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Chapter One

Market-Driven Strategy

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

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MARKET-DRIVEN
STRATEGY

 Market-Driven Strategy
 Becoming Market
Oriented
 Distinctive Capabilities
 Creating Value for
Customers
 Becoming Market Driven
 Challenges of a New Era
for Strategic Marketing
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Characteristics of a
Market-Driven
Strategy
Becoming
Market-
Orientation

Achieving Determining
Superior Distinctive
Performance Capabilities

Customer
Value/
Capabilities
Match
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BECOMING MARKET
ORIENTED
 Customer is the focal point
of the organization
 Commitment to continuous

creation of superior
customer value
 Superior skills in

understanding and
satisfying customers
 Requires involvement and

support of the entire

workforce
 Monitor rapidly changing

customer needs and wants

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 Determine the impact of

changes on customer
satisfaction
 Increase the rate of product

innovation
 Pursue strategies to create

competitive advantage
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Characteristics of
Market Orientation
 Customer Focus
What are the customer’s
value requirements
 Competition Intelligence
Importance of
understanding the
competition as well as the
customer
 Cross-Functional Coordination
Remove the walls between
business functions
 Performance Consequences
Market orientation leads to
superior organizational
performances
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Becoming a Market-
Oriented Organization
Information
Acquisition

Cross-Functional
Analysis of Information

Shared Diagnosis
and Coordinated
Action

Delivery of
Superior Customer
Value
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Market Orientation
 Information Acquisition
 Gather relevant information on
customers, competition, and
markets
 Involve all business functions
 Intuit’s Quicken
 Inter-functional Assessment
 Share information and develop
innovative products with
people from different functions
 Zara
 Shared diagnosis and
action
 Deliver superior customer
value
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DISTINCTIVE
CAPABILITIES

“Capabilities are complex

bundles of skills and
accumulated knowledge,
exercised through
organizational
processes, that enable
firms to coordinate
activities and make use
of their assets.”

George S. Day, Journal of Marketing, October 1994, p.38.

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Southwest Airline’s Distinctive
Capabilities
Organizational Processes
Southwest uses a point-to-point route system rather than
the hub-and-spoke design used by many airlines. The
airline offers The carrier’s value proposition consists of low
fares and limited services (no meals). Nonetheless, major
emphasis throughout the organization is placed on building
a loyal customer base. Operating costs are kept low by
using only Boeing 737 aircraft, minimizing the time span
from landing to departure, and developing strong customer
loyalty. The company continues to grow by expanding its
point-to-point route network.
Skills and Accumulated Knowledge
The airline has developed impressive skills in operating its
business model at very low cost levels. Accumulated
knowledge has guided management in improving the
business design over time.
Coordination of Activities
Coordination of activities across business functions is
facilitated by the point-to-point business model. The high
aircraft utilization, simplification of functions, and limited
passenger services enable the airline to manage the
activities very efficiently and to provide on-time point-to-
point services offered on a frequent basis.
Assets
Southwest’s key assets are very low operating costs, loyal
customer base, and high employee esprit de corps
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Matching Customer
Value and Distinctive
Capabilities

Value
Requirements

Distinctive
Capabilities
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CREATING VALUE
FOR CUSTOMERS
Customer Value:
 Value for buyers consists of the
benefits less the costs resulting
from the purchase of products.
 Superior value: positive net
benefits

Providing Value to Customers:

The organizational distinctive
capabilities are used to deliver
value by differentiating the
product, offering lower prices
relative to the competitors of a
combination of both,
Source: C. K. Troy, The Conference Board Inc., 1996, 5.
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Creating Value for

Customers

Customer
Value

Benefits Costs
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Value Composition

Product

Services

Benefits
Employees

Image
Value
(gain/loss)
Monetary
costs
Costs
Time (sacrifices)

Psychic
and physic
costs
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BECOMING MARKET
DRIVEN

Market Sensing
Capabilities

MARKET-DRIVEN
STRATEGIES

Customer Linking
Capabilities
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Market Driven
Initiatives
Market Sensing Capabilities
– Effective processes for
learning about markets
– Sensing involves collecting
information and sharing it
across functions to
determine what actions
needs to be taken
Customer Linking Capabilities
– Create and maintain close
customer relationships
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Aligning Structure and

Processes
– Changing the organizational
design
– Emphasis on cross-functional
coordination and involvement
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CHALLENGES OF A
NEW ERA FOR
STRATEGIC
MARKETING
 Strategic marketing faces
unprecedented challenges and
opportunities:
Turbulent markets
Intense competition
Disruptive innovations
Escalating customer demands
 Ethical Challenges
 Societal and Global Change
 Social Responsiveness of
Organizations
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Escalating
Globalization
It is important to understand
the differences (and
similarities) between the
developed economies and
the new world beyond.

Market opportunities
Competitive threats
Partnering opportunities
Outsourcing initiatives
The world’s poor
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Technology Diversity
and Uncertainty
Radical New Product
Opportunities
Nanotechnology
Private space travel
The digital home
Self-cleaning windows

Finland was ranked #1 in global

competitiveness in 2004 by the
World Economic Forum because
of strong skills in adapting to new
technology, proactive business
practices, and nurturing a culture
of innovation (www.weforum.org).
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Ethical Behavior and

Social
Responsiveness

Increasingly
demanding ethical
challenges

Corporate
responsibility

Responsibilities to
stakeholders