Mastering Marketing Strategy: Insights from the Outside-In
School
Cass Business School Dubai**We aren't endorsed by this school
Course
MARKETING BM2201
Subject
Marketing
Date
Dec 11, 2024
Pages
17
Uploaded by MajorCrown10738
Marketing Strategy – Book NotesChapter 1: Strategy From The Outside InSuccessful long-term companies have remained true to the purpose of a business –to createand keep customers. They’ve kept that purpose not by focusing on shareholders and meetingquarterly numbers, but rather throughconsistently creating superior customer value(andprofiting handsomely from that customer value).These successful companies offer three very important lessons for any executive who wants toconsistently create superior customer value and generate economic profits over the long-term:1.these companies approach strategy from the outside in rather than from the insideout– they start with the market when they design their strategy.2.they use deep market insights to inform and guide their outside-in view.3.their outside-in strategy focuses every part of the organization on achieving,sustaining, and profiting from customer value.Two Paths To StrategyThe first thing that distinguishes these value and profit-creating companies is that they derivestrategy from the perspective of the market – in other words, from the outside in. In simpleterms,outside-inmeansstanding in the customer’s shoesand viewing everything thecompany does through their eyes.Outside-In QuestionsInside-Out Questionshow can we deliver new value to ourcustomers?how can we sell more?how can we best leverage our brand andcustomer assets?how can we gain market share? improveproductivity?how should we defend against competitor’sattacks?where can we apply our new technology?Winning From The Outside InWith an outside-in mindset, top management’s strategy dialogue starts with the market. Themanagement team steps outside the boundaries and constraints of the company as it is, andlooks first at its market:
(a) how and why are customers changing?(b) what new needs do they have?(c) what can we do to solve their problems?●the difficulties faced byDell Computerillustrate the need for outside-in thinking – forseveral decades, Dell’s mastery of logistics allowed it to deliver leading edge computerhardware at prices and speeds that no rival could match.●Dell’s single-minded emphasis on efficiency made them the worldwide market shareleader in 2005, and everything was viewed through the prism of this business model(direct-to-customer) and how to leverage it further.●however, this inside-out emphasis also kept Dell from seeing and responding to achange in its market; more customers wanted to buy at retail and own products thatconveyed a sense of personal style.●Apple and HP redesigned their machines with a focus on customer experience anddistinctive value, beyond price or the latest technology – Dell, on the other hand, lostsales as their efficiency focus was so embedded in their culture that distinct designswere never offered.Table: Mental Models and Strategy ApproachesOutside-InInside-Outall decisions start with the market andopportunities for advantagewe will sell to whoever will buyprofits are gained through a superior valueproposition and leveraging the brand andcustomer assetsprofits are gained through cost cutting andefficiency improvements; TQM andreplicability of processes take prioritycustomer knowledge is a valuable asset andchannels are value-adding partnerscustomer data are a control mechanism andchannels are conduitswe know more than our competitorsif competitors do it, it must be goodcustomers buy the expectation of benefitscustomers buy performance featurescustomer loyalty is the key to profitabilityexpanding the customer base is what matters
Market InsightsThe most valuable market insights are:i.accurate reflections of reality, not just what managers want or expect to see;ii.actionable, with the potential to mobilize and inspire the entire organization to develop newstrategies or improve the current strategies;iii.not seen or understood by competitors, and;iv.used in novel ways to influence strategy.Market-leading firms stand out in their ability to continuously sense and act on trends andevents in their markets. They are better equipped to anticipate how their markets will respond toactions designed to attract and train customers and to perceive emerging segmentopportunities.●market insight is difficult for a company to master and for competitors to imitate,making it a basis for a durable competitive advantage.●however, like all capabilities, it is vulnerable to creeping complacency and turning inwardto focus on cost cutting, and / or an emphasis on short-term results that leads the firm tostop listening to the voice of the customer.How Market Insights Enable Outside-In Strategies1.making fact-based decisions– outside-in companies have a superior ability to makedecisions based on accurate and up-to-date information rather than relying on gutinstincts and familiar heuristics.2.anticipating competitor’s moves and countermoves– deep insights into competitor’sstrategies can also reveal market opportunities●for example, the long-run success of the Boeing 878 Dreamliner commercial jet dependson the way Airbus positions, prices, and markets its new A350 and A380 planes.●any intelligence about potential Airbus moves has high value to Boeing, and vice versa.3.connecting with online and networked customers– the technological revolution hasenabled customers to ignore traditional push marketing and instead use online sites todecide what to buy.
4.guiding growth and innovation– firms that are armed with deep insights into theirmarkets become adept at sensing and acting on growth opportunities ahead of theirrivals.The 4 Customer Value Imperatives1.be a customer value leader with a distinct and compelling customer valueproposition– this requires the choice of where the firm will stake a claim in the market,what value it will offer its target customers, and how the firm will deliver that value.2.innovate new value for customers– customer value and innovation benefit the firmwhen they are transformed into valuable customer and brand assets.3.capitalize on the customer as an asset– this requires selecting and developing loyalcustomers, protecting them from competitive attacks, and then leveraging that customerasset by deepening and broadening relationships with customers.4.capitalize on the brand as an asset– strengthening the brand with coherentinvestments, protecting it against dilution and erosion, and then leveraging it fully tocapture new opportunities in both domestic and international markets.
Chapter 2: Profiting From Customer Value●customer valueis a foundational idea in the outside-in strategy and is about thetrade-off between the benefits that customers perceive they are getting from and offeringand the perceived cost of obtaining the benefits – adjusted for the riskiness of the offer.●perceptions of valuedrive customer choice, satisfaction, loyalty, and word of mouth.●value does not equal price– low-priced products can offer customers excellent value.●Peter Drucker: “it is the prospect of providing customer value that gives a corporationpurpose and their satisfaction gives results”.Customer Value= (1 – perceived risk) x (perceived benefits – perceived life-cycle costs)●the greater the perceived benefits and / or the lower the perceived total cost of aproduct, the greater the customer value and the higher the likelihood that the customerwill choose the product.●attributes do not replace benefits(type, size, price are now what the customer buys aproduct for).●customer emphasis on certain costs and benefits may vary (customer segments).●customer value is dynamic– the service experience or new competitor offerings canchange perceived value.Perceived Benefits, Perceived Costs, and Perceived Risks●perceived benefitsare the outcomes that customers associate with a product, service,or relationship with a company.●perceived costswith simple products can be the initial price paid; however, withcomplex industrial products, we look at costs which are incurred over the life cycle of aproduct (e.g. acquisition, operating, psychological, and disposal costs).●perceived risksdepend on a buyer’s uncertainty (unknown brands) and can offsetbenefits.Tesco: 4 Customer Value Imperatives1.To be a customer value leader: throughconvenient store locations, tailoredassortments, targeted promotions, andoutstanding customer service, Tesco hasemerged as a relational value leader.
2.Innovate new value for customers: shifting toexpress storesin certain geographicregions, and Tesco has also recognized the huge opportunity in the adjacent market forretail financial services in the UK (Tesco Bank,Tesco Mobile).3.Capitalize on the customer as an asset: Tesco’sClubcardoffers customers a pennyrebate per pound spent, but to Tesco, the card is primarily anopportunity to gatherdetailed customer dataand only secondarily an opportunity to offer discounts.4.Capitalize on the brand as an asset: everything Tesco does communicates a focus on“customer value” and great love for the customer; this helped convert employees, whowere often the first brand impression experienced by customers.
Chapter 3: The First Imperative (Be a Customer Value Leader)●market leadersfigure out a way to maximize benefits for the customer and the firm,while minimizing costs and risk.●first;understand the customer’s priorities in your target marketand translate theseinto a value proposition that drives company strategy and business model choice.●this imperative defines strategic direction, shapes investments, and defines capabilitieswhich need to be developed; and is the prerequisite and foundation of the other 3imperatives (innovating new value, customer as an asset, brand as an asset).Customer Value●customer value segments:performance value,price value, andrelational value.●the customer wants it all and makes trade-offs in product attributes and benefits, buttends to fall into one of these segments based on the type of value they find mostimportant in that situation.●in theperformance value segment, the customer wants the product which is best atmeeting their demanding requirements (quality,functionality).●in theprice value segment, customers want to get thebest pricefor anacceptablelevel of quality and performance; they are deal-conscious and less loyal to a certainbrand.●in therelational value segment, customers screen the market for acceptable price andperformance and make a choice based on the best service (technical assistance, helpwith financing); they put apremium on “solutions”that simplify their lives.Customer ChoiceCustomers choose by:(1)focusing on a subset of offerings– the target customer’s consideration set can beother brands in the same product category (Coke vs Pepsi vs Vitamin Water).(2)weighing the value vectors– they prioritize one source of value and look for the bestweighted combination once an acceptable level (parity) is met.(3)assess offering performance– this can either be below, at, or above parity.
➔actual product differences are irrelevant here; we talk about perceptions here, and paritylevel usually means moderate / high level of perceived competence.➔in most markets, a relatively large price-value segment eventually emerges aftercustomers gain confidence and price value players enter the market.Important Points on Customer Value●customer value position is dynamic– no competitive advantage is secure in thelong-run.●theproduct life cycle(introduction, growth, maturity, and decline) is thereigningframework for describing market evolvement, but strategists should understand thateach market has its own rhythm.●market boundaries are morphing– firms find themselves in increasingly dynamic andcompetitive environments, and globalization is intensifying.●customers are now less willing to accept below-parity on any value vector, so firmsneed to pay attention to all three (not just the one where they seek value leadership).●value leaders should anticipate competitive moves and reactions, and concurrentshifts in customer value priorities; then reposition the firm to shape the shift in itsadvantage.●top management’s task=how to create and sustain the firm’s value position.
Chapter 4: Becoming A Customer Value Leader●there are several paths to profitability; customers of performance / relational valueleaders are willing to pay a premium price for the superior value that these leadersdeliver.●price value leaderswin with lower costs because of superior scale utilization and costdiscipline.●leaders also work hard to stay at parity on the other two vectors.●winning strategies are distinctive, hard to imitate, and closely aligned combinations of thecustomer value proposition(CVP) and the business model.Elements of a Customer Value StrategyEvery business needs a customer value strategy to allocate resources and to give direction tothe organization. Questions related to the primary business objective, customer valueproposition (CVP) and the business model for delivering customer value are important.1.business objectives– the ends that the strategy intends to achieve; objectives must beSMART to guide CVP and business model decisions.2.customer value proposition(CVP) – a few elements where the firm is distinctly betterthan the competition that really matter to a target market.➔effective CVPs offer superior performance / price / relational value and communicate thisshowing appreciation for the customer’s value priorities.➔the choice of the CVP is also the choice of the target customer segment, the offeringsprovided, and the competitive profile of the business.3.the business model– how the business can fulfill the CVP.➔it consists of avalue-creating system(the business activities necessary to deliver theCVP) and a value-capture system (how do we make money from the CVP).➔the value-creating system answers which activities to perform, how these activities aresequenced and who performs them.Customer Value Advantage: Whether to Focus on Performance, Price, or Relational Value(a)performance value leadership– heaving the best product or service offering, usually ata price premium (customers recognize it as the best option available).
➔customers perceive demonstrable benefits and performance.➔this requires relentless innovation aimed at superior functionality and quality.(b)price value leadership– provide reliable products or services positioned in the middleof the market space at the best price.(c)relational value leadership– deliver service and offerings that are possible only with adeeper customer relationship.➔their relationships with the best customers are really tight; there is trust based on sharedunderstanding and mutual commitments.➔also, firms have broadened their offerings far beyond a core-product to include customerinformation (competing on scope rather than scale).Aligning Strategy with a Dashboard of Metrics●performance value leadersbecome profitable through speed in bringing continuousinnovations to market ahead of competition, especially with high margins in beginningsales; they need open and fluid value-creating systems.●price value leadersfocus on the rigorous pursuit of efficiency in operations and oftenuse Six Sigma or Total Quality Management (TQM) methods.●relational value leadersuse economies of scope and have front-line teams withautonomy; they have a long tradition of learning from their customers.Important Points●whether a company can maintain leadership depends on their ability to defend itsposition against all corners (especially the price vector as it is under attack often), andtheir ability to evaluate competitors.●customer value leadershipbegins with a value proposition that meets the needs of awell-defined target customer segment and to invest in a business model that issynchronized with this to ensure that every function, activity, and process delivers whatthe customer expects.
Chapter 11: Market Insights and the Customer Value Imperatives●deep market insightsare the fuel of the outside-in approach to strategy and thecatalyst for the four imperatives.●market insightsdrive the managers attention towards what matters and help ensurethat customer and competitor insights play a role throughout the strategy making andimplementation process – these insights are the fuel of an outside-in approach.●often,firms lack the capabilities to obtain these market insights, or they believe theyknow their market well enough – however, markets are complex and sustained hardwork is needed to comprehend them; it is therefore important to mobilize everyemployee as a listening post.●outside-in companies invest in disciplined market insight capabilitiesand learn toask questions about customers, competitors, channel partners, and market forces.Customer Insight Questions●who may be a good customer?●what customers think, feel, or prefer to do?where and when do customers use the product?●how customers draw inferences regarding the product?●why do customers have these needs?Competitor Insight Questions●who are the firm’s competitors?●what are the competitor’s value propositions?●how do competitor’s create and capture value? (benchmarking)●why are competitor’s taking action?●what are the moves of our competitor’s? and how will they respond to our moves?A Market Insight CapabilityInsights must be actively sought, shared, and acted on with the disciplined market insightcapability. This capability is realized through a process of:➔market sensing: active search to acquire actionable data that can be used to anticipatewhere the market is going in order to get there before the competitor.➔sense making and sharing: if findings are to be useful, sense must be made out ofthem creating useful insights; these in turn need to be shared with the relevant decisionmakers and stored in the firm’s knowledge management system.
➔taking action: using market insights; can also happen when market insights changemanager’s thinking by getting new ideas to add to their mental models.➔feedback and learning: once action is taken, additional learning comes from feedbackabout what actually happened.Improving The Market Insight Capability●maintain direct contact with the customer– visit customers, “be your customer”.●keep an open mind– we get locked into certain ways of seeing the world, focus only oncurrent customers, managers often have weak peripheral visions, confirmation bias.●triangulate with multiple methods– use multiple methods with different biases andlimitations.●experiment continuously– the process of active and continuous experimentation toaddress persistent issues is where original insights in the market are developed.●create a common picture of the customer– understand the true value of a customerand also determine the best way to approach and reward the customer.●share customer insights and best practices– make the knowledge available toeveryone who interacts with the customer.
Chapter 12: Organizing To Compete On The Customer Value ImperativesExecuting on the four customer value imperatives requires considerable management acumen –customer value leadership,value innovation,effective customer management, andbrandassetscan result in optimal profitability. These four customer value imperatives take companiesyears of planning and execution to be successful, with some companies able to effectively focuson customer values while others lose their way.There are many factors that separate the firms that are able to build and execute a strategyfrom the outside in based on the customer value imperatives. Two general and pervasive factorsthat are important to strategy development and execution are the organization and its leaders:1.organizations– no organization can continue to make decisions from the outside inwithout the strong guidance of outside in-minded leaders.2.leaders– communicate a compelling vision, provide resources to support and outside-instrategy, and are willing to override silos.●leaders send innumerable signals that encourage outside-in thinking, such as aninsistence on comparing the business against the “best of breed” and, during strategyreviews, an emphasis on deep consideration of customers’ needs rather than the detailsof financial forecasts.From the base of strong leadership, the customer value imperatives can thrive only when threefundamental organizational factors are in place: an outside-in culture, an alignment with themarket, and capabilities for competing on customer value.1.an outside-in culture– in an outside-in strategy, firms first observe what the customerwants, and then targets to offer a solution.●there are no outside-in organizations in which the culture isn’t immediately recognizableas being outside-in; these companies are held together by pervasive, externally orientedactivities that emphasize providing superior value on the customer’s own terms.●at Tesco, the mission is “creating value for customers, to earn their lifetime loyalty” – thisstatement both reflects Tesco’s focus on the customer.2.an alignment of the organization with the market– the aim is to ensure thatcustomers have a seamless interaction with all parts of the business and that there isclear accountability for the customer.●alignment involves structure, metrics, and incentives.
3.capabilities for competing on customer value– these capabilities are theorganizational processes that allow the firm to implement the four imperatives on acontinual basis.●no firm can consistently drive superior customer value without investing in and managingthe capabilities to do so.●on the other hand, if the capabilities themselves become the focus, rather than beingviewed simply as useful tools for accomplishing the goal of customer value, then the firmis in danger.From Market-Oriented To Outside-InThe outside-in organization is a natural evolution and broadening of a market orientation. Thereare three notable differences:1.First,everything that these organizations do is about achieving and sustainingsuperior customer value. In market-oriented thinking, this connection is often notmade. Instead, there is a jump from the organization’s attributes and processes toperformance, without the enabling mechanism of customer value.2.Second,winning outside-in strategies take account of both income statement andbalance sheet effects through the economic profit model. Advocates of marketorientation often limit themselves to beneficial consequences for revenue and earnings,without regard to the productive use of assets or the capitalization of the brand andcustomer assets.3.Finally,a truly outside-in strategy is forward-lookingand is paranoid about thepossibility that hard-won customer value advantages will erode and disappear undercompetitive pressure. The antidote is a long-term emphasis on innovation that createsnew value that customers will pay for.Outside-In Organizational CulturesCulture is expressed ingenerally accepted beliefsandnormsthat guide the organization’sday-to-day activities and show “how things are done around here”.There are three sets of company beliefs that allow the customer value imperatives to providethe basis for how the firm competes:1.beliefs about the market– how the organization and its employees view the market isessential to building an outside-in culture.
●the importance of defining the business and making decisions from the customer’s pointof view as well as having direct contact with customers and worrying deeply about howcompetitors are serving customers are at the heart of these beliefs.●thecustomer-defined business,customer-based decision criteria, anddirectcontact with customersare the main points of these beliefs.2.beliefs about managing the market– two key beliefs are often housed in the culturesof successful outside-in companies (responsibilityandmindset).●everyone is responsible– the firm will not be successful unless all of its functions andemployees perceive the connection between their work and customer value.●expense versus investment mindset– in many firms, a short-term, expense-orientedmindset is used to evaluate decisions; in an investment mindset, there is a longer-termview to evaluate outcomes.●successful outside-in firmstend tomanagetheimperatives as long-run investmentstrategies.3.beliefs about talent– the two key beliefs revolve around customers and employees.●satisfied employees lead to satisfied customers– research shows that employeesatisfaction and customer satisfaction are closely linked.●empowered employees– problems arise when employees are not empowered to takeresponsibility for ensuring that the customer is successful or for helping the customersolve problems.Outside-In Organizational StructuresA key factor in determining the right structure for a particular company is the customer valueleadership position. If, for example, the emphasis is on relational value and the best customerssee great value in buying integrated solutions from one source, the firm may find it optimal tocreate a structure with dedicated account teams.1.Key Account Managers– coordinate the firm’s cross-functional activities with acustomer to make interactions more effective and efficient.2.Front-Back Hybrid Designs– involves a strong customer-focused “front end” thatmarkets products and solutions to particular market segments.3.Cross-Functional Segment / Account Teams– involves the integration of a variety offunctions (e.g. supply chain, marketing activities, new product development).
Managing Implementation Pitfalls In An Outside-In Structure●Lesson 1:Keep Everyone Focused On The Customer’s Total Experience➔improving accountability requires a combination of system changes, customer-focusedmetrics, and employee incentives tied to customer-segment performance.➔to implement these changes, companies must have unified customer information thatcan be filtered through linked customer activity and cost databases.●Lesson 2:Adjust The Pace Of The Alignment Process To Address The Obstacles➔restructuring invariably takes longer than expected – a company’s culture can eithermake it easier for the organization to realign around markets or make it harder.●Lesson 3:Use Continuous Realignment To Stay Ahead Of Market Changes➔markets are always changing, so organizations inevitably slip out of alignment –companies that are seeking to stay aligned with the market need to respond to bothcustomer opportunities and competitive cost considerations.Outside-In Organizational Metrics And IncentivesCompanies must use a dashboard or portfolio of metrics to ensure that employees at all levels(1)understand how to manage customer value imperatives;(2)know whether they have accomplished these outcomes, and can diagnose the problemif they have not, and(3)get excited about the promised resultsas incentives are directly tied to these results.Align IncentivesThere are several challenges that firms have to manage in order to get incentives aligned:shifting incentives– competing on customer value should not be viewed as anothermanagerial fad or bandwagon; people must know that these rewards are permanent.training and support– competing on customer value will require major shifts in the way thefirm does business and how employees operate; if the firm wants to minimize unintendednegative consequences, it should offer training to reach appropriate outcomes.
incentives across levels– all levels and areas of the firm must live and die by the sameincentive structure; if not, those who get the short end of the stick will sabotage the effort.