Firm strategy, innovation and consumer demand: a market process approach

AbstractDespite recent advances by economists such as Porter and those associated with the resource‐based school, the economics of demand rarely features in discussions of business strategy. Porter and the resource‐based school take the characteristics of demand as given, and place almost exclusive emphasis on the role of supply‐side factors in formulating strategy. Scholars in strategic marketing, by contrast, recognize the importance of demand factors, but do not analyse them from an economic standpoint. Moreover, none of the important schools of strategic management attempts to explore the relationship between supply and demand in much analytical depth. In this paper, we adopt a market process approach to strategy formulation as a preliminary step towards rectifying these problems. First, we explore the factors that affect the economics of demand, particularly in innovative situations. Second, we adapt Lancaster's attribute analysis to show how the interaction between supply and demand can be represented from a market process perspective. On the basis of our efforts, we conclude that further work in these areas would benefit students of both strategic management and economics. Copyright © 2001 John Wiley & Sons, Ltd.