Strategic Planning, Beyond Divvying Up Resources
How insights from behavioural economics can help solve thorny social issues
Over his more than 30 years of teaching and consulting, Ken Wong has seen an evolution in the marketing function and the management of brands. In this second in a series of video commentaries, Wong, Distinguished Professor of Marketing at Smith School of Business, talks about the importance of using the strategic planning process as an opportunity to understand consumer needs rather than as an instrument of resource allocation.
Strategic planning has become an instrument of financial planning. It’s based on what would happen to sales or costs and therefore what would happen to our bottom line. It’s about looking across all products that an enterprise offers and making portfolio decisions as to how to allocate resources across all these various businesses. The high fliers get the lion’s share and those that aren’t showing great promise are either cut back or terminated.
But, traditionally, strategic planning has been an extension of contingency planning: being ready for the future and trying to make certain that, as the future evolved, you were properly prepared. Strategic planning should return to the basics: what is the problem that consumers are trying to solve? Once you understand that you can ask, Is our product the best solution to that problem? What do we have to add to the product, either product features or associated services, that can make it a more perfect solution?
Strategic planners must be conscious, over time, that consumers will change. We must understand not just the macro changes that will happen but attitude changes as well. We have to factor in how those attitudes will affect whether or not we believe our product is still the perfect solution for the consumer.
We also must be conscious of technology changes. There are many things we’ve always liked to have done but couldn’t because there was no technological capacity. We would always prefer to have a one-on-one conversation with the consumer but that wasn’t possible so we had to use mass media. We always knew past behaviour rather than attitudes was a better predictor of future behaviour but we couldn’t measure past behaviour so we made do. As technology changes, so too does our capacity to fully address the consumer’s problem.
A Place for Economics
I find many students relatively uninformed about the importance of economics and the study of marketing. Not just the microeconomics of running a firm but how economics affect the consumer’s budget decisions. Discretionary income. Credit. Savings. All these factors must be understood because they set the context within which the consumer seeks to find a solution to a problem. I may want a Lamborghini but unless the Minister of Education decides to elevate university budgets, I’m not getting a Lamborghini. If I’m part of your target market, you will have to understand the economic pressures I’m under if you’re going to figure out how to serve me and how not to serve me.
I give an example in class that in times of recession, we see massive sales. When the 2008 recession hit, suddenly Best Buy had a warehouse full of flat-screen TVs. So what do they do? They put them on sale and moved them out as quickly as they could. I’m a full-time tenured faculty member; I don’t fear for job instability. I’m in the market for a flat-screen TV. I know the price of these TVs and I walk into the store prepared to pay that price. What does Best Buy say? “Oh no, take some back, please. You’re paying too much.” Well, I didn’t ask for it but if you’re offering a discount, I’m happy to take it.
If you don’t understand economics and that certain circumstances affect people differently, you’re bound to be surprised when, during a recession, luxury brands grow at double digit levels. You’re surprised when, even though Hyundai becomes the fastest growing car brand, Mercedes Benz and BMW become number two and three respectively. This requires you to look at consumers and ask, Are we all affected to the same extent? Clearly, the answer is no.