One very fine morning, my boss comes to me and says, “Here is what we want to do and here is how we are going to do it…..!” Sounds simple? This simple definition of strategy may sound effortless but it is not honestly simple because a lot of thought and work would go into the development of such business strategies.
A firm that attempts to sell a product or a service must have a plan and strategize its every move in order to sustain in the long run. The definition of strategy is: the guiding plan that integrates a firm’s major goals that has superior efficiency, quality, innovation, and customer responsiveness. A good business strategy will incorporate such concepts with a clear understanding of adopting the marketing concept, market opportunity analysis, and developing a sustainable competitive advantage. Strategies should be made keeping in mind of the fact that – all marketing begins with deprivation. A business is successful if we are able to understand the concept of fulfilling the deprived space.
As practiced, marketing is a value-adding production process. We take an agricultural commodity, process it, manufacture an easy to prepare food product from it, package it for attractiveness and protection, transport it to a location convenient to the consumer, and place it in an attractive display. All those actions; some processing; some marketing; all coordinated, add value and result in a valuable bundle of benefits, tangible and intangible, that the consumer is willing to pay for. That is marketing. Now, let’s think it strategically. Let us talk about – why a firm needs a strategy? People in different functional areas in a business have a tendency to make decisions independently based on each group’s perception of the business environment. For example, people in research and development spend most of their time working on products for the future. People in manufacturing focus on meeting today’s production schedule. The finance staff worries about collecting accounts receivable and paying the bills. The people in marketing just want to move product out the door, with little regard for production, finance, or anything else. A strategy for the firm gives functional units a coordinated sense of direction. They all still must be concerned about the details of their functional areas, but at least they march in the same direction.
Interestingly, our ideas about marketing have evolved over time. In the beginning the main objective was to produce a product and learn to do it efficiently with not much interest to customer loyalty. Instead of producing a product we know how to make and pushing it at buyers, we should see what products customers want to buy. Here is where marketing concepts and opportunities evolve where the need of consumers or buyers and organizing the firm to fill those needs at a profit becomes the main concern in order to sustain in the market.
A framework for analyzing such strategic opportunities should be developed. To build up such framework, concepts like penetration strategy, product development, market development, and diversification should be incorporated within an organization. The Cola Wars where Coca Cola and Pepsi Cola are always in a competitive groove for maximum market penetration with a high level of differentiation in their products. They compete with highly differentiated beverage products and spend large amounts of money on promotion. Again, Peter Brabeck, at the time a Nestle product manager in Latin America, was very much concerned about product development which tapped him to develop and extend the line of pasta products worldwide. It became a billion dollar per year business for Nestle and propelled Brabeck to the C.E.O job.
Market is such an interesting battle field for all business people whose core objective would be to compete and sustain. The battle is won if strategies are made keeping in mind of the competitive advantage and an understanding of the core competence that a firm has. Microsoft hires the smartest people they can find and gives them demanding but interesting work to do. It has given Microsoft a competitive advantage that no other firm has been able to match. Why has Coca Cola never patented their namesake product, Coca Cola? Because it is a corporate secret and to apply for a patent Coca Cola would have to reveal the ingredients. After seventeen years in the United States anyone could manufacture Coca Cola. The Coke formula and the production process fall under the heading: proprietary technology. Coca Cola has kept the secret now for more than 100 years and it has given them a competitive advantage no other company has yet matched.
Rapid new product development can also become a competitive advantage. It has become the strategy of some firms to introduce one new product after another. Dupont, an American company with a variety of products, uses the same strategy. It started with cellophane; then came nylon; then rayon; Mylar; and Kevlar. Each new material added to the product line, partially replacing the old material, but also capturing new uses. Competitors, not able to keep up, fell behind. Most of the pharmaceutical companies also follow the same strategy. Offering a unique service can also give a firm a sustainable competitive advantage. A strong brand franchise can be difficult for a competitor to match. A brand franchise is recognition of the company or product that sets them apart from competitors and gives the firm customer loyalty, and perhaps a price premium. McDonald’s spends about one billion dollars per year in brand-building advertising. The money spent to build a brand franchise can be seen as an investment in brand equity that will yield a stream of income over time.
Dell Computers has eliminated most of the value chain with their business model. Dell has close relationships with their suppliers so they can do just-in-time manufacturing. (No parts inventory.) They have no wholesale system and no retailers. (No middleman expenses.) Dell deals directly with customers; individuals and corporations. They do not make a computer until they have an order in hand. (No finished goods inventory.) The Dell direct model gives them about a 12 percent cost advantage over competitors. Compaq is trying to lower costs, but still can’t compete directly against Dell.
It is not easy to develop a sustainable competitive advantage in today’s market environment. Rapid communications and quick product development by me-too competitors can make it difficult to maintain the competitive edge. If a firm is to thrive and prosper, it must develop a core competency based on the higher order sources of competitive advantage.
Whatever may be the quest to conquer the market, time has already come to think strategically! Decisions that are made for the benefit of the firm should reflect long term development and sustainable strategies. Managing the market with optimum efficiency needs strategies that lead to success and help the firm to achieve its goals and objectives.