“Strategy is a pattern in a stream of decisions” — Henry Mintzberg
Strategy is the formula by which the major marketing variables (advertising, positioning, product, promotion, pricing, distribution, etc.) are integrated, energized, and optimized. Most businesses struggle with strategy and planning, primarily because senior executives are often “too close” to their businesses and get lost in the forest of day-to-day minutiae and industry mythology. The development of an optimal strategy is a complex undertaking and typically involves a number of research steps and analyses.
Good qualitative research is always the starting point for strategy research. The purposes of qualitative research (focus groups, depth interviews, ethnography) are to identify the critical strategy variables, explore the decision process, understand buyer motivations, identify sources of influence and authority, explore brand identity and brand perceptions, and understand the language, meanings, and symbols related to strategy formulation.
Segmentation analysis is usually conducted as an early step in strategy development to help identify optimal target-market segments from multiple perspectives: demography, lifestyle, attitudes, shopping behaviour, media usage, and geographic patterns. Additionally, the analysis examines market structures and brand images. Factor analysis, cluster analysis, and other multivariate statistical techniques are important parts of the analysis. Market segmentation analyses help define worthwhile market segments and help generate hypotheses about strategies to attack these segments.
This is an integral part of the strategy development process. Understanding competitive strengths and weaknesses is fundamental to the development of sound strategy alternatives. The nature of the industry determines the benchmarking methods. For the consumer packaged goods industry, head-to-head product testing and head-to-head advertising testing are tried and true benchmarking methods. For durable goods, product “clinics” are the preferred method. In a product clinic, all of the major brands are assembled in one location, and prospective buyers of those products are recruited to view, examine, and compare the different brands. For services industries, mystery shopping is often used for benchmarking.
Sales Analysis and/or Marketing-Mix Modelling
Companies typically have reams of historical sales and marketing data that can be analysed as part of the strategy development process. Basic sales analysis is the starting point. An analytical database can also be assembled of data related to the major marketing variables (ad spending, promotion spending, pricing, sales, etc.), and this data can serve as the inputs to marketing-mix modelling. The goal is to measure the influence of all marketing inputs on sales and profits.
Typically, marketing-mix modelling involves the use of multiple regression techniques to help explain or predict the optimal mix of marketing variables. Regression is based on a number of inputs (or independent variables) and how these relate to an outcome (or dependent variable) such as sales or profits. Once the model is built and validated, the input variables (advertising, promotion, etc.) can be manipulated to determine the net effect of different marketing inputs on a company’s sales or profits. With or without marketing-mix modelling, the analysis of historical sales data is usually a part of the strategy development process. When marketing-mix modelling is not feasible or applicable, then choice modelling becomes the recommended method of determining the optimal mix of marketing variables.
Discrete choice, volumetric choice, and conjoint models are analytical methods used to determine the optimal combination of marketing variables through simulation of consumers’ real-world purchasing decisions. Carefully controlled experiments are set up so that consumers are simply asked to choose how many of each product they would buy, given predetermined sets of realistic conditions (i.e., scenarios). The brands are presented visually (including 3D simulation), if possible, in the context of advertising, pricing, packaging, features, promotion, and other variables. These choice-modelling experiments are used to optimize the elements of strategy (determine the optimal price, optimal positioning, optimal mix of services, etc.).
Strategy Concept Testing
Based on the qualitative research, benchmarking, sales analyses, marketing mix modelling, and choice modelling, strategy concepts are developed. These strategy concepts are then tested to determine the very best strategy. The method of testing varies by industry and product category, ranging from a simple concept test to elaborate sets of controlled test markets.
Once a strategy enters the implementation phase, it is important to track the unfolding of that strategy as it affects customers, the trade, and (sometimes) employees. In addition, strategy has a tendency to wobble off course over time, another reason for long-term strategy monitoring. The strategy monitoring system is custom-designed for the individual company and its industry. It is usually based upon periodic telephone or Internet surveys among the key target audiences.
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“Strategy is a pattern in a stream of decisions” —Henry Mintzberg