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Chapter 2: Strategic Planning for Competitive Advantage

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Chapter 2 Strategic Planning for Competitive Advantage

Marketing cannot be accomplished in isolation. Even though the marketing function resides with marketers, the concept of marketing must permeate the entire organization.

Understand the importance of strategic planning

Define Strategic Business Units (SBUs)

Identify strategic alternatives and know a basic outline for a marketing plan

Develop an appropriate business mission statement Describe the components of a situation analysis

Identify sources of competitive advantage

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Learning Outcomes

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Chapter 2 Strategic Planning for Competitive Advantage

Learning Outcomes

Explain the criteria for stating good marketing objectives

Discuss target market strategies

Describe the elements of the marketing mix

Explain why implementation, evaluation, and control of the marketing plan are necessary

Identify several techniques that help make strategic planning effective

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Chapter 2 Strategic Planning for Competitive Advantage

The Nature of Strategic Planning

Understand the importance of strategic marketing and know a basic outline for a marketing plan.

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Chapter 2 Strategic Planning for Competitive Advantage

Strategic Planning

The managerial process of creating and

maintaining a fit between the

organization’s objectives and resources

and evolving market opportunities.

The goal is long-term profitability

and growth.

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Strategic planning creates and maintains a fit between the organization’s resources and objectives and the evolving market opportunities. The goal is to sustain and increase long-run profitability and growth. Strategic decisions require long-term commitments of resources.

Strategic errors can threaten a firm’s survival, but a good plan can help protect and grow the firm.

Examples of strategic decisions: * PepsiCo’s decision to increase its healthy fare business.

* Starbucks experimenting with expanding offerings to include wine and beer and savory foods * McDonald’s decision to offer more healthful foods * S.C. Johnson’s introduction of Shout Color Catchers

Discussion/Team Activity:

Discuss strategic planning decisions of other companies.

Discuss why strategic planning is important for these companies.

Review Learning Outcome The Importance of Strategic Planning

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What

Why

How

Strategic Planning

Long-term profitability

and growth

Write a marketing plan

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Chapter 2 Strategic Planning for Competitive Advantage

Strategic Business Units

Define Strategic Business Units

(SBUs)

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Chapter 2 Strategic Planning for Competitive Advantage

Strategic Business Units (SBUs)

Characteristics: An SBU HAS…

A distinct mission and specific target market

Control over its resources

Its own competitors

It is a single business or collection of related business

Plans independent of other SBUs

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Review Learning Outcome Strategic Business Units

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SBU

Parent Company

SBUs have:

Distinct missions

Control over resources

Competitors

Independent plans

Chapter 2 Strategic Planning for Competitive Advantage

Strategic Alternatives

Identify strategic alternatives and know a basic outline for a marketing plan

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Chapter 2 Strategic Planning for Competitive Advantage

Ansoff’s Strategic Opportunity Matrix

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	Present Product	New Product
Present Market	Market penetration: McDonald’s sells more Happy Meals with Disney movie promotions	Product Development: McDonald’s introductes premium salads and McWater
New Market	Market Development: McDonald’s opens restaurants in China	Diversification: McDonald’s introduces line of children’s clothing

Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Exhibit 2.1 is an example of Ansoff’s Strategic Opportunity Matrix for McDonald’s.

Discussion/Team Activity: Select various companies and complete the Ansoff Strategic Opportunity Matrix.

Strategic Alternatives

Market Penetration

Market

Development

Product Development

Diversification

Increase market share among

existing customers

Attract new customers to

existing products

Introduce new products

into new markets

Create new products for

present markets

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Examples of Strategic Alternatives

Market Penetration: Manufacturer cents-off coupons McDonald’s Happy Meals with Ty’s Teeny Beanie Babies

Market Development: Sara Lee is entering the market for meals on the go by introducing Hillshire Farm Salad Entrees, kits that contain meat and other ingredients that the company already makes, to be added to lettuce.

Product development: Brooks Brothers McDonald’s coffee shop, smoothies, yogurt parfaits

Diversification: Coca-Cola’s water-treatment and water-conditioning equipment

Portfolio Matrix

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

The Portfolio Matrix from Boston Consulting Group classifies each SBU by its present or forecast growth and market share. The assumption is that market share and profitability are strongly linked.

A star is a fast-growing market leader. Stars usually have large profits but need cash to finance growth. A marketing tactic is to protect market share by reinvesting earnings in product improvement, distribution, promotion, and production efficiency. Strive to capture new users as they enter the market.

A cash cow generates more cash than it needs to maintain market share. It is in a low-growth market, but the product has dominant market share. The marketing strategy is to maintain market dominance by being the price leader and by making technological improvements. Allocate excess cash to high-growth prospects.

A problem child shows rapid growth but poor profit margins. It has a low market share in a high-growth industry. It needs a great deal of cash to prevent conversion to dog status. Strategies are to invest to gain better market share, acquire competitors, or drop the SBU.

A dog has low growth potential and a small market share. Most dogs leave the market. The strategy options are to divest or harvest.

Portfolio Matrix Strategies

Build

Hold

Harvest

Divest

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Chapter 2 Strategic Planning for Competitive Advantage

Note:

Build: If an SBU has the potential to be a star, building would be an appropriate goal.

Hold: If an SBU is a successful cash cow, a goal would be to hold or preserve market share.

Harvest: This is an appropriate strategy for all SBUs except stars. The basic goal is to increase short-term cash return without much concern for the long-run impact.

Divest: Getting rid of SBUs with low shares of low-growth markets is often appropriate. Problem children and dogs are suitable for this strategy.

General Electric Model

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

The GE model positions SBUs based on market attractiveness and market strength. These two dimensions require a deeper understanding and evaluation of both the business and the environment than the portfolio matrix, but are also more difficult to translate into numbers.

This exhibit demonstrates the three zones generated by the GE model: Low overall attractiveness, medium overall attractiveness, and high overall attractiveness.

SBUs in the low category (red squares) should be harvested or divested and not newly invested in

SBUs in the medium category (yellow squares) should be invested in selectively and with caution, and actively evaluate the market to monitor for slippage and growth

SBUs in the high category (green squares) are the best candidates for investment.

Marketing Plan

A written document

that acts as a guidebook for the

marketing manager.

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Marketing planning involves the design of activities related to marketing objectives and the changing marketing environment. Marketing planning is the basis for all marketing strategies and decisions.

Why Write a Marketing Plan?

Provides a basis for comparison of actual and expected performance

Provides clearly stated activities to work toward common goals

Serves as a reference for the success of future activities

Provides an examination of the marketing environment

Allows entry into the marketplace with awareness

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Chapter 2 Strategic Planning for Competitive Advantage

Notes: Writing a marketing plan allows the examination of the marketing environment in conjunction with the inner workings of the businesses. Once written it serves as a reference point for future activities, and allows the marketing manager to enter the marketplace with an awareness of problems and opportunities.

Marketing Plan Elements

Marketing Strategy

Product

Distribution

Price

Marketing Mix

Business Mission Statement

Situation or SWOT Analysis

Objectives

Target Market Strategy

Implementation Evaluation Control

Promotion

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Some elements are common to all marketing plans. These include the business mission and objectives, performing a SWOT analysis, determining a target market, and establishing a marketing mix.

Other elements that may be included are budgets, implementation timetables, required marketing research efforts, or elements of advanced strategic planning.

Exhibit 2.1: Elements of a marketing plan

The Marketing Plan Appendix contains a Marketing Plan Outline.

Review Learning Outcome Strategic Alternatives

Identify strategic alternatives

Diversification =

Product development = products

Market development = customers

Market penetration = share

new products +

new markets

Chapter 2 Strategic Planning for Competitive Advantage

Defining the Business Mission

Develop an appropriate business mission statement.

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Chapter 2 Strategic Planning for Competitive Advantage

Defining the Business Mission

Answers the question, “What business are we in?”

Focuses on the market(s) rather than the good or service

Strategic Business Units (SBUs) may also have a mission statement

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Notes:

The foundation of any marketing plan is the firm’s mission statement. The mission statement is based on an analysis of benefits sought by present and potential customers and an analysis of existing and anticipated environmental conditions. The mission statement establishes boundaries for all subsequent decisions, objectives, and strategies.

Discussion/Team Activity:

Find the mission statements for various organizations. Compare the mission statements with the markets served and the products sold by these organizations.

Southwest Airlines Mission Statement

SOURCE: http://www.southwestairlines.com/about_swa/mission.html

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

The Southwest Airlines mission statement is shown here and in Exhibit 2.2.

Review Learning Outcome Business Mission Statement

marketing myopia no direction focus on markets served and benefits customers seek

Q: What business are we in?

A: Business mission statement

Too narrow Too broad Just right

marketing myopia no direction focus on markets served and benefits customers seek

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marketing myopia —defining a business in terms of goods and services rather than in terms of the benefits customers seek. In this context, myopia means narrow, short-term thinking.

marketing myopia

Chapter 2 Strategic Planning for Competitive Advantage

Conducting a Situation Analysis

Explain the components

of a situation analysis.

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Chapter 2 Strategic Planning for Competitive Advantage

Conducting a Situation Analysis

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SWOT Analysis- Identifying internal

strengths and weaknesses and also

examining external

opportunities and threats.

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Notes:

When examining internal strengths and weaknesses, the marketing manager should focus on organizational resources such as production costs, marketing skills, financial resources, company or brand image, employee capabilities, and available technology.

When examining external opportunities and threats, marketing managers must analyze aspects of the marketing environment.

SWOT Analysis

©South-Western College Publishing

Things the company does well.

Things the company does not do well.

Conditions in the external environment that favor strengths.

Conditions in the external environment that do not relate to existing strengths or favor areas of current weakness.

Internal

External

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Performance of a situation (SWOT) analysis helps firms identify their competitive advantage.

Strengths and Weaknesses are an internal assessment. Opportunities and Threats are an external environment assessment.

Discussion/Team Activity:

Perform a SWOT analysis for companies within the same industry. How could you use this information if you worked for a particular company or for a competitive company?

Environmental Scanning

Environmental Scanning- The collection

and interpretation of information about

forces, events, and relationships in the

external environment that may affect the

future of the organization or the

implementation of the marketing plan.

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Notes:

Environmental scanning helps identify market opportunities and threats and provides guidelines for the design of marketing strategy.

Review Learning Outcome Components of a Situation Analysis

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Notes:

Additional strengths include superiority in manufacturing, service, quality and value perception, as well as employee capabilities.

Competitive Advantage

Identify sources of competitive advantage.

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Chapter 2 Strategic Planning for Competitive Advantage

Competitive Advantage

Competitive Advantage- The set of

unique features of a company and

its products that are perceived by

the target market as significant

and superior to the competition.

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Competitive Advantage

Niche Strategies

Cost

Product/Service Differentiation

Types of Competitive Advantage

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Competitive Advantage is set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition.

A firm’s competitive advantage is the reason or reasons that cause customers to patronize that firm and not the competition. There are three types of competitive advantage

Cost Competitive Advantage

Obtain inexpensive raw materials

Create efficient plant operations

Design products for ease of manufacture

Control overhead costs

Avoid marginal customers

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Having a cost competitive advantage means being the low-cost competitor in an industry while maintaining satisfactory profit margins.

Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Having a cost competitive advantage means being the low-cost competitor in an industry while maintaining satisfactory profit margins. This enables a firm to deliver superior customer value.

Cost leadership can result from the reasons listed on this slide.

Cost competitive advantages are subject to continual erosion.

Discussion/Team Activity:

Identify firms that have a cost competitive advantage and describe how they deliver superior value. Examples: DuPont Dell Computers Wal-Mart Corporation Southwest Airlines Nike General Electric

Sources of Cost Reduction

Experience Curves

Efficient Labor

No-frills Goods and

Services

Government Subsidies

Product Design

Reengineering

Production Innovations

New Service Delivery Methods

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Sources of Cost Reduction:

Experience Curves: Costs decline as experience with a product increases, and encompasses marketing, manufacturing, and administration costs.

Efficient Labor: Labor costs in low-skill, labor-intensive industries can be reduced by going offshore or by outsourcing.

No-frills Goods and Services: Removing frills and options can reduce costs.

Government subsidies: Governments may provide grants and interest-free loans for target industries.

Product design: Cutting-edge design and reverse engineering can offset costs.

Reengineering: Reengineering in the form of pruning product lines, closing obsolete factories, or renegotiating supplier contracts can make firms more efficient.

Product innovations: New technology and simplified production techniques can reduce production costs.

New methods of service delivery: Examples include: * Outpatient surgery and walk-in clinics in the medical industry * Internet ticket booking and self-check-in kiosks in the airline industry

Examples of Product/Service Differentiation

Brand names

Strong dealer network

Product reliability

Image

Service

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A product/service differentiation competitive advantage exists when a firm provides something unique that is valuable to buyers beyond simply offering a low price.

Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Product/Service differentiation is the provision of something that is unique and valuable to buyers beyond simply offering a lower price than the competition’s.

Product/Service Differentiation tends to provide a longer lasting competitive advantage than does cost competitive advantage. As a result, this strategy is more attractive to many top managers.

Discussion/Team Activity:

Discuss companies that have a product/service differentiation for:

Brand name: Lexus

Strong dealer network: Caterpillar Tractor

Product reliability: Maytag

Image: Neiman Marcus

Service: FedEx

Innovation: Nike PetSmart

Niche Competitive Advantage

Used by small companies with limited resources

May be used in a limited geographic market

Product line may be focused on a specific product category

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A niche competitive advantage seeks to target and effectively serve a single segment of the market

Chapter 2 Strategic Planning for Competitive Advantage

Niche Competitive Advantage is when a firm seeks to get and effectively serve a single segment of the market. These are some of the situations in which a company would pursue a niche competitive advantage.

Discussion/Team Activity:

Discuss how a small firm serving a particular niche market can successfully compete against larger, global firms with greater resources. (For example, how might a small bookstore owner compete with Barnes & Noble and Amazon.com?)

Sources of Sustainable Competitive Advantage

Patents

Copyrights

Locations

Equipment

Technology

Customer Service

Promotion

Skills and Assets of an Organization

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A sustainable competitive advantage is one that cannot be copied by the competition.

Chapter 2 Strategic Planning for Competitive Advantage

Notes:

A sustainable competitive advantage lasts only as long as the time it takes a competitor to imitate the strategy and plans.

Marketing managers should continually look for skills and assets that create and sustain competitive advantage.

A sustainable competitive advantage is a function of the speed with which competitors can imitate a company’s strategy and plans. Imitation requires a competitor to identify the leader’s competitive advantage, determine how it is achieved, and learn how to duplicate it.

Discussion/Team Activity:

Discuss examples of firms that have sustainable competitive advantage in each skill and asset source listed.

Review Learning Outcome Sources of Competitive Advantage

Sources of Competitive Advantage

Cost $

Product/Service Differentiation A vs. B vs. C

Niche Strategies

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Chapter 2 Strategic Planning for Competitive Advantage

Setting Marketing Plan Objectives

Explain the criteria for stating

good marketing objectives.

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Marketing Objectives

Realistic

Measurable

Time specific

Compared to a

benchmark

“Our objective is to increase sales of Purina brand cat food by 15 percent over 2009 sales of $300 million.”

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Notes:

A marketing objective is a statement of what is to be accomplished through marketing activities. To be useful, stated objectives should meet these criteria

Objectives must also be consistent with and indicate the priorities of the organization

Objectives should flow from the business mission statement to the rest of the marketing plan

Marketing Objectives

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

A marketing objective is a statement of what is to be accomplished through marketing activities. To be useful, stated objectives should meet these criteria

Objectives must also be consistent with and indicate the priorities of the organization

Objectives should flow from the business mission statement to the rest of the marketing plan

Review Learning Outcome Criteria for Good Marketing Objectives

Realistic, measurable, and time-specific objectives consistent with the firm’s objectives:

1. Communicate marketing management philosophy

2. Provide management direction

3. Motivate employees

4. Force executives to think clearly

5. Allow for better evaluation of results

Chapter 2 Strategic Planning for Competitive Advantage

Describing the Target Market

Discuss target market strategies.

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Chapter 2 Strategic Planning for Competitive Advantage

Marketing Strategy

Marketing Strategy- The activities

of selecting and describing one or

more target markets and developing

and maintaining a market mix that

will produce mutually satisfying

exchanges with target markets.

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Target Market Strategy

Segment the market based on groups with similar characteristics

Analyze the market based on attractiveness of market segments

Select one or more target markets

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Chapter 2 Strategic Planning for Competitive Advantage

This process begins with a market opportunity analysis (MOA) —the description and estimation of the size and sales potential of market segments that are of interest to the firm and the assessment of key competitors in these market segments. After the firm describes the market segments, it may target one or more of them.

Target Market Strategy

Appeal to the entire market with one marketing mix

Concentrate on one marketing segment

Appeal to multiple markets with multiple marketing mixes

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Three strategies for selecting target markets are shown here. These strategies are discussed in detail in Chapter 8.

Discussion/Team Activity:

Discuss the differences in the target markets for McDonald’s, Burger King’s, and Wendy’s.

Review Learning Outcome Target Market Strategies

Entire Market

Multiple Markets

Single Market

Target Market Options

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Chapter 2 Strategic Planning for Competitive Advantage

The Marketing Mix

Describe the elements

of the marketing mix.

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Chapter 2 Strategic Planning for Competitive Advantage

Marketing Mix: The “Four Ps”

Price

Promotion

Place

Product

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

The marketing mix is defined as a unique blend of product, distribution, promotion, and pricing strategies designed to produce mutually satisfying exchanges with a target market. There are four aspects of the marketing mix, referred to as the “Four Ps.”

Marketing Mix: The “Four Ps”

The starting point of the “4 Ps”

Includes

Physical unit

Package

Warranty

Service

Brand

Image

Value

Product

Products can be…

Tangible goods

Ideas

Services

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

The product is the starting point of the marketing mix. It is difficult to decide on a promotion campaign, determine a price, or design a distribution strategy until the product offering and product strategy are defined.

The product is not only the physical unit but also the packaging, warranty, after-sale service, brand name, company image, value, and other factors.

Products may be tangible goods, services, and ideas.

Product decisions are discussed in Chapter 10 and 11, services marketing in Chapter 12.

Marketing Mix: The “Four Ps”

Product

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At first glance, McDonald's and Wendy's may appear to have roughly identical marketing mixes because they are both in the fast-food hamburger business. However, McDonald's has been most successful at targeting parents with young children for lunchtime meals, whereas Wendy's targets the adult crowd for lunches and dinner. McDonald's has playgrounds, Ronald McDonald the clown, and children's Happy Meals. Wendy's has salad bars, carpeted restaurants, and no playgrounds.

Chapter 2 Strategic Planning for Competitive Advantage

Notes:

The product is not only the physical unit but also the packaging, warranty, after-sale service, brand name, company image, value, and other factors.

Products may be tangible goods, services, and ideas.

Product decisions are discussed in Chapter 10 and 11, services marketing in Chapter 12.

Marketing Mix: The “Four Ps”

Product availability where and when customers want them

All activities from raw materials to finished products

Ensure products arrive in usable condition at designated places when needed

Place

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

The goal of distribution is to ensure products arrive in usable condition at the right place when customers need them.

Distribution is covered in Chapters 15 and 16.

Marketing Mix: The “Four Ps”

Promotion

Role is to bring about exchanges with target markets by:

Informing

Educating

Persuading

Reminding

Includes integration of:

Personal selling

Advertising

Sales promotion

Public relations

Direct marketing

Interative Marketing

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Promotion includes personal selling, advertising, sales promotion, and public relations.

Each element of the promotion mix is coordinated with the others to create a promotional blend. Integrated Marketing Communications is discussed in Chapters 16, 17, and 18. Technology-driven aspects of promotional marketing are covered in Chapter 21.

A good promotion strategy can increase sales, but does not guarantee success.

Marketing Mix: The “Four Ps”

Price

Price is what a buyer must give up to obtain a product.

The most flexible of the “4 Ps”-- quickest to change

Competitive weapon

Price x Units Sold = Total Revenue

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Price is an important competitive weapon and is often the most flexible of the marketing mix. Of the four Ps, it can be changed most quickly.

Price multiplied by the number of units sold equals total revenue for the firm.

Pricing decisions are discussed in Chapters 19 and 20.

Review Learning Outcome Elements of the Marketing Mix

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Chapter 2 Strategic Planning for Competitive Advantage

Following Up on the Marketing Plan

Explain why implementation, evaluation, and control of the marketing plan are necessary.

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Chapter 2 Strategic Planning for Competitive Advantage

Following Up the Marketing Plan

Implementation is the process that turns marketing plans into action assignments and ensures that these assignments are executed in a way that accomplishes the plan’s objectives. These activities may involve job assignments, activity descriptions, timelines, budgets, and lots of communication.

Evaluation entails gauging the extent to which marketing objectives have been achieved during the specified time period.

Control provides the mechanisms for evaluating marketing results in light of the plan's objectives and for correcting actions that do not help the organization reach those objectives within budget guidelines.

Marketing audit is…

Comprehensive

Systematic

Independent

Periodic

Postaudit tasks

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Implementation is essentially “doing what you said you were going to do.” However, many organizations repeatedly experience failures in strategy implementation.

The marketing audit provides the mechanisms for evaluating marketing results compared to the plan’s goals.

Postaudit tasks include distilling the information into a few main points to recommend implementation actions, answer the question “where are we now,” and to decide who is accountable for implementing these recommendations.

Steps in A Basic Control System

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Planning:

Set goals

Develop standards

Implement Actions

Measure performance against standards

Standards not met, but within acceptable deviation: Analyze trends

Modify actions

Standards not met, unacceptable deviation:

Analyze cause-and-effect trends

Scrap or revise plan accordingly

Chapter 2 Strategic Planning for Competitive Advantage

Review Learning Outcome

Product

Place

Promotion Price

Met objectives?

Implementation

Evaluation

Audits

comprehensive

systematic

independent

periodic

Implementation, Evaluation, and Control

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Chapter 2 Strategic Planning for Competitive Advantage

Effective Strategic Planning

Identify several techniques

that help make

strategic planning effective.

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Chapter 2 Strategic Planning for Competitive Advantage

Effective Strategic Planning

Requires…

Continual attention – ongoing rather than annual

Creativity – challenging assumptions

Management Commitment – support and participation from the top

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Continual Attention – Strategic planning should not be an annual exercise, but rather an ongoing process because the environment is continually changing and the firm’s resources and capabilities are continually evolving.

Creativity – Managers should challenge assumptions about the firm and the environment and establish new strategies.

Management Commitment – Support from top management is arguably the most important element of successful strategic planning.

Review Learning Outcome

Techniques for Effective Strategic Planning

Effective Strategic Planning

Continual attention

Creativity

Management

commitment

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Chapter 2 Strategic Planning for Competitive Advantage

Notes:

Effective strategic planning requires continual attention, creativity, and management commitment.

2. Strategic planning is not an annual event, but an ongoing process. The environment is continually changing, and the firm’s internal resources and capabilities are continually evolving.

3. Strategic planning is based on creativity. Assumptions about the firm and the environment should be challenged and new strategies established to sustain competitive advantage.

4. Management support and participation are critical to the success of strategic planning.

Chapter 2 Company Clip

This second Method video reinforces the notion that strategic marketing is an important part of successful marketing—even for cash-strapped start-up companies.

http://www.cengage.com/marketing/book_content/9781111821647_lamb/videos/ch02.html