When Marketing is Strategy
Dec 2013 02

When I came across the link  to the Harvard article; “When Marketing is Strategy”, I just assumed it would be one of those write-ups that debunk branding and try to showcase marketing as a push-to-sell technique but it proved me wrong. So wrong.

First, I would have to say that Niraj Dawar is an excellent writer. The article is an excerpt from his book:- Tilt: Shifting Your Strategy From Products to Customers.

In essence, the book tried to show how the sources of competitive advantage are being irreversibly levelled by globalisation and technology. In the past, building bigger factories, storing inventory better or finding cheaper raw material had been the backbone of owning the competitive advantage. Today, competitors can readily decipher and replicate your products recipe. Thank You  the Internet! Thank You Youtube! Thank You Technology! Competition has shifted from Upstream (Production) to Downstream (the consumers).

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Reorienting your strategy around consumer interaction to create and capture unique value and unlike product-related advantage, the value gotten from consumer interaction is cumulative, continuously building over time.

The strategic question that drives business today is not “What else can we make?” but “What else can we do for our customers?”

Three major things to note are:

First, the sources and locus of competitive advantage now lie outside the firm, and advantage is accumulative—rather than eroding over time as competitors catch up, it grows with experience and knowledge.

Second, the way you compete changes over time. Downstream, it’s no longer about having the better product: Your focus is on the needs of customers and your position relative to their purchase criteria. You have a say in how the market perceives your offering and whom you compete with.

Third, the pace and evolution of markets are now driven by customers’ shifting purchase criteria rather than by improvements in products or technology.

Now, do not get us wrong. Yes, us (I and Niraj); If your products stand you out, you should not falter on that. If you believe your R&D sets you apart, security around its research labs should be airtight and armies of lawyers protect your patents. And if you prize your talent, you’ll build hip work spaces for employees, gourmet lunches, yoga studios, nap nooks, sabbaticals, and flexible work hours.

However, downstream, your competitive advantage lies outside the company; in the external linkages with customers, channel partners, and complementors. It is most often embedded in the processes for interacting with customers, in marketplace information, and in customer behavior.

A classic thought experiment in the world of branding is to ask what would happen to Coca-Cola’s ability to raise financing and launch operations anew if all its physical assets around the world were to mysteriously go up in flames one night. The answer, most reasonable businesspeople conclude, is that the setback would cost the company time, effort, and money—but Coca-Cola would have little difficulty raising the funds to get back on its feet. The brand would easily attract investors looking for future returns.

The second part of the experiment is to ask what might happen if, instead, 7 billion consumers around the world were to wake up one morning with partial amnesia, such that they could not remember the brand name Coca-Cola or any of its associations. Long-standing habits would be broken, and customers would no longer reach for a Coke when thirsty. In this scenario, most businesspeople agree that even though Coca-Cola’s physical assets remained intact, the company would find it difficult to scare up the funds to restart operations. It turns out that the loss of downstream competitive advantage—that is, consumers’ connection with the brand—would be a more severe blow than the loss of all upstream assets.

Establishing and nurturing linkages in the marketplace creates stickiness—that is, customers’ (or complementors’) unwillingness or inability to switch to a competitor when it offers equivalent or better value. Millions or billions of individual choices to remain loyal to a brand or a company add up to real competitive advantage.

For example, you won’t find Facebook’s competitive advantage locked up somewhere in its sparkling offices in Menlo Park, or even roaming free on the premises. The employees are smart and very productive, but they’re not the key to the company’s success.

And the beauty of downstream is that you can choose your competitors. If you’re in the beverage business and you have developed a rehydrating drink, you have a choice of how to position it: as a convalescence drink for digestive ailments, as a half-time drink for athletes, or as a hangover reliever, for example. In each instance, the customer perceives the benefits differently, and is likely to compare the product to a different set of competing products.

And no, innovation does not always mean better products or technology but rather reducing customers’ costs and risks over the entire purchase, consumption, and disposal cycle.

In conclusion, The old competitive advantage (upstream activities) was “What can we make and sell”. The New soul is “What else can we do for our customers”. That’s where the right strategy comes in. That’s where Di’magination comes in too.

COmpetitive Advantage

I do not know if you are as excited about this book as I am but I have just ordered it to my Kindle. You can get it here.