Chapter One Market Driven Strategy Part - 1 Strategic Marketing Market Driven Strategy • Customer should be the starting point in business strategy formulation. • Understanding of Market and customer requirements is the key to compete in future. • Market driven strategies improve business performance. Market Driven Strategy’s Basics • Obtaining information about customers, competitors and Markets. • Viewing the information from a total business perspective. • Deciding across business functions to create superior customer Value. • Taking actions to ensure delivery of superior customer value. Market Driven Strategy in Action • SOUTHWEST AIRLINES On-Time Service High Aircraft Utilization Market-Oriented Culture Low Operating Expenses Standardized facilities such as food Low Fares Friendly crew and simple procedures for customers. No Connections with other airlines. Market Driven Strategy in Action • Dell Computers • Value chain Strategy combines technologies from Intel, Microsoft, and IBM. • Resulting in faster introduction of next generation product than it’s competitors. • Effective Supplier, Distributor and service partnerships with other companies. • Direct sales to customers reducing the no. of intermediaries. • More control over price, Quality and delivery. • Built-to-order business design. • Close contact with customers through large sales force. • Dell process 500,000 calls each week effectively. • 65,000 corporate customers are linked to their own Dell Premier pages on the Internet. • Sales in 2004 exceeds $47 billion. Characteristics of Market-Driven Strategies Market- Orientation Achieving Leveraging of Superior Distinctive Performance Capabilities Matching Customer Value Requirements to Capabilities Becoming Market Oriented • A business is Market oriented when it’s culture is systematically and entirely committed to continuous creation of superior customer value. • Understanding and satisfying customers. • Keeping yourself close to customers, suppliers and other Stakeholders. • Ability to monitor rapidly changing customer needs. • Increasing the rate of Product innovations. • Building the organization’s Competitive Advantage. Characteristics of Market Orientation • Customer Focus • Competitor Intelligence • Cross-functional Coordination Distinctive Capabilities • Capabilities are complex bundle of skills and accumulated knowledge, utilized through organizational Processes, that enable a firm to coordinate activities and make effective use of their assets. Components of Organizational Capabilities Skills Accumulated (cross-functional knowledge teams) (new product experience) Organizational Processes Superior Customer (new product Value development) Coordination of Activities Assets (communication) (brand image) Higher contribution to superior customer value Why to pursue Distinctive Capabilities Provide value to customers on a more cost-effective basis Distinctive Capabilities in Action • South West Airlines – Organizational processes: • Point-to-point route system rather than hub-and-spoke design used by others. • Service to 57 cities in 29 states with average trip of 500 miles • Operating costs kept low through the use of 737 aircrafts, and limited services (no meals). • Minimizing time span from landing to departure. – Skills and Accumulated Knowledge • Developing Skills to improve customer loyalty. • Operating business at very low costs. – Coordination of Activities • Simplification of functions • Coordination among various dept. to deliver on-time service. • Customer facilitation and easy access. – Assets • Loyal customer base. • Major strength is team work and employee coordination. Distinctive Capabilities in Action • Zara Boutique (Spanish Apparel Retailer) – Organizational processes: • $2 billion company with 924 stores in 31 countries • Production of 12,000 apparel styles each year. • Each is available in store in four weeks. • Renews nearly half their stock every two weeks. • Have more than 200 designer and produce two third of it’s clothes in company-owned facility in Spain. • Hi-tech computer guided manufacturing and facilities. – Skills and Accumulated Knowledge • Skills of unique design team. • Knowledge about changing fashion trends. • Customer and competitor guided design process – Coordination of Activities • Cross functional coordination in new product development. • Short time span between idea and their transformation into stores. – Assets • Information technology is vital in it’s success. • Strong Brand image. DESIRABLE CAPABILITIES Superior to Applicable to the Multiple Competition Competitive Situations Difficult to Duplicate TYPES OF CAPABILITIES Outside-In Inside-Out Processes Processes Spanning Processes •Order Fulfillment •Market Sensing •Financial Management •Pricing •Customer Linking •Cost control •Purchasing •Channel Bonding •Integrated Logistics •Customer service •Technology delivery •Manufacturing process monitoring •Human Resource •New product/service Development Management •Strategy Development •Technology Matching Customer Value Requirements to Capabilities • Company must identify Value opportunities existing in the Market. • Select value opportunities that match it’s distinctive capabilities. • Firm must determine where and how it can offer superior Value. • Firm must pursue a positive Capability/ Value match. Creating Value for Customers Product Services Benefits Employees Image Value (gain/loss) Monetary Costs Costs Time (Sacrifices) Psychic and physic costs How to Match Customer Value Requirements to Capabilities? • Inject customer focused behavior in frontline employees. • Analyze target markets and boost service quality. • Customer Sensing and customer Linking. • Use cross-functional teams to develop Products and services. • Innovate regularly. • Achieve operational excellence.