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Long Range Planning

38/4 August 2005

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Charles Baden-Fuller Editorial

For many years LRP: Long Range Planning has published pieces that touch on marketing strategy matters. In this issue we draw together pieces on retailing, on market planning, and on orientation.

Retailing is one of the largest sectors of the economy, and the first two pieces look at two dimensions that are of increasing importance: internationalisation and the internet. In the first piece, Stéphane Girod and Alan Rugman unpick why so few retailers have been successful as multinationals. Examining the flagship-network structure adopted by three examples who are, they identify that retailers need to integrate firm-specific with country-specific advantages. Christine Ennew and her colleagues examine the growth of internet retailing, and examine how web-site links can be an important element in attracting customers to sites. They build and test a model that explores how these linkages work and give advice on what is the optimal strategy.

Our third and fourth pieces examine marketing issues. Katy Mason and Lloyd Harris look at companies' market orientation. They note eight common misinterpretations, or pitfalls, of market orientation, and provide tips for resolving the difficulties, stressing the importance of an holistic approach. Stan Maklan and his colleagues look at another dimension of marketing – how to assess the case for Customer Relationship Management programmes. These are typically expensive, and the authors show that the Real Options approach to investment gives a more accurate picture of which programmes to take, as well as explaining why traditional IRR or naïve NPV lead to under-investment in the future.

 

Stéphane J.G. Girod and Alan M. Rugman Regional Business Networks and the Multinational Retail Sector rugman@indiana.edu

The authors examine the Flagship Network as a organisational structure for progressing the international ambitions of large retail enterprises. They examine the flagship networks adopted by Tesco, Moe¨ t Hennessy Louis Vuitton and The Body Shop, and compare them with an ‘ideal’ structure, in terms of their network infrastructure of partners in four key sectors: suppliers, business partners, selected competitors and non-business organisations. They conclude that the different profile each network presents depends on the reasons behind its adoption, which in turn relate to the classic international business strategy framework of firm-specific and country-specific advantages. Tesco’s strong country-specific advantages are not balanced with easily-transferable brand name FSAs, whereas Body Shop’s firm-based reputation (its marketing strengths allied to its CSR stance) is not matched with correspondingly solid CSAs. However LVMH is strong in both areas, its compelling affiliation with French sophistication being matched with internationally recognised brandname strengths. (The authors note that these strengths may not correlate with the firms’ comparative reported financial performance or market valuation.) The authors recommend letting a firm’s initial competitive advantage position define its internationalisation strategy, creating synergy between all network partners, and allowing the process time to mature. They also find trust comes second to contracts, and highlight the need for vigilance against inter-partner complacency and for diplomacy and a preparedness to refresh the network to counter dangers of ‘lock-in’.

 

Christine Ennew, Andy Lockett, Ian Blackman & Christopher P. Holland Competition in Internet Retail Markets: The Impact of Links on Web Site Traffic andy.lockett@nottingham.ac.uk

The development of the worldwide web is beginning to have the revolutionary effect early commentators predicted for it. In its ‘High Street’ on-line retailers face the same problems as physical shopkeepers e how best to attract customers to their sites? If brand and location drive shoppers to physical stores, what works for surfers and internet-junkies?
The authors define website links as the online equivalent of physical word-of-mouth referral, combining information with recommendation, and examine their effects on building traffic as opposed to other site attractions such as freshness, site size, speed of loading etc. They model visits to individual internet stores as a function of the links each has with other sites and site information/product content, testing their model with the top 500 companies across five different industries (CDs, books, travel, banking and broking). In all five sectors, they discover the industry is highly concentrated (for instance Amazon is over 20 times more popular than its nearest rival in the book market). Given the very high proportion of overall traffic in their sector passing through them, the authors posit that the largest retail websites are developing into locations, analogous to a shopping mall or a city centre retail area. Their overall conclusion e that links explain over 60% of visit number variance between different sites e will be highly relevant for Internet sites’ customer-attraction strategies.

 

Katy Mason and Lloyd C. Harris Pitfalls in Evaluating Market Orientation: An Exploration of Executives' Interpretations Harris@cardiff.ac.uk

Industry practitioners do not appear to have a problem with the concept of market orientation: indeed, it is well accepted that market-orientated companies perform better than those with a low level of customer focus. But there does appear to be a problem in managers failing to develop or sustain a high level of market orientation. This paper suggests that the problem arises because managers are misreading the extent of their companies’ market orientation. The authors set out to study if, how and why managers develop skewed, inaccurate or incomplete assessments of market orientation, not only of their own companies, but of their competitors also. Although this gap between perception and practice has been suggested in existing literature, the authors of this paper present a methodology and findings from 101 interviews with executives on this issue. The analysis reveals eight common misinterpretations, or pitfalls, of market orientation. These are: flawed measures of customer satisfaction; inadequate customer complaint mechanisms; arrogance in the rejection of new-competitor threats; front-line deviance; distortions driven by macroculture; misplaced assumptions of cultural unity; strategic tunnel vision; and strategic inertia and legacy. The breadth of the pitfalls reveals that it is not enough to focus on single facets of market orientation and that a complete understanding of market focus can only be achieved through exploring a wide range of intra-organisational functions and environmental factors. The study generates implications that are useful to managers who want to question the market orientation of their companies and offers potential approaches to avoid such pitfalls.

 

Stan Maklan, Simon Knox and Lynette Ryals Using Real Options to Help Build the Business Case for CRM Investment s.knox@cranfield.ac.uk

Marketing departments do not need to be convinced of the value of implementing a Customer Relationship Management (CRM) strategy. They argue that it is a win:win strategy for both companies and customers. Companies gain loyal customers and a knowledge base and market uncertainties are reduced. Customers on the other hand can achieve customised solutions, better service and lower costs. But if marketing departments do not need to be convinced of these benefits, finance departments do, and it is at this stage that CRM can often fail. This article questions the basis on which the business case for CRM investments is made. It highlights shortcomings with traditional cashflow analysis such as discounted cashflow and net present value and how these shortcomings inhibit successful CRM implementation. The authors provide a solution that urges managers to consider Real Options thinking. Real Options, they argue, work like financial options: they are instruments that allow the valuation of situations in which investment decisions can be deferred or piloted. The paper presents a simulated case study to illustrate how the use of Real Options in addition to traditional cashflow analysis can impact decision making when preparing the business case for CRM investments. Such complementary analyses help ensure that managers focus on both the activities that generate cash, as well as the strategic aspects of customer relationships that generate longer-term customer value and profits. It offers implications for managers: how they make the business case for CRM; and the way in which they structure and implement CRM programmes.

 

 

This issue is available in full on-line at www.sciencedirect.com

 
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