What is marketing?

Marketing is not a function, its not a department, but instead it's a method for aligning business objectives to long range profits and competitiveness.

An early definition of marketing comes from Felton in 1959:

A corporate state of mind that exists on the integration and coordination of all the marketing functions, which in turn, are melded with all other corporate functions, for the basic objective of providing long range profits.

It is really important to note in this quote the reference to 'long range profits'. Marketing is not about short term growth (which seems to be a recent trend with ' growth hacking'), but specifically the road toward building strong competitive positioning that delivers profitability over the long term. The more profitable the business over a period of time, the more competitive the business can become. This is a key focus for marketing.

Kotler (1996) determined marketing as:

The marketing concept holds that achieving organizational goals depends on determining the needs and wants of the markets and delivering the desired satisfactions more effectively and efficiently than the competitors do.

Kotler's brings consideration of the customer needs and wants to the fore, and explains marketing is about delivering value to them - more efficiently than competitors. This brings profitability back to the heart of the marketing definition.

Briefly summed up

marketing could be seen as the determination, communication and delivery of value to customers in the most efficient way.

Broadly speaking marketing can be broken into 4 main components:

  • Organisational culture: a set of guiding principles that binds an organisation to deliver value to a set of customers as a path to sustained profitability.
  • Marketing Operations: the specific operational functions and resources required to deliver a marketing strategy comprised of tactics.
  • Strategy: a set of appropriate responses to changing market pressures, customer requirements through the continual definition of market segments and the competitive positioning within those markets.
  • Tactics: the set of day to day activities required to deliver on the agreed strategy using products, communications, publicity and distribution.

The theory behind marketing

Marketing is believe it or not is seen as a [social] science, and therefore there are theories of marketing. Although these are from the world of academia they do provide some interesting frameworks in which a marketer can work. This section will outline some of the basic theories out there within which a business can work.

Market Orientation

Market orientation is the organisational culture that best delivers the necessary behaviours for the creation and delivery of superior value for buyers, which in turn produces superior business performance.

In layman terms this is how a business is configured internally toward delivering value to the end customer. Without this, a company cannot perform, cannot make profit and will become uncompetitive.

Under this umbrella of market orientation there are a few sub-components that should be understood.

  • Customer Orientation: getting close enough to customers in order to understand their needs and ensure continuous, superior value is being created.
  • Competitor Orientation: understanding both long and short term capabilities of competitors.
  • Interfunctional Coordination: ensuring the entire company is pulling in the same direction to deliver superior value to the end customer.
  • Long-term creation of shareholder value: ultimately this could be seen as the main objective of the business (however, this can only be delivered if you have happy customers).

Marketing therefore is both internal, external, short and long term focussed. It needs to create the culture, the apparatus and the medium for delivering exceptional value to a customer base that needs the products or services a business offers.

Therefore, in the technology space specifically, this means that marketing 'is' the product as much as the acquisition of new customers. Companies that silo marketing departments are going to fail to deliver the maximum level of utility for its customers (and users).

Marketing Strategy

Many businesses think that the success of marketing relies on external factors relating to the business, such as industry dynamics and characteristics. This view was the prevalent view in the 1980 and 1990s, led by none other than Michael Porter, founder of the Monitor Group and FSG

However, as the knowledge economy has emerged and customers have become more sensitive to brands another view has taken hold that is more apt to today's business environment. This view is called the 'resource based view of marketing' (Wernerfelt, 1984) and states that success of a business relies on it's internal competence and resources.

A good marketing strategy can and should combine both views, in order to ensure it aims to compete in the right market and with the right resources and internal competencies.

How to build a marketing strategy

One of the core roles of a marketing strategy is to define, create and hold a competitive position in the market. It is a statement about where the company will compete (i.e. what markets) and how it will compete (i.e. what is its differential advantage or Unique Selling Point (USP)).

Defining Market Targets

This is the process of defining those customer targets that are best suited to the company wide competencies and available resources. Selecting what markets to compete in must include a process to minimise risk of failure, and ensure the company is not being expected to lean on areas of known weakness in the business.

A business ideally wants to compete in a market that is:

  • Large
  • Growing
  • Margins are high
  • Competition is low
  • High barriers to entry and low barriers to exit
  • Market is not vulnerable to existential, uncontrollable events

It should be noted that these markets will not exist for very long. As you can imagine, this type of market will bring about swift and fierce competition, therefore speed and implementation is of the essence.

When deploying technology/software businesses into the market, it is possible to measure when a business has found the right market in which to scale, and the right product to do so. This moment is called Product Market fit, and can be determined by Growth Modelling.

In short, when the Lifetime Customer Value (LTV) is c. 4x the Cost of Customer Acquisition (CAC) you're ready to push into a new market. This core business ratio is known as the LTV:CAC ratio. Please note this ratio does change for different business types (Saas, e-commerce, marketplaces, apps) and a 1:1 ratio means you're 'breakeven' excluding operational fixed costs.

How can a business compete in market?

Typically there are 4 ways in which a business can compete. These are:

  • Cost leadership
  • Differentiation
  • Niche focus
  • Technology leadership

Cost leadership

This is when a business focuses on delivering a very low cost basis, finding innovative ways to strip out unnecessary costs meaning it can deliver its products to customers with a far lower cost base whilst offering comparable goods to its competitors. This enables businesses to take market share and yet remain highly profitable.

A great example here would be Amazon.com. When they launched they focussed on removing any luxury from their business, even using old doors as desks in order to pass these costs savings onto their customers!. This ultra-lean approach to managing the company's cost base allowed Amazon to gain market share fast by delivering highly competitive pricing to the market with a low cost base, meaning it could operate profitably and focus on the long term competitive advantage of the business.

When competing in cost leadership businesses will pursue efficient economies of scale, cost reductions, tight financial controls, and minimisation of other business related cost. It is a no frills approach marketing strategy.

Differentiation

This form of competition is when a business aims to create something that is inimitable, and truly sets them apart from their competitors.

This form of competition requires constant innovation in order to stay ahead of the pack, but can deliver huge profit margins because it can command high prices simply because no other business offers the same level of value to its customers.

Apple were the masters of differentiation, and did so via great design, style, and product features that were unmatched at that time. Apple was also fantastic at building brand equity, making it 'cool' to be Apple user.

This strategy is all about creating a reason to buy a brand's products, rather than simply price. It can therefore deliver huge profit margins as they can command premium prices and customer loyalty. Apple is testimony to this marketing strategy, taking (at its peak in 2016) a phenomenal 91% of profits from the smartphone market!

Niche Focus

Niche focus is a way to compete by focussing on a very small niche market, one where a product and marketing messages can be specifically tailored to a small number of potential customers.

For larger companies this is not an attractive strategy as it requires breaking their product offering down and investing in small markets which dilutes company profits.

However, for small, fast, aggressive startups this is how to enter the market. Identify a small market of early adopters, build a product specifically for those users and market exclusively to them. The role of a marketing strategy when targeting a niche focus is to find ways to scale quickly past early adopters, into early majority, late majority and laggards - all of which have different expectations of a niche focussed challenger business. This is often known as a 'beachhead launch strategy'.

It should be noted that long term scale and profits are hard to realise if pursuing this strategy alone, but it can help a business gain customer recognition and awareness quickly. Also once a niche market is saturated, it is vital for the business to iterate their strategy to diversify into new markets/products/services.

Technology Leadership

This 4th approach to competitive advantage is a blend of differentiation and niche focus strategies. It is now widely understood that technology underpins the competitive strategies of many corporates around the world. Technology is seen as an asset for many businesses, and something that can (/should) be protected using patents.

However, technology also offers challenger innovators an opportunity in which to compete - quickly.

Simply put, a technology leadership strategy aims to identify a problem that exists in the market, and solve it more efficiently than incumbent solutions. The approach relies on the creation of patented technology and development of knowledge leadership in that technology base so competitors are simply unable to adapt fast enough.

The recent major shifts that make this approach to market competitiveness possible are:

  • Shorter product life and development cycles
  • Changing definitions of market segmentation
  • Changing definitions of industries
  • Changing employee relations and organisation management structures
  • Shifting government regulations
  • Increased globalisation of markets

Therefore if a business can identify a niche technology, and develop that ahead of its competitors whilst hiring the best global talent to develop that technology it provides a position of leadership in the market. Being in front of the competitors via technology offers businesses a value time in which to build its brand, leadership position, marketing channels and customer base.

Blockchain is an interesting example here. It's visible ledger technology can be applied to many areas of business, and so there is a rush of new entrants to this space aiming to develop that technology in a niche focus to gain market share as quickly as possible. From value transactions to business contracts, blockchain offers businesses the opportunity to pursue a technology leadership strategy and become the most competitive in a narrow area of applied technology.

Etherium is an example of this. Led by the inspirational Vitalik Buterin, Ethereum is trying to build a position of technology leadership using Blockchain to deliver the ecosystem on which to build Blockchain applications. Quoting from it's website:

“Ethereum is a decentralized platform for applications that run exactly as programmed without any chance of fraud, censorship or third-party interference.”

Ultimately this approach is about first mover advantage, but it does present a range of challenges in that competent competitors can move equally as fast and compete quickly in that nascent technology space.

However, patents should not be viewed as a source of protection when pursuing this strategic approach. Well funded businesses can compete by finding ways to circumvent a patent, and offer something that (on the surface) is similar. An example being the plummeting valuation of Blue Apron when Amazon.com announced it's pending launch of 'pre-configured' meal kit deliveries.

Businesses pursuing technology leadership marketing strategies need to ensure they develop their leadership position with continued technology and business knowledge development, and not simply rely on a patent to protect their competitive position in the market.

Emergent Marketing Strategies

The Internet has changed the speed at which companies can develop and test products, and therefore enter markets. The barriers to entry are far lower today than 10 years ago, in part due to open source software, easier access to capital markets, and a massively reduced capital required to test product solutions to market based problems.

This causes major problems for larger companies, as smaller, more agile, niche focussed startups can take market share in small markets and cause disruption to their business models.

For smaller businesses this offers massive opportunities to enter new markets, with low capital risks and short product cycles.

Therefore, startup businesses (those aiming to challenge and disrupt markets) should operate in an agile manner. Leveraging data, short feedback and product cycles means a young business can quickly test its strategic assumptions, and 'discover' their growth marketing strategies. This is called an 'Emergent Strategy'.

This means a 'startup' company can shift it's marketing strategy based on quantitative and qualitative feedback, making it very hard for larger, slower companies to stay up to date with all potential competition. This 'shifting' is often referred to as a Pivot Strategy.

Full Stack Marketing Strategies

In order for a company to remain agile in the implementation of it's emergent marketing strategy it needs to ensure it approaches marketing and growth from a 'full-stack' perspective. This means it needs to look all the way down its product funnel for market and customer insights and growth opportunities.

A 'made-up' example might be a company builds a product to enable a customer to store photos on their phone from a wide range of sources. It does not really seem to gain much traction (likely because there are some big players with great product offerings in this space). After doing analysis the company discovers its user base is actually sharing photos stored in the application via private messaging applications. Therefore, it 'pivots' to focus its niche offering to enable users to create private groups in which to share specific photos (note: this is only a very basic 'made-up' example). Without a full-stack approach to growth marketing strategies, this new strategic approach would not develop.

In the world of technology focussed emergent marketing strategies, it is important to know the core components of 'full-stack' growth marketing. These are listed below for reference: