In the previous article (
), we talked about the concept of managerial marketing, which views
marketing
from a
perspective.
) So, we confirmed the definition and classification of management strategies, their relationship with
marketing strategies
, and their respective positions.
This time, let’s go one step further from the hierarchical and conceptual discussion of management-oriented marketing (=managerial marketing) and management strategy to a practical discussion and take a look at marketing management as a practical matter.
Important concepts in marketing management as a practice
In
and
, we explained the three layers of marketing and also reviewed the academic definition of marketing management. This time, we will use the manufacturing industry as a model to consider the areas targeted by marketing management, which governs the areas of business strategy and competitive strategy and forms the basis of each business activity, and the various specific activities linked to these areas.
As mentioned in
, in response to the question “What is marketing?”, the author answered, “Marketing (as a practical matter) involves building, operating, and improving a system to be purchased.” “I’m going,” I replied. At the root of this is the author’s belief that the work of marketing management (or brand management) boils down to the management and operation (+improvement) of the value chain of an individual business or brand. Because it is.
However, in reality, what is first taught in marketing lectures and marketing training at universities and seminars for working adults is not discussion of business structures such as value chains, but rather
frameworks
such as 4Ps and STP, and marketing training. Isn’t this a discussion about how to cut and
position
the image? Although 4Ps and STP are still important concepts, in this article we will focus on understanding the overall business flow and consider marketing management from a value chain perspective.
Porter’s competitive strategy
In this section, we will review Michael Porter’s basic theory of competitive strategy and then explain what a value chain is. The most famous of Porter’s theories is his 1980 book Competitive Strategy: Techniques for Analyzing Industries and Competitors, which presents three basic strategies (differentiation strategy, cost leadership strategy, and concentration strategy). and frameworks such as 5 Forces. Many business people have probably seen these diagrams at least once [Figure 1; Figure 2].
[Figure 1] “Five competitive factors”, quoted from Porter (1980).
[Figure 2] “Three basic strategies”, quoted from Porter (1980).
In “Competitive Strategy,” Porter derived a framework of three basic strategies and five competitive factors from empirical research backed by a vast amount of industry and company analysis. Established the basis of competitive strategy theory called “Positioning School”.
At the same time as making such a great academic contribution, the frameworks such as the three basic strategies and the five competitive factors are so simple that it makes you feel like you understand what these diagrams are trying to say. Therefore, it has fascinated business people all over the world as a book on practical management and strategy, and is still studied by many business people as the basis of strategy theory.
The reason why I say this in a sarcastic way is because many business people have only seen this diagram, but have never learned the logic behind it. This is because there are many cases where people do not understand what the framework for explaining strategy and 5Forces is.
For example, if a student you know nothing about suddenly asks you, “Please tell me about competitive strategy and its framework,” how would you respond? The general answer will probably be something like this:
“The actions that companies should take are to reduce costs and provide cheaper products, to provide better products and services than other companies through differentiation, or to focus on sharper business domains through selection and concentration.” There is only one of these three options that will help you gain a high market share.To make that choice, you must thoroughly understand the relationship with stakeholders such as buyers and sellers, as well as the movements of competitors such as substitute products and new entrants. It must be done.”
An answer like the one above is by no means wrong, but it is simply reading out what is written in the diagram, and does not serve as an “explanation.” In the next section, let’s review the basics of competitive strategies and their typical frameworks.
Porter’s Competitive Strategy Definition and 5Forces Analysis
First of all, what is competitive strategy? Porter (1985) states that “Competitive strategy is the search for an advantageous competitive position in the industry that is the fundamental location of competition. It is all about successfully bypassing several factors and establishing a solid position that will bring profits.”
Porter also points out that when looking for an advantageous competitive position, the important things to consider are (1) whether the industry itself will be profitable over the long term, and (2) determining whether a company’s competitive position is stronger or weaker than other companies within the industry. He points out that there are two factors.
Porter’s main concerns are how to select an attractive industry and how to build an advantageous position over other companies within that industry. This is why strategy theory is called the “positioning view (=positioning school).”
The “5 Forces” is a collection of factors that can affect the attractiveness of this industry, or in other words, the profitability of the industry itself. Furthermore, after understanding how these factors interact and change, the “three basic strategies” shown in Figure 2 are strategies that can be adopted to gain a competitive advantage.
The five competitive factors are called “5Forces analysis” and are widely popular in the Japanese business scene, but many books and trainings only explain the prototype diagram in Figure 1 and use the framework called 5Forces. In most cases, the important part of what should be analyzed is omitted. In actuality, Porter (1980; 1985) argues that we should further break down the five competitive factors and identify what influences profit margins from among the elements that make up the five competitive factors. [Figure 3].
[Figure 3] “Elements of industry structure” Quoted from Porter (1985).
As shown in the diagram above, among the five competitive factors, there are a wide variety of factors that can affect profit margins, and the importance of each factor changes depending on the industry to which you belong. Therefore, from the above components, it is necessary to identify the factors that have a large impact on profit margins in the industry to which your company belongs. Then, the original use of 5 Forces analysis is to analyze whether your company is relatively superior or inferior to other companies for each element, and to identify threats and opportunities for your company. It becomes.
In addition, in recent years, the idea of the 6 Forces model has emerged, which states that there are six factors, including complementary goods, that determine the industry’s profit rate instead of five. The relationship and list of the 6Forces model and profit margin are detailed in “Easy to Understand Marketing Strategy [3rd Edition]” (Miki Numakami, 2023). If you would like to learn more about the practical use of 6Forces in modern times, we highly recommend reading the book by Numagami (2023).
What are Porter’s three basic competitive strategies?
In
, following Richard Rumelt, I wrote that the essence of strategy can be summarized into three things: problem recognition, clear policy, and the ability to execute. 5Forces analysis is a framework for understanding the environment of the industry structure and recognizing problems (or opportunities for gaining competitive advantage), and the three basic strategies are a framework for formulating policies based on this. I can say that.
As for the three basic strategies, each name clearly expresses what should be done, so it will be especially easy for business people to understand intuitively. But let’s just differentiate! Let’s aim to pursue costs! That being said, there are a wide variety of options that companies can take to achieve this goal. Regarding this, Table 1 below summarizes the resources and organizational capabilities required to implement each strategy, as well as the risks associated with selecting each strategy, based on Porter (1980; 1985).
[Table 1] “Basic Strategy Requirements”, created by the author based on Porter (1980; 1985)
As mentioned above, the required resources and organizational capabilities are different for cost-seeking, differentiation, and concentration strategies. The important point is to determine what resources and organizational capabilities your company should acquire and accumulate in order to implement each strategy. However, while the table above may serve as a checklist of key points for implementing each strategy, in reality, few business people will be able to implement each strategy just by looking at this table. .
Resources and organizational capabilities differ depending on the culture and structure of each company, so strategies cannot be put into action unless you understand not only the structure of the industry but also the structure of your company. So what can we do to improve our ability to execute? The value chain is the framework that serves as the bridge for implementing this basic strategy. Based on this, the next section will explain what a value chain is.
What is a value chain?
The value chain is a concept proposed by Porter in his 1985 book “COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance.” “Strategies for Competitive Advantage” is a sister book to “Competitive Strategy” mentioned in the previous section, and while “Competitive Strategy” focused on analyzing the structure of industries and industries, “Competitive Focusing on companies, “Strategies for Advantage” presents a framework that promotes understanding of corporate structures by breaking them down into the basic activities that form the basis of competitive advantage.
In other words, the theory presented in “Competitive Strategy” is a framework and type of strategic policy to promote understanding of industry structure and environment, and the theory presented in “Strategies for Competitive Advantage” It can be said that it is a framework for formulating ways to put strategies into practice.
The basic form of the value chain shown in Figure 4 is one that many business people have probably seen at least once. However, with regard to this value chain, many books and training programs only introduce this basic diagram, and do not go into depth about what and how it can be analyzed using the concept of value chain. There are many cases that go unmentioned.
[Figure 4] “Basic form of value chain”, quoted from Porter (1985).
According to Porter (1985), analyzing the sources of competitive advantage requires a systematic examination of the various activities that a company performs and their interrelationships. As shown in the diagram above, the value chain is a framework for breaking down a company’s activities into strategically important activities and understanding the sources of cost advantage and differentiation to achieve competitive advantage. The optimal level for building a value chain is a company’s activities in a specific business (business unit); if the value chain is too broad, it may become difficult to see the source of competitive advantage (Barnes, 2001).
The value chain consists of nine basic activities as shown in Figure 4, and these activities include purchasing, manufacturing, logistics, marketing & sales (*Marketing here refers to marketing in the narrow sense of marketing operations). The main activities of a business that are directly linked to increasing added value and creating a competitive advantage, such as after-sales services, and supporting activities that influence any of these main activities and realize efficient business operations (management of corporate infrastructure) and human resources management, etc.).
Porter (1985) points out that the value chain represents all of the value and consists of the activities that create value and the profit (margin) that is ultimately obtained. Porter’s value refers to the amount of money buyers are willing to pay for what a company offers, and is measured in terms of total revenue. Superior value is defined as either offering the same benefits at a lower price than other companies, or offering unique benefits that more than offset the higher price. There are only two. Companies can earn revenue by subtracting costs from this value.
To identify your sources of differentiation and cost advantage, you need to determine which value chain components are particularly important within your industry. Therefore, value chain analysis involves understanding the general structure of the industry using 5Forces, and then determining how the company’s value chain differs from the general structure of the industry, and identifying any singularities or uniqueness in the value chain. – It starts with understanding which element of the chain.
Figure 5 below assumes a consumer goods manufacturer like Kao, to which the author works, and describes two aspects of the value chain: product development and sales & marketing (marketing in the narrow sense of marketing operations). This is a simple element decomposition.
[Figure 5] “Subdivision of value chain components”, created by the author.
In this way, when analyzing a value chain, it is necessary to consider the individual operations included in it in detail (*Figure 5 may not apply to all consumer goods manufacturers). Once the value chain can be segmented, we can identify 1) activities that will have a large impact if differentiation is achieved, 2) activities that have a high cost ratio among the overall activities, and 3) unique activities that differ from general economic laws. We will identify three unique activities.
Ultimately, we will not only improve the contents of each of these three activities individually, but will also repeatedly adjust and optimize them to maximize the benefits obtained, while taking into account the effects of the chain of each activity. is.
Analysis of sources of cost advantage using value chain
Value chain analysis cannot be completed by simply segmenting operations into individual operations as described in the previous section. After segmenting the value chain to the operational level that can contribute to competitive advantage, it is necessary to consider the cost and differentiation of each activity.
Here, following Porter (1985), we will review the general flow of the analysis procedure for the sources of cost advantage in
value chain analysis
. Describing the analysis of the sources of cost advantage would be extremely lengthy, so those wishing to learn more should refer to Porter (1985), pp. 88-148.
First, the first stage of analysis regarding cost advantage is to analyze the various activities of the value chain broken down to the operational level, and further analyze the following: (1) operating costs (equipment materials and personnel costs), and (2) assets (current assets and fixed assets). It starts by breaking it down into two parts and calculating the cost ratio for each. This helps you understand where you can improve cost efficiencies in your value chain.
Next, we identify structural factors (cost driving factors) that can affect each cost, and analyze the interaction status and impact of each. Once you understand your cost ratios and cost drivers, the final step is to perform a similar analysis of your competitors, as much as possible, to understand their value chains and their cost structures. Then, compare it with your company’s cost structure and, within the scope of not destroying the uniqueness and specificity of your company’s value chain, develop your value chain to make your company’s total costs lower than your competitors’ total costs. Reorganize.
In general, many companies are actively working on cost reduction activities by department and business, so there are probably few people who feel uncomfortable with the above trend. However, cost reduction activities undertaken by an individual employee within a large organization such as a company tend to be short-sighted.
On the other hand, cost analysis based on the value chain allows you to be aware of the flow of activities throughout the company. Decision-making, such as value chain restructuring, may not be something that can be judged at the level of the person in charge at the field level, but those responsible for practical marketing management should be able to make decisions on both the value chain as a whole and at the individual business level. You will be required to understand the cost structure and impact.
Analysis of sources of differentiation using value chain
In the previous section, we confirmed the general flow of cost advantage, so in this section, we will review the analysis of the sources of differentiation. Differentiation according to Porter (1985) refers to a situation in which a company has uniqueness in something of value to buyers, and typical sources of differentiation in the value chain are listed as shown in Figure 6. It’s up.
[Figure 6] “Typical sources of differentiation in the value chain”, partially modified from Porter (1985).
Figure 6 presented by Porter is based on the historical background of 1985, so it may not necessarily apply to all modern businesses, but this kind of analytical perspective is useful for understanding modern business. The above is an important hint.
For example, consider the daily necessities industry like Kao, to which I work. In the case of daily necessities manufacturers, in order to deliver high-quality products to customers at reasonable prices, they basically internalize most of the main activities in the value chain through vertical integration, and differentiate themselves through research and product development. Every company strives for efficient operations from production to logistics.
Despite this, Kao has achieved top positions in various categories while developing its business in a variety of areas, including fabric care, home care, skin care, hair care, and cosmetics. What is the uniqueness of Kao’s value chain?
Following the sources of differentiation shown in Figure 5, the uniqueness of Kao’s value chain lies in its high level of understanding and management of chemicals and raw materials through its chemical business, as well as its sales company (Kao Customer Marketing Co., Ltd.), which acts as a primary wholesaler. Kao Group) and strong ties with stakeholders such as retailers (
for the history of Kao’s sales integration). Of course, the uniqueness of Kao’s value chain is not limited to these two, but the details of why Kao has such a strong system are not important here, so we will omit the details.
Marketing management from a value chain perspective
As described above, we have developed a framework for understanding where the uniqueness of your company’s value chain lies compared to the general structure of the industry, and how you can build cost advantages and differentiation as a result. As such, value chain analysis is effective. However, it is important to note that value chain analysis is not a matter of looking at lists and diagrams like those described above and looking for something that fits.
A company’s cost structure is built on transactions and negotiations with buyers and sellers. Differentiation is also about creating a unique value proposition for your buyers. Therefore, when looking for sources of cost advantage and differentiation, it is important to identify your company’s buyers and sellers and understand their value chain. Porter uses the term “value system” to comprehensively grasp not only the value chain of one’s own company, but also the value chains of stakeholders such as sellers and buyers, and the linkage between these and the company’s value chain. It’s called.
To reiterate, the author believes that the actual practice of marketing management is to build, operate, and improve the optimal corporate structure (value chain) to maximize profits. I am. To achieve this, it is necessary to constantly seek the optimal form while going back and forth between the structures of related companies surrounding the company, the overall industry structure, and the company’s own systems.
On the other hand, as pointed out by Takahiro and Fujikawa (2016), value chain represents a chain of value exchange from upstream suppliers to downstream end users, but the modern definition of marketing In light of this, the importance of ideas such as “value constellation,” which attempts to capture the process by which various resources are combined and value is created through the interaction of multiple actors, without distinguishing between companies and customers, is increasing. Some people think that it is.
Approximately 40 years have passed since the concept of value chain was introduced, and now in 2024, the definition of marketing has been renewed in Japan, and my understanding needs to be updated to match the structure of the modern environment. There may be.
[References]
Barnes, D. (2001). Understanding Business: Processes, Psychology Press.
Toshihiko Kato (2014). “Competitive Strategy” Nikkei BP Marketing (Nihon Keizai Shimbun Publishing).
Mintzberg, H., Ahlstrand, B. and Lampel, B. Joseph. (1998). Strategy Safari: The complete guide through the wilds of strategic management (2nd Edition), Free Press. -Strategic Management Complete Guidebook” Toyo Keizai Inc., 2012)
Miki Numagami (2023). “Easy to understand marketing strategy [3rd edition]” Yuhikaku.
Porter, ME (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press.
Porter, ME (1985). COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance, Free Press.
Rumelt, R. (2011). Good Strategy/Bad Strategy: The Difference and Why it Matters, Crown Business. (Translated by Akiko Murai, Nikkei BP Marketing (Nihon Keizai Publishing), 2012)
Rumelt, R. (2022). The Crux: How Leaders Become Strategists, Public Affairs.
Kozaburo Sagawa (1992). “New Marketing Practices” President Publishing.
Hakuhiko Takahiro and Yoshinori Fujikawa (2016). “Digital Marketing: Democratization of Marketing,” Hitotsubashi Business Review, 64(2), 54-67.
[Recommended study materials]
Numagami, Miki (2009). “Thinking about business strategy” Nihon Keizai Shimbun Publishing.