Strategic Marketing: Competition/Partnerships/Distribution

When I sit down with the small business owners and evaluate their business plans, the marketing plans are based on cookie cutter approach. Their focus is heavy on profits but light on “strategic marketing leading to business model”.  Here is my attempt to explain why there is a need to understand and apply strategic marketing to even small businesses.

Your marketing strategy is dependent on the following critical factors:

1. Competition

2. Partnerships

3. Distribution

4. Pricing

5. Positioning

These factors along with your value proposition will assist you in developing your business model.

1. Competition

First, study your competition; both your direct competition, which competes with your products and services, as well as indirect competition which fights for a share of the customer’s spend. Use the ‘Strategy Canvas’ (described in ‘Blue Ocean Strategy’ by Renee Mauborgne and W. Chan Kim) to map what  your direct and indirect rivals are spending on customer features and the value rating for  these features. A study of this will give possible opportunities.

Another tool described  by Renee and Chan is the ERRC Framework that will help improve your competitive profile.

• Eliminate
• Reduce
• Raise
• Create

Assess which of the factors could be eliminated; which could be raised or reduced with reference to the market average and what new factors could be created that were not available earlier. For each of these changes, one can assess the impact on costs. By playing with all these levers and associated costs, one can come up with a differentiated and competitive profile.

Lets look at Procter & Gamble’s Tide introduction. When it was introduced many years ago, they could have called the product a “new, improved soap.” That’s what you see occurring with toothpastes and soaps. Tide also comes under soap category. However Procter & Gamble called Tide the “first detergent,” a totally new category. So if there is a dominant brand already in your marketplace, think about creating a new category and take first mover advantage. But remember to create a sustainable brand that customers perceive to be the leader.

 2. Partnerships

When introducing new products in the marketplace, partnering can give a powerfully attractive proposition. There are two reasons for partnerships. By joining with a partner with complementary value propositions, one can construct a complete solution.  Secondly, the product or service will achieve as well as sustain market leadership. The most important rationale for partnerships is drastically reduce time to market.

The partnership of SAP, HP and Anderson Consulting came up with the client-server ERP system that overtook IBM. Other successful partnerships were Intel and Microsoft as well as Netscape and Yahoo!. Focus on what your core competency is and then partner with other players to reduce your costs or time to market.   Think about the partnership between Fedex and USPS! You would think they are competitors but they are joining hands to tap into each others competencies. When you have to send low weight packages to residential customers through Fedex, you cannot beat the price and efficiency since they use USPS to deliver them.

The approach to partnerships depends on the stage of the product life cycle. In the ‘Early Market’ stage, partners with established credibility who reduce implementation risk are needed. In the ‘Chasm’ and ‘Niche Market’ stages, partners, who complement the product capabilities to deliver a differentiated solution, are to be carefully selected.

3. Distribution

The process by which the product or service is made available to the customer is called ‘Distribution’. A smart and efficient distribution mechanism is crucial for marketing success and can even be a competitive advantage. The best examples of companies who succeeded because of their distribution effectiveness are Amazon and Dell. These companies use technology to fullest extent. The interesting point is Dell did not start selling using conventional stores as distribution channels; instead it launched the first brand of personal computer sold directly by phone. Later on they established their distribution networks.

There are two important factors that determine the choice of the appropriate distribution model. The first is ‘Solution Complexity’ and is related how easy or difficult it is to set up the product, deploy it in multiple places and easy to operate. The second is ‘Marketing Complexity’ and is the ease of acquiring the product by the customer and the support system to keep the product operational. Customers would expect both factors to be matched in the products and solutions they buy. A product that is simple to use should be easy to acquire and use. A solution that is complex to install will require a more complicated distribution methodology. A product that is simple to use but complicated to obtain and install would require a more elaborate sales and support that could prove quite expensive.

 The traditional distribution channels start with the Internet followed by retail sales, and then VARs and Direct Sales and end with System Integrator’s. The characteristics of the product will determine which of these channels would be the most effective.