Marketing & Competitive Advantages

This section considers how marketing can assist business strategy to develop a competitive advantage and grow shareholder value.

For companies without a Competitive Advantage (CA) or significant strength, marketing to:

Start a broad advantage: a process to secure a CA in a broad market segment, or

Start a niche advantage: if a broad segment advantage cannot feasibly be secured and for smaller companies, a process to gain a CA in a niche market segment, or

Sustain shareholder value: if a niche segment advantage cannot feasibly be secured and therefore a company has only a minor strength, a route for marketing to sustain shareholder value.

For companies with an existing CA, marketing to:

Prolong an advantage considers how marketing can adapt in order to maintain the underlying CA’s duration for as many years as possible.
(Or if feasible, grow a CA via using methodology similar to either broad and niche CA).

 

Background reasoning for the above layout:

Companies with or without a Competitive Advantage (CA).
Studies show that around half to one third of all companies have a CA or a relative strength and can therefore grow shareholder value. The remaining half to 2/3rds have either a nascent CA, minor strength or nil advantage over rival businesses.
This is reflected by the distribution of companies that can earn RoIC above, at or below Cost of Capital:RoIC Thirds own findings

 

Starting a CA, prolonging a CA and sustaining shareholder value.
A company that is successful in growing shareholder value will typically have 3 CA phases:

1. A period when it develops a CA and produces a RoIC % spread above Cost of Capital (CoC),
2. A period when the CA deteriorates and the RoIC spread reverts back to CoC, and
3. Nil CA and no RoIC spread.

RoIC three stages grows, ebbs, hold at sustaining SV

For marketing to maximise shareholder value, it would therefore seek to:

1. Start a broad or niche CA to increase the RoIC spread and grow shareholder value.
2. Prolong an ebbing CA or strength period to maintain a shrinking RoIC spread to grow shareholder value, and
3. Sustain shareholder value that was achieved from the past CA, by adapting to the market to at least ensure RoIC=CoC.

 

Broad and niche market segment advantages.
A feature common to most industries is a “V shaped” distribution of RoIC % earned across large and small companies:

RoIC is V shaped small and large companies

Typically the largest few companies in terms of market share enjoy a CA and high RoIC.       However, often there are numerous smaller companies occupying niches within the overall market that also have a CA in serving that niche and subsequently earn high RoIC.    (This reflects Michael Porter’s “focus” niche strategy, alongside broad market cost leader or differentiated strategies).