Marketing Strategy and Competitive Positioning pdf ebook

CHAPTER 12 COMPETING THROUGH INNOVATION
partnership with companies such as Bosch, Continental and Delphi – leading suppliers to 
the industry. The growing technology content of the vehicle – about 40 per cent of the cost 
of the average vehicle already – creates a potential shift in power away from traditional 
brands and manufacturers to technology-led groups. While speculative for the moment, 
executives need to be constantly aware that innovation may reshape their industries in 
dramatic and unexpected ways (Gapper, 2015).
Increasingly, the challenge facing executives is not simply to launch new and better 
products and services, but to grasp how fundamental change is reshaping the industry and 
how to respond to this challenge.
12.1.2 Developing new business models
The business model, or business design, describes how a company makes money – how it 
generates revenue and profit by delivering value to customers – including the infrastructure 
and processes needed to achieve this goal. One of the hardest decisions for executives to 
confront is when the established business model has become obsolete, and how to change it. 
Tackling inefficiencies and developing better internal organisational processes is an impor-
tant part of a manager’s role, but coping with inefficiencies is ineffective if the business 
model has been displaced by something better.
The displacement of the recorded music CD by digital music downloads and now music 
streaming; the unbeatable challenge of the low-cost budget airlines to the established full-
service flyers; the superiority of agile fast-fashion companies such as H&M and Zara in 
speed and cost over established fashion clothes retailers; Google’s attempts to make the 
value chain in wireless mobile like that in the broadband Internet market (where applica-
tions are developed independently of device manufacturers and network operators) may rel-
egate operators to a minor and unprofitable role; the impact of open-source (free) computer 
software from Linux and Sun on conventional software producers such as Microsoft – all 
are examples of new business models displacing the old by offering better value to custom-
ers. Further, it’s worth noting that many (if not all) of these innovative models may seem 
obvious now, but most certainly did not at the time of their introduction.
A prime example of the power of a new business model is provided by the Uber taxi 
service business model. Uber has proved to be an incredibly disruptive business model in 
many cities and countries across the globe, and at the time of writing is poised to go public 
in just a few days, targeting a value of $90 billion, all without ever having made a single 
cent in profit. While Uber has expanded its initial ride-hailing offering into food delivery, 
freight and other services, it’s worth reflecting on Uber’s initial offering in more depth. 
Uber’s ‘big idea’ was to see that an online platform could allow individual customers to 
contact individual drivers to arrange rides (‘ride-hailing’), without the transaction costs and 
aggregation inefficiencies inherent to prior business models (traditional taxi companies). 
This allows a lower cost to the customer, and greater convenience. Further, costs to Uber 
are lower because it does not need to own any vehicles, or technically employ the drivers 
themselves, who are classed as independent contractors. Of course, this arrangement has 
proved popular with customers, but less so with regulators or conventional taxi firms. 
Indeed, Uber is at this point facing a strike by many of its drivers in protest at their share 
offering, because they feel exploited by the firm. Local and national regulators also take a 
strong interest in the employment model Uber and companies like it operate. This model 
has been termed the ‘gig economy’, and has come in for significant criticism for marginalis-
ing workers and avoiding protections such as unionisation and employment benefits. On 
the other hand, many Uber drivers praise the flexibility that the model offers them. Either 
way, the genie is out of the bottle, and the basic Uber concept has spread far and wide, so 
that online platforms don’t just coordinate hundreds of thousands of freelancers to drive 
taxis (Uber), but also rent rooms (Airbnb), clean laundry (Laundrapp) and perform other 
services. These are all businesses that create a platform by combining the characteristics 
of companies and markets in which the supply chain operates as a marketplace. The Uber 

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INNOVATION STRATEGY
phenomenon is about the creation of new business forms that replace the tired, unrespon-
sive, clumsy, slow structures of conventional companies as a better way of delivering value 
to customers. Traditional organisations are increasingly unable to support the innovation 
and radical change demanded by the marketplace.
It is increasingly the case that competition is between business models rather than prod-
ucts and companies. It follows that companies require a capacity for continuous reconstruc-
tion or resilience to overcome forces that do no more than perpetuate the past, and to seek 
out innovation for the future (Hamel and Välikangas, 2003). This explains the swapping 
of workers between Google and Procter & Gamble – the goal is to stimulate innovation in 
taking consumer products into online value chains.
The organisational changes at successful companies such as Procter & Gamble and 
IBM in their search for valuable innovations that benefit customers, underline the fact that 
real innovation, which taps into new value creation opportunities, is likely to be disruptive 
and challenging, not incremental and predictable. Indeed, although innovation in market-
ing often refers to technology and products, the most important innovations may actually 
be in how we think about management and implement organisational change – manage-
ment innovation changes how we work and is directly linked to sustainable competitive 
advantage. The constant search for better ways of managing underpins outstanding suc-
cessful innovation at companies such as Toyota and Procter & Gamble (Mol and Birkin-
shaw, 2007). In many ways, the ‘innovative company’ has become the critical aspiration 
for management.
For example, several car makers are looking at ‘pay-as-you-go’ plans for younger con-
sumers, as well as participating in new car-sharing schemes, which aim to free urban dwell-
ers from the need for car ownership in any form. Daimler, for instance, is working on a new 
‘pay-as-you-drive’ business model that makes car use more like using a mobile phone than 
owning a vehicle in the conventional way. In the cosmetics sector, L’Oréal is pursuing a new 
business model based on ‘accessible innovation’ to expand its base into new and emerging 
markets. In the retail sector, new value chain models include ‘pop-up shops’ – temporary 
retail outlets operated by firms such as Prada and Harvey Nichols, or by Internet fashion 
houses, to provide a new offer to their online communities. Marmite, for example, had a 
novel temporary store on London’s Regent Street. These are innovations in business models, 
not simply in products.
These broad strategic issues should be addressed operationally in considering the link 
between effective marketing strategy and positioning and innovation. In several important 
ways, the most appropriate words to describe modern markets are revolution, reinvention 
and renewal:
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