Marketing, within the company strategy, should not be considered as a simple tool to maximize profits, but rather as a key element for any strategy to develop a serious innovation process.
The importance of marketing derives from the fact that, if thought in a strategic and complete way, it can allow an enterprise to introduce with success a new product on the market, even if this was technically inferior to that developed from a competitor. It is not uncommon to see less performing products that, being presented in a much better way, with high-quality packaging and an effective communication strategy, manage to achieve greater success among the public than other products that may be technically better, but which due to poor quality communication are not perceived as such by the market.
To properly formulate a solid marketing strategy, we identify 4 key points that need to be clarified and defined to make sure that the strategy has a good chance of success, these are:
- The Timing;
- The Price;
- The Distribution;
Table of Contents
Timing refers to the strategies related to the timing of entry into the market, and more generally to the methods that the company decides to adopt to successfully enter the market and get the expected results in terms of dissemination and then sales.
The timing of entry, precisely for the reasons outlined above, plays a decisive role in innovation strategies and for this reason, must be as coordinated as possible with the design and production activities carried out within the company. In addition, timing decisions also depend very much on the environment outside the company and therefore on the characteristics of the market, such as the presence of competitors and the availability of complementary products.
In addition, an accurate timing strategy can allow the company to take advantage of the economic cycle situation, as well as the fluctuations that it can have, both in different periods of the year and due to times of expansion and contraction that tend to last more years.
Also, the situation of the other products offered by the company in the same market can influence the strategic choices, In fact, it can be unwise from a strategic point of view to introduce a new and technologically more advanced product when an older product, already introduced by the company and technologically inferior is still able to create interesting cash flows. If this were to happen, the life cycle of the least advanced product would be pre-emptively concluded, thus losing the remaining revenues.
In short, the objective to which the company points when it thinks about how to manage the timing of entry into the market is to try to maximize the profitability of the investments of each generation of products, thus obtaining the maximum possible from the investments made. At the same time, the risk that is mainly avoided is that of granting an excessive technological advantage and an excessive market share to competitors, as it would risk complicating their chances of success in the market.
Licensing and Compatibility
We add to the strategy on timing also this fact on a decision strategically very important and which is linked to the decision on entry times, namely the possibility of using licensing as a way to support the dissemination of the product, and at the same time choose the level of compatibility with other technologies, even of the past (backward compatibility).
Licensing is the assignment by an author or the holder of a right (eg trademark, copyright, etc.), known as licensor, to another entity, the licensee, so that he can use it to derive economic benefits, usually in exchange for the payment of a fixed fee or royalties, as defined in the license agreement.
Licensing can allow the company (licensor) to give a strong boost to the diffusion of the product it intends to promote, while incurring lower costs as the bulk of the investments will be supported by the licensee. At the same time, however, the company loses an important piece of control over how its product is promoted, an activity that is carried out by external companies.
As regards compatibility decisions, the company can decide whether and to what extent to make the new product compatible with that of its competitors, and in terms of backward compatibility, whether or not the product compatible with the company’s technologies but from previous technological generations.
Again, the decision on both points has advantages and disadvantages which will then have to be assessed on a case-by-case basis by the company in accordance with its strategy, the objectives set and the market situation and, more generally, the competitive environment as a whole.
The second key point for creating a successful marketing strategy is the formulation of a pricing strategy. Pricing strategies are essential to determine the positioning of the product in the market, the speed of adoption by users, and therefore market penetration, as well as generating sufficient cash flows to support the business.
It is generally considered that the company, for the formulation of a price strategy has three main objectives, that is the survival of the organization, which will push the company, even if it decides to adopt an aggressive pricing strategy, to carefully prevent the risk of undermining the company’s financial stability and sustainability.
The second objective is profit maximization, therefore the company will stretch to propose its own products at a price that they will allow exactly to maximize the result without losing competitiveness, and thirdly, the company tends to aim for the highest possible market share.
Generally, we identify two different strategies in terms of pricing that companies are carried to choose depending upon their own situation and the strategic objectives that they intend to pursue, these strategies are:
- price skimming
- penetration strategy
Price Skimming consists of setting a high price at the time of placing the product on the market. This mode of entry into the market is more common for products that are positioned in a high segment of the market, because a high price tends to stimulate an emulative mechanism among consumers, thus promoting the spread of the product.
Obviously, the mechanism is not so simple and immediate, as mentioned above it is in fact a strategy that can be successfully adopted by a certain type of products, which target a particular clientele, that at the time of purchase gives more importance to other factors other than price. Indeed, a high price per se tends to slow down the spread of the product in the market, for this reason, in a skimming strategy the focus is on the level of value perceived by consumers compared to the product.
When formulating such a strategy it is very important to be able to estimate as accurately as possible the level of elasticity of demand compared to the price, to avoid giving up the possibility to generate sufficient cash flow to repay the investment.
The penetration strategy, which, on the other hand, tends to be used more for the promotion of new products in markets where the widespread use by many users is a feature that greatly increases the value of the product itself. In these cases, the focus of the company is placed on being able to conquer as quickly as possible a large portion of the reference market.
For this reason, companies that adopt this pricing strategy tend to set low prices that allow them to enter the market quickly.
The third fundamental point for creating an effective marketing strategy is distribution, that is, deciding how to market a product and then make it available on the market. This factor, among the four treated in this post, is perhaps the one that most of the time is taken for granted or at least to which less time is devoted, mistakenly, as an inefficient distribution strategy can cause the failure of a good communication strategy.
The key decision for the creation of a distribution strategy is between:
- direct sale
- indirect sale
Direct sale is a distribution strategy that provides for the company to take over from itself all the activities related to the sale, which can take place through its own stores, through an e-commerce store, etc. The main feature of this strategy is that the company is able to exercise almost total control over sales and distribution activities, therefore also on after-sales services, logistics, advertising, price, etc.
This high level of control that follows from the implementation of a strategy of this type is, however, accompanied by some downsides that can make the company lean for another solution. In fact, managing the distribution business is a very expensive business and therefore requires energy and experience that a company that focuses its activities and energies on creating a high-quality product might not have.
Companies that, for various reasons for example related to costs or management difficulties decide not to want to manage the distribution process internally and autonomously, the solution is to adopt an indirect distribution strategy (through intermediaries).
This distribution strategy provides that the manufacturer decides not to interface directly with the public, but to rely on intermediaries such as representatives, wholesalers, and other professionals, in order to distribute its products to the final customer.
By doing this, the company manages to increase the efficiency of its processes, reducing fixed costs and complexity at the organizational and logistic level, transferring these costs and risks to third parties, at the expense of control over certain aspects of distribution.
This is in fact the downside of this type of strategy, the company is exposed to the risk that the distributor may not able to transmit the real value of the product to customers, that he decides to set prices too high, or that other issues might arise related to low-level customer service. These motivations can push for the adoption of a direct sales strategy in which the company manages to have much more substantial control over communication and the relationship with the end customer.
Otherwise, an intermediate solution could be to use a mix of these two strategies, for example, a company could decide to distribute products directly in its home market because it believes it can successfully manage the sales process, distribution, and after-sales service, relying on local wholesalers or distributors to sell in foreign markets, as they are better placed in the local market.
The last point we are discussing refers to the creation of a marketing strategy is that of the communication strategy.
By adopting a communication strategy, the company essentially aims at communicating externally the values and qualities of its brand and products, so as to increase the value perceived by the market. This should then lead to an increase in revenue.
The communication refers not to the perceived value by chance, because the value of a product is not simply given by the intrinsic content of the technology that composes it or its practical usefulness, but by the perceived value, the value that the market receives.
To do this, to create an effective communication strategy that can reach the target clientele and increase the perceived value relies on a “set” of three tools:
- External relations (e.g. word of mouth, sponsorship, internal publications)
- Promotion, a usually temporary activity with the aim of encouraging the trial or purchase of the product.
- Advertising, to transmit a message to a target audience. The message should be designed to be effective towards that specific target group.