation, dissemina- tion, and responsiveness to market intelligence.
This view of market orientation is concerned primarily with the development of what may be called market understanding throughout an organisation, and poses a substantial management challenge.
Another important contribution to this discussion, Narver and Slater (1990), defined market orientation as:
the organisational culture . . . that most effectively and efficiently creates the necessary behaviours for the creation of superior value for buyers and, thus, continuous superior performance for the business.
From this work a number of components, and in essence the context of marketing, are proposed (see Figure 1.2):
● customer orientation: understanding customers well enough to create superior value for them;
● competitor orientation: awareness of the short-term and long-term capabilities of competitors;
● interfunctional coordination: using all company resources, working together, to create value for target customers;
● organisational culture: linking employee and managerial behaviour to customer satisfaction;
● long-term creation of shareholder value: as the overriding business objective.
Figure 1.1 Mutually beneficial exchanges
O�ers Products, services, etc.
Purchases, support Responses
Survival Financial Social Spiritual Ecological etc.
Provider’s goals
Solutions Benefits Altruism Well-being etc.
Customer’s goals
Customer and provider satisfaction
9THE MARKETING CONCEPT AND MARKET ORIENTATION
To support these ideas, there is a significant and quite compelling amount of support for the view that market orientation is associated with superior organisational performance – that is, financial performance and non-financial performance such as employee commit- ment and esprit de corps (Jaworski and Kohli, 1993; Slater and Narver, 1994; Cano et al., 2004; Kumar et al., 2011).
However, it has also been suggested that there may be substantial barriers to achieving market orientation (Harris, 1996, 1998; Piercy et al., 2002). The reality may be that execu- tives face the problem of creating and driving marketing strategy in situations where the company is simply not market orientated. This is probably at the heart of many strategy implementation problems in marketing (see Chapter 16).
The ‘signs’ of market orientation can be summarised in the following terms, and under- lines the links between them and our approach to marketing strategy and competitive positioning:
● Reaching marketing’s true potential may rely mostly on success in moving past mar- keting activities (tactics) to marketing as a company-wide issue of real customer focus (culture) and competitive positioning (strategy). The evidence supports suggestions that marketing has generally been highly effective in tactics, but only marginally effective in changing culture, and largely ineffective in the area of strategy (Day, 1992; Varadarajan, 1992; Webster, 1997; Varadarajan, 2012).
● One key is achieving understanding of the market and the customer throughout the company, and building the capability for responsiveness to market changes. The real customer focus and responsiveness of the company is the context in which marketing strategy is built and implemented. Our approach to competitive market analysis in Part 2 provides many of the tools that can be used to enhance and share an understanding of the customer marketplace throughout the company.
● Another issue is that the marketing process should be seen as interfunctional and cross- disciplinary, and not simply the responsibility of the marketing department. This is the real value of adopting the process perspective on marketing that is becoming more widely adopted by large organisations (Hulbert et al., 2003). We shall see in Part 4 on competitive positioning strategies that superior service and value, and innovation to build defensible competitive positions, rely on the coordinated efforts of many functions and people within the organisation. Cross-functional relationships are also an important emphasis in Part 5.
● It is also clear that a deep understanding of the competition in the market from the customer’s perspective is critical. Viewing the product or service from a customer’s
Figure 1.2 Components and context of market orientation
Customer orientation
Market-led organisational
culture
Focus on the long term
lnterfunctional coordination
Competitor orientation
10 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
1 Customer orientation
Strongly agree
Agree Neither Disagree Strongly disagree
Don’t know
Information about customer needs and requirements is collected regularly
5 4 3 2 1 0
Our corporate objective and policies are aimed directly at creating satisfied customers
5 4 3 2 1 0
Levels of customer satisfaction are regularly assessed and action is taken to improve matters where necessary
5 4 3 2 1 0
We put major effort into building stronger relationships with key customers and customer groups
5 4 3 2 1 0
We recognise the existence of distinct groups or segments in our markets with different needs and we adapt our offerings accordingly
5 4 3 2 1 0
Total score for customer orientation (out of 25)
Box 1.1 Market orientation assessment
viewpoint is often difficult, but without that perspective a marketing strategy is highly vulnerable to attack from unsuspected sources of competition. We shall confront this issue in Part 3, where we are concerned with competitive positions.
● Finally, it follows that the issue is long-term performance, not simply short-term results, and this perspective is implicit in all that we consider when building and implementing marketing strategy.
A framework for executives to evaluate market orientation in their own organisations is shown in Box 1.1. However, it is also important to make the point at this early stage that marketing as organisational culture (the marketing concept and market orientation) must also be placed in the context of other drivers of the values and approaches of the organisa- tion. A culture that emphasises customers as key stakeholders in the organisation is com- pletely consistent and complementary with one that also recognises the needs and concerns of shareholders, employees, managers and the wider social and environmental context in which the organisation operates.
In addition to any discussion of customer focus or market orientation it is worth noting that advocacy of a completely customer-focused approach comes with a health warning. Occasionally these approaches are confused with the notion of ‘doing whatever the cus- tomers say’. There lies madness! While understanding customers, and potential customers, is clearly important, so are issues of creativity and innovation. Hence it is important for organisations to be market driven, but equally it is important to be market driving – that is, trialling new and possibly edgy (beyond what might be expected) products and services. This is advocated, as asking customers what they want can simply be the wrong question – often they don’t know!
11THE MARKETING CONCEPT AND MARKET ORIENTATION
2 Competitor orientation
Strongly agree
Agree Neither Disagree Strongly disagree
Don’t know
Information about competitor activities is collected regularly
5 4 3 2 1 0
We conduct regular benchmarking against major competitor offerings
5 4 3 2 1 0
There is rapid response to major competitor actions
5 4 3 2 1 0
We put major emphasis on differentiating ourselves from the competition on factors important to customers
5 4 3 2 1 0
Total score for competitor orientation (out of 20)
3 Long-term perspectives
Strongly agree
Agree Neither Disagree Strongly disagree
Don’t know
We place greater priority on long-term market-share gain than on short-run profits
5 4 3 2 1 0
We put greater emphasis on improving our market performance than on improving internal efficiencies
5 4 3 2 1 0
Decisions are guided by long-term considerations rather than short-run expediency
5 4 3 2 1 0
Total score for long-term perspectives (out of 15)
4 Interfunctional coordination
Strongly agree
Agree Neither Disagree Strongly disagree
Don’t know
Information about customers is widely circulated and communicated throughout the organisation
5 4 3 2 1 0
The different departments in the organisation work effectively together to serve customer needs
5 4 3 2 1 0
Tensions and rivalries between departments are not allowed to get in the way of serving customers effectively
5 4 3 2 1 0
Our organisation is flexible to enable opportunities to be seized effectively rather than hierarchically constrained
5 4 3 2 1 0
Total score for interfunctional coordination (out of 20)
12 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
5 Organisational culture
Strongly agree
Agree Neither Disagree Strongly disagree
Don’t know
All employees recognise their role in helping to create satisfied end customers
5 4 3 2 1 0
Reward structures are closely related to external market performance and customer satisfaction
5 4 3 2 1 0
Senior management in all functional areas give top priority to creating satisfied customers
5 4 3 2 1 0
Senior management meetings give high priority to discussing issues that affect customer satisfaction
5 4 3 2 1 0
Total score for organisational culture (out of 20)
Summary
From the totals obtained: Customer orientation (out of 25) Competitor orientation (out of 20) Long-term perspectives (out of 15) Interfunctional coordination (out of 20) Organisational culture (out of 20) Total score (out of 100)
Interpretation
● 80–100. This indicates a high level of market orientation. However, scores below 100 can still be improved! ● 60–80. This indicates moderate market orientation. Identify the areas where most improvement is needed. ● 40–60. This shows that there is a long way to go in developing a market orientation. Identify the main gaps
and set priorities for action to close them. ● 20–40. This indicates a mountain ahead of you! Start at the top and work your way through. Some factors
will be more within your control than others. Tackle those first.
Note: If you scored ‘0’ on many of the scales you need to find out more about your own company!
1.2 The resource-based view of marketing
The dominant view of strategy in the 1980s and early 1990s was proposed by, among others, Michael Porter of the Harvard Business School ( Porter, 1980 , 1985 ). This view suggested that the key to strategy lay in industry dynamics and characteristics. While there has since been a great deal of academic discussion and debate on this perspective, it is a view that is fundamental to strategic management theory, and hence worthy of further discussion. Porter suggested that some industries were inherently more attractive than others, and that the factors driving industry competition were key determinants of profitability. Under this
13THE RESOURCE-BASED VIEW OF MARKETING
approach, the focus for explaining performance differences between organisations shifted from outside the firm (the industries in which it operated) to within the firm itself (its resources and capabilities).
Termed the resource-based view of the firm (Wernerfelt, 1984), with a focus on ‘core competencies’ (Prahalad and Hamel, 1990), this new approach suggested that performance was essentially driven by the resource profile of the organisation, and that the source of superior performance lay in the possession and deployment of distinctive, hard-to-imitate or protected resources.
Our view on strategy and marketing is that these two approaches can be combined successfully to the benefit of both. They do, however, throw into stark relief the dif- ferent approaches to strategy in general, and marketing in particular, that are still evi- dent in many organisations today. Three main alternative approaches are apparent (see Figure 1.3):
● Product push marketing. Under this approach, firms focus activities on existing products and services, and look for ways to encourage or even persuade customers to buy. This is a myopic interpretation of the resource-based view: we have a resource (our product or service) that we are good at producing, and that is different from what competitors offer. The key notion underpinning this approach is to make customers want what we are good at. Car dealerships and their supply chain present good examples of push marketing. Dealers are often given favourable incentives based on volume targets that culminate in significant financial payments based on numbers of cars sold, as are sales people. In this setting it is very much in everyone’s interests to ‘push’ cars through the supply chain to the customer.
● Customer-led marketing. The other extreme is customer-led marketing (Slater, 1998). Under this approach, organisations chase their customers at all costs. The goal is to find what customers want and, whatever it is, give it to them. This can also lead to problems. Being excessively customer led can lead to a short-term orientation, resulting in trivial incremental product development efforts and myopic research and development (R&D) (Frosch, 1996). Christensen and Bower (1996) go further, suggesting that ‘firms lose their
Figure 1.3 Marketing approaches
Market needs
Customer-led marketing
Product push marketing
Resource-based marketing
Organisational capabilities
14 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
position of industry leadership . . . because they listen too carefully to their customers’. (See earlier discussion regarding the importance of organisations being market driven and market driving.)
● Resource-based marketing. In this text we advocate a middle ground between these two extremes. Here, firms base marketing strategies on equal consideration of the require- ments of the market and their abilities to serve it. Under this approach, a long-term view of customer requirements is taken in the context of other market considerations (such as competitor offerings and strategies, and the realities of the supply chain), together with mapping out the assets, competencies and skills of the organisation to ensure they are leveraged to the full.
Resource-based marketing essentially seeks a long-term fit between the requirements of the market and the abilities of the organisation to compete in it. This does not mean that the resources of the organisation are seen as fixed and static, far from it. Market requirements evolve over time and the resource profile of an organisation must continuously develop to enable it to continue to compete, and to enable it to take advantage of new opportunities. The essential factor, however, is that opportunities are seized where the organisation has an existing or potential advantage through its resource base, rather than just pursued ad hoc. These points will be returned to when we discuss the assessment of company market- ing resources ( Chapter 6 ) and the criteria for selecting those markets in which to operate ( Chapter 9 ).
First, however, we need to explore how market orientation and marketing resources impact on organisational performance. To do this we introduce the idea of organisational stakeholders.
1.3 Organisational stakeholders
Why do organisations exist? The simple answer, for commercial organisations, may be to earn returns on investments for shareholders and owners of those organisations. For non- commercial organisations, such as charities, faith-based organisations, public services and so on, the answer may lie in the desire to serve specific communities or constituencies. How- ever, organisations, both commercial and non-profit, are rarely driven by such simple goals. Often there are many demands, sometimes complementary, sometimes competing, that drive decisions. For example, James Dyson’s decision to move production of his household appli- ances out of the United Kingdom to Asia in early 2002 for cost reasons (responsibility to shareholders to operate efficiently), resulted in a considerable backlash from the local com- munity and national media over the impact on jobs and livelihoods in the UK (responsibility to employees and the local community).
All organisations serve multiple stakeholders ( Harrison and St John, 1994 ; Mitchell et al., 1997 ). Some, however, will be given higher priority than others in the way decisions are made and resources allocated ( Rowley, 1997 ; Ogden and Watson, 1999 ). Research into the transition economies of central and Eastern Europe, for example, found that in many state-owned enterprises (SOEs) the major stakeholders were the employees, and organi- sational objectives centred on providing continuity of employment (Hooley et al., 2000). This orientation persists in many former SOEs following privatisation and sell-off to the commercial sector, although this is now changing. For many of the commercial firms sur- veyed in the piece of work cited previously, the prime objectives centred on profitability and short-term return on investment.
The long-term implications of climate change and global warming have led many organi- sations to begin to recognise the importance of the physical and natural environment in their plans and actions. Indeed, the natural environment could be seen as a further ‘stakeholder’. Many organisations have really taken this notion to heart and have embedded this thinking
15ORGANISATIONAL STAKEHOLDERS
in how they define themselves. Organisations are increasingly under pressure to assure stakeholders that their actions are sustainable and are having a positive impact on issues such as the environment or society, for example. Related and increasingly widespread terms associated with these important ideas for marketers are ‘green marketing’, ‘cause-related marketing’ and ‘sustainable marketing’. The ‘triple bottom line’ is also a term that has become familiar to CEOs the world over, referring to the need for organisations to be seen to improve (or certainly not to have a negative impact on) the overall state of Planet Earth, the human race and financial stakeholders (i.e. shareholders). The rather out-of-date and uninformed 1980s notion of ‘greed is good’ has now been replaced in many organisations by a more sensible and sustainable mantra that includes a more balanced sentiment at its core. It would be wrong, however, to see this change as a fad or trend, and organisations are increasingly gaining traction with spending customers because of their stance on envi- ronmental and societal issues. This is the triple bottom line writ large, and companies such as Patagonia, Levi Strauss and McDonald’s (with its Ronald McDonald Houses for families of chronically ill children) are great examples of this.
In the context of commercial organisations, a number of primary stakeholders can be identified (see Figure 1.4). These include shareholders and owners, managers, employees, customers, suppliers and the society in which they operate. While a market-orientated culture, discussed earlier, serves to place customers high in the priority ranking, the real- ity for most organisations is a complex blend of considerations that incorporates all stakeholders.
Doyle (2008) discusses the motivations and expectations of the various stakeholder groups, as follows:
● Shareholders may be of two main types. First, there may be individuals with emotional and long-term personal ties to the business. Increasingly, however, shareholders nowa- days are financial investors, both individual and institutional, who are seeking to max- imise the long-term value of their investments. Paradoxically, this desire for long-term shareholder value may drive many firms to make short-term decisions in order to max- imise share price or dividends.
● Employees may also have long-term commitment to the firm. Their priorities are gener- ally some combination of compensation (through wages and salaries), job satisfaction and security (of employment). These may be at odds with the value of the firm to share- holders. Few employees would agree that their personal job loss through ‘downsizing’
Figure 1.4 Organisational stakeholders
Customers
Employees
Managers
Shareholders
Suppliers
Distributors
Focal organisation
16 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
is a price worth paying for increasing shareholder value! Some firms, however, put a great deal of effort into understanding employee motivations. For example, Skandia, the Swedish insurance company, regularly surveys employees with a view to aligning employee and corporate goals (Fortune, 11 March 2002). The John Lewis Partnership has over 80,000 employees, or ‘Partners’, and annual revenue of over £10bn; the Partners share in the benefits and profits of the business. It also involves employees in decision making through meetings between management and elected staff representatives and, as a result, staff turnover is very low in comparison with others in the industry.
● Managers are also concerned with personal rewards in the form of salaries and prestige. Professional managers may have less long-term commitment to the firm and see their roles as temporary staging posts on their longer-term career journeys. Managerial ‘suc- cess’ is often measured by short-term gains (in sales, for example, or efficiency), which may not necessarily equate to longer-term performance improvement for the firm. Much of the initial cause of the recent credit crunch was put down to the excessive bonus culture in investment banks that encouraged short-term risk taking at the expense of longer-term performance.
● Customers are the ultimate source of shareholder value. As Doyle (2008) points out, ‘even the most focused financial manager understands that the source of a company’s long-term cash flow is its satisfied customers’. There is, however, an inherent danger of pursuing customer satisfaction at the expense of all other considerations. Customers might be ‘delighted’ by lower prices or higher-quality offerings than competitors, but if the underlying costs exceed the prices that customers are prepared to pay the firm will not remain in business very long. In this respect, the blind pursuit of customer satisfac- tion may be at odds with longer-term shareholder value creation.
● Suppliers and distributors also have a stake in the business. Suppliers rely on the firms they serve to ensure the achievement of their goals. In working with customers, suppliers often seek security, predictability and a satisfactory margin, and some suppliers have tried to ensure these outcomes through embedded and close relationships. For example, Walmart and Proctor and Gamble (P&G) have a very close relationship whereby sales at Walmart are directly linked to order replenishment systems at P&G. Distributors, too, are stakeholders in the business. In the automobile industry, car distributors are normally closely allied to individual car makers through franchise agreements. The suc- cess or otherwise of the manufacturer in developing and marketing the right cars for the market impacts directly on the distributor. Again, the distributor may seek predictability and continuity at satisfactory margins.
To these stakeholders identified by Doyle (2008) we would add the following:
● Society and the community in which a firm exists can be significantly affected by its actions. Plant closures are an obvious example. When the UK coal industry shrank significantly in the 1970s and ’80s the effect on local communities was vast. Mining towns in Yorkshire and the Midlands experienced high rates of unemployment, as job creation initiatives lagged behind jobs lost through pit closures. More recently, Nissan announced that it is likely to close car-making facilities at Swindon in the UK, with the loss of around 3,500 jobs. This announcement has fuelled a significant amount of media speculation about the negative impacts on the local and national economy.
● The natural (or physical) environment connects strongly to the earlier discussion about the ‘triple bottom line’, but has not traditionally been seen as a stakeholder in the con- ventional use of the term. It is, however, a proxy for future society, as what we do to the environment and the natural resources today will affect future generations. It has been argued that while previous generations may not have completely understood the environmental impact of their actions (in particular the burning of fossil fuels), the implications today are quite clear. Action at national and supranational levels has been, until very recently, fairly elusive (such as the failure of the climate change talks in Copenhagen in December 2009 to result in significant commitment to limit carbon
17ORGANISATIONAL STAKEHOLDERS
emissions). However, the European Union is leading the way: following the Paris Cli- mate Conference (COP21), held in December 2015, a total of 195 countries agreed to adopt the first ever, universal, legally binding global climate deal. Unfortunately, at the time of writing, President Trump has indicated that the USA is likely to pull out of the Paris accord, dealing a potentially significant blow to the overall aims. On a more positive note, organisations in the private and public sectors are increasingly taking action to reduce emissions and energy consumption, and mitigate their environmental impacts. This makes good commercial sense too! Energy bills for many organisations are the second-highest controllable expense after staff, and customers are increasingly taking interest in the ‘green’ credentials and practices of the companies they purchase from – and changing consumption habits as a result.
For non-profit organisations, the identification of stakeholders and their requirements may be even more complex:
● Owners of the organisation may be hard to identify and their interests difficult to define. For example, who ‘owns’ the Catholic Church, or Greenpeace, or the Labour Party? Many might argue that the owners are those who support such organisations, the churchgoers, the activists and members. Or are ‘employees’ (such as the clergy) the owners? In the case of organisations such as the National Health Service (NHS), police service, or some educational establishments, are the owners society in general, the tax- payers, or the government of the day that sets priorities and performance targets?
● Customers may be defined as those whom an organisation seeks to serve. The customers of the Catholic Church may be those who attend mass on Sundays. It may also, however, extend to others whom the Church wishes to appeal to and whose behaviour and beliefs it seeks to influence. Who are the customers of the NHS – the patients? Or those who avoid the service through heeding health warnings? Who are the customers of higher education? The students? The parents who fund them? Or the employers who seek their skills on graduation? Who are the customers for the police service? Society in general that needs protection from criminals? The criminals themselves? Or the taxpayers who fund them? Different definitions of ‘customers’ may result in different interpretations of what their expectations, needs and requirements are or might be. Failure to identify and meet the needs of different customers destroys market position. For example, while doc- tors and police officers struggle with the idea that they exist to provide customer value, their position is being eroded by the growth of alternative medicine, medical tourism (improving choice) and private security services and systems.
● Employees, we might conclude, are relatively easy to identify. Their motivations, how- ever, may be far more complex than in the commercial sector. What motivates nurses to work such long, hard hours for relatively little financial reward? Why do people volun- teer to staff charity shops for no payment? Why do activists risk their lives to prevent the dumping of oil platforms or nuclear waste at sea? In the non-profit sector, employees may or may not receive financial rewards. Often their prime motivators are not financial, but centre far more on satisfaction derived from contributing to a cause they cherish or value.
● Society and community have perhaps always been high on the list of priorities for many non-profit organisations. Charities exist to serve the society in which they operate (but would they necessarily call them ‘customers’?).
While the considerations of many of these stakeholders may be complementary, they may also be in conflict. For example, the desire of shareholders for long-term value crea- tion may be at odds with the demands of suppliers and distributors for continuity, security and satisfactory margins. The demands placed on a firm through being customer led may have significant impacts on the roles and activities of managers and employees, not all of them welcome. This confusion may be compounded when individual stakeholders assume more than one role. For example, managers and employees may also be shareholders in commercial organisations. They could also, from time to time, be their own customers!
18 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
In any organisation there will be a blend of orientations towards the various stakehold- ers. We would argue, however, that a strong orientation towards the market, as discussed at the outset of this chapter, can be a unifying force that helps achieve other stakeholder goals.
1.3.1 The contribution of marketing to stakeholder objectives
There is increasing evidence that firms that do well in the marketplace also do well finan- cially, adding to the value of the firm for shareholders. Homburg and Pflesser (2000), for example, have shown that firms adopting a market-orientated culture perform better finan- cially than those that do not. Many other studies have also shown direct links between market orientation, customer satisfaction and firm financial performance (see Lafferty and Hult, 2001, for a summary).
Figure 1.5 shows the effects of market-orientated culture on firm activities and perfor- mance. The degree of market orientation, as discussed previously, is a deeply embedded cultural aspect of any firm. Where market orientation is high, all organisational functions are focused on their contribution to the creation of superior customer value. This, in turn, affects the way those functions are managed, and the priorities they pursue. For example, human resource management and training is often directed towards customer awareness and service, and reward structures are designed to encourage customer satisfaction genera- tion. Where market orientation is high, employee job satisfaction and commitment have also been demonstrated to be high (see Piercy et al., 2002), creating a motivated workforce focused on the needs of customers (see Heskett et al., 2003). To illustrate this notion, Sir Charlie Mayfield, Chairman of the John Lewis Partnership, stated, ‘The John Lewis Part- nership faces similar challenges to other major retailers but in one respect our response is very different. That’s the energy and passion of our Partners who, as co-owners of our business, drive our work to operate an ever-more sustainable and responsible business.’
High levels of market orientation also lead organisations to emphasise the development of marketing assets, such as company and brand reputation (Aaker, 1991), market innova- tion capabilities (Slater and Narver, 1995; Han et al., 1998), customer relationship man- agement skills (Gummesson, 1999) and satisfied and well-motivated staff. Well-developed marketing resources (both assets and capabilities) have been shown to lead to superior market performance, help create satisfied and loyal customers (Heskett et al., 2003) and also increase sales volume and market share. Reputational assets, such as well-known and respected brands, together with well-developed marketing capabilities such as market inno- vation skills, also affect market performance directly.
Figure 1.5 Marketing and performance outcomes
Marketing resources
Market-orientated culture
Financial performanceAssets
Capabilities
Market performance
Customer satisfaction and loyalty
Sales volume and
market share
19MARKETING FUNDAMENTALS
The link between market performance and financial performance is also well estab- lished. Customer satisfaction and loyalty leads to greater sales volume and market share, which, in turn, leads to financial performance. One suggested route is through the impact of economies and advantages of scale. A second route, explained in detail by Doyle (2008), suggests that shareholder value is determined by anticipated future cash flows, adjusted for the cost of capital. In this view, the crucial task of management is to maximise the sum of future cash flows, and hence maximise shareholder value. Marketing’s contribution will be to develop strategies that deliver enhanced cash flows through, for example, successful new product launches or the creation of strong brands that can command high margins and mar- ket shares. Under this view, the focus of marketing is on developing and protecting assets (such as brands or market share) that have the potential to deliver enhanced cash flows in the future. Doyle sees the role of marketing as driving value creation through the optimum choice of markets and target segments in which to operate, the creation of a differential (or competitive advantage) in serving those targets and the development of an appropriate marketing mix for delivery.
In summary, marketing can contribute to satisfying the needs of employee and manage- rial stakeholders through providing security, compensation and job satisfaction. Where the firm is better at serving its customers and more adept at winning orders in the face of competition, it is more likely to survive into the future. There is also evidence that where firms are more market orientated, employees derive more satisfaction from their jobs ( Slater and Narver, 1995 ). This, in turn, can lead to a virtuous circle of improvement, as happy, motivated staff generate increasingly satisfied customers, so that organisational perfor- mance improves and staff become more satisfied – and so on. Similarly, the most effective route to achieving the profit and performance desires of supply chain partners is through market success. Heightened success through partnerships and alliances can serve to bond organisations together, creating more stability and predictability in the supply and distri- bution chain. Nonetheless, concerns of customers and employees for the environment, for social justice, for fair employment and other social priorities have led to renewed emphasis on corporate social responsibility and good corporate citizenship. However, importantly (as we shall see in Part 5 ), thinking has changed from altruistic behaviour to meet moral obligations, to pursuing social initiatives as part of the value proposition and a source of competitive advantage (see Chapter 17 ).
1.4 Marketing fundamentals
Building on the marketing concept outlined previously, the considerations of alterna- tive stakeholders and the logic of resource-based marketing, we can distil a set of basic and very pragmatic marketing principles that serve to guide marketing thought and action. Each of these may seem quite intuitive, however recognition and application of them can (and has) revolutionised how organisations respond to, and interact with, their customers.
Principle 1: focus on the customer This first principle of marketing goes back to the marketing concept itself and recognises that the long-term objectives of the organisation, be they financial or social, are best served by achieving a high degree of customer focus – but not a blind focus! From that recognition flows the necessity for a close investigation of customer wants and needs, followed by a clear definition of if and how the company can best serve them.
It also follows that the only arbiters of how well the organisation satisfies its customers are the customers themselves. The quality of the goods or services offered to the market will be judged by customers on the basis of how well their requirements are satisfied. A quality
20 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
product or service from the customers’ perspective is one that satisfies or is ‘fit for purpose’, rather than one that provides unrequired ‘bells and whistles’, or luxuries.
Adopting a market-led approach poses some very basic questions (Levitt, 1986). The most important of these include:
● What business are we in? ● What business could we be in? ● What business do we want to be in? ● What must we do to get into or consolidate in that business?
The answers to these fundamental questions can often change a company’s outlook and perspective. In Chapter 2 we discuss more fully business definition, and show how it is fundamental to setting strategic direction for an organisation.
Principle 2: only compete in markets where you can establish a competitive advantage Market selection is one of the key tasks for any organisation – that is, choosing where to compete and where to commit resources. Many factors will come into the choice of market, including how attractive the market appears to the firm. Especially important in competi- tive markets is the question ‘do we have the skills and competencies to compete here?’. The corporate graveyard is littered with firms that were seduced into markets that looked attrac- tive, but when competition got tough they found they had no real basis on which to compete or gain advantage. Many of the dot.com failures of the early 2000s were firms that saw opportunity but did not really have the skills and competencies to establish advantage over other dot.coms, or over ‘bricks-and-mortar’ firms. In the eyes of customers, no additional value was being created.
Principle 3: customers do not buy products The third basic marketing principle is that customers do not buy products, they buy what the product can do for them. To put this another way, customers buy relief from the prob- lem a product solves. Customers are generally less interested in the technical features of a product or service than in what benefits they get from buying, using or consuming the product or service.
For example, the do-it-yourself (DIY) enthusiast putting up bookshelves will assemble the tools for the job. One of these could be a drill bit to make the holes in which to screw the shelf supports, on which to place the shelf. However, the DIY enthusiast does not want a quarter-inch drill bit, but a quarter-inch hole. The drill bit is merely a way of delivering that benefit (the hole) and will only be the solution to the basic need until a better method or solution is invented. We can go further – what is really wanted is storage for books (or, indeed, alternative ways of storing knowledge and information in electronic media). Competition will come not only from other manufacturers of drill bits, but from laser tech- niques for making holes in the wall, wall designs that incorporate shelving studs in their design, adhesives that support shelves or alternative ways of storing and accessing books, such as the Amazon Kindle e-reader. This is the difference between an industry (firms with similar technologies and products) and a market (customers with a similar problem to solve or a need to meet). In this sense, white goods manufacturers may see themselves as an industry (they all produce white boxes with electric motors), but the different markets they serve are the laundry market, the food-storage market and so on. Similarly, gardeners don’t really want a lawnmower, but rather grass that is 1 inch high. Hence, a new strain of grass seed that is hard-wearing and only grows to 1 inch in height could provide very substantial competition to lawnmower manufacturers, as could artificial grass substitutes.
This is far from academic theorising, however, as in grocery retailing the notion of ‘cat- egory management’ is often used. Here, retailers define categories around customer needs, not manufacturers’ brands. The challenge to manufacturers is to prove to the retailer what
21MARKETING FUNDAMENTALS
their products and brands add to the overall value of the category. Putting category defini- tion at its simplest:
The manufacturer makes potato crisps. The retailer merchandises salty snacks. The customer buys lunch!
Looking at a market from the customers’ perspective may suggest a very different view of market opportunities and the threats to a competitive position. It is critical that mar- keters view products and services as ‘bundles of benefits’, or a combination of attractions that all give something of value to the customer. One mission for the marketing executive is to ensure that the organisation gears itself to solving customers’ problems, rather than exclusively promoting its own current (and often transitory) solutions.
Principle 4: marketing is too important to leave to the marketing department (if there is one) It is increasingly the case that marketing is everyone’s job in an organisation. If we adopt the cultural stance explored earlier, then this is understandable as the actions of all can impact on the overall satisfaction derived by the customer.
In an early work by King (1985), he highlights a number of misconceptions as to what marketing is. One of the most insidious misconceptions he terms ‘marketing department marketing’. This is where an organisation employs marketing professionals who are good at analysing marketing data and calculating market shares to three decimal points, but who have very little impact on products and services. Here, the marketing department is seen as the only department where ‘marketing is done’, so other departments can get on with their own agenda and pursue their own goals.
As organisations become flatter, reducing layers of bureaucracy, and continue to break down spurious functional barriers between departments, it becomes increasingly obvious that marketing is the job of everyone. It is equally obvious that marketing is so central to both survival and prosperity, that it is far too important to leave only to the marketing department.
However, it is also clear that we must avoid simply stating that marketing is ‘every- one’s job’ and leaving it at that. If marketing is everyone’s job, then the important issues of accountability and responsibility become problematic to a degree, and marketing may well become ‘no one’s job’. Greyser (1997) points to the need for simultaneous upgrading of market orientation and downsizing of the formal marketing function as two sides of the same issue:
While the marketing function (‘doing marketing’) belongs to the marketing department, becoming and being marketing-minded is everybody’s job. What happens when (almost) everybody is doing that job? As companies have become more marketing-minded, there have been substantial reductions in the formal ‘marketing departments’ which do market- ing. In short, a corollary of the trend to better organisational thinking about marketing is the dispersion of the activity of marketing, e.g. via task forces.
Principle 5: markets are heterogeneous Most markets are not homogeneous, and are made up of different individual customers, sub- markets or segments. While some customers, for example, may buy a car for cheap trans- port from A to B, others may buy for comfortable travel, or safe travel, or energy efficient travel, and still others may buy for status reasons or to satisfy and project their self-image. Products and services that attempt to satisfy a segmented market through a standardised product almost invariably fall between two or more stools and become vulnerable to more clearly targeted competitors.
Picking up on Principle 2, it is evident that a simple way of segmenting markets is on the basis of the benefits customers get in buying or consuming the product or service. Benefit segmentation (see Chapter 7) has proved to be one of the most useful ways of segmenting
22 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
markets, for the simple reason that it relates segmentation back to the reasons for the exist- ence of the segments in the first place – the different benefit requirements.
Market heterogeneity has another effect. Concentration in the customer base, facilitated by mergers and acquisitions and attrition rates, has become a daily reality for compa- nies in business-to-business marketplaces. The emergence of powerful, well-informed and dominant customers underlines the importance of strategic sales capabilities and strategic account management approaches to give specialised attention to customers who can lever- age the seller’s dependence on them. It is difficult to consider marketing strategy in business- to-business markets without recognising the deep-seated implications of this factor. (We devote Chapter 14 to this topic.)
Principle 6: markets and customers are constantly changing It is a truism that the only constant is change. Markets are dynamic, and virtually all products have a limited life that expires when a new or better way of satisfying the underlying want or need is found; in other words, until another solution or benefit provider comes along.
The fate of the slide rule, and before that logarithmic tables, at the hands of the pocket calculator is a classic example of where the problem (the need for rapid and easy calcula- tion) was better solved through a newer technology. The benefits offered by calculators far outstripped the slide rule in speed and ease of use. But pocket calculators themselves are now superseded by applications (apps) on mobile telephones, which provide all the functionality of the high-specification technical calculators of a few years ago.
The recognition that products are not omnipotent, and that they follow a product life- cycle pattern of introduction, growth, maturity and decline, has led companies to undertake more long-term planning activity to ensure that by the time current breadwinners die, there are new products in the company’s portfolio to take their place.
Also evident is the need for constant product and service improvement. As customer expectations change, usually becoming more demanding in the benefits they expect from a given product or service, so organisations need to upgrade their offerings continuously to retain, let alone improve, position.
There are two main processes of improvement. The first is through innovation, where a relatively large step is taken at one point in time. The advent of the pocket calculator was a significant innovation that virtually wiped out the slide rule industry overnight! Other step changes in technology, such as the advent of digital television and radio, the MP3 player and music streaming, have changed whole industries in a similarly short period of time.
The second approach to improvement is a more continuous process whereby smaller changes are made but on an insistent basis. This approach has been identified as a major con- tributor to the success of Japanese businesses in world markets during the 1960s, ’70s and ’80s. The Japanese call continuous improvement kaizen, and see it as an integral part of business life. Increasingly, organisations are attempting to marry the benefits of step-change innovation with continuous (kaizen) improvement. Figure 1.6 illustrates this process diagrammatically.
The impact of technological change is always felt significantly in the computer industry. It is sometimes hard to remember that computers were invented after the Second World War, as they are now such a pervasive and integral part of our business and home lives. Toffler (1981) noted in Computer World magazine:
If the auto industry had done what the computer industry has done over the last thirty years, a Rolls Royce would cost $2.50, get around 2,000,000 miles to the gallon and six of them would fit on the head of a pin!
If that was true, then just think what the analogy would be today! The challenges raised by economic recession also hasten change in many markets.
Increasingly price-sensitive customers shop around more now, using the greater amount of information available online, and have become more deal-conscious. However, despite this turbulence and disruption, firms with strong relationships with customers are able to weather the economic storm far more effectively.
23THE ROLE OF MARKETING IN LEADING STRATEGIC MANAGEMENT
Global warming and climate change are creating markets for new products too. New ver- sions of old products, such as wind turbines and hybrid or electric cars, are being developed and marketed. Concerns about rising sea levels are affecting how new homes are built; for example, on the north-west coast of the Netherlands, homes increasingly are being built on ‘rafts’ that rise or fall with changes in sea level. Some of them are really nicely designed and allow you to see the raft structure quite clearly.
Figure 1.6 Product and process improvement
Continuous improvement through
Step change through innovation
through kaizen
Step change through
Continuous improvement
Continuous improvement through kaizen
Time
Im p
ro ve
m en
t in
p ro
d uc
ts an
d /o
r p
ro ce
ss es
innovation
kaizen
1.5 The role of marketing in leading strategic management
In order for strategic management to cope with the changing marketing environment, there is a need for it to become increasingly market led. In taking a leading role in the development and implementation of strategy, the role of marketing can be defined as shown in Figure 1.7 . That role is threefold.
Well-designed raft houses in the Netherlands represent market opportunities in the face of global warming and climate change
Source: Susan E. Degginger / Alamy Stock Photo.
24 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
1.5.1 Identification of customer requirements
The first critical task of marketing is to identify the requirements of customers and to com- municate them effectively throughout the organisation. This involves conducting or com- missioning customer research to uncover, first, who the customers are and, second, what will give them satisfaction.
Who the customers are is not always obvious. In some circumstances, buyers may be different from users or consumers; specifiers and influencers may also be different. Where services are funded by central government, for example, suppliers may be forgiven for the (mistaken) view that central government is their customer.
Customers expect a degree of benefit from purchasing or using a product or service. However, they may actually want something more, but believe they have to settle for sec- ond best because of budget or other constraints. The organisation that can give customers something closer to what they want than what they expect has an opportunity to go beyond customer satisfaction and create ‘customer delight’.
Customer expectations, wants and needs must be understood and clearly communicated to those responsible for designing the product or service, those responsible for creating or producing it and those responsible for delivering it. (Identifying what customers require is discussed in Chapter 4.)
1.5.2 Deciding on the competitive positioning to be adopted
Recognising that markets are heterogeneous and typically made up of various market seg- ments, each having different requirements from essentially similar offerings, requires firms to decide clearly which target market, or markets, they will serve.
Two main factors influence those decisions. First, how attractive the alternative poten- tial targets are and, second, how well the company can hope to serve each potential target relative to competition – in other words, the relative strengths or competencies it can bring into play in serving the market. (These two related issues are discussed at length in Part 4.)
1.5.3 Implementing the marketing strategy
The third, and arguably the most difficult, key task of marketing is to marshal all the rele- vant organisational resources, and to plan and execute the delivery of customer satisfaction. This involves ensuring that all members of the organisation are aware of what is expected,
Figure 1.7 The role of marketing in the organisation
Identify and communicate customer wants and needs throughout the organisation
Determine the competitive positioning to match the needs of the customers with company capabilities
Marshal all relevant organisational resources to deliver customer satisfaction
25CASE STUDY
and are coordinated in their efforts to satisfy customers, and that no actual or potential gaps exist between offer design, production and delivery. ( Chapters 14 , 15 and 16 address implementation and coordination issues more fully.)
Summary
This chapter has reviewed the marketing concept and demonstrated its importance in pro- viding a guiding approach to doing business in the face of increasingly competitive and less predictable marketing environments. This approach we term ‘market-led strategic manage- ment’. A number of marketing principles were discussed, together with the role of marketing in strategic management. The remainder of Part 1 presents a framework for developing a market-led approach.
Summary
Danish group launches toys-to-life game, giving children the opportunity to put physical playthings into virtual worlds
Imagine Homer Simpson driving the Batmobile down the Yellow Brick Road. Or Superman steering a DeLorean time machine through Middle-earth.
What was once fantasy will become reality this week when LEGO and Warner Bros launch their big-budget game ‘LEGO Dimensions’.
It marks a crucial step in the Danish toy- maker’s digital strategy. The game – whose starter pack will be priced at a hefty $100 – pushes it into a new segment: the toys-to-life category, worth $700m a year in the USA alone.
‘LEGO is the archetypal toys-to-life experience. We are just pushing those digital borders continually so we remain present and relevant in all the envi- ronments where children want to play’, says John Goodwin, the finance director.
Toymakers have been hit hard by the emergence of smartphones and tablets, as children spend increasing amounts of time in digital play on such devices. LEGO has managed to buck that trend, largely thanks to the strength of its physical prod- ucts as it became the world’s biggest toymaker by sales in the first half of this year.
But, while it has developed a successful line in video games through Warner’s TT Games, the
Case study
privately-owned Danish company has struggled in other digital ventures with a number of flops.
‘I don’t think they have conquered the digital world. It’s hard to point to something digital that they have done that is successful. But what you are seeing now is the first attempts for LEGO to create some kind of hybrid physical–digital experience’, says David Robertson, co-author of Brick by Brick: How LEGO Rewrote the Rules of Innovation and Con- que red the Global Toy Industry (2014).
That increases the pressure all the more on ‘LEGO Dimensions’, a sprawling game that cost the same as a blockbuster film to develop and features different brands including Doctor Who , Back to the Future and Ghostbusters .
Source: Bloomberg/Getty Images.
LEGO builds new dimension with digital vision By Richard Milne, Nordic correspondent
26 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT
For their $100, players will get a game for Sony’s PlayStation, Microsoft’s Xbox or Nintendo’s Wii, alongside almost 300 LEGO pieces used to create a controller, as well as three characters: Batman, Gan- dalf from Lord of the Rings and Wyldstyle from The Lego Movie. Additional kits featuring other characters – from the Wicked Witch in The Wizard of Oz, Scooby Doo and Wonder Woman through to Krusty the Clown – will cost $15–30 and unlock new games levels and include vehicles for game play.
The game works by recognising which characters and vehicles are placed on a controller and making them part of the action, which takes place over 14 levels – one for each brand involved. Typical LEGO flourishes are included, such as an ability to rebuild each vehicle in three different ways.
‘I wanted to make a game like this eight years ago. With my own kids, I could see how they would play with LEGO Batman and Gandalf together. When I saw toys-to-life, I knew this was the mechanism’, says Jon Burton, the founder of British developer TT Games.
The game, which took 160 people three years to develop, is launching in a crowded marketplace. Activision Blizzard’s ‘Skylanders’ game has domi- nated the toys-to-life category since it launched in 2011, but has been joined by Disney’s ‘Infinity’ (which features Star Wars figures) and Nintendo’s ‘Amiibo’ lines.
Liam Callahan, an analyst at market research group NPD, says the toys-to-life sector was worth $710m in the USA in the year to the end of August, up 6 per cent on the previous year. He argues that, even though the price is high and there is plenty of competition, ‘LEGO Dimensions’ should be a success thanks to the toymaker’s brand and the huge num- ber of other brands and characters involved in the game. ‘Our research shows that the main market for these types of games are young males; but with the range of toys for “LEGO Dimensions”, there may be a wider age and gender for main consumer as well as a cross-generational appeal for families’, he adds.
Mr Burton says that the broad pitch is deliberate as he pushed to include levels from ‘Portal’, a puzzle video game, and Back to the Future to appeal to adults as well as children. ‘There is a bigger market for this toys-to-life than just 6 to 12-year-olds’, he adds.
Mr Goodwin is eager to underline that LEGO is not betting the company on ‘Dimensions’. But he is keenly aware of the importance of the toymaker making a success of its digital offering.
‘What is obvious is the digital and physical is something of a distinction we make but children don’t . . . From a LEGO brand point of view, we con- tinue to be anchored in the physical brick experience. But we are going to explore more ways that you can
build strong linkages between the physical and digital worlds’, he says.
LEGO took the decision to concentrate on the physical brick when it neared financial collapse in 2004. As part of its recovery under chief executive Jørgen Vig Knudstorp, over-diversification was diag- nosed as one of its ills and its video games develop- ment arm was sold off.
Mr Burton, who was also an executive producer of The Lego Movie, says each company decided to focus on what they were best at: ‘They handle bricks, we handle the digital side.’
Another recent collaboration is ‘LEGO Worlds’, a game still only in limited beta release that many see as the toymaker’s answer to ‘Minecraft’. Play- ers can build worlds, buildings and figures using LEGO bricks with nearly all the freedom of the physical world, while new ideas are being incorpo- rated according to what LEGO’s online community suggests.
Mr Goodwin and Mr Burton say there is more to come, especially around making the digital experi- ence more ‘real’. The toys-to-life category works by the controller reading a chip in a character’s base, meaning that if Batman is placed on Superman’s base the machine will still think it is Superman. Similarly, only the exact model or vehicle will be imported into the game, not whatever the player imagines. Mr Goodwin hopes that will change one day.
Mr Robertson says that LEGO’s great success has been building a range of products and experiences around the physical brick – so that children cannot just play with the products but also watch a televi- sion show, go to an event or see a display in a toy shop. Its digital push should be seen in that light, he argues, although he also says LEGO could gradually develop into more of a digital company. ‘Maybe you and I might be talking in 2020 about what is the core of LEGO: is it physical or digital?’
Mr Goodwin dismisses such talk, arguing that if you ‘put bricks in front of kids they just love to build’.
Losing strategies: award-winning games but not sales winners
Success is far from guaranteed for ‘LEGO Dimen- sions’, as some of the toymaker’s previous digital efforts show. ‘LEGO Universe’, an ambitious and costly attempt to replicate the experience of playing with bricks in a game, developed by dozens of work- ers, was killed off within months of its launch in 2010.
At about the same time, a single Swedish com- puter enthusiast working part-time developed ‘Minecraft’, which became one of the biggest-selling
27CASE STUDY
games of all time and is, in Jon Burton’s words, ‘a digital version of LEGO’.
John Goodwin says that failure led to LEGO realising it needed to be more agile when dealing with digital products rather than physical ones: ‘Other companies put their games out in beta [an early development stage] and constantly reiterate it. That’s not part of our DNA. We have a tendency to want to have perfection by the time it gets into consumer hands.’
More recently, ‘LEGO Fusion’ won a string of awards in the USA but it was unsuccessful in grabbing
children’s attention and that too was discontinued. It allowed players to create two-dimensional models with physical bricks that they then imported into the game using a smartphone or tablet camera. ‘One product was unusable, one was not fun’, summarises David Robertson, a professor at the Wharton School in Pennsylvania.
Mr Goodwin adds, somewhat ruefully: ‘It’s not about winning awards, it’s about delighting consum- ers constantly and we weren’t able to do that.’
Source: from ‘Lego enters a new dimension with its digital strategy’, Financial Times, 27/09/2015 (Milne, R.).
Discussion questions 1 Evaluate and comment on LEGO’s market orientation using the market orientation assessment form (see
Box 1.1) to support your analysis.
2 Which of the three approaches to marketing presented in this chapter do you think best describes LEGO’s approach? Why?
3 What marketing principles are in evidence in this case?