Marketing Strategies and Strategic Alliances
Dave Carlson - November 26, 2008
Most businesses need to implement appropriate marketing strategies and form synergistic strategic alliances to remain competitive in their market space. Firms that fail to choose correct marketing strategies may not remain in business. Porter proposed three competitive marketing strategies: overall cost leadership (have the best value), differentiation (offer unique products or services), and focus (target specific market segments). Sometimes a company may not want or be able to compete in a market space by itself. Businesses often form strategic alliances for various purposes. There are four major categories of strategic marketing alliances: product or service alliances, promotional alliances, logistics alliances, and pricing collaborations. Businesses that choose the appropriate mix of strategies for their situation have a better chance to succeed.
Marketing Strategies and Strategic Alliances
Most businesses need to implement appropriate marketing strategies and form synergistic strategic alliances to remain competitive in their market space. Firms that fail to choose correct marketing strategies may not remain in business. Even a business with a monopoly (no business competition) is forced to compete with anti-trust regulations, as AT&T discovered in 1982 (AT&T, 2008, ¶ 5). Porter (1980) proposed three competitive marketing strategies (see Figure 1):
- Overall cost leadership: “Achieve overall cost leadership in an industry through a set of functional policies aimed at this basic objective” (Porter, 1980, p. 35).
- Differentiation: “Creating something industry wide as being unique…design or brand image,…technology,…features,…dealer network,…or other dimensions ” (Porter, 1980, p. 37).
- Focus: “Focusing on a particular buyer group, segment of the product line, or geographic market…built around serving a particular target very well, and each functional policy is developed with this in mind” (Porter, 1980, p. 38).
Figure 1. Competitive Marketing Strategies
(Porter, 1980, p. 38)
Overall Cost Leadership
A business can compete in its market space by becoming the overall cost leader; promoting their product or service as the best value. To be successful, a business does not necessarily have to offer the lowest price (However, offering the lowest price for a quality product, may be a definite advantage in a particular market space.). Kotler and Keller (2009) discussed the concept of value pricing.
In recent years, several companies have adopted value pricing: They win loyal customers by charging a fairly low price for a high-quality offering. Value pricing is thus not a matter of simply setting lower prices; it is a matter of reengineering the company’s operations to become a low-cost producer without sacrificing quality, to attract a large number of value-conscious customers. (Kotler & Keller, 2009, pp. 392-393)
Kotler and Keller (2009) illustrated the concept of value pricing by discussing two companies: Wal-Mart and Dollar Stores (General Dollar and Family Dollar). Wal-Mart is the undisputed leader in the retail industry for overall cost leadership. “Except for a few sale items every month, Wal-Mart promises everyday low prices on major brands” (Kotler & Keller, 2009, p. 393). The Dollar Stores compete in the same market space with the same value pricing model as Wal-Mart. The very successful Dollar Store strategy is to “build small, easy-to-navigate stores with parking handy; keep overhead low by limiting inventory; and spend sparingly on store décor and get free word-of-mouth publicity” (Kotler & Keller, 2009, p. 393).
On the opposite end of the pricing spectrum from Wal-Mart is Caterpillar. Instead of focusing on value pricing, Caterpillar has been successful promoting perceived-value pricing. “Perceived value is made up of several elements, such as the buyer’s image of the product performance, the channel deliverables, the warranty quality, customer support, and other attributes such as the supplier’s reputation, trustworthiness, and esteem” (Kotler & Keller, 2009, p. 392). See Table 1 for a detailed break-down a Caterpillar dealer might provide to a customer comparing a competitor’s $90,000 tractor with Caterpillar’s $100,000 tractor.
Table 1. Caterpillar Tractor Price Break-Down
|$90,000|| ||is the tractor’s price if it is only equivalent to the competitor’s tractor|
|$7,000|| ||is the price premium for Caterpillar’s superior durability|
|$6,000|| ||is the price premium for Caterpillar’s superior reliability|
|$5,000|| ||is the price premium for Caterpillar’s superior service|
|$2,000|| ||is the price premium for Caterpillar’s longer warranty on parts|
|$110,000|| ||is the normal price to cover Caterpillar’s superior value|
|$100,000|| ||final price|
(Kotler & Keller, 2009, p. 392)
A business can compete in its market space as a unique provider of a specific product or service within their industry. Under certain circumstances, brand image and uniqueness can be much more compelling than price. We’re different; buy from us appeals to many consumers. People like the idea of being unique; it makes them feel special (Kennedy & Vitale, 2008). In some markets, “your desired customer’s attitudes about things related to your product or service matter more than any facts about your product or service” (Kennedy & Vitale, 2008, p. 54).
Southwest Airlines distinguishes itself as a fun airline; Swatch distinguishes itself with colorful fashion watches; Select Comfort distinguishes itself by offering Sleep Number® beds; and Subway distinguishes itself by serving healthy sandwiches as an alternative to fast food (Kotler & Keller, 2009). Each of these businesses has chosen differentiation as a marketing strategy in their marketing space. This differentiation strategy has proven successful for the respective businesses mentioned above. Successful businesses “know they have to redefine value by raising customer expectations in the one component of value they choose to highlight” (Treach & Wiersema, 1997, p. 4).
People who want to have fun when they fly may choose Southwest Airlines. Consumers who like to demonstrate their uniqueness with the kind of watch they wear may choose to purchase a watch from Swatch. Knowing they can configure their mattress to a specific number to identify the firmness draws consumers to Select Comfort. Subway’s healthy sandwiches successfully attract many customers each day for lunch.
There are many ways a business can differentiate their product or service from that of the competition. Kotler and Keller (2009) wrote that marketers need to believe they can differentiate anything. See Table 2 for some questions to ask when trying to identify new, consumer-based points of differentiation for a product or service.
Table 2. How to Differentiate Products or Services
How to Derive Fresh Consumer Insights to Differentiate Products and Services
- How do people become aware of their need for your product and service?
- How do consumers find your offering?
- How do consumers make their final selection?
- How do consumers order and purchase your product or service?
- What happens when your product or service is delivered?
- How is your product installed?
- How is your product or service paid for?
- How is your product stored?
- How is your product moved around?
- What is the consumer really using your product for?
- What do consumers need help with when they use your product?
- What about returns and exchanges?
- How is your product repaired or serviced?
- What happens when your product is disposed of or no longer used?
(MacMillian & McGrath, 1997, pp. 133-145)
A business can compete in its market space by focusing on a very narrow segment of their industry or focus on doing one thing better than anyone else in the industry. A business owner who decides to do one thing better than anyone else for a specific segment of an industry should direct all of the organization’s creative energies into that one thing (Treach & Wiersema, 1997). Everything the business does must relate to that one thing.
Wal-Mart doesn’t peddle haute couture, L.L. Bean doesn’t sell clothing for the lowest possible cost; and Starbucks doesn’t slide a cup of java under your nose any faster or more conveniently than anyone else. Yet all of these companies are thriving because they shine in a way their customers care most about. They have honed at least one component of value to a level of excellence that puts all competitors to shame. (Treach & Wiersema, 1997, p. 5)
Instead of, or in addition to, focusing on doing one thing better than other competitors in a marketing space, a business firm also may choose to focus on narrow segments of the market. “The firm gets to know these segments intimately and pursues either cost leadership or differentiation within the target segment” (Kotler & Keller, 2009, p. 54). Drummond and Ensor (2005) suggested geographic area (e.g. rural areas), end user focus (e.g. discount food retailers), and product or product line specialization (e.g. industrial power supplies) as strategic focus areas.
Sometimes a company may not want or be able to compete in a market space by itself. Businesses often form strategic alliances for various purposes. Kotler and Keller (2009) described four major categories of strategic marketing alliances: product or service alliances, promotional alliances, logistics alliances, and pricing collaborations.
- Product or service alliances -- One company licenses another to produce its product, or two companies jointly market their complementary products or a new product. The credit card industry is a complicated combination of cards jointly marketed by banks such as Bank of America, credit card companies, such as Visa, and affinity companies such as Alaska Airlines.
- Promotional alliances -- One company agrees to carry a promotion for another company’s product or service. McDonald’s, for example, teamed up with Disney for 10 years to offer products related to current Disney films as part of its meals for children.
- Logistics alliances -- One company offers logistical services for another company’s product. For example, Abbott Laboratories warehouses and delivers 3M’s medical and surgical products to hospitals across the United States.
- Pricing collaborations -- One or more companies join in a special pricing collaboration. Hotel and rental car companies often offer mutual price discounts. (Kotler and Keller, 2009, pp. 54-55)
A business that chooses to form strategic alliances needs to continually evaluate the value of each alliance. If the market or conditions between allied companies change, the business must modify the alliance to match current conditions. If a Disney character is not popular, McDonald’s must change the characters offered with its kid meals. The best alliances are between “partners that might complement their strengths and offset their weaknesses” (Kotler and Keller, 2009, p. 55).
Choosing appropriate marketing strategies and forming synergistic strategic alliances increase a firm’s ability to remain competitive in their market space. Porter proposed three competitive marketing strategies: overall cost leadership, differentiation, and focus. There are four major categories of strategic marketing alliances: product or service alliances, promotional alliances, logistics alliances, and pricing collaborations. Businesses that choose the appropriate mix of strategies for their situation have a better chance to succeed than those businesses that fail to optimize their strategic mix of marketing strategies and business alliances.
AT&T. (2008). A brief history: The Bell system. Retrieved November 26, 2008 from http://www.corp.att.com/history/history3.html
Drummond, G. and Ensor, J. (2005). Introduction to marketing concepts. Burlington, MA: Butterworth-Heinemann.
Kennedy, D. S. and Vitale, J. (2008). No B.S. marketing to the affluent. Irvine, CA: Entrepreneur Press.
Kotler, P. and Keller, K. L. (2009). Marketing management (13th ed.). Upper Saddle River, NJ: Prentice Hall.
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.
Treach, M. and Wiersema, F. (1997). The discipline of market leaders: Choose your customers, narrow your focus, dominate your market. New York: Perseus Books Group.