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Part 4: Extending Marketing (Chapters 18–20)

18 Creating Competitive Advantage

Chapter Preview

In previous chapters, you explored the basics of marketing. You learned thatthe aim of marketing is to engage customers and to create value for them in order to capture value from them in return. Good marketing companies win, keep, and grow customers by understanding customer needs, designing customer-driven marketing strategies, constructing value-delivering marketing programs, engaging customers, and building customer and marketing partner relationships. In the final three chapters, we’llextend this concept to three special areas: creating competitive advantage, global marketing, and social and environmental marketing sustainability.

To start, let’s dig into the competitive strategy of Microsoft, the technology giant that dominated the computer software world throughout the 1990s and much of the 2000s. Its Windows and Office products have long been must-haves in the PC market. But with the decline in standalone personal computers and the surge in digitally connected devices—everything from smartphones and tablets to internet-connected TVs—mighty Microsoft recently found itself struggling to revamp its competitive marketing strategy in a fast-changing digital environment. The tech giant is now reinventing itself as a relevant brand that consumers can’t live without in the post-PC era.

MICROSOFT: A New Competitive Marketing Strategy for the Post-PC Era

Fifteen years ago, talking high-tech meant talking about the almighty personal computer. Intel provided the PC microprocessors, and manufacturers such as Dell and HP built and marketed the machines. But it was Microsoft that really drove the PC industry—it made the operating systems that made most PCs go. As the dominant software developer, Microsoft put its Windows operating system and Office productivity suite on almost every computer sold.

The huge success of Windows drove Microsoft’s revenues, profits, and stock price to dizzying heights. By the start of 2000, the total value of Microsoft’s stock had hit a record $619 billion, making it the most valuable company in history. In those heady days, no company was more relevant than Microsoft. And from a competitive standpoint, no company was more powerful.

But moving through the first decade of the new millennium, PC sales growth flattened as the world fell in love with a rush of alluring new digital devices and technologies. It started with iPods and smartphones and evolved rapidly into a full complement of digital devices—from e-readers, tablets, and sleek new laptops to internet-connected TVs and game consoles. These devices are connected and mobile, not stationary standalones like the old PCs. They link users to an ever-on, head-spinning new world of information, entertainment, and socialization options. And, for the most part, these new devices were coming to market without the need for Microsoft’s tried-and-true products. Increasingly, even the trusty old PC became a digital-connection device—a gateway to the web, social media, and cloud computing. And much of that could be done without once-indispensable Microsoft software.

In this new digitally connected world, Microsoft found itself lagging behind new, more-glamorous competitors such as Google, Apple, Samsung, and even Amazon and Facebook, which seemed to provide all things digital—the smart devices, the connecting technologies, and even the digital destinations. In the new competitive environment, although still financially strong and still the world’s dominant PC software maker, Microsoft lost some of its luster. In the year 2000—due largely to the collapse of the stock market technology bubble—Microsoft’s value plummeted by 60 percent. And whereas other tech stocks recovered, Microsoft’s share price and profits languished at early 2000’s levels for a dozen years or more.

Over the past few years, however, in an attempt to align itself better with the new digital world order and the host of new competitors, Microsoft has undergone a dramatic transformation in its vision and competitive strategy. Microsoft now wants to be a full-line digital devices and services company that delivers “delightful, seamless technology experiences” that connect people to communication, productivity, entertainment, and one another.

Under this new competitive strategy, Microsoft has unleashed a flurry of new, improved, or acquired digital products and services. Over the past few years, it has introduced new versions of Windows and Office that serve not just computers but also tablets and smartphones, a next-generation Xbox console that doubles as a TV, a music and movie service to rival iTunes and Google Play, an upgraded version of Skype, the OneDrive cloud storage solution, and even innovative new digital hardware—the Microsoft Surface tablet and Microsoft Surface Book laptop—that it hopes will lead the way to even more innovative Windows devices.

But these new individual offerings don’t begin to tell the full story of Microsoft’s transformation. More important is the way that these software, hardware, and service offerings work together to deliver a full digital experience. It all revolves around Windows 10, a dramatic digital-age metamorphosis from previous Windows versions. Windows 10 employs colorful, interactive tiles and touchscreen navigation, with interactive features that compete head-on with the systems of rivals Apple, Google, and Amazon. Best of all, Windows 10 works seamlessly across desktops and laptops, tablets, phones, and even the company’s own Xbox, providing the cloud-based connectivity that today’s users covet.

Using Windows 10 software and apps with Windows-based devices and cloud computing services, you can select a movie from a tablet, start playing it on the TV or Xbox, and finish watching it on your phone, pausing to call or text a friend using Skype. What you do on one Windows device is automatically updated on other devices. Playlists created or songs and TV programs purchased from a mobile device will be waiting for you on your home PC or laptop. And Windows 10 is a social creature; for example, it updates contacts automatically with tweets and photos from friends. The new Windows seems to be pushing all the right digital buttons for customers. In its first eight months, it was placed on 270 million active devices, making it the most successful launch in Windows’s nearly 30-year history.

The latest version of Microsoft Office—Office 365—has also been transformed for the connected age. Office 365 positions Microsoft’s venerable productivity suite as a service, not just standalone software. With an annual subscription, you get the latest version of Office, a terabyte of cloud storage on OneDrive, 60 minutes of Skype calls per month, free updates and new features, and free tech support by phone or chat through the Microsoft Answer Desk. Microsoft also released an Office version for Apple devices. So Office now works across devices, operating systems, and the cloud, making it easier than ever to stay connected with others and to create and share documents on the go.

In the fast-changing digital environment, Microsoft is revamping its competitive strategy to make itself a brand that consumers can’t live without in the post-PC world.

VESA MOILANEN/Stringer/Getty Images

Perhaps Microsoft’s biggest about-face is the development of its own hardware devices. In the past, the company has relied on partners like Dell, HP, and Nokia to develop the PCs, tablets, and phones that run its software. But to gain better control in today’s superheated digital and mobile markets, Microsoft is now doing its own development of Windows-enabled devices.

For starters, Microsoft developed the cutting-edge Surface tablet, a unique combination of tablet and mini-laptop. More recently, it released its first dedicated laptop, the Surface Book, which goes head-to-head with the Apple MacBook Pro. Microsoft is also dabbling seriously with mobile phones, first buying then selling phone maker Nokia and now rumored to soon be introducing a Windows-based Surface phone of its own. The Surface line, along with Xbox, will give Microsoft better control of access to three important digital screens beyond the PC—tablets, TVs, and phones.

Microsoft’s revamped competitive strategy also plays to the company’s long-held competitive advantage in business markets as the company plunges headlong into new business products and services. In addition to flexible bundling of its Windows, Office, and Enterprise Mobility Suite for business customers, Microsoft now offers Azure, a “cloud for modern business.” And it recently acquired Yammer, a web-services provider and hip maker of business social networking tools—a sort of Facebook for businesses. Finally, Microsoft is now exploring a wide range of futuristic digital technologies, from intelligent chatbots, machine learning, and augmented/virtual reality to Internet of Things applications.

Thus, Microsoft’s sweeping competitive strategy transformation is well under way and the company seems to be making the right moves to stay ahead of the times. The company’s sales have trended strongly upward over the past few years, and Microsoft is confident that it’s now on the right track. Still, continued success will depend on the Microsoft’s ability to effectively adapt to—or even lead—the lightning-quick changes occurring in the marketing environment. “The opportunity ahead for Microsoft is vast,” says Microsoft’s CEO, “but to seize it, we must focus clearly, move faster, and continue to transform.”1

Objectives Outline

TODAY’S COMPANIES FACE THEIR toughest competition ever. In previous chapters, we argued that tosucceed in today’s fiercely competitive marketplace, companies must move from a product-and-selling philosophy to a customer-and-marketing philosophy.

This chapterspells out in more detail how companies can go about outperforming competitors to win, keep, and grow customers. To win in today’s marketplace, companies must become adept not only in managing products but also in managing customer relationships in the face of determined competition and a difficult marketing environment. Understanding customers is crucial, but it’s not enough. Building profitable customer relationships and gaining competitive advantage require delivering more value and satisfaction to target customers than competitors do. Customers will see competitive advantages as customer advantages, giving the company an edge over its competitors.

In this chapter, we examine competitive marketing strategies—how companies analyze their competitors and develop successful, customer value–based strategies for engaging customers and building profitable customer relationships. The first step is competitor analysis, the process of identifying, assessing, and selecting key competitors. The second step is developing competitive marketing strategies that strongly position the company against competitors and give the company the strongest possible strategic advantage.

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Table of Contents for Part 4: Extending Marketing (Chapters 18&#8211;–20)

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Table of Contents for
Part 4: Extending Marketing (Chapters 18––20)