Thursday, August 2, 2007

Marketing and Marketing Strategy: In Search of Answers for Some Very Basic Questions

Some time ago, I received a promotional flyer for a workshop to be lead by Gerald Nosich. Liste in the flyer under a section titled, "Questioning the Structure of an Academic Discipline," were the following questions.
1. What are the purposes, goals or objectives of the discipline?
2. What questions or problems are central to it?
3. What concepts guide the discipline?
4. What information is used for reasoning within the subject?
5. What point(s) of view or frame(s) of reference does one need to learn to reason with?
6. What assumptions define the discipline?
7. What kinds of inferences or conclusions does one need to learn how to reason to?
8. What are the pay-offs (implications) of reasoning well within the discipline?

Share your thoughts in reference to one or more of the above questions in reference to marketing as a broad academic discipline or marketing strategy as a sub-discipline.

Wednesday, August 1, 2007

Principles of Marketing Strategy

In a 1997 issue of the Fortune magazine, I came across an exhibit titled, “Ten Principles of Economics,” with the footnote: “Some things about which most economists seem to be in agreement.” The ten principles that were listed in the exhibit (October 13, 1997, p.36) are as follows:

1. People face tradeoffs
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives
5. Trade can make everyone better-off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
8. A country’s standard of living depends on its ability to produce goods and services
9. Prices rise when the government prints too much money
10. Society faces a short-run tradeoff between inflation and unemployment

This lead me to think about developing a similar list of principles of marketing strategy on which there would be broad consensus among the community of marketing strategy educators, practitioners and consultants. According to the 1966 edition of the World Book Encyclopedia Dictionary (p.1544), a principle is a truth that is a foundation for other truths, a fundamental belief, or a rule of science explaining how things act. I consulted the same source for dictionary meaning of the following terms:

• Assumption: Something taken for granted, without actual proof.
• Axiom: A statement taken to be true without proof -- self-evident truth.
• Conjecture: The formation of an opinion admittedly without sufficient evidence for proof.
• Corollary: An additional proposition that can be inferred from a proven proposition -- a natural consequence of a result.
• Doctrine: Something taught as the belief of a person, group, etc.
• Fundamental: A principle, rule, law, etc. that forms a foundation or basis.
• Law: A statement of a relation or sequence of phenomena invariable under the same conditions.
• Lemma: A subsidiary or auxiliary proposition to be used in the proof of a main proposition.
• Maxim: Statement of a general truth.
• Precept: A rule of action or behavior -- a maxim.
• Premise: A statement assumed to be true to draw a conclusion.
• Proposition: In logic, a statement that is to be proved to be either true or false.
• Rule: A thing that usually happens; what is usually true.
• Tenet: A doctrine, principle, belief, or opinion held as true.
• Theory: An explanation based on observation and reasoning.

I propose the following five principles of marketing strategy.

1. Facilitate a Business Achieve Competitive Advantage: The purpose of marketing strategy is to facilitate a business achieve and sustain a competitive advantage in the marketplace.

Here, the phrase “to facilitate a business achieve” rather than “to achieve” is used in light of the multi-functional scope of competitive strategy that underlies a business achieving and sustaining a competitive advantage. Since a number of principles that I am proposing relate to the purpose of marketing strategy, some might view “a purpose” as more appropriate than “the purpose.”

Assumption: Achieving and sustaining a competitive advantage is the means to achieving marketplace performance objectives (e.g., market share, sales, market share growth, sales growth) and financial performance objectives (e.g. return on investment, earnings growth).

2. Create Market-based Assets: The purpose of marketing strategy is to create market-based relational assets and market-based intellectual assets.

Representative market-based relational assets include brand equity, customer base and customer relationship equity, channel members and channel relationship equity, and marketing alliance partners and alliance relationship equity. Representative market based intellectual assets include market knowledge and marketing knowledge (see: Srivastava, Shervani and Fahey, Journal of Marketing, 1998).

3. Consumer and Customer Behavior Modification: The purpose of marketing strategy is to shape the behaviors of customers and consumers in ways that are conducive to their acquisition, possession and/or consumption of the firm’s product offerings.

Among the avenues available to firms to achieve consumer and customer behavior modification are: persuasive communication, branding, positioning, product innovation, packaging, distribution and pricing.

4. Enhance Salience of Non-Price Criteria in Buyers’ Choice Decisions: The purpose of marketing strategy is to enhance the salience of non-price criteria vis-à-vis price in buyers’ choice decisions.

Assumptions and Premises

1. Two broad sets of criteria -- price and non-price criteria -- influence the buying decisions (e.g., brand choice decisions) of individuals and organizations.

2. Through pursuit of a strategy of differentiation of a business’ product offering from the generic product, firms can enhance the importance of non-price criteria relative to price in the buyer’s brand choice decision process, and thereby command a price premium in the marketplace relative to the generic product.

3. Through pursuit of a strategy of differentiation of a business’ product offerings from its competitors’ product offerings, firms can enhance the importance of non-price criteria relative to price in the buyer’s brand choice decision process.

4. The range of options available to a business for pursuing a strategy of differentiation encompasses all non-price criteria that buyers either currently factor into the brand choice decision process or can be persuaded to factor into the brand choice decision process.

5. A business incurs certain costs in differentiating its product offering from its competitors’ product offerings and/or the generic product.

6. All else being equal, a strategy of differentiation will enable a business to enhance its financial performance, when the incremental cost of differentiation per unit is lower than the price premium that a unit of the differentiated product is able to command in the marketplace.

7. Holding all other factors constant, those dimensions of differentiation for which the incremental cost of differentiation is lower than the incremental price premium that such differentiation is likely to command in the marketplace constitute feasible avenues for differentiation.

5. Enhancing Strategy Effectiveness through Segmentation, Differentiation and Positioning: Segmenting the market into homogenous subgroups, developing differentiated offerings responsive to the needs of individual market segments, and distinctively positioning the offerings is generally conducive to enhancing the effectiveness of a business’ marketing strategy.

Assumptions and Premises
• The effectiveness of a strategy of differentiation is contingent upon heterogeneity of demand.

• Heterogeneity of demand can either be a pre-existing state of the marketplace, or a consequence of heterogeneity of supply and the marketing efforts of competing businesses to stimulate demand heterogeneity.

• Differentiation implies heterogeneity of supply.

• Differentiation encompasses positioning.

• Positioning implies differentiation.

Some suggestions for initiating a conversation:
Post your comments and reactions to the proposed list of five principles of marketing strategy. Propose additional principles.

Tuesday, July 31, 2007

Marketing Strategy: Fundamental Issues

In an 1999 editorial essay in the Journal of Marketing, Day and Montgomery enumerated the following as issues fundamental to marketing:
· How do customers and consumers really behave?
· How do markets function and evolve?
· How do firms relate to their markets?
· What are the contributions of marketing to organizational performance and societal welfare?

In a 1991 editorial essay in the Strategic Management Journal, Schendel listed the following as research issues fundamental to strategy:
· Why do firms differ?
· How do firms behave?
· How does the policy making process affect policy outcomes?
· What is the role of the corporate headquarters in multi-business firms?
· What explains success and failure of firms?

In a 1998 survey of the members of the American Marketing Association (AMA) Marketing Strategy Special Interest Group (SIG), I elicited member responses to the following question:

“Given your construal of the general domain of marketing strategy, what do you view as some issues fundamental to the field? Please phrase your responses in the form of questions (e.g., why do …; how do …; what is …; what explains …; when does …; is …).”

Summarized below are the responses (edited) from 35 marketing academicians. The issues fundamental to marketing strategy are:

· Understanding, explaining and predicting competitive behavior

· Customer acquisition and retention

· Measuring, meeting and managing customers’ expectations

· Optimal allocation of marketing resources

· Defining and delineating the strategic role of marketing in organizations

· Creation, managing and leveraging of brand equity, customer / customer relationship equity, channel / channel relationship equity, market knowledge and marketing knowledge

· How to compete and where to compete?

· How does marketing strategy create economic value?

· How do various elements of the marketing mix, individually and in combination impact on business/product/brand performance?

· How does marketing strategy contribute to a business’ sustainable competitive advantage?

· How does (should) the marketing function interact with other functional areas to create sustainable competitive advantage and superior business performance?

· How do (should) businesses incorporate customers’ and competitors’ perspectives in marketing strategy decisions?

· What explains the choice of a competitive marketing strategy from among alternatives by a business in an industry?

· How do firms learn about markets?

· What is the theoretical basis for distinguishing marketing strategy from business strategy?

· What are the principles of marketing strategy?

· What theories, principles, constructs, premises, axioms and maxims are fundamental to the field of marketing strategy?

· How is competitive equilibrium reached over time?

· How can (when should) a business accelerate market penetration?

· How can (when should) a business pursue preemptive defense?

· When do (when should) firms cannibalize their own product offerings?

· When should (under what conditions should) strategic alliances be pursued?

According to Day and Montgomery (1999), fundamental issues are those that are enduring to a field of study, amenable to accommodating new insights and approaches, and distinguish a field of study from related fields and contributing disciplines. Fundamental issues serve to establish the identity of a field of study, distinguish it from other fields and disciplines, and compel further research inquiry.

Which among the issues in foregoing list meet the criteria to be viewed as fundamental issues?
Are there other issues that you believe are fundamental to marketing strategy?

Issues fundamental to a field of study cannot be a long list. Clearly, the above list needs to be critically evaluated and pruned.

Listed below are issues that I view as fundamental to marketing strategy:

1. Understanding, explaining and predicting the marketplace behavior of businesses that entail the deployment of marketing resources. Here, marketplace behavior refers to a business’ actions directed at customers, competitors and channel members. Deployment of marketing resources refers to a business’ present and planned pattern of deployment and amount of deployment of marketing resources. Patter refers to specific types of marketing resources deployed and allocation of total amount of resources by resource types.

An alternative perspective of issues fundamental to marketing strategy are the following, stated in the form of questions.

· Why do competing businesses behave the way they behave in the marketplace? (What explains the competitive marketplace behavior of businesses?)

· How do the characteristics of the focal business, the characteristics and behavior of its competitors and customers, and characteristics of the industry and the macro environment influence its behavior in the marketplace, and why?

· How should a businesses deploy marketing resources at its disposal under specific organizational, industry structural, and environmental conditions, and why?

2. Given that a business’ marketing strategy decisions are based on both supply side and demand side considerations, the supply side and demand side perspective of an issue fundamental to marketing strategy can be stated as follows:

· Supply Side Perspective: How does (should) a business choose to deploy marketing resources at its disposal to compete in the marketplace in the context of the structural characteristics of the market in which it operates, competitors’ characteristics and behavior, and its own characteristics?

· Demand Side Perspective: How does (should) a business choose to deploy marketing resources at its disposal to compete in the marketplace in the context of buyer characteristics and behavior?

3. Another issues that can be viewed as fundamental to marketing strategy is understanding, explaining and predicting the:

· Antecedents of a business’ competitive marketplace behavior -- organizational and environmental antecedents.

· Outcomes of a business’ competitive marketplace behavior -- competitive positional advantages, marketplace performance (customers’ responses to a business’ competitive marketplace behavior), and financial performance.

· Moderators of the relationship between a business’ competitive marketplace behavior and outcomes.

· Mediators of the relationship between a business’ competitive marketplace behavior and outcomes.

I look forward to your comments and reactions to the proposed list of issues fundamental to marketing strategy. Are there redundancies?Do they meet Day and Montgomery’s (1999) criteria to be viewed as issues fundamental to marketing strategy?

Day, George S. and David B. Montgomery (1999), “Charting New Directions for Marketing,” Journal of Marketing, 63 (Special Issue), 3-13.

Schendel, Dan E. (1991), “Editor’s Comments on Winter Special Issue,” Strategic Management Journal, 12 (Winter Special Issue), 1-3.

Domain of Marketing Strategy

In 1998, I solicited the input of the members of the American Marketing Association (AMA) Marketing Strategy Special Interest Group (SIG) to the following question: “What do you view as the general domain of marketing strategy and major substantive areas within its domain?”

Summarized below are the responses (edited) from 35 marketing academicians.

The domain of marketing strategy is:

· The study of a business’ decisions and actions that impact on its relationship with customers, competitors and channel members.

· The study of a business’ assets, competencies, processes, and routines involved in its interactions with customers and marketing intermediaries.

· The study of value-creation processes for the entities involved in a transaction.

· The study of organizational and inter-organizational issues that impact on a business’ ability to design and deliver products that are valued by customers, and provide a competitive advantage and an acceptable return to the firm.

· The study of strategies that businesses use to create value for customers.

· The discipline of creating and sustaining offerings of superior value to customers in a competitive marketplace.

· The leveraging of the distinctive competencies of and resources made available to the marketing function to achieve sustainable competitive positional advantages.

· The pursuit of customer advantage by anticipating and meeting customers’ needs.

The following constitutes an attempt on my part toward synthesis of the above responses:

“The domain of marketing strategy is the study of organizational and inter-organizational phenomena including processes, routines, decisions and actions concerned with a business’ development of products that offer value to customers, interactions with customers, competitors and collaborators, leveraging of asset stocks that reside in the marketing function, and deployment of firm resources entrusted to the marketing function designed to achieve specific organizational objectives.”

I have given considerable thought to and written about the conceptual distinctions between corporate strategy, competitive strategy at the business unit level (other equivalent terms used include competitive strategy, business strategy, business unit strategy, market strategy). By developing and disseminating a draft statement on the domain of marketing strategy, eliciting input from the community of academics, practitioners and consultants interested in makreting strategy related issues, I intend to refine the above conceptulaization of the domain of marketing strategy.

I look forward to your comments on the merits of developing a domain statement and the proposed draft domain statement. Propose alternative domain statements and/or revisions of the proposed statement.