Market Positioning Options for Large vs. Small Corporations- Valutrics
In mass markets, a firm with limited knowledge management capabilities and/or financial resources would in most cases be wise to avoid a confrontation with a larger firm. Firstly, the large firm can out-compete the small firm because the former has the knowledge and financial resources to be able to exploit the economies of scale of mass production to generate high absolute profits by selling large volumes of low margin goods. Secondly, the large firm can use its massive level of generated profits to invest in high levels of promotional activity as a mechanism through which to shape and mould market demand. Thirdly, the large firm has the knowledge to be able to create a vertical system in which raw materials are sourced, production operations managed and products delivered to the final consumer. Finally, having achieved market dominance through being the first company to exploit a strategy of high volume/low unit prices, firms such as Nestlé and General Foods are able to create economies of scale barriers to ward off attacks from virtually any source of competition.
Positioning in the Internet Age
In the early years of the internet, some of the first entrants into the market were small firms offering specialist goods. This trend caused some industry observers to predict that cyberspace trading at last provided a low cost, market knowledge delivery system that could threaten the long term existence of large companies which had achieved market dominance through using traditional mass marketing information channels such as television advertising. However, over the last few years it has become apparent that many major brands are now exploiting the internet effectively to further consolidate their market position. When one analyses this situation it is apparent that e-business is a market channel that tends to favour the brand leaders in many industrial sectors. A prime reason for this is that when customers start to use the internet they are often very concerned about the potential risks associated with this new way of executing the purchase transaction process. As a way to reduce risk, this type of customer will usually select the company or brand name about which they have greatest knowledge and product usage experience.
Many major companies have used their financial resources to offer a very broad range of products to consumers. Thus upon entry into cyberspace, these brands can exploit both the long standing purchase habits of customers shopping in terrestrial markets and their ability to offer breadth of product choice. Under these circumstances, the issue arises of whether small, less well known companies can survive in an on-line world. Analysis of the situation would tend to indicate that web sites featuring long established, broad product line propositions and category expert web sites will co-exist in cyberspace for the foreseeable future. This is because they are serving different customer needs. For example, in the case of medical products in the United States, some customers who have a limited need for new knowledge, because they know what they want, will probably visit the large company, broad line web operation such as www.kmart.com. Other customers may require additional knowledge about what is the best available treatment. In this latter case they will probably contact a smaller, but knowledge-rich, specialist web site such as www.planetrx.com. Similarly in the business-to-business market for computer servers, some customers with extensive prior experience of purchasing servers will be happy to buy on-line from the broad line, value-based supplier, Compaq. If, however, the customer feels that they need additional knowledge because they are in the market to buy a sector-specific, specialist server-based system, they are more likely to select a specialist provider of server technology in that market sector. This is because they will probably believe the specialist server supplier will provide the new knowledge they require in order to make an optimal purchase decision.
Even before the advent of e-business, firms have had to give consideration to how their market positioning would influence the nature of the knowledge to be made available to customers.
Essentially the issue has always been one of reach versus depth. Large firms tend to opt for reach because this maximises the number of customers who will receive information that can influence purchase decisions. Mass market producers have tended to rely on massive expenditure on promotional channels such as television. Major retailers base their operations around maximising the number of outlets which they open across a country.
This situation can be contrasted with specialist firms that tend to focus on contacting fewer customers but delivering to each potential purchaser a much more extensive volume of information. One example of depth in the place of reach is provided by specialist clothing manufacturers which use catalogue-based direct marketing campaigns to merchandise their sector or product-specific fashion goods. In the retail sector specialist outlets tend to be well staffed with sales personnel who can provide expert one-to-one guidance to potential customers.
The advent of e-business has raised new opportunities for firms debating the issue of reach versus depth of information that can be made available to customers. This is because web sites potentially offer an ability (a) to reach any individual who has access to an internet connection such as a PC, a television or an iPhone and (b) by using multiple web pages, to provide the contacted individual with huge quantities of information.
Thus in the small firms sector, an independently owned hotel which previously was restricted to media such as an insertion in a tourist board brochure or a limited number of newspapers can now go on-line to make contact with potential visitors from anywhere in the world. In the large firm sector, music firms are complementing their mass marketing campaigns with information-rich web sites carrying performer biographies, chat rooms and downloadable sample video and music clips.
An interesting trend in e-commerce is the appearance of new on-line knowledge providers willing to assist the customer gain access to more extensive and, even more importantly, totally unbiased information. Thus, for example, American consumers are no longer reliant upon the information available at the local dealer showrooms. They can now go on-line and visit Microsoft’s CarPoint site to obtain comparative data on both product specifications and prices being offered by all the major car manufacturers.
The dilemma facing on-line suppliers of products and services is how they should respond to this alternative mechanism whereby customers can access alternative knowledge sources. Some firms have already decided that the only solution is to expand their knowledge provision activities by offering information about their competitors. In response to on-line travel agents offering consumers access to search engines listing all available airlines and prices, some of major airline web sites are also beginning to provide a similar breadth and depth of information about all carriers on a specific route. In the computer industry, Dell has expanded its on-line product configuration service to include computer peripherals from other manufacturers.
Strategic Boundaries Change
Many years ago marketers in large companies recognised that in some mass markets customers were beginning to exhibit variation in their product needs. Long term survival of many leading mass market companies necessitated them moving from a profit-through-volume strategy towards an operating philosophy based around segmenting the market and offering a variety of goods to the now more sophisticated and experienced customer. This move into market segmentation was the beginning of a blurring between the strategic positioning of many smaller firms and their large firm counterparts.
Many large multinationals have accepted that market segmentation is more advantageous than merely offering a single, standardised product to all areas of the market. For example Coca-Cola and Pepsi-Cola have launched low calorie products for weight conscious consumers. One of the key driving forces in such moves has been the ability of these large firms through the use of sophisticated computer-based analytical tools to acquire much more detailed knowledge about the specific needs of identifiably different customer groups. Once acquired, such detailed knowledge can then be exploited to position products effectively to appeal to specific target market audiences and to select the best media vehicles through which to deliver promotional information.
Further blurring of the strategic positioning boundaries between large and small firms occurred as the former acquired the knowledge to use lean manufacturing technologies to cost effectively serve the specialist product needs of smaller and smaller customer segments. The ultimate possibility offered by this scenario is that in some market sectors, companies could consider the idea of one-to-one or mass customised marketing.
Before the 1990s, a major drawback for large firms wishing to expand into one-to-one or mass customised marketing was the limited knowledge that these firms had about microvariations in customer need. This barrier was removed because companies became able to acquire data on individual customer purchases due to the advent of electronic shop tills which permitted the monitoring of purchase patterns of individual consumers.
Further knowledge could be accessed by large firms exploiting data generated from consumers using credit cards to make purchases and the information available from customers joining loyalty schemes which utilise ‘smart cards’ to record individual purchase behaviour. These data sets, when studied using computer-based statistical analysis tools, permit the identification of much smaller, distinct customer clusters:
• Classify customer into distinct groups based upon their purchase behaviour.
• Model relationships between possible variables such as age, income, location to determine which of these influence purchase decisions.
• Cluster data into finite clusters that define specific customer types.
• Use this knowledge to tailor products and other aspects of the marketing mix such as promotional message or price to meet the specific needs of individual customers.
Customers’ increasing use of electronic purchase platforms in both businessto-business and consumer goods markets has greatly added to the ability of large firms to use data mining to gain in-depth insights into the behaviour of their customers. The reason for this situation is that when customers start surfing the internet they are asked to provide detailed information to potential suppliers. One can link together information on what pages they visit, data provided to questions asked as they register to be considered as customers, their e-mail address and data from their credit card.
Even before the advent of e-commerce, in commenting upon the increasing value of exploiting technology to gain a deeper understanding of individual customers, Porter and Miller (1985) forecasted that the future market winners would be those organisations that recognised ahead of the competition the value of managing knowledge as the core asset of the business. As firms have begun to exploit the data-rich environments which are associated with the e-commerce transaction process, a new concept has arisen in the marketing literature, namely CRM. This involves using data about customers to ensure a firm offers an optimal product proposition and customer-specific prices. Additionally the firm can tailor all aspects of service quality such that every point of contact from initial enquiry to post- purchase service is perceived by the customer as a trouble free, seamless service.
In the past only small firms believed they were sufficiently close to customers to be effective at CRM. The advent of e-CRM technology being adopted by large firms has radically changed this scenario. This technology, by blurring the strategic boundary between large and small firms, represents a major threat to the latter. This is because many are deluding themselves into believing they are still able to offer a level of customised service that is superior when compared to what they perceive as ‘faceless’, impersonal multinational corporations.
Positioning Audit
For the firm wishing to move closer to customers through one-to-one marketing it is critical that prior to such a positioning decision being reached the organisation already has the capability to manage the knowledge required to implement such a marketing strategy. To assist the firm it is useful to undertake a knowledge audit. This audit will need to examine the following areas of organisational activity :
A Customer knowledge management
1 Ability to identify the company’s different customer groups.
2 Ability to categorise customers by the value of business each group represents.
3 All customer data is stored on accessible electronic platforms.
4 Where the firm markets products in B2B markets, data is accessible about the different personalities who constitute the purchase decision process within each customer organisation.
5 Ability to rank customers in relation to the revenue flow which each represents.
6 Ability to use databases to classify different customer groups within each market sector.
7 Ability for effective personalised interaction with each customer.
8 Ability to collect data on customer interaction and to store this data in a readily accessible form.
9 Ability to exploit different media such as personal, impersonal, fax, telephone, web site.
10 Ability to customise products and services to meet specific customer needs.
11 Ability to individualise products and services to totally fulfil variance in customer needs.
12 Ability to individualise pre- and post-purchase services to fulfil variance in customer needs.
B Process management
1 Appropriate structured service quality systems already exist.
2 Quality is a formalised critical aspect of delivering the firm’s marketing strategy.
3 Quality management is orientated towards the specific needs of different customer groups.
4 Full understanding of the relationship between managing internal processes and fulfilling the needs of customers.
5 Full understanding of how to assess how business processes can impact individual customer expectations.
C Technology management
1 Orientation is towards technology selection aimed at satisfaction of customer needs.
2 Effectiveness of technology is evaluated through research involving customers.
3 New technology is being sourced continually to further enhance the effectiveness of managing interactions with customers.
4 New technology is being sourced continually than can enhance the way employees interact with customers.
D Knowledge management
1 The company has a clear strategy about how to acquire and analyse information about customer needs.
2 The company is extremely effective at analysing knowledge acquired about customers.
3 All employees are encouraged to identify every opportunity to acquire new customer information.
4 The company is able to analyse the interaction which occurs between the company and the customer.
5 The company is able to acquire and integrate knowledge from all areas of the company operation.
E Market relationships
1 The company selects market partners who can complement knowledge management capabilities.
2 The company selects market relationships on the basis of how potential partners perceive the importance of using knowledge to serve customer needs.
3 The company continually evaluates the effectiveness of its partners’ knowledge management strategies.
4 The company has a detailed understanding of the relationships which exist between market partners and customers.
F Customer relationships
1 The company is able to build relationships by differentiating between the needs of different customer groups.
2 Data is being acquired continually to generate new knowledge about the needs of different customer groups.
3 The total experience of customers from pre-purchase through to postpurchase product utilisation is analysed to generate detailed understanding of customer needs.
4 All points of customer–company interaction are analysed to generate knowledge about customer needs.
G Strategy
1 The views and opinions of customer groups influence company strategy.
2 Substrategies are evolved to respond to variation in customer needs across different customer groups.
3 Knowledge acquired from customers drives new product and service development strategies.
4 Product and service development strategies utilise knowledge to drive the individualisation of customer need provision.
5 Customer needs provide the basis for the development of customised marketing programmes.
6 Knowledge of competitor behaviour continually influences the evolution and development of the firm’s ongoing marketing strategies.
7 Using all sources of knowledge to achieve the aim of being perceived as ‘best in class’ across all customer groups.