Marketing Strategy: A Customer-Driven Approach

Designed for marketing undergraduates or the first part of an MBA, this book traces the evolution of marketing strategy over 30 years from systems that stressed competition to the present focus on the customer. It argues that business strategy must be customer-driven to be successful.

Chapter 1

MARKETING'S INFLUENCE ON STRATEGIC THINKING

Business strategy has always relied heavily on marketing ideas, but in recent years the influence of marketing on strategy has grown greatly. Today, more than ever, strategy is dominated by ideas that sink their roots deeply into the discipline of marketing. Customer satisfaction, the idea of getting close to customers, creating a customer-driven company, the profit impact of new product introductions, and an explosion of product variety are among the ideas that now dominate strategic thinking. They supplement market share, market growth, and myriad other ideas that have previously been mainstays in strategy.

The reasons for this newfound interest are many. Competition is more intense and global in scope while product quality and customer expectations have risen steadily in the past decade. Firms must do more to compete. They must run faster merely to keep up.

But the most important reason for the ascendancy of marketing ideas in strategy is the realization that the most elegantly drawn strategic plans are worthless if the firm is unable to create satisfied customers willing to pay for the firm's products and services. Without that foundation the firm has virtually no chance of long-term success.

Marketing bywords such as "customer," "product," and "market" reverberate loudly throughout the study of strategy. Knowing your business, your customers, your markets, and your products are the essential ingredients for strategic success. Gone are the days when strategists thought they could manage diversified businesses like portfolios of stocks. With the benefit of hindsight it seems ridiculous to think that it did not matter what products the firm sold as long as the firm's position in that business was dominant. Today, customers are widely viewed as the cornerstone of a firm's very existence. It is for those reasons that firms scramble to create a customer orientation.

CONSUMER ORIENTATION

In recent years, there has been a virtual stampede to become customer oriented. Firms now strive to place customers at the center of all the firm's actions. They seek to form lasting relationships with customers, track customer expectations and satisfaction with products and services, and become more cognizant and responsive to changes in the marketplace. Such actions are a recognition that it is customers who will ultimately determine whether the firm's strategy was brilliantly conceived or blindly concocted.

THE MARKETING CONCEPT

Marketing has a long history of placing customers at the center of all marketing actions. Typical of that orientation is the series of imbedded boxes shown in Exhibit 1.1. As the exhibit illustrates, the customer-oriented firm centers its actions on serving consumer needs, wants, and desires. At the heart of this orientation is the marketing concept.

The marketing concept is the most fundamental precept in the discipline of marketing. It holds that firms should try to discover what consumers want and make products to satisfy those wants. It is based on the "market-pull" model of marketing, a commonsensical notion that consumers will demand products that meet their needs and pull them through the channel of distribution. When implemented correctly, a firm that employs the marketing concept will not have to rely on hard-sell campaigns to persuade consumers to buy the goods it produces. At the extreme, the marketing concept can be defined as that condition where selling is unnecessary.

The origin of the marketing concept lies with three prominent authors in the 1950s: (1) Peter Drucker in his landmark book The Practice of Management, (2) John B. McKitterick of General Electric (a firm that also pioneered many strategic planning techniques), and (3) Ted Levitt, the noted Harvard professor and author of the seminal article "Marketing Myopia." All three agree that the very purpose of business is to create satisfied customers. Most important, the marketing concept was conceived as, and remains, a long-term business orientation rather than a short-term, quarter-to-quarter, financial fix.

The marketing concept held sway throughout most of the 1950s and 1960s, a time when American business dominated world markets. By the 1970s, however, times had changed. Many of the newer strategic formulations ignored consumers and focused, instead, almost solely on the task of outfoxing competitors. With the orientation toward competitors during that decade, the importance of consumers was lost.

But a switchback in trend started to occur in the mid-1980s when Fredrick Webster, the noted marketing scholar, observed that many firms started "coming back to the basic marketing concept articulated in the mid-1950s." He foresaw a marketing renaissance. Firms began to recognize that the fundamental purpose of business is customer satisfaction and the reward is profit. That was the essence of Peter Drucker's original statement about the marketing concept. He believed that financial goals were merely the results and rewards of customer satisfaction, not the primary purpose of business. The move toward creating a customer-oriented firm almost perfectly mirrors the disillusionment of corporate America with formal strategic planning tools based on financial analogies.

Fredrick Gluck, an expert on strategic planning, agrees with Webster's assessment. He concludes that newer strategic planning techniques are aimed at better understanding customers. The shift is long overdue. He notes: "The same kind of diligent information gathering some managers reserve for their competition should be focused on getting 'closer' to their customers." Once again, strategy is reaffirming the marketing concept after a bout of philandering in the 1970s.

CRITICISMS OF THE MARKETING CONCEPT

The marketing concept is not without its critics. Some argue that the concept hurts rather than helps the competitive performance of firms that embrace it. Roger Bennett and Robert Cooper, for example, in two strongly worded articles, argue that the marketing concept has diverted attention away from a long-term emphasis on product development and quality manufacturing to a short-term emphasis on superfluous advertising, selling, and promotion. As a result, product value has suffered. As evidence they point to the automobile and television industries, where American firms once dominated, but which are now dominated by imports. They blame the marketing concept for those industries' problems. While American firms stressed short-term promotions, these authors argue, foreign firms offered superior product value.

The marketing concept is flawed, they contend, because of its overreliance on the "market-pull" model, where marketing research is used to discover what consumers want. According to the "market-pull" model of innovation, marketing asks customers what kinds of new products and services they want, listens intently, then tells R&D which products to develop. Since consumers can only speak in terms of the familiar, they cannot express a need for radically different innovations with which they have no experience. Imagine consumers trying to tell a market researcher about their need for a compact disc player or a microwave oven before those products were introduced. It would be very unlikely. As a result, firms that rely on the "market-pull" model miss truly innovative products and instead focus on products billed as "new and improved" but that are really nothing more than minor product modifications and incidental line extensions. Those firms are then forced to rely on heavy promotion to catch up with firms that introduced truly innovative products. This is the tragedy of the marketing concept according to Bennett and Cooper.

Another influential article, published at about the same time by Robert Hayes and William Abernathy, voiced similar criticisms. It argues that three trends have conspired to decimate the competitiveness of American business: (1) an overreliance on financial controls (management by the numbers), (2) portfolio management (managing a business like a portfolio of stocks), and (3) the marketing concept. They too belittle the "market-pull" model. The essence of their argument is that it has given us newfangled potato chips, deodorants, and pet rocks, but missed the truly creative innovations of our time, such as lasers, instant photography, xerography, and the transistor. In short, with the marketing concept, we are managing our way to economic decline.

SHOULD YOU IGNORE YOUR CUSTOMERS?

In more recent years, there has been an increasing call to ignore your customers! Consumers are said to be unimaginative, anchored to past practices, and the ultimate conformists. They are unwilling and unable to consider radically new ideas. Asking them what kinds of new products and services they want not only can't help but it can actually lead firms in the wrong direction. When Chrysler first tested its minivan, for instance, which turned out to be one of the most successful new cars introduced in a generation, consumers were troubled by its odd design and the fact that it was neither a passenger car nor a station wagon. They expressed little interest in the product. Had the firm listened to those customers it might have canceled the whole project. But Chrysler desperately needed a new product hit and decided to introduce the radical new van anyway. It turned out to be one of the best moves the company ever made. Market research might have argued for slight variations on existing models, but such a choice would surely have been far less successful than the bold move the company actually made.

Critics also argue that consumers often say one thing, then do another. Surveys show, for example, more interest in new low-fat foods than actual sales once those products are introduced. McDonald's McLean sandwich debuted to great fanfare but consumers stuck with the fatladen burgers, which tasted better. Such results suggest that you cannot trust what consumers say about their own future behavior.<...