When the going gets tough, the tough becomes, well, strategic. Let’s face it, that’s not the normal reaction of companies that are performing below average. The normal reaction is to start cutting costs. However, while cost improvements without sacrificing quality are always welcome, they are rarely the answer to putting companies on the path to sustained growth and profitability. For that, companies must think and manage more strategically. More specifically, they need a strategic management process.
An effective strategic management process can be defined in four main stages:
- Definition stage, which culminates in the selection of a market strategy.
- Translation stage, which deals with business philosophy.
- Building Stage, whose focus is the design of performance measurement systems.
- Operational stage, which creates an environment of continuous improvement.
The purpose of this short article is to review some of the most important elements of the first stage, or definition stage, of a strategic management process. While all stages of the process are important, the first stage is perhaps the most exciting, because within it, companies define their market strategies. That provides visible evidence that companies are at least beginning to think strategically.
Market strategy
Many companies believe that once they have defined their market strategy, their strategic process is complete. Of course, nothing could be further from the truth. However, there is no doubt that having an effective marketing strategy is vitally important for success. So what makes a marketing strategy effective? There are two attributes that must be in place.
Perhaps the most important attribute is differentiation. The market strategy of a company must clearly differentiate it from the competition. The emphasis here is on “clearly”. It will clearly and uniquely identify a company from the views of all stakeholders, such as customers, suppliers, employees, and shareholders.
Second, an effective marketing strategy must build on a company’s core strengths. New strengths can be built or acquired, but it may take a long time before those new strengths are credible in the marketplace. An effective market strategy will highlight strengths that are already perceived and accepted by stakeholders. In essence, a company’s market strategy and its core strengths are strongly linked, both externally and internally, and each supports and strengthens the other.
Natural customer base
An effective marketing strategy must strongly attract a customer base large enough to support a company’s financial goals. There are cases where it strongly attracts an entire broad-based market. However, those cases are really rare. A company is more likely to need to conduct a market segmentation analysis to identify the customer segment or segments that will adopt the company’s market strategy and become the company’s natural customer base. The segmentation analysis must be deep enough to identify all the various market segments, along with the demographic attributes associated with each segment.
Buying factors
Buying factors can be thought of as “triggers” in the buying and selling process, encouraging customers to buy or discouraging customers from buying. Many companies never really address purchase factors. That is an error. A lot of work is needed to come up with an effective market strategy and identify a natural base of customers who will adopt that market strategy. That hard work can go to waste if companies don’t understand the factors that can cause customers to make positive or negative purchasing decisions. Often times, buying factors can be obvious extensions of companies’ marketing strategies and natural customer bases. However, it is important that companies recognize and understand these buying factors and adjust their approaches to the market based on them.
While cost reductions can alleviate stress for companies that are performing below average, strategic management is the answer to long-term growth and profitability. Defining an effective market strategy, coupled with a natural customer base and buy factors, is the first step on the road to better sustained performance.