Lluis Renart is a Marketing Professor, IESE Business School in Barcelona, Spain, and Visiting Professor, Strathmore Business School.
October 26, 2007: Leadership in the marketplace is an elusive concept, usually associated with a company having captured the largest market share, either in physical volume or in monetary terms. However, in some other occasions, the label of ‘market leader’ is associated with the most innovative, or the fastest and most agile company. It may be no longer true that the big fish eats up the small fish.
It may rather be true that the fast fish eats up the slow fish.
Over the years, we have witnessed an evolution of the concepts and ideas, the factors which seem to be generally accepted as antecedents or generators of market leadership.
Let us review some of them.
From the 1950s to the 1970s, the conventional wisdom was that leadership in the marketplace could be attained by means of designing and implementing a sound marketing plan. Such a plan was considered to be created by first defining the specific contents of the ‘Four Ps’, later evolved into the six elements of the Marketing Mix: demand analysis and segmentation; product or service, and brand; pricing; channels of distribution; sales team management; and advertising, promotions and public relations.
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These elements continue to be necessary and continue to be the basic building blocks of any marketing action plan. These six elements of a winning marketing plan had to be strong in themselves (a high performing sales team, or memorable advertising campaigns, etc.); but there was also a need for coherence of the whole.
Eventually, just designing and implementing a good marketing plan was considered no longer enough to allow a company to capture a market leadership position. A new research project was launched in 1970: the Marketing Science Institute (MSI) in Cambridge, Massachusetts, launched a project by the name Profit Improvement of Marketing Strategy, better known by the acronym ‘PIMS’.
Vast amounts of quantitative information on marketing plans and the subsequent profitability attained by different business units were introduced in a large data base, with the objective of finding out what marketing factors generated high profitability.
In a review article published by Robert Buzzell in the Journal of Business Research in 2004, the author describes the main research findings of PIMS: market share and profitability were positively related; there was a strong positive association between quality of each business unit product and its profitability; in mature consumer and industrial product markets, market pioneers enjoyed sustainable market share advantages vs. later entrants (even though such market pioneer advantages tended to decline over time); and there was a negative relationship between capital intensity and return on investment. It may be broadly said that PIMS dominated strategy research between 1975 and 1990.
Somewhat overlapping these years, a new paradigm in marketing thought seemed to start emerging: marketing was changing from a ‘transactional paradigm’ into a ‘relational paradigm’.
It was now increasingly feasible not so much to concentrate marketing efforts in capturing new customers (or mindlessly treating existing customers as if they were new customers each time they transacted with the company), but rather to concentrate on the existing, captured customer base.
More effort, and an increasingly higher proportion of the marketing budget should be geared toward the objectives of satisfying existing customers, attaining high levels of loyalty, developing a high-quality relationship with each one of them, and finally, maybe even facilitating the emergence of a community of loyal customers.
The members of such a community would not only maintain a long-term relationship with the supplying company, but would also communicate among themselves and maybe even organise and participate in various kinds of events around the focal company and its products. One often mentioned example were the owners and users of Harley-Davidson motorcycles, who organised ‘posse parties’, long-range motorcycle runs sometimes across the whole of the United States.
Creating a high quality, personalised relationship with each individual customer, or at least with the best customers, developing ‘one-on-one marketing’ would allow the company to attain two important results: first, to continue capturing new customers; but secondly, and even more importantly, to keep them loyal and satisfied for the long term.
Even though some companies have failed dismally when trying to apply relationship marketing strategies, some others have attained very high levels of success. For instance the Hewlett Packard division devoted to Large Format Printers (LFPs) in 1998 launched Designjet Online.
This came to be a highly successful, mostly online, relationship marketing programme which has allowed the company to create and sustain long-term relationships with more than a million LFP users located throughout the world.
This new relationship has resulted in a larger total worldwide market for LFPs, a higher market share for HP, and presumably has also generated higher levels of profitability, derived from the simultaneous increase in loyalty (repurchase) levels, and a decrease in some kinds of marketing costs, such as media advertising, marketing research, or customer service (individual customers extensively use low-cost, online, automatic self service mechanisms, instead of high-cost call-centre human assistance).
More recently, we find another indication of the fact that designing and implementing a fairly simple marketing plan or a longer term marketing strategy based on the 4 Ps or the six elements of the marketing mix is no longer enough to attain market leadership. This new indication is found in the fact that many new competitors who seem to be able to attain market leadership seem to do so by creating a completely new business model.
Such a business model is the configuration of a differentiated map of activities. Examples abound: luxury ice cream maker Häagen-Dazs; low-cost airlines such as Southwest Airlines in the USA or Ryanair and EasyJet in Europe, Gol in Brazil, etc.
Such a map of activities (not only marketing activities, but also design, manufacturing, finance, etc) is the result of difficult- to-make trade-offs: management must decide what the company will do or wants to become excellent at doing. Even more difficult, it has also to decide what it does not want to do or to become.
For instance IKEA sells modern, mostly Nordic design furniture, manufactured anywhere in the world, sold only at IKEA stores, to customers who accept not only the task of carrying the products home by themselves (whatever they bought), but who also do the mounting or assembling of the pieces of furniture bought, out of a flat package containing all the necessary parts and pieces.
One single company controls the whole process, from design to retail sale, a far cry from the traditional furniture sector where different independent protagonists or companies did the design, the manufacturing and the retail selling.
In other words, another characteristic of contemporary companies seemingly capable of capturing marketing leadership positions seem to be the increasing level of ‘verticalisation’. The same company controls the whole process, all necessary steps between product design and retail selling to final customers.
‘Controls’, incidentally, does not necessarily mean that the company does by itself all these steps. What it does mean is that the same company prescribes and controls the way these steps are performed, even if they are actually performed by a third party.
IKEA does not undertake the manufacturing of furniture. Contract manufacturers do the actual manufacturing. For the most part, McDonald’s does not cook and sell its hamburgers; franchisees do it, under strict McDonald’s specifications.
A parallel trend which seems to be a factor leading to contemporary market leadership is globalisation. As beautifully described by Thomas L. Friedman, in his acclaimed book The World is Flat, contemporary companies capable of escalating market leadership positions are frequently global companies.
That is, corporations capable of locating their activities wherever necessary in the world, in order to benefit from low costs, high efficiency and high levels of operational integration.
Again, such “global value chains” may be made up of parts or units which are organically part and owned by a corporation. That is, they are staffed by its own employees. Bur very frequently some portions are outsourced and carried out by external partners on a contract basis.
Within Europe, we have witnessed the relentless progress of regional integration. From an initial nucleus of just 6 countries, the European Union has become a fairly unified market of 28 countries. In May 2004, ten more countries joined the European Union. And on January 1st, 2007 Bulgaria and Romania were also admitted. At the time of writing this article, Croatia is making swift progress towards its admission. And as we all know, Turkey and the rest of the Western Balkan countries are also knocking at the door.
In a piece of research carried out by four IESE professors just before the 2004 enlargement, we saw how some Spanish companies were designing and implementing marketing strategies in order to generate the most advantage out of the enlargement of the European Union.
And some of them seem to be able to capture marketing leadership positions, at least at the European level, by swiftly and efficiently penetrating these new markets. For the most part, as we know, the new entrants were former communist countries. Therefore, there was a lot of marketing opportunity for fast and efficient Western European companies.
Let us consider the last factor contemporary companies seem to be considering: attracting, retaining and motivating the best teams of people.
Market leadership does not come easy. Companies need a certain level of material resources. And they certainly also need systems, equipment, all kinds of material things. But more and more managers are coming to see that the key factor is having a high quality human team, capable of designing and implementing some or all the above mentioned action plans.
More and more, top managers need to clarify the mission of their company, so that would-be managers and employees can identify and wholeheartedly adhere to it. And this kind of ‘organisational unity’ is only possible if top managers have clear ideas about their motivations.
It is true that companies and managers are moved by extrinsic motivations. In other words, they are moved because they will receive some kind of material reward, such as a well-earned salary. This is necessary but it may not be enough. Managers also need to have a certain level of intrinsic motivation.
That is, to enjoy what they do, to be able to learn and self-actualize themselves in their jobs. And finally, they must also have a certain amount of transcendent or altruistic motivation. They must perceive that their activity is not only self serving; that the company is not just geared towards maximising profits for the shareholders. Any company must be also orientated and strive to other stakeholders. It must fulfil a social purpose. And it must follow high ethical standards of operation.
The combination of these three kinds of motivations is what determines the level of motivational quality. And many top managers seem to be increasingly convinced that only companies and leaders with high motivational quality, with a sensible mix of all three kinds of motives, seem to be able to attract, retain and motivate the best teams of people. In turn, such highly and correctly motivated teams come to be able of attaining high levels of performance and market leadership positions.
There are many factors then that drive the attainment of leadership in the marketplace. Well designed marketing plans ; highly personalised relationships with key customers; creating differentiated activities that result in an entirely new business model; building global or regional value chains; all of these would serve Kenyan companies seeking market leadership well.
But in the final analysis, it is the quality of your people that matters most. A highly (and correctly) motivated set of teams may well be the ultimate driver of market leadership.
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