7-ELEVEN is a market leader because of its superior supply chain. photo by LEO M. SABANGAN II.
There is a saying that “If you give a man a hammer, he will see everything as nails.”
Similarly, when a person learns about the marketing mix (product, price, place and promotions) as a way to attain marketplace advantage, he may apply it without questioning the bigger picture for validity.
Below are two truths espoused by over 99 percent of marketers, but which present problems that are seldom challenged.
Old truth 1: To win in the marketplace, your marketing mix must be superior to that of your competition.
In the convenience store industry, players have mostly parity products and even higher pricing, yet 7-Eleven is a clear leader because of its superior supply chain and not because it has a superior marketing mix.
Its supply chain is exploited to the max with daily store delivery as each convenience store typically offers 2,000 items in a small 100-square-meter space.
With stores close to each other, it is regularly delivering three times a day to ensure fresher food—a lesson it learned from the Japanese who like to eat fresh sushi and sashimi.
7-Eleven has been able to exploit this advantage by redefining its differentiation to the franchisees (daily store replenishment) rather than to the consumers (parity product and higher prices).
In the business model framework, supply chain is part of a company’s operating model and does not tackle directly the usual marketing concerns.
Old truth 2: Partition the market via market segmentation and periodically talk to your users about what they like and dislike as inputs to your marketing plan.
The tutorial industry began with students with flunking grades as its core market.
Yet clearly, there are more non-customers than customers, or more students doing well than those at the bottom of the class, thus providing a bigger business opportunity, which a good marketing plan should include.
To improve market penetration then, marketers must speak with non-users whose opinion matters more to improve market penetration. As these two groups’ needs are different, so must the value proposition differ.
Ahead Tutorial has succeeded in tapping the non-users (students who want to get ahead even if they are already doing well).
Marketing strategy must be consistent with business strategy.
Differentiation, which should be the core of marketing, can be classified into four levels—two at the marketing strategy functional level and two at the business strategy level.
Level 1 is simply having a marketing mix differentiation where the marketers look at the market segment as is and attempt to optimize marketing mix to be the winning preference of consumers.
Level 2 differentiation is having multiple market segments where the marketers assemble a different market mix to satisfy a new segment they are entering, aiming to have winning participation in these market segments.
Level 3 differentiation involves growing beyond winning market shares, going for winning market penetration, by being the pioneer in a new category or sub-category instead of merely competing for brand preference.
Instead of doing the usual market-driven, brand switching, promo-focused tactics, it identifies the biggest unserved and underserved markets and formulates a market-driving strategy to shift the consumer’s preference.
Finally, level 4 differentiation is where a firm innovates its business model, to have a winning position in the marketplace.
Firms in level 4 combine the lens of marketing, strategy and innovation to find new ways to create, deliver and capture value.
The new business model escapes immediate retaliation as existing players tend to have a look-see attitude, not knowing what to do with a level 4 player.
In the hotel industry, many 5-star hotels compete in both levels 1 and level 2.
Westin prides itself in differentiating with its beds and bathrooms, while the Marriot Group competes in multiple segments.
With the entry of AirBnB, an online portal that connects hosts (condo owners) and travelers for cheaper lodging, a new market space (level 3) and a new business model (level 4) have disrupted the hospitality industry.
AirBnB has been valued at over $11 billion as a company, and it now wants to be in the entire value chain of the hospitality industry to include airport transfers and restaurant reservations.
Today, instead of starting at the marketing mix level and the market segmentation level, I teach clients how to look at differentiation from the entire business model level, both in the five interconnected elements of the offering model and the five interconnected elements of the operating model, incorporating a focus on unserved and underserved markets.
If marketers see differentiation from the same marketing plus strategy plus innovation fusion lens, then the result will be much more strategic.
(The author is chair of Mansmith and Fielders, Inc. Follow his Q&A blog at www.josiahgo.com. For comments and inquiries, please e-mail josiah@mansmith.net.)