How do great companies make strategic marketing planning work?

In theory, there is no difference between theory and practice. In practice, there is. Nowhere is this old business saying more true than in strategic planning. Almost all newly-qualified managers face a terrific culture shock when they find that their marketing planning textbooks, even if they are a good prescription, are a very poor description of the reality of business practice. Dr Brian Smith a Research fellow at Cranfield University School of Management investigates.

So how do firms make strong marketing strategies? What does a strong marketing strategy look like anyway? And, if the business schools have been teaching strategic planning for half a century, why do some companies make good strategies and others don't? It was just these questions that we set out to study and are now the subject of our new book .

Let's start at the end, with what all that planning is supposed to achieve, a strong marketing strategy. A marketing strategy is made up of two management decisions: which customers will we target and what will we offer them? Although the details of what an effective marketing strategy looks like are specific to the case in question, we know that all strong marketing strategies obey five golden rules. These rules don't only apply to the sort of consumer products we see in our shops either.

The golden rules of strong marketing strategy

Your marketing strategy is your choice of which customers to target and what to offer them. All really strong marketing strategies obey five golden rules:

1. Target real segments. Strong strategies target groups of customers who have similar needs and motivations. Weak strategies target groups with a mixture of needs and motivations.

2. Make a segment-specific offer. Strong strategies tailor their offer and message very closely to the target segment. Weak strategies try to please everyone in the market and end up delighting nobody.

3. Use your strengths. Strong strategies choose targets and offers so as to make best use of the company's strengths and to make their weaknesses less important. Weak strategies either don't understand or don't consider the company's distinctive strengths and weaknesses.

4. Consider the future. Strong strategies allow for the long term trends that drive the market. Weak strategies, based on historical data, only fit yesterday's market.

5. Be different. Strong strategies find uncontested space, targeting customers and making offers very different from those of the competition. Weak strategies go head-on with the competition, offering the same thing to the same people in the same way.

These rules of a strong strategy are not really new; they are a strong consensus in over 40 years of business research. Despite this, that same research shows that only a minority of great companies obey the rules. The rest make the same sort of offer to the same customers in the same way as the competition, with predictable and unprofitable results.

A great example of a strong marketing strategy is that of Cialis, the prescription drug that came from behind to overtake the market-leading Viagra. When Lilly ICOS launched Cialis, a drug for erectile dysfunction, they knew they needed a strong strategy. They were competing against Viagra, which had entered the market first and had become one of the most famous brands in the world. Yet only a couple of years after launch, Cialis is a billion dollar product and is overtaking Viagra in key markets. The marketing team at Lilly ICOS achieved this by obeying the golden rules as follows:

Cialis as an example of a strong strategy

1. Cialis targeted a real segment. There are many reasons people seek treatment for erectile dysfunction, but Cialis concentrated on those patients seeking to recapture intimacy and love in their relationship.

2. Cialis made a specific offer. Everything Lilly ICOS did, from advertising to PR to detailing to doctors, carried a consistent message: that Cialis offered the renewed intimacy that the target couples sought.

3. Cialis used their strengths. Cialis has a longer active period than Viagra and Lilly ICOS have a distinctive competence at gaining and using customer insight. Both these strengths were leveraged by their choice of target segment and the offer Cialis makes. Just as important, this targeting meant that the size and reputation of Viagra was less of a problem.

4. Cialis understood the future. In most developed markets, there is a 'megatrend' of feminisation. Decisions about relationships are made by couples, not just men, and are driven by traditionally feminine values, such as the need for intimacy. Lilly ICOS understood this and their strategy was supported by this powerful market trend.

5. Cialis was different. Viagra, as market leader, targeted almost all erectile dysfunction sufferers with a simple message based on curing the physical problem. Lilly ICOS chose to side-step this powerful incumbent by targeting a different segment and making a different offer. They avoided going head on against a bigger player.

So we know what a strong marketing strategy looks like and, incidentally, we know that most companies don't make them. Why is this? The answer must lie in the process companies use for making strategy, so that was the next focus for our research.

Despite what the textbooks say, most companies don't follow the rational, analytical approach to planning. Some do some of that, but just as many make strategy by intuitive vision or by experiment, 'making it up as we go along'. In reality, all companies use a mixture of planning, vision and experiment and what varies between companies is the ratio of these three approaches. It is true to say that every company has its own unique colour of planning process, made up from a special blend of the three ingredients, just as the three primary colours of light mix to make all the colours of the rainbow.

So we know what a strong strategy looks like, we know that only a few firms make strong strategy and we know that firms use a myriad of different planning styles or colours. Surely, we thought, there must be colour of planning that resulted in strong strategy whilst the other made weak ones?

If our research could reveal that, then all companies could emulate the best strategic planners. As is often the case, real life turned out to be more complex than the ideas of academic researchers. When we compared planning colours to outcomes, we found that strong strategies could emerge from almost any type of planning. Similarly, there was no pattern in the planning styles that led to weak strategies. If there was no pattern, there was no such thing as best practice and no advice we could give to struggling managers trying to make strategy in the real world. To both academics and managers, this is a problem.

The solution came in that phrase, 'best practice', which is so beloved of managers these days. The idea of best practice implies that there is a single best way of doing things that applies in all situations. Yet we know from decades of research into organisational effectiveness that this is not the case. In reality, there is no such thing as 'best practice' in business, only 'best fit', meaning that what works is what fits the situation you face. As with many obvious ideas, academics give this concept a pretentious name, 'contingency theory', but it is a principle that all real-world managers understand well. Once realised, our question became how to apply contingency theory to improving the practice of strategic planning.

As with other aspects of life, we learn most about how business works by our mistakes. There are mountains of research into the failure of strategic planning and a careful analysis of it reveals two key facts:

• Strategic planning is often messed up by the market. In particular, companies that do lots of careful analysis and rational planning can get left behind in turbulent, fast-changing markets. In these cases, we know that intuitive vision can work faster and better. However, we know that complex markets can overwhelm visionary leaders, simply because the complexity is too much for anyone to understand without the tools of strategic analysis.
• Strategic planning is often messed up by the organisational culture. Highly trained and rational MBAs are oftern thwarted by cultures that don't believe in their textbook thinking. Intuitive managers are also frustrated by bureaucratic, conservative cultures. From this research came the idea that strong strategies came from 'bicongruent' planning. That is, any colour of planning will work if it fits the conditions of your market and the organisational culture. By the same logic, any colour of planning weak strategies can create weak strategies if it fails to fit with either the market or the culture.

At this stage in our research, bicongruence was only a theory. It seemed right and a natural implication of the many decades of other researchers' work, but we had no proof it was true, so we set out to test the theory. In an article of this length, there is no place for the details of academic rigour. Suffice it to say that we surveyed and interviewed hundreds of managers. Most of our research was in the form of in-depth interviews to see beneath the surface of what they did. The results were conclusive. Not only did we find that the bicongruence theory was right, we uncovered the detailed mechanics of how it works.

Strong strategies happen when companies use enough textbook planning to cope with the complexity of their market and enough intuition to cope with its turbulence. And because every situation is different, a different blend is best for each market. Matching the planning style to the market was not enough, however. That style only produced good strategies if the company culture allowed it to work. Intuitive strategy making, for instance, needs a culture that lets leaders lead and their followers do their job.

This 'demarcation' of roles is vital in turbulent markets that need a very intuitive colour of planning. In complex markets, where rational planning was needed, the culture had to value analysis and the people with those skills. Often, firms which had been born with a culture based on intuition found it impossible to make the textbook work. Finally, making strategy by experiment needed a culture that allowed people to make mistakes without blame, something many Anglo-Saxon cultures struggle with.

So what's the bottom line? Is this just another piece of academic theory or does it have real-world implications for managers? Unsurprisingly, we think the latter. Managers can make better, stronger, strategies by following the steps below:

What should you do differently?

There are five key steps to improving the way your firm makes strategy:

1. Assess the complexity and turbulence of the market.These market conditions determine the best colour of strategy making for your company, so make an objective assessment of them first.

2. Select the most appropriate colour of strategic planning. This is complicated but the general rule is complex markets need rational planning, turbulent markets need intuition. All markets need some experimentation.

3. Adjust the culture to support the style of planning. Don't attempt complete cultural change, which rarely works. Instead, just adjust those parts of the culture that are important to making the planning process work.

4. Implement the planning process. Different colours of strategy making involve different ways of understanding the market, choosing a strategy and implementing the actions. Do it so it suits your market.

5. Test the strategy. After your planning process has produced the target customers and what to offer them, test those choices against the golden rules. Do this before the expense of implementing the strategy.

But be warned! Bicongruent planning isn't easy. If it was then everyone would do it and it wouldn't offer any competitive advantage. But tools, processes and practical tips are given in our new book and, after all, you have a simple choice. Become excellent at strategy-making, or hope that your competitors do not.

Read on . . .

If you want to know more then you may wish to read Brian Smith's latest book 'Making Marketing Happen: how great companies make strategic planning work'. Published by Elswvier Butterworth Heinemann it is available through leading high street and online bookstores.

© Brian Smith 2005