Strategic Planning For Competitive Advantage
If you don’t have a destination and a map to carry you to that destination, any direction of travel is as good as any other.
The advantage of strategic planning is that you know the objectives of your business and you have a map to guide you to your objective. It also helps you solve the questions of resource requirements and market opportunity before you begin. This is important because, in the middle of your free fall is not the time to find out that you didn’t pack a parachute.
Strategic planning will focus on long-term planning and growth, therefore the decisions will require long-term commitments that must be carefully weighed before implementation.
In order to plan strategically and guide their company on a long-term growth path, a company develops a marketing plan.
Strategic Planning for Marketing: the Marketing Plan
Strategic planning gives organizations a way to anticipate future events and determine strategies that will assure that the company achieves their objectives. When it comes to marketing, the marketing plan is the organized strategic plan which defines the market, message and media through which the company will communicate to its consumers. The marketing plan not only serves as the guide that tells you what to do and when to do it, it also tells you what to say and how to say it.
Do I Need A Marketing Plan?
Yes! Successful companies always develop marketing plans; unless, of course, you don’t care about succeeding in your business because you really just wanted something to do.
All joking aside, you need to specify your objectives and define the actions required to attain them. In a marketing plan you can assemble best, neutral and worst case scenarios together in order to form a baseline of must meet objectives and give you the ability to compare actual and expected performance. A marketing plan allows you to examine the marketplace and your internal business reality simultaneously.
Once written, your marketing plan serves as the guide to clearly stated activities (tactics) that employees and managers can use to reach the organization’s objectives.
Organizing a Marketing Plan
Marketing plans can contain many different types of information and be organized in a variety of ways. Most commonly, a marketing plan contains the businesses mission and objectives, a situation analysis (SWOT analysis), target market identification, components and tactics of the marketing mix, budgets, implementation timetables, and market research.The most important thing to remember with a marketing plan is: it’s only as good as the thought, effort, and creativity that went into creating it. While there is no single way to create a marketing plan and there is no common information that one contains, the absolute requirement is that it is valid - the conclusions support the premises that the author makes and the premises are based upon fact, not fiction.
With all of the variable information your marketing plan can contain, there are several items your marketing plan definitely needs to address. It needs to define the business mission, set the marketing objectives, conduct a situation analysis, identify a competitive advantage, provide strategic directions, describe the target market, identify the marketing mix, and organize the implementation.
Defining the Business Mission and Objectives
I’m not a fan of mission statements because no one does them correctly. Most companies create mission statements that are vague and nonsensical and then after they invest large amounts of time and capital in them, they distribute it to employees who print it and file it – never to be seen again.
However, a mission statement when done correctly is extremely important to the business because it defines the vision of the company. Think of this definition:
A mission statement is the goal of the company in a clear and concise form which states why the company is in business in the first place and what benefit the business brings to the consumer.
Consider Zaxby’s, a fast food chicken restaurant, Mission statement:
Corporate vision – Guest-Focused Growth
- Growth through Increased Guest Loyalty
- Growth through Developing Talent
- Growth through Increased Velocity
- Growth through Expansion
Guest-Focused – Our success is linked to satisfied guests. We will keep the guest at the center of everything we do.
Develop Talent – We recognize that people are our most important asset. We strive to attract, motivate, recognize and develop the best, most diverse talent possible.
Operational Excellence – We execute our systems with excellence. We strive to achieve the highest quality possible in everything that we do.
How exactly do they achieve these objectives? Why are these objectives important to the consumer? This type of mission statement is typical of businesses. The truth is, this is pretty good, but it’s only half of a mission statement. It doesn’t define the goal of the company in CLEAR and CONCISE terms. It doesn’t tell us why they are in business and what they hope to accomplish by being in business. It merely states that they want customers to come back, and have talented employees who are good at what they do.
I’ll skip the fact that talented employees don’t usually stay in “fast food” jobs, however the statement about quality cannot be referring to the food, because it’s “fast food.” It’s not high quality to begin with and if you can’t get the fries to me while they are hot (which they sometimes can’t), then your operational excellence goal is largely unachieved.
Even if the mission statement is designed to motivate the employees in an organization, it should do so in a way that is CLEAR and CONCISE.
This is an example of marketing myopia. Marketing myopia happens when a company defines themselves in terms of goods and services instead of the benefits they bring to consumers.
Focus your business mission on your vision of your company in the future and how the businesses objectives enhance the lives of the consumers who you serve. Make it clear what you offer and what you expect. Show the passion, the Entrepreneurial spirit that caused you to create the business in the first place. Ignite a fire in your employees and customers that make them feel like they are a part of something larger than themselves; something that they want to experience and take part in.
Once you have identified your business goals and vision through a mission statement, you will move to set out your marketing objectives.
Why do we need objectives again?
Because if we don’t have objectives, then there will be no basis for the measurement we must do to identify if the marketing the company is doing is successful or not.
We have to state what we are trying to accomplish before we begin it so that we will know if we have fallen short of, reached, or exceeded our expectations.
As with all goals, we can use the SMART theory to identify the criteria needed to accomplish them: Specific, Measurable, Actionable, Realistic, and Timely. As you work through your goals (objectives) you need to ensure that they are well stated. To “be the leader” is a weak statement when compared to “gain a 35% market share by mid 2010 and increase sales revenue by 15%.”
For fun, look back at Zaxby’s mission statement above and tell me if those statements are “well stated.”
Conducting a situation (SWOT) analysis
One of the best ways to understand the current and potential environment that your product or service will be marketed in is through a SWOT analysis.
When examining external threats, there is a need to engage in environmental scanning: Collecting and interpreting information regarding factors in the external environment (forces, events, and relationships) that have the potential of affecting the future of the business or the implementation of the marketing plan.
There are six common factors in the external environment that marketing managers look for because they can have a dramatic impact on companies revenues. They are: social, demographic, economic, technological, political and legal, and competitive.
Competitive advantage
Academics tend to think that a SWOT analysis is the preferred way to identify an organization’s competitive advantage. In my experience, while a SWOT analysis is extremely valuable, that has never happened and I would consider it highly unlikely. Instead a company would need to ask questions such as: what do my customers want? What keeps them up at night? What do competitors in the market offer? What product or service is needed in the marketplace?
Our marketing system has roughly 75 questions and 9 different exercises designed to purge the competitive advantage from the grey matter of the business owner and his/her employees, then validate it by comparing it to the desires of consumers in the marketplace.
Competitive advantage is the unique features of a company and/or the company’s product that are perceived by consumers as significant and superior to the competition.
Loosely, this is also known as your USP (Unique Selling Proposition) and your point of differentiation. I say loosely because some experts define these terms slightly differently, but I prefer to lump them together because it makes more sense, and when developed as one thing, it’s more powerful, more meaningful to your customers.
Competitive advantage, unique selling proposition, and point of differentiation all suggest one thing: how are you different and why a customer should buy from you and not your competition?
This is a VERY important piece of the marketing puzzle and very few companies attempt identifying theirs because it’s hard work. But it’s the most profitable work you can do!
There are 3 types of competitive advantages according to academics. They are: cost advantage, product/service differentiation, and niche strategies. I use somewhat different terms, but I’ll use theirs for now.
Cost advantage
Let me start by saying that trying to build a company on lower price is not wise. Having the lowest price is not a sustainable position. Someone will always come into your market and be cheaper. Need proof?
Sears was the lowest cost purveyor of retail goods for many years. Then along came K-mart, who held the position as lowest cost for 25 or so years. Then along came Wal-mart who has held the position for about 15 or so years. Who’s next? Someone will be! Also, it’s important to note that just a couple years after Wal-mart went nationwide, a company named Costco opened a warehouse style retail chain that had even lower prices than Wal-mart because you could buy in bulk. It forced Wal-mart to enter the market with Sam’s clubs to compete in the same space and dilute the migration of Wal-mart customers to Costco wholesale club customers.
The question is, who is next? If I wanted to bet on it, I believe the next low price competitor will come from China. They are making all the goods anyway. The obstacle they face is branding and designing an experience that Americans would like to partake in. In other words, their stores would have to be more like Target than Wal-mart because we would be hesitant to shop there because the company is Chinese owned.
So what about Target? Notice that Target has higher prices, but still has achieved record growth. How is this possible if everyone is searching for lowest price? The answer is: everyone is not searching for lowest price! We are not all the same, there are different types of customers. Different segments. Target appeals to their segment, their target market. The upside of Target is, they have more profit. More profit means, being able to spend more on marketing and advertising. That means more customers. Besides, when you shop at Wal-mart, you have a less esthetically pleasing environment that you would only accept since you are saving money. When you shop at Target, you feel upwardly mobile and cost conscious. Who doesn’t want to feel upwardly mobile?
Can you guess by now that cost advantage is not an advantage?
The way we view it is operational excellence. If your company can have a competitive price, and decrease the time of production, you are making more money. If you can start with raw materials and cut out a refiner, you are making more money. If you design products to be easy to manufacture, you are making more money. There are other ways to increase your cost advantage than by lowering your prices or having the lowest price. Having a cost advantage means being the low-cost competitor in the market while maintaining satisfactory profit margins. The problem is, maintaining satisfactory profit margins is very difficult to achieve.
Because academics are so eat up with “low-price” they have researched deeply and identified tactics that are typical to companies who are low-cost competitors. My opinion on this is that academics don’t know how to sell and are afraid to ask people to buy, so they work hard to identify ways to gain a cost advantage over others in the marketplace. Where will it end though? Free? Since we can’t give away our products or services, we need to be able to take a position and differentiate ourselves in some other way.
Even though I believe this is an exercise in futility, here are the items and tools that academics have identified as representative of low-cost competitor thinking: experience curves, efficient labor, no-frills goods and services, government subsidies, product design, reengineering, production innovations, and new methods of service delivery.
Experience curves: A model of product pricing that shows how a products cost declines as experience producing the product increases.
When you first start manufacturing a product, the workforce is slow and methodical, but over time, production increases as people develop unconscious competence or muscle memory of the tasks involved.
Efficient Labor: If you can make employees work harder for the same pay or you can replace your work-force with lower skilled, lower -cost employees, then the money you save can help you reduce the cost of your products or services. (this sounds ludicrous to me! This is a marketing problem, not an employee problem!)
No-frills goods and services: If you remove options, you can lower the price. Think of Southwest airlines – no seat assignments, no meals, just get on, let’s go! Academics say that this no-frills product allows Southwest to have the lowest prices, which attracts more customers and makes their flights more profitable, which, in turn, mean even lower prices. They call this “economies of scale.” Again, to me it’s moronic. If you are the lowest priced airline, why lower your prices again?
Government Subsidies: Governments often provide subsidies, grants and low-interest loans to certain industries. That’s why Japanese semi-conductor companies are now the World Leaders; huge influxes of capital from Government loans.
Product Design: If products are designed for ease of production, the product costs less to produce. This is also the realm of reverse engineering competitor’s products to see how they were put together.
Reengineering: Similar to product design, except the entire company is re-designed to focus on cost savings and operational efficiency.
Production Innovation: When a robot can be employed to build a product instead of a human, the production efficiency levels skyrocket. If you need to produce faster, just turn up the speed on the robot. Also, computer aided design and manufacturing have helped numerous industries speed up production.
New methods of Service Delivery: If you buy your airline ticket online you can bypass the counter and because of that, the airlines don’t have to employee 3 people to check you in. Also, outpatient surgery has lowered medical costs. E-books can be purchased and downloaded from the Internet for a lower price than the printed book. New methods of service delivery occur when you find a new way to deliver the same product or service at a lower price.
Product/Service Differentiation
Because cost advantages are constantly being weakened by competitors, product/service differentiation is preferred by many Entrepreneurs because it provides a longer lasting competitive advantage. Still, a competitive advantage is never safe and must be continually innovated.
A product/service differentiation exists when a company provides something of value to the consumer that makes them find it more valuable than the lowest price competitor.
Niche Advantage
By focusing on a smaller segment of a market that is currently underserved, a company can entrench themselves in a marketplace. Conversely, maybe the marketplace as a whole is underserved because it is small and specific. Think of Orvis fly fishing poles and accessories and Dallas Bonsai Garden who specializes in Japanese Bonsai tools. Not Bonsai plants, just tools.
Competitive advantage sustainability
The sustainability of your competitive advantage is of major concern and it’s the one reason why a cost advantage is the least preferable competitive advantage. If you have a sustainable competitive advantage, it means it cannot be copied. While academics point out that companies like Rolex, Nordstrom and Cirque du Soleil have sustainable competitive advantages, I disagree. There are other watches, department stores and forms of entertainment.
While these companies have staked a claim to their positions, competitors who do not copy-cat, but stake their own claims, weaken the advantages these brands have. Thus, while the concept of a sustainable competitive advantage is appealing and defensible over the short-term, over the long-term there will likely be a constant erosion of a company’s competitive advantage by competitors in the marketplace. The speed at which the competitive advantage is eroded depends, of course, on the competition.
Target Market
When creating a strategic plan, a company must identify one or more target markets and develop a marketing mix focused on communicating the competitive advantage (value) that the business offers the consumer.
A target market shares one or more characteristics. They can be segmented out from the population as a whole in a variety a ways. They might be home owners, who have 3 kids, eat at Denny’s twice a week and subscribe to Esquire magazine. Whatever factors there are that distinguish them, segments can be targeted within this market and marketed to with specific promotions relevant to who they are.
When identifying a target market, companies typically perform a market opportunity analysis which identifies the size and sales potential of market segments within the greater marketplace no matter how refined the greater market is.
Your target market will be communicated to through what is referred to as the “marketing mix.”
Marketing Mix
While there are several different models of the marketing mix with different components, the concept is the same. The marketing mix model answers the question: how do we communicate our value to the marketplace? The most commonly used marketing mix model consists of four components: product, price, place and promotion (often referred to as the four P’s).
The four P’s are like links in a chain. It’s only as strong as its weakest link. So every “P” must be strong. In other words, the best product at the best price cannot be sold if the place used to sell it is wrong. You can’t sell Rolex watches at Wal-mart.
Product
The product seems straight-forward. However, the product includes the packaging, warranty, the brand name, the company image, service and many other factors. Product as it is described here includes both goods and services.
Price
The most flexible of the four P’s, price is the money that a customer must give up in exchange for a product. If the product has more value to the customer than the money required to purchase it, the product has a strong price position. Price can be adjusted as market conditions change to create temporary promotions that attract more customers.
Place
Place, or distribution, is concerned with having your products available where your customer will want them. Most customers don’t want to milk their own cows, or even drive to the dairy 25 miles away to get the milk. They expect it at the grocery store and not the hardware store, so a company has to have wide channels of distribution and they have to choose the right distributors.
Promotion
Promotion includes advertising, sales, and public relations. The promotion component of the marketing mix is where you specifically communicate your competitive advantage, but every aspect of the marketing mix is supportive in the communication process. Promotion is the most volatile of the four P’s depending upon your product. For instance, the hardest thing to sell, in my book, is a movie. You have to spend millions upon millions of dollars promoting it and when it comes out, it could have flopped by Sunday. If it has any staying power, you only have 2 more weeks to drive patrons to the theaters. Conversely, a vacuum cleaner will be on the shelves for months – up to 18. If one promotion isn’t working, there is time to try another.
A 5th P?
Well, maybe not a P, but some believe that the market chosen is just as important a factor as the four P’s. I agree with this viewpoint because you can have the right product, price, place and promotion and if you target the wrong market, you still fail.
Conclusion
Strategic planning is vital to the success of a marketing plan and a marketing plan is vital to the success of a business. Using a game analogy, through the marketing plan, a business attempts to create a playbook by which it will identify the tactics it will use to score points. The strategic marketing plan as a whole seeks to identify the strengths and weaknesses of: the company itself, the competition, and the marketplace including the consumers in the marketplace.
Nothing is set in stone however, and the marketing plan needs to be continually updated and revised due to changes in the marketplace caused by competitors, changes in customer tastes, social and political changes, changes in technology and economic conditions.
