The information on issues described above should be analyzed to isolate the critical factors on which success in the industry depends. In any business, there are usually about five to ten factors with a decisive effect on performance. As a matter of fact, in some industries one single factor may be the key to success. For example, in the airline industry, with its high fixed costs, a high load factor is critical to success. In the automobile industry, a strong dealer network is a key success factor because the manufacturer’s sales crucially depend on the dealer’s ability to finance a wide range of model choices and offer competitive prices to the customer. In a commodity component market, such as switches, timers, and relays, both market share and profitability are heavily influenced by product range. An engineer who is designing circuitry normally reaches for the thickest catalog with the richest product selection. In this industry, therefore, the manufacturer with a wide selection can collect more share points with only a meager sales force.

Key factors may vary from industry to industry. Even within a single company, factors may vary according to shifts in industry position, product superiority, distribution methods, economic conditions, availability of raw materials, and the like. Therefore, suggested here is a set of questions that may be raised to identify the key success factors in any given situation:

1. What things must be done exceptionally well to win in this industry? In particular, what must we do well today to lead the industry in profit results and competitive vitality in the years ahead?

2. What factors have caused or could cause companies in this industry to fail?

3. What are the unique strengths of our principal competitors?

4. What are the risks of product or process obsolescence? How likely are they to occur and how critical could they be?

5. What things must be done to increase sales volume? How does a company in this industry go about increasing its share of the market? How could each of these ways of growing affect profits?

6. What are our major elements of cost? In what ways might each of them be reduced?

7. What are the big profit leverage points in this industry (i.e., What would be the comparative impact on profits of equal management efforts expended on each of a whole series of possible improvement opportunities?)?

8. What key recurring decisions must be made in each major functional segment of the business? What impact on profits could a good or bad decision in each of these categories have?

9. How, if at all, could the performance of this function give the company a competitive advantage?

Once these key factors have been identified, they should be examined with reference to the current status of the product/market to define alternative strategies that may be pursued to gain competitive advantage over the long term. Each alternative strategy should be evaluated for profit payoff, investment costs, feasibility, and risk. It is important that strategy alternatives be described as specifically as possible. Simply stating “maintain product quality,” “provide high-quality service,” or ”expand market overseas” is not enough. Precise and concrete descriptions, such as “extend the warranty period from one year to two years,” “enter U.K., French, and German markets by appointing agents in these countries,” and “provide a $100 cash rebate to every buyer to be handed over by the company directly,” are essential before alternatives can be adequately evaluated. Initially, the strategy group may generate a long list of alternatives, but informal discussion with management can soon pare these down to a handful.

Each surviving alternative should be weighted in terms of projected financial consequences (sales, fixed and variable costs, profitability, investment, and cash flow) and relevant nonfinancial measures (market shares, product quality and reliability indices, channel efficiency, and so on) over the planning period. At this time, due attention should be paid to examining any contingencies and to making appropriate responses to them. For example, if market share increases by only half of what was planned, what pricing and promotional actions might be undertaken? If customer demand instantly shoots up, how can orders be filled? What ought to be done if the Consumer Product Safety Commission should promulgate new product usage controls? In addition, if the business is in a cyclical industry, each alternative should also be tested against several market-size scenarios, simultaneously incorporating varying assumptions about competitive pricing pressures. In industries dominated by a few competitors, an evaluation should be made of the ability of the business to adapt each strategy to competitive actions pricing moves, shifts in advertising strategy, or attempts to dominate a distribution channel, for example.

Strategy Selection. After information on trade-offs between alternative strategies has been gathered as discussed above, a preferred strategy should be chosen for recommendation to management. Usually, there are three core marketing strategies that a company may use: (a) operational excellence, (b) product leadership, and (c) customer intimacy. Operational excellence strategy amounts to offering middle-of-the-market products at the best price with the least inconvenience. Under this strategy, the proposition to the customer is simple: low price or hassle-free service or both. Wal-Mart, Price/Costco, and Dell Computer epitomize this kind of strategy. The product leadership strategy concentrates on offering products that push performance boundaries. In other words, the basic premise of this strategy is that customers receive the best product. Moreover, product leaders don’t build their propositions with just one innovation: they continue to innovate year after year. Johnson & Johnson, for instance, is a product leader in the medical equipment field. With Nike, the superior value does not reside just in its athletic footwear, but also in the comfort customers can take from knowing that whatever product they buy from Nike will represent the hottest style and technology on the market. For product leaders, competition is not about price or customer service, it is about product performance. The customer intimacy strategy focuses not on what the market wants but on what specific customers want.

Businesses following this strategy do not pursue one-time transactions; they cultivate relationships. They specialize in satisfying unique needs, which often only they recognize, through a close relationship with and intimate knowledge of the customer. The underlying proposition of this strategy is: we have the best solution for you, and provide all the support you need to achieve optimum results. Long-distance telephone carrier Cable and Wireless, for example, follows this strategy with a vengeance, achieving success in a highly competitive market by consistently going the extra mile for its selectively chosen, small business customers. The core strategy combines one or more areas of the marketing mix. For example, the preferred strategy may be product leadership. Here the emphasis of the strategy is on product, the area of primary concern. However, in order to make an integrated marketing decision, appropriate changes may have to be made in price, promotion, and distribution areas. The strategic perspectives in these areas may be called supporting strategies. Thus, once core strategy has been selected, supporting strategies should be delineated. Core and supporting strategies should fit the needs of the marketplace, the skills of the company, and the vagaries of the competition. The concept of core and supporting strategies may be examined with reference to the Ikea furniture chain. Ikea, the giant Swedish home-furnishings business, has done well in the U.S. market by pursuing operational excellence as its core strategy.

Where other Scandinavian furniture stores have faltered in the United States, Ikea keeps growing. Despite its poor service, customers keep coming to buy trendy furniture at bargain basement prices. The company has well aligned its supporting strategies of product, promotion, and distribution with its core strategy. For example, it selects highly visible sites easily accessible from major highways to generate traffic. Few competitors can match the selection offered by its cavernous 200,000-square-foot branches, which on average are five times larger than full-line competitors. The products are stylish and durable as well as functional; the quality is good. Advertising attempts to mold Ikea’s image as hip and appealing. Ikea’s enticing in-store models, easy-to-find price tags, and attractive displays create instant interest in the merchandise. But all these supporting strategies are fully price relevant. The company is so price conscious that it has used components from as many as four different manufacturers to make a single chair. Briefly, Ikea follows a strategy to satisfy the desire for contemporary furniture at moderate prices. It is rather common for firms competing in the same industry to choose different core and supporting strategies through which to compete. The chosen strategy reflects the particular strength of the firm, the specific demands of the market, and the competitive thrust. As has been noted: Coca-Cola was born a winner, but Pepsi had to fight to survive by distinguishing itself from the leader. For most of its history, Pepsi differentiated itself purely on price: “Twice as much for a nickel, too.” Only in the early 1970s did Pepsi start to believe that its product actually may be as good as if not better than Coke’s. The resulting strategy was: “The Pepsi challenge.” The first belief of Coca-Cola was that its product was sacred.

The resulting strategy was simple: “Don’t touch the recipe” and “don’t put lesser products under the same brand name” (call them “Tab”). Coca-Cola’s second belief was that anyone should be able to buy Coke within a few steps of anywhere on earth. This belief drove the company to make its product available in every conceivable outlet and required a distribution strategy that allowed all outlets a reasonable profit at competitive prices. While Coca-Cola was driven by a product focus, Pepsi developed a more marketoriented perspective. Pepsi was the first to offer new sizes and packages. When consumer trends toward health, fitness and sweeter taste emerged, Pepsi again was the innovator: It was the first to market diet and light varieties and it quickly sweetened its formula. Unencumbered by reverence for its base brand, it introduced the new varieties as extensions of the Pepsi signature. Where Coca-Cola feared a dilution of its brand name, Pepsi saw an opportunity to exploit the cost advantages and advertising of an umbrella brand. It is important to remember that the core strategy is formulated around the critical variable(s) that may differ from one segment to another for the same product. This is well supported by the following quotation taken from a case study of the petroloids business. Petroloids, a family of such unique materials as oils, petro-rubbers, foams, adhesives, and sealants, are manufactured substances based on the synthesis of organic hydrocarbons: Major producers competed with one another on a variety of dimensions. Among the most important were price, technical assistance, advertising and promotion, and product availability.

Price was used as a competitive weapon primarily in those segments of the market where products and applications had become standardized. However, where products had been developed for highly specialized purposes and represented only a small fraction of a customer’s total material cost, the market was often less price sensitive. Here customers were chiefly concerned with the physical properties of the product and operating performance. Technical assistance was an important means of obtaining business. A sizable percentage of total petroloid sales were accounted for by products developed to meet the unique needs of particular customers. Products for the aerospace industry were a primary example. Research engineers of petroloid producers were expected to work closely with customers to define performance requirements and to insure the development of acceptable products. Advertising and promotional activities were important marketing tools in those segments which utilized distribution channels and/or which reached end users as opposed to OEM’s. This was particularly true of foams, adhesives, and sealants which were sold both to industrial and consumer markets. A variety of packaged consumer products were sold to hardware, supermarkets, and “do-it-yourself” outlets by our company as well as other competitors. Advertising increased awareness and stimulated interest among the general public while promotional activities improved the effectiveness of distribution networks. Since speciality petroloid products accounted for only a small percentage of a distributor’s total sales, product promotion insured that specific products received adequate attention.

Product availability was a fourth dimension on which producers competed. With manufacturing cycles from 2–16 weeks in length and thousands of different products, no supplier could afford to keep all his items in stock. In periods of heavy demand, many products were often in short supply. Those competitors with adequate supplies and quick deliveries could readily attract new business. Apparently, strategy development is difficult because different emphases may be needed in different product/market situations. Emphasis is built around critical variables that may themselves be difficult to identify. Luck plays a part in making the right move; occasionally, sheer intuition suffices. Despite all this, a careful review of past performance, current perspectives, and environmental changes go a long way in choosing the right areas on which to concentrate. Reformulation of current strategy may range from making slight modifications in existing perspectives to coming out with an entirely different strategy. For example, in the area of pricing, one alternative for an automobile manufacturer may be to keep prices stable from year to year (i.e., no yearly price increases). A different alternative is to lease cars directly to consumers instead of selling them. The decision on the first alternative may be made by the SBU executive. But the second alternative, being far-reaching in nature, may require the review and approval of top management. In other words, how much examination and review a product/ market strategy requires depends on the nature of the strategy (in terms of the change it seeks from existing perspectives) and the resource commitment required. Another point to remember in developing core strategy is that the emphasis should always be placed on searching for new ways to compete. The marketing strategist should develop strategy around those key factors in which the business has more freedom than its competitors have. The point may be illustrated with reference to Body Shop International, a cosmetic company that spends nothing on advertising, even though it is in one of the most image-conscious industries in the business world.

Based in England, this company operates in 37 nations. Unlike typical cosmetic manufacturers, which sell through drugstores and department stores, Body Shop sells its own franchise stores. Further, in a business in which packaging costs often outstrip product costs, the Body Shop offers its products in plain, identical rows of bottles and gives discounts to customers who bring Body Shop bottles in for refills. The company has succeeded because it is so different from its rivals. Instead of assailing its customers with promotions and ads, it educates them. A great deal of Body Shop’s budget is spent on training store personnel on the detailed nature of how its products are made and how they ought to be used. Training, which is accomplished through newsletters, videotapes, and classroom study, enables salesclerks to educate consumers on hair care, problem skin treatments, and the ecological benefits of such exotic products as rhassoul and mud shampoo, white grape skin tonic, and peppermint foot lotion. Consumers have also responded to Body Shop’s environmental policies: the company uses only natural ingredients in its products, doesn’t use animals for lab testing, and publicly supports saving whales and preserving Brazilian rain forests. Another example is provided by Enterprise Rent-a-Car Company. While Hertz, Avis, and other members of the car rental industry were aggressively competing to win a point or two of the business and vacation travelers market at airports, Enterprise invaded the hinterlands with a completely different strategy ”one that relies heavily on doughnuts, ex-college frat house jocks, and your problems with your family car.”11 The company’s approach is simple: It aims to provide a spare family car. Say a person’s car has been hit or has broken down, or is in for routine maintenance.

Once upon a time, the person could have asked his spouse for a ride or he could have borrowed her car, but now she is commuting to her own job. “Lo and behold, even before you have time to kick the repair shop’s Coke machine, a well-dressed, intelligent young Enterprise agent materializes with some paperwork and a car for you.”12 Typically, an Enterprise car rents for one-third less than one from an airport. Instead of massing 10,000 cars at a few dozen airports, Enterprise sets up inexpensive rental offices just about everywhere. As soon as one branch grows to about 150 cars, the company opens another a few miles away. The company claims that 90% of the American population lives within 15 minutes of an Enterprise office. Once a new office opens, employees fan out to develop relationships with the service managers of every good-size auto dealership and body shop in the area. When a person’s car is being towed, he/she is in no mood to figure out which local rent-a-car company to use. Enterprise knows that the recommendations of the garage service managers will carry enormous weight, so it has turned courting them into an art form. The end result is Enterprise has bypassed everybody in the industry. It owns over 400,000 cars and operates in more locations than Hertz. The company accounts for more than 20% of the $15 billion-a-year car rental business, versus 17% for Hertz and about 12% for Avis. In the final analysis, companies with the following characteristics are most likely to develop successful strategies:

1. Informed opportunism Information is the main strategic advantage, and flexibility is the main strategic weapon. Management assumes that opportunity will keep knocking but that it will knock softly and in unpredictable ways.

2. Direction and empowerment Managers define the boundaries, and their subordinates figure out the best way to do the job within them. Managers give up some control to gain results.

3. Friendly facts, congenial controls Share information that provides context and removes decision making from the realm of mere opinion. Managers regard financial controls as the benign checks and balances that allow them to be creative and free.

4. A different mirror Leaders are open and inquisitive. They get ideas from almost anyone in and out of the hierarchy: customers, competitors, even nextdoor neighbors.

5. Teamwork, trust, politics, and power Stress the value of teamwork and trust the employees to do the job. Be relentless at fighting office politics, since politics are inevitable in the workplace.

6. Stability in motion Keep changing but have a base of underlying stability. Understand the need for consistency and norms, but also realize that the only way to respond to change is to deliberately break the rules.

7. Attitudes and attention Visible management attention, rather than exhortation, gets things done. Action may start with words, but it must be backed by symbolic behavior that makes those words come alive.

8. Causes and commitment Commitment results from management’s ability to turn grand causes into small actions so that everyone can contribute to the central purpose.