Competitive positioning and the resource-based view ...

Journal of Strategic Marketing

ISSN: 0965-254X (Print) 1466-4488 (Online) Journal homepage: http://www.tandfonline.com/loi/rjsm20

Competitive positioning and the resource-based view of the firm Graham Hooley , Amanda Broderick & Kristian Möller To cite this article: Graham Hooley , Amanda Broderick & Kristian Möller (1998) Competitive positioning and the resource-based view of the firm, Journal of Strategic Marketing, 6:2, 97-116, DOI: 10.1080/09652549800000003 To link to this article: http://dx.doi.org/10.1080/09652549800000003

Published online: 28 Jul 2006.

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Date: 15 May 2016, At: 03:15

JOURNAL OF STRATEGIC MARKETING 6 97-1 15 (1998)

Competitive positioning and the resource-based view of the firm GRAHAM HOOLEY A N D A M A N D A BRODERICK

Aston Business School, Aston University, Birmingham, B4 7ET UK KRlSTlAN MOLLER

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Department of Marketing, Helsinki School of Economics, Runeberginkatu 14-16, FIN-00100, Helsinki, Flnland

Two apparently contradictory paradigms have come to dominate the strategic management literature over the last decade. The resource-based view (RBV)of the firm seeks to explain sustainable competitive advantage through the rent earning capability of internal scarce resources while the marketing paradigm stresses the need for external market orientation to achieve competitive success. This paper reconciles the two through the concepts of competitive positioning. It develops a hierarchy of marketing resources, assets and capabilities and discusses how these can be deployed to achieve alternative competitive positions. A research agenda is proposed. KEYWORDS: Competitive positioning; the resource-based view of the firm; marketing capabilities; marketing assets; competitive advantage INTRODUCTION Two main themes have come to dominate thinking about marketing strategy in the 1990s: market orientation and the resource-based view (RBV) of the firm. While in some respects contradictory (the former emphasizing the need to base strategy on external, market considerations and the latter on internal, organizational resources and capabilities), these two approaches can be reconciled through the concepts of competitive positioning. Positioning decisions seek to find a match between market requirements and company abilities to serve them. Despite earlier theoretical development of the marketing concept (see, for example, Alderson and Cox, 1948) it was not until the early 1990s (see Hooley et al., 1990; Kohli and Jaworski, 1990; Narver and Slater, 1990) that researchers began to concentrate on clearly defining and measuring market orientation. From these studies and the refinements that followed (Hart and Diamantopoulos, 1993; Slater and Narver, 1994; Greenley, 1995; Jaworski and Kohli, 1996) a number of conclusions emerged. Research has suggested that companies with (1) high calibre, organization-wide generation of market intelligence pertaining to current and hture customer needs, (2) sharing and dissemination of that intelligence across the organization and (3) organization-wide responsiveness to those market needs perform better in the market-place. The second theme of recent years is the RBV of the firm, which posits that strategy (and subsequently performance) is dependent on historically developed resource endowments. As 0965-254X @ 1998 Routledge

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with market orientation, the lineage of the RBV can be traced back over four decades (see Penrose, 1959) but has received renewed attention in recent years (see Barney, 1991; Grant, 1995; Wernerfelt, 1995). Two main approaches to resources have developed. First, the resource-based approach, which focuses on explaining the rent earning capability of resources (see Amit and Schoemaker, 1993). Second, the dynamic capabilities approach which examines how resources and capabilities are developed in a firm context (see Mahoney, 1995). These two streams of research - market orientation and the RBV of the firm - form relatively independent literatures. We argue that market orientation research has, by and large, reached its peak. By operating at a high abstraction level (seeking a single scale composit measure) and being essentially static (measuring current orientation rather than its deployment), the market orientation stream alone does not provide detailed guidelines on how to develop effective strategic postures at the company level. The RBV, on the other hand, while embedding strategy h n l y in capabilities, runs the risks of myopia in rapidly changing, turbulent environments. We propose that the competitive positioning perspective provides an important avenue for understanding the competitive behaviour of organizations, serving to draw together these two streams into a coherent foundation for strategy formulation. As markets have become more crowded and customers more discerning and varied in their demands and expectations, so the targeting decisions facing companies become more critical. Competitive positioning decisions embrace identification of a target market or markets where the firm will compete - and the competitive advantage that will be pursued in serving those targets - how the firm will compete (see Hooley and Saunders, 1993). The positioning perspective recognizes that for resources to be leveraged for economic benefit, it requires their application in the market-place. At the same time, it also recognizes that if that application is to be sustainable in the face of increasing competition, then competitive advantage must be built on distinctive resources and capabilities (Hamel and Prahalad, 1994; Webster, 1994). The purpose of this paper is to explore the relationships between resources and positioning. First a summary of the RBV literature is presented. This is then related to the generic positioning alternatives open to firms in an attempt to hypothesize the key resources required to achieve each position. A research agenda is then suggested to integrate the positioning and resources approaches to strategy further.

THE RBV O F THE FIRM The RBV has been extensively summarized in the contemporary strategy literature (see Grant (1995), Mahoney (1995) and Wernerfelt (1995) for recent, comprehensive summaries). In essence, resource-based theorists suggest that for strategy to be sustainable it needs to be embedded in the firm's resources and capabilities. Indeed, Grant (1995) went further: 'In general, the greater the rate of change in a company's external environment, the more it must seek to base long term strategy upon its internal resources and capabilities rather than upon an external market focus' (p. 117). Examples are cited of the typewriter manufacturers faced with the microprocessor revolution of the early 1980s. Grant (1995) suggested that only two alternatives faced the incumbents: either pursue the traditional market and attempt to acquire the technology necessary to serve the word-processing needs of their customers or seek other markets where their existing competencies and capabilities (and marketing assets of brand reputation) could be exploited. While Olivetti's transition &om typewriter to PC manuhcturer is perhaps an example of the former, other companies focused their attention on the printer

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market where their existing resources were more useful. In reality, of course, there were other altematives open to typewriter manufacturers, chief of whch might have been to pursue strategic alliances with other finns who had the microelectronics capabilities they lacked. Indeed, success in the printer business now also requires microelectronics capabilities. A number of definitions and classification schemes of resources have been suggested. Wernerfelt (1984) described them as anything that can be thought of as a strength or weakness of a given firm. Amit and Schoemaker (1993) defined them as stocks of available factors that are owned or controlled by the firm. Grant (1991) saw resources as inputs to the production process. Barney (1991) defined resources as a bundle of assets, capabilities, organizational processes, firm attributes, information and knowledge. These resources can be broadly categorized as tangible and intangible and consist of financial, physical, legal, human, organizational, relational, technological and informational assets, slulls and competencies. A basic distinction, drawing on Penrose's (1959) seminal ideas, has been made (Mahoney, 1995; Kamoche, 1996) between assets and capabilities. This distinction was perhaps most clearly articulated by Day (1994) who suggested that assets are the resource endowments the business has accumulated (e.g. investments in scale, plant, location and brand equity) while capabilities are the glue that binds these assets together and enables them to be deployed advantageously. The latter are complex bundles of skills and collective learning, exercised through organizational processes, that ensure superior coordination of functional activities. In what follows we take resources to contain both assets and capabilities. As is common in most of the strategy literature (e.g. Prahalad and Hamel, 1990; Day, 1994) we use the terms capabilities and competencies interchangeably. Figure 1 proposes a typology of resources. The typology is briefly explained below. The focus of the remainder of the paper is then on marketing assets and capabilities relating these to competitive positioning alternatives.

Organizational assets As defined above, assets are resource endowments the firm has accumulated over time and now has available to deploy in the market to create competitive advantage. Assets are distinct &om capabilities as they are not activity chains or processes. A useful distinction is between tangible and intangible assets (Mahoney, 1995). Tangible assets can be touched, smelt, heard, tasted and/or seen. They occur as physical assets on the firm's balance sheet. Often they can be traded between firms. In 1996 an 'asset swap' between two UK construction firms, Tarmac and Wimpey, resulted in Tarmac acquiring the quarrying business and mineral resources of Wimpey, while Wimpey acquired the house building division of Tarmac. Both firms were then able to focus their activities on their core businesses. Intangible assets, on the other hand, do not assume physical shape and often exist in the heads and minds of people. Brand names, for example, while existing in printed form, are essentially intangible assets that only assume value when interpreted by customers to mean 'value for money', 'up-to-date' or 'dependable'. Intangible assets such as brand names can often affect the value of a business significantly. In the 1980s, the Swiss confectionery multinational NestlC paid approximately six times the book value in its acquisition of the UK firm Rowntree in recognition of the future earning potential of the latter's strong brand names such as KitKat and Yorkie. Increasingly firms are seeking to put a value on their brands and other intangible assets and include them on their balance sheet.

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In addition to the chstinction on the basis of tangibility, assets can be grouped depending on their main source or origin. Physical assets, such as land owned and mineral rights controlled, stem &om purchases, often over considerable periods of time. Financial assets arise from past and current operations. They can be tangible, such as cash in hand available for investment or operations. Microsoft, for example, is said to have approlcimately US$7 billion in cash reserves available for investment in new businesses, such as developing Internet-based products and services. Indeed, the Economist (14 June 1997) reported the spending of $1 billion of this reserve on taking a stake in Comcast, America's fourth biggest cable operator, to develop interactive and video services. Financial assets can also be less tangible, such as credit worthiness or credit rating, which is essentially judgemental but wiU &ect the firm's ability to borrow at competitive rates. Operations assets include the plant and machmery to make physical products or the hardware and software to provide customer senrice (tangible) together with the systems and processes adopted to ensure consistent quality and delivery on time or to specification (intangible). Human assets include the people employed by the firm (tangible) and their personal qualities, traits and abilities (intangible). The most important marketing assets are often the intangible ones. These have been referred to as customer-based assets (see Hooley and Saunders, 1993) and exist through the relationships the firm and/or its products have built with customers (see Christopher et al., 1991) and distribution intermediaries. They are primarily in the minds of customers (what the offer means to the customer) and include brand name and reputation (Aaker, 1991), customer loyalty (Payne et al., 1995), country of origin (Hooley et al., 1988) and current market position (Treacy and Wiersema, 1995). Supply chain marketing assets include the distribution networks created (such as that used by Federal Express in the US to enable next day delivery) and distinctiveness in operations (such as Dell's direct marketing of PCs to businesses rather than trading through intermediaries). Legal assets include the (tangible) patents and copyrights owned by the firm (particularly important in industries such as pharmaceuticals) and the less tangible reputation a firm may have for using the law to pursue its interests. McDonald's, for example, has now built a reputation for being very ready to go to court to protect its image and reputation. That reputation can, in itself, be an asset in deterring others &om attacking McDonald's without a cast iron case! Finally, systems in place within the firm can be important assets. The management information systems themselves often constitute databases. The intangible aspect, of course, is translating the data into useful knowledge or information that will aid business decisions - decision support. As companies increasingly recognize the value of the intangible assets they possess so the distinction between these and competencies becomes blurred. Creating intangible assets such as reputation, brand image or knowledge requires capabilities at the individual, group and corporate levels.

Company capabilities Teece et al. (1992) used the term organizational capabilities to refer to the abilities of an enterprise to organize, manage, coordinate or undertake specific sets of activities. Organizational activities are in general based on assets working together, i.e. the skills and accumulated knowledge which enable the activities in a business process to be carried out

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(Barney, 1991; Grant, 1991; Schoemaker, 1992). As such, capabilities refer to a firm's capacity to deploy assets, usually in combination, using organizational processes to effect a desired end. The notion of distinctive (core) competencies was first used by Selznick (1957) to refer to what a firm does particularly well in relation to competitors. Prahalad and Hamel (1990) used the term core competence to describe those competencies that (1) make a disproportionate contribution to ultimate customer value or the efficiency with which that value is derived and (2) provide a basis for entering new markets. Teece et al. (1992) talked of 'dynamic capabilities' refening to the capacity of a firm to renew, augment and adapt its core competence over time. This notion is close to the concept of organizational learning (Dickson, 1992; Mahoney, 1995; Slater and Namer, 1995). In our scheme (Fig. 1) we draw a distinction between competencies along two main dimensions. First, we distinguish between competencies held at the individual, group or corporate level. Second, we distinguish capabilities of strategic, hnctional and operational significance.

Individual, group and corporate capabilities Capabilities essentially lie in the skills and competencies of individuals in the organization and how those are combined with others. Individual competencies include the ability of individuals to see and act on their role in fulfilling customer expectations or creating customer satisfaction, to manage their own time and effort to the advantage of themselves and the organization, to manage and coordinate the actions of others and to cany out specific tasks, such as order processing, effectively and efficiently. Group competencies reside in formal and informal groupings of individuals brought

0 1-

I

Assets

Tangible

I

Cash in hand

1

Legal

I

Systems

I

Customer database Copyrights & gatents ~

g

r

1

( I

?

Strategic

abilities

I

1

Other

I

Credil worthiness

I

Marketina

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I

Financial

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intangible

Brands & reputation

Functional

I 1

Operational

I I I

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I I

Corporate Market orientation

Group learning

Organizational learning

Organizlngl Managing

Selfmanagement

lnterpe~sonal skills

Porifolio management

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Outside-In

(

External focus

(

Marketing

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1

Insideout

I

lntemalfocus

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Operations

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Task Skills

Resource utilization

New product development

Innovation

Individual tasks

Group tasks

Planning

?

?

I

Other

Market sensing

Coordinating skills

?

I

(Items in Italics are examples only. and are not intended to be exhaustive)

FIGURE I. A typology of resources.

Group Customer orientation

Individual learning

& DSS ?

I

individual Customercare

Learning

Spanning

Reputation in litigation &

Orientation, Dominant Logic

Capabilities

1

( 1

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together to achieve specific goals. For functional groupings such as the sales depamnent or the marketing department, the competencies are those required to carry out the hnctional tasks assigned. For ad hoc groups, such as new product development task forces or project teams, the required competencies will include functional or technical expertise but also the ability to work across finctional boundaries. At the corporate level, competencies include the ability to set the direction of the enterprise, manage the acquisition and internalization of knowledge, manage the portfolio of activities and ensure that resources are exploited to the full.

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Strategic, functional and operational (task) competencies Strategic competencies are those that relate to senior management's ability to identify and interpret the environmental trends and industry events affecting the organization. Although primarily created through individual abilities and skills, strategic capability is related to such issues as providing a sense of purpose and direction or dominant logic (the orientation of the business; see Narver and Slater, 1990), facilitating organizational learning (the dynamic capabhties of Teece et al., (1992) and the learning systems of Leonard-Barton (1992)) and managing organizational change through development and nurturing of corporate culture. Indeed, culturally embedded managerial views are an essential part of the learning capability and strategic capability of the firm (Day and Nedungadi, 1994). These capabilities could be termed 'meta-capabilities' as they pervade the whole organization. Functional competencies, on the other hand, are more specifically related to functions or processes within the firm. Day (1994) classified these as inside-out, outside-in and spanning capabilities. Outside-in competencies are those skills and abilities which enable a business to understand its customers and create closer linkages with them. They include market sensing skills or the abilities of the firm to assess and judge changes in its markets. Specific skills include the ability to conduct and interpret marketing research and the capability of disseminating that information to those who need to know within the firm. Also relevant are customer bonding and linlung skills which help build closer links with key customers. At the corporate level, outside-in skills include the abhty to create networks and alliances that can deliver assets and competencies not held 'in-house'. Inside-out competencies are the internal capabilities of the firm and its employees that might be deployed in the market-place to provide better products and services to customers. They include financial management, cost controlling skills, technological slulls, logistics management, manuhcturing processes and human resource management. Often these are competencies that underpin the ability of the firm to deliver value to its customers, but may remain hidden or unseen by those customers. Spanning and integrating competencies bring together the inside-out and the outside-in to ensure delivery of appropriate products and services to customers. They include customer order fiMment, which is achieved through understanding customer wants and needs (outside-in) and using internal systems and procedures to ensure delivery (inside-out). Perhaps the most significant spanning and integrating capability is the ability to develop and launch new products. It requires a clear understanding of market needs coupled with internal, technical capabilities. Not all assets and capabilities may be vested in the focal firm. Increasingly, companies are creating alliances and networks with others that enable them to leverage hrther assets and

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competencies of partner firms. Alliances can, offer four main sets of resources (assets and competencies): access to new markets, access to managerial competence, access to technological competence and economic benefits. Finally, at the operational or task level, competencies are the skills that enable individual managers and other employees to function and undertake the tasks set for them.

MARKETING ASSETS A N D CAPABILITIES

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From the resource-based literature and drawing in particular on the work of Moller and Antilla (1987) and more recently Day (1994) in relating this to marketing activities, we can now attempt to define the key marketing capabilities that might be deployed to create competitive advantage. These capabilities all stem &om the central processes with which marketing is concerned.

Strategic marketing capabilities Market sensing capability This is an understanding of what is happening in the external environment with respect to demand, customers, competitors and wider macro-environmental change. The specific capabihties include the ability to undertake marketing research and competitor analysis, disseminate the resulting information throughout the organization and ensure that it is acted upon.

Market targeting and positioning capabilities This is the ability to identitjr alternative opportunities and then select appropriate market targets where the firm's resources and capabilities are alrgned to optimum effect. In aligning current resources and capabilities with changing markets, market targeting involves the competencies of the top management and several other functions (such as operations, finance and R&D) as well as marketing.

Functional marketing capabilities Customer relationship management This is the ability to acquire, retain, expand and (where necessary) delete customers. Key account management skills are becoming increasingly important, as is the increased focus in many markets on relationship building through customer service. Direct marketing also has a role to play here.

Customer access capabilities This is the ability to employ existing channels and/or develop new ones for servicing customers. Customer access includes competence for the efficient management of traditional distribution channels, but also fianchizing networks and new electronic channels. It is a broad capabihty drawing on several organizational and individual competencies.

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Product management capability This is the ability to manage existing products. This includes the ability to influence others in the organization where their activities impinge on customer satisfaction and the marshalling of resources to deliver customer value.

New product development capability This is the ability to innovate and develop the next generation of goods and services. Effective new product development requires both an outside-in (customer sensing) capability and, typically, strong R&D skills. It also requires multidisciplinary input from marketing, R&D, finance, operations and other hnctional disciplines.

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Operational or task marketing capabilities Implementation capabilities This is the ability to implement marketing activities such as promotions, public relations, deals, offers, packaging redesign and so on. Increasingly companies are outsourcing many of these activities to enable them to buy in best practice and expertise from outside. Design consultancies, P R agencies, packaging speciahsts and the like are emerging as senrice providers to marketers in these specialist areas of implementation. Within the focal firm, however, the key competencies required are now the ones of selection, management and coordination of these specialist outside suppliers. From the above discussion it can be seen that both assets and competencies cover a wide variety of often complex and interrelated concepts. Of particular interest to this paper, however, is the issue of how assets and competencies relate to the creation of competitive advantage generally and competitive positioning more specifically.

CREATING COMPETITIVE ADVANTAGE Two fundamental approaches have been suggested as routes to creating advantage over competitors (Porter, 1980, 1985): cost leadership and differentiation. Under the former strategy finns seek to make similarly attractive offerings to the market (compared to competitors) but to do so at relatively lower internal cost. Parity of offering seeks to ensure sales, while the internal focus on efficiency pursues margins that are superior to competitors. The differentiation route seeks to make the offering distinct and dserent in the market-place, the uniqueness providing greater value to customers (see Hunt and Morgan, 1995). While a number of factors have been shown to affect costs (for a comprehensive review see Chapter 7 in Grant (1995)) and, hence, there are a number of ways firms can become cost leaders, there can be only one firm in any market that can truly claim to have achieved cost leadership (by definition). Pursuing this strategy typically requires a high degree of internal focus and a resistance to adaptation to market requirements. It is the efficiency route rather than the effectiveness route. At the end of the day it does not give the customer a reason to buy and, hence, while creating a short-term financial advantage, does not secure long-term market advantage. Differentiation, on the other hand, embraces the opportunity to add value for the customer and to modify the offering in a manner that will give the customer a reason to buy. As such, it can offer a more defensible route to sustainable competitive advantage through creating a

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market rather than merely internal financial advantage. Differentiation can be achieved in an infinite number of ways, &om lower price levels through to superior technical quality and . to its success as a strategy, however, will be the existence or more elaborate s e ~ c e s Critical the building of the underlying competencies and assets required to realize the chosen form of differentiation. Deciding on the basis of differentiation is at the heart of competitive positioning.

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COMPETITIVE POSITIONING The competitive positioning a firm chooses to occupy is a combination of its choice of target market and the differential advantage it is seeking to create as a means of securing that market. Porter (1996) suggested three main ways in which fkms might position their offerings in the market. Variety positioning is essentially product centred. The firm selects the types of offerings it can make based on its assets and competencies rather than customer requirements and then focuses on those offerings. An example might be Southwest Airlines (SWA) which offers short-haul, low cost, point-to-point service between mid-sized cities and secondary airports in large US cities. SWA avoids large airports and long-haul business as it does ndt have the assets or capabilities at present to serve this market. The clear danger of this approach, however, is that customers may not continue to have a need for the services the firm has the capabilities to offer (as was the case with typewriters above). Any firm that neglects to develop its capability and asset profile further runs the distinct danger of being left behmd by market changes. Needs-based positioning occurs where a firm identifies its target market and then designs its offerings to meet as many of its (product-related) needs as possible. Classic examples include the large grocery stores which define their target markets geographically and socioeconomically, then strive to offer all the food products required by their segment under one roof. The Swedish hrniture retailer Ikea is another exampIe of a firm attempting to cater to all the hrnishing needs of its defined target market. In Ikea stores it is possible to buy furniture, wall and floor coverings, lighting and even kitchenware for coordinated home furnishing. The success of this approach rests with the ability of the firm to develop or acquire the capabilities to cover the wide spectrum of customer needs. Ikea, for example, had to move fiom its traditional focus on furniture to develop wallcovering designs and tableware. This required new competencies. Not all firm adopting this positioning have been able to continue to satisfy all their customer needs. Some supermarkets, such as KwikSave, have lost business because their customers have not received the levels of service or product variety they wanted. Access-based positioning is based on the identification of segments through commonality of accessibility. An example might be mad order firms who use post and catalogue methods to reach their target markets. Again this positioning strategy rests on having exploitable assets (such as an up-to-date customer mailing list or database) and competencies. As customer requirements change, however, those competencies may become less significant. The potential growth of home shopping through the Internet poses sigmficant threats to current market leaders in the mail order business. It can be seen fkom the above that the distinguishing feature is the emphasis placed on resources and the emphasis placed on following customer wants and needs. In variety and access-based positioning the firm is starting essentially fiom its assets and capabilities. In needs-

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based positioning the emphasis is more firmly on adapting resources and capabilities to meet customer needs and requirements. In fact, positioning strategies need not choose between these two different approaches. Through giving equal weight to market demands and capability profiles when selecting targets and implementing positioning strategies, firms can ensure an enduring match between their offerings and their market. Critically, however, as markets change, so too must capabilities and assets evolve to retain that match. As has been argued above competitive positioning is about malung choices that ensure a fit between the chosen market targets and the competencies and assets the firm can deploy to serve those chosen targets more effectively than competitors. W e there are, in reality, an infinite number of different ways in which firms might position themselves in their markets these can be summarized on the basis of the emphasis they give to six main dimensions of differentiation. These main dimensions are shown in Fig. 2. Positioning can be based on price, quality (or, more correctly, grade), service, tailoring, benefit differentiation or innovation. While individual firms may choose to position on more than one dimension simultaneously they often find that they are contradictory. For example, offering a higher grade of product is generally incongruent with keeping costs and, hence, prices as low as possible. Indeed, charging low prices for a high-grade product may create corhsion in the minds of customers. The key to creating sustainable positions is to ensure that they are built on the marketing assets and competencies of the firm. Table 1 hypothesizes the assets and competencies necessary for each positioning strategy.

Price positioning For a low price positioning to be sustainable requires that costs are kept in check and are at least as low or lower than competitors. If there is no cost advantage price wars may put the instigator at a financial disadvantage and the whole positioning strategy may not be sustainable. Positioning as the low price supplier requires strong inside-out and spanning capabilities. Effective cost control systems (through employing techniques such as activity-

FIGURE 2.

Underlying positioning dimensions.

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TABLE I. Basic positioning strategies Position

Customer groups

Strategic focus

Assets and competencies

Low price

Price-sensitive customers

Internal efficiency

Superior quality

Premium demanding customers

Superior quality and image management

Rapid innovation

Innovators and early adopters

First t o market

Superior service

Service-sensitive customers

Relationship building

Differentiated benefits

Benefit segments

Focused targeting

Tailored offering

Individual customers

Tailoring t o individual customer wants and needs

Cost control systems, TQM processes, procurement and information systems Market sensing, quality control and assurance, brand reputation and supply chain management New product/service development, R&D technical skills and creative skills Market sensing, customer linking, service systems, skilled staff, feedback systems and continuous monitoring Market sensing, NP/SD and creativity in segmentation Market sensing, customer bonding and operations flexibility

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based costing) are needed not only within the firm's own operations but also within suppliers. The procurement of raw materials and other factor inputs is organized around keeping costs to a minimum. Distribution logistics are similarly managed for minimum cost. While the low price position is a viable option for some firms there is a constant need to work at keeping costs down, in particular when new competitors enter the market with new operating methods or unique assets that can be used to undercut the costs of incumbents. For a price positioning strategy to be successll in the market-place also, of course, requires the existence of a viable, price-sensitive customer segment. In most markets there are customers who will buy primarily on price. In the 1990s, however, it became clear that such customers also expect a base level of service and product quality such that rock bottom prices alone are unlikely to be good enough reasons to buy. Price positioning can be successll where there is a clearly defined, price-sensitive sector of the market and the firm has a cost advantage in sewing that market. Some firms position at the other end of the price spectrum. They deliberately price their s highly than competitors to create an exclusivity for their offerings. products and s e ~ c e more High price positionings are usually accompanied by higher quality, branded offerings requiring strong reputations and clearly superior images (e.g. Harrods department store in Knightsbridge, with cosmetics and designer label fashion wear). The competencies required for high price (premium) positionings to be effective are centred around the abihty to create a superior or exclusive image that customers are willing to pay a premium to be associated with. Brand assets in particular need to be built through the use of creative promotional campaigns.

Quality positioning Positioning as a high quality (grade) supplier also requires effective internal control systems, in particular quality assessment and assurance. Beyond control, however, it requires technical competence, particularly in engineering and manufacturing where physical products are produced. Most significantly, however, it requires a clear view of what constitutes 'quality' in the eyes of the customer. That entails the outside-in capabilities of market sensing and customer bonding. Also important in delivering high quality products and s e ~ c e sis supply chain management, ensuring that the inputs are of the required quality, not simply the cheapest avdable. Marks & Spencer have a reputation for building long-term, demanding relationships with their suppliers to ensure that the products they put their labels on are of the required quality. To provide high technical quality requires specific expertise. Often critical to a quality positioning are the marketing assets of brand image and reputation (see above). Image and reputation can take years to create and once established need to be nurtured and, when necessary, defended vigorously. To customers quality is manifest through better reliability, durabhty and aesthetic appearance. For quality positionings to be viable, customers must be prepared to pay for superior quality as there are usually, though not always, hlgher costs associated with offering a higher quality product. In the automotive industry, German manufacturers such as Mercedes, BMW and Audi have successfblly positioned their offerings at the high quality end of the spectrum through superior design, technical engineering skills ('Vorsprung durch Technic' - leading through technology) and attention to quality control through the manufacturing process. We should bear in mind in all this, however, that quality and value are decided by the customers in the market-place, not by engineers in the factory or marketing executives in the

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marketing department. In what may be a blueprint for other organizations, executives at the Royal Mad (RM) are appraised in part by customer-perceived service levels - not actual service levels. The RM received many complaints about queuing times in post o5ces. They reduced queuing times, but customers still complained. They redecorated some post offices and found that in these locations customers ceased complaining about queuing times although the times were the same as elsewhere. The RM had learned that quality and value is only what customers perceive it to be.

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Innovation positioning Where markets are changing rapidly, in particular as a result of technological developments, there may be opportunities to position on the basis of innovativeness or speed to market. In the personal computer market, for example, leading firms such as Toshiba are constantly improving on their products and building in technological advances to keep their products ahead of their competitors. Harnel and Prahalad (1991) suggested that firms should encourage 'fast fiilure', that is encourage the test launch of new products recognizing that many may fail but that some will succeed. Fast failure, they argued, is preferable to smothering new ideas at birth or delaying their launch through over-elaborate screening systems. In his study of German 'hidden champions', Simon (1996) emphasized their continuous processes of product and service improvement (Kaizen). Constant innovation is shown to be one of the significant characteristics of these world market leaders. By the mid-1990s, however, thinking in Japan, the home of Kaizen, had moved on. The challenge for many Japanese firms is now believed to be radical and major change, rather than incremental improvement, to enable them to compete in the future. The key competencies required include excellent new product development skills together with both technical and creative abilities. These are combinations of inside-out and spanning conlpetencies. Once new product ideas have been crystallized, however, it is important to test them out on customers (through fist Mure or more conventional means) to avoid the launch of highly innovative but essentially unwanted products (such as the Sinclair C5 electric car). Tellis and Golder (1996), in a study of first to market firms, concluded that for many firms a more successll strategy is to be a fast follower. Under this approach firms learn from the mistakes of the pioneers and capitalize on the growth phase of the market without incurring the costs of establishing the market in the first place. Moore (1991), in his study of innovation in high technology markets, concluded that the critical aspect of new product success is bridging the 'chasm' between innovators (those who will be attracted to an innovation because of its innovative nature) and the early majority who represent the beginnings of the mass market. It is this chasm that, in Moore's (1991) opinion, accounts for the failure of many new products. Innovation may also come in the form of new processes or approaches to market. Dell, for example, sell personal computers direct to businesses (and, to a lesser extent, household consumers) rather than through retail shops and resellers. Direct marketing eliminates the middleman and also speeds up the time to market of the computers. Approximately 80% of the cost of a PC is made up of components (such as microprocessor chips) whose price is falling at approximately 30% per annum. Too much inventory, therefore, means high cost products waiting to be sold at high prices. Simdarly, when technology changes (e.g. from 486 to Pentium-based processors) a company can be left with large stocks of out of date computers. By

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selling direct Dell turns over its inventory every 14 days, compared to 50 days for Compaq its rival. That has been estimated to give Dell a 3% cost advantage. As important, however, has been the market advantage that has been conveyed through the switch &om reseller to direct marketing. Dell has been growing at 50% per annum in a market growing at 20% - it is now the fifth largest manufacturer of computers (Economist, 5 October 1996, p. 99).

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Service positioning Positioning on the basis of offering superior service or rather service clearly tailored to the needs of the target market is increasingly being used. Variations in the nature and level of the service offered, coupled with differences in requirements across customer groups, mean that service positioning can be viable and attractive for more than one company in a market. Critical to providing superior service are market sensing skills that can identify what levelltype of service is required, customer bonding skills that build closer relationships with key customers, service systems that assist the service providers in delivering service to customers and monitoring skills that can regularly assess the customer satisfaction with the level and type of service provided. Most critical of all to providing superior service are the people or staff that actually provide the service. The selection, training, motivation and reward of service staff are areas that need high priority in firms seeking to establish a competitive edge through service provision. Firms seeking to create a service edge, to position themselves as offering superior senrice to that of competitors, need first to understand how their customers judge service, what dimensions are important to them and how they are manifest. They then need to put in place strategies and systems to ensure their staff can deliver superior service (see Berry and Parasuraman, 1991).

Benefit positioning Benefit positioning rests on clearly identifjnng alternative benefit segments within markets and then focusing on providing what they want. It is closely related to Porter's (1996) needs-based positioning. Segmenting markets on the basis of the benefits customers are seeking can often help identify new market opportunities and suggest ways in which marketing effort can be more effectively targeted. Positioning on this basis is dependent on having well-developed, outside-in competencies, to identify the benefits customers are seeking in the first place and to segment the market into meaningfkl but commercially viable sectors creatively. It can also require effective new product/se~cedevelopment skills to ensure that the benefits sought are actually delivered to customers through building in the relevant features. Automobile manufacturers have been particularly effective at positioning their offerings to convey particular benefits. Estate cars offer additional carrying capacity, sports cars offer performance benefits and four wheel drive cars offer off-road capabilities (though many purchasers never test this out in reality!). Most recently, manufacturers have been developing small cars for city use in anticipation of legislation concerning pollution levels. The Ford Ka, the Renault Twingo and the Mercedes Smart car are early examples. Volkswagen, General Motors and Rover also have similar cars in the pipeline. These cars are typically compact and fuel economical so as to reduce noxious emissions in city centres.

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Yamaha were world market leaders in fine upright and grand pianos. Globally they held 40% of the market, but the market was in decline at approximately 10% per annum. Market research showed that many pianos in living rooms were seldom played, gathering dust and out of tune. Using its competencies in digital music technology (the firm had pioneered electronic keyboards) the firm set about offering additional benefits in the pianos it sold. They developed the 'disklavier' which was a traditional piano (upright and grand) that could be played normally but also had an additional feature. Attached to the piano was an electronic device that enabled the owner to play pre-recorded music on their own piano. The device accepted a 3.5 in disc, similar to a computer floppy disc, that contained the recorded music and played it on the piano. O n its launch in Japan the product was an immediate success rising to 20% market share within 3 years. The firm also worked on the possibilities of retrofitting existing pianos with the device expanding the market potential even further. The 1996 Harrods catalogue contains an advertisement for a digital grand piano: Yamaha DCll Digital Piano - the perfect choice for real music lovers, the DCll disklavier is a high quality acoustic piano with an added disc drive. Play as a normal instrument or use the computer facility to play back the disc of your choice. In addition record your own music directly onto disc while you play. Usual price E18,099, SALE PRICE Al5,299 Interestingly the concept was not completely new. In the 1930s in America, pianolas (pianos that could play rolls of punched paper when peddled) were very popular! The yellow fats market has also been extensively segmented on the basis of the benefits sought and individual products positioned to appeal to specific benefit segments. In the 1960s, butter dominated the market with margarine seen as a cheap, down-market substitute. In the 1970s, however, concerns over healthy eating led to the launch of Flora by Van den Burgh and of Vitalite by Kraft, both positioned as more healthy alternatives to butter. The features included polyunsaturated fat rather than the saturated fat of butter (which had been linked with cholesterol and heart disease). Van den Burgh also launched Outline, aimed at the weight conscious sector conveying low calories as its prime benefit. The competition to offer yet more healthy spreads led to lower fit levels in 'extra light' and 'reduced salt' versions. During the 1980s, however, some consumers began to crave the benefit of a 'real butter taste' d fat butter. In the early 1980s Van den once again, but without the health concerns of f Burgh launched Krona and in 1983 Dairy Crest launched Clover. In 1991 Van den Burgh launched its new butter substitute 'I Can't Believe It's Not Butter' with one of the most innovative brand names to date. The name, though clumsy, was certainly memorable and clearly conveyed the benefit it was designed to offer - butter taste at lower fat levels. Within 9 months of the launch it held 2.3% of the massive yellow fats market. St Ivel followed the same positioning in 1995 with 'Utterly Butterly'. Positioning based on the benefits sought by customers is conventionally associated with consumer markets. In fact, the same is true of the strategies of successful finns in business-tobusiness markets. In both cases, benefit segments provide a powerful basis on which to build positioning directly related to the requirements of customers.

Tailored positioning (one-to-one marketing) Perhaps the ultimate in targeting and positioning is the attempt to offer products tailored to the requirements of individual customers (see Peppers and Rogers, 1993). While this has been

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practised in many business-to-business markets for some time it is now coming to others and consumer markets too. The 1996 Paris Motor Show saw the launch by Mercedes-Benz of its 'Smart Car', a two seater bubble car jointly developed with MCC (Micro Compact Cars), a joint venture with SMH, the Swiss makers of the Swatch. The Smart Car has a small petrol engine (future versions are intended to be battery driven), seats only two and is aimed at couples living in cities and wanting a second car. To create the car innovative production methods were used. It is produced in Hambach, Lorraine, France, where clusters of suppliers around the main factory each produce subassemblies that are then 'snapped' together giving major savings in production time and costs, but also making it possible to tailor the fittings to individual customer requirements even after delivery. The customer can simply return the car and have additional components added (such as air conditioning), current options changed or even change colours by swapping individual panels. In addition MCC will offer customers a leasing package where they can rent a larger car for a couple of weeks for annual vacations, etc. (Economist, 9 November 1996). The important skills for tailored positioning are a combination of outside-in competencies to enable the firm to identifj what the customer wants and establish relationships with customers, with the inside-out competencies of flexible production capability. Recent advances in 'mass customization' (Pine, 1993) make it increasingly possible for firms to enjoy the cost and efficiency advantages of mass production while at the same time tailoring their offerings to individual customer requirements. In some markets mass customization, by another name, has been around for many years. Supermarkets, for example, provide a wide range of goods on display and 'employ' customers to do their own selection such that each customer leaving the store has a unique collection of groceries tailored to their individual needs. The clearest examples of tailored positioning, however, are generally found in services, both consumer and business, where a service can be tailored to the requirements of individual customers. Financial consultants offer tailored analysis of investment needs, accountants offer tailored accounts, hairdressers offer tadored haircuts and architects can offer (if the customer can pay!) individual house designs. Tailored positioning rests on understanding individual rather than market segment needs and having the flexibility to provide for them at a price the customer is willing to pay. m l e technology can play an important role in enabling economically viable customization, the process needs to be market led rather than technology driven. Increasingly, companies are looking to create synergies through the use of new technology to respond to customer demands. Levi Strauss now offer a customized blue jean - tadored to the tight fit required by the customer - by taking measurements in the shop which are sent electronically to the factory to produce a unique garment (and store the data for repeat purchases). The same type of customer offer is made by some shoe suppliers in the US who respond to customer preferences for unique products by using technology to achieve this at a reasonable cost. The above alternative approaches to positioning are not necessarily exclusive of each other. They do constitute, however, the main basic alternatives open to firms. The creative application of those alternatives offers an almost infinite variety of ways that firms might build competitive advantage for the new millennium. The task of marketing is to select between the alternatives, basing the choice firmly on the competencies and capabilities of the firm.

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DISCUSSION A N D RESEARCH A G E N D A How do managers decide about the direction of the firm? What forces are guiding management in how they employ assets and capabilities? Contingency theories provide the most popular theoretical answer suggesting primarily that management tries to match the organizational profile of the firm with the environmental conditions (Lawrence and Lorsch, 1967; Miller, 1987, 1990). The strategy type propositions of Miles and Snow (1978) and Porter (1980) suggest that the configuration is guided by the strategic choice within the industry context. Both these popular theories assume that management has considerable freedom of movement in directing the firm. In particular the Porterian world (Porter, 1980, 1985) presumes hghly voluntary behaviour: organizations and managers can create their own htures, they are not under the deterministic control of the environment or history. This is in clear contrast to the world view underlying the resource-based theory of the firm. Resources and capabilities are created through company history; they are the results of enduring accumulation and learning processes and cannot be changed rapidly. The earlier choices in investing in particular technological solutions, in creating specific competitive positioning, create a path dependency which both directs and limits the way a firm can develop (Teece et al., 1992). This path dependency also has cultural and cognitive dimensions: the mindset of managers - through what kind of lenses or logic they view and interpret the world - is also dependent on their experiential history and the corporate culture they are socialized in. In this regard market orientation itself can be viewed as a strategic capability. These culturally embedded managerial representations, which cannot be changed rapidly, are an essential part of the learning capability and strategic capability of a firm (see, for example, Day and Nedungadi, 1994). Another consequence of the path dependence of organizations is the essentially unique character of the configuration of organizational capabilities and resource endowments. This phenomenon has epistemological and methodological consequences. It seems futile to try to derive simple generalizations, i la strategic types, about the resource and capability types of organizations. This does not mean that organizational classification is not a relevant issue; rather it means that instead of simple typologizing one should adopt a more complex multidimensional profiling approach. We argue that the competitive positioning approach offers a more realistic way of understanding how companies compete in their markets than the traditional strategic type perspective. The proposed six positioning dimensions allow us to capture the strategic postures of firms in their complexity and by analysing the resources and capabilities underlying these postures we can enhance our knowledge of the competitive behaviour of modem companies. A number of areas emerge worthy of further research. (1) Further conceptual and developmental work in identifying key marketing assets and capabilities. Viewing marketing fi-om a process rather than functional perspective may help in identifjing the latter (Webster, 1997). (2) Further conceptual and developmental work in identifying underlying positioning dimensions and variations within them. Within differentiated benefits, for example, needs-based and variety-based approaches may be appropriate. Where does access-based positioning fit? (3) Linkages between positioning dimensions could be usefully explored. For example, are low price and high quality positions mutually exclusive or compatible? Can firms

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achieve positioning5 based on combining several dimensions simultaneously or will positioning messages become confused and confounded? A further issue is to examine the capabilities needed in the successful exploitation of multidimensional postioning. (4) Further empirical work to relate positioning alternatives with the assets and capabilities necessary to achieve them. The above examples are bets treated as 'hypotheses' concerning the relationships between resources and positioning. They would warrant testing empirically across a sample of markets. (5) Longitudinal research on how superior positions are created through the acquisition, development and evolution of resources and capabilities.

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The market orientations literature and the RBV of the firm have developed in parallel over the last decade. The competitive positioning perspective offers a major opportunity to integrate these two influential and managerially significant streams.

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