Strategy FAQs

Click on a link below to access that FAQ (frequently-asked question) topic.


Brand Equity
Cost and Volume Management
Customer Purchase Process
First-Mover Advantages
How Much Research Should We Order?
Marketing Decisions and Their Impacts
Products in All Channels/Regions
Weird Results




Brand Equity

“In managing brand equity of a firm's portfolio of products/services in LINKS, is there an obvious problem in having multiple brands at different price points in the same market?”

It might appear problematic to have lower-priced and higher-priced brands of the same firm marketed in the same market simultaneously. Does the low-priced, low-performance brand somehow tarnish the brand equity (brand image) associated with the high-priced, high-performance brand? "Maybe and maybe not" is perhaps the best answer that can be offered on a priori grounds. It is an empirical question whether customers see the differentiation across multiple brands in a firm's product/service line as being meaningful. It is also an empirical question whether customers' perceptions of one brand from a firm are influenced by the presence of another brand from the same firm.

Lots of real markets feature multiple brands and/or brand variants from the same firm arrayed along a price-performance frontier. Providing that customers recognize the product/service line variations as delivering different performance levels, there is no obvious problem with having multiple brands in the same market simultaneously. Underlying segment structure presumably plays a major role in this matter. If the various brands in a firm's product/service line clearly appeal to one and only one sub-segment of customers, then the presence of another of the firm's brands in the market presumably has little or no impact on pre-existing brands' market positions.

revised 02/26/2000
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Cost and Volume Management

“To improve profitability, is it better to work toward improving top-line results (i.e., increasing market share, volume, and revenue) or improving bottom-line results (i.e., decreasing variable and fixed costs)?”

My short answer is "yes" to both cost structure management efforts and to top-line volume-related improvement efforts. But, that's not overly helpful advice, relative to the specific nature of your question.

Here's a much more thoughtful answer by Sam Gillespie (Texas A&M University): "In mature, saturated, and very competitive markets, it is often much easier to squeeze out a dollar of profit on the cost reduction side than it is on the sales revenue side of the profit equation. For example, with a percentage variable gross margin is 33%, a firm needs to find $3 of additional revenue for every dollar of cost reduction to generate the same level of profits. If such a firm can lower expenses $250,000 while retaining the same level of sales volume, it is the same as finding $750,000 of additional sales revenue holding all fixed costs constant. Closely assessing the marginal value of a dollar's worth of spending (marketing or non-marketing expenditures) is an important element of prudent management and budgeting. This is not to diminish the importance of an effective marketing program (in amount and mix), but it does focus attention on how productive these expenditures really are. It is not unusual, in the context described above, for the various market sensitivities associated with marketing mix variables to be less elastic than one is led or wishes to believe, particularly when the current ratio of regional industry expenditures to regional dollar-volume revenue is high relative to prior months or quarters or years. It is possible that the slope of the marketing productivity curve is approaching zero. Prudent budgeting and attention to cost structure management issues may be the right advice to offer."

revised 02/26/2000
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Customer Purchase Process

“How do customers in LINKS make purchase decisions?”

You should assume that the LINKS markets function like real markets. Customers take into account absolute and relative competitive standing on product quality, service quality, availability, and price in their purchase decisions.

revised 03/10/2007
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listed under "Advice"
listed under "Strategy"





First-Mover Advantages

“Are there first-mover advantages in LINKS?”

Many people talk about first-mover advantages as if they are the answer to everything in life. Being first certainly has some advantages if you're better than what's out there already (i.e., if your have differential advantage over existing offerings on the market) and if you continue to innovate. If there's any customer loyalty in LINKS, then early entrants continue to benefit from their earlier customer acceptance. Followers must "buy their way" into markets, to overcome the market presence and the customer acceptance of early entrants. But, first-mover advantages can be overcome with meaningful innovation that's valued by customers. Being first is good, but being better is best.

revised 01/05/2007
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listed under "Generate Demand"
listed under "Marketing"
listed under "Reconfigurations"
listed under "Strategy"





How Much Research Should We Order?

“We're having trouble deciding on which research studies to order and how much to spend on research studies. Can you provide us with some guidelines about how much we should spend on research studies?”

Order as much research as you can use efficiently and effectively, and no more. Remember, too, that you've probably never seen a headline in The Wall Street Journal (or other major business publication) of the sort "Company Goes Bankrupt For Spending Too Much on Research."

revised 10/08/2002
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listed under "Advice"
listed under "Research Studies"
listed under "Strategy"





Marketing Decisions and Their Impacts

“Do the various marketing decisions (marketing spending, marketing mix allocation, etc.) affect performance outcomes other than awareness/accessibility? Marketing spending seems like a weaker driver of market share than most other decisions.”

Marketing decisions mostly affect awareness/accessibility perceptions. But, the positioning decision presumably has some impact on perceived service design quality and perceived service experience quality, if positioning includes those elements and if the positioning is consistent with the actual standing of the service in the marketplace.

There may also be some prioritization issues (stage-wise processing) underlying customer choices for support services. Until a firm offers a "good enough" service with an appropriate benefits-related price, why would service experience quality or awareness/accessibility matter that much? All the accessibility or service experience quality in the world can't matter that much for a "poor" over-priced service. ("I know about it and it's lousy. which is why I don’t buy it.") Once a "good enough" service is offered, then perhaps service experience quality and accessibility become meaningful differentiators.

Moral: first, get service design and pricing sorted out; then, work on service experience quality and awareness/accessibility.

revised 04/19/2009
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listed under "Advice"
listed under "Marketing"
listed under "Strategy"





Products in All Channels/Regions

“Is it required to have all products actively distributed in all channels and regions?”

No, your products don't have to be actively distributed in all channels and regions. It's your decision completely on how your products are deployed in the available channels and regions. You wouldn't normally distribute a product in a channel/region that didn't provide positive profits, unless there were other compelling side benefits from doing so.

Note that the standard financial statements do not provide channel-specific profitability breakdowns. You'd have to create such channel-specific breakdowns, if you think that's a useful thing to do. The bottom line is clear: manage your business to maximize your long-run profitability.

revised 09/12/2013
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listed under "Generate Demand"
listed under "Performance Evaluation"
listed under "Strategy"





Weird Results

“The LINKS markets seem a lot more volatile than I’m used to in my own business experience. Is there something peculiar about the way LINKS behaves?”

The LINKS markets are what they are. Surely, the ultimate business principle is “listen to your customers” (markets). So, please do “listen” carefully to the various LINKS markets. You need to build your business practices around your markets, which may be different than markets in which you have personal business experience.

And please:

  1. Consider the term “markets” (with an “s”) … different markets may behave differently, so attend to such possible market segment differences.
  2. Don’t assume that your “Pacific” region is identical to the Asia-Pacific region with which you might have personal or business experience. The LINKS “Pacific” market could be different (different in size, in growth, in behavior, in sensitivity to various marketing instruments, etc.) than your personal Asia-Pacific region.
  3. Reflect on the possibility that markets can change through time (“drift” not “revolution”).

revised 02/05/2007
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listed under "Advice"
listed under "Financial and Operating Results"
listed under "Forecasting"
listed under "Strategy"




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