1.0 Strategy, Marketing Strategy & Firm Growth:
It is usually claimed that superior performance among companies is a result of strategy they adopt. A strategy is a culmination of a set of actions which leads to the fulfillment of the company’s short term as well as long term objectives. The overarching goal of organizations is to achieve superior performance compared to its competitors. Competitive advantage is achieved when the strategies adopted by the organization culminates in superior performance. So, the strategic management process in organizations has a very high impact on achievement of superior performance (Wright et al. 1991; O’Farrell et al. 1992).
In spite of a plethora of research on the subject, there is no concrete evidence of a correlation between strategy and performance of firms. Establishing the relationship has proven to be very difficult as the number of internal as well as external influences on the results produced by marketing strategy is very vast (Jaakkola et al, 2010).
One of the main strategic objectives of the firm is its growth. There seems to be a consensus today that the firm should focus on its growth as a long term objective. Many authors have studied the phenomenon of growth and have come up with multi-faceted explanations of growth of the firm.
One of the founding theories of growth is Gibrat’s law of proportionate growth. It says that the size of a firm and its growth rate are independent. In a test for new entrants in a given industry – i.e. new small firms in early stages of their life-cycle, for some selected industries in Italian manufacturing – Gibrat’s law fails to hold in the years immediately following start-up. This is because smaller firms have to rush in order to achieve a size large enough to enhance their likelihood of survival. Conversely, in subsequent years, the patterns of growth of new smaller firms do not differ significantly from those of larger entrants. The law, therefore, cannot be rejected.
As the speed of change in markets and technology is becoming faster, the sustainability of competitive advantage is becoming a problem. As a result of increasing pressure to improve productivity, quality, and speed, organizations are adopting various tools. Application of these tools is resulting in dramatic operational improvements. Still, sustainable profitability remains elusive to most of these organizations. This proves that operational effectiveness is necessary but not sufficient for superior performance. One of the probable reasons for this is the fact that for most of these organizations, imitating techniques has become very easy. From this observation, Porter (1996) concludes that the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match.
A major error that many companies commit is to compete with competitors in the same dimensions (Porter, 1996). According to Porter, companies should endeavor to be unique, and not only the best in their industry. The strategy should set the distinctive direction in which it will compete and the competitive advantages on which it will be based. Industry structure and strategic positioning within the Industry decide the economic performance of companies. In order to obtain better results, companies should be able to focus on the health of the overall industry, and not only on their own position.
In all organizations, there always exists conflicting goals between short term revenues and profits and long term strategy formulation, between operational and strategic objectives. However, according to Porter (1996), organizations that have a long range perspective and a proactive future orientation, as part of the strategic management tool, always deliver better results. The anticipation of the changing dynamics of the consumer market will make marketers face future challenges better – integrating long-term analysis and planning into the marketing management process will become an essential requirement.
In a research-based discussion on behaviors of companies with superior performance (Wilson et al, 1977), the authors identified three categories of behavioral change by top-performing companies:
- Positioning: changing from differentiated to low cost, or vice versa. Many companies have tried this strategy, but in most cases, the results have been disastrous.
- Markets: moving into new geographies, new segments or new products.
- Competencies: changing or expanding core competencies, most often by reinventing processes that had been critical to the success of a given position.
The authors have arrived at this by empirically studying superior long term performers. Changes in positioning fail most of the times. When they succeed, it is more of ‘upmarket stretch’ rather than ‘down market’ to a low-cost position. Changes in markets and competencies typically succeed, with market changes being more frequent.
The authors also suggest that growth creates its own momentum, and this, in turn, attracts the best people, the most promising opportunities, and enthusiastic customers. All this put together improves profitability, which in turn helps in increase of investments.
A PricewaterhouseCoopers study (2011) of 400 business leaders found a clear link between effective performance management and superior financial performance. High performing companies typically outperform peers by 54%, and are 67% more successful at entering new markets, 61% more successful at generating growth through innovation and 51% more successful at introducing new products. A performance management system helps to drive the actions of employees aligning their energy and behaviors with the long-term business strategy.
This research aims to find out the relationship between the growth of the firm and the strategies pursued by them. The basic question that needs to be answered is whether growth or business performance is driven by strategy and whether it is dependent on the contextual factors. While there are innumerable real-life examples of changes in strategy, most of them are born out of the necessity of the growth imperative. The research tries to ascertain whether this strategic changes or pursuing of a particular strategy in positioning, or markets, or competencies indeed result in superior performance. It is also imperative to understand and appreciate the factors or elements that firms with different contextual factors and strategies consider as important components of their strategy.
1.1 Marketing strategy: A definition:
As has been discussed earlier, David Aaker (2008) defines it “as a process that can allow an organization to concentrate its resources on the optimal opportunities with the goals of increasing sales and achieving a sustainable competitive advantage”. Homburg et al (2009) says that “marketing strategy includes all basic and long-term activities in the field of marketing that deal with the analysis of the strategic initial situation of a company and the formulation, evaluation and selection of market-oriented strategies and therefore contributes to the goals of the company and its marketing objectives”.
1.2 Developing a Marketing Strategy:
Different organizations follow different processes of strategy formulation. Implementation of strategy and producing the consequent and expected results by the organization is often a function of the robustness of the processes of formulating strategy. A clear understanding and appreciation of the processes involved in the formulation of strategy helps in increasing the effectiveness of the implementation of the strategy.
Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives. Quantifiable and measurable results prove the success of plans and objectives formulated by the organization. More often than not, marketing strategies are developed as multi-year plans with a long-term perspective. This is then broken down into tactical plans detailing specific result-oriented actions to be accomplished in the current year. Time horizons covered by the marketing plan vary by company as well as by industry. However, time horizons are becoming shorter as the speed of change in the environment increases (Aaker, 2008). Marketing strategies are dynamic and interactive. Many changes are made during the course of the implementation of these tactics. These changes are dependent on the marketing environment with special reference to competitor activities. There are various marketing tools such as customer lifetime value models that are very powerful in helping to simulate the effects of strategy on acquisition, revenue per customer and churn rate.
1.3 Marketing Strategy and Marketing Mix:
Marketing can be conceptualized as aggregation of various process of planning and implementation of what is known as the 4 P’s, namely: product, place, price, and promotion. An essential aspect of marketing is the distribution of ideas, goods, and services. A marketing strategy is composed of several interrelated components called the marketing mix, which is a resultant of the interplay of the 4 Ps in a given marketing environment.
A marketing strategy requires decisions on the target market and the marketing mix (i.e. pricing, distribution, sales-force, advertising and sales promotion, and product design) (Kotler 1980). Carpenter (1987), Shin (2012) and Azadi and Rahimzadeh (2012) used marketing mix as a definition of marketing strategy.
According to Borden (1964), the marketing mix represents the program to solve the problems that are faced by the firm in an environment that is constantly changing and challenging. In another study (Constantinides 2006), the author says: “Few topics of the commercial theory have so intensively inspired as well as divided the marketing academia as the 4Ps Marketing Mix framework, “the Rosetta stone of marketing education” according to Lauterborn (1990)”.
Neil Borden (1964) found that for a “profitable business operation”, there are twelve controllable marketing elements. Jerome McCarthy (1964) reduced these twelve factors to four. They are: Product, Price, Promotion, and Place. These came to be known as Marketing Mix and were accepted by both practitioners and academics. It soon became the fundamental element of marketing theory and practice. According to Gronroos (1994), “the majority of marketing practitioners consider the Mix as the toolkit of transaction marketing and archetype for operational marketing planning”. Though there is lack of evidence as to how the Mix contributes to the success of commercial organizations, several studies confirm that the 4Ps Mix is widely trusted as a concept by practitioners dealing with tactical/operational marketing issues (Sriram and Sapienza 1991; Romano and Ratnatunga 1995; Coviello et al. 2000). Alsem (1996) carried out a large scale study among executives of 550 Dutch companies. The study found that about 70% of the companies surveyed used formal marketing planning for their operations. However, responsibility for the Mix decisions is divided among different departments. The study also found that market leaders use it much more often than the market followers.
Several authors have used marketing mix as a proxy for marketing strategy. In a study (Shin 2012), the author uses marketing mix capability as a critical mediator of market orientation and business performance. From a survey data of 285 Korean companies, it was found that market orientation failed to directly link with firm performance variables like market effectiveness, adaptability, and profitability. It was also found that product and communication capabilities have successfully linked market orientation with business performance. Pricing capability has shown a positive relationship with only customer satisfaction, while channel capability has shown a negative relationship with profitability. So, it is seen that marketing mix elements play an important role in determining some and/or all aspects of business performance.
In a study in Brazil (Brei et al, 2011), it was found that there does exist a relationship between marketing mix variables and performance of the firm. The authors claim that the strength of the relationship is of medium magnitude. Price is found to be the most important element of the marketing mix, followed by promotion, product, and distribution. Another study (Shipp et al, 1996) showed that several environmental variables such as industry imports and industry concentration have a significant impact on the relationship between marketing mix composition and SBU (strategic business unit) performance.
Leuschner, et al (2012) investigated the impact of the Marketing Mix on customer satisfaction and share of the business. Results show that that the relationship between constructs such as product and price and customer satisfaction were not statistically significant, whereas the promotion construct had a significant impact on customer satisfaction. The link between place and customer satisfaction was statistically significant. One important outcome of the study was that in B2B markets, the promotion construct is mainly influenced by the actions of sales representatives. From the practical point of view, this is kind of obvious as the usage of advertisements is very low in the B2B domain. The linkage between customer satisfaction and market share was found to be significant. Also, the attributes of logistics which were shown to be the most important are: consistent lead times; ability to meet specific service and delivery dates; prompt handling of claims due to overages, shortages, or shipping errors; and, action on complaints related to order servicing and shipping.
An analysis (Ofer Mintz & Imran S. Currim, 2013) of 1287 marketing-mix activities reported by 439 U.S. managers reveals marketing mix performance is influenced by the use of metrics. Characteristics which are more useful than managerial characteristics for explaining the use of marketing and financial metrics are a firm strategy, metric orientation, type of marketing-mix activity, and firm and environmental characteristics. They also found that firms with a greater market orientation use more marketing metrics but not more financial metrics. This result supports the measurement of the use of metrics and perceived marketing-mix performance.
In a study (Ibidunni, O.S. 2011) in Nigeria, the author investigated how FOB and DOB used the marketing mix to gain a competitive advantage. The author also investigated the role of marketing mix variables in influencing the perception of consumers leading to effective performance in the market place. In the perception of the consumers, FOBs performed better than DOBs in profit growth. Hence, DOBs started using promotional tools in a major way. The perception was also that FOBs had better market share and better returns on capital because they were able to use the marketing mix elements in a more effective way. FOBs utilized more resources in marketing mix elements and hence had a competitive edge over DOBs. The competitive advantage of FOBs in the market place translated to better-perceived performance compared to DOBs.
Ataman, et al (2010) found that high amount of discounting, less advertising, lower distribution, and shorter product line led to a decrease in sales. Taking care of these shortfalls lead to sales turnaround. So, the marketing strategy does influence the performance of the brands. The strongest effect was of distribution and product, followed by advertising and discounting. Advertising and product increase base sales in the long run.
Bezawada, et al (2013) calculates long-term elasticity and cross-elasticity of organic and conventional product retail sales in response to changes in assortment, price, and promotions. They find that enduring actions, such as assortment and regular price changes, have a higher elasticity for organics than for conventional products. In contrast with common wisdom, even “core” organic consumers are sensitive to these actions. Increasing organic assortment and promotion breadth yields higher profits for the total category, as do more frequent promotions on conventional products. In a study (Taube & Heinberg, 2011) comparing foreign and domestic brands (China) and the effect of marketing mix variables on them, the authors found that brand image has a stronger effect for foreign brands, whereas satisfaction has a stronger effect for a local brand. In the literature (Frazier and Lassar 1996) there are arguments to organize distribution in terms of exclusivity or availability, thus here the mediators represent competing driving forces. Since foreign brands are often positioned in higher priced segments and thus distributed selectively they profit from a halo effect on brand image. For Chinese brands, customers seem to be already used to purchase goods without wasting time and effort and thus their satisfaction threshold is not crossed; as a result, there is no significant effect on behavioral intentions.
Martinez-Lorente, Angel R., et al (2008) observes that marketing mix is an important factor in influencing consumer perception of quality, in addition to the intrinsic quality attributes of the product. The intrinsic attributes of a product are not the only determinants of consumer demand (Zeithaml 1988). Consumer quality perceptions are influenced by marketing mix variables (Boulding and Kirmani 1993, Zeithaml 1988) and constitute one of the basic elements in the definition of a company marketing strategy. A marketing strategy requires decisions on the target market and the marketing mix (i.e. pricing, distribution, salesforce, advertising and sales promotion, and product design) (Kotler 1980). So, a combination of intrinsic and extrinsic attributes influence perceived quality (Garvin 1988, Zeithaml 1988). Companies use marketing mix variables as part of their marketing strategy. However, only advertising has a positive effect on market share growth. No relationship was observed between price and market share growth. So is the case with warranties.
A study (Bodea et al, 2011) in Romania explored the perception of these companies about the importance of the different components of the marketing mix – product, price, place, and communication – promotion – in the context of organization’s marketing performance. Results show that from the five specific aspects of the product component of the marketing mix (product quality, product package, product design, intrinsic content of the product, product selling related services), product quality is monitored by 96% of the investigated companies and assessed as having a very important contribution to the overall performance of marketing activities by 86% of the companies. Among the three specific aspects of the price component of the marketing mix that were taken into account (premium price, grouped discounts and type of selling), premium price meets the highest degree of use among the investigated firms (92%), as well as the highest importance level assigned to its contribution to the overall performance of marketing activities (46%). From the specific aspects of the place component of the marketing mix which were considered (product availability at point of sale, numerical distribution, on-time delivery), the contribution of on-time delivery to the overall performance of marketing activities is considered very important by 79% of the investigated firms, also being the most monitored aspect of the place, according to 92% of the firms. From all the aspects specific to each of the components of the promotional mix, it was noticed that advertising on the Internet is the promotional instrument that enjoys not only the highest degree of use among respondent companies (95%), but it also is the instrument with the most important contribution to the firm’s marketing performance, according to the perception of 64% of the respondent companies.
Tan & Sousa (2013) studied the impact of standardization of marketing mix variables on the international performance of firms, through a meta-analytic estimation of its antecedents and consequences. They observed that their results were somewhat different from that of Shoham’s (et al 2003) meta-analytical findings. Shoham et al (2003) had reported that the effect of product and distribution standardization on international performance was negative; while that of price and promotion was non-significant. The results also indicated that the effect of product standardization on international performance was negative, of promotion standardization was non-significant, while that of price and distribution standardization was positive. The negative relationship between product standardization and international performance means consumers want customized products and they have the capability to compete in foreign markets.
Srinivasan, et al (2009) studied the influence of “customer value creation (through product innovation)” and “customer value communications (through marketing investments)” on stock returns. This article studies how the effect of product innovations and marketing investments for such product innovations improve stock returns by improving the outlook on future cash flows. The authors performed large-scale econometric analysis of product innovation and associated marketing mix in the automobile industry. They found lots of improvement in the explained variance of stock returns when such marketing actions are added to the established finance benchmark. It was noticed that “investors react favorably to companies that launch pioneering innovations that have higher perceived quality, that are backed by substantial advertising support, and that are in large and growing categories”. The results highlight that pioneering innovations are rewarded by stock market benefits. It is calculated that pioneering innovations reward stock returns that are seven times greater, and advertising support that is nine times more effective — compared to minor improvements. Perceived quality of the new car introduction improves the firm’s stock returns but does not have a statistically significant effect on customer liking. A very important finding is that promotional incentives have a negative effect on stock returns. This indicates that price promotions are interpreted as a weakening of demand in the market place.
1.4 Market Structure and Strategy Development:
According to Ruan (2012), market structure is defined by characteristics like the number and relative strength of buyers and sellers types of competition, level of product differentiation, and ease of entry into and exit from the market. Five basic types of market structure are:
(1) Perfect competition: many buyers and sellers, none being able to influence prices.
(2) Oligopoly: several large sellers who have some control over the prices.
(3) Monopoly: single seller with considerable control over supply and prices.
(4) Monopolistic Competition: many sellers with highly substitutable but differentiated product with some control on prices.
(5) Monopsony: single buyer with considerable control over demand and prices.
Earlier studies indicate that success of a firm in a competitive environment depends largely on market structure resulting in conduct and performance. A very interesting way of development and analysis of market structure and strategy development is presented by Weber (1977) in his Market Structure Profile (MSP) Analysis Weber indicates that MSP and Industrial Market Potential (IMP) depend on number of consumers rather than manufacturers and sellers. He introduced the concept of Industrial Market Potential (IMP), which is defined in terms of unit sales potential, and is equivalent to the number of relevant consumers times the number of use occasions which arise per relevant consumer per operating period (usually one year).
In an ideal situation for a firm, the sales for the firm should be equal to the market potential. However, this almost never happens for a single firm. So, there is a gap between market potential and company capability of catering to the demand. The major reasons for the firm falling short in sales compared to the market potential are:
1) Inadequacy of product line,
2) inadequate distribution,
3) less usage and
4) sales of competitive brands.
So, the success of the firm depends on its ability to close these gaps and realize the full market potential of the product/brand.
Marketing strategy is composed of a basket of marketing actions/effort which impacts the demand for the product/brand in the marketplace. Marketing strategy also aims at closing the demand gaps between actual sales and market potential of the product/brand. As discussed earlier, there are various strategies available to bridge the gap between market potential and company’s current revenue. However, the most common routes taken are to increase the number of users, increase the usage rate, and/or increase market share.
The growth of the firm is dependent on the strategies pursued by the firm; the strategies formulated are in turn dependent on the analysis as suggested by Weber. This analysis clearly demonstrates to the firm the direction in which the firm has to move. Without this data and analysis, the firm will not be able to decide on the composition of the marketing mix. For example, when usage rate is low, there is no point in wasting resources in increasing the distribution reach. Similarly, when there is inadequate coverage in a certain geographical area, firms will not take the strategic decision of strengthening the brand further through brand communication and promotion. The research wants to identify the correlation between a particular strategy pursued by the firm and its business performance.
1.5 Efficiency and Performance:
The success of firms’, to a large extent, depend on their efficiency and effectiveness. It is a well-acknowledged theory that efficiency is the relation of input and output, turnover and scale economies. A measure of efficiency is how much input the company takes in order to produce a given output. More efficient companies require fewer inputs for a given output. Hence the cost structure of more efficient companies will be lower as their productivity is higher compared to their competitors.
Over time, the effect of the experience curve leads to a systematic lowering of cost structure, and hence unit cost reductions. So, in terms of strategy, companies will be able to reduce cost structure vis-à-vis its competitors if they are able to increase production volumes and market share. After a certain point, however, the experience curve will bottom out. New technology also can bring about a discontinuity at this point in time. The strategy thus will play a very important role in differentiating the firm from that of its rivals. In recent times, manufacturing technology has made enormous progress, including that of lean manufacturing, which has brought down production costs and a wide variety of end results.
1.6 Marketing Strategy – Performance Relationship:
Empirical support for the marketing strategy-performance relationship has been provided by a number of studies (White et al, 2003; Zahay et al, 2009). Measures of the performance vary from firm sales to profitability growth (Eastlack and Rao, 1986; Erickson and Jacobson, 1992). Business growth is the main objective of the resource-based view of the firm (Barney, 1991) and the net result of having unique assets and capabilities. The idea is that as firms’ marketing programs and great products retain customers over time and gain more of their business, these activities should translate into firm growth.
STP (segmentation, targeting, and positioning) are strategic decisions which are most important to the marketing function (Bonoma and Crittenden, 1988). Positioning is the process of delivering value to customers. It is the way in which the business unit wants its’ customers to think of its products and service, especially in relation to competitors offerings in the market place. Positioning is generally considered a fundamental marketing management decision (Kalafatis et al., 2000; Kotler and Keller, 2008; Hooley et al., 1998).Different types of firms in particular industries pursue different positioning strategies (Miller, 1986). Even within one industry, successful firms choose different paths in terms of market positioning. In the case of business (B2B) markets, positioning must be clearly defined. This is because business marketers normally do not rely heavily on advertising and communications to reinforce their message (Kalafatis et al., 2000). Positioning for them is important as they are increasingly facing tremendous competitive pressures (Kotler and Pfoertsch, 2007; Matthyssens and Vandenbempt, 1998). The next critical step after positioning is segmentation. Segmentation involves matching the customer group which is the best fit with the chosen position. These decisions are basic to the operation of all businesses and the majority of marketing managers’ time is focused in these areas (Porter, 1980, 1985).
These STP decisions are converted to the marketing mix decisions on the ground. The concept of the 4Ps and the marketing mix has been established as an essential component of marketing by firms across the world. The 4Ps (which is the product, price, place, and promotion) and the marketing mix decisions play a crucial role in the marketing of products and services. It is believed by academicians as well as practitioners that strategy should result in segmentation, targeting and positioning decisions – which ultimately reflects on how the consumer perceives the value offering. It is these decisions that have a significant correlation with the financial and non-financial performance of the firms.
In a study of European high technology industry (O’Sullivan et al, 2008), it was found that marketing performance measurement ability positively impacts firm performance and that reporting frequency mediates this relationship. In a study of US fashion retailing industry (Moore et al, 2003), it was found that in order to survive in this industry it is vital for participants to develop and leverage core marketing capabilities. Results of the study show that image differentiation and promotion capabilities are the two most important marketing capabilities which influence firm performance. In another study in Iran (Tabatabaei et al, 2014), the authors concluded that effective implementation of strategy resulted in higher customer satisfaction and price promotions had an influence on market share. Sharma (2004) undertook a study on the Australian manufacturing industry and found that emphasis on marketing strategy was given third place after operations and R&D strategy. In terms of effectiveness, marketing strategy has not been as effective as operations and technology strategy. The results also suggest that an increase in efforts for the development of new segments/customers is positively associated with an increase in sales growth in both, domestic as well as export markets. Also, market forecasting has a positive and significant relationship with the return on total assets. The study also explored the relationship between contextual factors, marketing strategy, and firm performance. It was found that relatively higher performance was placed on marketing strategy by firms which are large, are involved in consumer goods industry, are involved in exports, have higher domestic sales growth, and have adopted a differentiation strategy combined with cost-leadership strategy. In another study of B2B service firms in the USA (Zahay et al, 2009), it was found that customer-based performance (marketing measures) is associated with the choice of generic segmentation and positioning strategies. Strategic positioning choice (i.e. low cost versus differentiation) is indirectly, rather than directly, associated with business growth performance. Firms which followed both, differentiation, as well as low-cost strategies, displayed improved performance. In another study (White et al, 2003), it was found that implementation capability positively impacts firm performance.
2. Marketing Strategy & Performance:
Marketing strategy could be defined in terms of three key constituents (i.e., customer, competition, and corporation). Jain (1997) defines it “as an endeavor by a corporation to distinguish itself positively from its competitors, using its relative corporate strengths to better satisfy customer needs, in a given environmental setting to realize marketing objectives “. Objectives are based on market opportunity and the business unit mission. The long-term viability of the firm is dependent on the firm and its capability to match the needs of the customers. This matching of needs must be better or stronger than that between the market competitors and the customer. Otherwise, it will lead to situations which are detrimental to the interests of the organization. A good marketing strategy should define its market clearly, match its own strengths with the needs of the market, and then have superior performance compared to competitors.
According to Henry Mintzberg (1994), marketing strategy evolves over time and tries to accommodate the changing reality of the external environment. Perspective changes over time and strategy become evident in decisions and actions over time. Michael Porter (1996) made a clean break from the past and postulated that strategy is about the competitive position. It is also about differentiation and addition of value in a manner and in a set of activities which sets the firm completely apart from its competitors.
In an article (Azizi et al, 2009), the relationship between marketing strategy and the marketing capability of business performance was investigated. Results show that marketing strategy has no effect on the overall performance, whereas it shows a positive effect on non-financial performance and a negative effect on financial performance. The results also indicate that marketing capability has positive effects on all three investigated categories, that is, the overall performance, the non-financial performance, and the financial performance.
In another paper (Slater et al, 2010), the authors investigate whether overall firm performance is influenced by how well the marketing organization’s cultural orientation complements alternative business strategies. Results show that high-performing businesses of one strategy type have a different cultural orientation than high-performing businesses of the other strategy types. And, contrary to previous research, the results of this study show that each of the cultural orientations may play a role in creating superior performance.
Research by Zahay and Griffm (2010) investigates the relationship between marketing efforts and business growth. The study suggests that marketing efforts go a long way in determining business achievements. This is an empirical survey of 209 business-to-business services firms. While marketing measures are related to segmentation and positioning strategies, generic strategies have an indirect influence on business growth. Performance improves when both, low cost as well as differentiation strategies are used. The study also suggests that measurement of market performance is crucial, and both the generic strategies are important for business growth. According to the authors, Porters generic strategies are applicable; however, the metric used should be marketing measures rather than business growth measures. Gokus (2015) asserts that company performance is mainly determined by the strategy a company follows. The firm performance will be determined by the different levels of strategy the firm is operating on. Prospectors and defenders are the generic business strategies used to gauge their impact on business performance. The effects of market orientation on them are also studied. The data is collected from selected service industries which they have a high level of customer interaction and a high level of labor of intensity. Results show that there is a negative relation between strategies and firm performance. Excessive use of one strategy will result in poor performance. Results suggest that an excessive level of one specific strategy is not used by highly market-oriented companies. Market-oriented companies focus on creating value, internal coordination and cost control. So, they do not have the tendency to overuse one particular strategy. In another study (Singh, Sweta; 2015) investigates the impact of marketing expenditures on sales performance. The industries considered were FMCG, consumer durables and textile industries.
The results showed that marketing expenditures had a differential impact on the sales of the companies across the three industries.
The results of the study indicate that there is a significant positive impact of packaging on the sales of the companies in the FMCG industry, which is similar to the findings in prior literature, whereas the other three variables, i.e., distribution, advertisement, and marketing, showed no significant impact on sales performance. In the textile industry, packaging and distribution showed a significant impact on sales, but marketing and advertising expenditures did not make any impact. In the consumer durable industry, only distribution showed a significant impact, whereas the other three variables did not show any impact on the sales performance, which is at variance with prior results in similar studies.
2.1 Importance of Marketing Strategy
A ground-breaking five-year study (Nohria et al. 2003) discusses the must-have management practices that truly produce superior results. According to the authors, there are four primary management practices that represent the fundamentals of business. They are strategy, execution, culture, and structure. One of the fundamentals is to devise and maintain a clearly stated focused strategy. Equally important is to develop and maintain flawless operational execution. It’s not what the firm executes but how. In the author’s own words: “Winning companies determine which processes are most important to meeting their customers’ needs and focus their energies and resources in making those processes as efficient as possible. They take the same critical eye to product and service quality as well. Evergreen winners deliver offerings that consistently meet customers’ expectations, and they are very clear about the standards they have to meet.” So, strategy and its execution are crucial for the success of the firm in the long run.
Marketing strategy is devised by companies in order to fulfill their marketing objectives. Marketing objectives are believed to flow from corporate objectives – which, according to Porter, the firm’s design to achieve competitive advantage over its competitors. Marketing objectives of firms are distinct and vary over time as it depends on the environment in which the firms operate. Marketing objectives are dependent on the industry structure, as well as the size of the firm and the nature of its products. There may be a plethora of variables, both internal and external, which have an impact on the conduct and the performance of the firms. However, current strategic thinking emphasizes the importance of firm-specific objectives and strategies which have more impact on the performance of the firm (O’Cass, Aron; Julian, Craig; 2003; Okoroafa, Sam; Russow, Llyod C; 1993; Hawawini et al, working paper series, INSEAD, 2000)). In conclusion of the argument, we may say that typical marketing objectives of firms would hover round maximization of sales/revenues, profits, and market share, enhancement of brand image, providing customer value and improvement of customer satisfaction.
In the context of formal thinking, the strategy may be considered a sequence of decision rules which give a complete description of the marketing practices of a company, their order, and their timing (Howard, 1957). Since the future is uncertain, contingency planning forms an essential part of the strategy. Firms sometimes need to have alternative plans in order to successfully face the adverse environmental and competitive activities that they are likely to encounter periodically.
Integration of all aspects of the marketing plan is said to be the hallmark of a good strategy. Some authors (Huang et al 2013) suggest that the marketing mix is one of the major components of the marketing strategy. In fact, they divide marketing strategy into two parts: a) operating objectives composed of targets and goals, and, b) combination of instruments — composed of the marketing mix and other relevant resources.
As has been discussed earlier, the strategy is generated from the objectives and goals of the organization. An intermediate step is to ascertain the status or the position of the company currently – with respect to the parameters enumerated in the goals and objectives of the company. Once the strategy is formulated, the entire program of the organization is designed. This design, if properly implemented, will enable the company to achieve its objectives and goals. So, after designing, the steps that are followed are of acceptance by the organization and then its implementation.
Over a period of time (from the beginning of the last century to present times), the objectives of the organizations seem to have undergone a sea change. Initially, the focus of the organization was on the maximization of profits. Then it evolved into gaining a market position and achieving success over competitors. Then the focus shifted to the growth of the firm (Jain, 1997). Thus, the orientation of the firms shifted from organization focus to focus on competition, and then to the present day customer focus. According to Porter (1980), firms should not concentrate on growth alone, but also on the growth of the product-market or industry, it is operating in. This focus on growth entails a continued planned effort to enlarge the size of the market. Howard (2006) opined that “strategy is designed to maximize long-term profits within the limits determined by top management’s view of the company’s basic objectives.”
As discussed earlier, ‘marketing mix’ is an essential component of the process of formulation of marketing strategy (Kim, 2007). In the process of formulation of the strategy, decisions on key strategic areas like location, channels, promotion, and pricing are of extreme importance.
The theory on Growth and success of firms (Porter, 1980) describes the issues as follows:
“Many companies fail to achieve their growth targets in revenue and profitability. However, the probability of achieving profitable growth is heightened whenever an organization has a clear growth strategy and strong execution infrastructure. One without the other impairs the probability of success. Many organizations fail to achieve their desired growth targets in revenue and profitability. Porter continues to assert that for achieving growth, firms should:
1. Strengthen the execution infrastructure by investing in ‘safe bets’.
2. Initiate a process to identify strategies with a high probability for success”.
The two Growth Strategies described above require a supporting infrastructure to increase the chances of successful implementation. “A supportive infrastructure includes:
• Organization capabilities that are valued by customers,
• a management-performance system and scorecard which focuses on leading indicators and the drivers of growth and
• strong leadership practices at every level of the organization”.
So, in order to ensure that strategy delivers results in terms of growth of the firm, conceptualization/formulation of strategy is as important as its execution. While it is important to understand the choices, in terms of strategy, which is more likely to deliver expected results – the infrastructure to carry out the effective implementation of the chosen strategies is also equally important. It is imperative to stay close to the firm’s competitive advantage as well as to align the leadership of the firm with the strategic goals and the strategic choices made by the firm.
Very often, organizations tend to view strategy as a one-off exercise or as an exercise which is compartmentalized. There, very often, is a lack of coordination among departments in regards to strategy. Success, however, comes to organizations which view strategy in a holistic fashion encompassing all the functions of the organization. Marketing strategy is also often viewed as a summation of individual tactics, like introducing a consumer promotion or increasing the advertising budget. Successful firms view strategy as a source of a competitive advantage which enhances the financial as well as the marketing performance of firms in the market place. They realize that the impact of strategy is long term, by definition. It also impacts not only marketing as a function, but also the fundamental way of working of the organization. So, in order to realize the full impact of a marketing strategy, the firm must be willing to change various processes and systems in various other aspects of the functioning of the organization. For example, if the marketing strategy is to ensure faster deliveries, the organization has to gear up its entire supply chain and be willing to make decisions regarding aspects like labor productivity, the efficiency of the suppliers, etc.
So, effective formulation and implementation of strategy ensures success in the market, provided it becomes an enterprise-wide exercise.
This Article Collected From:
- Choudhury, R. G. (2011). Marketing Strategy as a Competitive Tool for Performance A Study of Manufacturing and Service Industries in India. Alliance University.