Marketing Strategy

by Schnaars, Steven P.

• ISBN13: 9780684831916
• ISBN10: 0684831910
• Edition: 2nd
• Format: Paperback
• Copyright: 1997-11-17
• Publisher: Free Press

Summary

Marketing Strategyhas become a classic centrist marketing text. Now, Steven Schnaars has updated and revised this clearly written, classroom-tested, and essential text to accommodate rapid changes in the business world. Combining his centrist approach to basic theory with practical real-world examples, this updated edition includes new and expanded chapters on price as a competitive weapon (with a discussion on "everyday low pricing" versus hi-low promotional pricing"), speed as a strategy (including the strategic uses of computers), globalization (including the customization-standardization debate), and customer satisfaction. Throughout, Schnaars focuses on the three Cs: customers, competition, and changing market trends.

Author Biography

Dr. Steven R Schnaars, Professor and Department Chair in the Department of Marketing at Baruch College, New York City is also the author of Megamistakes ( Free Press) and Managing Imitation Strategies (Free Press). He lives in Huntington, New York.

Table of Contents

Chapter 1: MARKETING'S INFLUENCE ON STRATEGIC THINKING	1	(17)
CONSUMER ORIENTATION	2	(7)
The Marketing Concept	2	(1)
Criticisms of the Marketing Concept	3	(1)
Should You Ignore Your Customers?	4	(1)
Technology-Driven Companies	5	(1)
Faith, Instinct, and Determination	6	(1)
Action Versus Analysis Paralysis	6	(1)
Planning Versus Doing	6	(1)
Strategy's Response	7	(1)
In Defense of the Marketing Concept	8	(1)
Production-Oriented Firms	8	(1)
A COMPETITOR FOCUS	9	(1)
DUAL CONSUMER AND COMPETITOR ORIENTATIONS TOWARD MARKETS	10	(4)
Mini-Case: Gatorade	10	(2)
Mini-Case: Diet Rite Cola Versus Coke and Diet Pepsi	12	(2)
THE POWER OF EXTERNAL EVENTS	14	(2)
Technological Change	14	(1)
Demographic Shifts	15	(1)
Social Changes	15	(1)
Government Deregulation	15	(1)
SPECIAL RESOURCES	16	(1)
MARKETING AS A BOUNDARY-SPANNING FUNCTION	16	(1)
NOTES	16	(2)
Chapter 2: A BRIEF HISTORY OF MARKETING STRATEGY	18	(12)
DEFINITION AND SCOPE OF MARKETING STRATEGY	18	(2)
MILESTONES IN THE HISTORY OF MARKETING STRATEGY	20	(7)
1950s: Budgeting and the Search for Overall Strategy	21	(1)
1960s: The Decade of Long-Range Planning	21	(2)
The Decline of Long-Range Planning	23	(1)
1970s: The Decade of Portfolio Planning	23	(1)
The Decline of Formula Planning	24	(2)
1980s: Porter's Generic Strategies	26	(1)
1990s: Restructuring, Customer Satisfaction, and Speed as Strategy	26	(1)
CURRENT TRENDS IN MARKETING STRATEGY	27	(1)
1. Strategic Thinking: From Elitism to Egalitarianism	27	(1)
2. From Calculation to Creativity	28	(1)
3. From Precision in Planning to Learning and Adaptation	28	(1)
CONNECTIONS WITH THE PAST	28	(1)
NOTES	29	(1)
Chapter 3: ASSESSING COMPETITIVE INTENSITY	30	(14)
ECONOMIC MODELS OF COMPETITION	30	(5)
The Assumptions of Perfect Competition	31	(1)
Monopoly Power Is Rare	32	(1)
Types of Imperfect Competition	32	(3)
FACTORS AFFECTING COMPETITIVE INTENSITY	35	(6)
1. Barriers to Entry	36	(2)
2. Intensity of Rivalry	38	(1)
3. Competition from Substitutes	39	(1)
4. Bargaining Power of Customers	40	(1)
5. Bargaining Power of Suppliers	41	(1)
USES OF COMPETITIVE ANALYSIS	41	(2)
1. Fitting the Current Environment	41	(1)
2. Anticipating Market Changes	42	(1)
3. Picking a Market to Enter	42	(1)
4. Reconfiguring the Rules of Competition	42	(1)
5. Protecting the Status Quo	42	(1)
NOTES	43	(1)
Chapter 4: COMPETING ON COSTS: THE RISE AND FALL OF EXPERIENCE EFFECTS AND THE GROWTH-SHARE MATRIX	44	(16)
EXPERIENCE EFFECTS	45	(1)
Experience Effects Versus Economies of Scale	45	(1)
Experience Effects Versus Learning Effects	45	(1)
Sources of Experience Effects	46	(1)
THE EXPERIENCE CURVE	46	(2)
The Case of Pocket Calculators	47	(1)
THE RELATIONSHIP BETWEEN COSTS AND PRICES	48	(1)
THE MERITS OF MARKET SHARE AND MARKET GROWTH	49	(2)
THE GROWTH-SHARE MATRIX	51	(1)
The Source and Use of Funds	51	(1)
STRATEGIC PRESCRIPTIONS OF THE GROWTH-SHARE MATRIX	52	(1)
The Path to Success	53	(1)
Three Paths to Failure	53	(1)
CRITICISMS OF THE GROWTH-SHARE MATRIX	53	(5)
1. The Success of Low-Share Firms	54	(1)
2. The Futility of Market Share Gained	54	(1)
3. Success of Low-Growth Markets	54	(1)
4. Should Dogs Be Divested?	54	(2)
5. Harvesting Bread-and-Butter Products	56	(1)
6. Importance of Business "Relatedness"	56	(1)
7. Pursuing Experience Effects Hinders Innovation	56	(1)
8. The Confounding Effects of Shared Experience	57	(1)
9. Lower Prices Versus Market Share: Which Causes Which?	57	(1)
10. Internal Cash Flow	57	(1)
11. A Mechanical Response Instead of a Creative Solution	57	(1)
12. No Consideration of Product Differentiation	57	(1)
13. One Way to Win: An Obsession with Low Costs	58	(1)
THE RETURN OF COST COMPETITIVENESS	58	(1)
NOTES	59	(1)
Chapter 5: GENERIC STRATEGIES	60	(10)
PORTER'S THREE GENERIC STRATEGIES	60	(5)
Low-Cost Low-Price Selling	60	(2)
Product Differentiation	62	(1)
Market Segmentation	63	(1)
Stuck in the Middle	64	(1)
TREACY AND WIERSEMA'S THREE VALUE DISCIPLINES	65	(2)
Operational Excellence	66	(1)
Customer Intimacy	66	(1)
Product Leadership	66	(1)
The Relationship Between Strategic Choice and Target Market	67	(1)
SHOULD FIRMS PURSUE ONLY ONE GENERIC STRATEGY?	67	(2)
NOTES	69	(1)
Chapter 6: COMPETING ON PRICE	70	(14)
CONDITIONS THAT FAVOR SELLING ON PRICE	70	(11)
When the "Gouge Gap" Is Too Wide	71	(4)
Mini-Case: The Battle Between National Brands and Private Labels	71	(4)
When There is a Shift in the Point of Differentiation	75	(2)
Mini-Case: Hallmark Cards--A Shift In Buying Behavior Leads to a Diminution of Competitive Advantage	75	(2)
When Products Become Commodities	77	(1)
When Markets Are Deregulated	78	(1)
When the Low-Price Formula Can Be Applied in a New Arena	79	(2)
Mini-Case: Staples--The Office-Supply Superstore	79	(2)
HOW TO COMPETE ON PRICE	81	(1)
Ruthless Cost Cutting Through Reengineering	81	(1)
Stressing Equal Quality at Lower Prices	81	(1)
Specialization and Lower Prices	81	(1)
Copying and Cutting Prices	81	(1)
Letting Prices Dictate Costs	82	(1)
THE EFFECTS OF LOW-COST COMPETITION	82	(1)
NOTES	82	(2)
Chapter 7: DIFFERENTIATION STRATEGIES	84	(16)
BASIS OF DIFFERENTIATION	85	(7)
1. Superior Performance	85	(1)
2. Superior Design and Styling	86	(1)
Mini-Case: Oakley Sunglasses	86	(1)
3. A Product for Every Purpose	87	(1)
4. "On-the-Edge" Product Innovations	88	(1)
5. Luxury Goods and Services	88	(1)
6. Popular Mass-Market Brand Names	89	(1)
7. Exceptional Service	90	(1)
8. Greater Reliability and Durability	91	(1)
9. Convenience	91	(1)
10. Unique Distribution Channels	91	(1)
Price as a Point of Differentiation	92	(1)
THE HISTORY OF PRODUCT DIFFERENTIATION	92	(2)
Monopolistic Competition	92	(1)
Consumers' Preference for Variety	93	(1)
Real Versus Contrived Differences	93	(1)
WHAT TO DIFFERENTIATE	94	(3)
Core Product Features	94	(1)
Incidental Product Features	94	(1)
Product Intangibles	95	(1)
Accounting for Intangibles	96	(1)
REQUIREMENTS FOR SUCCESSFUL DIFFERENTIATION	97	(2)
Support Premium Prices with Sufficient Marketing	97	(1)
Keep the Gouge Gap Reasonable	97	(1)
Embrace Innovation	97	(1)
Keep Copycats at Bay	98	(1)
Protect Against the "Squeeze Play"	98	(1)
NOTES	99	(1)
Chapter 8: SEGMENTATION STRATEGIES	100	(12)
THE DIFFERENCE BETWEEN DIFFERENTIATION AND SEGMENTATION	100	(3)
The Argument for Alternative Strategies	101	(1)
Claims for Complementary Strategies	101	(1)
Reconciling the Relationship Between Differentiation and Segmentation	101	(2)
SEGMENTATION STRATEGIES	103	(3)
1. Go for the Largest Segment	103	(1)
2. Sell Multiple Products in Multiple Segments	103	(1)
3. Sell a Single Product to All (or Most) Segments	104	(1)
4. Focus on a Small Segment	104	(1)
5. Create a New Segment	105	(1)
6. Break Segments Into Even Finer Subsegments	105	(1)
THE BASIS OF SEGMENTATION	106	(2)
A Regional Focus	106	(1)
Demographics	106	(1)
Product Usage	107	(1)
Quality Niches	107	(1)
The Individual Consumer	107	(1)
MARKET RESEARCH AND SEGMENTATION	108	(2)
QUESTIONS ABOUT SEGMENTATION	110	(1)
Are Segments Created or Discovered?	110	(1)
To What Extent Do Segments Overlap?	110	(1)
Are Segments Stable?	110	(1)
Is Countersegmentation a Viable Option?	111	(1)
Is Segmentation for Small Firms Only?	111	(1)
NOTES	111	(1)
Chapter 9: COMPETITIVE DYNAMICS	112	(17)
COMPETITION BETWEEN PRICE POINTS	112	(7)
Vertical Differentiation	112	(6)
1. Drawing Customers Up-Market with Higher Quality	113	(3)
Mini-Case: Gillette's Sensor Razor Versus the Low-Priced Disposables	113	(3)
2. Luring Customers Down-Market with Lower Prices	116	(1)
3. Pushing Products Up-Market	116	(1)
4. Pushing Products Down-Market	117	(1)
Mini-Case: The American Express Card	118	(1)
Collisions in Vertically Integrated Markets	118	(1)
Intensity of Rivalry in Vertically Differentiated Markets	118	(1)
INCREASING PRODUCT VALUE	119	(1)
COMPETITION BETWEEN DIFFERENTIATORS	119	(2)
Horizontal Differentiation	119	(1)
Shifting Points of Differentiation	120	(1)
Mini-Case: Nike Versus Reebok	120	(1)
COMPETITION BETWEEN LOW-COST PRODUCERS	121	(4)
A Succession of Low-Cost Producers	121	(2)
Mini-Case: Microwave Ovens--A Succession of Low-Cost Producers	121	(2)
Price Shifting	123	(1)
Everyday Low Prices Versus High-Low Promotional Pricing	124	(1)
COMPETITION BETWEEN SEGMENTERS AND MASS MARKETERS	125	(3)
When a Segment Grows Larger and More Attractive	125	(1)
Mini-Case: Brian Maxwell's PowerBars	125	(1)
When Segmenters Steal Share from Market Leaders	126	(2)
Mini-Case: Specialty Coffees Versus Folgers and Maxwell Houses	127	(1)
Mini-Case: Microbreweries Versus Anheuser-Busch and Miller	127	(1)
Within-Segment Competition	128	(1)
NOTES	128	(1)
Chapter 10: MARKET-SHARE STRATEGIES	129	(15)
GAINING MARKET SHARE	129	(5)
When to Gain Share	130	(2)
How to Gain Share	132	(2)
HOLDING SHARE	134	(6)
How to Hold Share	134	(6)
HARVESTING STRATEGIES	140	(2)
Sustained Harvesting	140	(1)
Severe Harvesting	140	(1)
How to Harvest	141	(1)
ABANDONMENT	142	(1)
Poor Market Position	142	(1)
A Poor Fit with the Firm's Other Products	143	(1)
NOTES	143	(1)
Chapter 11: THE EVOLUTION OF PRODUCTS, MARKETS, AND NEW TECHNOLOGIES	144	(23)
TYPES OF INNOVATIONS	144	(1)
Incremental Innovations	144	(1)
New-to-the-World Innovations	145	(1)
THEORIES OF PRODUCT EVOLUTION	145	(3)
The "Great Men" Theory	145	(1)
Gradualism	146	(1)
Punctuated Equilibria	147	(1)
PATTERNS OF PRODUCT EVOLUTION	148	(1)
Macro Then Micro	148	(1)
Accumulation of Micro Leads to Macro	149	(1)
Micro Runs Out If No Macro	149	(1)
THE PRODUCT LIFE CYCLE	149	(4)
Criticisms of the Product Life Cycle	150	(2)
Are Life Cycles Completely Controllable or Predetermined?	152	(1)
DRIVERS OF PRODUCT EVOLUTION	153	(3)
The Sequence of Successful Innovation	153	(1)
Teaching Consumers the Value of Novelty	154	(1)
The Importance of Product Connections	155	(1)
The Effects of Product Standards on Product Growth	155	(1)
Perceived Attributes of Innovation	155	(1)
CHARACTERISTICS OF EMERGING MARKETS	156	(4)
Long, Long Useless Stage	156	(1)
Early Models as Crude First Attemps	157	(1)
The Importance of Market Timing	157	(1)
Incumbent Inertia	158	(1)
Creative Destruction	159	(1)
MARKET ENTRY STRATEGIES	160	(1)
FIRST-MOVER ADVANTAGES	160	(2)
Image and Reputation	160	(1)
Brand Loyalty	161	(1)
An Opportunity to Pick the Best Market Position	161	(1)
Technological Leadership	161	(1)
An Opportunity to Set Product Standards	161	(1)
Access to Distribution	161	(1)
Experience Effects	162	(1)
Patents as a Barrier to Entry	162	(1)
Switching Costs as a Barrier to Entry	162	(1)
FREE-RIDER EFFECTS	162	(3)
Avoiding Products That Have No Potential	162	(1)
Lower Costs	163	(1)
An Opportunity to Gain Share with Heavy Promotion	163	(1)
Technological Leapfrog	164	(1)
Sticking the Pioneer with an Obsolete Standard	164	(1)
An Opportunity to Benefit from Market Changes	164	(1)
An Opportunity to Use Shared Experience	164	(1)
ARE INVENTIONS INEVITABLE?	165	(1)
The Phenomenon of Simultaneous Inventions	165	(1)
NOTES	165	(2)
Chapter 12: SPEED AS STRATEGY	167	(19)
WHAT TO SPEED UP	168	(1)
WHY SPEED IS IMPORTANT	168	(2)
1. Competitive Advantage Is Not Sustainable	168	(1)
2. Avoiding the Need to Predict the Future	168	(1)
3. The Law of Large Numbers	169	(1)
4. Profits from New Products	169	(1)
5. Shorter Product Life Cycles	169	(1)
6. More Competition in Growth Markets	169	(1)
7. Rampant Copying	170	(1)
8. Gaining Shelf Space Early	170	(1)
9. Fostering a Sense of Creativity and Experimentation	170	(1)
QUICKENING THE PACE OF INNOVATION	170	(6)
"New" New Product Planning	171	(2)
Traditional New Product Planning	173	(1)
A Comparison of the Two Approaches	174	(1)
Requirements for Faster New Product Development	175	(1)
AN EXPLOSION OF PRODUCT VARIETY	176	(2)
The Consequences of Extreme Variety	177	(1)
Trends in Product Variety	178	(1)
QUICK RESPONSE SYSTEMS	178	(5)
Getting Close to Customers	178	(1)
Communication Among Channel Members	179	(2)
"Superfast" Production	181	(1)
Quickening Distribution	181	(1)
The Benefits of Quick Response	181	(2)
QUESTIONS RAISED BY SPEED AS STRATEGY	183	(2)
Are There Benefits to Moving Slowly?	183	(1)
Does Speed Work for All Products?	183	(1)
Has the Flood of New Product Gone too Far?	184	(1)
Is Speed a Short-Term Perspective?	184	(1)
TIME COMPRESSION MANAGEMENT	185	(1)
NOTES	185	(1)
Chapter 13: CUSTOMER SATISFACTION	186	(21)
WHY CUSTOMER SATISFACTION IS IMPORTANT	186	(3)
A Reaction to Low-Cost Producers	186	(1)
The Economic Benefits of Customer Retention Versus Perpetual Prospecting	187	(1)
The Cumulative Value of Continued Relationships	187	(1)
The Power of Word of Mouth	187	(1)
Reduction in Price Sensitivity	188	(1)
Consumer Satisfaction as a Forward-Looking Indicator of Business Success	188	(1)
SEVEN ELEMENTS OF A SUCCESSFUL CUSTOMER SATISFACTION PROGRAM	189	(6)
1. Quality Products and Superior Service	189	(1)
2. Relationship Marketing	189	(1)
3. Loyalty Promotion Programs	190	(1)
4. A Focus on the Best Customers	191	(1)
Mini-Case: Banks and Small Customers	191	(1)
5. Effective Complaint Handling	192	(2)
6. Unconditional Guarantees	194	(1)
7. Performance-Related Pay	195	(1)
MEASURING CUSTOMER SATISFACTION	195	(5)
What to Measure	196	(1)
Measurement Scales	196	(1)
Mystery Shoppers	197	(1)
Continuous Tracking Studies Versus One-Time Surveys	198	(1)
Comparative Versus Monadic Measures	199	(1)
Customized Versus Syndicated Services	199	(1)
A CONCEPTUAL MODEL OF CUSTOMER SATISFACTION	200	(4)
1. Expectations Versus Actual Product Performance	202	(1)
2. Confirmation/Disconfirmation	203	(1)
3. Consumer Satisfaction/Dissatisfaction	203	(1)
4. The Consequences of Customer Satisfaction	204	(1)
DEALING WITH CUSTOMER DEFECTIONS	204	(2)
Creating "Completely Satisfied" Customers	205	(1)
Studying Customer Defections	205	(1)
NOTES	206	(1)
Name Index	207	(3)
Subject Index	210	(7)
About the Author	217

Excerpts

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 bookThe 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.

TECHNOLOGY-DRIVEN COMPANIES

Many companies gain competitive advantage and roar past rivals by creating breakthrough innovations. They do not listen to customers and are distrustful of marketing research and the marketing concept. These companies are technology driven rather than customer oriented. They understand that breakthrough innovations are not the result of marketing research or the market-pull model of innovation. Such innovations almost always come, instead, from the creativity and insight of scientists and engineers, who make technological discoveries and then work them into radically new products. Those new products are then put onto the market where they are either adopted or rejected by consumers. This "technology-push" model of innovation pushes the product toward consumers rather than allowing consumers to pull new products through the distribution pipeline. It is in this way, proponents argue, that truly new products such as fax machines, personal computers, and even mountain bikes work their way to market.

Technology-driven companies embrace an orientation toward markets akin to what is called the "product concept" in introductory marketing textbooks. It holds that consumers will demand products of the highest quality. Most of the stunning innovations of our time, including the videocassette recorder, the microwave oven, the cellular phone and the compact disc player, have been the result of the product concept, not the marketing concept.

FAITH, INSTINCT, AND DETERMINATION

The competitive strategy of technologically driven firms begins with the ingenuity and inventiveness of scientists rather than the needs and wants of consumers. Listening to customers plays only a limited role in the process. Technology-driven strategies eschew focus groups and endless rounds of consumer surveys and opt, instead, for bold moves based on faith, instinct, and determination. Technology-driven companies create change, shake people up, and sometimes cause excitement. They are usually led by a charismatic champion who is more concerned with convincing customers that they need what the company has developed, or wowing them with the wonder of new product development, than listening to customers and then making products to satisfy their current needs. Terms like vision, commitment, and conviction are typically used in descriptions of such individuals and the companies they run. Marketing research is not.

ACTION VERSUS ANALYSIS PARALYSIS

Critics contend that some firms are so intent on listening to their customers that they are unable to make any decisions without first conducting consumer surveys and focus groups. They argue that this has two negative effects. First, it slows down the rate of reaction to opportunities and threats that present themselves. In the most severe cases, such firms become paralyzed by consumer analysis and are unable to act in a timely fashion. Second, endless rounds of consumer studies dull the instinctive senses. They replace the spirit of entrepreneurs with the oftentimes mistaken view of consumers. Firms, as a result, miss breakthrough innovations and bold strategic moves and instead focus on the bland and the ordinary.

PLANNING VERSUS DOING

A variation on this theme occurred in the 1970s when overly formal strategic planning practices led to lots of study and very little action. During that decade, armies of professional planners produced ever-thicker plans to guide firms into the future. These plans worshiped calculation and abhorred action. Vision was replaced with a false sense of precision.

The result was that plans and planners became more and more removed from the real world. Firms became paralyzed by the process of planning. They cautiously avoided risk but in the process avoided opportunities as well.

Operational personnel, those involved in the day-to-day running of the firm, came to view planning as an arcane art of little practical value. Many elegant plans ended up relegated to file cabinets, read by no one but those who drew them up. Disillusionment with the entire process led directly to drastic cutbacks and outright disbanding of strategic planning departments in the early 1980s. Planning seemed dead.

Recognizing these changes, aBusiness Weekcover story called for an expanded role for marketing in the planning process. It noted that firms no longer want "bean counters" who will foster further study and promote analysis paralysis, but look for hands-on managers who will not only develop, but also implement product strategies.

The debate between acting versus planning continues to this day. Some consultants argue that firms should forget about formal planning and simply move quickly to take advantage of a fast-changing world. Tom Peters is a central proponent of that position. He argues that markets are so disorganized that any attempt to plan for the long term is doomed to failure. He opts, instead, for the "Pete Rose" strategy, where a firm hustles to meet opportunities, trying to get on base rather than always swinging for the deep outfield.

Bureaucracy is the enemy of a hustle strategy. Its sole function is to slow things down. It should be cut ruthlessly and the resulting "lean-and-mean" firm should strive to move more quickly. Planning, according to this view, has three fatal flaws: (1) it is designed for an age of stability that no longer exists, (2) it serves only to slow things down, and (3) it make obvious to competitors what you intend to do. It is better to respond randomly than to respond with a detailed plan.

STRATEGY'S RESPONSE

Proponents of strategy contend that responding randomly to an everchanging environment confuses not only a firm's competitors but its customers, employees, and suppliers as well. It creates an army without a general. While some companies succeed by moving quickly to attack opportunities as they present themselves, other very successful firms excel while relentlessly pursuing the same strategic path year after year. Wal-Mart, for example, stresses low-cost retailing. It is known for that skill and inculcates that competitive advantage among all its employees and suppliers. Likewise, sellers of prestige luxury goods would be mistaken to race willy-nilly toward any business opportunity. They should carefully restrict the markets and products they pursue so as to protect the value of their brand. In the 1980s many sellers of prestige brands diluted the value of their brand equity by carelessly pursuing short-term opportunities. It would have been better for those firms to focus on one aspect of their business and try to excel at it.

IN DEFENSE OF THE MARKETING CONCEPT

Proponents argue that much of the criticism against the marketing concept is misplaced. They argue that seemingly alternative approaches, such as the product concept and acting rather than strategy, must ultimately be subservient to the marketing concept if they are to be successful. Scientists and engineers, rather than consumers, may well be the source of new product ideas in technology-driven companies, but the products that arise from those ideas must satisfy customer needs or they will end up serving no market at all. It is important to remember that the technology-push model of innovation often leads to product failure. It produced the Nimslo three-dimensional camera, AT&T's picturephone, tilt-rotor aircraft, and numerous other high-quality products that no one wanted. As McGee and Spiro put it: the product concept is really just "synonymous with customer satisfaction as described by the marketing philosophy.

PRODUCTION-ORIENTED FIRMS

Some firms focus on low-cost, efficient manufacturing. They emphasize low costs and low prices in an attempt to reach large numbers of massmarket consumers. Such producers seem unconcerned with studying consumers' needs and wants and strive, instead, to fulfill a widespread need with very low prices. In virtually every sector of the economy there are firms that succeed by following an efficient-producer model. Wal-Mart in retailing, Goldstar and Samsung in consumer electronics, and discounters of every ilk excel in this way.

Production-based strategies seem to follow a variant of the production concept found in most introductory marketing texts. The concept hypothesizes that consumers will desire products that are priced low. Throughout past decades, many strategy formulations have embraced variations of the production concept as viable ways to compete. Experience curve analysis, for example, which holds that firms should keep costs falling by continually expanding cumulative production, was popular during the 1970s.

Marketers have historically ridiculed the production concept as old-fashioned and obsolete. To them, it describes how business was conducted in the late 1800s and shows how times have changed over the past century. In short, marketers abhorred what many strategists embraced.

In reality, however, low-cost producer strategies are neither old-fashioned nor uncompetitive. Many consumers favor products that are widely available at the lowest possible prices. But, once again, efficient product must be subservient to the needs and wants of large numbers of consumers. The efficient production of 8mm movie projectors in the age of VCRs, for example, would be folly. The emphasis still must be placed on consumers before production, even if low-cost producers wait for others to discern those needs and wants. Only then can companies gain from efficient production.

A COMPETITOR FOCUS

Most of the popular strategic planning formulations of the past two decades have focused on competitors rather than customers. The premise of almost all formulations has been that firms can succeed by gaining competitive advantage with strong brand names, distribution strongholds, promotional muscle, cost efficiencies, and countless other advantages that allow some firms to prevail over less well endowed rivals.

What all competitor-oriented formulations share in common is their attempt to avoid (or change) markets characterized by the economists' model of perfect competition. Competitive strategy seeks to destroy the assumption that all products are the same, all competitors are equal, there are no barriers to entry, and no one firm dominates. Competitive advantage is often a codeword for a way in which to create imperfect competition.

Interest in a competitor orientation moved even farther to the forefront of strategic thinking with the publication of Michael Porter's landmark book,Competitive Strategy,in 1980. It became increasingly clear that the purpose of strategy is coping with competition.

Competitive strategy also implies a sense of warfare. You fight your competitors, whereas you serve your customers. Military analogies are commonly applied in business marketing strategy. In their bookMarketing Warfare,for example, Ries and Trout argue that the strategies of famous military generals can be directly applied to marketing. They contend that marketing is no different than warfare. Their analogy is controversial, but it points up the importance and ferocity of competition in today's markets.

The motivation for military strategy lies with the results of competitors' actions. Many companies have created innovative new products only to have them copied by lower-cost or higher-quality competitors with advantages in manufacturing or distribution. In many instances, American marketers have won the battle of discovering consumer needs only to lose the competitive war to keep the markets they pioneered. It is important to understand what consumers want but it is equally important to protect your discoveries from competitive response.

The power of competitive reaction has caused many marketing scholars to argue that a marketing concept needs to be empowered with a sense of competition, maybe even warfare, that is missing from an orientation that focuses solely on consumer needs. That orientation contrasts greatly with what has actually happened in past decades, when marketers focused mostly on consumers and ignored the effects of competition.

The marketing concept, by itself, provides an incomplete view of business. By ignoring competition, it has painted only part of the picture. While marketers have sought to satisfy consumers' needs, competitors have outmaneuvered them in the marketplace. As Jack Trout noted inBusiness Week:"Knowing what the customer wants isn't too helpful if a dozen other companies are already serving the customer's wants."

Some marketing experts have argued forcefully that marketers should switch from a traditional customer-oriented approach to a stance that stresses competition. Such a focus allows firms to exploit competitors' vulnerabilities and defend their own flanks against attack. George Day and Robin Wensley have gone even further. They contend that a "paradigm shift" is underway in marketing, Marketing has moved away from its traditional focus on consumer decision making. In the authors' own words: "another set of priorities has emerged, with the emphasis on the development of sustainable competitive positions in product-markets." It is clear that paying attention to competitors is at least as important as paying attention to customers.

DUAL CONSUMER AND COMPETITOR ORIENTATIONS TOWARD MARKETS

The essence of marketing strategy is to attract and keep customers while keeping competitors at bay. One element of strategy without the other is simply incomplete. History is replete with examples of firms that attracted customers with stunning innovations only to lose their early lead in the ensuing competitive battle. Many other companies have concocted elegant strategic plans designed to outfox the competition but forgot that their ultimate mission was to provide value to paying customers. In each instance, the result was failure.

MINI-CASE: GATORADE

Some companies have successfully managed the balance between customers and competition. Consider the case of Gatorade, an immensely successful product that single-handedly created the entire new product category of sports drinks. It all started in the early 1960s when researchers at the University of Florida were searching for a liquid to rapidly replace fluids lost to the hot tropical sun. In 1965, the fruits of their labor were tested on ten members of the University of Florida's Gator football team. As a result, the test drink acquired the name Gatorade. The Gators had a winning season that year. More important, they acquired a reputation as a team that excelled during the second half of play. Observers attributed the superior performance to Gatorade. Its coveted reputation spread solely through word-of-mouth advertising and unpaid publicity. The crowning plug came when the Gators beat Georgia Tech in the Orange Bowl on January 1, 1967. After the 27-to-ll loss the Georgia coach was quoted in Sports Illustrated: "We didn't have Gatorade. That made the difference." From that point on, coaches all over the country clamored for the new product in order to negate the Gators' competitive advantage.

In 1967, Stokely-Van Camp, the canned fruit and vegetable company, bought the exclusive rights to make and market Gatorade in the United States. It contracted with the National Football League to become the league's official sports drink. The picture of professional athletes swilling Gatorade on the sidelines created a national market for sports drinks among ordinary consumers. Sales soared as Gatorade acquired the cult status of a magical elixir. Armchair athletes felt empowered by the image of superior athletic performance. Gatorade seemed good for you, while soda was not.

Stokely-Van Camp was acquired by Quaker Oats in 1983. At the time sports drink sales were a substantial business of $85 million per year. But Quaker Oats had the money to create an even larger market. With heavy spending for popular promotional figures such as basketball's Michael Jordan and the savvy to become the official sports drink of the National Football League, Gatorade sales soared to $1 billion a year by 1993, representing an astonishing 22 percent of Quaker Oats profits. Quaker Oats reaped the rewards of its successful implementation of a consumer orientation. It had figured out the first half of the equation.

But competitors sought to gain a share of what by the early 1990s was the fasting growing segment of the soft drink industry. By 1992, there were at least twenty-seven separate competitors in the U.S. market alone. Coke and Pepsi, due to their sheer market power, seemed most threatening. Coke introduced Powerade in four markets in 1992. Following Gatorade's lead, Powerade became the official sports drink of both the 1992 and 1996 Olympic games and World Cup Soccer. Deion Sanders, the prominent football player, was signed to appear in ads. Coke used its overwhelming advantage in distribution to muscle market share from the market leader.

Pepsi followed a similar tack. Its All Sport debuted in test market in 1992 then quickly went national. Pepsi hired basketball's Shaquille O'Neal as spokesperson and allied its entry with college basketball. Published reports claimed that Pepsi offered some retailers twenty free cases for every twenty cases purchased, meaning All Sport sold for 25 percent less than Gatorade in some retail outlets.

But Gatorade managed the competitor half of the equation superbly. Even with the onslaught of the soft drink giants, by 1995 it still held over 80 percent of the sports drink market while Coke's Powerade and Pepsi's All Sport limped along with less than 4 percent each. Quaker Oats had figured out how to use its potent brand name to attract customers and keep them to itself, even in the face of intense competition from powerful rivals with a history of successfully dominating product categories pioneered by others. Gatorade, in short, figured out both halves of the strategic equation.

MINI-CASE: DIET RITE COLA VERSUS COKE AND DIET PEPSI

Over the past three decades, Royal Crown has been responsible for most of the major innovations in the soft drink industry. Royal Crown did not invent diet soft drinks. Smaller, regional rivals, such as Brooklyn-based Kirsch, sold sugar-free soft drinks long before Royal Crown. But Royal Crown created the first truly successful brand once the trend toward calorie consciousness caught hold in the early 1960s.

Royal Crown introduced Diet Rite Cola in early 1962. Basically, Royal Crown's innovation was to sell diet soft drinks as a mass market alternative to regular soft drinks. It brought the product category into the mainstream by (1) reducing the price to match that of regular soft drinks, (2) putting it in returnable bottles like regular soft drinks, (3) placing it on the same supermarket shelves as regular soft drinks, and (4) heavily promoting it to calorie-conscious consumers with an aggressive advertising campaign. All of those actions gave Diet Rite Cola the imprimatur of a regular soft drink and removed the stigma attached to consuming a product designed for the chronically ill.

Sales and market share skyrocketed. In 1962, sales of diet soft drinks doubled to fifty million cases and their share of all soft drinks soared to 4 percent. By 1963, 7 percent of all soft drinks sold were dietetic. Royal Crown Cola dominated the fast-growing market for diet soft drinks through the mid-1960s. Like Gatorade, it owned a seemingly immutable 50 percent share of the market. Also like Gatorade, Royal Crown was the first to figure out the consumer part of the equation.

But Royal Crown did less well when it came to the competitor side of the equation. Its product was aimed straight at the heart of Coke and Pepsi drinkers. Diet Rite tried to switch regular cola drinkers to diet cola. Since Royal Crown held only a minuscule share of the regular cola business it had little to lose if consumers switched. Coke and Pepsi would lose plenty since most of their sales came from regular colas. Both had to follow Royal Crown to market.

Within a year, by 1963, both Coke and Pepsi had diet brands in limited test market. Both firms were reluctant to put their flagship brand names on the new unproved products. Coke entered with "Tab" while Pepsi entered with "Patio Diet Cola." Sales of Patio Diet Cola were disappointing, so it was replaced with Diet Pepsi, a risky decision that entailed using the company's coveted flagship brand name. All three firms targeted calorie-conscious women.

Royal Crown's dominance started to erode once Coke and Pepsi entered. It was not a question of clear product superiority. Diet Rite Cola was as tasty as Tab or Diet Pepsi. Basically, Coke and Pepsi entered with parity products that had no overwhelming sensory advantages. Their success was due to two other key advantages. First, Coke and Pepsi dominated soft drink distribution channels, and as an expert quoted in Forbes remarked years later: "This is a distribution business. The bottler decides what goes on the shelf, and all the rest is just conversation." In 1964, Coca-Cola had 1,120 franchised bottlers, Pepsi was a distant second with only 530 bottlers, and Royal Crown had a pitiful 370. Second, both Coke and Pepsi had the money to fund massive promotional programs that Royal Crown could not match. Throughout the second half of the 1960s, while Royal Crown held double the market share of Coke or Pepsi, the two soft drink giants spent three to four times as much as Royal Crown on advertising.

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Excerpted from Marketing Strategy: A Customer-Driven Approach by Steven P. Schnaars
All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.