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

Despite 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 analyze 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, a market process approach to strategy formulation is adopted as a preliminary step towards rectifying these problems. It is concluded that further work in these areas would benefit students of both strategic management and economics.