Free Marketing Essays - Due to the changing nature of the modern business world the contexts and basis of marketing strategy
Introduction
Due to the changing nature of the modern business world the contexts and basis of marketing strategy and implementation is open to debate. Key debates can be seen for example in relation to the creation and maintenance of competitive advantages through marketing activities over the long term for organisations. The classic model and often a starting point towards an understanding of competitive strategy is outlined by Porter (1980) which suggests that competitive advantages can be generated most successfully when strategy is based on an analysis of five forces within an industry which are namely competition, new entrants, suppliers and buyers as well as substitutes. However there is considerable disagreement between academic work and practical situations in considering both the usefulness and applicability of the five forces model. There is however a strong case to be made that there is a need for marketers to evaluate the efficiency of corporate strategies in certain industrial contexts in creating and remaining competitive capabilities bearing in mind what are the established marketing principles of relevance identified and developed by marketing research. As such then the proposition that promotion strategies are a vital part of integrated marketing strategies and contribute to generating competitive position is a worthwhile one to explore. Furthermore for companies operating in intensive competitive environments both offensive and defensive competitive strategies are often used as marketing niches in the realisation of organisational goals, (Hooley, Saunders & Piercy, 2004).
Consequent to this then sales promotion which adopt price cutting as a tactic is argued as being a particularly aggressive way of creating a short sharp increase in sales volume. Examples of this such as ‘buy-one-get-one free’ tactics is identified as one of the most popular promotional methods used by supermarkets due to the strength it offers in terms of incentives to purchase to consumers, (Jobber, 2001). Competitive advantages generated at this stage though can be said to be affected largely by the industrial environment including general profit margins and suggests that competitive advantages might work less effectively due to a decrease in these margins experienced by the entire industry. Examples of this can be seen in the mature clothing retail industry particularly for discount and value added retailers. In this instance competitive advantages are less likely to occur through pure price deductions but rather as a result of an integrated marketing mix emphasising quality with value for money. A systematic understanding of the industrial environment hence allows marketers to develop appropriate promotion strategies based on available corporate resources and build defence and maintain competitive advantages in the face of competition.
Promotion strategy
The concept of strategy may be said to mainly relate to what constitutes the long term direction for a corporation. A marketing strategy in turn may be seen as focusing on means of satisfying customer demands with customer and consumer responses tend being the significant critical determining factors in choosing proper communicative tools in order to gain customer loyalty and contribute to long term corporate growth, (Blythe, 2003). According to Jobber (2001) sales promotion in terms of price cutting is often used as a short term tactic in order to obtain a competitive position however in some cases it can be a more strategic focus. For instance price cutting for new entrants in the sense of ‘money off’ deals and premiums are believed to be effective in achieving market share quickly in an aggressive way. It can also be valuable in building up brand awareness in a market particularly where a variety of established brands already compete. A critical point to perhaps consider at this stage is that because of decreasing prices in the industry with lowered profit margins due to factors such as intensive competition and declining consumer demand it is less likely that companies will be able to generate competitive advantages solely by cutting prices or adopting a low price strategy.
Therefore companies may seek to exploit price as an instrument in encouraging repeat purchasing and brand loyalty over the long run rather than for achieving short term sales goals since reduced inventories will need to correlate with corporate budget, (Drury, 2001). Based on this perspective the price decision relies largely on the quantity or namely the relationship between cost-plus pricing and potential sales volume thus an estimation of total costs should include a range of activities at all corporate levels. However when profit margins in the whole industry are low instead of adding certain percentages of profit margin it is more useful for companies to set up a total achievable target profit as a strategic goal. In doing so any competitive advantage is able to be maintained even if entire industrial profit margins are falling as a result of high market share leading to higher sales volume than other competitors (Low & Mohr, 2000). It is fair to say that the price cutting strategy used by market leaders which sustains significant market share is generally a more successful strategy in creating competitive advantages in their particular circumstances, (Jobber, 2001; Drury, 2001). On the other hand if new customers who are attracted by the sales promotion at the first stage are satisfied in terms of product quality and brand image then the long term benefits from price cutting are more likely to be positive. In contrast poor product performance resulting from or combined with lowered pricing will not achieve competitive advantage and indeed may also even damage the brand image in the long term.
Marketing strategy
It is clear that the promotion mix plays a vital role in marketing strategy however it is but one component which is to a large extent linked to, dependent and one which interacts with other marketing elements. One of the key marketing mix concepts namely the 4Ps framework suggests that along with price other factors including product, promotion and distribution contribute in a key fashion to the success of competitive strategy, (Hooley, Saunders & Piercy, 2004). It is important to mention that the term product in the marketing context not only refers to the physical entity but also intangible assets such as service and brand meaning associated with the organisation in question. In addition Pieters and Warlop (1999) suggest that brand as an indicator of quality allows customers to develop associations of self identity with the brand equity in question and therefore promotion in terms of price cutting has to be in line with the brand image projected as a vital part of a successful product mix. Research demonstrates that consumers tend to show more interest in the sales of their favourite brands and other studies suggest that price cutting promotions have no obvious durable effects on brand image (Kwok & Uncles, 2005). In other words this suggests that price cutting would seem only to generate short term benefits, nevertheless for companies in a declining industry who experience low profit margin price cutting is not only a promotional tool but is also a strategic instrument in corporate positioning in the industry, (Blythe, 2003).
In addition to the product competitive advantage is able to be generated at the distribution level where price cutting results in a requirement for just in time stock control in order to achieve the lowest costs possible in maintaining competitive capability during a price war. Allowing for this then there is a need for effective relationship management which is argued to be increasingly important in generating competitive advantages for organisations, (Egan, 2001). The price of products in the whole industry may fall even though consumer demands may increase as it is a reasonable proposition to see that fewer suppliers or new entrants will enter (Huang, 2002). Conversely there are potential opportunities for existing operators to reposition in the marketplace and in some cases market followers are able to achieve leading positions after a price war in the industry because of effective cost control and supply chain management. Based on this analysis the assumption of price as the only element in maintenance and creation of competitive advantage is an unrealistic one to make since consumer behaviour is complex in that they are affected by various factors in the decision making process related to the purchase of products. Particularly when the industry is at the mature stage exhaustive competition might result in low profit margins in the entire industry with the effect being that price is less likely to be a motivation for buying due to the low involvement of consumers involved in purchasing, (Solomon, Bamossy & Askegaard, 2002).
Competitive advantage
According to Porter (1980) competitive advantages are able to be generated based on the five forces in an industry since competition goes beyond the sense of pure price competition. For example in the ready-to-wear clothing industry in the UK due to the increasing concentration amongst retailers and the rising power of customers the whole industry has come under pressure from falling margins. At this point retailers in the discount and value adding market such as Primark seem to be satisfying customer needs by providing clothing goods at low prices at a certain quality level in such a way as to differentiate itself from the competition. Research has illustrated that while the entire clothing retailing industry has recently suffered falling profit margins Primark announced an increase in profit and turnover in contrast to predominant market trends, (FAME, 2005). This combination of cost leadership and differentiation is a major contributor to the success of Primark in maintaining its competitive position in the industry especially as new operators such as supermarkets have entered the discount clothing industry resulting in growing competitive levels in the low price clothing marketplace. This also corresponds to the competitive advantage model developed by Porter (1980) which suggests that differentiation strategy can not work effectively without cost control but rather it is a primary target to achieve in generating competitive advantages.
However this theory has been developed in the modern business context with researchers suggesting that competitive positioning strategy based on price, differentiation as well as technical quality, customisation and innovation allows firms to serve target consumers more effectively than competitors at all levels, (Piercy, 2002). It is reasonable to say that the development of technology is perhaps one of the key driving forces for decreasing prices in certain industries such as mobile communications thus offering high tech products at a lower prices given time for technologies to develop has become a principal feature of the modern business environment (Saad & Siha, 2000). Price cutting then in this type of industry is not able to provide competitive advantages while in industries with lower technique levels within the whole industrial context companies who are advanced in terms of R&D processes giving them better cost control and higher product quality are more likely to achieve competitive advantages from price cutting in tandem with the continuous improvement of products.
Conclusion
Due to the intensive competition for organisations in the global context companies have sought to exploit varied marketing tools in achieving competitive advantages and maintaining long term competitive positions in industries. However as detailed here it is useful to look at the efficiency of different marketing instruments as they operate within discrete industrial environments because of the different particularised characteristics and competition levels within different industries. The effects of promotion in terms of price cutting are critical bearing in mind internal corporate environments and capabilities such as financial resources along with external environmental factors including degrees of rivalry and competitive positions occupied in the industry. Research highlights that price cutting is oftentimes related to brand in such a way as that price cutting might have negative influences on brand positioning since price is often used as a vital indicator to determine quality by consumes (Jobber, 2001). It is also argued though that price cutting can be used as a strategic tool along with the use of integrated marketing instruments in building competitive position for companies by effective relationship management between suppliers, retailers as well as customers (Egan, 2001).
References
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