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.


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