one page: Identify an alternative strategic market analysis and write a summary

Bringing product and consumer ecosystems to the strategic forefront

Mayukh Dass a,*, Shivina Kumar b

a Rawls College of Business, Texas Tech University, MS 2101, Lubbock, TX 79409, U.S.A. b University of California, 2401 Piedmont Avenue, Berkeley, CA 94704, U.S.A.

Business Horizons (2014) 57, 225—234

Available online at www.sciencedirect.com

ScienceDirect www.elsevier.com/locate/bushor

KEYWORDS Ecosystem; Networks; Marketing strategy; Electronic commerce; Product categories; Brand; Customer segment; Marketing research; Social media

Abstract The widespread adoption of technology and electronic media has dra- matically altered the set of products consumers compare before making a purchase decision. Online platforms have succeeded at drawing linkages among products by highlighting those that are preferred, evaluated, or purchased together. However, despite the increase in both product and customer inter-connectedness across markets, managers continue to make decisions based largely on the dynamics of competition within narrow product categories. In this article, we raise the call for a migration from a category-focused mindset to an ecosystem-focused strategic mind- set that acknowledges and accounts for the network of related or unrelated entities that a specific product resides within. We illustrate the importance of this shift using examples of preference, choice, and customer networks from popular online plat- forms. We then discuss the impact of the shift in strategic mindset toward ecosystems on competitive structure analysis, market research, brand footprint analysis, intra- band ecosystems, promotion planning, new product development, customer valua- tion, strategic alliances, and market segmentation. # 2013 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.

1. Bringing product and consumer ecosystems to the strategic forefront

Interconnect and succeed or wither away alone: That seems to be one of the emerging themes across various parts of the business landscape. But how to

* Corresponding author E-mail addresses: [email protected] (M. Dass),

[email protected] (S. Kumar)

0007-6813/$ — see front matter # 2013 Kelley School of Business, I http://dx.doi.org/10.1016/j.bushor.2013.11.006

bring a connectedness-based mindset to the fore- front of all market-based strategic thinking remains an open question. While it is becoming increasingly apparent to strategists that it is virtually impossible to build successful products by thinking of markets in isolation, ecosystem-based strategic processes have not yet evolved in the majority of corporations. For example, while most executives acknowledge the inter-connectivity among customers, as well as the interdependence among unrelated product cat- egories, the mere realization has not generally

ndiana University. Published by Elsevier Inc. All rights reserved.

226 M. Dass, S. Kumar

translated itself into a coherent strategic approach that takes advantages of these inter-customer and inter-product linkages.

However, the signs of inter-connectedness are unmistakable. Customers are leveraging the power of social media to learn about and disseminate information regarding their purchase and service experiences (Kaplan & Haenlein, 2010: Mangold & Faulds, 2009). Posts on blogging and micro-blogging sites are disseminating single-customer experiences to wide audiences. These pieces of unstructured, unpredictable, and vicarious information are linking current and potential customers like never before. Along the same lines, widely used rating and review systems are pitching products against competitors of all shapes and sizes (Zhu & Zhang, 2010). Simi- larly, a multitude of recommender systems are cap- turing browsing and purchase data to navigate customers toward an ensemble of products that defy conventional definitions of product markets or cat- egories (Ansari, Essegaier, & Kohli, 2000). For ex- ample, systems deployed by large retailers from Amazon to Netflix are continuously evaluating cus- tomers’ product co-purchase and co-evaluation patterns and acting on them by building micro- promotion plans. Similarly, social interaction sites such as Facebook and Twitter are leveraging infor- mation about inter-customer connectivity for product promotions. Finally, comparison-shopping systems are placing products among local competi- tive sets whose composition changes based on a number of factors including the sorting mechanism employed by customers (Marmorstein, Grewal, & Fishe, 1992).

The challenges to brands from increasing inter- connectivity go beyond the online world. The emer- gence of retail power and private labels has raised a new set of competitors for branded products. Prod- uct portfolio rationalization processes under way at big retailers including Wal-Mart and Kroger have increased the cascading risk of discontinuation or elimination for many brands. The surviving brands are by no means safe, however; they face headwinds from sophisticated brand and category management systems that are being set up by the retailers themselves.

In this article, we suggest that the time has come for shifting the strategic brand management per- spective away from a product-market-based ap- proach toward an ecosystems-based approach (Tobias, 2007) both in real and virtual markets. Brands have to manage themselves in the customer ecosystem where the composition of advocates and adversaries changes by the moment. They also have to survive in the retail ecosystem where the struc- ture of competition changes shape by the day. In

addition, they must protect their pricing power that is being ceded to comparison engines and shopping robots. Of course, none of this takes away from the strategic imperative to ward off traditional com- petitors from within their own, traditionally defined product categories.

2. Thinking about ecosystems

The new market reality calls for a multi-modal approach to define and evaluate the nature of competitive threats to a brand and set up a portfolio of offense and defense systems. It also requires identifying the facilitators of brand adoption that might belong to completely unrelated product mar- kets. In other words, the threat from traditional competitors that vie for a share of the sales from within the brand’s own category is only one aspect of a brand’s ‘competitive system.’ Various threats and opportunities emerge from a variety of addi- tional sources. These include influential, satisfied or dissatisfied customers who have the power to sway the preferences of many others, much more than the efforts of direct competitors (Mudambi & Schuff, 2010).

The private label and category management systems set up by retailers are also threatening brands as the adoption of store brands in one category is increasingly influencing the rejection of national brands in others. Moreover, a variety of online platforms–—including product evaluation, comparison, or recommender systems–—are placing brands in a variety of competitive contexts across which the portfolio of competitors is vastly differ- ent. We suggest that it is time to stretch strategic thinking and market planning by changing the defi- nition of a brand’s competition from just other brands present in its narrowly defined category. It is more appropriate now to plan brand strategy across multiple ecosystems and think in terms of webs of links with other products and customers that either facilitate or hinder the adoption or continued usage of the brand. In a world of multi- modal competition, it is imperative to structure brand strategy in terms of offensive and defensive moves within brand ecosystems rather than merely within product markets.

3. What are product ecosystems?

A brand is a part of a larger product ecosystem when the likelihood that it will be accepted by customers is linked, either positively or negatively, to the likelihood of acceptance of other products that

Bringing product and consumer ecosystems to the strategic forefront 227

constitute the ecosystem. When there is a positive linkage between two products in an ecosystem, an increase in the customer acceptability of one will tend to have a favorable impact on the acceptability of the other. For example, the likelihood that a customer will buy icing is likely to be positively related to the likelihood of buying cake mix. The same might be true for aluminum baking pans and cake mix. We could therefore say that both icing and baking pans belong to the product ecosystem of the cake mix. Of course, the strength of the relationship of the two products with the cake mix might be different depending on the likelihoods of joint pur- chase. When two products have a negative interde- pendence, the likelihood that one will be adopted will reduce if customers adopt the second one. For instance, if a customer buys cake mix, then the likelihood that she will buy brownie mix might lessen.

The example above, while designed to illustrate positive and negative linkages in an ecosystem, can also be interpreted in terms of product com- plements and substitutes. However, the power of ecosystem-based thinking comes to light when we consider larger assortments and all the direct and indirect linkages around a core or nucleus. For example, sprinkles may be bought only if both the cake mix and icing are bought. Therefore, sprinkles may belong to the cake mix ecosystem but may be linked to the core product only indi- rectly through icing. The logic can be generalized to examine larger ecosystems as networks of prod- ucts and services that exhibit some form of rela- tional dependence with regard to the likelihood of adoption.

Figure 1. Planet Earth DVD ecosystem

3.1. Types of product ecosystems

3.1.1. Preference ecosystem Perhaps the simplest form of a product ecosystem is a preference ecosystem whereby the liking or desire for one product translates into a liking or desire for another. Many online platforms help their customers traverse through a maze of products based on the correlation exhibited by other customers between the liking of one product and then another. For example, in our research, we examined the prefer- ence ecosystem for Planet Earth: The Complete BBC Series, a popular DVD set. We collected information from a well-known online sales platform to con- struct the ecosystem for this DVD set using the underlying preference structure uncovered through the tools of network analysis.

The results from this analysis are interesting and demonstrate the inter-relationships among poten- tial customer preferences for the assortment of movie titles that constitute the ecosystem for the Planet Earth DVD set (Figure 1). We find that the Planet Earth: The Complete BBC Series ecosystem consists not only of other nature-related documen- taries, but is also linked to commercial films through Iron Man. We further examined the directional flow of preferences among the elements within this eco- system. Two products that mutually influence the preference for each other can be thought of as having a bi-directional relationship. If only one product influences the preference for the other, the relation- ship will be uni-directional. In our analysis of the ecosystem of Planet Earth: The Complete BBC Series, we discovered a bi-directional relationship with Planet Earth and Blue Planet: Seas of Life and The

Figure 2. Panasonic car audio ecosystem

228 M. Dass, S. Kumar

BBC High Definition Natural History Collection, but a uni-directional relationship with the remaining members of the ecosystem.

3.1.2. Purchase ecosystem The second type is a purchase ecosystem whereby the purchase of one product or service changes the likelihood of the purchase of another. The tradition- al way to think about this issue is in terms of cross- selling across product categories. Firms in both the industrial and consumer sectors use a variety of initiatives, such as coupons or salesperson incen- tives, to encourage customers to buy additional products or services once they have purchased a core product or service. For example, salespeople at electronics and computer stores are often incentiv- ized to sell extended warranty plans upon the pur- chase of products. In these cases, it is easy to see that the sale of the extended warranty is contingent upon the sale of a core product but not the other way around. In terms of an ecosystem, we would say that the two exhibit a positive, uni-directional re- lationship whose strength may vary across products and retail stores.

However, under current market conditions, it is important for firms to understand and develop com- plete purchase ecosystems by generalizing the notion of cross-selling. For illustrative purposes, we used network analysis (Carrington, Scott, & Wasserman, 2005) to examine the purchase ecosystem for a Pana- sonic car audio system sold in the aftermarket (Figure 2). As one would expect, such a core purchase may set off a series of additional purchases in a variety of product categories in a specific sequence. Each of these products may belong to several other product categories as defined conventionally. How- ever, whether or not they are purchased depends on the series of linkages that they have with the core product that belongs to a completely different

category. For example, in the case we researched, the purchase of an advanced Logitech remote control was contingent on the purchase of the Panasonic audio system and the Kenwood direct video cable. To that extent, the Logitech remote control had a second-order linked relationship with the Panasonic audio system. On the other hand, the Panasonic Bluetooth kit had a first-order direct and positive relationship with the original audio system. The structure of the relationships among the other ele- ments of this ecosystem can be interpreted similarly.

3.1.3. Leapfrogging ecosystems The third type is a leapfrogging ecosystem whereby customers’ pre-adoption preferences for a set of options may appear remarkably similar, but after the adoption of one option, the preference for many of the remaining others plummet. For example, a preference ecosystem for beaches on Florida’s east coast may show a high degree of similarity and connectivity among many locations. In other words, the liking for one beach may be highly correlated with the liking for other beaches in the vicinity with similar characteristics. However, once a customer visits one beach, the likelihood of adoption of the remaining beaches may drop substantially. On the other hand, the likelihood of a visit to a beach on the state’s west coast may rise substan- tially. A leapfrogging ecosystem is therefore a con- tingent network whereby the adoption of one entity adversely affects the preference for the others, so customers are likely to leapfrog over them to either another ecosystem or to a remote location within the existing one.

3.1.4. Longitudinal ecosystems Finally, there are unfolding or longitudinal ecosys- tems whereby the likelihood of buying a product in the ecosystem evolves over time. Relationships

Figure 3. A customer ecosystem

1 The names of the network members are anonymized. This ecosystem is based on actual data and is developed using the network software, PAJEK. A free copy of the software can be obtained from http://vlado.fmf.uni-lj.si/pub/networks/pajek/.

Bringing product and consumer ecosystems to the strategic forefront 229

among the entities in an ecosystem are not static but change as the customer acquires or chooses not to acquire other products that are part of the ecosystem. For example, consider a customer who buys a laptop from a preferred brand. At the time the purchase is made, there is an ecosystem that surrounds the core product purchase. It might con- sist of a productivity suite, security software, a printer, an external hard drive, a surge protector, or an enhanced pointing device. However, the eco- system around the core product typically evolves over time. For example, in an intermediate time frame following the purchase, an enhanced security suite might enter the ecosystem, as might updates to the operating system. In these cases, a short-term assessment may not reveal the entire ecosystem and products and services may enter or exit the network as the time frame under consideration is expanded.

4. What are customer ecosystems?

Customers, much like products, are also related to one another and form an ecosystem. These relation- ships are based on a variety of factors including common backgrounds, interests, adoption and con- sumption patterns, and overall goals. The information shared by these customers across their respective networks shapes preferences and influences the ac- ceptance or rejection of products, services, ideas, or causes. To that extent, the adoption process be- comes contingent on the flow of information across the customer ecosystem. An example of such an ecosystem is a friends network on Facebook, the popular social networking site. For illustrative pur- poses, weconstructed the ecosystem for a small group

of individuals based on data collected from this site (Figure 3).1 The structure of the network in Figure 3 suggests that Mike is centrally connected in his friends’ networks and can reach a bigger audience through word-of-mouth than some of the others, including Kris, Harry, and Angie. To that extent, prod- ucts and ideas promoted by Mike are likely to be viewed by a greater number of members in this net- work than those supported by less-connected mem- bers. Identifying such influential individuals in customer ecosystems is becoming increasingly essen- tial for the efficient dissemination of marketing infor- mation and the quick adoption of products. Similarly, addressing the concerns of such individuals through either recovery efforts or proactively seeking their opinion is also becoming vital to prevent the spread of negative information that may be detrimental to a brand.

5. The evaluation of ecosystems

Fundamentally, an ecosystem consists of a set of entities–—say products or customers–—that are mutually interconnected based on preferences, likelihoods of purchase, or similarity of interests. While there are many ways to analyze these relation- ships, one simple way is to think of an ecosystem as a network of nodes and links. The characteristics of the network can then help assess the nature of

Table 1. Category-based versus ecosystem-based strategic marketing

Current View Proposed View

Competitive Structure Analysis

Category-based competitors defined in terms of entities belonging to a category

Ecosystem-based competitors defined based on contingent adoption

Market Segmentation Illustrates some form of similarity across consumer groups, but with respect to the category in question

Segmentation system based on the variations in personal ecosystems

Brand Footprint Category-focused, thus underestimates the width of brand footprint

Product ecosystem view expands the horizon of brand footprints

Intra-brand Ecosystem Intra-brand relationships are defined in terms of issues of brand architecture

Intra-brand relationships are defined in terms of customer migration patterns

Promotion Planning Evaluation of the impact of a promotion is based on a comparison of a sale with and without the promotion

Calls for evaluation of cascading effects of promotion across multiple product categories

New Product Development

Silo-based and Isolationist focused on category-bound thinking designed to increase the likelihood of own product purchase

Ecosystem based thinking designed to strengthen the linkages with downstream contingent purchase to optimize sales across the ecosystem

Customer Valuation Value of customers based on purchase of own products

Value of customers based on purchase of products in the ecosystem

Strategic Alliances Strategic alliances are based on complementary capabilities

Strategic alliances are based on common interest to reinforce desirable customer migration patterns

Market Research Market research used to understand customer preference in own categories

Market research conducted to understand customer adoption pathways and the means to influence them

230 M. Dass, S. Kumar

dependence among the nodes. For example, meas- ures of the centrality of a product can help identify whether it is isolated in the network or connected to many other products within the ecosystem. The brand strategist can then assess whether the product serves as a central node that influences the adoption of other products or is a peripheral node whose adoption is influenced by the adoption of those that occupy a more central position in the network. Simi- larly, the centrality of a customer within a network can provide analogous information about his or her influence within the ecosystem.

Consider the car audio ecosystem depicted in Figure 2, which is developed based on data regard- ing online customer purchases. The ecosystem plot shows a relatively central role for Kenwood KCA, Panasonic Car Audio, and Panasonic Car CYBT1000 Bluetooth Kit because they connect to most other products in the network. Network analyses can also reveal whether the relationship between two prod- ucts is uni-directional or bi-directional. This critical information reveals whether the adoption of one

product influences that of the other or the two are generally adopted together. Finally, the analyses can show the power of one entity over the others; they can help the strategist understand the intensity of influence that one product in the network has on those it is connected with.

6. Ecosystems and strategic marketing

Migration in strategic thinking from a category- focused mindset to an ecosystem-based mindset may have profound implications for many aspects of marketing practice. It is likely to significantly change the way we think of competition, customers, marketing research and analytics, and marketing plans (see Table 1).

6.1. Competitive structure analysis

In the current, category-based system of strategic thinking, competitors are defined as those that

Bringing product and consumer ecosystems to the strategic forefront 231

belong to the same product category and compete for a larger share of it (Srivastava, Alpert, & Shocker, 1984). Of course, as the definition of the category is relaxed, the competitive set becomes larger. But even then, the fundamental notion of competition comes from some form of hierarchical category struc- tures. For example, if the category is defined nar- rowly as diet colas, then Diet Pepsi may be seen as a direct competitor to Diet Coke. However, as the definition of the category is successively relaxed from colas to non-alcoholic beverages to all beverages, regular Pepsi, Gatorade, V8, Aquafina, and Budweiser may sequentially begin to emerge as competitors. The underlying assumption is that each of these products has the ability to negatively impact the sale of the focal product, Diet Coke.

However, in an ecosystems-based approach, the notion of competition is much broader and is not confined by tight or loose category boundaries. It accommodates both positive and negative contribu- tions from the sale of competing products to the sale of a focal product. Competition is therefore concep- tualized in terms of a system of linkages in a network that includes all products or services whose adoption either increases or decreases the adoption of the focal product. In other words, competition is funda- mentally defined on the basis of contingent adoption, and any product whose sale directly or indirectly influences the sale of the focal product through a set of linkages is a competitor. If the impact of the contingency is positive, the competitor is reinforcing; if it is negative, the competitor is detracting. For example, if popcorn facilitates the adoption of a cola, it is a reinforcing competitor and may be labeled a facilitator. Similarly, if a movie increases the sale of popcorn, which in turn increases the sale of colas, the movie will be considered a reinforcing, indirect com- petitor. On the other hand, if the sale of popcorn negatively impacts the sale of nachos then the two will be mutually detracting competitors.

An ecosystem-based approach does not necessar- ily substitute the conventional category-based no- tion of direct competition. Rather, it adds a layer of products or services that influence the adoption of the focal product through a series of contingent purchases. To that extent, it broadens the range of entities that affect the adoption of the focal product. Instead of characterizing competition as entities that have the potential to take away sales from the focal product, it also considers those that have the ability to enhance these sales levels.

6.2. Market segmentation

A direct consequence of a change in the conceptuali- zation of competition is a corresponding modification

in the development of customer segments. Under the traditional marketing paradigm, a product market is defined as a category that consists of products or services that provide the same class of benefits to customers. Customers may exhibit variable preferences for the different attributes that define the products within the category. Those whose preference structures are similar, who exhibit similar purchase patterns, or who respond similarly to marketing mix variables form a customer segment (Dickson & Ginter, 1987). In other words, the act of segmentation represents carving out customer groups based on some form of similarity, but only with respect to a defined cate- gory. The net result is segmentation within a spe- cific category market. For example, there are segments within the personal computer market, within the breakfast cereal market, or within the car market.

Because ecosystems transcend category bound- aries, however, the conventional definition of cus- tomer segments needs to be modified. While many potential avenues are open for this modified ap- proach, they all need to accommodate the variability in individual-level ecosystems across customers; that is, they must acknowledge the potential variation in the inter-product networks across a customer pool. For example, the purchase of popcorn may acceler- ate the purchase likelihood of a cola for customers with loose budget constraints, but may decelerate it for those with tight constraints. If we generalize across an ecosystem, we will observe variations in the direction and strength of linkages among prod- ucts or services across customers. A segmentation system should therefore be based on the variations in personal ecosystems rather than merely on variations in preferences for attributes of products within a category.

6.3. Brand footprint

From an ecosystems perspective, the footprint of many brands may be much wider than what would be estimated based on an evaluation of their impact within their core categories. Consider some of the popular products from Apple: The sale of an iPod, iPhone, or iPad spurs the adoption of a wide variety of accessories from multiple unrelated categories. To that extent, these brands have large footprints. A similar phenomenon occurs in one product category following the adoption of a new major kitchen appli- ance, the purchase of a luxury brand of clothing, or the adoption of organic food. The single adoption within each of these categories often leads to the sequential sale of a subsequent set of loosely related products.

232 M. Dass, S. Kumar

This phenomenon requires new ways of concep- tualizing and estimating brand footprints. The con- ventional way of evaluating the footprint of Tide within the laundry detergent category, or of Coca Cola within the carbonated beverages category, may be underestimating their true impact (Aaker, 1991). For example, national brand managers today worry about the impact of private labels. The adoption of one private label product has a cascading effect on the adoption of many others across multiple product categories and the emergence of private label eco- systems. Under a conventional, category-based ap- proach, a private label within the paper towel category will not be considered a competitor of a national brand of peanut butter. However, under the ecosystems-based approach, if the adoption of a private label paper towel increases the likelihood of adoption of private label peanut butter, then it may serve as an indirect competitor to a national brand peanut butter, and be partly responsible for its loss of sales volume. Overall, brands and even private labels today are part of larger ecosystems and have larger footprints that go beyond their own categories and affect out-of-category brands.

6.4. Intra-brand ecosystem

Much like in the case of a brand footprint, the eco- system-based approach should change the strategic thinking surrounding a brand’s own portfolio. From a diagnostic perspective, it is important for brand managers to recognize the linkages among the various products in their portfolio and assess the structure of their brand networks. They should assess the location of the nuclei or hubs in the relevant ecosystems and the linkage of their own brands to them. They should also determine whether custom- ers leapfrog within their own brand portfolio and the variations in these leapfrogging patterns across customers. For example, it is widely believed that the introduction of music players, and subsequent- ly the iPhone, has changed how customers enter Apple’s brand portfolio and later adopt its other products. Therefore, the nucleus of the Apple product portfolio may change from personal com- puters, to music players, to phones, and potentially to tablets. Concurrently, the structure of the total product ecosystem within the Apple portfolio may evolve as well. Products that were perhaps the nucleus at a point in time (e.g., computers) may evolve to become peripheral products in its net- work. In other words, the sale or adoption of Apple’s computers–—once its core–—may become contingent on customer adoption of a sequence of other Apple products. Overall, it becomes im- portant for other multi-product firms to understand

their brand ecosystems such that they can regulate their marketing efforts toward inducing and navi- gating customers through their brand portfolios.

6.5. Promotion planning

Frequent price promotions or the use of other tem- porary sales-boosting devices is common across many product markets. The underlying rationale is that a short-term incentive induces some cus- tomers to change brands, buy extra quantity, or buy sooner than planned (Gupta, 1988). The net result is a short-term increase in the sale of the promoted brand. The metrics for evaluating the impact of a promotion are therefore also based on a comparison of the sales with and without the promotion.

However, if products are related and form an ecosystem, the impact of a promotion may once again cascade across multiple product categories. The effect could either be facilitating or detracting. As a facilitator, the promotion in one category could help release a budget constraint whereby savings can potentially be spent on related or unrelated products. For example, a temporary price discount on a laptop computer might result in the purchase of related products, such as an external hard drive, or unrelated products, such as a leather jacket. On the other hand, if a promotion induces an unplanned purchase, it might restrict money that would have otherwise been spent elsewhere. For example, a promoted appetizer on a restaurant menu may be bought spontaneously and thereby reduce the likeli- hood of a dessert purchase. Once again, if we extend these examples to larger networks, we would find that the effects of promotions cascade across larger ecosystems and influence the purchase likelihood of products beyond known category boundaries. Promotion planning and measurement of the effec- tiveness of promotions will therefore need to be significantly modified to accommodate the realities of an ecosystem-based marketing approach.

6.6. New product development

The current new product development system is silo-based and isolationist; it does not recognize the importance of category inter-connectedness and the existence of product ecosystems. The de- velopment of new product concepts and the accept- reject criteria for ongoing projects are consequent- ly based on category-bounded thinking (Madhavan & Grover, 1998). The result is that new products which could potentially spawn new ecosystems are under- rated, while those that promise to dominate within their category bounds are well supported.

Bringing product and consumer ecosystems to the strategic forefront 233

Under an ecosystem-based thinking, new prod- ucts would not be developed in isolation and would not be evaluated based on potential profitability within their narrow categories. They would instead be developed with additional objectives that em- phasize the strengthening of linkages within existing ecosystems or building new ones. They would be configured to optimize around an entire ecosystem rather than around their individual categories. This might lead to a radically different prioritization of products and the criteria for evaluation. For exam- ple, in an ecosystem, the purchase of a dress might induce the purchase of a piece of jewelry, which might cue the purchase of a pair of shoes, which might cue the purchase of another dress–—all from the same retailer. The key question under such circumstances is the configuration of the first dress. Under the conventional paradigm, it would be de- signed to increase the likelihood of its own pur- chase. Under the new approach, however, it would need to be designed to also strengthen link- ages with downstream contingent purchases in order to optimize sales across the entire ecosystem rather than merely within its own category. Alter- natively, it could be designed to increase the likeli- hood of its adoption in another ecosystem where it is currently a peripheral product.

6.7. Customer valuation

An ecosystem-based marketing approach not only changes how markets are segmented, but also how customers are valued. For example, the ecosystem for the Planet Earth DVD set consists of 36 potential products that customers have some likelihood of buying. Under the ecosystem-based approach, the value of the customer will be assessed over the entire ecosystem, not just the focal product or even the set of similar products that the customer is likely to buy. The new approach will change how high versus low priority customers are determined, and which specific products are promoted to each in order for them to profitably navigate through the ecosystem.

6.8. Strategic alliances

Under an ecosystem-based strategic mindset, com- petition is not defined in terms of category bound- aries; rather, it is conceptualized in terms of facilitating and detracting linkages. These linkages can be to products in widely different product categories. Under this new paradigm, offense would be defined in terms of getting customers to nodes that have a strong facilitating impact on one’s own brand. Defensive strategies would be executed by

suppressing the migration to nodes that detract from the focal brand. Because these nodes may belong to multiple different categories, brands may need to form out-of-category strategic alliances in order to jointly navigate customers to nodes that have synergistic benefits for alliance partners.

6.9. Market research

Finally, the market research mandate will need to evolve in an ecosystem-based approach to market- ing. A new purpose of marketing research will be to understand the interconnected pathways that link the focal brand to entities that define its ecosys- tem. Marketers will need to know the preference, adoption, leapfrogging, and evolutionary ecosys- tems for their brands, as well as their relationships to customer ecosystems. They must understand how the existing and potential ecosystems may be used to direct their promotional efforts, new product development, and strategic alliances. The tools and concepts used for market research will therefore need to transcend within-category think- ing and embrace multi-category, ecosystem-based thinking.

7. Developing an ecosystem orientation

The transition to an ecosystem-based world re- quires a shift in the firm’s strategic mindset from a category orientation to an ecosystem orientation. This is a major transformation that will have to be initiated by top management and cascade down throughout the rest of the organization. Members of the executive suite will have to recognize the nature of the changing competitive landscape and the need to strategize beyond category bound- aries. They will be required to be ready to make radically different resource allocation decisions to strengthen the position of their offerings within larger ecosystems, potentially at the expense of losing within-category dominance. They will need to train themselves–—and also those in the larger organization–—to think differently about the new meaning of competition, the evolving notion of strategic positioning within networks, the new tools of market research, and the expanded scope of strategic alliances. Those who do so will win the larger battle of ecosystems, and those who don’t will be left to fight smaller battles within their narrow categories.

To implement an ecosystem-based strategy, those in the executive suite will need to make organiza- tional design changes and re-define brand/marketing

234 M. Dass, S. Kumar

managers’ scope of responsibility. Under the current category-centric organizational structures, a firm’s business lines are divided into smaller categories or sub-categories that are each managed by a cross- functional brand management team. These brand- based silos often have limited interaction across them. In other words, multi-product firms are often analogous to holding companies that merely provide shared financial resources to a group of quasi- independent brand businesses.

In order to make the transition to an ecosystem- based organization on the dimensions listed in Table 1, multi-product firms will have to institute several changes in the roles and responsibilities of brand managers, and potentially in their compensa- tion structures. First, they will need to create a coordinating body across loosely connected lines of business that will be entrusted with the task of identifying ecosystems, and ensure that decisions within the brand-level silos do not compromise system-wide returns. This body will be responsible for assessing and enhancing the structure of contin- gent sales across the firm’s product lines, as well as mapping out these contingencies with regard to product categories or specific brands within them.

Second, successful implementation of an ecosys- tem orientation will require greater centralization of research and development resources into a com- mon pool so that products can be designed to not only better serve a specific product market, but also strengthen the positive relationships across the firm’s product ecosystems. The go/no-go decisions for new products will need to be made jointly by the relevant brand management team and the central coordinating body. This body will also influence the architecture of brands across the firm’s portfolio in order to facilitate customer migration across the network of the firm’s products.

Finally, the compensation structure of individual brand or marketing managers will have to be aligned with the newer tasks of strengthening contingent sales and optimizing product adoption networks, not

merely with greater shares of narrowly defined product categories. A change in the strategic mind- set, a modification of the organizational structure and responsibilities, and a re-alignment of the compensation system will help organizations devel- op an ecosystem orientation and implement strate- gies based on it.

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