Chapter04

Business Business Market Market

ManagementManagement

33rdrd edition edition

Crafting Market Strategy Crafting Market Strategy

Chapter 4

Copyright © 2009 Pearson Education Publishing as Prentice Hall

Business Market Management, 3rd edition Chapter 4-2

Section II: Section II: Understanding ValueUnderstanding Value



Chapter 4: Crafting Market StrategyChapter 4: Crafting Market Strategy

OverviewOverview

I. Business Strategy as the Context for Market Strategy

II. Planning Market Strategy in Business Markets

III. Summary



OverviewOverview

Crafting a Market Strategy: Crafting a Market Strategy:

Studying how to exploit a business’s Studying how to exploit a business’s

resources to achieve short-term and long-resources to achieve short-term and long-

term marketplace successterm marketplace success

Deciding on a course of actionDeciding on a course of action

Flexibly updating it as learning occursFlexibly updating it as learning occurs



Crafting Market StrategyCrafting Market Strategy

Recognizes real-world complexity and interplay between deliberatedeliberate and emergentemergent strategiesstrategies

Deliberate strategy:Deliberate strategy:

business decides on a

course of action to pursue

Emergent strategy:Emergent strategy:

marketplace activities

have a pattern; business

recognizes the pattern

and acts in a coordinated

way



How willwe do it?

What do we want to accomplish?

What do we know?

Market Strategy

Resources•Core Competencies•Capabilities•Partners’ resources

Fundamental Value-Based Strategies•Product leadership•Customer intimacy•Operational excellence

Business StrategyUpdate

BusinessStrategy

Orderly

advance

Radical

change

Update Market

Strategy

Orderly

advance

Radical

change

Know

ledg

e

•Del

iber

ate

•Em

erge

nt

Crafting Market StrategyCrafting Market Strategy



I.I. Business Strategy as the Business Strategy as the Context for Market StrategyContext for Market Strategy



What is Strategy?What is Strategy?

Strategy:Strategy: the creation

of a unique and

valuable position

involving a different

set of activities

Strategic Positioning:Strategic Positioning:

performing differentdifferent

activities from rivals’

or performing similar

activities in differentdifferent

waysways



StrategyStrategy Pursuing a coursecourse ofof actionaction different from

competitors

Providing superior valuesuperior value to particular market

segments

MakingMaking choiceschoices of what the firm will do and will

not do

AssemblingAssembling activitiesactivities that generate superior

value in complementary and synergistic ways



StrategyStrategy

Because a strategic position is a

fundamental course of action that

a firm commits itself to pursuing,

it should provide a competitive competitive

advantageadvantage for

at least 10 years.10 years.--Michael E. Porter



Business StrategyBusiness StrategyOverarching StrategyOverarching Strategy

Sourcing Sourcing StrategyStrategy

Specifies what the business should acquire from othersWhat it will produce itself

TechnologyTechnology

StrategyStrategy

The design knowledge and process know-how that transforms inputs to outputs of greater value

BusinessBusiness

StrategyStrategy

Provides the context for a dialogue among these constituent strategies with the intent of harmonizing themInfluences each strategy and the business strategies likewise influenced by them



StrategiesStrategies The distinction between business strategy,

or simply strategy and market strategy is blurredblurred

“Deciding which target group of customers,

varieties, and needs the company should serve is

fundamental to developing a strategy.” --Michael E. Porter



A Resource-Based View A Resource-Based View

Companies are very different collections of

physical and intangible assets and

capabilities

No two companies are alikeNo two companies are alike

• Companies have different experiencesdifferent experiences

• Companies acquire differentdifferent assetsassets andand skillsskills

• Companies build uniqueunique organizationalorganizational culturescultures



Resource-Based View

Internal Perspective

Core Competenciesand Capabilities

External Perspective

Five-Forces Frameworkof Industry Analysis

and Market-Based Assets



Resources: Resources: Building Blocks for StrategyBuilding Blocks for Strategy

Five External Market Tests of a Resource’s Value

1. InimitabilityHow difficult the resource is to copyLength of time it will take competitor to replicate

2. DurabilityHow long a resource will last in providing value before being overtaken by innovation from within the industry or outside it

3. AppropriabilityExtent other firms or individuals can capture the value that the resource creates

4. SubstitutabilityAbility of different resources to provide similar functionality or performance at the same or lower cost

5. Competitive Superiority

A market assessment of how a resource compares to those of the firm’s competitors



ResourcesResources Resources are building blocks

for strategy Complementary building

blocksCore CompetenciesCore CompetenciesCapabilitiesCapabilities

Brands as a resource Reliance on outside partners

for resources



Core CompetenciesCore Competencies

A complex harmonization of individual

technologies and production skills

Determining firm’s core competencies:

1.1. Provide potential access to a wide variety of Provide potential access to a wide variety of

marketsmarkets

2.2. Make significant contribution to the perceived Make significant contribution to the perceived

customer benefits of the end-productcustomer benefits of the end-product

3.3. Difficult for competitors to imitateDifficult for competitors to imitate



Distinctive CompetenceDistinctive Competence

Core Competence:Core Competence: Something a firm does particularly well

Distinctive Distinctive Competence:Competence: Something a firm does better than its competitors



Measure & Manage Measure & Manage Core CompetenciesCore Competencies

A firm should carefully track its own and

competitors’ performancesLook for unexpected successes or Look for unexpected successes or

unexpected poor performancesunexpected poor performances

Innovation is a core competency

Firms should study the record of innovation

in its entire field during a given period



CapabilitiesCapabilities

A set of business processes strategically

understood

Broadly based

Encompasses the entire value chain

Visible to the customer



Distinctive CapabilitiesDistinctive Capabilities

“The most defensible test of the distinctiveness

of a capability is whether it makes a disproportionate

contribution to the provision of superior customer

value—as defined from the customer’s perspective—

or permits the business to deliver value to the

customers in an appreciably more cost-effective

way.”

--George S. Day



Brands as ResourcesBrands as Resources Brands:Brands: a means of identifying a particular

supplier and its market offerings as well as

differentiating them from other suppliers and

their offerings

Brands have no inherent meaning; instead, they

become endowed with meaningendowed with meaning through: Performance of the supplierPerformance of the supplier

Its market offering over timeIts market offering over time



BrandsBrands

Brands draw on visual and verbal elementnamename logologosymbolsymboldesigndesignpackagingpackagingslogansloganor combinationor combination

Brands serve as a shorthand descriptor of the: technical,technical,economic,economic,service, andservice, andsocial benefitssocial benefits

that an offering delivers to targeted market segments and customer firms



Brand EquityBrand Equity

Capture the value of a

brand

How customers regard a

brand relative to

competitor’s offering



Brand Equity Brand Equity Preferential actions or responses of

present or prospective customers: Greater willingness to sample or try the offeringGreater willingness to sample or try the offering

Reduction in time to close the saleReduction in time to close the sale

Greater likelihood of purchasingGreater likelihood of purchasing

Willingness to award a larger share of purchase requirementWillingness to award a larger share of purchase requirement

Willingness to pay a higher priceWillingness to pay a higher price

Greater unwillingness to switch competitor offerings after price Greater unwillingness to switch competitor offerings after price

increasesincreases

Less willingness to sample or try competitors’ offeringsLess willingness to sample or try competitors’ offerings



Branding StrategyBranding Strategy

Firm identifies which brand elements a

firm chooses to apply across the various

products it sells



Branding HierarchyBranding Hierarchy

Summarizing the branding strategy by displaying the number and nature of common and distinctive brand elements across the firm’s products, revealing the explicit ordering of the brand elementsCorporate brandCorporate brand

Family brandFamily brand

Individual brandIndividual brand



Reliance on Outside Partners for Reliance on Outside Partners for ResourcesResources

Collaborative relationship allows firms access to

resources and to leverageleverage theirtheir ownown resourcesresources

Business relationships and networks form to

focusfocus onon specificspecific marketmarket opportunitiesopportunities



Reliance on Outside Partners for Reliance on Outside Partners for ResourcesResources

Firms increasingly rely on resources of outsideoutside

logisticslogistics andand transportationtransportation providers

Firms with complementary product lines may

agree to co-marketco-market each other’s productproduct lineline

A firm may look to poolpool itsits resourcesresources with one or

more firms so all can pursue a strategy none

could achieve alone



Fundamental Value-Based StrategiesFundamental Value-Based Strategies

ProductLeadership

CustomerIntimacy

OperationalExcellence

Value-Based StrategiesValue-Based Strategies

•Mutually Exclusive

•Firms that surpass competition in 2 areas have extraordinary advantageextraordinary advantage



Product LeadershipProduct Leadership Offering customers leading-edge products and

servicesRelentless pursuit of innovationRelentless pursuit of innovation

Seeks external technologies to solveSeeks external technologies to solve

or enhance its offering’s performance or enhance its offering’s performance

Seeks to obsolete its own product before competition Seeks to obsolete its own product before competition

cancan

Uses experience and learning to both speed up new Uses experience and learning to both speed up new

offering realization process and lower its costoffering realization process and lower its cost



Customer IntimacyCustomer Intimacy Segmenting and targeting markets and tailoring

offerings to match demands of those niches

Recognizes retaining customers over time tends to Recognizes retaining customers over time tends to

gain more profits from them gain more profits from them

Maintaining close relationships with customers allows Maintaining close relationships with customers allows

firms to anticipate changes and preferences of firms to anticipate changes and preferences of

customerscustomers

Supplier’s share of the customer's business is a Supplier’s share of the customer's business is a

critical measure for gauging success of customer critical measure for gauging success of customer

intimacyintimacy



Operational ExcellenceOperational Excellence

Providing customers with reliable products or

services at competitive prices and delivered with

minimal difficulty

Creative in the design and implementation of Creative in the design and implementation of

business processesbusiness processes

Continually search for ways to eliminate redundant Continually search for ways to eliminate redundant

activities activities

Perform different activities from competitors



Strategy Strategy MakingMaking

Who makes strategy?

Defining purpose…

Strategy as orderly advances punctuated

by radicalradical change!change!



Role of Middle Management is Strategy MakingRole of Middle Management is Strategy Making

Often has value-adding entrepreneurial ideas that they are able and willing to realize

Far better than senior executives at leveraging the information networks resulting in substantive, lasting change

Stays attuned to employees’ moods and emotional needs, ensuring that the change initiative’s momentum is maintained

Can manage the tension between continuity and change. They keep the organization from falling into extreme inertia or extreme chaos.

Who Makes Strategy?Who Makes Strategy? Conventional view:Conventional view: top management Recent research:Recent research: middle management plays

a critical role



Who Makes Strategy?Who Makes Strategy?

Iconoclastic view:Iconoclastic view: Promote broader

involvement of managers throughout the firm

Emergent view:Emergent view: Imaginative thinking exists

in many places as a result of

experience, mistakes, and learning



Who Makes Strategy?Who Makes Strategy?

Democratic process for

strategy making: Senior management Senior management

actively seeks out actively seeks out

revolutionary thinkersrevolutionary thinkers• Youthful perspectives

• Geographic periphery

of the firm

• Newcomers with fresh

perspectives



Defining PurposeDefining Purpose

Mission or Vision StatementMission or Vision Statement expresses a

strategic direction

Strategic IntentStrategic Intent expresses a desired

leadership position and establishes the criterion

the organization will use to chart progress

Purpose of the firmPurpose of the firm engages employees to

develop, refine, and renew the organization’s

ambition



Strategy as Orderly Advances Strategy as Orderly Advances Punctuated by Radical ChangePunctuated by Radical Change

“Strategy as Revolution”

“Strategy as Stretch and Leverage”Concentrate resources Concentrate resources

Accumulate resourcesAccumulate resources

Complement resourcesComplement resources

Conserve resourcesConserve resources

Recover resourcesRecover resources



“Clear periods of stability and change can

usually be distinguished in any organization:

while it is true that particular strategies may

always be changing marginally, it seems

equally true that major shifts in strategic

orientation occur only rarely.”

--Mintzberg, “Crafting Strategy,” Harvard Business Review



II.II. Planning Market Strategy in Planning Market Strategy in Business MarketsBusiness Markets

“Chance favors theprepared mind.”

--Louis Pasteur



Planning Market Strategy in Planning Market Strategy in Business MarketsBusiness Markets

Planning is a mechanism for learning

Market View:Market View: mental model that simplifies mental model that simplifies

representations of the market and how it representations of the market and how it

worksworks

Institutional Learning:Institutional Learning: management teams management teams

change the shared mental models of their change the shared mental models of their

company, markets, and competitorscompany, markets, and competitors



What do we know?

What do we want to

accomplish?

How will we do it?

Planning Market Strategy in Planning Market Strategy in Business MarketsBusiness Markets



What Do We What Do We KnowKnow?? To construct a market strategy, managers

must distinguish among:

what they knowwhat they know

what they believewhat they believe

what they want to believewhat they want to believe

And must:

willing to change what they think they knowwilling to change what they think they know

ask themselves how they knowask themselves how they know

“To be conscious that you are ignorant

is a great step toknowledge.”

--Benjamin Disraeli



Assessing What Do We Assessing What Do We KnowKnow

Review recent performance

Gather essential market information

Construct scenarios under uncertainty



Review Recent PerformanceReview Recent Performance

Compare recent performance with plan’s

objectives

Accurate explanation of past performance

requires managers to “think backward”“think backward”

Review of past performance connects planning

market strategy with performance review



Improving Management’s Backward Improving Management’s Backward Thinking AbilitiesThinking Abilities

Step 1Step 1 Experiment with several metaphors as explanations, each of which might add to their understanding

Step 2Step 2 Recognize that an event or outcome may have more than one cause

Step 3Step 3Because a defining characteristic of insights is that they take us by surprise, managers should go against what appear to be more probable causes to consider their opposites

Step 4Step 4 Assess candidate causal chains by the number and strength of their links; longer chains generally are less probable

Step 5Step 5 Generate and test alternative explanations rather than simply settling on the first or seemingly most likely one



Gather Essential Market InformationGather Essential Market InformationMarket Information Essentials

for Strategic Market Planning in Business Markets

1. Alternative ways of segmenting the market that give the firm some leverage

4. Estimates of the value of the product offering and the value of augmenting services for each market segment

2. Estimates of the size and growth of each market segment presently and potentially served

5. Two or three strengths/ weaknesses where actionable improvements would significantly affect customer’s perceptions of the firm’s performance

3. The distribution of estimates of the firm’s share of customer's business for each market segment

6. Knowledge of the firm’s most- and least-profitable products, and most- and least-profitable customer groups



Market StrategiesMarket Strategies

Defensive Market Strategy: Aim to retain present Aim to retain present

customerscustomersStrengthen what are Strengthen what are

already strengthsalready strengths

Offensive Market StrategyAim to gain new Aim to gain new

customerscustomersFocus on weaknesses Focus on weaknesses

that have kept firms that have kept firms from doing business from doing business with them in the pastwith them in the past

Alternative Strategy: Craft a strategy that Craft a strategy that

represents a composite of bothrepresents a composite of both



Decision MakingDecision Making

Slow Decision Makers:Slow Decision Makers:

Rely on planning and Rely on planning and

futuristic informationfuturistic information

Spend time tracking Spend time tracking

the likely path of the likely path of

technologies, markets, technologies, markets,

competitors’ actions, competitors’ actions,

and then develop a and then develop a

planplan

Fast Decision Makers:Fast Decision Makers:Look to real time Look to real time

informationinformation• Current operations and

current environment

Prefer indicators such Prefer indicators such

as bookings, backlog, as bookings, backlog,

margins, engineering, margins, engineering,

milestones, cash, scrap milestones, cash, scrap

and work-in-progress and work-in-progress



Situation AssessmentSituation Assessment Pulls together market information and internal

knowledge

Market place Market place

(customers and environment)(customers and environment)

CompetitorsCompetitors

Internal resources and capabilitiesInternal resources and capabilities

Situation assessment must be based on marketdata and information,

not simply managers’ beliefs and opinions,to be worthwhile



Construct ScenariosConstruct Scenarios Market uncertainty tool

Scenario:Scenario: a plausible representation of a

firm’s possible future

Scenario analysis should cause managers to

challenge their market views

Specify critical milestones or signposts, that signal Specify critical milestones or signposts, that signal

whether a given scenario likely will, or will not occurwhether a given scenario likely will, or will not occur

Scenario analysis to spur institutional learning: Use of Scenario analysis to spur institutional learning: Use of

scenarios as written cases in management games, scenarios as written cases in management games,

where managers are challenged to explore: “What will where managers are challenged to explore: “What will

we do if this happens?”we do if this happens?”



What Do We Want to What Do We Want to AccomplishAccomplish??

Three- to five-year planning horizon Plan updated yearly Work through multiple alternatives

simultaneouslyPromotes faster decision makingPromotes faster decision makingSharpens preferencesSharpens preferencesBuilds confidence that superior alternatives Builds confidence that superior alternatives

have not been overlookedhave not been overlookedProvides better fallback positionProvides better fallback position



How Teams Argue but Still Get AlongHow Teams Argue but Still Get Along

TacticTactic StrategyStrategy

Base discussion on current, factual information

Develop multiple alternatives to enrich the debate

Focus on issues,

not personalities

Rally around goals

Inject humor into the decision-making process

Frame decision as collaborations aimed at achieving the best possible solutions for the company

Maintain a balanced power structure

Resolve issues without forcing consensus

Establish a sense of fairness

and equity in the process



Setting Goals and ObjectivesSetting Goals and Objectives

Goals:Goals: longer-term, strategic directionsoften imprecisely stated and qualitativeoften imprecisely stated and qualitative

Objectives:Objectives: near-term, more measurable standardsmilestones that enable the firm to chart its progress in milestones that enable the firm to chart its progress in

attaining its goalsattaining its goals

Balanced Scorecard:Balanced Scorecard: assesses customer, financial, internal business process, as well as learning & growth performance, as a mechanism to accomplish this



Positioning:Positioning:Establishing and (sustaining) an intended meaning for a market offering in the minds of targeted customers

Target:Target:Succinctly characterizes the specific type of customers for the market offering that are of most interest to the supplier

Offering Offering Concept:Concept:

Specifies the essential attributes of the market offering for the selected target, out of the potentially larger set of attributes that an offering might possess

Positioning in Business MarketsPositioning in Business Markets



Customer Value PropositionsCustomer Value Propositions

Value Proposition:

All BenefitsFavorable

Points-of-DifferenceResonating Focus

Consist of:All benefits customers receive from a market offering

All favorable points-of-difference a market offering has relative to the next-best alternative

The one or two points-of-difference (and, perhaps, a point-of-parity) whose improvement will deliver the greatest value to the customer for the foreseeable future

Answers the customer question:

“Why should our firm purchase your offering?”

“Why should our firm purchase your offering instead of your competitor’s?”

“What is most worthwhile for our firm to keep in mind about your offering?”

Requires: Knowledge of own market offering

Knowledge of own market offering and next best alternative offering

Knowledge of how own market offering delivers superior value to customers, compared to next-best-alterative offering

Has the potential pitfall:

Benefit assertion Value presumptionRequires customer value research



Building Brands in Business MarketsBuilding Brands in Business Markets

How does the brand strategy support our business

strategy?

What is our inspirational brand identity, and what do we

need to do to get there?

What value proposition is most valuable to our

customers?

How do I align my organization to make the

brand and value proposition a reality?



Building Brands in Business Markets

1. Adopt a corporate or family branding strategy and create a well-defined brand hierarchy

2. Link non-product-related imagery associations

3. Employ a full range of marketing communication options

4. Leverage equity of other companies that are customers

5. Segment markets carefully and develop tailored branding and marketing programs

Source: Keller, Strategic Brand Management



How Will We Do It?How Will We Do It?

Develop an Action Plan

Develop a Sales and Marketing Program

Take Stock of Implementation Skills

Learn and Adapt



Develop an Action PlanDevelop an Action Plan

Translates the market strategy into the

coordinated activities and specific resources the

firm will use to attain what it wants to accomplish

Gain input from each functional areaGain input from each functional area

Each objective or set of objectives is Each objective or set of objectives is

associated with a program or programs associated with a program or programs

Coordinate various market activitiesCoordinate various market activities



Marketing and Sales ProgramsMarketing and Sales Programs A set of connected activities that consumes

resources to produce results in pursuit of some objectiveExternalExternal

• Objectives or related objectives

• Measure of feedback

InternalInternal• Actions to be taken

• Responsibilities defined

• Timing

• Budget



Take Stock of Implementation SkillsTake Stock of Implementation Skills

Interaction Skills

A manager’s behavioral style of relating to others inside and outside the firm. Captures how a manager works together with others, uses influence strategies, and negotiates.

Allocation Skills

A manager’s expertise in budgeting time, people, and money.

Monitoring Skills

Manager’s ability to stay informed about what matters and to recognize when to intervene in ongoing activities.

Organizing

SkillsCaptures manager’s proficiency at drawing upon or circumventing the formal organizational structure to bring together the resources to accomplish a market task.



Learning and AdaptingLearning and Adapting

Gain early feedback before or just after implementing parts of the market strategyCustomer Advisory BoardCustomer Advisory Board

Pilot programs: learning by doingPilot programs: learning by doing

Disseminate what was learned throughout the organizationBest PracticesBest Practices

Support a culture that values systematic market experiments



IV. SummaryIV. Summary



SummarySummary

Crafting market strategy is the process of studying how to exploit a

business’s resources to achieve short-term and long-term marketplace

success

Crafting market strategy requires significant participation from many

functional areas

Crafting market strategy recognizes real-world complexity and the interplay

between deliberate strategy and emergent strategy

Business strategy provides the context for market strategy

Through planning market strategy, members of the management team

compare, revise, and update their individual market views

To construct a market plan, managers must distinguish between what they

know, what they believe, and what they want to believe



All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the

United States of America.

Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall

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