Marketing that understands the company’s Competitive Advantage (CA) or Strength can better support it with the choice of marketing objectives, strategy and tactics.
Audit of the Competitive Advantage.
An audit identifies the CA or Strength’s degree of competitiveness, its scope in the market and how it actually functions.
a. What is the CA or Strength’s degree of competitiveness?
b. Where is the CA or Strengths’ breadth of scope in the market?
Performance metrics of existing product lines can indicate where the company currently has an advantage in the overall industry: long-term strong profit margins, high customer retention rates, sales growth beyond market’s growth rate, market share domination of a need segment.
The subsequent hazy understanding of the CA’s scope of customer need can be brought into focus by asking “out of the customers who produce these favourable performance measurements, what broad need do they all have in common that the company serves so well?”
c. What is the CA type or combination of types and their underlying sources? Or what is the strength?
By understanding where in the market in terms of customer needs the company appears to have a CA, this can direct the asking of the question “why?” repeatedly:
Why are we so profitable at meeting this need? Why are we better than rivals? Why do they not copy us?
The answers serve to identify any high level CA type (i.e. scale or scope economies, learning curve, network effects, switching cost or toll distribution from investor-identified CA types) and its subsequent CA sources:
“In meeting this broad need segment______ (where we compete), we are the preferred choice because of _______ (CA type(s) and its CA sources or Strength as how we compete).”
The result of the audit is an understanding of both the CA’s existing scope in the market and how it functions.
The CA audit coupled with a market audit produces the information needed to complete a “SWOT” analysis and a business or product portfolio matrix (e.g. BCG matrix, Shell directional policy etc.):
These tools are simplistic representations but their premise is enduring: when there is no strategy to grow a CA, such tools direct the allocation of capital to adapt a company’s ebbing CA or strength with the changing market.
The tools do this by comparing product segment performance against next best alternatives, the market growth dynamic and the degree of past competitiveness.
Process to develop marketing objectives to prolong a CA or strength:
1. Divide the company’s output along either product lines or customer groups served, based on whichever shows greatest difference between customer needs and is most readily measurable.
2. Allocate each product or customer group along the portfolio matrix and SWOT axes (of relative competitive position and market growth rate), based on the CA and market audits.
3. Decide for each segment on the matrix the fundamental resource allocation policy of whether to:
– invest to penetrate ___ segment,
– maintain position in ___ segment,
– harvest from ___ segment,
– enter or exit ___ segment,
By understanding the CA or Strength’s market scope and how it functions, the company can decide which market segments to enter, invest, maintain, harvest or exit as the “where we compete” decision that would best prolong the CA or Strength as the “how we compete” and reap from it.
4. Next, decide specific marketing objectives in terms of sales units and % margin for each segment served:
o enter this segment for __ sales volume and __% margin marketing objective in this area.
o in this segment, invest to improve long-term competitive position with __ sales volume and __ % margin marketing objective,
o in this segment, maintain current competitive position with __ sales volume and __ % margin as the marketing objective,
o in this segment, harvest from __ sales volume and __ % margin for short-term profit and cash flow, or
o exit this segment.
By understanding the CA dynamic and market segment’s growth or shrinkage, a company is better able to know for each segment it competes in:
• when to invest to growing sales volume in order to grow the CA/ strength at a possible short-term cost of % margin,
• when it is able to raise % margin and harvest because of a strong CA and favourable market.
These marketing objectives will serve to best prolong the CA’s duration by driving sales volume throughput, as well as harvest profits from the CA to grow shareholder value.
The reason why high sales volume within a need segment is important to prolonging a CA is because high volume:
– impedes rivals from entering and eroding the CA,
– maintains sales into the same fixed cost structure to avoid margins falling,
– generates cash to reinvest into developing the CA or relative strength, and
– underpins the volume-driven economics of the CA types:
o scale economies: volume units sold
o scope economies: sales across a number of products, categories, countries, no. sharing a brand etc.
o learning curve: volume units sold or number of attempts at completing a complex task,
o network effect: amount of subscriber content, number of subscriber connections,
o toll distribution access: branch density per sq.mile, national licences coverage, wider patent coverage, increased locating of unique scarce resources.
Therefore marketing seeks to sustain sales along these metrics that are specific to developing the underlying CA type and sources themselves.
Targeting explores how resources are to be focused to achieve the sales and % margin objectives in these broad segments.