Note: The author, Mr. Cao Hu, President of KMG (China), will be a speaker at the '2020 China FMCG New Marketing Opening Course' organized by New Distribution in Zhengzhou from November 26-28. He will share more practical insights on enterprise growth. Interested friends should not miss this conference.

Global economic restructuring has profoundly affected the growth models of Chinese enterprises. In the past 24 months, 'gray rhino' events have occurred frequently.

The overall scale of the automotive industry has declined by double-digit percentages. Advertising investments in FMCG, pharmaceuticals, finance, and other industries have nearly halved. Some companies with tens of billions in revenue have collapsed rapidly, others are mired in debt and seeking restructuring, while more are running out of cash flow and desperately seeking transformation and new growth opportunities.

The economy is like the tide, with periods of fast growth and slow growth. Cao Hu, Global Partner and President of KMG China, believes: Chinese entrepreneurs have never truly experienced 'economic cycles' and habitually rely on successful experiences from fast-growth cycles to cope with the new normal! 'In fact, this approach is counterproductive and makes things worse.'

Typically, during an economic upturn, market demand is strong, and the focus of enterprise development is 'scale growth', with core indicators being market share and asset size, and main methods being low prices, debt expansion, and cross-industry mergers and acquisitions.

During an economic downturn, market demand is weak, and the focus of enterprise development is 'organic growth', which I call 'structural growth', with core indicators being profit share, cash flow, and customer assets, and main methods being industry contraction and marketing focus.

How entrepreneurs effectively use business strategy and marketing strategy becomes a key capability to achieve growth across economic cycles.

Over the past 38 years, KMG has served 376 Fortune 500 companies and over 200 global emerging enterprises, many of which have successfully navigated two economic cycles.

When we summarize the experiences of those companies that successfully crossed cycles and sustained growth, we find they share a common characteristic: they all have a clear and focused 'marketing strategy', and rarely adopt 'business strategies' characterized by industry consolidation and diversification.

-01- The Difference Between the Two Strategies

Business strategy typically tends to change a company's business portfolio to achieve a considerable level of profitability.

Its essence is to divert the company's business away from its current core business and toward other short-term high-profit areas, thereby enabling the company to profit more in new fields, or to allow companies with core qualifications and assets in new fields to acquire new qualifications.

Business strategy discusses strategic unit expansion, business restructuring, and proposing new investment portfolios. The driving force behind it is the pursuit of market share, price reduction, and low-cost debt. The CEO completes performance from this growth.

Marketing strategy, on the other hand, is quite different. It typically tends to change a company's marketing mix rather than its core business.

Its essence is to drive the company to enhance its core profitability and peripheral businesses through better use of marketing strategies and tactics. Marketing strategy discusses the company's marketing strategy, building a customer-centric organizational framework, penetrating target markets through innovation and value addition, and strengthening the links between various parts of the company's marketing and sales. The driving force behind it is total profit, customer wallet share, customer loyalty, vertical market penetration, and cash flow.

I believe that from a marketing perspective, the overall trend in the Chinese market over the past 10 years has been: industry concentration has increased across various sectors, average industry profits have declined, and consumer loyalty has further decreased.

When profit margins are squeezed, companies feel tense and turn to new business areas or chase new economic models such as the internet, real estate, new energy, electric vehicles, and cultural industries to gain returns and government funds.

But soon, companies become confused. They lose confidence in their core market, large amounts of cash flow are diverted to other industries, and the company no longer knows which industry it should be in.

Therefore, companies turn to strategic consulting firms, which explains why major global business strategy consulting firms are so active in China.

This process has continued for more than 20 years, and each time the outcome for companies is mostly unsatisfactory. Look at how many companies have fallen because of this. The truth is clear:

The fundamental reason most companies get into trouble is not that their industry has problems or that their business focus and structure are wrong, but that they lack effective marketing and sales and fail to maximize the potential of their core business.

Both marketing strategy and business strategy have their appropriate times for application. Companies should apply the right remedy.

Both business strategy and marketing strategy are important for a company's lifecycle. However, when a company is troubled by organic growth issues for a long time, marketing strategy usually becomes the first line of defense.

If the new marketing strategy does not work, then it is time to formulate a new business strategy. The problem is that many companies are used to pushing the cart with a horse rather than pulling it. They prepare for the worst first and then formulate a business strategy.

They should first check whether their marketing is in order and conduct regular 'Marketing Audits' of their marketing strategy and execution. But in most cases, this is not the case because Chinese companies rarely have a truly modern marketing department that applies marketing functions.

-02- Business Strategy and Marketing Strategy

Let me discuss in more detail: Business strategy typically consists of four parts—

  • Strategic audit
  • Strategic selection of the company's core business portfolio and capabilities
  • Core business strategy
  • Organizational change

Marketing strategy also typically has four parts—

  • Marketing audit and market trends
  • Strategic selection of market segmentation, target markets, positioning, value proposition, and brand
  • Tactical plans for product line, distribution and sales, promotion, and pricing
  • Execution and evaluation

A business strategy audit usually begins with a financial analysis of profits and resources, then moves to industry and competitive position analysis. In other words, it first analyzes money issues and then links to the general decline in the industry.

In contrast, a marketing audit begins with market share analysis by segment, then extends to changing customer needs, preference trends, and the company's positioning adjustments in response to these changes. In other words, marketing strategy starts with customer difficulties and desires and then links to declining market share and changing customer trends.

Please note these differences. When a business audit is completed, the company moves beyond its current core business and enters new core opportunities, which is a change in business model.

In contrast, when a marketing audit is completed, the company finds that it has lost a certain market share and favorable positioning in its original target market and discovers new target segments within its core business. This does not require changing the company's core business; it only requires changing the marketing model.

Business strategy then, while rescuing the current core business, selects the future core business portfolio. Marketing strategy, on the other hand, selects attractive customer groups, studies their needs and desires, and decides on new product features and design, new ways customers expect to receive, perceptions of the product, acceptable prices, etc. The company does not necessarily have to leave its original industry and business; it only needs to pay more attention to customer needs.

Business strategy then proposes long-term strategies (3-5 years) and tactical plans for the new core business portfolio. On the other hand, marketing strategy guides R&D innovation to develop new products, related services, new distribution policies, improved outlets and sales management, new brand launches and promotions, and new pricing policies through research on consumer needs and desires.

These are short-term and near-term tactical actions (1-2 years) that can quickly improve corporate profitability.

Business strategy then restructures for the new long-term business portfolio. This is a high-cost and irreversible process. It requires new long-term organizational structures and operational processes.

Marketing execution requires that organizational improvements and resource investments be reflected in the current marketing budget. Companies monitor their marketing ROI and maintain a certain flexibility to adjust strategies at any time. Marketing execution does not require large-scale restructuring and allocation of organizational, process, and financial resources.

To make the theory simple and understandable, I have simplified the differences between business strategy and marketing strategy here. Many entrepreneurs do not truly understand the difference between the two. They are overly obsessed with business strategy, integration, mergers, 'internet thinking', 'platform strategy', and other trendy concepts, while ignoring the truly important and easy-to-operate 'marketing strategy': solving their problems through marketing planning and efficient execution.

Nike and Starbucks have never changed their business strategy from day one to today.

Nike has never produced a single shoe but has always been engaged in continuous market research to support new product design, promotional activities, distribution, and pricing.

Starbucks started in the coffee business and still operates in this business globally. Through continuous marketing strategies and tactical campaigns—developing new coffee types, location experience, brand building, value proposition, premium pricing, and digital marketing—it has achieved remarkable profits.

If the above examples are too 'classic' and feel distant, let me give a case from my personal experience:

This is a story of a German company.

This German company is our client. Its core business is cosmetics OEM manufacturing. In the eyes of many Chinese entrepreneurs, this is absolutely not high-end and is a typical 'red ocean'.

But what would you think if I told you that this company has been operating for over 110 years and in 2010 its sales revenue exceeded 1.2 billion euros?

There are many factors for this company's success, but the most fundamental reason is 'focus on sustainable marketing and continuously enhancing customer value'.

In over 100 years of history, they have accumulated a huge customer asset and customer knowledge. While many companies were transforming, they persisted and thrived.

KMG helped this company improve its marketing organization and customer management system, especially by establishing a 'cosmetics consumer trend competitive intelligence system', enabling the company to perceive changes in consumer behavior and needs in cosmetics use even before its clients, and then promptly coordinate product changes with clients.

Through the implementation of these refined marketing strategies and tactics, the company was able to establish a global supply chain management system, significantly reducing production costs, thereby creating value for its clients.

I must specifically state: I do not believe that it is always wise for a company to maintain its original business without change. Remember, Xerox and Polaroid failed by staying in copiers and cameras, and General Motors nearly failed by continuing to produce standard-size passenger cars and trucks.

But these companies did not focus on studying customers like Huawei, Haier, P&G, Toyota, and Honda did. Their marketing strategies were replaced by PR and advertising tactics. General Motors and General Electric have not become marketing giants in decades! Better marketing strategies might have saved them.

I never think that marketing strategy is always better than business strategy; it's just that most Chinese companies don't even try to use marketing strategy.

Marketing strategy can cure a company's ills without the need for extreme, uncertain large-scale business restructuring. I hope that in 2020, Chinese entrepreneurs will truly focus on strategic marketing, deeply think about customer value innovation, reflect on the essence of their business, and create new growth engines! It is time for companies to create real value for consumers.

Finally, I will end this article by borrowing three reminders from Dr. Milton Kotler, Global President of KMG:

  • Do not jump into business strategy before trying to solve difficulties with marketing strategy.
  • A new business strategy may look promising, but without a good marketing strategy, it will also fail.
  • If you don't have good marketing to support your core business to the greatest extent, then nothing can continuously save your core business.

Source: Kotler Marketing Strategy (ID: kmg1981)

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