JOURNAL OF THE ACADEMY
Varadarajan
OF/ CONTENT
MARKETING
AND
SCIENCE
PROCESS PERSPECTIVES REVISITED WINTER 1999
MARKETING IN THE 21ST CENTURY
COMMENTARY
Strategy Content and
Process Perspectives Revisited
P. Rajan Varadarajan
Texas A&M University
Sheth and Sisodia (1999) in their article titled, “Revisit-
ing Marketing’s Lawlike Generalizations,” make a number
of timely and insightful observations centered on the ques-
tion of why some lawlike generalizations in marketing
may need to be either modified or enhanced. According to
the authors, the need for revisiting generalizations in mar-
keting has risen in light of the fact that the context under
which these were initially advanced has changed signifi-
cantly. Although I do not fully concur with some of their
assertions, assessments of the current state of the field, and
the direction in which the field should move forward, in the
1
aggregate, I agree with the basic thrust of their article. A
dynamic discipline, such as marketing, should periodi-
cally undertake an assessment of its inventory of generali-
zations and critically evaluate the need for refinements and
modifications.
In fact, beyond refinements and modifications, such a
critical assessment might also point to theories, concepts,
analytic frameworks, tools, techniques, and so on that
merit being discarded. There is indeed a pressing need for
the marketing discipline to undertake a housecleaning ini-
tiative to rid its textbooks of outdated business concepts
and analytical tools and techniques of dubious value.
Analogous to the top management of multibusiness firms
having to address the scope decision (what new businesses
should be added to the firm’s portfolio, and what busi-
nesses should be deleted from the firm’s portfolio?) and
marketing management having to address the product mix
decision (what new product lines, product items, and
brands should be added to the present product mix, and
which of the present product lines, product items, and
Journal of the Academy of Marketing Science.
Volume 27, No. 1, pages 88-100.
Copyright © 1999 by Academy of Marketing Science.
brands should be deleted from the mix?), there is a need for
marketing educators to address a similar set of ques-
tions—what to add, what to retain, what to modify, and
what to delete from the current inventory of ideas, con-
cepts, analytic frameworks, tools, and techniques.
A major premise underlying Sheth and Sisodia’s
(1999) work is that, more than perhaps any other field of
scientific inquiry, marketing is context dependent. When
the numerous contextual elements surrounding the prac-
tice of marketing change (such as economic forces, socie-
tal norms, demographic characteristics, public policy,
globalization, or communication technologies), they can
have a significant impact on the nature and scope of the
discipline. Such being the case, the authors note that a
critical reassessment of marketing’s lawlike generaliza-
tions is warranted. The authors focus on marketing’s
lawlike generalizations in the following four catego-
ries—location-centric, time-centric, customer-centric,
and competition-centric generalizations.
Sheth and Sisodia (1999) note that generalizations in
each of the above categories are currently being affected
by at least one major contextual discontinuity: location-
centric concepts by the explosive growth in Internet-based
commerce, time-centric concepts by the unique econom-
ics of fixed-cost dominated businesses, customer-centric
concepts by major demographic shifts, and competition-
centric concepts by recent approaches that value coopeti-
tion (cooperation as well as competition).
Consider for instance, Sheth and Sisodia’s (1999) call
for rethinking retail gravitation laws in the face of the
growing popularity of Internet commerce. The ripple ef-
fects of the dawn of Internet commerce are already evident
in a number of product categories. For example, some of
the new car sales by automobile dealerships in the United
 Varadarajan / CONTENT AND PROCESS PERSPECTIVES REVISITED
States are to customers who live as far away as 200 miles
from the physical location of the dealership (“Death of a
Salesman” 1997). After finalizing all other aspects of the
purchase transaction over the Internet, buyers visit the
dealership just to sign the purchase transaction–related
documents and take delivery of the car. In addition to the
emergence of cybermediaries such as Auto-by-Tel and
Car-Point in the automotive sector, the differential ability
and resource endowment of automotive dealers in exploit-
ing the potential of the Internet (and thereby being able to
cater to a served market dispersed over a much larger geo-
graphic area than suggested by the retail gravitation mod-
els) are likely to result in greater consolidation of the auto-
motive retail sector. Marginal retailers are either likely to
be acquired or exit the business.
While Sheth and Sisodia (1999) address a wide range of
issues in their article, in my commentary, I will limit my
focus to just the following three strategy formulation pro-
cess- and content-related issues but elaborate at length on
each issue:
• matrix approaches to business portfolio analysis and
planning,
• generic competitive strategies,
• strategic alliances.
Although, strictly speaking, these do not belong in the
genre of lawlike generalizations, the above perspectives on
strategy formulation process and strategy content have had
a major impact on marketing education and research dur-
ing the past quarter century. Research and academic dis-
course focusing on matrix approaches to business
portfolio analysis as an analytic input to the strategic
market-planning process dominated marketing literature
during the 1970s. Porter’s (1980) construal of generic
competitive strategies was the focus of extensive scholarly
research in the strategic marketing and strategic manage-
ment literatures during the 1980s. Although interorganiza-
tional cooperation has been integral to business practice
since the advent of trade and commerce, heightened organ-
izational interest and scholarly research focusing on the
myriad facets of strategic alliances are relatively recent,
dating back only to the late 1980s and early 1990s.
MATRIX APPROACHES TO BUSINESS
PORTFOLIO ANALYSIS AND PLANNING
REVISITED
2 plexity in large, unrelated diversified firms. An important
In reference to matrix approaches to portfolio analysis
and planning, Sheth and Sisodia (1999) note that
when a concept or framework has outlived its useful-
ness and serves more to impede and inhibit us than to
illuminate reality in a meaningful and useful way, it
89
becomes a set of blinders that prevents scholars and
practitioners from seeing the bigger picture. (p. 72)
One of the most significant contextual developments of
the 1980 and 1990s, the deconglomeration of corporate
America (firms becoming more focused by divesting from
their portfolios businesses unrelated to the core busi-
nesses), suggests that matrix approaches to business port-
folio analysis and planning have outlived their usefulness
and no longer illuminate reality in a meaningful and useful
way.
In an article titled, “Whatever Happened to the Take-
Charge Manager?” Nohria and Berkley (1994:135)
stressed the need for pragmatism in an age of ready-made
answers and suggested the following guideposts. Manage-
ment ideas should be
• adopted only after careful consideration,
• purged of unnecessary buzzwords and clichés,
• judged by their practical consequences,
• tied to here and now,
• rooted in genuine problems,
• adapted to suit particular people and circumstances,
• adaptable to changing and unforeseen conditions,
• tested and refined through active experimentation,
• discarded when they are no longer useful.
Nohria and Berkley’s (1994) call for pragmatism in an
age of ready-made answers is particularly noteworthy,
viewed against the backdrop of a general tendency to (1)
embrace newly advanced concepts, analytic frameworks,
and techniques without either a careful consideration or
clear understanding of the organizational context(s) in
which they are applicable and (2) cling on to outdated
ideas, tools, and techniques. Some of the guideposts sug-
gested by Nohria and Berkley are used here to critically
evaluate the current usefulness of matrix approaches to
portfolio analysis.
Rooted in Genuine Problems?
Matrix approaches to business portfolio analysis, such
as the Boston Consulting Group (BCG) growth-share ma-
trix, the GE-McKinsey Business Screen, and the Shell Di-
rectional Policy Matrix, first advanced during the early
1970s, were indeed rooted in a genuine organizational
problem.3 They were advanced as tools for managing com-
set of interrelated questions that the top management (the
CEO and executives directly reporting to the CEO) of such
firms are required to address are the following:
• What businesses should the firm retain in its portfolio?
• What businesses should the firm delete from its
portfolio?
• What mission (objectives) should the firm assign to
90 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE
individual businesses in its portfolio to achieve its
overall corporate objectives?
• How should resources be optimally allocated among
the firm’s businesses, commensurate with the mis-
sion assigned to them?
A major challenge faced by top management in trying
to objectively address these questions is their limited
knowledge of the intricacies and nuances of the market en-
vironments in which the individual businesses compete.
As the number of businesses in a firm’s portfolio increases,
the depth of top management’s knowledge about indi-
vidual businesses—such as their strengths and weak-
nesses, as well as the threats and opportunities faced by
them—diminishes. The managers of individual businesses
in the firm’s portfolio, while intimately knowledgeable
about their respective market environments, are in compe-
tition with the managers of other businesses in the firm’s
portfolio for a share of the firm’s resources. Against this
backdrop, matrix approaches to portfolio analysis were
advanced as an analytic input to top-management decision
making. In these approaches, the businesses comprising a
firm’s portfolio are classified into groups on the basis of
the relative attractiveness of the markets/industries in
which they compete (e.g., low, average, high) and their
relative competitive position in these markets (e.g., weak,
average, strong). This information was intended to facili-
tate top-management decision making in the realms of
business retention and deletion, mission assignment, and
resource allocation.
Adopted Only After Careful Consideration?
Although rooted in a genuine organizational problem,
the history of matrix approaches is indicative of their
widespread advocation (by academics and consultants)
and adoption (by organizations) without careful consid-
eration. This is evidenced by their
• use in inappropriate organizational contexts,
• use without regard to or a clear understanding of the
underlying assumptions (which, in the case of the
growth-share matrix, happen to be highly restrictive
and internally contradictory),
• inappropriate use, even in appropriate organiza-
tional contexts.
Use in inappropriate organizational contexts. The ma-
trix approaches to portfolio analysis and planning appear
to have been advocated for adoption by all kinds of
multibusiness organizations, oblivious to the specific or-
ganizational context in which it is appropriate to use them
for purposes of portfolio analysis and planning (i.e., in un-
related diversified multibusiness firms). Only when there
are no major cost interdependencies or demand interde-
pendencies between the businesses that comprise the
WINTER 1999
firm’s portfolio can a decision be made to delete a particu-
lar business from the firm’s portfolio independent of other
businesses in the firm’s portfolio. Their use in inappropri-
ate organizational contexts, such as in a related diversified
4
multibusiness firm, could have adverse consequences.
For example, a decision to delete a particular business
from the firm’s portfolio could result in higher manufac-
turing and marketing costs and/or lower demand for the
offerings of one or more businesses retained in the portfo-
lio.
Restrictive assumptions. The BCG growth-share ma-
trix approach is grounded in deterministic assumptions re-
garding the environment in which the businesses compete.
Market growth rate, the vertical axis in the growth-share
matrix, is assumed to be an exogenous variable beyond the
control of the firm. As Abell and Hammond (1979:178-
179) noted in reference to the growth-share matrix,
Movements in the vertical direction, that is, changes
in the rate of market growth are largely beyond the
firm’s control . . . and must be anticipated when de-
veloping strategic moves. . . . With market growth
largely noncontrollable in most instances, portfolio
analysis reduces to determining a market share strat-
egy for each product.
Neither the assumption of environmental determinism
(which implies that superior firm performance is contin-
gent on appropriate adaptive responses by the firm to a
changing environment that is totally beyond its control)
nor the assumption of strategic choice (which suggests
that a firm can achieve superior performance by proac-
tively managing/shaping/controlling/influencing the envi-
ronments in which its businesses compete) is likely to hold
for all of the businesses comprising a firm’s portfolio. In
other words, while it is conceivable that the assumption of
exogeneity of market growth rate may hold in the context
of some businesses in a firm’s portfolio, it is difficult to en-
vision a firm that has all of its businesses competing in
markets whose size and rate of growth are exogenous.
Internally contradictory assumptions. The growth-
share matrix approach to portfolio analysis and the experi-
ence curve analysis are closely interlinked. The experience
curve provides a rationale for the pursuit of market share as
well as the conceptual basis for the growth-share matrix
approach to portfolio planning (Lieberman 1989). Experi-
ence effects are the basis for postulating that the amount of
cash generated by a business in the low market growth
rate/high relative market share quadrant of the growth-
share matrix (i.e., the cash cow quadrant) will be consid-
erably greater than the amount of cash it would need to
maintain its dominant market share position. The
experience-based competitive cost advantage of a cash
cow business is posited to result from its dominant market
 Varadarajan / CONTENT AND PROCESS PERSPECTIVES REVISITED
position in the industry. According to the experience curve
logic, the business with the highest relative market share,
by virtue of having the greatest cumulative experience,
will have the lowest average unit cost and the highest mar-
gins. By definition, a business classified as a cash cow in
the growth-share matrix will have a relative market share
greater than 1.0 (relative market share defined as the ratio
of the market share of business to the market share of next
largest competitor) and be the market share leader in its in-
dustry. Fundamental to competitive strategy, driven by the
experience curve logic, is pricing below cost during the
product launch phase to stimulate market growth, accumu-
late experience faster than rivals, and achieve market share
leadership. With the average unit cost declining by a con-
stant percentage with every doubling of cumulative expe-
rience, average unit cost would soon be lower than the
price. While the assumption of the endogeneity of market
growth rate is intrinsic to experience curve–driven com-
petitive strategy (stimulating market growth), market
growth rate is assumed to be exogenous in the growth-
share matrix approach to portfolio analysis. In essence, the
situation we have here is one of internally contradictory as-
sumptions.
Inappropriate use even in appropriate organizational
contexts. One of the questionable refinements and exten-
sions of the growth-share matrix advanced during the
1970s was hierarchical portfolio analysis. In essence, an
analytical tool, which was originally advanced for use at
the corporate level with strategic business units compris-
ing a firm’s portfolio as units of analysis, was extended to
multiple levels lower down the organization. The end re-
sult is the development of a hierarchical family of portfolio
matrices for an organization, with strategic business units,
product market units, products, brands, and/or country
5
markets as units of analysis. As noted earlier, in an unre-
lated diversified multibusiness firm, it would be appropri-
ate to employ matrix approaches to portfolio analysis at
the corporate level with strategic business units as the unit
of analysis. However, their use at lower levels would be in-
appropriate in light of the cost and demand interdependen-
cies that will exist, such as between brands within a
product category or country markets in which a firm oper-
ates in a particular business arena. Consider, for example,
the likely adverse consequences of treating brands or
country markets as units of analysis (and classifying the
brands/country markets as stars, cash cows, question
6
marks, and dogs). It is conceivable that a firm such as
Procter & Gamble (P&G) uses the same production line to
manufacture Tide brand detergent as well as other brands
of detergent, including Bold, Cheer, and Gain. In effect,
there is a sharing of assets/resources and costs across
brands. Furthermore, a household purchasing Tide brand
detergent during a purchase cycle is not realistically a
prospect for purchasing another brand of detergent mar-
91
keted by the firm during that purchase cycle. In other
words, there will be both cost and demand interdependen-
cies at the brand level. Also, the rate of market growth, the
vertical axis in the growth-share matrix, cannot be differ-
ent for different brands within the same product category.
Similar considerations also serve to highlight the inap-
propriateness of considering a firm’s operations in a par-
ticular business arena in different parts of the world as dis-
tinct entities in a portfolio analysis context.7 Any decision
to exit from a particular geographic market must take into
account how it might affect the cost of the firm’s opera-
tions and demand for the firm’s offerings in other parts of
the world.
Tested and Refined?
In one sense, the multifactor approaches to portfolio
analysis constitute a refinement of the growth-share ma-
trix approach to portfolio analysis. While in the latter ap-
proach, single factors are used as indicators of market at-
tractiveness (i.e., market growth rate) and relative
competitive position (i.e., relative market share), in the
former approach, both relative market attractiveness and
relative competitive position are inferred on the basis of
multiple factors (see Kerin, Mahajan, and Varadarajan
1990). These refinements make the multifactor ap-
proaches more versatile. The restrictive assumptions of
the growth-share matrix, such as the exogeneity of market
growth rate and experience effects being pronounced for
all businesses in the firm’s portfolio, are no longer an
issue.
Adapted to Suit Particular Circumstances
and Tied to Here and Now?
Although matrix approaches to portfolio analysis were
rooted in genuine problems faced by unrelated diversified
multibusiness firms of the 1970s, they are neither adapt-
able to the changed circumstances nor tied to here and now
(i.e., the prototypical multibusiness firms of the 1990s).
Unlike the 1970s, when the portfolios of a large majority
of Fortune 500 firms comprised a number of unrelated
businesses, the corporate landscape of the 1990s, shaped
by divestiture of unrelated businesses, is dominated by
more focused firms whose portfolios comprise fewer busi-
nesses that exhibit cost and/or demand interdependencies.
Discarded When No Longer Useful?
Matrix approaches to portfolio analysis are not relevant
to multibusiness firms with a large number of businesses
in their portfolio that are interrelated (i.e., cost and/or de-
mand interdependencies exist between the businesses in
the firm’s portfolio) or to highly focused firms (i.e., a small
number of related businesses comprise the firm’s
92 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE
portfolio). As noted earlier, the decision to retain or divest
a business from a firm’s portfolio cannot be made solely on
the basis of the relative attractiveness of the markets in
which the businesses compete and their relative competi-
tive position, when cost and/or demand interdependencies
exist between the businesses.
While relative industry attractiveness and relative com-
petitive position are indeed important considerations in a
firm’s decision pertaining to which businesses to retain
and delete from its portfolio, in recent years, corporate
strategy (a firm’s choice of businesses to be in) is increas-
ingly shaped by more fundamental considerations. Theo-
retical and conceptual perspectives that exemplify con-
temporary thinking on this issue include (1) the resource-
based view of the firm (Wernerfelt 1984), (2) the core com-
petencies of a corporation (Prahalad and Hamel 1990), and
(3) competing on capabilities (Stalk, Evans, and Shulman
1992), to list a few. Furthermore, firms are increasingly
moving in the direction of organizing themselves as inte-
grated global enterprises, driven by a commitment to do-
ing business in all major world markets. The vast resource
outlays that firms need to establish a global presence and
compete in the global marketplace against global competi-
tors have forced them to resort to portfolio pruning by di-
vesting businesses unrelated to their core businesses.
Clearly, the intellectual journey underlying the devel-
opment of the various matrix approaches to portfolio
analysis and the critical evaluation of these techniques that
followed have resulted in a number of enduring contribu-
tions to the advancement of business thought. For in-
stance, two issues that have always been and will always
be of concern to decision makers is the objective assess-
ment of (1) the relative attractiveness of the markets in
which the various businesses of the firm compete and (2)
the relative competitive position of the businesses in these
markets. We now have a better understanding of the multi-
plicity of determinants of industry attractiveness and rela-
tive competitive position, as well as techniques for weight-
ing them on the basis of their relative importance to arrive
at composite measures of relative attractiveness and com-
petitive position.
While retaining these enduring contributions in our
knowledge repository, given the limitations of the various
matrix approaches to portfolio analysis and the sharp de-
cline in the number of unrelated diversified firms world-
wide during the past quarter century, matrix approaches to
portfolio analysis, in general, and the growth-share matrix,
in particular, have outlived their usefulness and warrant
being discarded. As more and more unrelated diversified
firms undergo a transformation to either related diversified
firms or focused firms, matrix approaches to portfolio
analysis are destined to become less and less relevant to
corporations. This being the case, the content of marketing
education (as reflected in the persistence of detailed
WINTER 1999
treatments of matrix approaches to portfolio analysis and
planning in most marketing principles, marketing man-
agement, and marketing strategy textbooks) also merits
being revisited.
GENERIC COMPETITIVE
STRATEGIES REVISITED
In reference to Porter’s (1980) construal of generic
competitive strategies and other strategy typologies, Sheth
and Sisodia (1999) note that such frameworks, while sim-
plifying the complex reality of strategic choices, are be-
coming less relevant as firms begin to disaggregrate reve-
nues and costs to the customer or account level.
Regardless of whether Porter’s generic strategies typol-
ogy is likely to become less relevant in light of contextual
discontinuities, as detailed in this section, scholarly and
managerial interest in issues relating to competitive ad-
vantage, the key construct underlying the typology, is
likely to be enduring.
In general, a business can strive to achieve a competi-
tive cost advantage by leveraging its skills and resources to
perform certain primary and support value chain activities
at a lower cost than its rivals. Alternatively, by leveraging
its skills and resources to perform certain primary and sup-
port value chain activities to differentiate its offerings
from competitors’ offerings on attributes valued by cus-
tomers, it can strive to achieve a competitive differentia-
tion advantage. A business can pursue these strategic alter-
natives in the context of a broad target market or a narrow
target market. These broad competitive advantage (how to
compete) and market scope (where to compete) related op-
tions suggest that the following generic competitive strat-
egy alternatives are available to any business (see Porter
1980).
Generic Strategic Scope of Tar-
get
Strategy Emphasis Market
Cost leadership Competitive cost advantage Broad
Differentiation Competitive differentiation
advantage Broad
Focused cost leadership Competitive cost advantage Narrow
Focused differentiation Competitive differentiation
advantage Narrow
Porter (1980) noted that a business that attempts to si-
multaneously strive to achieve both a sustainable competi-
tive cost advantage and differentiation advantage is
unlikely to succeed and runs the risk of being stuck in the
middle. In a recent article, Porter (1996) reiterates his posi-
tion on this issue and notes that a strategic position is not
sustainable unless there are trade-offs with other positions.
He states,
 Varadarajan / CONTENT AND PROCESS PERSPECTIVES REVISITED
In general, false trade-offs between cost and quality
occur when there is redundant or wasted effort, poor
control or accuracy, or weak coordination. Simulta-
neous improvement of cost and differentiation is
possible only when a company begins far behind the
productivity frontier or when the frontier shifts out-
ward. At the frontier, where companies have
achieved current best practice, the trade-off between
cost and differentiation is very real indeed. (p. 69)8
The question of whether a business would be better off
being single-minded in its pursuit of either a competitive
cost or competitive differentiation advantage, or whether
simultaneous pursuit of both is feasible and a competitive
imperative, has been and continues to be the focus of ex-
tensive academic discourse (Cronshaw, Davis, and Kay
1994; Dess and Davis 1984; Miller 1992; Quinn 1992).
This question merits being revisited in light of the equivo-
cal nature of the conceptual arguments, empirical evi-
dence, and philosophical arguments advanced in defense
of competing perspectives, as well as recent contextual de-
velopments such as the dawn of mass customization.
Hall’s (1980) research focusing on 16 superior per-
formers in eight basic industries (the top 2 performers in
each of the eight industries studied) showed that most su-
perior performers exhibited a single-minded determina-
tion to achieve one of the following two competitive
positions within their respective industries:
• the lowest cost position relative to competition, cou-
pled with both an acceptable delivered quality and a
pricing policy to gain volume and market share
growth;
• the highest product/service/quality, coupled with
both an acceptable delivered cost structure and a
pricing policy to gain margins sufficient to fund re-
investment in product/service differentiation.
Very few of the superior performers (only 2 of 16) had both
the lowest delivered cost position and the highest product/
service/quality differentiation.
Conceptual arguments presented in Garvin (1988:90,
Figure 5.2) and empirical evidence presented in Phillips,
Chang, and Buzzell (1983) and in several other published
works, however, suggest that a strategy of providing qual-
ity (differentiation) may not be at divergence with achiev-
ing low costs. Collins and Porras’s (1994) study of a
sample of 18 visionary companies (selected on the basis of
a survey of the CEOs of Fortune 500 industrial companies,
Fortune 500 service companies, Inc. 500 private compa-
nies, and Inc. 100 public companies) is also instructive on
this issue. The authors focused on how the visionary com-
panies (the 18 companies that were most frequently men-
tioned by the 165 CEOs who responded to the survey as
visionary companies) differed from a carefully selected
control set of companies. One of the findings reported in
93
the study as a factor underlying the extraordinary long-
term positions of visionary companies is particularly in-
structive. Collins and Porras note,
Visionary companies do not brutalize themselves
with the “Tyranny of the OR”—the purely rational
view that says you can have either A OR B, but not
both. . . . Instead, they embrace the “Genius of the
AND”—the paradoxical view that allows them to
pursue both A AND B at the same time. (p. 10)
Quinn (1992) draws attention to the growing ability of
firms to leverage their size, information technology re-
sources, and market power to provide both the maximum
flexibility of differentiation and the lowest cost in the mar-
ketplace. Jack Welch, the CEO of General Electric (a com-
pany whose market capitalization has risen from $14
billion in 1981, when Welch assumed the helm, to more
than $275 billion in 1998), reflecting on his experiences,
notes that as global competition intensifies, firms that are
unable to sell a quality product at the world’s lowest price
are likely to be out of the game (Tichy and Sherman
1993).
Ancedotal evidence published in the business press
suggests that mass customization, the strategy of offering
customers the cost benefit of mass manufacturing and
marketing, and the differentiation benefit of customiza-
tion are becoming a competitive reality and an imperative
in a growing number of industries. The success of firms
that have excelled in mass customization, such as Dell
Computers in the personal computer industry and Mat-
sushita in bicycles, suggests that the simultaneous pursuit
of the cost and differentiation advantage could very well
be the next competitive frontier. For instance, a recent For-
tune article on Dell Computers (which during a recent 3-
year period recorded a 53% compounded annual growth in
dollar sales, an 89% annual growth in profits, and a 26-fold
increase in share price) notes,
Be they in Limerick or Austin, Dell’s plants are a re-
markable balance between the cost-saving efficien-
cies of mass production and the value-added process
of customization. . . . An order form follows each PC
across the factory floor, starting from when the ma-
chine is nothing more than a metal chassis. Drives,
chips, and boards are added according to the cus-
tomer’s request. (“Michael Dell Rocks” 1998:66)
An earlier Fortune article (“Japan’s New Personalized
Production” 1990) sheds insights into how Matsushita, by
using robots and computers, was able to usher an era of
customized manufacturing that allows a customer to
choose from more than 11 million variations of bicycles.
Although production does not start until a customer places
an order, it is amazingly swift thereafter, with computer-
aided design (CAD) creating a custom blueprint for a cus-
94 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE
tom bike in 3 minutes. Manufacturing a custom bike takes
3 hours compared to 90 minutes for a mass-produced
model. Within 2 weeks, the customer is riding a one-of-a-
kind machine. Part of the 2-week wait is deliberate—to
make the customer feel excited about waiting for some-
thing special. With 20 employees and a computer capable
of design work, the factory is ready to produce any of more
than 11 million variations on 18 models of racing, road,
and mountain bikes in 199 color patterns and as many sizes
as there are people.
Furthermore, even in instances where, ex ante, a busi-
ness focuses its efforts on achieving either a competitive
cost advantage or a competitive differentiation advantage,
ex post it is entirely conceivable that a business could end
up with both a defensible competitive cost advantage and a
differentiation advantage. The appendix highlights the in-
terplay of a multiplicity of factors, including competitive
pricing strategy, scale effects, experience effects, strategic
alliance effects, and positive network externalities effects
on the competitive cost and differentiation positional ad-
vantages realized by Matsushita in the videocassette re-
corder (VCR) industry. As shown in the appendix, al-
though Sony was the first to market with its Betamax-
format VCR, the ultimate emergence of Matsushita’s
video home system (VHS) as the industry standard was a
result of a multiplicity of strategic decisions made by Mat-
sushita (e.g., cooperating to a greater extent with potential
competitors and thereby being able to achieve a competi-
tive cost advantage due to scale effects and experience ef-
fects, as well as a competitive differentiation advantage
due to the more extensive and intensive distribution
achieved for the VHS-format VCRs).
STRATEGIC ALLIANCES REVISITED
A large body of literature in industrial organization
economics, strategic management, and marketing has fo-
cused on the relationship between the structural character-
istics of an industry and average industry profitability. For
instance, Porter (1980) distinguishes between five com-
petitive forces that affect industry profitability—bargain-
ing power of buyers, bargaining power of suppliers, threat
from new entrants, threat from substitutes, and intensity of
rivalry among competitors. Porter suggests that competi-
tive strategy entails adapting to the structural-economic
realities of the market and doing so better than competi-
tion. In an attempt to adapt to the structural-economic re-
alities of the market, in recent years, an increasing number
of firms have been forming alliances with suppliers, buy-
ers, potential new entrants, producers of substitute prod-
ucts, and direct competitors. In addition, strategic alli-
ances between potential new entrants and between
producers of substitute products are also pervasive. Inter-
firm cooperation is a defining characteristic of strategic
WINTER 1999
alliances. Parkhe (1993:794) defines strategic alliances as
“relatively enduring interfirm cooperative arrangements,
involving flows and linkages that use resources and/or
governance structures from autonomous organizations,
for joint accomplishment of individual goals linked to the
corporate mission of cooperating firms.”
In reference to the ascendance of interorganizational
cooperation in recent years, Sheth and Sisodia (1999) note
that “Porter’s (1980) ‘five forces’ of competition can also
be viewed through the prism of cooperation” (p. 82). Table
1 synthesizes the effects of the five forces of competition
on industry profitability and the opportunities available for
individual firms to enhance their profitability by leverag-
ing the five forces of cooperation. The first two columns in
Table 1 provide a summary of Porter’s five forces and their
posited effect on industry profitability. The last column of
Table 1 provides an overview of how a firm in the focal in-
dustry may be able to partially mitigate the negative effect
or accentuate the positive effect of the underlying industry
structural forces on firm profitability. For example, as de-
tailed in column 2 of Table 1, a supplier group that is more
concentrated than the focal industry to which it sells will
have a negative effect on the profitability of the focal in-
dustry. However, a firm in the focal industry, by establish-
ing cooperative relationships with firms in supplier indus-
tries that are more concentrated than the focal industry,
will be able to partially mitigate the negative effect of sup-
plier industry concentration on its profitability (see col-
umn 3 of Table 1).
Understandably, a necessary condition for establishing
a cooperative relationship between a firm in the focal in-
dustry and firms in the supplier industry, buyer industry,
and so forth is that the relationship should be mutually
beneficial (i.e., a positive-sum game as opposed to a zero-
sum game). Consider, for instance, the following state-
ments pertaining to supplier industry concentration de-
tailed in Table 1:
• A supplier group that is more concentrated than the
focal industry it sells to will have a negative effect on
industry profitability.
• Alliance(s) with supplier(s) can enable a firm in the
focal industry to partially mitigate the negative ef-
fect of supplier industry concentration on industry
(and, consequently, firm) profitability.
While the potential benefit for a firm in the focal industry
to establish cooperative relationships with one or more
firms in a supplier industry is evident here, the impetus for
a firm in the supplier industry to enter into cooperative re-
lationships with firms in the focal industry is not readily
apparent. Clearly, closer cooperation would be untenable
if value migration/value transfer from the supplier indus-
try to the firm in the focal industry is the mechanism by
which the latter envisions mitigating the negative effect of

The Effects of Competitive and Cooperative Forces on Industry and Firm Profitability
Competitive Industry Forces
Bargaining power of suppliers
Supplier concentration
Threat of forward integration
Importance of supplier industry’s inputs
Product differentiation
Switching costs
Bargaining power of buyers
Buyer concentration and purchase volume
Threat of backward integration
Product differentiation
Likelihood of threat of new entrants
Economies of scale
Capital requirements
95
TABLE 1
Impact of Competitive Force on Industry Profitability
Impact of supplier forces on industry profitability
A supplier group that is more concentrated than the focal industry
it sells to will have a negative effect on industry profitability.
A supplier group that poses a credible threat of forward integration
into the focal industry will have a negative effect on industry
profitability.
A supplier that group sells a relatively important input to the focal
industry will have a negative effect on industry profitability.
A supplier group whose product offerings to the focal industry are
differentiated will have a negative effect on industry profitability.
An input from a supplier group that would entail switching costs for
the buyer will have a negative effect on industry profitability.
Impact of buyer forces on industry profitability
A buyer group that is concentrated and purchases a large volume of
the focal industry’s total output will have a negative effect on industry
profitability.
A buyer group that poses a credible threat of backward integration into
the focal industry will have a negative effect on industry profitability.
A buyer group to which the focal industry offers an undifferentiated
product will have a negative effect on industry profitability.
Impact of threat of new entrants on industry profitability
Cost advantage of incumbents due to scale economies, by deterring
potential new entrants, will have a positive impact on industry
profitability.
Large capital requirements, by deterring potential new entrants, will
have a positive impact on industry profitability.
Effect of Cooperation on Firm Profitability
Effects of alliances with suppliers on firm profitability
Alliances with suppliers can enable a firm to mitigate the negative effect of
supplier industry concentration on firm profitability.
Alliances with suppliers (quasi-forward integration from the standpoint of
suppliers) by diminishing the threat of total forward integration by suppliers can
enable a firm in the focal industry to mitigate the negative effect of the threat on
firm profitability.
Effects of alliances with buyers on firm profitability
Alliances with customers can enable a firm to mitigate the negative effect of
buyer industry concentration on firm profitability.
Alliances with customers (quasi-backward integration from the standpoint of
customers) by diminishing the threat of total backward integration by customers
can enable a firm in the focal industry to mitigate the negative effect of the threat
on firm profitability.
Cooperative relationships with buyers such as in cobranding (e.g., Nutri-Grain
brand cereal bars with Smuckers brand strawberry preserve) that enable a firm in
the buyer industry to differentiate its product offering from competitors’
offerings can enable a firm in the focal industry to mitigate the negative effect
of an undifferentiated product on firm profitability.
Effects of alliances with and between potential new entrants on firm profitability
The positive effect of scale economies on firm profitability will be accentuated
when a firm in the focal industry, by forging alliances with potential new
entrants, is able to further consolidate cost advantages associated with scale
and experience (e.g., manufacturing by an entrenched firm for marketing
under the brand names of potential new entrants).
The positive effect of scale economies on industry profitability will be mitigated
in industries where a potential entrant is able to overcome entry barriers posed
by scale economies by forging an alliance with other potential entrants (the scale
of activity of the alliance being greater than or equal to the minimum efficient
scale).
The positive effect of capital requirements on industry profitability will be
mitigated when potential entrants are able to overcome entry barriers posed by
capital requirements by pooling their resources in an alliance.
(continued)
96
Competitive Industry Forces
Switching costs
Access to distribution channels
Cost advantages independent of scale
Extent of competition from substitutes
Functional similarity
Relative price-performance
Intensity of rivalry among industry
competitors
Number of competitors
Industry growth rate
Diversity of competitors
Fixed costs
Product differentiation
Exit barriers
TABLE 1 Continued
Impact of Competitive Force on Industry Profitability Effect of Cooperation on Firm Profitability
High switching costs that buyers may have to incur, by deterring
potential new entrants, will have a positive impact on industry
profitability.
Lack of access to distribution channels, by deterring potential new
entrants, will have a positive impact on industry profitability.
Cost advantages independent of scale, by deterring potential new
entrants, will have a positive impact on industry profitability.
Impact of competition from substitutes on industry profitability Effects of alliances with and between producers of substitutes on firm profitability
High functional similarity between the substitute industry’s and Alliances with producers of potential substitutes (such as marketing-
the focal industry’s product offerings will have a negative effect on manufacturing alliances in the drugs and pharmaceuticals industry between
industry profitability due to higher buyer propensity to switch to established drugs and pharmaceutical firms and start-up biotechnology firms)
substitutes. can help mitigate the negative impact on firm profitability of potential substi-
utes currently in the developmental stage that might evolve to be viable
alternatives to the focal industry’s offerings.
Substitute products that provide better price-performance than the Alliances between producers of substitutes will accentuate the negative effect of
focal industry’s products will have a negative effect on industry threat from substitutes on industry profitability.
profitability.
Impact of rivalry among industry competitors on industry profitability Effects of alliances with present competitors on firm profitability
High concentration (domination by few firms) will have a positive Certain types of alliances between current players in an industry can enable
effect on industry profitability. firms to accentuate the positive effect of concentration on profitability.
Low industry growth rate, by increasing market share expansion rivalry The collective effort of firms in an industry to stimulate the rate of industry
among present competitors, will have a negative effect on industry growth rate can mitigate the negative effect of the low industry growth rate on
profitability. industry profitability.
Diversity among competitors (in terms of factors such as size,
ownership, strategies, and origin) will have a negative effect on
industry profitability because of their different objectives and goals.
High fixed costs, by forcing competitors to frequently resort to price
cutting to increase capacity utilization, will have a negative effect on
industry profitability.
A greater range of possibilities available to firms in an industry to
differentiate their product offerings from competitors’ product offerings,
by allowing multiple competitors to coexist, will have a positive effect
on industry profitability.
High exit barriers, by deterring the exit of marginal firms, will have a
negative effect on industry profitability.
 Varadarajan / CONTENT AND PROCESS PERSPECTIVES REVISITED
supplier industry concentration on its overall profitability.
A cooperative relationship between a firm in the focal in-
dustry and a supplier in a concentrated supplier industry
would be tenable only if the cooperative relationship re-
sults in value creation and the firm shares the additional
value created with its supplier.
Sheth and Sisodia (1999) note that the well-known five
forces of competition can also be viewed as five forces of
collaboration. The intended message is not clear. While
recognizing the emerging reality of closer interorganiza-
tional cooperation, one should bear in mind the primacy
and more enduring nature of competitive forces relative to
cooperative forces. “Competing by cooperating” is funda-
mentally a business unit-level strategic behavior construct
distinct from the five industry-level competitive forces de-
lineated by Porter (1980). Given that businesses in any in-
dustry are likely to differ in their ability and propensity to
cooperate with other firms, there will be differences in the
extent to which they are able to benefit from forging inter-
organizational cooperative relationships. Consider, for in-
stance, the following profit functions:
Industry profitability = f (1)
(industry structural forces F1, F2 . . . F5).
Business profitability = f (industry structural forces (2)
F1 . . . F5; competitive strategy of business S1, S2 . . . SN).
In equation (2), with competitive strategy construed as a
multidimensional construct, the outcomes of a business’
interorganizational cooperative relationships will be re-
flected along various competitive strategy dimensions
such as product quality, innovativeness, and features.
In the face of a newfound enthusiasm for the upside po-
tential of collaboration and cooperation, there is a risk of
being oblivious to its downside perils. Sheth and Sisodia’s
(1999) note of caution in this regard is timely. The authors
point out that there can sometimes be a fine line between
coopetition and collusion, and they highlight the need for a
better understanding of the public policy implications of
cooperative behavior. For instance, there is currently a
high level of interest regarding whether intranational and
international alliances in the airline industry (such as be-
tween United Airlines and Lufthansa as well as Northwest
Airlines and KLM, which are currently in place, and be-
tween American Airlines and British Airways, currently
under regulatory scrutiny) would have an adverse effect on
consumer welfare (i.e., result in higher airfares) or en-
hance consumer welfare (i.e., lead to more comfortable
and less stressful air travel as a result of better coordination
of flight schedules by the alliance partners).
Research evidence also suggests that strategic alliances
may be conducive to superior performance only under
97
certain environmental and organizational conditions. For
instance, a recent study on organizing for innovation
found that while organizational forms such as virtual com-
panies, alliances, and joint ventures may be better suited
for managing certain types of innovations, integrated cen-
tralized companies, by virtue of having established pro-
cesses for settling conflicts and coordinating all the activi-
ties necessary for innovation, may be better suited for
certain other types of innovations (Chesbrough and Teece
1996). The study’s authors note that a challenge for man-
agers is to choose the organizational form that best
matches the type of innovation they are pursuing.
Finally, cooperative relationships with competitors,
suppliers, customers, and the like are likely to be estab-
lished, nurtured, and maintained only as long as such ac-
tions are in the best interest of the cooperating firms. In
other words, if convergence of interests brings together
firms into an alliance at a given point in time, it is equally
plausible that, at a future point in time, divergence in their
interests and priorities will inevitably necessitate the ter-
mination of the alliance. Hence, as alluded to by Bleeke
and Ernst (1995), when entering into alliances, firms need
to bear in mind and plan for the end game (i.e., for alterna-
tive scenarios such as acquiring the interests of the alliance
partner versus selling its share of interest to the alliance
partner).
CONCLUSION
A fundamental aspect of research in most fields is the
fact that old ideas and paradigms are sometimes replaced
by newer approaches that reflect the wealth of new knowl-
edge accumulated through advances in the substantive,
conceptual, and methodological domains. Sheth and Siso-
dia’s (1999) call for revisiting lawlike generalizations in
marketing is particularly opportune in light of the multi-
tude of discontinuities that are currently affecting the prac-
tice of marketing, including the globalization of industries
and markets, the emergence of global competitors, the
dawn of electronic commerce, and the growth of informa-
tion technology, to list a few. As Kotler (1997:xxxii) notes,
Marketing is not like Euclidean geometry, a fixed
system of concepts and axioms. Rather, marketing is
one of the most dynamic fields within the manage-
ment arena. The marketplace continuously throws
out fresh challenges, and companies must respond.
Therefore, it is not surprising that new marketing
ideas keep surfacing to meet the new marketplace
challenges.
98 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE
APPENDIX
Competitive Cost and Differentiation Advantage:
The Case of the VCR Industry
A. A Chronology of Key Events
In 1954, Ampex Corporation of the United States developed
the first videotape recorder (VTR) capable of recording both
sound and picture. However, due to its size, complexity, price,
and product features (e.g., the VTR employed a two-inch-wide
tape from reel to reel rather than within the cassettes that are com-
mon today), the market for the product was limited to large or-
ganizations (e.g., television broadcasting networks and stations).
In the early 1970s, three Japanese companies (Matsushita, a
giant in consumer electronics in Japan and the world; Sony, then
a medium-sized but aggressive young company; and the Victor
Company of Japan [JVC], an independent subsidiary of Mat-
sushita) introduced VTRs that used 3/4-inch-wide tape. The
firms were successful to varying degrees in cultivating a broader
institutional market for 3/4-inch VTRs (e.g., corporate commu-
nications departments, schools, and universities), but their ef-
forts to sell to the home use market were unsuccessful.
In 1974, Sony introduced the Betamax videocassette recorder
(VCR) that used a 1/2-inch-wide cassette with a tape duration of
1 hour. Sony, having entered the VCR market first, in an attempt
to quickly establish its Betamax as the industry standard, offered
to share technical information with other firms. JVC, however,
opted to continue to work on developing the video home system
(VHS) format VCR that would meet a list of 12 interconnected
goals it had set for itself, including a minimum recording time of
2 hours.
The Japanese Ministry of International Trade and Industry
(MITI) suggested the abandonment of the VHS format being de-
veloped by JVC in favor of a single national standard already on
the market, namely, Betamax. MITI bowed out of the VCR stan-
dards debate in the face of opposition from JVC and its corporate
allies who were in the course of committing themselves to the
VHS-format VCR.
In 1976, JVC introduced the VHS-format VCR. More Japa-
nese firms opted to manufacture and market the VHS-format
VCR under license from JVC (e.g., Matsushita, Hitachi, Mitsu-
bishi, Sharp) than the Betamax format under license from Sony
(e.g., Toshiba, Sanyo).
B. Competitive Cost and Differentiation
Advantage of Matsushita: Contributing Factors
1. Competitive strategy. Matsushita employed a penetration
pricing strategy in contrast to the skimming price strategy
of Sony.
2. Cooperative strategy. Matsushita, in addition to its own
brands (Panasonic, National, Technics, and Quasar) was
the original equipment manufacturer (OEM) and supplier
to a larger number of U.S. and West European firms. More
U.S. and West European firms marketed VHS-format
WINTER 1999
VCRs than Beta-format VCRs manufactured by Japanese
firms (VHS format: Magnavox, GE, RCA, Sears, JC Pen-
ney, and Montgomery Ward in the United States; EMI and
Thorn in the United Kingdom; Telefunken in Germany;
Thomson CSF in France; Saba in Norway; Granada in
Spain) (Beta format: Zenith, Pioneer, and Sears in the
United States; Fischer in the United Kingdom; Necker-
man in Germany; Vega in Spain).
3. Consumers’response to alternative benefit bundles. Faced
with a trade-off between the positive and negative differ-
entiating attributes of competing standards (Betamax: su-
perior picture quality but relatively higher price and
shorter playing time; VHS: relatively lower price, longer
playing time, and acceptable picture quality, but some-
what inferior to Betamax), a majority of consumers opted
for the VHS format.
4. Scale effects advantage. In addition to manufacturing un-
der its own label, Matsushita’s role as OEM supplier to a
number of firms provided the firm manufacturing econo-
mies of scale advantage over its chief rival, Sony.
5. Experience effects advantage. Matsushita’s role as OEM
supplier to a number of firms, combined with widespread
consumer acceptance of the VHS format, enabled the firm
to accumulate experience faster than any other firm world-
wide, leading to an experience-based cost advantage.
6. Distribution penetration advantage. Matsushita’s distri-
bution system, together with those of other large firms
such as RCA, GE, and Magnovox provided VHS-format
VCRs a distribution advantage in the United States (i.e.,
more extensive and intensive distribution) over the Beta-
max format.
7. Promotional effects advantage. The combined larger ad-
vertising and personal selling efforts of Matsushita and its
allies such as RCA, GE, and Magnovox were instrumental
in stimulating greater consumer demand for VHS-format
VCRs than for the Betamax-format VCRs.
8. Shelf space advantage. Various brands of VCRs employ-
ing the VHS format collectively had greater shelf expo-
sure at the retail store level than Betamax-format VCRs.
9. Positive network externalities. As an increasingly larger
proportion of VCR sales were accounted for by the VHS
format, Matsushita benefited from positive network exter-
nalities. Video rental stores carried a much larger assort-
ment of prerecorded video software in the VHS format
than in the Beta format. While some video rental stores
stocked more prerecorded video software in the VHS for-
mat than in the Beta format, others offered video software
exclusively in the VHS format. Over time, an increasing
number of video software producers chose to offer enter-
tainment, educational, training, and informational soft-
ware only in the VHS format. Likewise, a growing
number of blank videotape manufacturers limited their
manufacturing to VHS-format tapes.
SOURCE: Section A on the chronology of key events is based on the
chapter titled “JVC and the VCR Miracle” in Nayak and Ketteringham
(1986).
 Varadarajan / CONTENT AND PROCESS PERSPECTIVES REVISITED
NOTES
1. As an example of my disagreement, Sheth and Sisodia (1999) note
that they “have good theories on vertical integration (in economics as
well as marketing) but not on horizontal integration or alliances” (p. 84).
To the contrary, the motives underlying the entry of firms, the conditions
under which strategic alliances are likely to be formed, and the types of
strategic alliances that are likely to be formed have been explored from a
number of theoretical perspectives, including agency theory, transaction
cost analysis, resource dependence theory, market domestication theory,
strategic motivation theory, institutional theory, bandwagon theory, or-
ganizational knowledge theory, and the resource-based view of the firm
(see Varadarajan and Cunningham 1995).
2. For an overview of matrix approaches to portfolio analysis and
planning, see Kerin, Mahajan, and Varadarajan (1990).
3. The term matrix approaches to business portfolio analysis is used
here in reference to portfolio matrices based on single factors (the Boston
Consulting Group [BCG] growth-share matrix), as well as multiple fac-
tors (e.g., the GE-McKinsey Business Screen and the Shell Directional
Policy Matrix). The term growth-share matrix is used in specific refer-
ence to the BCG growth-share matrix.
4. See Bogue and Buffa (1986) for an illustration of the BCG growth-
share matrix in an inappropriate organizational context (i.e., General
Foods, a related diversified firm).
5. See Cushman (1979) for an illustration of a hierarchical portfolio
analysis.
6. For example, in the MARKSTRAT 3 simulation game (Larreche
and Gatignon 1998), the BCG growth-share matrix is suggested as an
analytical tool for use at the brand level. It should be noted, however, that
the authors draw attention to the limitations of the approach (see chap. 10,
pp. 177-194).
7. For example, in a Harvard Business School case on Ciba-Geigy
Pharmaceuticals (Buzzell 1983:18), the firm’s dermatologicals opera-
tions in different country markets are represented on a growth-share
matrix.
8. Here, one must presume that the terms quality and differentiation
are used interchangeably; that is, quality denotes all nonprice attributes
that influence individual and organizational buying decisions.
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ABOUT THE AUTHOR
P. Rajan Varadarajan is a professor of marketing and Jenna and
Calvin R. Guest Professor of Business Administration at Texas
A&M University. His research interests are in the areas of corpo-
rate, business, and marketing strategy; marketing management;
and global competitive strategy. His research has been published
in the Journal of Marketing, Journal of the Academy of Market-
ing Science, Academy of Management Journal, Strategic Man-
agement Journal, Sloan Management Review, California
100 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE WINTER 1999

Management Review, Business Horizons, and other journals. He the American Marketing Association, and on the editorial review
is a coauthor of a textbook titled Contemporary Perspectives on boards of the Journal of Marketing, Journal of Strategic Market-
Strategic Market Planning. He served as an editor of the Journal ing, and the Journal of International Marketing.
of Marketing from 1993 to 1996. He currently serves on the
Board of Governors of the Academy of Marketing Science, as
chairperson of the Marketing Strategy Special Interest Group of