Marketing strategy explained

Marketing strategy refers to efforts undertaken by an organization to increase its sales and achieve competitive advantage.[1]

Strategic marketing emerged in the 1970s and 1980s as a distinct field of study, branching out of strategic management. Marketing strategies concern the link between the organization and its customers, and how best to leverage resources within an organization to achieve a competitive advantage.[2] In recent years, the advent of digital marketing has revolutionized strategic marketing practices, introducing new avenues for customer engagement and data-driven decision-making.[3]

Marketing management versus marketing strategy

The distinction between "strategic" and "managerial" marketing is used to distinguish "two phases having different goals and based on different conceptual tools. Strategic marketing mainly concerns the choice of policies aimed at improving the competitive position of the firm, taking account of the challenges and opportunities proposed by the competitive environment. On the other hand, managerial marketing is focused on the implementation of specific targets."[4] Marketing strategy is about "lofty visions translated into less lofty and practical goals [while marketing management] is where we start to get our hands dirty and make plans for things to happen."[5] Marketing strategy is sometimes called higher-order planning because it sets out the broad direction and provides guidance and structure for the marketing program.

Marketing Management is a combined effort of strategies on how a business can launch its products and services. On the other hand, Marketing strategy is the combination of many processes where the business owner or marketer can attract potential customers via several channels. It can be through offline channels or online channels.

Marketing Strategy Examples –

Marketing Management Examples –

These are a few examples to understand the basics.

History

Marketing scholars have suggested that strategic marketing arose in the late 1970s and its origins can be understood in terms of a distinct evolutionary path:[6] [7] [8]

Budgeting Control (also known as scientific management)

See also: Scientific management.

Date: From the late 19th century

Key Ideas: Emphasis on quantification and scientific modeling, reduce work to the smallest possible units and assign work to specialists, exercise control through rigid managerial hierarchies, standardize inputs to reduce variation, and defects and control costs, use quantitative forecasting methods to predict any changes.[9]

Long-range Planning

Date: From the 1950s

Key Ideas: The managerial focus was to anticipate growth and manage operations in an increasingly complex business world.[10]

Strategic Planning (also known as corporate planning)

Date: From the 1960s

Key Ideas: Organizations must find the right fit within an industry structure; advantage derives from industry concentration and market power; firms should strive to achieve a monopoly or quasi-monopoly; successful firms should be able to erect barriers to entry.

Strategic Marketing Management A business's overall game plan for reaching prospective consumers and turning them into customers of the products or services the business provides.

Date: from the late 1970s

Key thinkers: R. Buzzell and B. Gale

Key Ideas: Each business is unique and there can be no formula for achieving competitive advantage; firms should adopt a flexible planning and review process that aims to cope with strategic surprises and rapidly developing threats; management's focus is on how to deliver superior customer value; highlights the key role of marketing as the link between customers and the organization.

Resource-based view (also known as resource-advantage theory)

Date: From the mid-1990s

Key Thinkers: Jay B. Barney, George S. Day, Gary Hamel, Shelby D. Hunt, G. Hooley and C.K. Prahalad

Key Ideas: The firm's resources are financial, legal, human, organizational, informational, and relational; resources are heterogeneous and imperfectly mobile, management's key task is to understand and organize resources for sustainable competitive advantage.[11]

Overview

Marketing strategy involves mapping out the company's direction for the forthcoming planning period, whether that be three, five, or ten years. It involves undertaking a 360° review of the firm and its operating environment to identify new business opportunities that the firm could potentially leverage for competitive advantage. Strategic planning can also reveal market threats that the firm may need to consider for long-term sustainability.[12] Strategic planning makes no assumptions about the firm continuing to offer the same products to the same customers in the future. Instead, it is concerned with identifying the business opportunities that are likely to be successful and evaluating the firm's capacity to leverage such opportunities. It seeks to identify the strategic gap, which is the difference between where a firm is currently situated (the strategic reality or inadvertent strategy) and where it should be situated for sustainable, long-term growth (the strategic intent or deliberate strategy).[13]

Strategic planning seeks to address three deceptively simple questions, specifically:

A fourth question may be added to the list, namely 'How do we know when we got there?' Due to the increasing need for accountability, many marketing organizations use a variety of metrics to track strategic performance, allowing for corrective action to be taken as required. On the surface, strategic planning seeks to address three simple questions, however, the research and analysis involved in strategic planning are very sophisticated and require a great deal of skill and judgment.

Tools and techniques

Strategic analysis is designed to address the first strategic question, "Where are we now?" Traditional market research is less useful for strategic marketing because the analyst is not seeking insights about customer attitudes and preferences. Instead, strategic analysts are seeking insights into the firm's operating environment to identify possible future scenarios, opportunities, and threats.

Mintzberg suggests that the top planners spend most of their time engaged in analysis and are concerned with industry or competitive analyses as well as internal studies, including the use of computer models to analyze trends in the organization.[14] Strategic planners use a variety of research tools and analytical techniques, depending on the environment complexity and the firm's goals. Fletcher and Bensoussan, for instance, have identified some 200 qualitative and quantitative analytical techniques regularly used by strategic analysts[15] while a recent publication suggests that 72 techniques are essential.[16] No optimal technique can be identified as useful across all situations or problems. Determining which technique to use in any given situation rests with the analyst's skills. The choice of tool depends on a variety of factors including: data availability; the nature of the marketing problem; the objective or purpose, the analyst's skill level as well as other constraints such as time or motivation.[17]

The most commonly used tools and techniques include:[16]

Research methods

Analytical techniques

Vision and mission statements

The vision and mission address the second central question, 'Where are we going?' At the conclusion of the research and analysis stage, the firm will typically review its vision statement, mission statement and, if necessary, devise a new vision and mission for the outlook period. At this stage, the firm will also devise a generic competitive strategy as the basis for maintaining a sustainable competitive advantage for the forthcoming planning period.

A vision statement is a realistic, long-term future scenario for the organization. (Vision statements should not be confused with slogans or mottos.)[40] A vision statement is designed to present a realistic long-term future scenario for the organization. It is a "clearly articulated statement of the business scope." A strong vision statement typically includes the following:[41]

Some scholars point out the market visioning is a skill or competency that encapsulates the planners' capacity "to link advanced technologies to market opportunities of the future, and to do so through a shared understanding of a given product market.[42]

A mission statement is a clear and concise statement of the organization's reason for being and its scope of operations,[43] while the generic strategy outlines how the company intends to achieve both its vision and mission.[44]

Mission statements should include detailed information and must be more than a simple motherhood statement.[45] A mission statement typically includes the following:[43]

Generic competitive strategy

The generic competitive strategy outlines the fundamental basis for obtaining a sustainable competitive advantage within a category. Firms can normally trace their competitive position to one of three factors:[46]

It is essential that the internal analysis provide a frank and open evaluation of the firm's superiority in terms of skills, resources or market position since this will provide the basis for competing over the forthcoming planning period. For this reason, some companies engage external consultants, often advertising or marketing agencies, to provide an independent assessment of the firm's capabilities and resources.

Porter approach

In 1980, Michael Porter developed an approach to strategy formulation that proved to be extremely popular with both scholars and practitioners. The approach became known as the positioning school because of its emphasis on locating a defensible competitive position within an industry or sector. In this approach, strategy formulation consists of three key strands of thinking: analysis of the five forces to determine the sources of competitive advantage; the selection of one of three possible positions which leverage the advantage and the value chain to implement the strategy.[47] In this approach, the strategic choices involve decisions about whether to compete for a share of the total market or for a specific target group (competitive scope) and whether to compete on costs or product differences (competitive advantage). This type of thinking leads to three generic strategies:[31]

According to Porter, these strategies are mutually exclusive and the firm must select one approach to the exclusion of all others. Firms that try to be all things to all people can present a confusing market position which ultimately leads to below-average returns. Any ambiguity about the firm's approach is a recipe for "strategic mediocrity" and any firm that tries to pursue two approaches simultaneously is said to be "stuck in the middle" and destined for failure.[48]

Porter's approach was the dominant paradigm throughout the 1980s. However, the approach has attracted considerable criticism. One important criticism is that it is possible to identify successful companies that pursue a hybrid strategy – such as low-cost positions and differentiated positions simultaneously. Toyota is a classic example of this hybrid approach.[47] Other scholars point to the simplistic nature of the analysis and the overly prescriptive nature of the strategic choices which limits strategies to just three options. Yet others point to research showing that many practitioners find the approach to be overly theoretical and not applicable to their business.[49]

Resource-based view (RBV)

During the 1990s, the resource-based view (also known as the resource-advantage theory) of the firm became the dominant paradigm. It is an interdisciplinary approach that represents a substantial shift in thinking.[50] It focuses attention on an organization's internal resources as a means of organizing processes and obtaining a competitive advantage. The resource-based view suggests that organizations must develop unique, firm-specific core competencies that will allow them to outperform competitors by doing things differently and in a superior manner.[51]

Barney stated that for resources to hold potential as sources of sustainable competitive advantage, they should be valuable, rare, and imperfectly imitable.[52] A key insight arising from the resource-based view is that not all resources are of equal importance nor possess the potential to become a source of sustainable competitive advantage.[50] The sustainability of any competitive advantage depends on the extent to which resources can be imitated or substituted.[9] Barney and others point out that understanding the causal relationship between the sources of advantage and successful strategies can be very difficult in practice.[52] Barney uses the term "causally ambiguous" which he describes as a situation when "the link between the resources controlled by the firm and the firm's sustained competitive advantage is not understood or understood only very imperfectly". Thus, a great deal of managerial effort must be invested in identifying, understanding, and classifying core competencies. In addition, management must invest in organizational learning to develop and maintain key resources and competencies.

Market Based Resources include:[53] [54] [55]

After more than two decades of advancements in marketing strategy and in the resource-based view paradigm, Cacciolatti & Lee (2016) proposed a novel resource-advantage theory based framework that builds on those organizational capabilities that are relevant to marketing strategy and shows how they have an effect on firm performance.[56] The capabilities-performance model proposed by Cacciolatti & Lee (2016) illustrates the mechanism whereby market orientation, strategic orientation, and organizational power moderate the capabilities-performance relationship.[57] Such a logic of analysis was implicit in the original formulation of RA theory and although it was taken into consideration by several scholars,[58] [59] it has never been articulated explicitly and tested empirically.

In the resource-based view, strategists select the strategy or competitive position that best exploits the internal resources and capabilities relative to external opportunities. Given that strategic resources represent a complex network of inter-related assets and capabilities, organizations can adopt many possible competitive positions. Although scholars debate the precise categories of competitive positions that are used, there is general agreement, within the literature, that the resource-based view is much more flexible than Porter's prescriptive approach to strategy formulation.

Hooley et al., suggest the following classification of competitive positions:[60]

Other approaches

The choice of competitive strategy often depends on a variety of factors including: the firm's market position relative to rival firms,[61] the stage of the product life cycle.[62] A well-established firm in a mature market will likely have a different strategy than a start-up.

Growth strategies

Growth of a business is critical for business success. A firm may grow by developing the market or by developing new products. The Ansoff product and market growth matrix illustrates the two broad dimensions for achieving growth. The Ansoff matrix identifies four specific growth strategies: market penetration, product development, market development and diversification.[63]

Market penetration involves selling existing products to existing consumers. This is a conservative, low risk approach since the product is already on the established market.

Product development is the introduction of a new product to existing customers. This can include modifications to an already existing market which can create a product that has more appeal.

Market development involves the selling of existing products to new customers in order to identify and build a new clientele base. This can include new geographical markets, new distribution channels, and different pricing policies that bring the product price within the competence of new market segments.

Diversification is the riskiest area for a business. This is where a new product is sold to a new market.[64] There are two type of Diversification; horizontal and vertical. Horizontal diversification focuses more on the product(s) where the business is knowledgeable, whereas vertical diversification focuses more on the introduction of new product into new markets, where the business could have less knowledge of the new market.

Horizontal integrationA horizontal integration strategy may be indicated in fast-changing work environments as well as providing a broad knowledge base for the business and employees.[65] A benefit of horizontal diversification is that it is an open platform for a business to expand and build away from the already existing market.

High levels of horizontal integration lead to high levels of communication within the business. Another benefit of using this strategy is that it leads to a larger market for merged businesses, and it is easier to build good reputations for a business when using this strategy.[66] A disadvantage of using a diversification strategy is that the benefits could take a while to start showing, which could lead the business to believe that the strategy in ineffective. Another disadvantage or risk is, it has been shown that using the horizontal diversification method has become harmful for stock value, but using the vertical diversification had the best effects.[67]

A disadvantage of using the horizontal integration strategy is that this limits and restricts the field of interest that the business.[68] Horizontal integration can affect a business's reputation, especially after a merge has happened between two or more businesses. There are three main benefits to a business's reputation after a merge. A larger business helps the reputation and increases the severity of the punishment. As well as the merge of information after a merge has happened, this increases the knowledge of the business and marketing area they are focused on. The last benefit is more opportunities for deviation to occur in merged businesses rather than independent businesses.

Vertical integrationVertical integration is when business is expanded through the vertical production line on one business. An example of a vertically integrated business could be Apple. Apple owns all their own software, hardware, designs and operating systems instead of relying on other businesses to supply these.[69] By having a highly vertically integrated business this creates different economies therefore creating a positive performance for the business.[70] Vertical integration is seen as a business controlling the inputs of supplies and outputs of products as well as the distribution of the final product. Some benefits of using a Vertical integration strategy is that costs may be reduced because of the reducing transaction costs which include finding, selling, monitoring, contracting and negotiating with other firms. Also by decreasing outside businesses input it will increase the efficient use of inputs into the business. Another benefit of vertical integration is that it improves the exchange of information through the different stages of the production line. Some competitive advantages could include; avoiding foreclosures, improving the business marketing intelligence, and opens up opportunities to create different products for the market.[71] Some disadvantages of using a Vertical Integration Strategy include the internal costs for the business and the need for overhead costs. Also if the business is not well organized and fully equipped and prepared the business will struggle using this strategy. There are also competitive disadvantages as well, which include; creates barriers for the business, and loses access to information from suppliers and distributors.[71]

Market position and strategy

In terms of market position, firms may be classified as market leaders, market challengers, market followers or market nichers.[72] [73]

Market leader: The market leader dominates the market by objective measure of market share. Their overall posture is defensive because they have more to lose. Their objectives are to reinforce their prominent position through the use of PR to develop corporate image and to block competitors brand for brand, matching distribution through tactics such as the use of "fighting" brands, pre-emptive strikes, use of regulation to block competitors and even to spread rumours about competitors. Market leaders may adopt unconventional or unexpected approaches to building growth and their tactical responses are likely to include: product proliferation; diversification; multi-branding; erecting barriers to entry; vertical and horizontal integration and corporate acquisitions.

Market challenger: The market challenger holds the second highest market share in the category, following closely behind the dominant player. Their market posture is generally offensive because they have less to lose and more to gain by taking risks. They will compete head to head with the market leader in an effort to grow market share. Their overall strategy is to gain market share through product, packaging and service innovations; new market development and redefinition of the product to broaden its scope and their position within it.

Market follower: Followers are generally content to play second fiddle. They rarely invest in R & D and tend to wait for market leaders to develop innovative products and subsequently adopt a “me-too” approach. Their market posture is typically neutral. Their strategy is to maintain their market position by maintaining existing customers and capturing a fair share of any new segments. They tend to maintain profits by controlling costs.

Market nicher: The market nicher occupies a small niche in the market in order to avoid head to head competition. Their objective is to build strong ties with the customer base and develop strong loyalty with existing customers. Their market posture is generally neutral. Their strategy is to develop and build the segment and protect it from erosion. Tactically, nichers are likely to improve the product or service offering, leverage cross-selling opportunities, offer value for money and build relationships through superior after-direct sales service, service quality and other related value-adding activities.

Most firms carry out strategic planning every 3– 5 years and treat the process as a means of checking whether the company is on track to achieve its vision and mission. Ideally, strategies are both dynamic and interactive, partially planned and partially unplanned. Strategies are broad in their scope in order to enable a firm to react to unforeseen developments while trying to keep focused on a specific pathway. A key aspect of marketing strategy is to keep marketing consistent with a company's overarching mission statement.[74]

Strategies often specify how to adjust the marketing mix; firms can use tools such as Marketing Mix Modeling to help them decide how to allocate scarce resources, as well as how to allocate funds across a portfolio of brands. In addition, firms can conduct analyses of performance, customer analysis, competitor analysis, and target market analysis.

Entry strategies

See also: Market entry strategy.

Marketing strategies may differ depending on the unique situation of the individual business. According to Lieberman and Montgomery, every entrant into a market – whether it is new or not – is classified under a Market Pioneer, Close Follower or a Late follower[75]

Pioneers

Market pioneers are known to often open a new market to consumers based on a major innovation.[76] They emphasize these product developments, and in a significant number of cases, studies have shown that early entrants – or pioneers – into a market have serious market-share advantages above all those who enter later.[77] Pioneers have the first-mover advantage, and in order to have this advantage, business’ must ensure they have at least one or more of three primary sources: Technological Leadership, Preemption of Assets or Buyer Switching Costs.[75] Technological Leadership means gaining an advantage through either Research and Development or the “learning curve”.[75] This lets a business use the research and development stage as a key point of selling due to primary research of a new or developed product. Preemption of Assets can help gain an advantage through acquiring scarce assets within a certain market, allowing the first-mover to be able to have control of existing assets rather than those that are created through new technology.[75] Thus allowing pre-existing information to be used and a lower risk when first entering a new market. By being a first entrant, it is easy to avoid higher switching costs compared to later entrants. For example, those who enter later would have to invest more expenditure in order to encourage customers away from early entrants.[75] However, while Market Pioneers may have the “highest probability of engaging in product development”[78] and lower switching costs, to have the first-mover advantage, it can be more expensive due to product innovation being more costly than product imitation. It has been found that while Pioneers in both consumer goods and industrial markets have gained “significant sales advantages”,[79] they incur larger disadvantages cost-wise.

Close followers

Being market pioneer can, more often than not, attract entrepreneurs or investors depending on the benefits of the market. If there is an upside potential and the ability to have a stable market share, many businesses would start to follow in the footsteps of these pioneers. These are more commonly known as Close Followers. These entrants into the market can also be seen as challengers to the Market Pioneers and the Late Followers. This is because early followers are more than likely to invest a significant amount in Product Research and Development than later entrants.[78] By doing this, it allows businesses to find weaknesses in the products produced before, thus leading to improvements and expansion on the aforementioned product. Therefore, it could also lead to customer preference, which is essential in market success.[80] Due to the nature of early followers and the research time being later than Market Pioneers, different development strategies are used as opposed to those who entered the market in the beginning,[78] and the same is applied to those who are Late Followers in the market. By having a different strategy, it allows the followers to create their own unique selling point and perhaps target a different audience in comparison to that of the Market Pioneers. Early following into a market can often be encouraged by an established business’ product that is “threatened or has industry-specific supporting assets”.[81]

Late entrants

Those who follow after the Close Followers are known as the Late Entrants. While being a Late Entrant can seem very daunting, there are some perks to being a latecomer. For example, Late Entrants have the ability to learn from those who are already in the market or have previously entered.[81] Late Followers have the advantage of learning from their early competitors and improving the benefits or reducing the total costs. This allows them to create a strategy that could essentially mean gaining market share and most importantly, staying in the market. In addition to this, markets evolve, leading to consumers wanting improvements and advancements on products.[82] Late Followers have the advantage of catching the shifts in customer needs and wants towards the products.[75] When bearing in mind customer preference, customer value has a significant influence. Customer value means taking into account the investment of customers as well as the brand or product.[83] It is created through the “perceptions of benefits” and the “total cost of ownership”.[83] On the other hand, if the needs and wants of consumers have only slightly altered, Late Followers could have a cost advantage over early entrants due to the use of product imitation.[78] However, if a business is switching markets, this could take the cost advantage away due to the expense of changing markets for the business. Late Entry into a market does not necessarily mean there is a disadvantage when it comes to market share, it depends on how the marketing mix is adopted and the performance of the business.[84] If the marketing mix is not used correctly – despite the entrant time – the business will gain little to no advantages, potentially missing out on a significant opportunity.

The differentiated strategyThe customized target strategy

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

If a company adopts this type of market strategy, a separate marketing mix is to be designed for each customer.[85]

Specific marketing mixes can be developed to appeal to most of the segments when market segmentation reveals several potential targets.[86]

Developing marketing goals and objectives

Whereas the vision and mission provide the framework, the "goals define targets within the mission, which, when achieved, should move the organization toward the performance of that mission."[87] Goals are broad primary outcomes whereas, objectives are measurable steps taken to achieve a goal or strategy.[88] In strategic planning, it is important for managers to translate the overall strategy into goals and objectives. Goals are designed to inspire action and focus attention on specific desired outcomes. Objectives, on the other hand, are used to measure an organization's performance on specific dimensions, thereby providing the organization with feedback on how well it is achieving its goals and strategies.

Managers typically establish objectives using the balanced scorecard approach. This means that objectives do not include desired financial outcomes exclusively, but also specify measures of performance for customers (e.g. satisfaction, loyalty, repeat patronage), internal processes (e.g., employee satisfaction, productivity) and innovation and improvement activities.[89]

After setting the goals marketing strategy or marketing plan should be developed. The marketing strategy plan provides an outline of the specific actions to be taken over time to achieve the objectives. Plans can be extended to cover many years, with sub-plans for each year. Plans usually involve monitoring, to assess progress, and prepare for contingencies if problems arise. Simultaneous such as customer lifetime value models can be used to help marketers conduct "what-if" analyses to forecast what potential scenarios arising from possible actions, and to gauge how specific actions might affect such variables as the revenue-per-customer and the churn rate.

Strategy typologies

Developing competitive strategy requires significant judgement and is based on a deep understanding of the firm's current situation, its past history and its operating environment. No heuristics have yet been developed to assist strategists choose the optimal strategic direction. Nevertheless, some researchers and scholars have sought to classify broad groups of strategy approaches that might serve as broad frameworks for thinking about suitable choices.

Strategy types

In 2003, Raymond E. Miles and Charles C. Snow, based on an in-depth cross-industry study of a sample of large corporations, proposed a detailed scheme using four categories:[90] [91]

Marketing strategy

Marketing warfare strategies are competitor-centered strategies drawn from analogies with the field of military science. Warfare strategies were popular in the 1980s, but interest in this approach has waned in the new era of relationship marketing. An increased awareness of the distinctions between business and military cultures also raises questions about the extent to which this type of analogy is useful.[92] In spite of its limitations, the typology of marketing warfare strategies is useful for predicting and understanding competitor responses.

In the 1980s, Kotler and Singh developed a typology of marketing warfare strategies:[93]

Relationship between the marketing strategy and the marketing mix

Marketing strategy and marketing mix are related elements of a comprehensive marketing plan. While marketing strategy is aligned with setting the direction of a company or product/service line, the marketing mix is majorly tactical in nature and is employed to carry out the overall marketing strategy. The 4P's of the marketing mix (Price, Product, Place and Promotion) represent the tools that marketers can leverage while defining their marketing strategy to create a marketing plan.[94] Accuracy of marketing mix impacts success of overall marketing strategy. The 4P's of marketing should in tune with brand's core message.

Further reading

Simmons, Mark, Punk Marketing, New York: Harper Collins, 2007 (Review of the book by Marilyn Scrizzi, in Journal of Consumer Marketing 24(7), 2007)

Notes and References

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