PersPectiVe to strategY - Strategy from the Outside …

1 An Outside /in PersPectiVe to Strategy . STEP Outside TO SEE WHAT'S iMPOrTANT. BY GEORGE S. DAY AND CHRISTINE MOORMAN. t he history of most successful firms and brands begins with a Strategy designed from the Outside in. With this approach, the management team steps Outside the company and looks first to the market. What do custom- ers need? How and why are customers chang- ing? What can we do to better solve their prob- lems and meet their emerging needs? This is the story behind the successful rise of Liz Claiborne Inc. in the fashion world. Liz Claiborne was founded in 1976 as a fashion design company that sold professional women's clothing through high-end department stores. The company identified a new market segment: women who needed clothes to wear to offices as they entered the workforce. As Claiborne her- self noted: The goal was to clothe the working American woman. I was working myself, I want- ed to look good and I didn't think you should have to spend a fortune to do it.

2 22 | M A r k e t i N G M A N AG e M e N t | fa l l 2 011. MM Fall 22 9/9/11 11:49 AM. fa l l 2 011 | M a r k e t i ng p ow e r . co m | 23. MM Fall 23 9/9/11 11:49 AM. Seeing every aspect of the company's Strategy from the expert Peter Drucker): to create and keep customers. This customer's point of view, Liz Claiborne made clothes that means resisting the temptation to focus solely on sharehold- actually fit the shape of women's bodies, designed clothes ers, on playing games with financial statements or on com- as collections that made for easy mixing and matching, and petitive advantages that don't improve the value proposition offered breakfast clinics for women to attend before going for customers. to the office. We've spent years analyzing these successful companies . Retailers were required to buy entire collections and and many not so successful ones looking for patterns and display them in prescribed ways, essentially creating a store commonalities.

3 Our analysis leads us to conclude that gener- within a store. Compared with high fashion, the com- ating economic profits over the long term involves strategies pany was also reasonable on price, using low-cost overseas that are built and renewed through a customer value lens, production facilities, so that customers could be confident and illuminated by deep market insights. These Outside -in that they didn't need to shop around to get a fair price. This strategies are achieved through four customer value impera- Strategy allowed Liz Claiborne to build a trusted brand tives: among career women who didn't have a lot of time to shop. Be a customer value leader. By 1991, sales had reached $2 billion, net income hit $ Innovate new value for customers. million and the stock price was at an all-time high. Capitalize on the customers as an asset. Capitalize on the brand as an asset. Strategy Success Paradox Why do companies guided by Outside -in Strategy think- Following an early and sometimes long-standing market ing deliver better long-run performance?

4 They always know success, firms may succumb to inside-out thinking. Compla- what constitutes value to their customers. As a result, their cency and arrogance lead to a turning inward that focuses actions are targeted and precise, rather than wasteful and on protecting the status quo and extracting the maximum unfocused. These companies are ready sooner, responding short-run return from current assets. Instead of seeking new quickly to market shifts and delivering superior growth by sources of value for current or new customers or compel- pursuing a full spectrum of innovation pathways. They build ling growth opportunities, the emphasis during the Strategy valuable brand and customer assets that are, in turn, lever- dialogue shifts to asking, How can we exploit our current aged and protected to maximize returns to the firm's bottom brands, reduce costs, gain more share and improve produc- line. tivity? These are worthy questions; however, in the absence The paradox is that successful firms tend to turn their of a set of complementary market-centric questions, they backs on the customer moves that contributed to their can have the effect of gradually disconnecting the firm from success.

5 Instead, they chase volume, exploit what they can customer changes and emerging competitive threats. do, and emphasize efficiency and cost cutting. How can the By the end of 1994, Liz Claiborne was in trouble. The pull of inside-out thinking be averted? Liz Claiborne did early 1990s saw an increased trend toward casual work attire it by reclaiming a focus on what working women wanted, that the company completely underestimated. In addition, and designing clothes that fit those needs. For example, retailers were suffering liquidity problems during this time the company learned that women were playing more roles and cut staff to the bone employees who knew how to throughout the day, so they needed clothes that were more display and sell Liz Claiborne's products. This meant that versatile than in the past. It also changed its supply chain to retailers did not represent the products as effectively as in deliver new designs to market faster in order to please its the past.

6 Competitors' superior improvements in sourcing fashion-conscious consumers. The company also revisited its and reordering systems put the company at a price disad- business model to offer retailers, its first customer, services vantage. Despite its origins as an Outside -in fashion leader, to install and maintain in-store fixtures that showed end Liz Claiborne did not shift its strategies to the new circum- users how products could be coordinated for mixing and stances. Sales stopped growing and net income dipped to matching. In a complete transformation, by the end of 1997, $ million, resulting in a drop in market cap from $ the company had regrown its sales to $ billion and its net billion to $ billion. income to $ million. Such strategic missteps occur regularly with even the What guidelines can we offer firms trying to create most successful companies. The antidote to the natural pull or maintain an Outside -in approach? We will answer this of inside-out thinking is to drive Strategy thinking from the question by first showing why marketing should be account- Outside in.

7 At its core, an Outside -in Strategy remains focused able for the aforementioned imperatives and explaining the on the purpose of a business (as stated by management imperatives further, and we'll finish by sharing lessons about 24 | M a r k e t i ng M anag e m e n t | fa l l 2 011. MM Fall 24 9/9/11 11:49 AM. how marketing can lead the firm to be including service, financing, techni- Outside in. B r i E F ly cal assistance and so on. The brilliance of customer value who should Be accountable? leaders lies, in part, in their humility . The four customer value imperatives Be a customer value leader. they understand that they cannot be are the responsibility of the entire all things to all customer segments. innovate new value for C-suite, and require the engagement These companies make the hard and understanding of every part of the customers. choice of which segment to target, organization. If senior management Capitalize on the customers offer a value proposition that is is not fully committed, then inside- as an asset.)

8 Distinct from those offered by their out thinking will inevitably take hold, competitors and deliver this value . customer value will wane and profits Capitalize on the brand as often underperforming in other will erode. Also, executing on the four an asset. segments that they do not select. imperatives requires every part of the Nike is a performance value firm's governance and operations leader. When it burst onto the scene incentives, hiring decisions, finance, sales and beyond be in the 1980s, Nike married its performance advantages with properly aligned to the pursuit of superior customer value. a fashion sense that swept the world. From this beginning, Employees must see clearly how their activities contribute it has introduced technological innovations such as cross- to that value. For example, the logistics/information- trainers and Air Jordans. Its newest products have upheld technology group enhances customer value when it works that reputation: Flywire footwear that is super lightweight with a major account to coordinate supply chains.

9 Service and uses threads stronger than steel, Pro Players sports- operations improve customer value by learning to anticipate wear that wicks and breaths with a second-skin fit and the and solve service problems even before they happen. SUMO2 5900 driver that takes a golfer's moment of inertia Yet if everyone in the C-suite is responsible, then no one to exceptional levels. may be accountable in the sense of being answerable for Zappos is a relational value leader in shoes, apparel, these actions. The potential cost is a lack of strategic consis- handbags and related products. It sells the same products tency, leading to ambiguous value propositions and reactive as many other firms but creates strong brand affinity by decisions. Increasingly, firms are recognizing this reality going to extremes in customer service: free shipping on all and holding the CMO accountable for orchestrating all the purchases (and both ways, so that customers feel comfort- company's activities on behalf of the customer.)

10 However, the able ordering multiple sizes and returning what doesn't key issue is the role and not the title. In many firms we've fit), a 365-day return policy, staffing its call center 24/7 and studied, the person holding the title of CMO or head of the surprise upgrades like overnight service. Like all relational marketing function does not have the authority, the budget value leaders, Zappos has intensely loyal customers and gets or the ability to succeed in this role. The contribution of approximately 75 percent of its sales from repeat customers. the marketing function, and especially the role of the CMO, A strong customer-focused culture and the best customer- must be earned. relationship management system in the retail trade underlie these strategies. Customer Value imperatives Family Dollar Stores is a price value leader. This 1. Be a customer value leader. Customer value leaders small-box discounter leads its industry by staying tightly outperform their rivals by delivering superior value to a focused on its budget-constrained customer.