BUSINESS STRATEGY FOR ADVERTISERS

PRESENTED BY KBS+ STRATEGY & ANALYTICS

OCTOBER 4, 2012!

OBJECTIVES
1.

Advance and clarify our teams own perspective on strategy:

Examine the doctrine its origins, meaning and purpose
Examine its use in business how senior business managers typically formulate and
deploy strategy

2.

Frame an opportunity
Position our group to bridge a common gap: a fitting connection from the tenets of
B-school strategy to brand & marketing strategy
Put some practical tools and knowledge in your hands that can be instrumental to
your role as a strategist
Expand our groups collective thought leadership and enhance the impact of our
integrated offering to clients

AGENDA
1. Overview of Business Strategy
2. Business school framework for strategy formulation
3. How its meaningful for us
4. Example: Walmart business strategy
5. Practical Application
6. Discussion, Q&A and closing thoughts

OVERVIEW OF BUSINESS STRATEGY

WHAT IS STRATEGY?
A military concept originating from the Greek word strategia, meaning
generalship or military commander
strategy [strat-i-jee]

1. Also, strategics. the science or art of combining and

employing the means of war in planning and directing
large military movements and operations.

A COMMON QUESTION:
Whats the difference between strategy and tactics?
Keeping with the military definition for the moment
Strategy is the utilization, during both peace and war, of all of a nation's
forces, through large-scale, long-range planning and development, to
ensure security or victory.
Tactics deals with the use and deployment of troops in actual combat and
the doctrine that is applied once contact is made with the enemy.

HOW IS STRATEGY DEFINED IN BUSINESS?

A strategy is a plan
More specifically, strategy is a plan for reaching a long-term goal
Most often, that long-term goal is to win against your competitors
Winning can be defined differently for each organization, but
your ability to win depends on
The resources you have at your disposal
Your innate set of functional capabilities

SO, BUSINESS STRATEGY CAN BE DEFINED AS

A long-term plan to win that harnesses your innate capabilities to achieve a
sustainable competitive advantage.
A sustainable competitive advantage is:
A unique capability or strength that allows you to exploit an opportunity or
allows you to consistently be more effective than your competitors in some
dimension.
It is typically something organic a part of your companys DNA that cannot be
easily acquired or copied by other firms.

MBA STRATEGIC FRAMEWORK VALUE CHAIN ANALYSIS

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IDENTIFYING SOURCES OF COMPETITIVE ADVANTAGE

Competitive Advantage stems from your innate set of

capabilities and resources
These attributes can be assessed through an audit of your
companys Value Chain the set of primary functional
capabilities that your business depends on for its operation

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VALUE CHAIN ILLUSTRATION

Some of the typical functional components found in a retailers value chain:

PHILOSOPHY
AND CULTURE

PROCUREMENT

INBOUND
LOGISTICS

OUTBOUND
DISTRIBUTION

SUSTAINABLE
LOW-COST
STRATEGY
RETAIL

OPERATIONS

Specific capabilities can be described in detail and aligned against each of these
functional components.

DERIVING STRATEGY FROM STRENGTHS

Analyzing the value chain helps a firm determine its intrinsic sources of strength
and competitive advantage.
From there, the firm can map out a long-term strategy that exploits these
advantages and offers the best chance of long-term success.
Most common generalized classifications of business strategies:
Differentiation distinguishable quality or highly unique product / service offering
Niche capitalizing on highly specialized competencies or underserved markets
Low Cost exactly what it sounds like; sustainable only if you can back it up with
your value chain

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EXAMPLE: THE WALMART VALUE CHAIN

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PHILOSOPHY
AND CULTURE

Plain folks, no-frills, thrifty sensibilities permeate organizational culture and engender an obsession with
cost control and austerity
CEO furnishes his office with folding lawn chairs
Traveling managers follow strict per-diem mandates and are required to share hotel rooms

PROCUREMENT

Ridiculous buying power WalMart is notorious for using its monstrous scale to beat up suppliers and
continuously lower the prices it pays to them

INBOUND
LOGISTICS

OUTBOUND
DISTRIBUTION

RETAIL
OPERATIONS

Now almost entirely company-owned and operated - WalMart extended logistics excellence to the inbound
side increasing efficiency of transport from vendors to Distribution Centers
Shipping can now double as a profit center, as empty trucks leaving DCs can then backhaul freight for third
party suppliers and sellers
Insanely effective logistics practices, tested and refined over time to yield maximum efficiency
Wholly-owned outbound network of regional Distribution Centers and retail centers

Lean operations applied to every aspect of inventory and resource management

Waste is the enemy non-critical expenditures are sought out and eliminated wherever possible

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EXAMPLE: WALMARTS STRATEGIC POSITION

Walmart's endemic attributes and functions collectively enable the success of its business model, which
generates enormous profitability by selling low-margin merchandise to consumers in massive quantities

PHILOSOPHY AND
CULTURE

PROCUREMENT

INBOUND
LOGISTICS

OUTBOUND
DISTRIBUTION

SUSTAINABLE
LOW-COST
RETAIL
STRATEGY
OPERATIONS

In other words, these lead to a form of Sustainable Competitive Advantage:

Virtually unmatched economies of scale that allow for pass-throughs of consistent cost
savings to the end consumer
Which makes it possible for Walmart to fulfill on its overarching business strategy:
Own Low-Cost leadership in the Discount Retail category
Be the largest retailer in the world by expanding stores and distribution to feed the perpetual
consumer demand for cost-savings

WHAT ALL THIS MEANS FOR US AS STRATEGISTS

HOW CAN THIS KNOWLEDGE BENEFIT US?

The worlds best brands draw their strength from a fusion of business strategy and
powerful brand marketing
Sound business strategy stems from organic strengths and competitive
advantages
Marketing gives meaning to those attributes, distilling them into emotive
messages that exemplify the companys unique attributes and explain why they
are important to consumers

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HOW CAN THIS KNOWLEDGE BENEFIT US?

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As marketers, an understanding of this strategy orientation can inform the work that we
do - we can increase the potential impact of our campaigns if we can effectively align
them against the clients long-term business strategy
Channel the companys differentiated qualities into persuasive expressions of the
benefit to consumers, usually in the form of
Cogent Brand Positioning
Unique, compelling consumer Value Propositions
Broadcast those expressions to the target audience with high-impact creative
executions and media plans
Provide thought leadership and expert advice in cases where client objectives or
approach may not appropriately align with strengths or overarching strategy

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DEMONSTRATING THE AGENCYS ROLE IN STRATEGY

Back to Walmarts value chain:
How the corporate MBA might approach activating competitive advantage
PHILOSOPHY AND
CULTURE

PROCUREMENT

INBOUND
LOGISTICS

OUTBOUND
DISTRIBUTION

RETAIL
OPERATIONS

No one can touch us when it comes to buying power and our ability to move tons
of merchandise at low-cost. !
Our unique mix of culture, infrastructure and operations management make all of
this possible and highly differentiated.!
!
His conclusion:
!
If we just tell people about all this awesomeness, theyll flock to our stores!!

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Then he goes and tries to do someone elses job!

Superior buying power. Economies of scale.

Highly efficient logistics & distribution.!
Best-in-class retail operations.!

THANK GOD FOR MARKETING AGENCIES

WORKSHOP: A REAL-WORLD CLIENT EXAMPLE

MAKING VANGUARD MATTER TO PROSPECTS

Vanguard is a 35-year old Mutual Fund company that has grown substantially since its inception
primarily by word-of-mouth. It now wants to accelerate its growth in order to keep pace with top
competitors Fidelity and Schwab.
Vanguard is fairly new to advertising and marketing, and internally the company has struggled to a way to
express the virtue of its strengths in ways that are meaningful and compelling to potential investors.
This has been compounded by internal and external pressures:
Not all managers believe that investing in marketing is the right thing to do in the interest of their
shareholders
Some managers who do believe in marketing are fixated on strengths that may not actually be
consumer-facing
Many stakeholders gravitate to what feels safe and shy away from any communications that take too
bold a stand
Industry regulatory bodies limit the kinds of claims that can be made in mutual fund marketing and
advertising

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THE CHALLENGE
Break into groups and solve this problem, using the strategic framework
presented earlier
1. Identify the pivotal capabilities in Vanguards Value Chain and describe the
sustainable competitive advantage that these capabilities enable
2. Write a brief statement (1 - 2 sentences) summarizing a long-term business
strategy that capitalizes on this competitive advantage
3. Draft a consumer-facing expression reflecting the companys strengths
that will help make your business strategy a reality.
4. Provide some thoughts for how this message might be effectively broadcast
to the target audience through campaign execution

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THE VANGUARD VALUE CHAIN

GUIDING
PHILOSOPHY

AT-COST FUND
MANAGEMENT

CLIENT-OWNED
RETAIL OPERATIONS
BUSINESS MODEL

CULTURE

PRODUCT & SERVICE

QUALITY

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Passion for rejecting the status quo in favor of a better approach for the individual retail investor
Founding principle; investors shouldnt pay asset managers exorbitant fees for mediocrity
A more sensible approach wins - Indexing to benchmarks like the S&P yields a much higher return over the long
run than any managed portfolio that chases hot trends in the market
Management fees are held to an absolute minimum - investors pay no more than what is required for Vanguard to
operate the funds
Expense ratios are typically 5 times lower than the industry average
The less investors pay in fees, the higher the returns on their investments over time
Clients collectively own the company through their ownership of its funds
Clients are the only stockholders they own the funds and the funds own Vanguard
Any equity or profit is redistributed to the clients in the form of returns on this ownership
Vanguards employees (the Crew) are extremely loyal, are fully bought into the guiding philosophy, and are truly
passionate about helping their clients succeed and achieve their goals
Managers feel they have a genuine obligation to uphold the values of the company and to fulfill on its promise to
its client shareholders
Superior value in the level of service and performance that is delivered to clients
Vanguard clients are highly loyal, and are more willing than clients of competitors to recommend the brand to
someone else

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1) WHICH STRATEGIC POSITION* SHOULD VANGUARD TAKE?

Differentiation distinguishable quality or highly unique product / service
offering
Niche capitalizing on highly specialized competencies that appeal to a
narrower market segment or on underserved markets where audience needs
are currently unfulfilled
Low Cost sustainable cost efficiencies, passed on to customers in the form
of reliable price savings

2) HOW WOULD YOU DESCRIBE VANGUARDS IDEAL LONG-TERM

STRATEGY? WHAT IS YOUR LONG-TERM PLAN?
* Note:

These classifications of strategic position are meant to serve as guidelines that help simplify strategic planning by focusing it into a specific
dimension. These are not strict rules, nor are they always mutually exclusive. Some strategy theorists argue that these are all actually just different
forms of differentiation. Choose the bucket that you think best fits your competitive advantages, or choose two even all three - if you feel it makes
more sense and can be supported with sound rationale.

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3) HOW CAN WE ACTIVATE THIS STRATEGY WITH MARKETING?

3a) Translate Vanguards competitive advantages into an expression that has
investors and enables the fulfillment of your strategy

meaning for individual

Examples of the forms your expression can take:

Brand Positioning a description of the space we want to occupy in a prospects mind
relative to competitors; how wed like people to see us or what we want to be known for
Consumer Value Proposition whats in it for them the real and unique benefit that
consumers can expect to receive by engaging with our brand
Brand or campaign Tag Line a pithy, memorable phrase that sums up all the
meaningful things the brand representsfrom the prospects point of view
3b) Think of some innovative ways this message can be amplified and broadcast to the target
audience through creative execution and media planning

GUT CHECK: IS THIS STRATEGIC? A QUICK LITMUS TEST

You can apply this quick rule of thumb to evaluate the output of your exercise. In
addition, you can also use this as a tool to assess any future marketing initiatives you
might work on for other clients.

Your plan is probably strategic in nature if it meets one or more of the following criteria:

It serves some ultimate long-range objective of the companyoften (though not always)
expressed in the firm's mission statement
It is enabled by an ingrained form of sustainable competitive advantage that is unique to
the company
It is not limited to or overly dependent on tactical doctrine, principles or practices that can
be easily countered, adopted or emulated

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FINAL DISCUSSION & QUESTIONS

THANK YOU!