How to Achieve Competitive Advantage - Term Paper Example

Customer Needs or Competitive Advantage? Which is more important when considering marketing strategy: to satisfy customer needs or to achieve competitive advantage? This sounds like a quiz show trick question, but it is a dilemma faced by every manager, from the company’s Chairman and Chief Executive Officer to the lowest supervisory level minion. We outline our answer by a brief discussion of the theories. Definition of Marketing A business exists to supply a product or service to customers or clients in exchange for money or other forms of payment. The business transaction involves coming up with a product and selling this to the customer, also known as the “market”. The “market” was a place or location, present since ancient times in every town or city, where goods (foodstuff, clothes, shoes, etc.) were bought and sold. The term evolved in modern times into an important concept that management thinkers define as one that gives meaning to the existence of a business. The definition of the term “marketing” is one of the most persistent conceptual problems of business (Angelmar and Pinson, 1975, pp. 208-214). It has been officially defined as the “process of planning and executing conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organisational goals” (Bennett, 1995, 166). This takes into account almost everyone, from the business that sells a product or service, its delivery channels, and all the way to the customer or the client (Churchill and Peter, 1995, p. 7). Marketing is much more than selling. As the late Peter Drucker wrote: “Marketing is so basic that it is not just enough to have a strong sales department and to entrust marketing to it. Marketing is not only much broader than selling; it is not a specialised activity at all. It encompasses the entire business. It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise (Drucker, 1955, p. 36). Meeting Customer Needs From Drucker’s insights, marketing as an organisational function turned the focus of the business towards the customer who determines what the business is. It is the customer who perceives value in a product or a service for which he or she is willing to pay. It is the customer who demands the product or service and how much of it the business must produce. Meeting customer needs, therefore, becomes the main challenge to the business. What does the customer want? How many? How much is he or she willing to pay for it? How often? It is easy to think that as long as the business provides what the customer wants, the business will survive. This is not so for several reasons. First, depending on the product or service, the size of the market may be too big for one company to satisfy. Take, for a simple example, the market for cheap foodstuffs and groceries in the U.K., with 60 million people spread out over 240,000 square kilometres (CIA, 2006), where giant retailer Tesco plc reigns supreme over other corporations like Asda, Sainsbury, Safeway, Boots, Marks & Spencer, and others, supplying practically the same items with only minor differences in prices. Knowing how to attract customers to do their shopping and keep their loyalty is but one of the marketing challenges these companies face, exerting relentless pressures to innovate products and services. This is why UK retailers like Tesco and Sainsbury are now offering not only food and non-food items but also give customers banking facilities like home loans and deposit accounts (F&DE, 2005). Second, it is not enough for the business to serve today’s customers. Tastes change with time as customers age every passing day, and some customers move around. If an influx of immigrants, say, from other continents reach a critical mass and bring with them their own culture-driven needs and tastes, is the business ready for them? Businesses should not think only of today’s customers, but likewise those of tomorrow. What will they need? How will they demand it and at what price? This brings us a third marketing challenge. If the market is large and growing, and the character of the customers are changing, the business sector will attract competitors who may be able to sell the same or a similar product at a much lower price because they can source or produce at a lower cost. If a business, no matter how long in the market, cannot match that lower price, its days as a profitable concern and as a viable business are numbered. Think of car companies like Rover and two British innovators of packaged tours, Thomas Cook and Thomson Holidays, all of which were bought and now owned by German companies (Economist, 2006, p. 56). These are some of the reasons how and why marketing as a management discipline has evolved various techniques, such as market segmentation and the marketing mix, to understand and anticipate future customer needs over and above satisfying today’s customers. This is what strategic marketing means. When Markets Don’t Exist Marketing is important in another sense: to create markets where none exist. This is true of innovative companies that have a product they think meets a market need, but where the market may not be even aware that the product or service exists, or that they need it. This, however, is not a guaranteed way to get customers and sell a product. Christensen (1997, pp. 134-136) documents the failure of the Newton, the first Personal Digital Assistant, or PDA, from Apple Computers. Flush from the success of its Macintosh personal computers, a recent initial public offering, and the hiring of a professional marketer (Scully) as CEO, Apple used its vaunted R&D and marketing capabilities to develop the PDA. The product was good but the market did not buy enough of it. The debacle caused the firing of company founder Jobs and the beginning of Apple’s temporary decline (that stopped after a corporate rescue by the returning Jobs and Microsoft’s Bill Gates some years later). As shown by the recent successes of PDA models like the Palm, O2, and HP’s iPAQ, a market existed, but Apple failed to convince customers to buy, proving that even good marketing people like Scully and Jobs can make bad mistakes. When the market does not exist, marketing allows the corporation to create it. The late Akio Morita (1986, p. 272) founder of Sony Corporation claimed, “We don’t serve markets. We make markets”, which is how Sony, Apple, and others successfully sold transistor radios, iPods, fax machines, videocassette recorders, and copiers and “created” markets. Companies that market successfully are full of product innovators like the late Morita of Sony, Jobs of Apple, and Bezos of Amazon.com known for their sensitivity to market needs even before these are translated into market knowledge, allowing them to be first in the marketplace. Competitive Advantage The term competitive advantage was “coined” by Harvard professor Michael E. Porter, whose first book (1980) discussed ways an organisation could achieve competitive advantage by positioning their activities in a competitive environment. He introduced his industry analysis Five-Force Model and the so-called generic strategy, giving organisations a framework for analysing its market – competitors, buyers, suppliers, substitutes, and new entrants – and helping them answer basic questions about their ability to compete, the likelihood that new competitors (entrants) will grab market share or drive the business to bankruptcy, the ability of its rivals to copy strategy, and how much profits it can realise. These five forces influence costs, investments, prices, and determine long-term profitability. With this framework, a business organisation can position itself and offer the market a reasonably priced product. This act of positioning is called choosing a generic strategy, and according to Porter would allow the organisation to offer a one-of-a-kind product/service or a unique buying experience at a price that other organisations would not be able to match. By creating a quasi-monopolistic position in the market, Porter’s theory states, the organisation can achieve a sustainable level of profitability above the industry average. This choice of a generic strategy is what Porter calls the organisation’s competitive advantage. He identifies three generic strategies and recommends that the organisation concentrate its activities on one: Overall cost leadership, when it is impossible to compete on price (based on efficiencies such as cost minimisation and economies of scale) Differentiation, which allows the organisation to charge a premium price by marketing the product as something different from that of competitors, using marketing techniques to highlight differences in branding, image, technology, features, service quality, or after sales support. Focus on supplying a particular market niche very well. This is not the same as market segmentation, although the latter can be used as part of a focus strategy. One problem with Porter’s model is that several organisations have proven successful in choosing more than one generic strategy. In his follow-up book, Competitive Advantage (1985, p.3), Porter stated that “there are two basic types of competitive advantage: cost leadership and differentiation.” He maintained that these are mutually exclusive and that the forces of competition will force an organisation to favour one or the other. When confronted with examples of companies with a competitive advantage in more than one generic strategy, for example Jaguar which can sell quality luxury cars (focus and differentiation) while at the same time able to move towards cost leadership, Porter (1987 and 1996) argued that either they were fundamentally trying to price below the competition or that their competitiveness is not based on real strategy but on operational effectiveness. He warned that these are not real examples of good competitive strategy and strategic marketing and would be easily copied by rivals. Two decades later, Jaguar and Japanese motorcar companies continue to thrive with growing market shares and profits, while American companies that were applying strategic marketing (strategically differentiated products from General Motors and Ford) are inching closer to bankruptcy. A business magazine article (Loomis, 2006, pp. 32-49) about the troubles at GM and Ford hints at an answer to our original customer needs versus competitive advantage question, when an industry expert said: “GM [and Ford are] building better cars…that are cheaper to produce and therefore potentially more profitable…but nobody will buy them (p. 40).” In other words, these organisations may have differentiated their cars and achieved cost leadership, and the cars they are selling may be what customers need. But why are they not selling? What piece is missing? Strategic Marketing We can describe strategic marketing as the act of putting the different marketing pieces together. Without it, competitive advantage and having a product that meets customer needs will not do the organisation any good. Strategic marketing is what enables the organisation to package the product so that the market will buy it. The packaging includes finding a way to highlight the product’s advantages in the form of benefits and values and giving the customer this information. It entails educating the customer to realise that the product meets his or her needs, and that the product is priced at a level equal to or slightly below its value. Strategic marketing is about the definition and development of markets and the on-going management of market relationships (Peter and Donnelly, 1997, pp. 7-30), a set of tasks that are important for growth and survival. The business environment, especially in this age of globalisation, is so hostile and competitive that without strategic marketing, a company will not survive. Shell U.K. knew this well, responding to changes when its market (which does not only include those who buy their products but even those who are aware of its oil exploration activities and its political effects) showed an increased sensitivity to environmental issues like pollution and climate change. Shell reacted by developing “future fuels that minimise environmental impact” (Times 100), taking into account and balancing the wide range of changing customer tastes (clean fuel), needs (cheaper and powerful fuels), and views (sustainable environmental concern). The strategic marketing process will likewise inform the organisation how the products will reach the market so that customers will continue to buy. This is how companies like Cadbury Schweppes UK manage its supply chain from suppliers of quality chocolate and other ingredients to retailers who are after a profitable business and who know that customers expect low-cost high quality chocolates, sweets, gum, and soft beverages (Times 100). Strategic marketing helps organisations manage its competitive advantage to respond to shifting customer needs. An example of this is Nestlé, which reformatted over 700 products to conform to the demand of its customers for healthier products over the last five years. The food and drink giant adopted a Wellness approach in response to customer needs, leveraging its competitive advantages as a low-cost global producer of differentiated and focused products (Times 100). Nestlé’s main competitor, Kraft Foods, likewise used this approach. In the UK, where Kraft sells Kenco and Maxwell House coffee, Philadelphia and Dairylea cheese, and Terry’s chocolate, Kraft relies on market analysis to know customer needs. Applying a strategic marketing approach, Kraft’s highly trained sales and marketing staff were able to move products to the market by promoting the benefits of its brand names and using these skills that comprise its competitive advantage to convince the customer not only to buy, but to keep on buying more (Times 100). As part of its strategic marketing plans, Kraft and Nestlé and organizations of similar calibre make sure that its vaunted production capacities were geared up for increased sales volumes. Contrast this with the end-2005 launch of Microsoft’s Xbox 360 when demand far exceeded the available supply, leading to frustrated customers (and potential customers for Sony and Nintendo). A Final Answer Which is more important when considering marketing strategy: to satisfy customer needs or to achieve competitive advantage? The answer is that both are important, but without a marketing strategy, both are useless. Knowing the customer’s needs is an input to developing the organisation’s competitive advantage, but one without the other does not a successful organisation make. We saw that meeting the needs of customers, both present and future, is key to survive in a competitive and hostile business environment. Otherwise, competitors will supply that need and grab the market away. Having a competitive advantage, a set of distinctive characteristics (as against Porter’s original thesis) that make the organisation profitable, focused, and different from other competitors, is a key factor for making customers buy your product instead of what your competitor is selling, either because your product is priced reasonably (you are a cost leader), it meets his or her specific needs (focused), or your product (as shown by Jaguar or Cadbury’s) or your people (Kraft’s sales force or Audi UK’s technicians), or both, are perceived to be of a high value (differentiation) over that of your competitors. Superior companies like these, like portable loo maker Portakabin UK, are able to sell products that meet customer needs as a way to create a competitive advantage (The Times 100). The customer is a fickle animal. Having a good marketing strategy helps the business organisation hone and perfect its competitive advantage to best meet the customer’s constantly changing needs. That is the only way for a business to survive. Reference List Angelmar, R. and Pinson, C. (1975) The meaning of marketing. Philosophy of Science, June 1975, pp. 208-214. Bennett, P.D. (1995) Dictionary of Marketing Terms. 2nd ed. Chicago: American Marketing Association, p. 166. Churchill, G.A. Jr. and Peter, J. P. (1995) Marketing: creating value for customers. Burr Ridge, IL: Richard D. Irwin, p. 7. CIA Factbook (2006) United Kingdom. [online]. Available from: [Accessed 15 February 2006]. Christensen, C. M. (1997) The innovator’s dilemma: when new technologies cause great firms to fail. Boston: Harvard Business School Press. Drucker, P. F. (1955) The practice of management. New York: Harper & Row. Economist (2006) A new package. The Economist. 7-13 January, p. 56. F&DE (Food and Drink Europe) (2005) Asda reorganises as supermarket war heats up. 17 Jul 2005. [online]. Available from [Accessed 16 February 2006]. Loomis, C.J. (2006) The tragedy of General Motors. Fortune, 6 February, Vol. 153, no. 3. Morita, A. (1986). Made in Japan. With E. M. Reingold and M. Shimomura. New York: E.P. Dutton. Peter, J.P. and Donnelly, J.H. (1997) A preface to marketing management. Chicago: McGraw-Hill. Porter, M.E. (1980) Competitive strategy: techniques for analysing industries and competitors. New York: Free Press. Porter, M. E. (1985) Competitive advantage: creating and sustaining superior performance. New York: Free Press. Porter, M. E. (1987) The man who put cash cows out to grass, an interview with Christopher Lorenz, Financial Times, March 20, p. 18. Porter, M. E. (1996) What is strategy? Harvard Business Review, Nov-Dec: 61-78. Times 100.(2005) Edition 10 of The Times 100 Case Studies: .Shell, Cadbury-Schweppes, Portakabin, Anglo-American, Nestlé, Kraft, and Audi UK. [online]. Available from: [Accessed 15 February 2006]. Read More