222 Week 2 F /For WIZARD KIM

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

by Malcolm McDonald Kogan Page. (c) 2017. Copying Prohibited.

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Chapter 8: How to Set Marketing Strategies

Overview

By the end of this chapter, you will be able to:

Understand the process of new product development

Understand competitive strategies

Set strategies to achieve your objectives

Introduction

You will recall that, so far, I have assumed that you can reach your 'MUST' objectives by operating in the first box of the Ansoff Matrix, repeated in Figure 8.1. If, however, you need either new products for existing markets, existing products for new markets, or even new products for new markets, you will need to consider how best to proceed, so this next short section explains a way forward.

Figure 8.1: Ansoff Matrix

New product development/market extension/diversification

Sooner or later all organizations will need to move along one or both axes of the Ansoff Matrix. How to do this should be comparatively straightforward if the simple guidelines below are followed.

It is not the purpose here to explore in detail subsets of marketing, such as market research, market selection, new product development and diversification. What is important, however, in a book on developing a winning strategy for SMEs, is to communicate an understanding of the framework in which these activities should take place.

What we are aiming to do is to maximize synergy, which could be described as the 2 + 2 = 5 effect. The starting point once again is SWOTs (strengths, weaknesses, opportunities and threats). This is so that development of any kind will be firmly based on your company's basic strengths and weaknesses. External factors are the opportunities and threats facing your company.

Once this important analytical stage is successfully completed, the more technical process of opportunity identification, screening, business analysis and, finally, activities such as product development, testing and entry planning can take place, depending on which option is selected.

The important point to remember is that no matter how thoroughly these subsequent activities are carried out, unless the objectives of product development/market extension are based firmly on an analysis of the company's capabilities, they are unlikely to be successful in the long term.

The criteria selected will generally be consistent with the criteria used for positioning products or businesses in the Strategic Planning Matrix described in Chapter 7. The same list shown in Table 7.5 in Chapter 7 can be used to select those criteria that are most important. A rating and weighting system can then be applied to opportunities identified to assess their suitability or otherwise. Those criteria selected and the weighting system used will, of course, be consistent with the SWOT analyses.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

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Having said that it is not the purpose of this book to explore in detail any of the subsets of marketing such as market research, it would nonetheless be quite useful briefly to outline the process of new product development and its relationship to the gap analysis that you completed in Chapter 3.

New product development can usefully be seen as a process consisting of the following seven steps:

1. Idea generation – the search for product ideas to meet company objectives.

2. Screening – a quick analysis of the ideas to establish those that are relevant.

3. Concept testing – checking with the market that the new product ideas are acceptable.

4. Business analysis – the idea is examined in detail in terms of its commercial fit in the business.

5. Product development – making the idea 'tangible'.

6. Testing – market tests necessary to verify early business assessments.

7. Commercialization – full-scale product launch, committing the company's reputation and resources.

Marketing strategies

In Chapter 7, we set objectives for each of our products for markets. Now we are going to look at strategies for achieving these objectives.

What a company wants to accomplish, in terms of such things as market share and volume, is a marketing objective. How the company intends to go about achieving its objectives is strategy. Strategy is the overall route to the achievement of specific objectives and should describe the means by which objectives are to be reached, the time programme and the allocation of resources. It does not delineate the individual courses the resulting activity will follow.

There is a clear distinction between strategy, and detailed implementation, or tactics.

Strategy is the route to achievement of specific objectives and describes how objectives will be reached.

Marketing strategy reflects the company's best opinion as to how it can most profitably apply its skills and resources to the marketplace. It is inevitably broad in scope.

The plan that stems from it will spell out action and timings and will contain the detailed contribution expected from each.

Marketing strategies are the means by which a company achieves its marketing objectives and are usually concerned with the four Ps: product, price, place and promotion.

There is a similarity between strategy in business and military strategy. One looks at the enemy, the terrain, the resources under command, and then decides whether to attack the whole front, an area of enemy weakness, to feint in one direction whilst attacking in another, or to attempt an encirclement of the enemy's position. The policy and mix, the general direction in which to go, and the criteria for judging success, all come under the heading of strategy. The action steps are tactics.

Similarly, in marketing, the same commitment, mix and type of resources as well as guidelines and criteria that must be met, all come under the heading of strategy.

For example, the decision to use distributors in all but the three largest market areas, in which company salespeople will be used, is a strategic decision. The selection of particular distributors is a tactical decision.

Thus, marketing strategies are the means by which marketing objectives will be achieved and are generally concerned with the four major elements of the marketing mix (the four Ps).

The following headings indicate the general content of strategy statements in the area of marketing:

1. Policies and procedures relating to the products to be offered, such as number, quality, design, branding, packaging, positioning and labelling, etc (product strategies).

2. Pricing levels to be adopted, margins and discount policies (pricing strategies).

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

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3. Advertising, sales promotion, direct mail, call centres and the internet. The mix of these, the creative approach, the type of media, type of displays, the amount to spend, etc (promotion strategies).

4. What emphasis is to be placed on personal selling, the sales approach, sales training, etc (promotion strategies).

5. The distributive channels to be used and the relative importance of each (place strategies).

6. Service levels, etc in relation to different segments.

The following list of marketing strategies (in summary form), covers the majority of options open under the headings of the four Ps:

1. Product

expand the line;

change performance, quality or features;

consolidate the line;

standardize design;

positioning;

change the mix;

branding.

2. Price

change price, terms or conditions;

skimming policies;

penetration policies.

3. Promotion

change advertising or promotion;

change the mix between direct mail, call centres, the internet;

change selling.

4. Place

change delivery or distribution;

change service;

change channels;

change the degree of forward or backward integration.

These two options, that is, terrain or impregnable fortress (or both), are in fact the same options that face businesspeople as they contemplate competitive strategy.

Competitive strategies and how to beat bigger competitors

At this point, let me interrupt the flow of this chapter to tell you a story to illustrate what I suspect you already know – how to beat your competitors.

Imagine three tribes on a small island fighting each other because resources are scarce. One tribe decides to move to a larger adjacent island, sets up camp, and is followed eventually by the other two, who also set up their own separate camps. At first it is a struggle to establish themselves, but eventually they begin to occupy increasing parts of the island, until many years later,

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

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they begin to fight again over adjacent land. The more innovative tribal chief, that is, the one who was first to move to the new island, sits down with his senior warriors and ponders what to do, since none are very keen to move to yet another island. They decide that the only two options are (Figure 8.2):

1. Attack and go relentlessly for the enemy's territory.

2. Settle for a smaller part of the island and build on it an impregnable fortress.

Figure 8.2: Competitive strategy against larger companies

Let's look in turn at each of these options, continuing for a moment longer with the military analogy, and starting with terrain.

Imagine two armies facing each other on a field of battle (depicted by circles). One army has 15 soldiers in it, the other 12. Imagine also that they face each other with rifles and all fire one shot at the other at the same time, also that they don't all aim at the same soldier! Figure 8.3 depicts the progress of each side in disposing of the other. It will be seen that after only three volleys, the army on the right has only one soldier remaining, whilst the army on the left, with eight soldiers remaining, is still a viable fighting unit.

Figure 8.3: The importance of market share

One interesting fact about this story is that the effect observed here is geometric rather than arithmetic, and is a perfect demonstration of the effect of size and what happens when all things are equal except size. The parallel in industry, of course, is market share.

All things being equal, a company with a larger market share than another should win when competing against a smaller competitor. Or should it? Clearly, this is not inevitable, providing the smaller company takes evasive action. Even better, small companies can successfully attack much larger ones, especially given the power that technology has given to SMEs.

The David and Goliath story is repeated every day in the 21st century.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

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Without repeating the whole history of the Battle of Trafalgar, let me summarize how Nelson won a famous 'David and Goliath' victory over an enemy with superior numbers. (In order to make the point, I have summarized the battle in some fictional numbers – see Figure 8.4.) From this you will see that the enemy had 50 ships against Nelson's 40 ships. What Nelson did was to split his ships into two groups of 16 and one of 8. The 8 ships attacked the centre of the 50 so that Nelson's 32 ships could attack the enemy's 25. They then re-joined what was left of their own 8 and finished off the enemy.

Figure 8.4: Nelson's strength in fewer numbers at the Battle of Trafalgar

Yes, of course, this is a highly fictional and romanticized version of what really happened. Nonetheless, it does prove that it is possible to beat a numerically superior enemy with fewer resources.

Here are some very general guidelines to help you think about competitive strategies:

1. Know the terrain on which you are fighting (the market).

2. Know the resources of your enemies (competitive analysis).

3. Do something with determination that the enemy is not expecting.

In respect of this last guideline, the great historian of military strategy, Lanchester, put forward the following equation when applying his findings to industry:

Let us simplify and summarize this. 'Weapon efficiency' can be elements such as advertising, the sales force, the quality of your

products, and so on. '(number of troops)2' is more difficult to explain, but is similar in concept to Einstein's theory of critical mass:

Let us take as an example the use of the sales force. If your competitor's salesperson calls on an outlet, say, twice a month for six months, he or she will have called 12 times. If your salesperson calls four times a month for six months, he or she will have called 24 times. What Lanchester's Square Law says, however, is that the effect is considerably more than twice that of your competitor.

An example of this was the very small competitor Canada Dry's attack on the British mixer market. By training the sales force to a high peak of effectiveness (weapon efficiency), and by focusing on specific market segments and out-calling their much larger rival, they were gradually able to occupy particular parts of the market and then move on to the next, until eventually they gained a significant market share. What would have been foolhardy would have been to tackle Schweppes, the market leader, head on in a major battle. The result would have been similar to the fate of the troops in the Charge of the Light Brigade.

We can now return to a relatively simple method for deciding which of the 4Ps need attention and how to prioritize these.

You will recall that in Chapter 6 I showed you how to analyse the needs of customers in a segment by carrying out a SWOT analysis. I repeat the instructions here as Figure 8.5.

1. Identify the Critical Success Factors (CSFs) that influence the customer's decision. There are usually not more than six really important factors.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

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2. Assign an importance weighting to each CSF so that the weightings for each segment totals 100 per cent.

3. Identify the key competitors for each segment and score performance of your company and each key competitor on a scale of 1 to 10, where 1 = very poor and 10 = excellent. Limit to a few competitors (between 1 and 3).

4. Multiply the weights by the scores and add up the weighted score for each competitor.

5. Assess your relative strength by dividing your score by the best competitor's score.

6. Identify the key issues from the analysis.

7. Note that you can change your relative business strength by focusing on improving your strength on the criteria that matter most to customers.

Figure 8.5: Instructions for effective SWOT analysis

Item 7 in Figure 8.5 is the key to setting strategies for achieving your objectives and an example is given as Figure 8.6.

Figure 8.6: Strategies: revisit CSF scores

In this fictional example, the service score has been increased from 7 to 9. In reality, when completing your own plans, you would increase firstly those CSFs with the highest weights and those that would result in the greatest improvement in your competitiveness. If you had been doing what I have recommended in Chapter 6, you can now proceed to set strategies for each of your important segments, or products for markets. You can use Figure 8.7 to detail these strategies, work out how much they are going to cost you and who is going to be responsible for carrying out the necessary changes.

This is a relatively simple method for ensuring robust strategies to meet your objectives based on rational analysis.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Reprinted for ZU7S5/5693748, American Public University System Kogan Page, Malcolm McDonald (c) 2017, Copying Prohibited Page 7 of 8

Figure 8.7: Template for strategy details

Actions

Amend the scores in your earlier SWOT analyses using Figure 8.6 as an example of how to do this.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

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