Decisions can be overwhelming. Businesspeople make hundreds of decisions each day, within a complicated context. Many factors (competitive market, technological, economic, socio-cultural, political-legal) can influence the success or failure of a given choice.
"All managers are overloaded. They have too many decisions to make, and each one takes too long. Too long, at any rate, to study all the information needed to make the best decision."
- David and Sarah Kerridge
In addition, there are dozens of ways to segment customer markets and position your offering, along with a wide variety of tactical decision combinations (product/service, pricing, distribution channels, promotion) that add to the challenge of making effective marketing decisions.
So what frameworks can help us get organized?
The standard marketing management framework is summarized effectively by Robert Dolan in a Harvard Business School note. It presents five environmental C’s for starters (company, customer, competitor, collaborators, and context – the latter a complex maze of the economic, cultural, regulatory, and technological factors mentioned above). The framework then describes strategy development via the STP acronym (segmentation, targeting, and positioning) and tactics in the famous 4 P’s. What is unique about the marketing perspective, though, is an unyielding focus on understanding the market from the customer’s perspective.
A perhaps more focused storyline exists in Michael Porter’s widely influential competitive strategy framework. Porter persuasively argues that to be profitable, a firm needs a clear competitive position in the market. At the extremes, those positions are achieved by either having the lowest cost offering with parity quality or a differentiated offering with enough unique value that customers are willing to pay a premium.
Porter’s focus is on competition and positioning effectively within a market within the context of existing competitive positions. Strategic opportunities can be evaluated using five key competitive forces: buyer power, supplier power, the threat of new entrants, the threat of substitutes, and overall competitive rivalry.
A third well-known framework is the resource-based view of the firm – initially proposed by Birger Wernerfelt and later elaborated upon by Jay Barney and others. It defines competitive advantage based upon the firm’s ability to assemble a bundle of resources and capabilities that are rare, can’t be imitated, or substituted, and are valuable to consumers. The resource-based view provides a focus on the company’s alignment of resources and capabilities to drive competitive advantage.
Here’s the problem, though. While powerful and filled with important insight, each of these frameworks is itself quite complex in application. Together, the frameworks are useful in providing high-level prescriptive advice, but are limited in their ability to give immediately actionable insight.
To be fair, while these frameworks seek to organize knowledge in simpler form, they cannot fully reduce or resolve the natural complexity of the marketplace. However, these models also point to a few strategically critical principles that can guide action when we look with the appropriate lens.
Nobel laureate Herbert Simon brilliantly pointed out that human beings are incapable of “optimizing�? when faced with the complexity described above. But here’s what we’re good at: finding satisfactory solutions within certain well-defined bounds. That is, we are “boundedly rational.�?
So, what if we could borrow the most significant insights from each of the frameworks above to “bound�? the problem? In other words, let’s figure out the most important principles that can produce effective action, and focus relentlessly on them. I believe there are three:
Create value that:
- matters deeply to customers,
- is different from competitors, and
- is based upon unique company resources and skills.
These are three pretty important principles. To apply them effectively, you first need to change your goal when it comes to competitive strategy.
The goal is not to beat the competitor, to “optimize positioning,�? or to maximize profit. Instead, the goal is to win the customer’s choice.
Why is this important? The reason is that this frame puts a laser focus on one of the most important, yet largely unspoken economic facts in existence: your competitive and financial fortunes are the result of customers choosing you. Another way of saying this is that your business starts with $0 revenue, and stays there until someone chooses your offering over competitive offerings. If you’re an ongoing business and your sales slow, flatten, or decline, it is because customers are not choosing you at the same rate they once did. Again, an economic fact. Given this, there’s nothing really more important than understanding the drivers of customers’ decision-making.
It’s helpful to think about these concepts in circles. By that I don’t mean chasing your tail. Instead, think of the three concepts listed above as circles in a standard Venn diagram. Let’s use an example of a consumer durable manufacturer that is based on several actual cases to demonstrate.
First, imagine a circle that contains the “set�? of value that customers seek. These are the factors on which customers base their decisions when choosing between our company and a competitor. (For simplicity, we’re just showing six choice factors here.) This illustrates how we can break down the customer’s choice into components of value.
A second circle can be added that represents the dimensions on which customers believe our company delivers effectively. Where the two circles overlap, the company is meeting customers’ needs.
So, our company here produces value that the customer appreciates. This is good news! Like customer satisfaction research, this identifies how well our firm is meeting customer needs, although it’s missing an important piece of the competitive strategy puzzle: a third circle which captures the customer’s view of the competition.
What is the storyline you see in the three figures? (It might make you uneasy.) Here’s a quick summary:
- The customer has a variety of needs.
- Our firm meets a number of those needs effectively.
- The competitor meets all of those same needs. And… the competitor meets other needs uniquely. In addition, the consumer has at least one need that neither offering meets.
But most significantly, we have no advantage. (That’s a realization that usually hurts!)
The insights above are often a big help in understanding why sales have stalled or are declining – in other words, why you are not winning customer choices the way you used to. It indicates that you have no sustainable basis for competitive advantage, putting your financial performance is at risk. In contrast, the competitor’s unique value is clear to customers.
While these are pretty compelling insights, this analysis is only halfway there. What happens next?
Barney, J. (1991) “Firm Resources and Sustained Competitive Advantage.�? Journal of Management (27)1. 99-120. 1986, 1991;
Dolan, Robert (1997, 2000), “Note on Marketing Strategy,�? Harvard Business School Background Note, #598061-PDF-ENG, Cambridge, MA: Harvard University.
Kerridge, David and Sarah Kerridge (1997), “Managing Complexity,�? Journal of Quality and Participation, (March), 60-65.
Porter, Michael (1980), Competitive Strategy, New York: Free Press.
Wernerfelt, B. (1984) “A Resource-based View of the Firm�? Strategic Management Journal (5) 171-180.