Question: What is strategic marketing? Answer: Strategic marketing is a long-term planning approach for creating customer values to achieve a sustainable competitive advantage. That’s really simple. But just understanding the words of a definition is not the same as understanding the meaning of a definition.
This is reality for any university lecturer. We try by giving examples, use cases and so on to encourage our students to understand matters in depth. But in exams we often only ask for the wording of a definition. Since students are usually very smart, they learn it quickly and memorize definitions and formulas and laws and rules before the exam, because they know that simple reproduction is rewarded but more complex understanding hardly brings benefits. As understandable as that is, it is definitely wrong.
This is the reason why I wrote this article outside the scientific routines of giving definitions, sources and as many details as possible. This text is just for understanding. This text shall deliver the basic idea of strategic marketing and show how we can apply strategic marketing to any kind of business.
What is a strategy?
The term strategy comes from the military. In ancient Greece, the strategist was the general, the leader of the troops. What is the job of an army commander? Quite simply speaking: He determines the framework of action, he decides upon how to reach a goal (i.e. success) with the given means (i.e. resources).
Defining the allocation of resources to achieve a goal: that is the general task of management, too. Are management and strategy the same? No, otherwise you would not need two different terms. There are clear differences between management and strategy. Therefore, it makes sense to deal with the term strategy a little more intense.
The time factor: Strategy and planning
When thinking about strategy, the time factor is an interesting aspect. The present is fleeting, that is, the present is not really tangible to us. We can think, act, feel here and now. But as soon as we realize that, the present is already over. Why is that important? Because we have to realize that we can observe and interpret our world only in hindsight (in the past). This leads to the idea that a strategy – whether military or economic – is an observation of activities that have already taken place. A strategy is a pattern that is used to decide and act in organizations, regardless of whether that is what we want and what we think or what we plan to do.
Henry Mintzberg gave a vivid example of this perspective: in the beginning of the 20th century, Picasso painted essentially monochrome with the color blue. Art historians call this the Blue Period. If Picasso had been a company, we would call this phase not the Blue Period, but its Blue Strategy. Strategy is the result of activities; strategy is a consistent pattern of how organizations actually decide.
However, what interests us most in business is not the past but the future and how we can shape it. It’s not about strategy, it’s about strategic planning. Planning base on a goal that you want to achieve. These goals – and we owe this insight to Mintzberg as well – are either based on analysis i.e., breaking down a whole into its constituent parts, as we are used to do in the natural sciences, or on synthesis i.e. merging existing elements into something new, as we are used to do in the social sciences.
In the first case we talk about strategic planning, in the second case it is strategic thinking. Both are meaningful and necessary and we have to use both suiting to the situation. Strategic planning is something like a savings account: few opportunities, but hardly any risk. Strategic thinking, on the other hand, is more like investing in a start-up: everything is possible, from unicorn to bankruptcy.
Strategic planning needs vision
Analysis is the rule, which has different reasons. One of these reasons is the speed at which environmental conditions change. Planning should help us adapt to environmental conditions. If the environment hardly changes (stable conditions), we can assess very well by analysis which factors will result in what consequences. If, on the other hand, the environment changes very dynamically (keywords: digitization, climate change, globalization, etc.), analytical planning is not only of little help, but can even disguise necessary measures, so that one acts completely wrong, right up to bankruptcy.
Dynamics is a construct that derives from our understanding of time. When we think in quarters, the environment seems relatively stable even in dynamic times. If, on the other hand, we think across periods – in years, decades or generations – even comparatively-stable times are extremely dynamic.
This explains why in reality we need both: analytic-based strategic planning from which we can derive concrete measures, and synthesis-based strategic vision that sets the long-term direction.
About the different types of goals
Strategic planning and strategic vision both based on goals. Goals are a desired destination that we aim for in the future. Again, for a better understanding of the term, the time factor is essential. Conceptually, we must at least distinguish between four types of goals:
- Operational goals (intentions): They are now relevant and we process them through so-called ad hoc decisions (intuitive or habitualized). Example: My goal is to eat something. I buy a chocolate roll at the bakery.
- Tactical goals (objectives): They are relevant within a period of time (e.g., month, quarter, fiscal year, etc.) and we handle them through analytic development of alternatives and formalized decision. Example: My goal is to eat healthier. That’s why I bring wholemeal bread, cheese and vegetables from home and make a shopping list for them.
- Strategic goals: They guide our behavior across periods and serve as guidelines within which we implement our tactical and operational goals. Example: My goal is not only to eat healthy but also sustainably. I would like to consume organically produced food with a good eco-balance, avoid meat and industrial sugar as much as possible, drink less alcohol and lemonade, etc. These guidelines guide my behavior in the longer term.
- Visionary goals (aspirations): They dictate where I want to go in the long term and are something like the „cardinal direction“ or the „fixed star“ that guides the general direction of my actions. Example: I want to live a healthy and happy life. That means more than just nutrition. We also have to think about work-life balance, meaningfulness, sport etc. and all of these categories influence each other.
Quantitatively, the operative goals are most common; In terms of quality, the visionary goals are most important. Incidentally, visionary and operational goals as cornerstones of the scale are always there – even if they are not explicitly written down or can not even be named. Operational goals structure our everyday life, visionary goals roughly orient our world view (it is therefore about basic motives and sense, which are the foundation, for the way we act and behave). Tactical and strategic goals are not given. We have to work them out explicitly. That makes management necessary.
Characteristics of goals
Goals are central to all types of organizations. By organization we mean a special form of communication, a communication that is sustained and continually renewed through decisions (for example, about hierarchies and processes). That sounds strange at first, which is why we have to supplement what we mean by communication: the elicitation of co-ordinated behavior between social entities. Organizations are a special form of communication because they enable coordinated behavior between individuals despite their individual goals.
Organizations are the result of a formal foundation and serve a defined purpose. This purpose may be limited in time, but need not (as in churches, police or schools). The purpose of business organizations is to make profit by providing scarce goods and services based on resources. In other words, the organization uses resources (money, working time, material etc). in order to create scarce goods and services that lead to a value that is higher than the cost of the resources used. How do you do that? By „translating“ the static organizational purpose into dynamic organizational goals. Goals, other than purposes, are always finite by definition. Therefore, they divert our focus from what-questions (making profit) to how-questions: How do we realize our purpose?
Goals have no value in themselves; they are open about their results and their evaluation in the future. Today, when we set the goal, we do not know whether the goal is good or whether we are actually achieving it with the planned resources. But that is not critical at all, because, beyond their concrete content, goals offer a number of very practical benefits structurally. Perhaps the most important is that: Goals make it possible to transfer uncertainty (about the future) into calculable (ie quantifiable) opportunities and risks. That’s what makes investment attractive (I pay today to have more later). Moreover, it is only through this transfer of vague uncertainty into assessable opportunities and risks that planning makes sense at all.
Without goals, no planning. In turn, planning itself starts at the desired target state and attempts to structure the path from the current situation to the desired situation by means of suitable steps. This means that goals are essential for the efficient use of resources. One last aspect: goals are also important for the motivation of employees. Big goals unlock high performance.
No strategic planning without competition
In addition to the time horizon (orientation over several periods) and the alignment with goals, strategic planning needs a third factor: competition. Even as a monopolist, I can plan my future, can set goals and implement long-term projects, just think of the pyramid construction, the infrastructure of the Roman Empire, the castles and churches of the Middle Ages or public infrastructure projects nowadays. Most of the time there is no competition and without competition there is no need for strategic planning. The essence of the strategy – to win a battle – is the orientation towards the opponent.
Competition as the dominant form how society deals with scarce goods emerges in the 20th century. After the two world wars, competition became the central paradigm of the market economy since the 1950s.
Only since that time has the concept of strategy also entered the economy. First works, e.g. by Philip Selznick and Alfred D. Chandler, depict the relationship between inner order (i.e. the interdependency of structural and procedural organization) and external forces. The organization must adapt to the uncertain and dynamic environment. We realize this adaption process by strategic planning and therefore the structure of the company is the result of strategic planning.
Based on this insight, a number of important planning tools emerge in the following years: Ansoff’s product market matrix and the SWOT analysis developed at the Stanford Institute each combine the inward-looking organizational view with the outward-looking market perspective. The Portfolio Allocation of the Boston Consulting Group then switches completely to the outside view and also Porter goes with his Five Forces. Competition is the crucial dimension for understanding strategic planning.
Strategy and management
Summing up this discussion of the strategy concept, let us again point out the difference between management and strategy. According to Fredmund Malik management is the transformation of resources into benefits based on the analysis of the initial situation, the formulation of a goal state, and the allocation of resources that allows performing activities that help us reaching our goal.
In this sense, management is a very widely applicable concept: You can manage a company, a department or yourself. You can manage projects and products, customers and suppliers, real estate and investments, government agencies and institutions. Management only depends on three simples steps: Where am I now? Where do I want to go? How will I get there? Management is not an intellectual challenge. Management is an implementation challenge. Ultimately, the quality of implementation (that’s the result) will decide whether I’m a good or a bad manager. Management is craft.
Strategy (i.e. observable patterns from the past) and strategic planning (determining which future one expects and how to adapt to it) are special cases of management insofar as they apply the management rule of three for one particular task: to create competitive advantages. The challenge is to plan (static) activities that promise the greatest possible success in a dynamic environment.
Why do we need economy?
Why is there economy? Humans as well as animals are quite similar in one thing: they have to actively take care of their survival. They need food, they have to protect themselves against dangers, they have to reproduce, and they have to make sure that their offspring grow up healthy and safe. Because environmental conditions are not stable (we just think of the seasons), humans and animals both must be prepared for the fact that important things are not permanently available in sufficient quantities. Many things are scarce.
Dealing with scarce things is the central task of the economy. The word economy derives from the Greek words oikos (house) and nomos (law). So economics is quite literally: the rules by which we run our household, the rules of how we manage the handling of scarce goods.
How to ensure the supply of scarce goods? From the history of humankind we learn that there are very different procedures for it:
- Taking care of oneself (subsistence)
- Hunters and gatherers (the family group [pack] procures all necessary resources around a fixed center [district])
- Nomads (the family group follows the resources)
- Agricultural village communities (one produces for one’s own use and shares the goods)
- You gain access to scarce goods from outside the system (i.e. not economically)
- Violence, subjugation, war (from the pharaohs to colonialism to Hitler and the mafia)
- Family ties (Bella gerant alii, tu felix Austria nube!)
- You exchange goods and services (transaction)
- Goods for goods (barter)
- Goods for money
Markets and prices
In modern societies, the latter system has prevailed. We procure goods against money payments. We raise money through the sale of goods and services. For this to work smoothly, we need a process that captures the value of goods and services. We call this process pricing. Pricing is ultimately a negotiation that comes from two positions: the seller’s asking price and the buyer’s bid price. The results of the negotiation may be a mutually agreed value that leads to a traded price. Traded prices are negotiation results that quantify the socially measured value of goods and services. Traded prices enable transactions. Prices realize the voluntary exchange goods and services by using money as a medium.
The supply of scarce goods is today regularly a result by voluntary exchange, whereby the value of goods is set socially. Value is not something that is inherent in the good. Value is the result of negotiating the price that is paid. These price negotiations are results of the match between supply and demand and we observe them through paid prices. We call this construct a market: a process in which exchange relationships (transactions) take place because of prices negotiated between supply and demand.
What is marketing?
That’s where marketing comes into play. The term marketing developed in the early 20th century, and one of the most catchy definitions of marketing dates back to that time. Ralph Starr Butler described 1910 marketing as all that „the promoter of a product has to do prior to its actual use of salesmen or advertising.“ The emphasis is on the word „prior“. Marketing is not, as has long been taught in the German-speaking world, synonymous with sales as the third major operational function alongside production and finance. Rather, marketing is all I have to do before I can sell anything, all I have to do before I get money for my offer.
If you think about it, one could assume that marketing is nothing more than a synonym for corporate management in general. But here too, if we use different terms, they usually mean different things. Marketing is based on the idea of markets (relatively free pricing between sellers and buyers). Markets, in turn, are based on the idea of competition. Without competition – i.e. in a monopoly-like situation – free pricing is not possible. Competition is a structural element of markets.
So, our first finding is that marketing is necessary in those industries where price formation occurs in the market and therefore a competitive structure can be assumed. This is not the case everywhere; in Germany, for example, one thinks of sectors with fixed fee systems (doctors, lawyers, architects), industrial subsidies (agricultural sector) or areas in which the state essentially provides the service (education, security, broadcasting). There are companies that do not operate in line with the market and, of course, we need to manage those businesses, too. They can use marketing, but they do not have to.
A second perspective concerns the actual processes in companies that compete in accordance with market mechanisms. These companies also have to deal with many problems in the day-to-day business, which have nothing to do with markets, such as legal issues, accounting and taxation, data protection, IT infrastructure, security, etc.). Marketing, and this is our second finding, is only necessary where it has a direct impact on the intended transaction: the sale.
The essential term for understanding marketing is value. Marketing is the discipline in business management that deals with creating and offering value to customers. Creating value – that sounds like companies can do it on their own. But value is something that is socially generated, that is, nothing that is part of the product or the result of the manufacturing process. Value arises outside the company at the customer, who individually (what needs are urgent) and socially (what others think about the offer) assesses the available goods and then uses his scarce resources to buy one and not the other.
This evaluation process differs from the pricing process that takes place under market conditions. Although the value of a service can be synchronized with pricing, it does not have to. We decide in the social sphere about the value of tangible and intangible assets. Value is quantified in the market by prices based on transactions. Qualitatively, however, value is not created in the market, but in the public, as people attribute valuations to matters. The value of a hike in the mountains or a day by the sea, the value of Beethoven’s Symphony No. 9 or a poem by Goethe, the value of peace, happiness or contentment, we do not measure in prices, but evaluate it in the sense of appreciation. This review is done in public and is observable as public opinion. Walther Lippmann (1922) describes public opinion as the pictures in our heads of the world beyond our reach. And these pictures act as the director of the evaluation process.
Where do these action-guiding pictures in our heads come from? They arise from observation (of other people, but also as „artificial“ observation, such as watching movies, reading books, etc.) and interaction (i.e. dialogue with our friends, colleagues, the family, etc.). Observation and interaction lead to an individual understanding of what something is worth, thus forming the public perception of matters of all kind. And here – again, the factor time plays into it – we use two methods, namely, once learned from the past, what we describe with the term image (or brand) and what refers essentially to artefacts. On the other hand our expectations about the future, what we describe with the term reputation and what essentially refers to social units (people, companies, institutions, etc.).
Marketing: The great transformation
What creates value for the customer in a transaction is ultimately still a result of entrepreneurial activity. But it’s not all the company does, it’s just parts. In the value chain concept introduced by Porter, this corresponds to the primary activities of purchasing, production, logistics, sales and service. Or, to quote Philip Kotler, „The marketer is trying to get value from the marketplace through offering value to it. The marketer’s problem is to create attractive value „(from:“ A Generic Concept of Marketing „, 1972).
The basic insight into the understanding of marketing was provided by Theodore Levitt in his seminal article „Marketing Myopia“. Here he very vividly describes the prerequisites for creating value: namely, the change of perspective within the organization from an inside-out view (the guiding idea of Scientific Management) to an outside-in view. Customers do not buy products and services (what we offer). Customers buy their personal benefit (what they want). This is exactly the opposite of what is still often done today in marketing, namely to understand markets as a specific product-customer combination (e.g., the mid-range SUV market). Levitt argues for the opposite: to think markets big (that would be in this case: the market for individual mobility). The customer is the focus and from there we have to plan and develop everything else.
At its core, we are talking about a transformation process. A transaction is an exchange of money for goods and services. An exchange is an action. Actions are purposeful activities based on motives (which are stable in the longer term and based on the individual itself) and motivation (short-term activation of a specific motive). In economics we call this constellation a need. Needs are, so to speak, the fundamental drivers of our economic activity for the perception and elimination of scarcities. Marketing tries to transfer such basic needs of customers (e.g. „to be full“) into the concrete want for a product (e.g. „I would like to have a hamburger with fries“) and to combine these want with purchasing power and thus generate demand (e.g. „I’m going to McDonald’s now and buy me a Quarter Pounder with cheese meal“).
How does marketing work?
We can only develop activities in four fields of action in order to make this transformation process as profitable as possible, depending on the competition:
- Configuration: Measures that directly affect the product or the offered benefit bundle, i.e. the qualitative value (equipment features, measurable performance features, supplementary services, etc.)
- Valuation: Measures that directly affect the quantifiable value, i.e. the (asking) price itself and the procedures with which we set up the payment process (leasing, total cost of ownership, discounting, payment methods, etc.)
- Facilitation: Measures concerning the access to our value offer or in other words: our way to the customer. We have to decide whether to sell directly or through intermediaries, where to sell, and how easy or difficult the access to the product is.
- Symbolization: This field of action deals with equipping the factual value offer with symbolic values and with the cognitive anchoring (awareness) and affective anchoring (positioning) in the minds of the customers. We add meaningfulness to the elementary value proposition e.g. through the brand, through design, through recommendations, through semantic upgrading, through awareness etc.
It is only these four fields of action on which we can develop activities that generate value for the customer. In practice, this four-matrix is known under different names: as the four marketing Ps (product, promotion, price, placement), as the four Cs (consumer, communication, cost, convenience) or as SIVA formula (solution, information, value, access). But these names are just labels. The underlying idea is the same: What (factually and symbolically) do I offer where and under what conditions?
Which dimension ultimately provides the most important reason for the purchase process depends on the industry. For beer, e.g. is the availability in restaurants and pubs of central importance (facilitation). In fashion, the symbolic value is the triggering element (symbolization). For flights, the price is often decisive for the purchase. And for machines, the focus is usually on the product specification (configuration). But no matter what industry you are in, there are always all four dimensions involved.
Without knowledge everything is nothing
The fields of action in marketing describe what you can do. The key question, however, is how to do it in order to gain a competitive advantage under dynamic environmental conditions. So, we almost inevitably go into the question of how to develop values for customers in relation to the competition, or in other words: how to strategically plan marketing.
For this, we have to combine the four fields of action in marketing with knowledge. We generate this knowledge from different perspectives:
- intentional internal view (of our own idea about our company: what is our task or our mission)
- external view on the current market participants (how do our competitors and current customers behave, how do we stand in this context, i.e. market research)
- structural external view of relevant developments in the environment
- synthetic external view on our idea of the future (how can we benefit from it through innovations, what is our vision)
The internal view is essentially determined by the desired position in the market. Treacy and Wiersema call this the value disciplines and distinguish three distinct approaches: product leadership (the best product for a clearly focused clientele), customer intimacy (the best understanding of the customer’s situation and willingness to help clients succeed) or operational excellence i.e. the best processes and thus usually the best cost situation that can be used to become the price leader at the same time. The inner view, even though it has little to do with the customers at first, is the crucial matrix within which the organizations make decisions.
In the analysis of the outside world, the first question is: What business are we really in? To address the marketing myopia that Levitt diagnoses, we first need to understand the basic needs that motivate customers and, in this context, identify the various competitive classes (for example, a movie theater offers out-of-home entertainment. This need to have a good time outside the home is also provided by e.g. restaurants, theaters, sports stadiums, concert halls etc.). At this analysis level, we gain relevant knowledge to generate the transformation process from need to want to demand.
A second step in the analysis is the understanding of the current market situation, i.e. the direct competitors who sell comparable products like ours. What are their portfolios, which distribution channels do they use, which pricing models and which symbolic added value do they offer? Also, a lot of insight into the actual situation provides a market share overview and in particular the permanent tracking of the development of market shares, in order to gain learnings about the effect of marketing measures.
The third analysis block in the current market situation deals with the customers. There are two ways of doing this: Market segmentation attempts to create homogeneous customer groups by means of quantitative methods (for example, sociodemography, gender, place of residence, income, etc.) and to distinguish them from other groups (external heterogeneity). Within a market segment, on the other hand, one can try to use qualitative methods to describe different customer groups in an ideal way by making buyer personas.
The structure of the social environment in which the company operates can be grasped in various dimensions. With regard to the four central perspectives, this environment observation is known as a PEST analysis:
- Political framework (regulation, taxes, tariffs, subsidies, etc.)
- Economic framework (business cycles, access to resources, inflation, interest rates, etc.)
- Social framework (population, cultural values, education, security, etc.)
- Technological framework (automation, artificial intelligence, digitization, access to research facilities, etc.)
From our own intentions and the results of the various analyzes, a vision can finally be developed. The vision can be combined with the synthesis of innovations. This means that we design new services based on insights and assessments of future developments. This often happens by merging already existing elements into a new benefit package. Such innovations are possible in four dimensions:
- Product (GPS navigation, multi-touch control for mobile phones, e-cigarette, etc.)
- Process (build-to-order, mass customization, self-checkout etc.)
- Marketing (franchising, e-commerce, leasing etc.)
- Organization (Lean Management, Business Intelligence, Agile Management etc.)
The core idea of innovations is to achieve a unique position through novel value propositions and thus temporarily to occupy a monopoly position. Or as W. Chan Kim and Renée Mauborgne describe it metaphorically: to leave the blood-soaked red ocean of direct competition and sail into a fresh blue ocean.
Let’s bring it all together: So what is strategic marketing?
When we talk about strategic marketing, we are talking about
- Creating value for our customers (the what)
- by a longer-term planning approach (the how)
- to achieve sustainable competitive advantages (the why)
Let us concretize these three elements. When we speak of creating value for our customers, we mean:
- Radical changeover from the inside view (organization) to the outside view (customer)
- Understanding the transformation process of needs into wants and from wants into demand and
- Understanding, that value judgements happen not in the market but in the public. Building on that we need the
- Application of the complete marketing mix
- Product configuration
- Pricing model
- Placement (the way to the customer)
- Promotion (awareness and symbolic added value)
- Under the premise of a dynamic environment (other companies also want the money from our potential customer and develop appropriate plans and activities)
The longer-term planning approach includes a number of tasks that we must work on as comprehensively as possible:
- Determine the initial situation by
- defining our value discipline and our mission
- analyzing the market (need definition, competitive environment, market shares, market segmentation, buyer personas)
- analyzing the relevant trends and circumstances in the environment (PEST)
- Develop ideas about the future
- regarding our role in it (vision)
- regarding innovative value proposition (blue ocean)
- Set goals,
- which are formulated SMART
- that transform uncertainty into assessable opportunities and risks
- that motivate our employees and other stakeholders
- that guide our actions for several periods
- Work out activities that bring us to the desired destination
Finally, sustainable competitive advantages are the reason why we need strategic marketing. We do not need marketing everywhere and in every context. But marketing is necessary and the central task
- when we are in industries where performance and pricing are negotiated relatively freely (competition) and
- within divisions that directly influence value creation for the customer
West, Ford and Ibrahim point out that strategic marketing can be solved in completely different ways. They distinguish four approaches that are used in practice:
- Thinking First (rational and thus learnable and scalable planning process)
- Seeing First (holistic approach based on experience and knowledge, highly person-dependent, only suitable for small and medium-sized enterprises)
- Doing First (iterative trial and error, risky but fast, especially suitable for start-ups)
- Simple Rules (few, simple and clear rules to decide on, especially in very dynamic environments)
But whatever you do, competitive economic behavior requires strategic marketing, however organized. Ultimately, only success counts. Erwin Dichtl (1987) told the following parable: „Two hikers suddenly find themselves facing a hungry bear in a forest clearing. Quickly one changes his shoes. His companion considers this pointless. ‚Replacing the boots with sneakers does not help you; the bear is always faster than you. ‚“That’s not the problem,“ the other replies as he runs away, „the key is that I’m faster than you.“
Economic success, even if one does not always realize that, is the result of the at least partial victory over the competition. If my value proposition works better than my competitor’s one, the money (or a monetary benefit such as data, attention, etc.) of the customers comes to me and the competition goes blank. Strategic marketing is economic warfare. The weapons are the value propositions that we create. And in order to construct and deploy it as best we can, we need longer-term planning on how to create values for our customers, with whom we can achieve sustainable competitive advantages. That’s what strategic marketing is all about.
Picture Credits: By Karine Germain [Licence] via unsplash.com
