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Chapter 2 - Strategic Planning for Competitive Advantage

Strategic Planning For Competitive Advantage

Chapter 2 Strategic Planning for Competitive Advantage

Learning Outcomes

Understand the importance of strategic planning

Define strategic business units (SBUs)

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

Develop an appropriate business mission statement

Describe the components of a situation analysis

Identify sources of competitive advantage

LEARNING OUTCOMES

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Learning Outcomes (continued)

Explain the criteria for stating good marketing objectives

Discuss target market strategies

Describe the elements of the marketing mix

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

Identify several techniques that help make strategic planning effective

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LEARNING OUTCOMES (continued)

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Strategic Planning

Creating and maintaining a fit between the organization’s objectives and resources and the evolving market opportunities

Characteristics of strategic business units

Distinct mission and specific target market

Control over its resources and has own competitors

Single business or a collection of related businesses

Plans independent of other SBUs in the total organization

LO 1

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The goal of strategic planning is long-run profitability and growth. Strategic decisions require long-term commitments of resources.

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

Examples of strategic decisions • McDonald’s has unveiled plans to allow customers to customize their orders. • Walmart decides to close its small-format Walmart Express locations. • Starbucks opened the Starbucks Reserve Roastery and Tasting Room in Seattle.

A strategic business unit (SBU) is a subgroup of a single business or a collection of related businesses within the larger organization.

Discussion/Team Activity

Have students come up with strategic planning decisions of other companies.

Discuss why strategic planning is important for these companies.

Chapter 2 Strategic Planning for Competitive Advantage

2.1 Ansoff’s Opportunity Matrix

LO 3

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Exhibit

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Ansoff’s Opportunity Matrix is one of the most commonly used tools to determine a company’s strategic direction. It matches products with markets.

Examples

Market Penetration - McDonald’s introduced all day Breakfast.

Market Development - McDonald’s has opened in various countries.

Product development - Abbott laboratories introduced a new line of healthy snacks called Curate Bars.

Diversification - Harley-Davidson recently launched two new motorcycle models for women.

Chapter 2 Strategic Planning for Competitive Advantage

2.2 Innovation Matrix

LO 3

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Exhibit

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2.3 Portfolio Matrix for a Large Computer Manufacturer

LO 3

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Exhibit

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

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

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

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

Chapter 2 Strategic Planning for Competitive Advantage

Strategies Used to Allocate Future Resources

LO 3

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After classifying the SBUs, a company must determine how to allocate resources to each SBU.

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

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

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

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

Chapter 2 Strategic Planning for Competitive Advantage

Build

Hold

Harvest

Divest

Marketing Plan

Process of anticipating future events and determining strategies to achieve organizational objectives in the future

Planning

Designing activities relating to marketing objectives and the changing marketing environment

Marketing planning

Written document that acts as a guidebook of marketing activities for the marketing manager

Marketing plan

LO 3

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Marketing planning is the basis for all marketing strategies and decisions. Issues such as product lines, distribution channels, marketing communications, and pricing are all delineated in the marketing plan.

Chapter 2 Strategic Planning for Competitive Advantage

2.5 Elements of a Marketing Plan

LO 3

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Exhibit

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

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

Chapter 2 Strategic Planning for Competitive Advantage

Mission Statement

Statement of a firm's business based on the analysis of:

Benefits sought by present and potential customers

Existing and anticipated environmental conditions

Suffers from marketing myopia if stated narrowly

Marketing myopia: Defining a business in terms of goods and services rather than the benefits customers seek

LO 4

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The foundation of any marketing plan is the firm’s mission statement. It establishes boundaries for all subsequent decisions, objectives, and strategies.

The mission statement affects the firm’s long-run resource allocation, profitability, and survival.

Discussion/Team Activity

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

Chapter 2 Strategic Planning for Competitive Advantage

SWOT Analysis

Situational analysis by which firms should:

Identify their internal strengths and weaknesses

Done by focusing on organizational resources

Examine their external opportunities and threats

Done via environmental scanning, which involves analyzing aspects of the marketing environment

LO 5

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

Strengths - Things the company does well

Weaknesses - Things the company does not do well

Opportunities - Conditions in the external environment that favor strengths

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

Environmental scanning: Collection and interpretation of information about forces, events, and relationships in the external environment that may affect the future of the organization or the implementation of the marketing plan

Discussion/Team Activity

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

Chapter 2 Strategic Planning for Competitive Advantage

Competitive Advantage

Factor or factors that cause customers to patronize a firm and not the competition

Types

Cost

Product/service differentiation

Niche

Sustainable competitive advantage: Cannot be copied by the competition

LO 6

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A competitive advantage is a set of unique features of a company and its products that are perceived by the target market as significant and superior to those of the competition.

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

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

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

Discussion/Team Activity

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

Chapter 2 Strategic Planning for Competitive Advantage

Marketing Objective

Statement of what is to be accomplished through marketing activities

Setting effective marketing objectives

Communicate marketing management philosophy

Provide directions for lower-level marketing managers

Motivate employees

Force executives to clarify their thinking

Form a basis for control

LO 7

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Target Market Strategy

Segments based on groups with similar characteristics through market opportunity analysis

Strategies for selecting target markets

Appeal to the entire market with one marketing mix

Concentrate on one marketing segment

Appeal to multiple market segments with multiple marketing mixes

LO 8

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Marketing strategy: Produces mutually satisfying exchanges with target markets by selecting and describing one or more target markets and developing and maintaining a marketing mix

Market opportunity analysis (MOA): Describes and estimates of the size and sales potential of market segments that are of interest to the firm and assesses key competitors in these market segments

Selects one or more target markets

Discussion/Team Activity

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

Chapter 2 Strategic Planning for Competitive Advantage

Marketing Mix: The “Four Ps”

Product involves tangible goods, ideas, or services

Place involves physical distribution that includes storage and transportation

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

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

LO 9

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

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

Place involves making product available where and when customers want them and ensuring that products arrive in usable condition at designated places when needed

Promotion brings about mutually satisfying exchanges by informing, educating, persuading, and reminding buyers about the product

A good promotion strategy can increase sales

Price is the most flexible of the ‘Four Ps’

Price is an important competitive weapon. When multiplied by the number of units sold equals total revenue for the firm.

Chapter 2 Strategic Planning for Competitive Advantage

Steps Involved in Following up on the Marketing Plan

Implementation

Turns a marketing plan into action assignments

Ensures these assignments are executed in a way that accomplishes the plan's objectives

Evaluation

Gauges the extent to which the marketing objectives have been achieved during the specified time period

LO 10

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Implementation is the process that turns a marketing plan into action assignments. These activities may involve detailed job assignments, activity descriptions, time lines, budgets, and lots of communication.

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

Chapter 2 Strategic Planning for Competitive Advantage

Steps Involved in Following up on the Marketing Plan (continued)

Control

Provides the mechanisms for:

Evaluating marketing results in light of the plan's objectives

Correcting actions that do not help the organization reach those objectives within budget guidelines

Exerted through marketing audit

Helps management allocate marketing resources efficiently

LO 10

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Marketing audit: Thorough, systematic, periodic evaluation of the objectives, strategies, structure, and performance of the marketing organization

Characteristics - Comprehensive, systematic, independent, and periodic

Online

Youngbiz.com

Visit the YoungBiz Web site’s list of Top 100 entrepreneurs. Select one of the entrepreneurial ventures listed and create a marketing plan for it using the concepts and strategies discussed in this chapter. How would you implement, evaluate, and control the plan?

Chapter 2 Strategic Planning for Competitive Advantage

Techniques for Effective Strategic Planning

LO 11

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Continual attention

Creativity

Management commitment

Key Terms

Strategic planning

Strategic business unit (SBU)

Market penetration

Market development

Product development

Diversification

Portfolio matrix

Star

Cash cow

Problem child (Question mark)

Dog

Planning

Marketing planning

Marketing plan

Mission statement

Marketing myopia

KEY TERMS

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Chapter 2 Strategic Planning for Competitive Advantage

Key Terms (continued)

SWOT analysis

Environmental scanning

Competitive advantage

Cost competitive advantage

Experience curves

Product/service differentiation competitive advantage

Niche competitive advantage

Sustainable competitive advantage

Marketing objective

Marketing strategy

Market opportunity analysis (MOA)

Marketing mix (four Ps)

KEY TERMS

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Key terms (continued 3)

Implementation

Evaluation

Control

Marketing audit

KEY TERMS

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Chapter 2 Strategic Planning for Competitive Advantage

Summary

Good strategic plans can help protect and grow a firm’s resources

Large companies manage a number of very different businesses called strategic business units (SBUs)

Marketing plan serves as a reference point for future success and its foundation is the firm's mission statement

SUMMARY

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Summary (continued 1)

Performing SWOT analysis allows firms to identify their competitive advantage

Objectives of a marketing plan must be stated before the details can be developed

Marketing mixes are designed after identifying the target markets

Effective strategic planning requires follow up, continual attention, creativity, and management commitment

SUMMARY

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