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Principles of Marketing Seventeenth Edition

Chapter 2 Partnering to Build Customer Engagement, Value, and Relationships

Learning Objectives

2-1 Explain company-wide strategic planning and its four steps.

2-2 Discuss how to design business portfolios and develop growth strategies.

2-3 Explain marketing’s role in strategic planning and how marketing works with its partners to create and deliver customer value.

2-4 Describe the elements of a customer value-driven marketing strategy and mix, and the forces that influence it.

2-5 List the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring and managing marketing return on investment.

Learning Objective 1

Explain company-wide strategic planning and its four steps.

Company-Wide Strategic Planning (1 of 3)

Strategic planning is the process of developing and maintaining a strategic fit between the organization’s goals and capabilities, and its changing marketing opportunities.

Company-Wide Strategic Planning

The mission statement is the organization’s purpose; what it wants to accomplish in the larger environment.

Company-Wide Strategic Planning

Setting Company Objectives and Goals

Business objectives

Build profitable customer relationships

Invest in research

Improve profits

Marketing objectives

Increase market share

Create local partnerships

Increase promotion

Learning Objective 2

Discuss how to design business portfolios and develop growth strategies.

Designing The Business Portfolio

The business portfolio is the collection of businesses and products that make up the company.

Portfolio analysis is a major activity in strategic planning whereby management evaluates the products and businesses that make up the company.

Designing The Business Portfolio

Strategic business units can be a

Company division

Product line within a division

Single product or brand

Designing The Business Portfolio

Analyzing The Current Business Portfolio

Identify strategic business units (SBUs)

Assess the attractiveness of its various SBUs

Decide how much support each SBU deserves

Designing The Business Portfolio

Problems with Matrix Approaches

Difficulty in defining SBUs and measuring market share and growth

Time consuming

Expensive

Focus on current businesses, not future planning

Designing The Business Portfolio

Developing Strategies for Growth and Downsizing

Designing The Business Portfolio

Developing Strategies for Growth and Downsizing

Downsizing is when a company must prune, harvest, or divest businesses that are unprofitable or that no longer fit the strategy.

Learning Objective 3

Explain marketing’s role in strategic planning and how marketing works with its partners to create and deliver customer value.

Planning Marketing: Partnering to Build Customer Relationships (1 of 3)

Partnering with Other Company Departments

Value chain is a series of departments that carry out value creating activities to design, produce, market, deliver, and support a firm’s products.

Marketing alone can’t create superior customer value. Under the company-wide strategic plan, marketers must work closely with other departments to form an effective internal company value chain.

Planning Marketing: Partnering to Build Customer Relationships (2 of 3)

Partnering with Other Company Departments

Marketing alone can’t create superior customer value. Under the company-wide strategic plan, marketers must work closely with other departments to form an effective internal company value chain.

The value chain: These True Value ads recognize that everyone in the organization—from marketing research analyst Jeff Alvarez to operations manager Tom Statham—must contribute to helping the chain’s customers handle their home improvement projects. They form the foundation for the brand’s “Behind Every Project Is a True Value” positioning.

Planning Marketing: Partnering to Build Customer Relationships (3 of 3)

Partnering with Others in the Marketing System

Value delivery network is made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve performance of the entire system.

More companies today are partnering with other members of the supply to improve the performance of the customer value delivery network.

Competition no longer takes place only between individual competitors. Rather, it takes place between the entire value delivery network created by these competitors.

Learning Objective 4

Describe the elements of a customer value-driven marketing strategy and mix, and the forces that influence it.

Marketing Strategy and the Marketing Mix

Consumers stand in the center of Figure 2.4 where the goal is to create value for customers and build profitable customer relationships.

Next comes marketing strategy—the marketing logic by which the company hopes to create this customer value and achieve these profitable relationships. The company decides which customers it will serve (segmentation and targeting) and how (differentiation and positioning).

Guided by marketing strategy, the company designs an integrated marketing mix made up of factors under its control—product, price, place, and promotion (the four Ps).

To find the best marketing strategy and mix, the company engages in marketing analysis, planning, implementation, and control.

Through these activities, the company watches and adapts to the actors and forces in the marketing environment.

Marketing Strategy and the Marketing Mix

Customer Value-Driven Marketing Strategy

Marketing strategy is the marketing logic by which the company hopes to create customer value and achieve profitable customer relationships.

Market offerings include other entities, such as persons, places, organizations, information, and ideas.

Many sellers suffer from marketing myopia, the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products.

Marketing experiences:

More than just a sports bar, Buffalo Wild Wings mission is to provide a total eating and social environment that “fuels the sports fan experience” through in-store and online engagement. Smart marketers orchestrate several services and products, thereby creating brand experiences for consumers.

Marketing Strategy and the Marketing Mix

Customer Value-Driven Marketing Strategy

Market segmentation is the division of a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate products or marketing mixes. Market segment is a group of consumers who respond in a similar way to a given set of marketing efforts.

The market consists of many types of customers, products, and needs. The marketer must determine which segments offer the best opportunities. Consumers can be grouped and served in various ways based on geographic, demographic, psychographic, and behavioral factors.

Every market has segments, but not all ways of segmenting a market are equally useful. For example, Tylenol would gain little by distinguishing between low-income and high-income pain relief users if both respond the same way to marketing efforts. In the car market, for example, consumers who want the biggest, most comfortable car regardless of price and consumers who care mainly about price and operating economy represent two different segments.

Companies are wise to focus their efforts on meeting the distinct needs of individual market segments.

Marketing Strategy and the Marketing Mix

Customer Value-Driven Marketing Strategy

Market targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter.

Market positioning is the arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers.

Differentiation begins the positioning process.

A company should target segments in which it can profitably generate the greatest customer value and sustain it over time.

A company might decide to serve

only one or a few special segments or market niches, segments that major competitors overlook or ignore.

several related segments—perhaps those with different kinds of customers but with the same basic wants.

all market segments, offering a complete range of products.

Most companies enter a new market by serving a single segment; if this proves successful, they add more segments.

The company must determine how to differentiate its market offering for each targeted segment and what positions it wants to occupy in those segments. A product’s position is the place it occupies relative to competitors’ products in consumers’ minds. Marketers plan positions that distinguish their products from competing brands and give them the greatest advantage in their target markets.

Marketing Strategy and the Marketing Mix

Customer Value-Driven Marketing Strategy

Positioning: The L’Oréal group serves major segments of the beauty market, and within each segment it caters to many sub segments. L’Oréal targets the larger segments through its major divisions; further within these major divisions, L’Oréal markets various brands that cater to customers of different ages, incomes, and lifestyles.

Marketing Strategy and the Marketing Mix

Developing an Integrated Marketing Mix

Marketing mix is the set of controllable, tactical marketing tools—product, price, place, and promotion—that the firm blends to produce the response it wants in the target market.

After determining its overall marketing strategy, the company is ready to begin planning the details of the marketing mix, one of the major concepts in modern marketing.

The marketing mix consists of everything the firm can do to influence the demand for its product.

Marketing Strategy and the Marketing Mix

The many possibilities can be collected into four groups of variables—the four Ps. Figure 2.5 above shows the marketing tools under each P.

Product means the goods-and-services combination the company offers to the target market.

Price is the amount of money customers must pay to obtain the product.

Place includes company activities that make the product available to target consumers.

Promotion refers to activities that communicate the merits of the product and persuade target customers to buy it.

An effective marketing program blends the marketing mix elements into an integrated marketing program designed to achieve the company’s marketing objectives by delivering value to consumers. The marketing mix constitutes the company’s tactical tool kit for establishing strong positioning in target markets.

Some critics think that the four Ps may omit or underemphasize certain important activities. For example, they ask, “Where are services?” or “Where is packaging?” As Figure 2.5 suggests, many marketing activities that might appear to be left out of the marketing mix are included under one of the four Ps.

The issue is not whether there should be four, six, or ten Ps so much as what framework is most helpful in designing integrated marketing programs.

It is interesting to ask how to make the 4Ps more customer centric. This leads to a redefining of the 4Ps to the 4Cs as follows:

Product—Customer solution

Price—Customer cost

Place—Convenience

Promotion—Communication

Learning Objective 5

List the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring and managing marketing return on investment.

Managing the Marketing Effort

Figure 2.6 Analysis, Planning, Implementation, and Control

Managing the marketing process requires the four marketing management functions shown in Figure 2.6—analysis, planning, implementation, and control.

The company first develops company-wide strategic plans and then translates them into marketing and other plans for each division, product, and brand.

Through implementation, the company turns the plans into actions.

Control consists of measuring and evaluating the results of marketing activities and taking corrective action where needed.

Finally, marketing analysis provides information and evaluations needed for all the other marketing activities.

Managing the Marketing Effort

Figure 2.7 Marketing Analysis: SWOT Analysis

The company should analyze its markets and marketing environment to find attractive opportunities and identify environmental threats.

It should analyze company strengths and weaknesses as well as current and possible marketing actions to determine which opportunities it can best pursue.

The goal is to match the company’s strengths to attractive opportunities in the environment, while simultaneously eliminating or overcoming the weaknesses and minimizing the threats.

Marketing analysis provides inputs to each of the other marketing management functions.

Managing the Marketing Effort

Market Planning—Parts of a Marketing Plan

Marketing planning involves choosing marketing strategies that will help the company attain its overall strategic objectives. A detailed marketing plan is needed for each business, product, or brand.

What does a marketing plan look like?

Table 2.2 outlines the major sections of a typical product or brand marketing plan.

Executive summary

Marketing situation

Threats and opportunities

Objectives and issues

Action programs

Budgets

Controls

Marketing strategy

Managing the Marketing Effort

Marketing Implementation

Turning marketing strategies and plans into marketing actions to accomplish strategic marketing objectives

Addresses who, where, when, and how

A brilliant marketing strategy counts for little if the company fails to implement it properly.

Many managers think that “doing things right” (implementation) is as important as, or even more important than, “doing the right things” (strategy).

The fact is that both are critical to success, and companies can gain competitive advantages through effective implementation.

Measuring and Managing Return on Marketing Investment

Return on Marketing Investment (Marketing ROI)

Net return from a marketing investment divided by the costs of the marketing investment

Measurement of the profits generated by investments in marketing activities

Measuring return on marketing investment has become a major marketing emphasis.

A company can assess marketing ROI in terms of standard marketing performance measures, such as brand awareness, sales, or market share. Many companies are assembling such measures into marketing dashboards—meaningful sets of marketing performance measures in a single display used to monitor strategic marketing performance.

Increasingly, however, beyond standard performance measures, marketers are using customer-centered measures of marketing impact, such as customer acquisition, customer retention, customer lifetime value, and customer equity.

We can view marketing expenditures as investments that produce returns in the form of more profitable customer relationships.

“In good times and bad, whether or not marketers are ready for it, they’re going to be asked to justify their spending with financial data,” says one marketer. Adds another, marketers “have got to know how to count.”

Measuring and Managing Return on Marketing Investment