The market and competitive challenges confronting executives around the world are complex and rapidly changing. Market and industry boundaries are often difficult to define because of the entry of new and unfamiliar forms of competition. Customers’ demands for superior value from the products they purchase are unprecedented, as they become yet more knowledgeable about products (goods and services) and more sophisticated in the judgments they make. External influences from diverse pressure groups and lobbyists have escalated dramatically in country after country. Major change initiatives are under way in industries ranging from aerospace to telecommunications. Innovative business models that question the traditional roles of an industry are defining a new agenda for business and marketing strategy development. Companies are adopting market-driven strategies guided by the logic that all business strategy decisions should start with a clear understanding of markets, customers, and competitors.1 Increasingly it is clear that enhancements in customer value provide a primary route to achieving superior shareholder value.2 Consider, for example, Southwest Airlines’ market-driven strategy that has achieved a strong market position for the U.S. domestic carrier. The airline’s growth and financial performance are impressive. Although Southwest is the fourth largest U.S. airline, its market capitalization is greater than the total capitalization of AMR (American Airlines), Delta Airlines, and UAL Corp. Southwest’s revenues will approach $7.5 billion in 2002, compared with $4.2 billion in 1998. Net profits also are displaying strong records during this five-year period. Southwest uses a point-to-point route system rather than the hub-andspoke design used by many airlines. The airline offers services to 57 cities in 29 states, with the average trip being about 500 miles. The carrier’s customer value proposition consists of low fares and limited services (no meals). Nonetheless, major emphasis throughout the organization is placed on building a loyal customer base. Operating costs are kept low by using only Boeing 737 aircraft, minimizing the time span from landing to departure, and developing strong customer loyalty. The company continues to grow by expanding its point-to-point route network. Southwest Airlines illustrates several important characteristics of market-driven organizations. The management team has built a culture and developed processes for being market oriented. Southwest’s value proposition centers on offering customers on-time air travel
4 Part One
services at prices which are so competitive that Southwest has grown the short haul air travel market by attracting passengers from road travel. Its distinctive capability is the closely linked network of activities that enable the point-to-point system to operate very efficiently, and an impressive understanding of customer needs and priorities. Management has developed a team-oriented organization with a clear focus on customer value. The airline serves business and consumer customers who want low-cost, reliable air travel services. We begin with a discussion of market-driven strategy and its pivotal role in designing and implementing business and marketing strategies. Then we look closely at the importance and process of becoming market oriented. Next, we examine the capabilities of marketdriven organizations, followed by a discussion of creating value for customers. Finally, we look at the initiatives that are necessary to become market driven.
The underlying logic of market-driven strategy is that the market and the customers that form the market should be the starting point in business strategy formulation. “Considerable progress has been made in identifying market-driven businesses, understanding what they do, and measuring the...
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