STRATEGY OVERVIEW

Dr. Chakravarthi Narasimhan

Philip L. Siteman Professor of Marketing
Washington University
Olin School of Business
 Today’s Class

 What is marketing strategy?

 What are the drivers of a successful

strategy?

 The role of economic models in formulating

and understanding strategies
 What is Strategy?

 A plan of action
 A plan of resource allocation
 Resources are costly and limited

 Constant trade-offs required!!

 Make vs. outsource decisions

 Promotion vs. advertising

 New customers vs. existing ones

 Single product or product line

 Drivers of Successful Strategy
McKinsey: Value-Cost-Firm Strategic Triangle

Cost COMPETITOR Value

Relationship

CUSTOMER

Relationship
Cost Value
YOU
 Marketing Strategy

 Marketing strategy is a plan for

Choosing the targets/markets to compete
 Identifying what constitutes value in the market
 Creating value
 Communicating and delivering the value
 Capturing the value
 Nurturing and building the relationships over time
 Marketing mix elements are used to accomplish this
 Product design/quality
 Advertising
 Promotions
 Supply chain
 Sales force
 Pricing
What is a strategic situation? Or why do
you need to change your strategy?

 If there is an opportunity to improve any of the

linkages above
 value delivered
 value captured
 customer base
 customer relationships
 cost position
 If there is a challenge to any of the above
 Formulating Marketing Strategy

 Identify opportunity or a threat to the linkages

described in the figure
 Evaluate the options in terms of marketing mix
 Determine/quantify the consequences
 Take into account the responses of others in the
marketplace
 Decide on the best course of action
how do we know what is best??
 Feedback, reevaluate, modify and improve
 Formulating Marketing Strategy
 Who are the players in the market
 You
 Competitors
 Customers
 Channel partners
 Consumers
 Each has her own objective or goal
 Each wants to do the best for herself
 But the best outcome is conditional on how others react or behave!!
 How should we think about what would happen under different options?
 We need a framework or a conceptual model to analyze and play “what if”
scenarios
 This is where economic and game theoretic
models are useful
 How does “economic” thinking help
in marketing?
 Economic thinking in formulating strategy
 Evaluate your action (strategy) on others’
behaviors and vice versa
 Balance incremental benefits and costs in
choosing what you should do.
 Strategy evaluation-link performance to strategy
 Identify the “right” drivers of performance
 Metrics and measures
 Control in statistical model for “other factors”
 Drivers of Successful Strategy

 Not enough to create value, need to capture it

 π = P x Q(P) – C(Q) – M(Q) – F
 Implications
 Drivers of successful strategy
 Create and deliver value

 Maintain lower costs

 Manage relationships

Increase transactional utility

 Drivers of Successful Strategy
Treacy & Wiersema: Dimensions of Customer Value

 Value creation and delivery

 Product position vis-à-vis customer needs
 Communication mix
 Price
 Brand image
 Distribution strategy
 Selling effort
 Pre- and post-sales service
 Drivers of Successful Strategy
Treacy & Wiersema: Dimensions of Customer Value

 Maintain advantage through relationships

 Customer complaint / satisfaction
management
 Customer needs management
 Understanding each customer
 Designing targeted efforts

 Increase in value will lead to:

 Ability to charge higher prices
 Attract newer customers
 Increase share of requirements
 Some combination of above
 Drivers of Successful Strategy

 Cost position depends on:

 Materials and manufacturing

 Distribution system

 Marketing mix

 Costs to manage the relationships

 Drivers of Successful Strategy

 Better cost position translates to:

 Lower C(Q)
 Higher margins

 Act as a deterrent to competitors’

potential price discounting

 Lower M(Q)
 Same reasons above
 Formulating Successful Strategy
Feedback and Dynamic Adjustment

 Competitive response was different

 World turned out different than you

anticipated

 You blew it….

 Formulating Successful Strategy
Strategy Under Uncertainty

 Understand the value of real options

 Flexibility, irreversibility
 Break down strategic options into
components
 Identify sequence
 Pay attention to which options lead to
uncertain and/or large consequences
 Do not foreclose any option unless required:
be flexible, delay
 First mover vs. second mover advantage
 Wrap-up

 Strategy is a plan for allocating scarce

resources

 Creating competitive advantage through

marketing strategy relies on creating better
value, managing relationships, maintaining
lower cost, or some combination

 Customers are heterogeneous in their

demand for different value components
 Wrap-up

 Marketing strategy is to marshal the marketing mix

to deliver the best value and capture the value in
the chosen markets/segments
 Successful strategies analyze 3 C’s to predict the
future and choose the best course of action
 To choose the best course of action you need tools
and framework to analyze what customers and
competitors would do under different scenarios
 Successful strategies require excellent execution
 Cost position for delivering the value created also
needs to be monitored for best performance