THEORIES IN MARKETING STRATEGY
In general, there are three
aspects to the strategy of firms, regardless of the level of the strategy:
content, formulation process, and implementation. Strategy content (what
the strategy is) refers to the specific relationships, offerings, timing, and
pattern of resource deployment planned by a business in its quest for
competitive advantage (e.g., generic strategy of cost leadership versus
differentiation; push versus pull strategy). Strategy formulation process
(how the strategy is arrived at) refers to the activities that a business
engages in for determining the strategy content (e.g., market opportunity
analysis, competitor analysis, decision-making styles). Strategy
implementation (how the strategy is carried out) refers to the actions
initiated within the organization and in its relationships with external
constituencies to realize the strategy (e.g., organization structure,
coordination mechanisms, control systems).
The body of marketing literature
termed as strategic market planning primarily focuses on the content of
strategy and process of strategy formulation at the business unit level and the
corporate level, and the role of marketing in these spheres of organizational
activity.
Firms initiate strategic actions
to achieve competitive advantage. However, these actions are shaped, and their
outcomes influenced, by the external environment and internal environment of
the firms. Institutional theory suggests that the actions of firms and
the outcomes of these actions are influenced by the knowledge systems, beliefs,
and rules that characterize the context of the organization.
Ø The
firm is embedded in a general environment comprising (a) the institutions that
lay the guidelines to shape the behavior of firms and (b) macro-societal
factors such as the prevailing culture.
Ø The
firm is embedded in an industry environment that comprises the actors within an
industry such as suppliers, customers, competitors, and channel partners. The
nature of the relationships among these industry stakeholders influences the
actions that a firm can initiate in pursuit of competitive advantage
Ø The
firm has an internal environment that comprises its unique sets of skills and
resources; collective beliefs about the market, competition, and industry
(e.g., shared mental models; and culture.
Corporate strategy, business strategy, and
functional strategies such as marketing strategy interact to shape the
competitive advantage of individual businesses in a firm's portfolio. It is the
confluence of these strategies that determines the extent to which a particular
business is able to achieve and sustain a competitive advantage. This
competitive advantage, in turn, affects the market-based performance and
financial performance of the businesses. A number of competing and
complementary theories in industrial organization economics, business policy
and strategy, and marketing provide valuable insights into the determinants of
performance at different levels. For instance:
Ø The structure-conduct-performance
model (Bain 1956) attempts to explain "why some industries, on
average, are more profitable than others."
Ø The efficiency
perspective (Demsetz 1973) provides insights into "why some firms in
an industry are more profitable than others."
Ø The works
of Porter (1980,1985) provide insights into "how the structural
characteristics of an industry and the competitive strategy pursued by a
business jointly determine the performance of a business.”
Ø The resource-based
view of the firm (Barney 1991; Rumelt 1984; Wernerfelt 1984) attempts to
explain superior firn/business performance in terms of firm-specific skills and
resources that are rare, valuable, nonimitable, and characterized by absence of
equivalent substitutes.
Ø Matrix
approaches to portfolio analysis and planning, such as the Boston
Consulting Group (BCG) growth-share matrix and the market
attractivenessbusiness competitive position matrix, provide insights into
"why some businesses in a multibusiness firm's portfolio are more
profitable than others."
Ø The work
of Peters and Waterman (1982) is representative of research that attempts
to shed insights into content, process, and implementation factors that affect
long-term performance of firms at a more general level regardless of the
industry in which they operate.
Important Theories in Marketing Strategy
GAME THEORY:
Game-theoretic models assume that firms are (hyper)rational utility maximizers,
where rationality implies that they strive to achieve the most preferred of
outcomes subject to the constraint that their rivals also behave in a
similar fashion (Zagare 1984). While there may be uncertainty regarding the
expectations and actions of its rivals, a rational firm is expected to overcome
uncertainty by forming competitive conjectures, subjective probability
estimates of rivals' expectations and behavior. In effect, game-theoretic
models assume intelligent firms that can put themselves into the
"shoes" of their rivals and reason from their perspective.
SIGNALING:
Competitive signals are "announcements or previews of potential actions
intended to convey information or to gain information from competitors".
Competitive behavior is often influenced by signals sent by competitors.
Signaling could also place the firm that sends the signal at a disadvantage.
For example, signals that provide competitors with advance information about
the firm's intentions could hurt the competitive position of the firm, and
signals that are not followed through (cheap talk) could hurt the competitive
reputation of the firm. Furthermore, signaling that is interpreted as predatory
behavior may trigger antitrust review into the behavior of the firm.
INNOVATION:
Innovation and R&D for the long-term profitability of the firm is viewed as
a process of "creative destruction" (through innovation that changes
the very nature of competitive advantage in the market) rather than as a
condition leading to equilibrium. This argument is supported by the
"Austrian" school of strategy (Jacobson 1992), which suggests that
the business environment is inherently dynamic and therefore characterized
by uncertainty and disequilibrium. The Austrian school views profits in
such an environment as a consequence of discovery and innovation. Such
discovery and innovation do not necessarily mean drastic changes of a
discontinuous (Schumpeterian) nature alone. Rather, they span a continuum
encompassing innovations with the potential to provide the firm with a
differential advantage over its competitors (Jacobson 1992) such as
reformulation of a product, developing new processes for manufacturing a
present product, and developing new channels of distribution.
PRODUCT
QUALITY: The economic view of quality is "any aspect other than
price that influences the demand curve of a product". Combining these
two notions, quality can be construed as any nonprice aspect of a product that
signifies its superiority and causes a shift in its demand curve. Ideally, a
business would want to sustain a higher price as well as a higher market share
but these two objectives may not always be compatible. That is, if the business
were to follow a niching strategy by offering a high quality product at a high
price targeted at a small market niche, it effectively excludes itself from the
contest for market share dominance in the broader market.
The
ability of a business to charge higher prices for higher quality is contingent
on the ease with which consumers can determine the quality of the product. When
quality is uncertain, consumers tend to use price as an indicator of quality.
This suggests a bidirectional relationship between quality and price, in which
perceived quality positively influences price under conditions of greater
information availability, and price positively influences perceived quality
under conditions of lower information availability.
MARKET SHARE:
The structure-conduct-performance model posits a positive relationship
between industry concentration and profitability. Evidence also suggests that
the relationship between market share and profitability is robust across different
definitions of market share, different sampling frames, and controls for
accounting method variation.
Ø The
quality explanation. In markets beset by uncertainty and imperfect
information about product performance, the high market share of a brand acts as
a signal of superior quality to consumers. In such markets, consumers are
likely to have greater confidence in high market share brands. This enables
high market share brands to command a price premium over lower market share
brands and thereby enhance their profitability.
Ø The
market power explanation. Businesses with a high market share, by
exercising their market power-the ability to command a price premium, lower
costs by negotiating for more favorable terms (than their competitors are able
to) with vendors and marketing intermediaries, and obtaining favorable shelf
placements from retailersenhance their profitability.
Ø The
efficiency explanation. The scale and experience effects associated with
market share lead to lower costs and thereby enable a business with a high
market share to earn higher profits than its competitors with a low market
share.
Ø The
third-factor explanation. A set of third set of factors (unobservables
such as luck, uncertainty, or managerial insight) may play a crucial role in
helping a business achieve a high market share as well as superior performance.
MARKET
PIONEERING: a market pioneer or first-mover refers to a business being
either the first to introduce a new product, to employ a new process, or to
enter a new market. Market pioneering advantage refers to the competitive
advantage associated with being the first to enter a market.
The
economic-analytical perspective. According to this perspective, a market
pioneer is able to achieve sustainable competitive advantage as a result of
entry barriers.
The
behavioral perspective. Behavioral theories typically explain pioneering
advantage at the product or brand level in terms of the role of learning in
consumer preference formation. This perspective suggests that a pioneer can
shape the beliefs of consumers about ideal brand attributes and preferences in
its favor.
MARKET
ORIENTATION: The marketing concept, the normative philosophy that underlies
modern marketing thought, suggests that to be successful, firms should
determine customers' needs and wants, and satisfy them more effectively than
their competitors do. Narver and Slater (1990) define market orientation from a
cultural perspective as "the organization culture that most effectively
and efficiently creates the necessary behaviors for the creation of superior
value for buyers and, thus, continuous superior performance for the business".
Market orientation is conceptualized in terms of three dimensions: customer
orientation, competitor orientation, and interfunctional
coordination. Kohli and Jaworski (1990) define market orientation from a
behavioral perspective as "the organization wide generation of market
intelligence pertaining to current and future customer needs, dissemination of
the intelligence across departments, and organization wide responsiveness to it".
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[1]
Varadarajan, Rajan P. and Satish Jayachandran. (1999) “Marketing strategy: An
assessment of the state of the field and outlook”, Academy of Marketing
Science, (Spring), 120-143
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