Some would argue that we have been experiencing a digital revolution in the last decade but the rapid technological progress has been happening since the 80s. When you go through the press and read more about the challenges of the digital era, today as well as 30 years ago, the problematics stay similar – questions regarding the future of work, changes in productivity and effectiveness, sustainability of widely accepted business models.
Companies are struggling with the basic principles of running a business – creating and maintaining a competitive advantage. With the constant rise in the competition, data availability and innovation, businesses should focus now more than ever on planning and long-term strategy while taking advantage of digital tools that can provide the necessary differentiation. The same applies to digital marketing. What competitive advantage can one gain with digital marketing and how to best make use of technology and resources?
The study of competitive advantage
A Harvard Business School professor, Michael Porter, is the key figure in explaining competitive advantage. In the 80s he identified three main strategies and his work on the topic became extremely relevant for the development of business management thought. Before heading on and finding real-life digital marketing examples of these three strategies, let’s understand his thinking first.
According to Porter, a business must find a way to build a sustainable long-term competitive advantage so it can maintain and improve its position in the market. The way to do it is either through low cost or differentiation. By researching business models and companies these two types then lead him to form three main strategies – cost leadership, differentiation, and focus. Are these concepts still valid?
This strategy revolves around cutting costs and improving operational efficiency. One of the ways to dominate the market using cost leadership is to charge lower prices. However, there is another way of achieving this. The product itself doesn’t have to be low cost since the strategy can be implemented with companies reducing costs while still charging industry-average prices.
So, how is this relevant in the digital industry? Well, one of the main ways to form cost advantage can be through proprietary technology. With the development of various marketing software and SEO tools, by investing in them a company can reduce the cost of its marketing department.
A more efficient digitalization of the marketing department can mean a better allocation of the resources – more focus on strategy and planning. Once a company discovers and starts using digital platforms that can help with customer data, communication, social networks, e-commerce marketplace and other aspects of the marketing mix, they can spend more time and resources on the product itself.
Take the example of Adobe. Gartner’s 2017 Magic Quadrant for Digital Marketing Analytics report named Adobe the leader in digital marketing analytics, the third year in a row. The main reasons can be found in their “completeness of vision” and “ability to execute”, all achieved through digital customer experience. What they do is use leading analytics tools to track customers’ journey across various devices, creating behavioral pathing and advanced segmentation.
Unlike Adobe that knows where their investments lie at, many companies invest large sums of money in getting the data without actually putting it to use. Imagine the cost of a marketing department trying to stay in touch with relevant technology without having a clear idea on what segment to focus on. They put themselves in a cost extensive situation and lower their ability to execute. In the words of Adobe’s product marketing strategist Clay Warren: “The cost of companies satisfied with status quo insight tools is the difference between being a leader and getting left behind.”
Differentiation strategy means a company is able to provide a unique, high-quality product that is more attractive than the product of a competitor. In order to get there, a company must find features that customers rate as the most valuable and position itself to meet those needs. Those who choose to go along that path must focus on innovation, research and development, functionality and support.
A great example is Moz, once a leader in digital marketing software market, now losing its competitive advantage. The reason- failure of its product. Over the years, Moz had a number of problems with an increase of products, bugs and delayed features, slowly losing the competitive advantage it once gained with differentiation. The result – in 2016 they laid off just over a quarter of employees. Rand Fishkin discussed the situation here.
A company can choose to differentiate itself by focusing on a different aspect of digital marketing and excelling at it- whether it’s by focusing on content marketing, social media, customer experience, email marketing, SEO…
According to Econsultancy, data and customer experience are key differentiators in 2018. Their Digital Trends report found that 16% of company respondents said data is the most exciting opportunity for 2018, unlike 10% in 2017. Their conclusion – it’s the year of CX again.
This leads us to Porter’s third strategy – focus. It means companies must do a good job of identifying their segments and target audience. Just focusing on a target market is not enough, they should then choose between using cost leadership or differentiation strategy.
Speaking of segmentation and targeting, we are seeing an increased use of psychographic segmentation. Just recently we witnessed the effectiveness of it on the example of Cambridge Analytica. But why is this a good example? Primarily since psychographic segmentation is not a new concept at all. In fact, the term was first introduced in the 60s and only a decade later it became a crucial part of market research studies. What can be seen as a step up is the combination of psychographic segmentation with behavioral data that we started witnessing a few years ago. In an article published by Marketing Week, professor Mark Ritson states that when combined, the two can create supremely effective targeting.
As useful as it may sound, creating and maintaining a competitive advantage with digital marketing has many challenges. The main one – CEOs, marketers and shareholders are still getting used to digital marketing. Many lack the necessary capabilities, resources, technology or people.
Just take this report done by Epsilon and Econsultancy called Leading a Digital Marketing Evolution. What they did is formed three main groups of companies depending on how they are dealing with new marketing technologies- leaders, mainstream and followers. The chart below shows the main weaknesses three groups identified when it comes to taking advantage of digital marketing. All point to one thing – failures in harnessing marketing technologies.
Another interesting statistic that confirms what companies lack can be found here. Just 39% of businesses included in a Capgemini study feel they have the right digital capabilities. Speaking of the people, only 35% said to have the right leadership in place in order to make progress with digital transformation. Finally, when it comes to resources, 38% state they have a formal plan to reskill employees.
Competitive advantage in terms of digital marketing is an extremely perspective way of dominating the market. Traditional methods of market research and strategy are now more relevant than ever and present new opportunities, especially when combined with leading technologies. However, businesses have a long way to go to make their digital transformations as smooth and effective as possible, resulting in a profitable position in a market.