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Part I: Marketing Management and Strategy

Part I of this text introduces the process of marketing management and the role of strategic planning in achieving the objectives of the organi- zation. Marketing is a customer-focused philosophy of business that provides the basis for competition in most business-to-consumer and business-to-business markets. It comprises those business activities that facilitate buyer–seller exchanges, stressing customer satisfaction as the key to achieving organizational goals. The set of management processes aimed at anticipating and satisfying customer requirements, consistent with the profit goals of the company, is called marketing management. It shapes the interface between the organization and its environment. Marketing strategy provides the plan for focusing the organization’s resources and deploying marketing tactics to capital- ize on those opportunities that will yield the best possible outcomes for the firm. The remaining parts of this text explore the essential pro- cesses of marketing management in greater detail.

Contents

Chapter 1: Strategic Planning and the Marketing Management Process

Chapter 2: Value Creation and Customer Satisfaction

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Learning Outcomes

By the end of this chapter, you should:

• Understand the fundamentals, concepts, and functions of marketing and marketing management.

• Know the four elements of the marketing mix and be able to provide examples of the common areas of decision making related to each.

• Recognize the purpose, goals, and basic design of a marketing plan.

• Understand how different levels of strategy work together to promote the objectives of the firm.

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Strategic Planning and the Marketing Management Process

istockphoto/Thinkstock

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CHAPTER 1Pre-Test

Introduction

This chapter investigates the fundamentals of strategic planning and the marketing management process. We begin with the basics of marketing: What is it and why is it of value? You may already be familiar with some of the core concepts of market- ing from previous coursework or your professional experience. Just to be sure, we review the essential functions and precepts of the discipline right at the start. We then move on to an examination of the process of marketing management and the development of strategy. This section highlights the strategy alternatives available to the organization and how the marketing mix can be deployed to achieve strategic objectives. We then examine how a marketing plan identifies the specific tactics for the implementation of strategy. The concluding sections of Chapter 1 examine how different levels of strategy interact to guide the organization.

* * *

Throughout my career I have traveled extensively and experienced my fair share of layovers and delays at airports. I have found that reading and conversation are the two most reliable ways to pass the time while waiting for flights to arrive, weather to clear, and bottlenecks to resolve them- selves. On one such occasion in Toronto, I was chatting with a flight attendant about our respec- tive career choices and ambitions. Once I had explained that I taught marketing at a university and did some work as a marketing consultant as well, she seemed disappointed. “Marketing? Really?” she asked incredulously. “I mean, you sound like a very smart man. . . . isn’t that kind of a waste?” I was stunned and a little embarrassed . . . and never did find a suitable response before the conversation migrated to other topics. If given a second chance, I would offer a good defense for my choices. I would explain that there’s more to marketing than she probably realized. I would do my best to explain away the bad rap that the field has gotten over the years. I would try to impress upon her the economic value and social benefits that we all derive from a vast array of diverse marketing activities. But I still think about that conversation every so often. It helps me to keep things in perspective.

Pre-Test

1. Marketing management’s primary focus is on benefiting the company’s a. customers. b. employees. c. managers.

d. stakeholders.

2. In which stage of the marketing management process would you focus MOST on sales and profit projections?

a. Stage I b. Stage II c. Stage III d. Stage IV

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CHAPTER 1Section 1.1 The Importance and Scope of Marketing

3. In a typical marketing plan, projections of sales, costs, and profits is found: a. in the executive summary. b. near the beginning of the plan. c. in the pricing section.

d. near the end of the plan.

4. The scope and purpose of an organization is best captured in: a. the marketing mix. b. the marketing objectives. c. the corporate strategy. d. the corporate mission statement.

Answers 1. a. Customers. The answer can be found in Section 1.1. 2. c. Stage III. The answer can be found in Section 1.2. 3. d. Near the end of the plan. The answer can be found in Section 1.3. 4. d. The corporate mission statement. The answer can be found in Section 1.4.

1.1 The Importance and Scope of Marketing

Marketing has been defined in many different ways over the years, and simply defining the term has been a contentious and controversial topic in both aca-demic and business domains for nearly a century. It is a business discipline that can be defined according to its activities, functions, processes, roles, values, scope, economic utility, and social significance based on the priorities of its advocates and crit- ics. This text focuses exclusively on the processes of effective marketing and marketing management from a business decision maker ’s perspective. In this regard, the practice of marketing can be defined as “the management process responsible for identifying, anticipating, and satisfying customer requirements profitably” (Chartered Institute of Marketing, 2011). More specifically, marketing management can be understood as “a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stake- holders” (American Marketing Association, 2011).

Both definitions stress that understanding buyers’ wants and needs is at the very heart of marketing’s role in the creation of customer value. Increasingly competitive global mar- kets and rapidly shifting consumer needs have increased the complexity of markets and amplified the importance of the marketing function. Consequently, marketing and market research have emerged as essential core competencies for most types of organizations. The responsive character of the marketing function to both rapid changes and gradual shifts in both micro- and macro-environment conditions have made effective marketing an essen- tial tool for both nonprofit and for-profit organizations. In short, marketing management provides the ability to succeed by effectively meeting the needs of target customers in a dynamic environment.

Marketing is essential to the effective promotion and successful operation of most busi- ness organizations. The scope and pervasiveness of this essential function is evident from both the aggregate economic impact of marketing and the range of jobs in the field. “Sales employees in manufacturing, service, and other industries; retail employees; and

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CHAPTER 1Section 1.1 The Importance and Scope of Marketing

workers in transportation, communications, and other related groups represent between one-fourth and one-third of the civilian labor force. About 50 cents of every retail dollar goes to cover marketing costs” (World Academy Online, 2011). Marketing provides a very broad range of employment opportunities throughout business and industry, as described in Table 1.1.

Table 1.1: The 26 marketing occupations

Product Management

Advertising Retailing Sales Marketing Research

Nonprofit

Product Manager, consumer goods. Developes new products that can cost millions of dollars, with advice and consent of management. A job with great responsibility.

Account executive. Maintains contact with clients while coordinating the creative work among artists and copywriters. In full-service ad agencies, account executives are considered partners with the client in promoting the product and aiding in marketing strategy.

Buyer. Selects products a store sells; surveys consumer trends and evaluates the past performance of products and suppliers.

Direct. Door-to- door or other personal selling. Compensation is based mostly on commission.

Project manager, supplier. Coordinates and oversees the conducting of market studies for a client.

Marketing manager. Develops and directs mail campaigns, fundraising, and public relations for nonprofit organizations.

Administrative manager. Oversees the organization within a company that transports products to consumers and handles customer service.

Media buyer analyst. Deals with media sales representatives in selecting advertising media; analyzes the value of media being purchased.

Store manager. Oversees the staff and services at a store.

Sales to channel. Sells to another step in the distribution channel (between the manufacturer and the store or customer). Compensation is salary plus bonus.

Account executive, supplier. Serves as liaison between client and market research firm; similar to an advertising agency account executive.

Operations manager. Supervises warehousing and other physical distribution functions; often directly involved in moving goods on the warehouse floor.

Copywriter. Works with the art director in conceptualizing advertisements; writes the text of print or radio ads or the storyboards of television ads.

Industrial/ semi-technical. Sells supplies and services to businesses. Compensation is salary plus bonus.

Project director, in-house. Acts as project manager for the market studies conducted by the firm.

Traffic and transportation manager. Evaluates the costs and benefits of different types of transportation.

Art director Handles the visual component of advertisements.

Complex/ professional. Sells complicated or custom-designed products to businesses. Requires an understanding of the technology of a product. Compensation is salary plus bonus.

Marketing research specialist, advertising agency. Performs or contracts for market studies for agency clients.

(continued)

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CHAPTER 1Section 1.1 The Importance and Scope of Marketing

Product Management

Advertising Retailing Sales Marketing Research

Nonprofit

Inventory control manager. Forecasts demand for stockpiled goods; coordinates production with plant managers; keeps track of current levels of shipments to keep customers supplied.

Sales promotion manager. Designs promotions for consumer products; works at an ad agency or a sales promotion agency.

Administrative analyst planner. Performs cost analyses of physical distribution systems.

Public relations manager. Develops written or filmed messages for the public; handles contacts with the press.

Customer service manager. Maintains good relations with customers by coordinating sales staffs, marketing management, and physical distribution management.

Specialty advertising manager. Develops advertising for the sales staff and customers or distributors.

Physical distribution consultant. Expert in the transportation and distribution of goods.

Adapted from Rosenthal and Powell, 1984

Marketing as Philosophy: The Marketing Concept

The concept of marketing as a business discipline has evolved significantly over time. The field of marketing was once regarded simply as a branch of economics, and the empha- sis was on the efficient production and distribution of goods. In the early decades of the twentieth century, the marketing emphasis became twofold: developing improved ways to sell what you produce, and improving product quality.

Table 1.1: The 26 marketing occupations (continued)

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CHAPTER 1Section 1.1 The Importance and Scope of Marketing

A different perspective on the role of marketing began to emerge in the years following World War II. The growth of discretionary income in the postwar era altered the relative balance of power between buyers and sellers. In contrast to the patterns established during the Great Depression and the scarcity of the war years, buyers now had the means to be selective about their purchases. Product branding became increasingly important as a means of differentiating products from each other in terms of price, functional attributes, ben- efits, and quality. To compete effectively, sellers needed to develop a sharper understanding of what different types of customers wanted from the products the sellers offered. This realization provided the impetus behind changes in how marketing was done and led to the formal rec- ognition of the marketing concept. The market- ing concept is a customer-oriented philosophy of business management that stresses that the objectives of the organization can best be met through the analysis and satisfaction of custom- ers’ wants and needs. This philosophy maintains that sustainable competitive advantage rests in focusing all of the organization’s efforts on iden- tifying and satisfying the needs of the customer better than the organization’s competitors.

In contrast to the production and selling emphasis of earlier eras, the market orientation established by the marketing concept places higher priority on understanding customers’ needs before designing and producing a good or service. It explicitly recognizes that, to be successful, all of the functions and resources of the organization need to be integrated and aligned with the goal of customer satisfaction. And it explicitly identifies customer satisfaction as the key to long-term success and profitability.

In a fundamental sense, the discipline of marketing remains focused on the interaction between supply and demand, just as it did in its infancy. However, the contrasts between the contemporary customer orientation of marketing and traditional economics are quite substantial. Economic analyses of markets typically assume that all people are the same in their preferences for a given product and that all products in a category are identical. In contrast, the foundation of contemporary marketing practice is the understanding that segments of buyers differ from other groups with respect to their wants and needs. Simi- larly, the value of contemporary marketing is based on the ability of firms to differentiate their unique product brands from others in the market. In a sense, it is the unrealistic nature of these classical economic assumptions about people and products that makes the discipline of marketing necessary.

Bettmann/Corbis/AP Images

In this advertisement, Duz’s marketing concept is to differentiate its detergent from its competitors by stating that the consumer can have the whitest whites “without red hands” caused by harsh cleaning chemicals.

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CHAPTER 1Section 1.1 The Importance and Scope of Marketing

Avoiding Marketing Myopia

Over time, some marketing organizations lose sight of the importance of maintaining a customer-cen- tered focus. In 1960, Theodore Levitt coined the term “marketing myopia” to describe short-sighted marketing strategy. The term refers to the potentially disastrous tendency of managers to focus on the products they sell rather than the customers they serve. As a result, they can lose sight of consumers’ wants and needs as these preferences shift over time.

The histories of many industries provide vivid illustrations of opportunities that have been missed when management’s view of buyers’ wants has been shortsighted and product-oriented. The owners and managers of the vast railroad empire that dominated transportation at the start of the twentieth century were focused on the efficient operation of trains rather than customers’ needs for safe and affordable transportation. Consequently, they didn’t recognize the opportunity to diversify into other forms of passenger and freight transport such as airplane, bus, car, and truck transportation.

Many successful motion picture companies from the “golden years” of Hollywood simply failed to recognize that their product was about entertainment rather than making movies. Many missed out on the opportunity to become television networks, for example (though 20th Century Fox is a notable exception). Similarly, many radio networks simply failed when confronted with the challenge of televi- sion. However, the National Broadcasting Corporation (NBC), Columbia Broadcasting System (CBS), and the American Broadcasting Company (ABC) successfully made the transition.

Staying focused on customers’ needs is essential in all types of organizations. Marketing managers need to ask themselves regularly: What business are we really in? Hospitals that focus on promoting wellness behave differently than those focused on treating illness. A firm that realizes its business is about per- sonal expression will respond to more opportunities than one that sees itself as a greeting card company.

Marketing Fundamentals

Marketing can be used to achieve a wide range of objectives. It determines what prospec- tive buyers want, and it also establishes the game plan for meeting customer demand. Although different types of organizations do the work of marketing in different ways, the essential concepts of the process are the same for all. This section explains those basic concepts and illustrates them using shampoo as an example product.

To begin with, a market is made up of all the individuals, groups, and organizations that want or need a product and have the resources required to purchase. Products may be goods, services, ideas, places, or people. Very few markets are homogeneous, or made up of people who are all the same. Groups of prospective buyers within most product markets differ from other groups based on their specific wants, needs, or purchasing ability. Mar- ket segments are clusters of prospective and current customers who are similar to each other in ways that lead them to respond to a firm’s marketing mix similarly. The process of dividing the total market into distinct groups or submarkets based on similar wants, needs, behaviors, or other characteristics is called market segmentation.

Consider a very simple product like shampoo. The potential market for this product would include anyone with hair. Yet consumers’ expectations for what their shampoo should do covers a wide range of needs. Although cleaning hair is a feature that is com- mon to all brands, one segment of the market will place the highest priority on fight- ing dandruff. Another will place greater importance on the aesthetics of fuller-looking, shinier hair. A third segment may stress the need for a brand that will make its hair more

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CHAPTER 1Section 1.1 The Importance and Scope of Marketing

manageable. And, inevitably, there is always a segment whose primary priority when choosing between brands is price. It is important to recognize that these segments are not mutually exclusive with respect to the features they are seeking in a brand. Several seg- ments, for example, may want a brand that fights dandruff and makes hair shiny. How- ever, segments are defined by differences in the relative importance that each attaches to distinct product attributes.

Each of these segments can initially be defined according to what it wants from the brand it buys. An important next step in the process of market segmentation is examining the demographic, lifestyle, and behavioral characteristics of buyers who share similar needs and priorities. The fuller-looking, shinier hair segment might be composed primarily of women aged 16 through 35. Perhaps they are less likely to be married than the population at large and more socially active. Personal appearance in general, and fitness in particular, may be important lifestyle descriptors for this segment. The importance of developing these types of profiles is that it enables marketers to shape the promotional message to suit the prospective buyers’ lifestyles, and profiles and they play an important role in identify- ing the best media alternatives to reach the target segment. One common misconception is that market segments are somehow preexisting divisions of the market just waiting for the marketing manager to uncover them. That is, some managers believe that market seg- ments are simply waiting to be discovered in the way fossils are just below the surface, waiting for a paleontologist to uncover them. This is not the case. Market segments can be created by marketing managers based on any product or buyer characteristics that will be the most profitable. In fact, creating new market segments within old, established product markets is one way to create new opportunities for the firm.

Consider the market for baby shampoo. The category name suggests a very limited poten- tial market. Over the years, however, marketers have identified new market segments for this product. Consumers who are concerned about the chemical “harshness” of regular shampoo brands represent an alternative to the traditional market. Customers with color- treated hair may find this type of shampoo a better option than “adult” brands. In short, any group of buyers who value gentleness as an essential product benefit of shampoo is a potential market segment.

Think About It

The migration of a brand’s focus from the needs of one target market to the inclusion of others is usually confined to entering new, but similar, product-use segments—for example, from one group of buyers washing their hair to another with slightly different shampoo preferences. However, marketing history is replete with examples of big jumps across product categories. For instance, Arm & Hammer Baking Soda was originally limited to use as a baker’s ingredient. It is now promoted for uses in house- hold deodorizing products, toothpastes, laundry detergents, and cat litter. Sometimes these new uses are initially promoted by the manufacturer, but just as often they are pioneered by consumers. If you ever need to install window tinting film in your home or car, some manufacturers recommend prepar- ing the glass surface by cleaning it with baby shampoo.

Can you think of other examples where products are being used for purposes different than those intended by the manufacturer?

Do you suppose it was initially the manufacturer’s or a consumer’s new idea?

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CHAPTER 1Section 1.1 The Importance and Scope of Marketing

A target market is the term used to describe a group of potential buyers that the firm seeks to satisfy with its marketing mix. It is the segment of the market to which the firm directs its product and marketing efforts. Separate marketing mixes are developed to suit each target market according to its preferences and needs. The target market for any given product may be a single market segment, multiple pooled segments, or a mass market characterized by a prototypical consumer.

The tools available to the marketing manager to influence the target market to purchase one brand over another are collectively referred to as the marketing mix. Often referred to as the “4 Ps,” the marketing mix is the combination of four controllable factors that con- tribute to the organization’s marketing program: product, price, place, and promotion. The way in which these variables are combined makes up the core mar- keting strategy of the organization. The marketing mix is the tool kit of marketers insofar as these four ele- ments are under the discretionary control of the organization. They provide the means by which the organization can respond to and adapt to uncontrollable environ- mental factors such as economic, demographic, technological, natu- ral, political, and cultural forces.

Let’s return to the shampoo cat- egory. What can we say about the target market and marketing mix for the low-price segment of the market? In terms of demograph- ics, you are likely to find that this segment is price sensitive because those in it are from the lower end of the household income spectrum. The demands of raising a large family may also be a factor in their desire to hold down expenses on common household items such as sham- poo. The marketing mix required to sell to this segment would have several distinctive features. The product would have to be inexpensive to produce and package. This target market is not looking for anything “fancy,” and a no-frills packaging presentation helps to communicate a good-value-for-money message. A competitively low price is essential, though this can be achieved in different ways such as coupon deals and economy-size packaging. The place element requires the manufacturer to secure distribution in those outlets where frugal shoppers go. These would include the big-box chain stores, price clubs, and discount and warehouse stores. The promotional message would necessarily emphasize value and low price.

Associated Press

This father and son shop at a warehouse store to buy economy-size household items in bulk to save money. How do companies appeal to these customers?

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CHAPTER 1Section 1.1 The Importance and Scope of Marketing

Two product benefits for shampoo are contrasted in this map: adding volume and cleansing hair. The size of the circles indicates the market share owned by the brand. Which dominates the market?

Product differentiation is the term used to describe the process of distinguishing one product or brand from another. A product is said to be differentiated when it is perceived as distinct from competitors’ products based on any tangible or intangible feature. Prod- uct differentiation also refers to the generic strategy that promotes the characteristics or unique benefits of its brand over competitors’ brands in the same market.

Product positioning, or brand positioning, refers to the strategy and tactics involved in creating and shaping the brand’s image in the mind of prospective buyers. These images are defined relative to how consumers perceive competing products. Consumer percep- tions (not actual differences between products) are the critical issue. In general, the term “positioning” can be used in reference to the process by which marketers create an iden- tity in the minds of consumers for either a product or brand.

The relative position of one brand to others is sometimes illustrated using of a positioning map or perceptual chart, as shown in Figure 1.1.

Figure 1.1: Brand positioning map

Think About It

For virtually every product sold there is a low-price segment within the market. Suave brand shampoo has been very successful in the low-price segment of this market with promotional themes such as Suave does what theirs does . . . but for a lot less and Suave does what theirs does for less than half the price.

Think of some other advertising themes that are intended to persuade price-conscious consumers.

Can there be more than one successful brand pursuing this strategy in any given market?

Can more than one brand successfully pursue this strategy in any given market?

1

2

3

4

5

7

8

6

High Volume Adding

Low Volume Adding

High CleansingLow Cleansing

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CHAPTER 1Section 1.2 The Marketing Management Process

Successful product differentiation and positioning relative to the needs the target market can provide a firm with a differential advantage over competitors based on the unique attributes or benefits of its brand, which encourage consumer purchase. Differential advantages provide buyers with substantial reasons to prefer one brand over another. Both product differentiation and the effective positioning of the brand contribute to build- ing differential advantages over competing products.

Basic Marketing Functions

Although our approach to the practice of marketing management emphasizes a process- oriented perspective, it is worthwhile to briefly note the six primary functions of market- ing management:

1. Environmental analysis 2. Consumer analysis 3. Product planning 4. Price planning 5. Place or physical distribution planning 6. Promotion planning

Environmental and consumer analysis are essentially market research functions that pro- vide the means to identify new opportunities, evaluate market potential, and select target markets. One approach to environmental analysis is called PEST analysis. This model focuses on the study of political, economic, social, and technological forces within the environment that might impact the organization’s strategic plan. Consumer analysis pro- vides an in-depth examination of the forces that shape demand. These include cultural, socio economic, and personal dimensions of the consumer environment. Environmental and consumer analysis are investigated in detail in Chapters 3 and 4.

Product, price, place, and promotion all have to do with the marketing mix, or the 4 Ps. When examined from a functional perspective, the 4 Ps of the marketing mix provide the strategy planning platform for the pursuit of market opportunities identified in the envi- ronmental and consumer analyses. Specific decision-related considerations for each of the marketing mix variables are addressed in the next section.

1.2 The Marketing Management Process

Marketing management is a process that is intended to facilitate transactions by bringing buyers and sellers together. Consistent with the marketing concept, the ultimate goal of the process is to create exchanges that satisfy both company and customer.

As illustrated in Figure 1.2, the process of marketing management from the seller’s per- spective can be characterized as a series of four stages of decision making: situation analy- sis, marketing strategy, marketing mix decisions, and implementation and control.

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CHAPTER 1Section 1.2 The Marketing Management Process

Figure 1.2: Marketing management process

How can you apply this process to a company, product, and target market you are aware of?

Each of these stages is described in greater detail in the sections that follow. Before pro- ceeding, however, it is important to keep two features of the model in mind. The purpose of the model is to provide a measure of discipline to the process of marketing manage- ment to improve the quality of managers’ decisions. Its value lies in making sure that the decision maker is deliberate, thorough, and systematic in the planning and execution of marketing strategy. An important consideration when evaluating the model is that it is not simply a linear recipe card for decision making. It is intended to provide an aid to assess- ing the goodness of fit between marketing problems and alternative solutions. As such, it is not a substitute for thinking. The model can only be as useful, flexible, and dynamic as the user makes it.

Stage I: Situation Analysis

In many instances, corporate, division, and business unit level goals and strategic priori- ties will shape and direct the process of marketing management from the outset. Given those constraints, the first step of the process is to undertake a thorough analysis of the current situation and environment confronting the organization. Situation analysis is at the heart of marketing’s endeavor to identify new opportunities to satisfy unmet cus- tomer wants and needs. Opportunities typically stem either from finding new ways to serve the needs of existing customers or uncovering new markets for existing product or service lines. Many new opportunities incorporate elements of both new products and new markets. Product-related opportunities for a regional hospital, for example, might include the addition of alternative therapies (e.g., acupuncture) or creating satellite well- ness or express-care centers in local shopping centers and malls. The addition of a new service line in sports medicine and rehabilitation care might be one way to reach a new segment of the market.

The goal in situation analysis is to provide an analysis of both macro- and micro- environmental factors that will impact marketing strategy. The process also serves to make the organization cognizant of its capabilities and resource limitations. For this rea- son, SWOT analysis (discussed in Chapter 3) is a starting point for performing situation analysis that is favored by many managers. SWOT is an analytical procedure that requires consideration of the firm’s internal Strengths and Weaknesses relative to the Opportunities and Threats posed by the external environment.

Since the objective of situation analysis is to uncover viable market opportunities, it needs to be comprehensive in scope. One way to make sure that all relevant features of the environment are considered is by using the 4 Cs framework: company, customers, com- petitors, and climate/culture. In this model, company refers to the internal capabilities

Marketing Strategy

Marketing Mix Decisions

Implementation and Control

Situation Analysis

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CHAPTER 1Section 1.2 The Marketing Management Process

and resources of the firm, while the remaining three Cs represent elements of the external environment. (Applications of this model are discussed in Chapter 5.)

Regardless of the analytical devices and techniques deployed, the final product of the situation analysis is an accurate map of both the internal and external environ- mental circumstances confront- ing the organization. This process may identify potential problems in the firm’s current marketing plan that require remedial action. However, the primary objective is to identify market opportunities by demonstrating gaps between consumer preferences and the cur- rent array of competitive brands. Once the most attractive of these opportunities are evaluated, a marketing strategy for applying the organization’s resources to sat- isfy the potential market demand is created.

Let’s consider again the challenges confronting a regional hospital. The high cost of deliv- ering quality health care and many patients’ limited ability to pay reflect both internal and external environmental challenges. This growing gap or tension necessarily poses a threat to maintaining high levels of patient satisfaction. Marketing opportunities exist to help narrow this gap. The concept of creating wellness centers at shopping centers and malls is one possible response to the challenge. These express health care centers could provide basic care for common ailments, routine inoculations, and short customer waiting times and extended hours to make the centers more convenient. If staffed only by a registered nurse, the per-patient cost of treatment for common ailments and minor injuries in this setting would be far less than clinic or hospital visits.

Stage II: Marketing Strategy

After the situation analysis has identified the best opportunities for the firm, a multilay- ered strategic plan is required to effectively and efficiently capitalize on them. The most general level of strategy that needs to be addressed at this stage in the marketing manage- ment process is the identification of the generic strategy that is best suited to pursuing the opportunity. The three basic types of generic marketing strategy are product differentia- tion, cost leadership, and market focus (Porter, 1980).

Product differentiation strategy requires distinguishing your product from competitors’ in a way that makes prospective buyers prefer your brand. The basis of differentiation can be tangible or intangible attributes of the product—including the brand image itself.

Associated Press

CVS and many other companies are meeting shoppers’ needs conveniently and, ultimately, building more traffic for their stores.

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CHAPTER 1Section 1.2 The Marketing Management Process

For this reason, product differentiation strategy is often most closely identified with the marketing function.

Cost leadership strategy allows a firm with lower overall costs of production and market- ing to attract price-sensitive customers by selling at relatively lower prices than competi- tors. Lower costs can be derived from economies of scale and experience curve efficiencies in manufacturing and other operational areas of the organization. Competitively lower direct and indirect operating costs may also be rooted in outsourcing, tighter production cost control processes, more-efficient distribution networks, and higher rates of capacity utilization.

Market focus strategy is not a separate or distinctly different strategy from the other two, but instead describes the scope over which the firm will implement either cost leadership or differentiation strategies. Organizations may opt to compete in broadly defined mass markets or focus on narrower segments of the market. In a narrow, focused approach to strategy, competitive advantage is gained by serving the unique needs of a market seg- ment or niche better than larger competitors can because of their size.

The generic strategy options for a regional health care provider can be defined in the same way as they would be for any other type of organization. Hospitals can pursue a dif- ferentiation strategy based on several dimensions of care. For example, some may opt to emphasize the latest in high technology, while others stress personal care. The contrast of high tech versus high touch is typical in fields such as cardiology, obstetrics, and senior care.

Cost leadership in health care can be achieved through more efficient operations and supe- rior cost management techniques. Some advantages are uniquely tied to economies, giv- ing bigger organizations an advantage. However, smaller health care systems have access to cost-savings opportunities that diminish as the size of the organization increases. Focus strategy options, as noted, simply describe the scope over which the firm will implement either cost leadership or differentiation strategies. In a health care setting, this typically applies to decisions made for individual service lines versus the organization as a whole.

The best generic strategy is chosen based on how the unique strengths of the organiza- tion relate to the opportunity identified by the situation analysis. All organizations thrive in environments that allow them to leverage their strengths relative to their competitors. The strengths of a firm are typically rooted in either superior brand differentiation or cost advantages over other producers. Further, these advantages can be applied in either broadly defined markets or narrow market niches. The resulting generic strategy options are illustrated in Figure 1.3.

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CHAPTER 1Section 1.2 The Marketing Management Process

Figure 1.3: Porter’s generic strategies

Strategic alternatives stem from either brand differentiation or cost-related advantages. These advantages can be broad or narrow in scope—why do you think that is?

The chosen generic strategy, as the name suggests, provides a broadly defined strategic orientation for pursuing the identified market opportunity. Beyond this initial determina- tion of an overall strategy, three other closely related strategy decisions need to be made before an operational marketing plan can be developed. These more specific strategic options relate to market segmentation, product differentiation, and brand positioning.

Strategic planning is as much an art as a science, and there is no one “best way” to orga- nize the effort. Table 1.2 provides one simple model that you may find helpful.

Table 1.2: A matrix model of marketing management

The Marketing Mix

PRODUCT PRICE PLACE PROMOTION

Generic Market Strategy

Market Segmentation

Product Differentiation

Brand Positioning

Source of Advantage

Market Scope

Broad Market Scope

Narrow Market Scope

Cost Leadership Strategy

Focus Strategy (differentiation)

Product UniquenessLow Cost

Focus Strategy (low cost)

Differentiation Strategy

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CHAPTER 1Section 1.2 The Marketing Management Process

Once decisions regarding the four strategy categories in the left-hand column have been made, their goodness of fit with the four elements of the marketing mix can be assessed by examining each intersection in the 16-cell matrix. For example, is our pricing strategy (column 2) consistent with our generic market strategy, market segmentation strategy, product differentiation strategy, and brand positioning strategy? In practice, managers may find it useful to fill in each cell of the matrix to demonstrate how each element of the marketing mix contributes to the strategic objectives established in the left-hand column. This exercise can refine the process of strategic planning and avoid costly mismatches down the road.

Marketing strategy provides the overall “battle plan” for capitalizing on the opportunities initially identified through the situation analysis. The next step in the process of market- ing management is to develop the plans for the implementation of the marketing mix.

Stage III: Marketing Mix Decisions

The marketing mix represents the basic tool kit of marketing since it provides the means for executing strategy. In keeping with the marketing concept, the objective is to make decisions and develop plans that relate the 4 Ps to the target market to provide greater perceived value than competitors can offer. Each of the four elements of the marketing mix will be addressed in detail in subsequent chapters. The outline that follows provides a brief summary of typical decisions that marketing managers need to make within each of the four categories.

The product variable includes both tangible and intangible dimensions of physical prod- ucts and services. Common areas of product-related decision making include:

• New product development, • Test marketing, • Branding and brand management, • Product design and styling, • Packaging, • Product safety, • Quality control, • Post-purchase product service and support, • Ancillary services and accessories, • Product mix and product line management, and • Product life cycle management.

The pricing variable includes both economic and psychological characteristics. Common areas of price-related considerations and decision making include:

• Evaluation of price elasticity of demand, • Meeting legal and ethical pricing constraints, • Introductory price setting (price skimming versus penetration pricing), • Price discrimination, • Cost-based pricing versus demand-based pricing versus competition-based

pricing, • Economic value estimation, • Pricing through channels of distribution, • Geographic pricing,

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CHAPTER 1Section 1.2 The Marketing Management Process

• Discounting policies, • Price–quality correlation, • Prestige pricing, • Price lining, • Leader pricing, • Seasonal pricing, • Bundling, • Profitability and margin analysis, • Break-even analysis, and • Sales and profit projections.

The place variable relates primarily to distribution and focuses on getting the product to the customer. Common areas of place-related considerations and decision making include:

• Evaluating alternative distribution plans and networks, • Selecting distribution channels, • Establishing and maintaining channel relationships, • Negotiating and administering channel contracts, • Resolving channel conflict and maintaining channel control, • Managing distribution coverage/intensity (intensive versus selective versus

exclusive), • Evaluating and implementing push versus pull strategies, • Inventory management and control, • Order processing, and • Warehousing.

The promotion variable encom- passes a wide range of func- tions related to the firm’s overall communications program. Com- mon areas of promotion-related decision making include:

• Setting and evaluating communications goals,

• Assessing alternative communication channels,

• Establishing promotion budgets,

• Measuring promotional effectiveness,

• Advertising, • Message and media

planning, • Social media promotions, • Personal selling and sales

management, • Recruiting and training salespeople, • Sales territory management and sales force allocation, • Publicity and public relations, • Consumer- and middleman-directed sales promotions.

Najlah Feanny/Corbis

Retailers are increasingly looking to social media to strengthen relationships with customers. In this image, Charlotte Russe displays a Facebook promotion to gain more customer support and store traffic.

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CHAPTER 1Section 1.2 The Marketing Management Process

Stage IV: Implementation and Control

The value of the three preceding stages in the process of marketing management depend wholly the organization’s ability to effectively implement the developed strategy. Stages I through III have identified the opportunity within the marketplace, isolated the best stra- tegic option for exploiting the opportunity, and created the marketing mix that will faith- fully execute the strategy. The final stage of the process is to implement the marketing mix decisions that have been made and monitor the results.

The final stage in the marketing management process is to assess whether the goals and objectives established through the four-step process and corresponding marketing plan are being achieved. This evaluation and control process relies on specific, measureable, short-term goals or benchmarks established for the new marketing initiative. The com- parison of performance to objectives provides critically important performance feedback and enables decision makers to make adjustments to the marketing program as needed. Although poor performance may implicate the effectiveness of the marketing mix for a given program, it should also cause marketing managers to reexamine their assumptions about the nature of the market opportunity they are pursuing. No plan can meet expecta- tions if the estimates of market potential for a new opportunity are unrealistically inflated. Specific techniques for evaluating market demand and forecasting sales are developed in Chapter 5.

The detailed plan for implementation is called a marketing plan. The American Marketing Association defines a marketing plan as “a document composed of an analysis of the current marketing situation, opportunities and threats analysis, market- ing objectives, marketing strategy, action programs, and projected or pro-forma income (and other financial) statements. This plan may be the only statement of the strategic direction of a business, but it is more likely to apply only to a specific brand or product. In the latter situation, the marketing plan is an implementation device that is integrated within an overall strategic business plan” (American Marketing Association, 2011).

Think About It

Select a consumer product of personal interest—one that you have purchased within the past six months. It can be anything, just as long you are familiar with the product and generally understand how it is marketed. Using the matrix model of marketing management in Table 1.2, fill in the cells of the matrix as completely and thoroughly as you can for the brand that you purchased. Be sure that your entries correspond to your perspective as a customer for this brand. In short, you are the target market. You may wish to create one or more positioning maps to help illustrate how you perceive the competitive playing field. Once you’re done, examine the intersection of each cell.

How do the elements of the marketing mix align with the four strategy categories in the left-hand column?

Does every one of the 4 Ps contribute to each of the strategic objectives established in the left-hand column?

Do you see room for improvement? How would this assessment be different for other types of customers?

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CHAPTER 1Section 1.3 The Marketing Plan

The specific format for a marketing plan can vary substantially from one instance to the next, depending on the nature of the firm, the market, and the opportunity in question. In each instance, however, the intent of the written plan is to provide a detailed, systematic blueprint for implementing the decisions reached in the marketing management process. The outline for a typical marketing plan is provided in the next section.

It is also worth noting that most competitive market environments are in a constant state of flux to a greater or lesser degree. The impact of macro- and micro-environmental forces on market demand requires careful monitoring. Marketing managers must be able to adapt the marketing mix for any given product to respond to these changes. Consequently, the process of marketing management itself requires continual monitoring and modifications to the marketing mix in response to shifts in the character of the target opportunity. As with most things in marketing, the focus must remain on the customer and the pursuit of ways to meet buyers’ needs more effectively and consistently than one’s competitors.

1.3 The Marketing Plan

The marketing plan is the set of operational blueprints that translates the initial stra-tegic choices identified by the marketing management process into actions. It estab-lishes the firm’s initial marketing strategy and identifies the activities required to carry out the overall plan. Marketing plans specify target markets and provide an over- view of the decision-oriented steps and objectives for each element of the marketing mix. Additional information usually includes market research plans, consumer and environ- mental analyses, and sales forecasts.

There are many formats, outlines, and styles for writing marketing plans, which reflects the need to tailor the plan to suit the product, market, and specific audience it is intended to reach. The follow- ing annotated outline is intended to provide a flexible guide to writing a marketing plan, while allowing the marketing manager to adapt the model to suit the unique demands of most business situations.

Marketing Plan Outline

The marketing plan outline con- sists of 11 sections. It begins with an executive summary that pro- vides a preview of the main points of the plan. Section II describes

Associated Press

A marketing plan identifies the company’s strengths and weaknesses and the potential threats of the marketing environment. This ensures that specific products like PlayStation 3 reach the right target audience and market.

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CHAPTER 1Section 1.3 The Marketing Plan

the current situation confronting the firm and includes an assessment of the competitive environment. This is a pivotal section insofar as it forces marketing managers to develop a comprehensive understanding of the markets in which they are competing. The sec- tion that follows presents the results of any market research that has a direct bearing on the viability of the plan.

Sections III through V describe all of the strategic decisions and goals related to the pur- suit of this market opportunity, with particular emphasis on market segmentation and product positioning. Sections VI through IX provide a breakdown of how the marketing mix will be used to accomplish those strategic goals.

The final two sections of the marketing plan include forecasts of the financial results anticipated from the execution of the plan and a summary of the long-range plans for this product.

SECTION I: Executive Summary The executive summary should provide an overview of the entire plan, including a description of the product, the differential advantage, the required investment, and antici- pated sales and profits.

SECTION II: Situation Analysis and Assessment of the Competitive Environment This section of the marketing plan needs to:

• Provide a review of past performance for existing programs covered by the plan. • Discuss any issues within the macro-environment that are pertinent to demand

for your product, markets, and the proposed marketing plan. Do you intend to profit from any changes taking place in the marketplace? Macro-environmental dimensions may include: demographic shifts, legal/political factors, changing lifestyles, social changes, economic trends, technological changes, or shifts in cultural/religious values.

• Describe your competitors, their products, and strategies. What are their advan- tages in the market? What channels do they use? Identify their strengths and weaknesses. Prepare a SWOT chart illustrating strengths, weaknesses, opportuni- ties, and threats relevant to the plan.

SECTION III: Researching Market Opportunities and Market Potential This section of the marketing plan will present any information that indicates the viability of this product. This could include either primary or secondary data that describe the size or potential of this market.

Fully describe your market research plans. What types of research would you conduct prior to introducing this product? Be explicit when explaining the purpose or intent of this research plan. Describe your research methodology as completely as possible.

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CHAPTER 1Section 1.3 The Marketing Plan

SECTION IV: Market Segmentation, Product Differentiation, and Positioning Present your segmentation analysis by identifying the market segments, segment name, and descriptive characteristics. Include a chart presenting this information and the pur- chase determinant attributes, features, or benefits for each of the following:

• Target Market Selection/Strategy. This should be based on the preceding analysis, specifying target market(s) by name and buyer characteristics. Describe your target market segment(s) in detail by using demographics, psychographics, geography, lifestyle, or whatever segmentation variables are appropriate. Explain why this is your target market. Describe the size and other relevant group characteristics.

• Product Differentiation. This should be a description of the essential difference between your product and its closest competitors. Indicate any potential for attracting other groups of consumers in the future: Why is it a superior alterna- tive for some buyers . . . specifically your target market? What is the motivation of buyers and users of competing products? What would be their motivation for buying your product?

• Product Positioning. Here you should prepare complete positioning maps or com- parable charts for your product and competing products on relevant dimensions.

SECTION V: Statement of Marketing Strategy and Goals Based on the analysis presented in Sections I through IV, specify your overall market- ing strategy for the product. In this section you need to state your goals for the product in terms of sales volume, market share, return on investment, or other measures, and the time needed to achieve each of them. Sections VI through IX will describe your implementation of this strategy—how you will deploy the marketing mix to carry out your strategy.

SECTION VI: Product Planning This part of the marketing plan should discuss your firm’s product planning issues. What is your brand management strategy? Describe your rationale for this choice. Discuss prod- uct packaging and the purposes your packaging serves. Include a discussion of relevant product features that were not described previously.

SECTION VII: Pricing Here, discuss the nature of your pricing strategy and tactics for this product relative to competing brands and substitute products. Organize this section to stress any factors or strategies that are important to the success of your marketing plan. Be certain to address the issue of “skimming” versus penetration pricing.

SECTION VIII: Place, Physical Distribution, or Location Strategy In this section, you should specify the details of your distribution strategy, compare your system of product delivery to those used by competitors, and describe where your service will be offered or how the service will be delivered to the buyer. How important is the choice of location? Discuss the relevance of push versus pull strategies with respect to your goals.

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CHAPTER 1Section 1.4 Hierarchy of Corporate, Business, and Marketing Strategies

SECTION IX: Promotion State the goals of your promotional strategy and identify your promotional campaign theme clearly and concisely. Remember to explain how the choice of goals and themes will accomplish the objectives stated in Section V. You should also discuss how the ele- ments of the promotions mix are interrelated in your promotional efforts. Where do your priorities lie?

SECTION X: Projections of Sales, Costs, and Profits You will need to determine project or product launch startup costs and a monthly opera- tions budget. Calculate the break even point for alternative price levels and provide sales and cash flow projections for same.

SECTION XI: Summary and Conclusion In addition to a summary overview of the plan, you should also provide a description of your long-range plans and expectations for this product. This section also offers an oppor- tunity to highlight the strengths of your marketing plan and acknowledge its weaknesses.

1.4 Hierarchy of Corporate, Business, and Marketing Strategies

The process of marketing management takes place within the much broader context of the organization’s limited resources and objectives. The hierarchy of most large organizations requires that the strategic direction for the whole body is established at the highest levels. Consequently, marketing decisions at lower levels of the hierarchy must be informed and shaped by an understanding of the organization’s larger priorities and goals.

The term strategy has many meanings, depending on the context in which it is used. In its simplest form, however, a strategy is a long-term plan of action designed to achieve specific objectives. In business, common strategic goals are often expressed in terms of growth and profitability. Strategy is distinct from tactics, which are the short-term means required to execute the strategy and achieve the stated goals.

In this section, we turn our attention to big picture issues by tracing the path of strategic planning from its origins in the company mission statement and through the develop- ment of a corporate-level strategy until we reach the level of the individual business units. It is at the business unit level of decision making that marketing managers take charge of strategic planning.

Corporate Mission Statement

Most large organizations develop multiple levels or layers of strategy over time. Corpo- rate-level strategy establishes the operational domain or boundaries of the organization. The corporate mission statement defines the purpose and scope of the organization. In

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CHAPTER 1Section 1.4 Hierarchy of Corporate, Business, and Marketing Strategies

doing so, it typically sets forth the com- pany’s values and establishes the predomi- nant areas of business focus and practice. A formal corporate mission statement may also include other features such as the historical roots of the firm, the prevailing management philosophy, relevant envi- ronmental concerns, and a statement of what the company perceives as its distinc- tive competencies.

Peter Drucker, a twentieth-century busi- ness author, believes that the mission of a corporation can be defined by the answer to five basic questions (Drucker, 2008):

1. What is our mission? 2. Who is our customer? 3. What does the customer value? 4. What are our results? 5. What is our plan?

Corporate mission statements define the character of the company for people inside and outside the company. The most significant role of the mission statement for company managers is in shaping the development of corporate-level and business-level strategy.

Corporate Strategy

Strategies at all levels of an organization share certain features. They define the objectives that the business will pursue within a given environment, and they guide the allocation of organizational resources and effort. At a basic level of analysis, corporate-level strategy is primarily concerned with establishing the corporate domain by answering the core ques- tion, “What businesses should we be in?” Business-level strategy is designed to answer the question, “In which product markets should we compete within these businesses?” Marketing strategy is a statement of how a brand or product line will achieve its objectives within the broader context of business-level objectives.

Corporate-level strategy defines the business areas in which the organization will compete and provides a statement of the core rationale required to integrate the subor- dinate goals of the operational subunits and functional departments. This is necessary to be certain that every strategic business unit (SBU) within the company is pulling in the same direction.

Strategic Business Units Strategic business units are often the unit of analysis for planning corporate strategy, and they can be defined in many ways. SBU typically refers to any major product or service line within a company that is small enough to be flexible in its response to external market

WireImage/Getty Images

Companies are increasingly responding to customers’ social concerns as well as their product needs to strengthen the image of the brand.

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CHAPTER 1Section 1.4 Hierarchy of Corporate, Business, and Marketing Strategies

forces and big enough to exercise direct control over the internal decision factors affect- ing its performance. From a marketing manager’s perspective, this includes direct control over the elements of the marketing mix. Most SBUs have a significant degree of manage- rial autonomy and have their own objectives and business strategies independent of the organization as a whole. The strategy statement for a strategic business unit defines the markets in which the business will compete and describes how it intends to achieve and promote a competitive advantage in that market. From the perspective of planning cor- porate strategy, SBUs represent the individual elements within the company’s portfolio of business ventures.

Allocating Corporate Resources Large corporations typically have many SBUs under their organizational umbrella. Hav- ing an array or portfolio of product lines and brands under the control of one entity affords the company several potential advantages. Managers can shift the investment of corporate resources to those SBUs that hold the promise of greater growth and profitability while reducing their commitment to less attractive options. These resources may include the assignment of key managerial talent, research and development funding, and marketing support. Marketing support includes the company’s investment in product development, advertising, promotions, the development of distribution channels, and the commitment of increased support from the sales staff.

In the early 1970s the Boston Consulting Group (BCG) introduced a conceptual planning model for managing a portfolio comprised of multiple SBUs. The BCG Growth-Share Matrix is an aid to decision making that displays each of the firm’s strategic business units on a two-by-two graph defined by forecasted market growth rate and current rela- tive market share. Each SBU is assigned to one of four categories on the resulting matrix as a function of its market share relative to immediate competitors and growth rates for the industry.

The BCG matrix illustrated in Figure 1.4 provides a framework for evaluating the allo- cation of corporate resources among different business units. Recommendations for the allocation of resources to strategic business units are made according to where the units are situated within the BCG Growth-Share Matrix.

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CHAPTER 1Section 1.4 Hierarchy of Corporate, Business, and Marketing Strategies

Figure 1.4: BCG Growth-Share Matrix

The BCG Growth-Share Matrix helps managers assign corporate resources to opportunities with the greatest potential by evaluating each SBU’s relative market share and the corresponding rate of market growth.

Cash cow is a business unit that has a large market share in a mature, slow-growing industry. These units typically generate large profits and require relatively little invest- ment to maintain their market share in slow growth industries. Cash generated from cash cows can be reinvested into other, growth-oriented SBUs.

Stars are defined by their relatively high market shares in high-growth markets. They tend to generate substantial profits but also consume substantial resources to finance their continued growth in rapidly growing, competitive markets. Just “keeping up” in these dynamic markets may require a substantial commitment from the firm. If successful, a star will become a cash cow in the long run, as its industry matures.

A question mark (sometimes called a “problem child”) is a business unit that holds a relatively small market share in a high growth market. These units do not generate sub- stantial profits at this time, but they require resources to grow their market share. Whether they will succeed and develop into stars is usually uncertain, but they still require high levels of investment to maintain or build their market share. The decision to invest in these opportunities or divest them is among the most challenging ones facing marketing managers.

Stars Question Marks

High

H ig

h

Low

Relative Market Share (Cash Generation)

L o

w

M a rk

e t G

ro w

th R

a te

(C a sh

U sa

g e )

Cash cows Dogs

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CHAPTER 1Section 1.4 Hierarchy of Corporate, Business, and Marketing Strategies

Dogs provide the organization with little profitability or opportunity for sales growth. These are SBUs with relatively small market shares, surviving in a low-growth or mature industry. A dog may not require substantial cash to maintain its market position, but it ties up capital that could be better invested in other product lines.

The BCG portfolio analysis can be applied to organizations of kinds and sizes. Consider the challenges facing a small retail florist shop. Perhaps its cash cows are made-to-order floral arrangements and fresh-cut flowers sold to walk-in traffic. The market is defined by the store’s location. These represent the core SBUs that generate most of the stores profits.

Online sales and local delivery have been growing in popularity. This shop got into this aspect of the market earlier than most. It enjoys relatively high market share on a citywide basis and continued sales growth. Though quite profitable on a per-order basis, the costs of maintaining the website, making deliveries, and promoting the service have been limit- ing the overall profitability and growth of this SBU. It will require investment in newer technology and dedicated delivery staff to remain competitive in this market. This could be considered a star.

Recently this florist has been experimenting with line extensions of edible products such as fruit baskets and chocolate bouquets. This is currently a very high-growth market in this area, but fran- chised competitors are capturing most of the sales volume. To build market share, this question mark would require significant investments in new prepping/packaging facilities, the acquisition of more inventory, and a big commitment to adver- tising and promotion. If the franchised operations are already too well entrenched in prospective buyers’ minds, all of this investment could be lost.

Small toys, stuffed animals, and novelties related to specific holidays are also sold at the retail shop. The margins are quite poor, since the flo- rist needs to compete on price with the big-box retailer across the street. These lines require far more inventory and retail space than they are worth. However, many of the store’s oldest and most loyal customers have been faithfully buying these items for years. In fact, the tradition began with many of the current customers’ parents at a time when there were no big-box retailers in the city. The owner may feel the need to keep this dog to retain the loyalty and goodwill of some of his best customers.

The underlying conceptual model is straightforward and intuitively appealing, but, as with all of the decision making aids presented in this text, it is not intended to be a sub- stitute for thinking. Each SBU requires consideration and subsequent analysis on its own merits. Often other considerations take precedence over near-term growth. Sometimes,

Design pics/SuperStock

Companies succeed by looking for new ways to serve their customers’ essential needs. A fruit “floral” basket is an example of this innovative response to customer desires.

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CHAPTER 1Section 1.4 Hierarchy of Corporate, Business, and Marketing Strategies

for example, a firm will retain an “old dog” long after its financial value to the company has ended. Old flagship brands have value in terms of the company’s image, its relation- ship to core customer groups, and its significance to the firm’s own employees.

Although the BCG matrix can be of great value in the process of strategic planning, it is necessary to understand the basic assumptions required by the model. First, it assumes that increasing market share will result in a corresponding growth in profitability. How- ever, the costs of building market share often grow proportionately faster than the cor- responding improvements in profits. In short, “buying” more market share can cost more than it is worth.

A second potential weakness in the application of this model is that it can only provide a snapshot of the current situation. There is a built-in assumption that growing markets will continue to grow and not decline. If this assumption is violated by the reality of dynamic market shifts, the firm may reassign resources to units that represent a declining opportu- nity. Conversely, the model may underestimate the potential value that remains in declin- ing markets and prompt a shift of resources away from profitable opportunities.

Expansion and Diversification The BCG Growth-Share Matrix model focuses on how to allocate corporate resources within an existing portfolio of business units to improve the organization’s performance in the dimensions of growth and profitability. Two other paths to the pursuit of these goals rely on the expansion of the current business portfolio and diversification into new areas of business. Decisions about expanding or diversifying the corporation’s portfolio of SBUs are complex and typically have substantial consequences for the organization, but the identification and development of new opportunities is essential to the growth and long-term success of the firm. As we will see in subsequent sections of the text, marketing managers rely on several different approaches to finding and evaluating growth oppor- tunities. In Chapter 3 we will examine a range of applications and market research meth- odologies for uncovering potential new ventures. This includes the Ansoff Matrix model and SWOT analysis. Chapter 5 will explore the techniques that marketing managers use to evaluate market demand for new products and forecast sales.

Strategic Decisions for Marketing Managers When it comes to making strategic decisions, marketing managers necessarily take their lead from strategies set at the corporate and divisional levels of their organization. The larger strategic context for the identification of marketing objectives, new market oppor- tunities, and subsequent development of marketing plans is provided by the organiza- tion’s corporate strategic plan. In many instances, the specific corporate culture will also establish a prevailing theme in terms of generic competitive strategies. For example, some companies find that their core competencies in manufacturing or distribution favor the pursuit of a cost leadership strategy in most product-markets. In fact, such firms are likely to evaluate prospective market opportunities based on the ability to exercise this competi- tive advantage.

A marketing strategy is a statement of how a brand or product line will coordinate the marketing mix to achieve its objectives. The strategy for a given product or service is

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CHAPTER 1Post-Test

always specific to its target market. Marketing objectives identify growth and profitabil- ity goals for the firm in quantitative terms (e.g., sales, profit, and market share) as well as establish benchmarks for qualitative goals (e.g., market leadership and corporate image). To be effective in shaping decision making, these objectives must be specific, measurable, and stated specifically for the time period for which they are in effect. These objectives can then be converted into detailed goals that shape the integration and coordination of the marketing mix. Marketing strategy also provides direction regarding issues such as the segmentation of the market, identification of the target market, positioning, and the allocation of budgets.

Conclusion

The strategic application of the principles of marketing management provides many firms with an essential competitive advantage in crowded markets. The value of the marketing function increases as the competition for customers and market share intensifies. Effective managers are those who can leverage the resources of the firm to serve the needs of their target market more efficiently and effectively than their competitors.

At the core of marketing strategy is the marketing concept: the philosophy that empha- sizes customer satisfaction as the means to sustained competitive advantage and profit- ability. Consequently, companies need to be keenly aware of the need to understand value: the basis on which consumers make purchasing decisions. Our focus in the next chapter will be on the marketing manager’s role in creating value for the buyer as the primary path to producing customer satisfaction.

Post-Test

1. The marketing concept: a. focuses the organization on analyzing and satisfying customers’ wants and

needs. b. stresses that the marketing division of any organization should receive the

majority of the organization’s resources. c. holds that competitive advantage is inherently unsustainable.

d. was formally recognized as important around the beginning of the twentieth century.

2. Carrying out the marketing plan takes place in this stage of the marketing man- agement process:

a. Stage I b. Stage II c. Stage III

d. Stage IV

3. Which of the following statements about marketing plans is NOT correct? a. The marketing plan translates strategy into actions. b. The marketing plan needs all 11 sections described in the textbook.

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CHAPTER 1Critical Thinking Questions

c. The marketing plan is based on a thorough analysis of the strategic situation. d. The marketing plan addresses the four components of the marketing mix.

4. Which of the following statements about strategic business units (SBUs) is FALSE?

a. SBUs typically don’t have direct control over determining the marketing mix for their products.

b. SBUs should ideally be coordinated with each other to achieve the overall goals of the organization.

c. SBUs are frequently the key unit in the planning of corporate strategy. d. SBUs usually have a high degree of autonomy.

Answers 1. a. Focuses the organization on analyzing and satisfying customers’ wants and needs. The answer can

be found in Section 1.1. 2. d. Stage IV. The answer can be found in Section 1.2. 3. b. The marketing plan needs all 11 sections described in the textbook. The answer can be found in Section 1.3. 4. a. SBUs typically don’t have direct control over determining the marketing mix for their products. The

answer can be found in Section 1.4.

Key Ideas

• Marketing management is a process focused on satisfying customers’ wants and needs.

• In most markets, effective marketing is the most critical competitive strategy. • Marketing managers need to remain diligently focused on buyers and not on the

products they sell. • Product differentiation and positioning are central to developing and maintain-

ing differential advantages. • Identifying new market opportunities is vital to growth, and situation analysis is

an essential step to finding ways to satisfy unmet customer needs. • Porter’s three generic strategies provide alternative paths to creating sustainable

competitive advantages. • The marketing mix represents the basic tool kit of marketing and provides the

means for executing strategy. • The marketing plan is the set of operational blueprints that translates strategic

choices into action. • The strategic business unit is typically the unit of analysis for planning corpo-

rate strategy.

Critical Thinking Questions

1. Marketing can’t possibly be the only effective business strategy. What alterna- tive strategy paradigms or philosophies are there? Can these alternatives be used effectively in isolation? Can they be used in conjunction with marketing strategy?

2. Why is so much emphasis in marketing placed on brands? How did companies compete with each other before there were brands?

3. What does a brand name mean to a consumer? Consider some of your favorite brands. Are you brand loyal? Why?

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CHAPTER 1Key Terms

4. The marketing concept requires balancing the interests of consumers against those of the company. What happens if things get out of balance and you become too focused on just customer satisfaction or just profitability?

5. Marketing myopia happens all the time in business. Consider what different types of businesses would look like if they just focused on the quality of the products they sell and ignored the preferences of customers.

6. Product differentiation and brand positioning are very important concepts. Can you explain how these two concepts differ from each other? Use two or three specific examples to illustrate the contrast.

7. Why are new market opportunities and growth considered essential to the survival of both small and large companies? Why can’t an organization remain content to stay where it is?

8. Explain how Porter’s generic strategy options could be applied to a symphony orchestra, a carpet manufacturer, and a CPA firm. Does this model of three alterna- tive strategies seem to work better in one of these contexts than the other? Why?

9. The text noted that strategic business units are typically the unit of analysis for planning corporate strategy. Why does this make more sense than planning at the divisional level for large corporations?

Key Terms

BCG Growth-Share Matrix A decision making aid that displays strategic business units on a two-by-two graph defined by forecasted market growth rate and relative market share.

cash cow An SBU with a large market share in a mature, slow-growing industry.

corporate mission statement A formal, written statement that defines the purpose and scope of the organization.

cost leadership strategy Leveraging lower overall costs of production to enable the firm to attract price-sensitive customers by selling at prices that are relatively lower than competitors’ prices.

differential advantage The unique prod- uct attributes or benefits that provide buy- ers with significant and substantial reasons to prefer one brand over another.

dogs SBUs with little profitability or little opportunity for sales growth.

generic strategy A general level of strategy applied to the pursuit of market opportuni- ties. The three basic types of generic mar- keting strategy are product differentiation, cost leadership, and market focus.

market All the individuals, groups, and organizations that want or need a prod- uct and have the resources required to purchase.

market focus strategy A strategy option defined by the scope over which the firm will implement either cost leadership or differentiation strategies.

market segmentation The process of dividing the total market into distinct groups or submarkets based on simi- lar wants, needs, behaviors, or other characteristics.

market segments Clusters of prospec- tive and current customers who are simi- lar to each other in ways that lead them to respond to a firm’s marketing mix similarly.

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CHAPTER 1Key Terms

marketing concept A customer-oriented philosophy of business management which stresses that the objectives of the organization can best be met through the analysis and satisfaction of customers’ wants and needs.

marketing management A set of processes for creating, communicating, and deliver- ing value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.

marketing mix Tools available to the marketing manager to influence the tar- get market to purchase one brand over another. Often referred to as the 4 Ps.

marketing objectives Growth and prof- itability goals for the firm expressed in quantitative and qualitative terms.

marketing plan A document composed of an analysis of the current marketing situation, marketing objectives, marketing strategy, marketing mix plans, and finan- cial projections.

marketing strategy A statement of how a brand or product line will coordinate the marketing mix to achieve its objectives.

place One of four variables in the market- ing mix; relates primarily to distribution and location decisions.

pricing One of four variables in the mar- keting mix; relates to both economic and psychological dimensions of price setting.

product One of four variables in the marketing mix; relates to both tangible and intangible dimensions of physical products and services.

product differentiation The process of distinguishing one product or brand from another.

product differentiation strategy Distin- guishing your product from competitors’ products in a way that makes prospective buyers prefer your brand. The basis of dif- ferentiation can be tangible or intangible attributes of the product.

product positioning The strategy and tac- tics involved in creating and shaping the brand’s image in the mind of prospective buyers. Product positioning is also referred to as brand positioning.

promotion One of four variables in the marketing mix; relates to the firm’s overall communications program.

question mark (problem child) An SBU that holds a relatively small market share in a high-growth market.

relative market share The ratio of one SBU’s market share to the market share of its largest competitor.

stars SBUs that exhibit relatively high market share in high-growth markets.

strategic business unit (SBU) Any prod- uct or service line within a company that is small enough to be flexible in its response to external market forces and big enough to exercise direct control over the internal decision factors affecting its performance.

strategy A long-term plan of action designed to achieve specific objectives.

tactics The short-term means required to execute strategy and achieve specific objectives.

target market A group of potential buyers that the firm seeks to satisfy with its mar- keting mix. It is the segment of the market at which the firm directs its product and marketing efforts.

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CHAPTER 1Web Resources

Web Resources

This website provides free access to hundreds of contemporary articles on all phases of marketing and marketing management. This expansive range of thought-provoking read- ings should be of interest to both students and marketing professionals. This can be a valuable to reference as you read each successive chapter of this text. www.chapmanrg.com/IMR/

This is the home of the U.S. Small Business Administration on the Web. The site provides a wide array of resources for small businesses, small-business owners, and prospective business owners. It includes information on company formation, marketing a business, legal tools, and expert advice from professionals. It has a great deal of practical informa- tion on developing business plans. www.sba.gov

This site provides information specific to the preparation and presentation of marketing plans. Features include a marketing plan outline, conducting market research, identifying your best potential customers, and understanding your competition. www.mplans.com

This is the homepage for Sales & Marketing Management, one of the leading publications in the sales and marketing field. The website provides free access to articles and expert opinion on all phases of the marketing management process. www.salesandmarketing.com

This link provides direct access to the Occupational Outlook Handbook at the U.S. Bureau of Labor Statistics. This source profiles several hundred occupations describing the nature of the work involved, typical pay ranges, and employment projections for the coming decade. http://bls.gov/ooh/

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