Managing strategic partnerships and positioning the firm between vendors and customers in the value chain with the aim of delivering value to customer is the new conception of marketing.
Changes are coming but “Marketers may ignore some important information in their environment simply because it is not consistent with their past experience.”
I Origins of the marketing management framework
II Managerial practice (reinforcement of networks of buyer-seller relationships)
III Changing role of marketing
I Early approaches of the study of marketing had no managerial orientation. Marketing was seen as a social and economic processes focused on the commodities and the marketing institutions through which products were brought to market.
In 1960, marketing was seen as “THE principal function of the firm because the main purpose of any business was to create a satisfied customer (Drucker 1954; Levitt 1960). Profit was the reward for creating a satisfied customer.
In the 70’s Marketing emphasised on profit maximization (Anderson 1982). The basic units of marketing analysis were transactions connected the firms with its customers and with other firms (Johnston and Lawrence 1988). Examples of analysis are:
· Economic analysis to find the point at which marginal cost equals marginal revenues (demand)
· Behavioral science models helping marketers to define the questions that worth asking
· Statistical analysis to test hypothesized relationships in the data that had not been hypothesized directly
The consequence of greater analytical rigor in order marketing to optimize problems was “the strategy, structure and culture of large, divisionalized, hierarchical organizations.” And the task of the marketing was:
1. To develop a thorough understanding of the market place
2. An optimal product mix (sales, advertising, promotion and distribution subfunctions)
In the 80’s, the concept of strategic business unit (SBU) due to a more global competition and rapid advances in telecommunications, transportation, and information sounded the death knell of standardized products and marketing as a centralized management function. Companies had to reduce costs through reorganization and restructuring assets. In order to respond quickly and flexibly to change in technology, competition and customer preferences, firms developed a wheel organization: where the spokes are “knowledge links” between a core organization at the hub and strategic partners around the rim (Badaracco 1991).
II Before considering the role of marketing in the new organization forms, some distinctions among types of relationships and alliances are necessary. Let considering the role of marketing function changes in firms regarding the continuum from transactions to network organizations:
1) Markets and Transactions:
In a pure market form of economic transaction, all necessary information is contained in the price so the marketing job is simply to find buyers. There has been a clear tendency for marketing theory to focus on the single event of a transaction, the sale, thus avoiding all human interaction. However some “transaction costs” are associated with the price paid, such as discovering, negotiating and contracting costs (Coase 1937).
2) Repeated Transactions:
In a frequent purchase of branded consumer goods, marketing is a key activity. Through advertising and sales promotion, marketing’s role is to guide product differentiation and to create preference and loyalty that will earn higher prices and profits. The importance of relationships in marketing is clearly seen in industrial markets where interactive databases enable rudiments of trust and credibility, which can be the foundation of a relationship:
L. L. Bean “Everything we sell is backed by 100% guarantee. … Return anything you buy from us at any time for any reason if proves otherwise.”
The sale is the result of the marketing process.
3) Long-term Relationships:
Even if long-term relationships have engaged buyers and vendors in buyer-seller relationships, the relationship was often arm’s length and adversarial, pitting the customer against the vendor in a battle focused on low price. The best example of those kinds of relationships is automobile industry: GM depended heavily on other vendors for almost 70% of the value of production (Womack, Jones, and Roos 1991). There were thousands of vendors for each item in a system that was fundamentally and intentionally adversarial.
4) Mutual, Total-Dependence Buyer-Seller Partnerships:
Japanese Kanban or just-in-time systems provided a new model: reliance on one or a few vendors for a particular part whose promise to deliver 100% usable product (quality), in quantities just sufficient for one eight-hour production shift, on tight schedule. Higher quality and lower inventory costs resulted from total reliance on a network of sole-source vendors in a system of total interdependence (Frazier, Spekman, and O’Neal 1988).
The Keiretsu are the predecessors of the networks and alliances in the Western world. They are complex grouping of firms with interlinked ownership and trading relationships. They are bound together in long-term relationships based on reciprocity. The trading partners may hold small ownership positions in one another, but to symbolize the long-term commitment of the relationship rather than financial gain. The key outcome of those arrangements is the stability of those relationships that contributes sharing information among the companies and promotes aggressive, long-term growth policies (Gerlach 1987).
5) Strategic Alliances
Strategic alliances are collaborations among partners involving the commitment of capital and management resources with the objective to enhancing the partners’ competitive position. They tend to create a separate entity to be managed by bureaucratic and administrative controls instead of internalizing the functions within the firms itself. Strategic alliances are closer to the hierarchy end of the transactions (market)-hierarchy continuum.
6) Joint Ventures
Joint ventures are established to exist in perpetuity, though the founding partners may subsequently change their ownership participation. The finiteness with its inherent flexibility is one of the advantages of strategic alliances whereas the problems of its parents firms are its disadvantages: creating partnerships and alliances and determining its core competence and its unique positioning in the value chain between vendors and customers.
7) Network (confederation)
The key functions of a network organization include:
· Development and management of the alliances themselves,
· Coordination of financial resources and technology,
· Definition and management of core competence and strategy,
· Developing relationships with customers,
· Managing information resources that bind the network.
An interesting paradox is that in their move toward strategic alliances, largest firms focus and specialize themselves in their core activities that represent their true distinctive competence, and find partners that can do what the large firm cannot do well. Strategic alliances are a primary tool in developing the firm’s core competence and competitive advantage.
To sum up II, there is a clear evolution of marketing functions. Far from arm’s length transactions marketing activities focus on long-term customer relationships, partnerships, and strategic alliances.
III Marketing sets the values and beliefs that guide the organization according different level:
1. At SBU-level: marketing business strategy focus on segmentation, targeting and positioning in defining how the firm competes and sets strategic alliances in its chosen market in order to deliver superior value to customers
2. At the operating level: marketing functional strategy focus on tactics, the 4Ps, allocation of financial, human and production resources to markets, customers and products in the most productive fashion
As we move down the levels of strategy, we move from strategy to tactic.
The role of marketing is threefold.
1. Assess markets attractiveness (customers’, competitive offerings to the firm) and potential competitive effectiveness)
2. Promote customer’s point of view versus companies’ constituencies (Anderson 1982)
3. Develop the firm’s value proposition (what the firm will not do)
“The relationships are the key. What is a successful brand but a special relationship? Who better than company’s marketers to create, sustain, and interpret the relationship between the company and its customers?”
“In the new economic order, clear distinction between firms and markets, company and its external environment, has disappeared ”(Badaracco 1991).
1. Marketing is the management function responsible for making sure that every aspect of the business is focused on delivering superior value to customers.
2. The business is a network of strategic partnerships among designers, technology providers… defined by its customers and not its products.
3. At business unit levels, marketing merge with strategic development function, with shared responsibility for information management and coordination of the network.
4. Relationship management skills have an increased importance in organizations regarding the new long-term strategic relationships with both customers and vendors.
5. The boundaries between management functions within organizations and between the firm and its market environment are disappearing. A partner can be simultaneously customer, competitor, and vendor, as well as partner!
6. Everyone in the company must be in charged with responsibility for understanding customer and contributing to developing and delivering value for them.