In spite of their different approaches, all these threads of thinking agree on their pursuit to define the purpose of marketing in the firm. The marketing literature generally concurs that the essence of marketing is the creation of customer value. Keegan (1995) proposes a simple value equation showing that customer value is the outcome of the perceived benefits divided by the price. The validity of the equation stems from the proposition that customer value can be increased by increasing or improving the benefits of the product or service, by reducing the price or a combination of both. That means that all variables of this equation are controllable.
Marketing Management in Contemporary Perspectives
The second basic principle of the marketing strategy is to find a competitive advantage in the market of the firm’s industry (Hunt and Arnett, 2004; Hoffman, 2000; Day and Wensely, 1988). Presently, it is a common understanding that a firm’s long-term success is achieved through realizing and maintaining a competitive advantage in comparison to its industry competitors (Hoffman, 2000; Hamel and Prahalad, 1989; Prahalad and Hamel, 1990). Hoffman (2000) traces the early researchers who elaborated on the concept of sustainable competitive advantage (SCA), focusing in particular on the fact that the differential advantage a firm pursues can be based on 1) price lowering; 2) advertising appeal; or 3) innovations in the offering.
In line with Doyle (2002) the marketing strategy is based on four aspects as follows:
- Market segmentation: to identify the market segment where a firm will operate in addition to a closer look at the customers in that segment and their buying behaviors;
- Selection of market segment that is most appropriate for a firm to operate into;
- Devising a marketing mix by producing a product, setting its price, formulating the promotional framework, and deciding the distribution channels; and
- Developing a marketing plan to implement this overall strategy.
The following sections will elaborate on each of these aspects by broadly categorizing them into two headings: market segmentation and market positioning. In reality, these concepts constitute the basic tenets of the marketing strategy. They also represent the major precursor thoughts underlying the present industry analysis techniques popularized by Porter (1980) in his famous model of competitiveness.
Market Segmentation
Market segmentation is considered by some marketing researchers as the cornerstone of the positioning process. Jobber (1995) emphasizes that segmentation is an essential part of positioning. Transcending the tactical aspect of segmentation that involves compiling statistical data about similar groups of customers, Hunt and Arnett (2004) indicate the significance of the market segmentation strategy as it includes a range of conceptual tools such as developing portfolios of segments and ensuring the necessary resources to serve these segments.
Dolye (2002) advocates segmentation as a valuable process even in case there is a single product that meets the needs of the entire market. He goes further to show how segmentation is a main factor in building growth and profitability of a firm. He illustrates this point by the classical example of a 300-seater plane which can travel with 80% occupancy. The plane has two options: a) to travel with all passengers in the economy class; or b) segment passengers into first and business classes with premium prices and improved services commensurate with the increase in price. The second option is shown to increase profit seven-fold compared to the first one (Dolye, 2002).
In addition to the profitability, segmentation is commonly pursued by marketers for a host of reasons. The most important of such reasons include better matching of customer’s needs, promoting growth opportunity, ensuring customer loyalty, focusing communication messages, and stimulating innovation. It is apparent from these reasons that segmentation is a largely economic concept. Although it is widely used by marketers, segmentation has several limitations in view of the accelerating change of the markets, and the potential change in the purchasing powers of customers.
Benitt (1988) develops a model for the analysis and description of market segments. This model lends its functionality from the fact that it is so comprehensive as to accommodate any relevant aspects. In the framework of this model, the bases for segmentation are two: 1) consumer markets; 2) organizational markets. The former includes geographic, demographic, socioeconomic, behavioral, and psychographic aspects of customers; whereas the latter consists of product end use, common buying characteristics, and customer size (Bennit, 1988).
Nevertheless, Doyle (2002) puts five prerequisites for segmentation to become a strategic tool of benefit in marketing. He speaks in detail about the criteria of effectiveness, identifiably, profitability, accessibility, and being actionable.
In this respect, the Saudi Basic Industries Corporation (SABIC), which will be used in this paper as an empirical example, has successfully built its segmentation strategy on the criteria of profitability and accessibility. Much of SABIC’s petrochemical products are designed to target the European and Gulf consumer industries. SABIC's Basic Chemicals Group, made up of Olefins, Oxygenates and Aromatics, is largely responsible for the record high net profit of US$ 3.8 billion from the sales of $18.4 billion in 2004 (SABIC, 2005).
Market Positioning
Upon the completion of the segmentation process, strategic marketers choose specific target segments to position their products. Indeed numerous factors indicate the attractiveness of any segment. Kotler (2003) holds that marketing strategy is often based on segmentation, targeting and positioning (STP). He further defines positioning as mental and communication process whereby a firm’s product is distinctively located in the mind of the target market. A firm’s success to doing so is a matter of its ability to formulate a customer-oriented value proposition.
Moreover, Kotler (2003) puts positioning right in its perspective by referring to the famous definition given by Ries and Trout. In line with this definition, positioning is seen as a creative exercise to carve a place for a product in the mind of the customer to the extent that the product becomes irresistible. Apparently, this is a selling technique that pays no attention to the customer value creation. In this respect, Kotler (2003) also presents positioning according to Treacy and Wiersema, who have advocated for the so-called value disciplines. The value disciplines are three dimensions of product leadership, operational excellence and customer intimacy whereby a company could choose a dimension to actualize its positioning strategy.
In an in-house concept papers, SABIC (2001) premises positioning on the assumption that targeting specific segments could result in greater competitive advantages and consequently a better financial performance. To this basic assumption, Hunt and Arnett (2004) add other two: 1) heterogeneity of markets in terms of customers’ needs, wants, use requirements, tastes and preferences; 2) a firm’s offering in a specific segment (including price, promotion, and channels of distribution) can be highly focused to reach the exact prospect customers.
Doyle (2002) argues that positioning strategy is meant to define the segment where a product competes and to design how such product competes – that is, choosing its differential advantage. The former is a straightforward technique as shown in the previous paragraphs. However, the differential advantage is a rather dynamic process that exceeds the five dimensions elaborated by Kotler (2003), which consist of the product, services, personnel, channel, and image. Radder (1999) argues that in view of change, uncertainty, feedback and interdependence in the environment, there is a need for positive feedback and creative learning.
The Competitive Advantage
The literature has numerous names for this fledgling concept in marketing. Hunt and Morgan (1996) maintain that comparative advantage, competitive advantage, and resource-advantage theory are used interchangeably. Yet they prefer the use of competitive advantage as far as comparative advantage will invoke the economic theory posited by David Ricardo that applies to the benefit of international trade on the basis of specialization among nations. Hoffman (2000), on the other hand, refers to the sustainable competitive advantage (SCA), citing all its earlier literature from Wroe Alderson in a seminal article entitled, “A Marketing View of Competition”, published in the Journal of Marketing in as early as 1937 to as recent authors as Prahalad and Hamel (1990).
Indeed, the best definition of competitive advantage is advanced by Keegan (1995). He considers the competitive as the total offer in the face of the offer produced by the competitors. The advantage can be realized along any element of the offer: the product, the price, the promotion, and the distribution channels.
But competitiveness has gained cachet from Porter (1985), who discusses the various types of competitive strategies that a firm could implement in its quest for a long-run, sustainable edge in comparison to its competitors in the market. He further indicates that competitive strategy is meant to establish a position for a firm to realize profitability and sustainability in the face of the common forces that set competition in an industry. These forces include the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the competition among the existing competitors.
Yet, Alderson (1965) has been the pioneer in specifying the very roots of competitive advantage. He holds that a differential advantage could be realized through unique characteristics to distinguish a firm’s offering from its competitors’. He further indicates that such differential advantage can be achieved by lowering the price, specific advertising appeal, and/or product innovations.
In our present day, competition in the industries has become so severe that renders useless the three differential factors of price, promotion and innovations (Hoffman, 2000). Consequently, researchers (e.g. Hamel and Prahalad, 1989, and Dickson, 1992) discuss that firms have to build the internal capacity to learn on a continuous basis with the objective of maintaining a position which is steps ahead of competitors.
Porter and Miller (1985) analyze the impact of Information Technology on the structure of industry’s competitiveness. They assert information revolution is greatly affecting competition by: 1) changing the industry structure; 2) giving the firms certain new means to create competitive advantages; and 3) creating whole new businesses, often within the existing structures of the firms. It becomes a self-explanatory fact that technology has changed the face of competition by driving down the cost of production and transportation, if at least in capital-intensive industries, as well as accelerating the pace of innovation through broader information dissemination. SABIC, for instance, has invested heavily in technology development with research programs in each polymer category at its Research and Technology (R&T) centres. Customer Technical Support (CTS) provides direct technical support to customers. As a result of this, customer’s loyalty and retention are the most important factors beyond the present success of the company (SABIC, 2005) in its polymer products (such as High Density Polyethylene, used in food containers, toys, closures, cases, crates, trays, and industrial pails).
In the literature, the crucial question is how a firm can achieve a competitive advantage. Although the debate initially centers around two aspects of the external or internal factors of competition, yet contemporary researchers attempt to call the attention for a combination of the two factors in a coherent whole, which the organization (Hoffman, 2000; Peteraf, 1993; Prahalad and Hamel, 1990; Hunt and Arnett, 2004; Hunt and Morgan, 1996; Hooley et al, 1998). This wide debate has culminated in the emergence of the resource-based view of the firm.
The Resource-Based View of Firm
The concept of resource-based view (RBV) of the firm is presently used as a solid framework to deal with conceptual and empirical questions of how a competitive advantage can be created, maintained and protected. The concept is simply based on the economic principle of rent: that a firm can earn economic rents or above-average returns if it could possess certain key resources (Fahy and Smitthee, 1999). These resources, they contend, have the specific characteristics such as value, barriers to duplication and appropriability. The sustainable competitive advantage can therefore be obtained if the firm has the ability to deploy these resources in its target markets. Yet, other researchers (e. g. Barney, 1991) argue that for resources to be advantage-creating they must meet four criteria: value, rareness, inimitability, and non-substitutability.
Customer-value is the single most important element of the firm’s competitive advantage. Customer value is an outcome of the product benefits perceived by the customer divided by the price (Keegan, 1995). Applying this equation to a firm within the RBV framework will reveal an interesting discussion that warrants attention. To increase the benefits of a product, a firm has to focus on quality or pursue a relentless effort of innovation. Whilst the third option of lowering price is the logical alternative as a last resort; for it might severely mar the survival of the firm by eroding its profitability. However, an innovation path accentuated by well-established R&D will lead to better quality, greater product utility and therefore a certain prospect of mass production. The latter is the only certain means to offer lower price with viability. Indeed lowering ownership costs, such as maintenance, spare parts, etc. is another viable way to control the equation in favorable terms to the firm.
Rareness, inimitability, and non-substitutability are self-explanatory to some extent. However, it is hardly superfluous to indicate that the three criteria are commonly overlapping in both the literature and reality. For instance, Mercedes Benz built its competitive advantage over engineering excellence (Doyle, 2002). It is reasonable to figure out that this advantage is as rare as far as it is inimitable and non-substitutable. It is even beyond comprehension to tell how exactly Mercedes Benz has created such engineering excellence so persistently while the competitors failed to follow suit.
The RBV concept evolved partly in the face of dissatisfaction with the determinism of the Porterian model of excessive reliance on the external factors in terms of industry structures (Fahy and Smithee, 1999). In their comprehensive analysis of the RBV concept, Hooley et al (1998) put it straightforward that for a firm’s strategy to be successful, it must be embedded in the firm’s resources. The RBV mixes the rigor of economics and the reality of management in a subtle way. That is, the concept places primacy emphasis on the economic dimensions of interest maximization. It holds that organisational actors weigh choices in a rational way to take decisions that will greatly benefit from the internal resources (Fahy and Smithee, 1999).
But what are these internal resources? Part of the difficulty stems from the problem of nomenclature (Fahy and Smithee, 1999). In the literature, the terms, ‘competencies’, ‘capabilities’, ‘skills’, ‘assets’ and ‘resources’ are used, more or less, to refer to the same thing. Following Fahy and Smithee (1999), this paper adopts the term ‘resources’ as an umbrella term to encompass all meanings. Resources, in this sense, are grouped in three specific sub-groups: tangible assets, intangible assets, and capabilities.
Tangible assets are the fixed assets such as the land, plant and equipment. These are transparent and easy to duplicate by competitors. Thus, their ability to generate advantage is intrinsically limited. On the other hand, intangible assets include property rights, brand names, and the firm’s databases and networks. These are relatively difficult to emulate by competitors. In fact, the majority of them can be protected by legal mechanisms.
In contrast, capabilities are difficult to delineate and therefore almost impossible to imitate by competitors. Hooley et al (1998:100) refer to these as organizational activities that are, “in general based on assets working together, i.e. the skills and accumulated knowledge which enable the activities in a business process to be carried out.” Moreover, they indicate that capabilities reside in the skills and competencies of the firm’s human capital.
Prahalad and Hamel (1990) depict a powerful picture for the core competencies a firm can create to excel in its industry. Comparing the positions of GTE and NEC in the market in 1980 with their positions in 1988, the researchers reveal a stark difference in performance between the two firms during a relatively short period of time. The bottom-line of their analysis is that NEC had succeeded because it conceived of itself as a portfolio of competencies rather than a portfolio of businesses as NTE did, much at its own peril. In line with this, the researchers define core competences as the collective learning in the firm, particularly the way to coordinate diverse production skills and integrate various technologies within a whole. They add to this list the system of value delivery in the firm. An important aspect of core competencies is that they do not diminish with use as assets do. Rather the formers are improved with use and sharing within the firm’s environment. The soundness of these and other assumptions brought by the researchers is largely supported by longitudinal studies and insightful reflections about a score of household names, ranging from Honda to Canon, Xerox and JVC.
It is to be noted that Hunt and Morgan (1995) argue that competitors can always neutralize and outperform the advantaged firm through acquisition, imitation, substitution, or major innovations. However, this assumption can hardly stand the test of the RBV, especially the concept of core competencies and the difficulty, if not the impossibility, of imitation. In this sense, a core competency of a firm is its very fingerprint that renders its uniqueness from the unique evolution of the organisational structures, which in turn are the mirror reflection of the individuals (mainly top managers) who design and implement them within a unique environment. This aspect might require further analysis in the literature.
Conclusion
The RBV of competition advantage represents a paradigm shift in the marketing strategy. It focuses the attention on the need for an accurate targeting. This is easy said than done. As shown in this paper, markets never stop changing and customers’ expectations are on an incremental upward trajectory. This is even augmented by the information revolution and the wide dissemination of knowledge. At the ease of her office, a customer in the outskirts of a metropolitan city can compare the features of the different offerings in the market.
The complex reality of markets is one of the strongest critiques raised against the RBV of firms. Like the previous SWOT analysis of firms and the Porter five forces of competition, the RBV can only capture a static view of the firm at any specific point of time. This may lead to the urgent need for further empirical and longitudinal studies to unravel much of the controversies shrouding the concept of RBV (Fahy and Smithee, 1999).
Such studies can also establish a conceptual link between each group of competencies and the firm’s performance. Based on such analysis, the management will get a clear idea to allocate resources. Although Prahalad and Hamel (1990) hold that one of the implications of the RBV is that managers should assume responsibility for competitive decline, yet proving their guilt or exonerate them is a mission beyond the knowledge of current status of marketing strategy.
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