Marketing Strategy

Dr. Xinming He

Individual Summative Assessment

Z0943955

MSc. Strategic Marketing

Tuesday, 21 January 2014

Word Count: 2011

Table of Contents 1. Introduction! 2! 2. Tripod Strategy! 4! 2.1. Industry-Based View (IBV)! 4! 2.2.a. Resource-Based View (RBV)! 4! 2.2.b. Market Orientation (MO)! 5! 2.3. Institution-Based View (InsBV)! 5! 2.4. The Tripod! 5! 3. Moving Beyond the Tripod: Creating Value! 7! Segmentation, Targeting, and Positioning (STP)! 7! 5. Marketing Mix Strategy! 8! 6. Issues! 9! 7. Strategic Alliances! 11! 8. Conclusion! 12! 9. References! 13!

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1. Introduction !This paper analyzes how the three legs of the Tripod Strategy (TS) - industry-based

view (IBV) (Porter, 1980; Morgan et al, 2004), resource-based view (RBV) (Barney,

1991; Barney et al, 2001; Barney et al, 2011; Peng, 2001), and institution-based

view (InsBV) (Oliver 1997; Meyer et al. 2009; Peng 2003; Peng et al, 2008) work in

synergy to provide a holistic approach in driving strategy formulation and

development in an increasingly turbulent global economy, ultimately influencing

performance (Mike et al, 2009; Gao et al, 2009). TS plays a fundamental role in

understanding how firms create value (Woodruff, 1997) for consumers, both

financial and non-financial (Bryant et al, 2004), to achieve a sustainable competitive

advantage. Once an overview of TS is presented, marketing concepts will be

discussed with the aid of examples in an attempt to highlight how once value is

understood, it then needs to be created, obtained, and maintained in order to

enhance performance.

!Porter’s (1985) value chain places marketing among the primary activities of firms

to yield profits (Figure 1). Furthermore, Mudambi (2008) asserts that marketing

knowledge and activities play a significant role in adding value to products (Figure

2). The positive relationship between strategic planning and firm performance is

well-established by researchers (Hopkins and Hopkins, 1997; Slater et al, 2006;

Rogers et al, 1999; Grant, 2003). Therefore, understanding the role of marketing

strategy in influencing performance is essential.

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Figure 1: Value Chain (Porter, 1985)

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Figure 2:The Smile of Value Creation (Mudambi, 2008)

2. Tripod Strategy !2.1. Industry-Based View (IBV) !According to Porter (1980, 1985), industry conditions and the competitive forces within it

determine a firm’s strategy and its performance. The task environment the industry

structure (fragmented or consolidated) and its evolutionary stage (emerging, maturing, or

declining) also impact performance. Accordingly, competitive advantage can be achieved

through appropriate industry analysis (PEST), subsequently competing based on one of

Porter’s generic competitive strategies. Identifying and mapping strategic groups (Dranove

et al, 1998) is also essential to strategy-development. The theory of strategic groups

shows that firms, like the “Samurai” group of Japanese cars in the US market, can be

successful in an industry without adopting one of Porter’s generic strategies, and

competitors within strategic groups can cooperate to achieve mutual benefits, as in the

case of FujiFilm and Kodak. However, IBV fails to explain differences in performance as

similar external analyses apply to all firms within an industry (Minzberg, 2003) and it

ignores the distinctive characteristics of different firms (Barney, 1991). Thus, the picture is

incomplete, and RBV, as the second leg of the tripod, becomes necessary.

!2.2.a. Resource-Based View (RBV) !RBV considers heterogeneity in firm-specific resources - ideally inimitable, valuable, and

non-substitutable - and capabilities that account for dissimilarity in firm performance.

Elaborating further, Morgan et al (2004) and Piercy et al (2012) have emphasized the

concept of “strategic fit”, whereby a firm’s resources and capabilities need to “fit” the

market demands and emphasized their proper allocation in order to achieve a sustainable

competitive advantage. For example, Walmart utilizes its warehousing, logistics,

information systems, and distribution channels to great effect in achieving its market-

leader position in the US market underpinning the importance of RVB.

!!!!!!!

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2.2.b. Market Orientation (MO) !The cultural and behavioral perspectives of MO (Narver and Slater, 1990; Kohli and

Jaworski, 1990) theoretically overlap in suggesting that firms must be market-oriented with

regard to external environment in addition to being internally inclined towards MO.

According to Cavusgil and Zou (1994), a firm’ s performance in export markets is related to

its strategy. Although research shows that MO positively affects performance, there is no

clear evidence that MO as a resource would translate successfully into foreign markets

(Cadogan et al, 2003), as evident in Walmart’s failure in Germany (Ewing, 2005); selecting

the ideal strategy when entering a foreign market is crucial (Agarwal and Ramaswami,

1992).

!2.3. Institution-Based View (InsBV) !Although IBV and RBV compliment one another, they do not provide a complete picture of

market forces. Thus, InsBV is introduced as the third and final leg of the tripod. Like IBV,

InsBV is focused on external factors and provides the context in which firms and industries

compete in different markets. Peng et al (2008) and Oliver (1997) argue that strategic

choices are driven by social constraints of a particular institutional framework in addition to

industry characteristics and firm resources and capabilities. Boots’ entry into the Japanese

(Batt, 2001) market, despite their failure, displayed awareness of formal and informal

institutions.

!2.4. The Tripod !Once opportunities and threats are identified through external scanning (IBV),

internal scanning must be done (RBV). This helps firms identify their strengths and

weaknesses, and the coalignment of these internal and external factors should

create a sustainable competitive advantage. Carrefour’s expansion into China

(Quarterly, 2006) is a good example of a firm understanding and implementing TS.

TS provides the blueprint on which firms can rely in order to understand how value

is created. From there, firms can create and obtain value through target marketing

and marketing mix strategies, and finally maintaining value through obtaining new

customers and retaining existing ones. This value-creating marketing strategy

should yield a sustainable competitive advantage for firms, culminating in profits

(Figure 3).

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Figure 3: Marketing Strategy and Value

3. Moving Beyond the Tripod: Creating Value !Segmentation, Targeting, and Positioning (STP) !“Tactical Marketing needed to be preceded by Strategic Marketing” (Kotler, 2011).

!Segmentation is used to understand prospective customers’ background, attitudinal, and

behavioral characteristics, thus allowing the firm to target them and deliver value that is

specific to these segments, increasing customer retention rates. Thus, segmentation is a

powerful tool for achieving a competitive edge. For example, segmenting is central to

McDonald’s’ marketing strategy in the US. Instead of having brand managers for different

products, it has segment managers (eg. Asian, hispanic), which puts McDonald’s in a

position that maximizes target marketing. By understanding the various consumer

segments, through collecting consumer insights, and positioning products to appeal to

each segment, McDonald’s is able to consistently improve performance.

!Positioning is important in creating value and brand equity and loyalty. According to Kotler

(1997). Obtaining a differentiated position can be achieved by being the first (Ford),

specialist (Alienware computers), most powerful one (Amazon), or becoming the generic

for a category. For example, Google has become so synonymous with online search

engines that “Google” is often used as a verb. However, strategists must understand the

limitations of the human mind - it is easily distracted and tends to avoid confusion. Apple,

for example, does a brilliant job in communicating single-minded messages for their

products to their customers, highlighting one feature for a particular product. For instance,

the new MacBooks’ (2013) “Retina Display”, the iPhone 4S’ “Siri”, and the Macbook Air’s

“The World’s Thinnest”. Apple seems to have deviated from this powerful marketing

approach with the iPad Air pencil commercial: “thinner, lighter, more powerful”, but the

main message remains singular: “the power of lightness”. Apple understands how to

communicate with customers and continuously positions itself as a powerful, creative

innovator.

!!!!!

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5. Marketing Mix Strategy !It is important for marketers to understand why consumers consume, and the vast

literature of consumer research (eg. Arnould, E. and Thompson, 1995; Thompson and

Hirschman, 1995; Holbrook and Hirschmann, 1982; Mccracken, 1986; Rook, 1985; Arnold

and Reynolds, 2003) aids strategists in identifying appropriate product and service

offerings which are in line with TS and STP. When offering services, an understanding of

the three Ss of customer service - strategy, systems and staff - is vital in developing

external (between company and customers), internal (between company and employees),

and interactive (between employees and customers) marketing. When developing

products, innovation, particularly incremental and disruptive innovation, play a key role in

sustaining competitive advantage. For example, Samsung continuously introduces

innovative products, keeping its customers attached and looking forward to future

products.

!Once a product/service is developed, it must become available to the end consumer

through distribution channels. Some business models, such as Zara’s, rely on fast

distribution to get quickly-developed products into the market, and this model gives Zara a

competitive edge. Choosing and managing the right distribution channels - market,

hierarchical, or hybrid modes - is essential for superior performance (Klein et al, 1990).

Transaction Cost Analysis (TCA), is used in deciding which channel mode is best for a

firm. Although market mode eliminates administrative costs, firms may need internalizing in

cases of high market failures (Williamson, 1971), and market-oriented firms tend to prefer

the hierarchical mode (He et al, 2013). It is also important to take the RBV perspective in

considering firm resources and capabilities in managing and coordinating channels (Day,

2011). For example, Walmart’s powerful information systems and strong distribution

channels are main contributors to its performance. According to Ataman et al (2010)

distribution strategy impacts short-term and long-term performance the most among the

marketing mix components (McCarthy, 1978) (See figure 4).

Page �8Figure 4: Impact of Marketing Mix Elements on Sales Ataman et al. (2010)

Additionally, many firms adopt multi-channel strategies, which create convenience value

for consumers, and increases the probability of more purchases and greater spending

(Venkatesan et al, 2007). !Once the products/services are distributed through the right channels, marketers

communicate with their customer pool in order to entice them into consuming these

products. The strategic purpose of the communication mix is to support the overall

marketing strategy, which is mainly devised based on TS and positioning in particular

target markets in order to achieve competitive advantage, which in turn would result in

increased profit.

!The final dimension of the marketing mix strategy is to obtain value through appropriate

pricing and value-offering to consumers. There is a lot to consider, including costs,

competition, and environmental factors.

!Once value is understood, created, and obtained, a firm must strive to maintain it through

obtaining new customers (through value-offerings and promotional mix) and retaining

existing ones (through effective customer relationship management (Buttle, 2004), for

example). Following these strategies, whose cornerstone is TS, would ideally result in

superior performance and financial profits. However, this “formula” does not guarantee

success, as there are several seemingly uncontrollable issues that arise, such as grey

marketing and corruption.

!6. Issues !Grey marketing is a serious problem for many businesses. The Levi’s vs. Tesco case in

November 2001 highlights how Levi’s went through unanticipated legal liabilities as Tesco

selling Levi’s products threatened tarnishing the latter’s brand image (Antia et al, 2004).

Another example of grey marketing is the parallel imports (Ahmadi and Yang 2000) of

pharmaceuticals into the US market in 2004 from Canada alone was a staggering $1.1

billion, because of the difference in prescription drug prices between the two countries.

Firms can combat grey marketing through the legal system, as Levi’s did, or by forming

strategic alliances.

!Page �9

One important aspect of the institution-based view is corruption. Doh et al

(2003) argued that it impacts the international business environment, especially

in the developing economies, and it is subjective to cultural context. However, one could

argue that corruption is a necessary evil that we have to cope with in the business world.

Despite this, it is important for firms to take institutional factors, such as corruption, into

consideration, as understanding these factors determines firm performance (Peng et al,

2009).

!

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7. Strategic Alliances !In some cases, firms are willing to exploit opportunities by building strategic alliances in

the hope of gaining and/or sustaining competitive advantage. Alliances are mutually

beneficial to its members. For example, Apple formed an alliance with Google, where the

latter created a maps application to cover for the former’s low-quality native application.

Figure 4 shows how Apple creates value for its iPhone through strategic alliances in five

different locations. Alliances can aid in entering new markets (eg. Boots and Mitsubishi

alliance in Japan), sharing financial and political risks, getting access to complimentary

resources and assets (Pixar and Disney), and learning new capabilities (Toyota and GM).

In order to have fruitful alliances, firms must have a clear strategic purpose with long-term

objectives, choose the right partner(s), allocate responsibilities, and agree on the

monitoring process and exit strategy. Not all alliances turn out well, however, as illustrated

in Danone’s alliance with Wahaha, where Danone’s poor post-formation alliance

management harmed them, as expanding into foreign markets with a standardized

strategy and organizational structure creates managerial inertia to ignore local

environment, and ultimately led to failure.

!!!!

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Figure 4: Apple Alliances (Mudambi, 2008)

8. Conclusion !Value-creation is a complex concept and TS forms a foundation for crafting successful and

holistic marketing strategies. As illustrated by the various examples in this paper, there is

no magic formula that guarantees success. However, marketing research provides

guidelines which give firms a much higher probability of success. The importance of

strategy-environment coalignment has been empirically proven by Venkatraman and

Prescott (1990) and Dobni and Luffman (2000) to have performance implications. Applying

strategic fit in order to achieve prosody, should lead to superior performance.

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