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Developing Successful Organizational and Marketing Strategies |
LEARNING OBJECTIVES
After reading this chapter you should be able to:
LO 2-1Describe three kinds of organizations and the three levels of strategy in them.
LO 2-2Describe core values, mission, organizational culture, business, and goals.
LO 2-3Explain why managers use marketing dashboards and marketing metrics.
LO 2-4Discuss how an organization assesses where it is now and where it seeks to be.
LO 2-5Explain the three steps of the planning phase of the strategic marketing process.
LO 2-6Describe the four components of the implementation phase of the strategic marketing process.
LO 2-7Discuss how managers identify and act on deviations from plans.
STARTING A BUSINESS BY GETTING AN “A” IN AN ICE CREAM-MAKING COURSE!
Ben & Jerry’s started in 1978 when longtime friends Ben Cohen and Jerry Greenfield headed north to Vermont to start an ice cream parlor business in a renovated gas station. Buoyed with enthusiasm, $12,000 in borrowed and saved money, and ideas from a $5 Penn State correspondence course in ice cream making, Ben and Jerry were off and scooping. Their first flavor? Vanilla—because it’s a universal best seller.1
The two founding entrepreneurs of Ben & Jerry’s have successfully implemented some highly creative organizational and marketing strategies over the years. These include:
•Caring Dairy. Their milk and cream are bought from a cooperative that guarantees its supplies are bovine growth hormone free.
•PartnerShops. Their “social entrepreneurship” PartnerShop programs enable community-based nonprofit organizations to own and operate Scoop Shops that help employ at-risk youth and young adults to better their lives.
•Fair Trade. Their belief that “people should get their fair share of the pie” has led them to practice Fair Trade-certified sourcing of key ingredients—cocoa, coffee, and vanilla—for their deliciously unique flavors like Chocolate Therapy. These items are purchased from producers in developing countries who practice sustainable farming techniques.
•B-Corp Certified. Their social mission has earned them “B-Corp” certification. This is a designation from B-Lab, a nonprofit organization whose purpose is to “use the power of business to solve social and environmental problems” in order to positively impact the community and environment within which the organization operates.2
As you can see, Ben & Jerry’s Homemade Holdings, Inc., links its three-part mission statement to social causes designed to improve humanity by offering consumers delicious products with creatively funky names.
Today, Ben & Jerry’s is owned by Unilever, which is the market leader in the global ice cream industry—one that is expected to reach $68 billion by 2015.3 While customers love Ben & Jerry’s rich premium ice cream, many buy its products to support its social mission. As a testament to its success, Ben & Jerry’s has over 7 million fans on Facebook—the most of any premium ice cream marketer!
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Chapter 2 describes how organizations set goals to provide an overall direction to their organizational and marketing strategies. The marketing department of an organization converts these strategies into plans that must be implemented and then evaluated so deviations can be exploited or corrected based on the marketing environment.
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TODAY’S ORGANIZATIONS
In studying today’s visionary organizations, it is important to recognize (1) the kinds of organizations that exist, (2) what strategy is, and (3) how this strategy relates to the three levels of structure found in many large organizations.
LO 2-1Describe three kinds of organizations and the three levels of strategy in them.
Kinds of Organizations
An organization is a legal entity that consists of people who share a common mission. This motivates them to develop offerings (goods, services, or ideas) that create value for both the organization and its customers by satisfying their needs and wants.4 Today’s organizations are of three types: (1) for-profit organizations, (2) nonprofit organizations, and (3) government agencies.
A for-profit organization, often called a business firm, is a privately owned organization such as Target, Nike, or Cree that serves its customers to earn a profit so that it can survive. Profit is the money left after a for-profit organization subtracts its total expenses from its total revenues and is the reward for the risk it undertakes in marketing its offerings.
Cree is an example of a for-profit organization. Its Cree LED light bulb, launched In 2013, replaces the traditional incandescent bulb. The Cree LED 60w bulb Is 84 percent more energy efficient, lasts for 25,000 hours, and Initially sold for about $12.
In contrast, a nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. Regardless, it also must receive sufficient funds above its expenses to continue operations. Social entrepreneurs like Teach For America and SightLife, described in the Making Responsible Decisions box, seek to solve the practical needs of society and are usually structured as nonprofit organizations.5 For simplicity in the rest of the book, the terms firm, company, and organization are used interchangeably to cover both for-profit and nonprofit organizations.
Lastly, a government agency is a federal, state, county, or city unit that provides a specific service to its constituents. For example, the Census Bureau, a unit of the U.S. Department of Commerce, is a federal government agency that provides population and economic data.
Organizations that develop similar offerings create an industry, such as the computer industry or the automobile industry.6 As a result, organizations make strategic decisions that reflect the dynamics of the industry to create a compelling and sustainable advantage for their offerings relative to those of competitors to achieve a superior level of performance.7 Much of an organization’s marketing strategy is having a clear understanding of the industry within which it competes.
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Cree LED Bulb Ad
What Is Strategy?
An organization has limited human, financial, technological, and other resources available to produce and market its offerings—it can’t be all things to all people! Every organization must develop strategies to help focus and direct its efforts to accomplish its goals. However, the definition of strategy has been the subject of debate among management and marketing theorists. For our purpose, strategy is an organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals.8 All organizations set a strategic direction. And marketing helps to both set this direction and move the organization there.
The Structure of Today’s Organizations
Large organizations are extremely complex. They usually consist of three organizational levels whose strategies are linked to marketing, as shown in Figure 2–1.
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Making Responsible Decisions |
social responsibility |
Using Social Entrepreneurship to Help People
What do Teach For America and SightLife have in common?
The answer: They are “social entrepreneurs” that are actively practicing—you guessed it!—social entrepreneurship. In a nutshell, social entrepreneurship applies innovative approaches to organize, create, and manage a venture to solve the practical needs of society. These usually are nonprofit organizations and focus on issues facing people who lack the financial or political means to solve their own problems. Let’s look at the two social entrepreneurs mentioned above, models of creative nonprofit organizations.
Launched by college senior Wendy Kopp, Teach For America is the national corps of outstanding recent college graduates who commit to teach for two years in urban and rural public schools and become lifelong leaders in expanding educational opportunity. In 2013, more than 10,000 corps members taught 750,000 students, while nearly 28,000 Teach For America alumni continue working from inside and outside the field of education for the fundamental changes necessary to ensure educational excellence and equity.
The mission of SightLife is incredibly clear and specific: “To end cornea blindness.” Cornea blindness, affecting 10 million people globally, can be cured by transplanting a donated, healthy cornea to replace a diseased one. Seattle-based SightLife finds cornea donors and prepares the tissues for surgery. SightLife works with eye surgeons and health organizations in about 30 countries. In 2012, SightLife provided almost 14,000 corneas for transplant—improving the lives of their recipients.
Corporate Level The corporate level is where top management directs overall strategy for the entire organization. “Top management” usually means the board of directors and senior management officers with a variety of skills and experiences that are invaluable in establishing the organization’s overall strategy.
The president or chief executive officer (CEO) is the highest ranking officer in the organization and is usually a member of its board of directors. This person must possess leadership skills ranging from overseeing the organization’s daily operations to spearheading strategy planning efforts that may determine its very survival.
FIGURE 2–1
The board of directors oversees the three levels of strategy in organizations: corporate, strategic business unit, and functional.
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In recent years, many large firms have changed the title of the head of marketing from vice president of marketing to chief marketing officer (CMO). These CMOs have an increasingly important role in top management because of their ability to think strategically. Most bring multi-industry backgrounds, cross-functional management expertise, analytical skills, and intuitive marketing insights to their job. These CMOs are increasingly called upon to be their organizations’ “visionaries for the future” by staying in touch with consumers’ needs and wants.9
Strategic Business Unit Level Some multimarket, multiproduct firms, such as Prada and Johnson & Johnson, manage a portfolio or group of businesses. Each group is a strategic business unit (SBU), which is a subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly defined target market. At the strategic business unit level, managers set a more specific strategic direction for their businesses to exploit value-creating opportunities. For less complex firms with a single business focus, such as Ben & Jerry’s, the corporate and business unit levels may merge.
Prada manages a portfolio or group of businesses—including perfume, leather goods, and luggage—each of which may be viewed as a strategic business unit (SBU).
Functional Level Each strategic business unit has a functional level, where groups of specialists actually create value for the organization. The term department generally refers to these specialized functions such as marketing and finance (see Figure 2–1). At the functional level, the organization’s strategic direction becomes its most specific and focused. Just as there is a hierarchy of levels within an organization, there is a hierarchy of strategic directions set by managers at each level.
A key role of the marketing department is to look outward by listening to customers, developing offerings, implementing marketing program actions, and then evaluating whether those actions are achieving the organization’s goals. When developing marketing programs for new or improved offerings, an organization’s senior management may form cross-functional teams. These consist of a small number of people from different departments who are mutually accountable to accomplish a task or a common set of performance goals. Sometimes these teams will have representatives from outside the organization, such as suppliers or customers, to assist them.
learning review
2-1. What is the difference between a for-profit and a nonprofit organization?
2-2. What are examples of a functional level in an organization?
STRATEGY IN VISIONARY ORGANIZATIONS
To be successful, today’s organizations must be forward-looking. They must anticipate future events and then respond quickly and effectively to those events. A visionary organization must specify its foundation (why does it exist?), set a direction (what will it do?), and formulate strategies (how will it do it?), as shown in Figure 2–2.10
LO 2-2Describe core values, mission, organizational culture, business, and goals.
Organizational Foundation: Why Does It Exist?
An organization’s foundation is its philosophical reason for being—why it exists. Successful visionary organizations use this foundation to guide and inspire their employees through three elements: core values, mission, and organizational culture.
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FIGURE 2–2
Today’s visionary organizations use key elements to (1) establish a foundation and (2) set a direction using (3) strategies that enable them to develop and market their products successfully.
Core Values An organization’s core values are the fundamental, passionate, and enduring principles that guide its conduct over time.11 A firm’s founders or senior management develop these core values, which are consistent with their essential beliefs and character.12 They capture the firm’s heart and soul and serve to inspire and motivate its stakeholders—employees, shareholders, board of directors, suppliers, distributors, creditors, unions, government, local communities, and customers. Core values also are timeless and guide the organization’s conduct. To be effective, an organization’s core values must be communicated to and supported by its top management and employees; if not, they are just hollow words.13
Mission By understanding its core values, an organization can take steps to define its mission , a statement of the organization’s function in society that often identifies its customers, markets, products, and technologies. Often used interchangeably with vision, a mission statementshould be clear, concise, meaningful, inspirational, and long-term.14
Medtronic is a world leader in producing heart pacemakers and other electrical stimulation devices to treat diabetes, Parkinson’s disease, and chronic back pain.15 Medtronic almost died in infancy when it was trying to raise start-up capital. A world-renowned consulting company surveyed doctors and “concluded there was no foreseeable market for pacemakers.”16 Earl Bakken, its founder, wrote this mission statement for Medtronic when it was launched a half century ago (and which today remains virtually unchanged):
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Medtronic Video
To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.
Similar inspiration and focus appear in the mission statements of other for-profit organizations, as well as nonprofit organizations and government agencies:
•Southwest Airlines: “To be dedicated to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.”
•American Red Cross: “To prevent and alleviate human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.”17
At Medtronic, senior executives give each new employee worldwide this medallion. On the front is a rising figure along with a motto that reads, “Medtronic: Alleviating Pain—Restoring Health—Extending life.” On the back is Medtronic’s abridged mission statement. What does this medallion signify to employees? For Insights, see the text.
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Each statement exhibits the qualities of a good mission: a clear, challenging, and compelling picture of an envisioned future.18
Recently, many organizations have added a social element to their mission statements to reflect an ideal that is morally right and worthwhile. This is what Ben & Jerry’s social mission statement shows in the chapter opener. Stakeholders, particularly customers, employees, and now society, are asking organizations to be exceptional citizens by providing long-term value while solving society’s problems.
Organizational Culture An organization must connect with all of its stakeholders. Thus, an important corporate-level marketing function is communicating its core values and mission to them. Medtronic presents every new employee with a medallion depicting a “rising figure” on one side and the company’s mission statement on the other. And each December, several patients describe to a large employee holiday celebration how Medtronic devices have changed their lives.19 These activities send clear messages to employees and other stakeholders about Medtronic’s organizational culture —the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization.
In the first half of the 20th century, what “business” did railroad executives believe they were in? The text reveals their disastrous error.
Organizational Direction: What Will It Do?
As shown in Figure 2–2, the organization’s foundation enables it to set a direction in terms of (1) the “business” it is in and (2) its specific goals.
Business A business describes the clear, broad, underlying industry or market sector of an organization’s offering. To help define its business, an organization looks at the set of organizations that sell similar offerings—those that are in direct competition with each other—such as “the ice cream business.” The organization can then begin to answer the questions, “What do we do?” or “What business are we in?”
Professor Theodore Levitt saw that 20th century American railroads defined their business too narrowly, proclaiming, “We are in the railroad business!” This myopic focus caused them to lose sight of who their customers were and what they needed. So railroads failed to develop strategies to compete with airlines, barges, pipelines, and trucks. As a result, many railroads merged or went bankrupt. Railroads should have realized they were in “the transportation business.”20
With today’s increased global competition, many organizations are rethinking their business model, the strategies an organization develops to provide value to the customers it serves. Technological innovation is often the trigger for this business model change. American newspapers are looking for a new business model as former subscribers now get their news online.21 Bookstore retailer Barnes & Noble, too, is rethinking its business model as e-book readers like Amazon’s Kindle and Apple’s iPad have gained widespread popularity.22
The Marketing Matters box describes how Rovio Entertainment Ltd., the Finnish developer of the Angry Birds video games, has defined the business it is in. Taking a lesson from Theodore Levitt, Rovio sees itself as being an “entertainment company,” not a “gaming company.” Time will tell whether the Angry Birds brand and image that works so well with its video games will carry over to amusement parks, clothing, toys, soda, candy, and movies!23
Why is Rovio altering its business model by developing an Angry Birds Land amusement park in Finland? See the text and the Marketing Matters box for the answer.
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Marketing Matters |
entrepreneurship |
Angry Birds: Discovering Its “Business” and … Business Model!
By 2008, three Finnish 20-somethings had developed 50 video games for Rovio Entertainment Ltd. without much success. Then in 2009, along came their Angry Birds video game, which skyrocketed to success. Rovio wondered how to build on that very success.
What Business Are We In?
Looking for growth opportunities, one clear strategy was to launch spin-offs of the original Angry Birds video game. In April 2012, Rovio introduced Angry Birds Space, which set a record by becoming the first app to hit 50 million downloads in only 35 days. By then, across all platforms, Angry Birds could boast of over 700 million downloads.
If you are traveling in Finland, you can expect to see at least one of more than 30 Angry Birds amusement parks. These came about through Rovio partnering with a Finnish playground equipment maker, putting Rovio clearly outside the video game business. “We stopped looking at ourselves as a gaming company a long time ago,” says Peter Vesterbacka, Rovio’s chief marketing officer. “We are an entertainment company.”
Dreaming Big: Angry Birds—the Movie?
So what’s next? Some of the companies that Rovio has partnered with so far include a Swedish clothing manufacturer, an American toy maker (Has-bro), and a Finnish beverage company. By 2013, the round birds with big eyebrows and orange beaks were showing up on T-shirts, soda cans, flip flops, toys, hoodies, and candy—not only in Finland but around the world. On the horizon for a 2016 summer release is an Angry Birds movie. The Angry Birds animated film will be targeted at kids, while also hoping to entertain their parents.
Will this entertainment business model succeed? The answer depends on whether the powerful Angry Birds brand and image can cross diverse product categories without offending existing customers.
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Angry Birds Video
Goals Goals or objectives (terms used interchangeably in this book) are statements of an accomplishment of a task to be achieved, often by a specific time. Goals convert an organization’s mission and business into long- and short-term performance targets. Business firms can pursue several different types of goals:
•Profit. Most firms seek to maximize profits—to get as high a financial return on their investments (ROI) as possible.
•Sales (dollars or units). If profits are acceptable, a firm may elect to maintain or increase its sales even though profits may not be maximized.
•Market share. Market share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself.
•Quality. A firm may offer the highest quality, as Medtronic does with its implantable medical devices.
•Customer satisfaction. Customers are the reason the organization exists, so their perceptions and actions are of vital importance. Satisfaction can be measured with surveys or by the number of customer complaints.
•Employee welfare. A firm may recognize the critical importance of its employees by stating its goal of providing them with good employment opportunities and working conditions.
•Social responsibility. Firms may seek to balance the conflicting goals of stakeholders to promote their overall welfare, even at the expense of profits.
Nonprofit organizations (such as museums and hospitals) also have goals, such as to serve consumers as efficiently as possible. Similarly, government agencies set goals that seek to serve the public good.
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Organizational Strategies: How Will It Do It?
As shown in Figure 2–2, the organizational foundation sets the “why” of organizations and the organizational direction sets the “what.” To convert these into actual results, the organizational strategies are concerned with the “how.” These organizational strategies vary in at least two ways, depending on (1) a strategy’s level in the organization and (2) the offerings an organization provides to its customers.
Rovio, the maker of Angry Birds, is altering its “business model,” which requires entirely new organizational strategies.
Variation by Level Moving down the levels in an organization involves creating increasingly specific, detailed strategies and plans. So, at the corporate level, top managers may struggle with writing a meaningful mission statement; while at the functional level, the issue is who makes tomorrow’s sales call.
Variation by Product Organizational strategies also vary by the organization’s products. The strategy will be far different when marketing a very tangible physical good (a Medtronic heart pacemaker), a service (a Southwest Airlines flight), or an idea (a donation to the American Red Cross). This is Rovio’s challenge as it tries to extend its new business model of becoming an “entertainment company” to encompass stuffed toys, amusement parks, and movies.
Most organizations develop a marketing plan as a part of their strategic marketing planning efforts. A marketing plan is a road map for the marketing actions of an organization for a specified future time period, such as one year or five years. The planning phase of the strategic marketing process (discussed later) usually results in a marketing plan that directs the marketing actions of an organization. Appendix A at the end of this chapter provides guidelines for writing a marketing plan.
learning review
2-3. What is the meaning of an organization’s mission?
2-4. What is the difference between an organization’s business and its goals?
LO 2-3Explain why managers use marketing dashboards and marketing metrics.
Tracking Strategic Performance with Marketing Dashboards
Although marketing managers can set strategic directions for their organizations, how do they know if they are making progress in getting there? One answer is to measure performance by using marketing dashboards.
Car Dashboards and Marketing Dashboards A marketing dashboard is the visual computer display of the essential information related to achieving a marketing objective.24 Often, active hyperlinks provide further detail. An example is when a chief marketing officer (CMO) wants to see daily what the effect of a new TV advertising campaign is on a product’s sales.25
The idea of a marketing dashboard really comes from the display of information found on a car’s dashboard. On a car’s dashboard, we glance at the fuel gauge and take action when our gas is getting low. With a marketing dashboard, a marketing manager glances at a graph or table and makes a decision whether to take action or to analyze the problem further.26
Dashboards, Metrics, and Plans The marketing dashboard of Sonatica, a hypothetical hardware and software firm, appears in Figure 2–3. It shows graphic displays of key performance indicators linked to its product lines.27 Each display in a marketing dashboard shows a marketing metric , which is a measure of the quantitative value or trend of a marketing action or result.28 Choosing which marketing metrics to display is critical for a busy manager, who can be overwhelmed with irrelevant data.29
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FIGURE 2–3
An effective marketing dashboard, like this one from Sonatica, a hypothetical hardware and software firm, helps managers assess a business situation at a glance.
Source: Dundas Data Visualization, Inc.
Today’s marketers use data visualization, which presents information about an organization’s marketing metrics graphically so marketers can quickly (1) spot deviations from plans during the evaluation phase and (2) take corrective actions.30 This book uses data visualization in many figures to highlight in color key points described in the text. The Sonatica marketing dashboard in Figure 2–3 uses data visualization tools like a pie chart, a line or bar chart, and a map to show how parts of its business are performing as of December 2013:
•Website Traffic Sources. The color-coded perimeter of the pie chart shows the three main sources of website traffic (referral sites at 47 percent, search engines at 37 percent, and direct traffic at 16 percent). These three colors link to those of the circles in the column of website traffic sources. Of the 47 percent of traffic coming from referral sites, the horizontal bullet graphs to the right show that Sonatica’s Facebook visits comprise 15 percent of total website traffic, up from a month ago (as shown by the vertical line).
•Sales Performance by SBU. The spark lines (the wavy lines in the far left column) show the 13-month trends of Sonatica’s strategic business units (SBUs). For example, the trends in electronics and peripherals are generally up, causing their sales to exceed their YTD (year to date) targets. Conversely, both software and hardware sales failed to meet YTD targets, a problem quickly noted by a marketing manager seeing the red “warning” circles in their rows at the far right. This suggests that immediate corrective actions are needed for the software and hardware SBUs.
•Website Visits by State. The U.S. map shows that the darker the state, the greater the number of website visits for the current month. For example, Texas has close to 20,000 visits per month, while Illinois has none.
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Using Marketing Dashboards |
How Well Is Ben & Jerry’s Doing?
As the marketing manager for Ben & Jerry’s, you need to assess how it is doing within the United States in the super-premium ice cream market in which it competes. For this, you choose two marketing metrics: dollar sales and dollar market share.
Your Challenge Scanner data from checkout counters in supermarkets and other retailers show the total industry sales of super-premium ice cream were $1.25 billion in 2013. Internal company data show you that Ben & Jerry’s sold 50 million units at an average price of $5.00 per unit In 2013. A “unit” In super-premium ice cream is one pint.
Your Findings Dollar sales and dollar market share can be calculated for 2013 using simple formulas and displayed on the Ben & Jerry’s marketing dashboard as follows:
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Dollar sales($) |
=Average price × Quantity sold |
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= $5.00 × 50 million units |
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= $250 million |
Your dashboard displays show that from 2012 to 2013 dollar sales increased from $240 million to $250 million and that dollar market share grew from 18.4 to 20.0 percent.
Your Action The results need to be compared with the goals established for these metrics. In addition, they should be compared with previous years’ results to see if the trends are increasing, flat, or decreasing. This will lead to marketing actions.
The Ben & Jerry’s dashboard in the Using Marketing Dashboards box shows how the two widely used marketing metrics of dollar sales and dollar market share can help the company assess its growth performance from 2012 to 2013. The Using Marketing Dashboard boxes in later chapters highlight other key marketing metrics and how they can lead to marketing actions.
SETTING STRATEGIC DIRECTIONS
To set a strategic direction, an organization needs to answer two difficult questions: (1) Where are we now? and (2) Where do we want to go?
LO 2-4Discuss how an organization assesses where it is now and where it seeks to be.
A Look Around: Where Are We Now?
Asking an organization where it is at the present time involves identifying its competencies, customers, and competitors.
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Competencies Senior managers must ask the question: What do we do best? The answer involves an assessment of the organization’s core competencies, which are its special capabilities—the skills, technologies, and resources—that distinguish it from other organizations and provide customer value. Exploiting these competencies can lead to success.31
Medtronic’s competencies include world-class technology, training, and service that respond to life-threatening medical needs. Bloomberg Businessweek magazine has called Medtronic “the standard setter for quality.”32 Competencies should be distinctive enough to provide acompetitive advantage, a unique strength relative to competitors that provides superior returns, often based on quality, time, cost, or innovation.33
Lands’ End’s unconditional guarantee for its products highlights its focus on customers.
Customers Ben & Jerry’s customers are ice cream and frozen yogurt eaters who have different preferences (form, flavor, health, and convenience). Medtronic’s pacemaker customers include cardiologists and heart surgeons who serve patients that need this type of device. Lands’ End communicates a remarkable commitment to its customers and its product quality with these unconditional words:
Guaranteed. Period.®
The Lands’ End website points out that this guarantee has always been an unconditional one. It reads: “If you’re not satisfied with any item, simply return it to us at any time for an exchange or refund of its purchase price.” But to get the message across more clearly to its customers, it created the two-word guarantee. The point is that Lands’ End’s strategy must provide genuine value to customers to ensure that they have a satisfying experience.34
Competitors In today’s global marketplace, the distinctions among competitors are increasingly blurred. Lands’ End started as a catalog retailer. But today, Lands’ End competes with not only other clothing catalog retailers but also traditional department stores, mass merchandisers, and specialty shops. Even well-known clothing brands such as Liz Claiborne now have their own chain stores. Although only some of the clothing in any of these stores directly competes with Lands’ End offerings, all of these retailers have websites to sell their offerings over the Internet. This means there’s a lot of competition out there.
Growth Strategies: Where Do We Want to Go?
Knowing where the organization is at the present time enables managers to set a direction for the firm and allocate resources to move in that direction. Two techniques to aid managers with these decisions are (1) business portfolio analysis and (2) diversification analysis.
Business Portfolio Analysis Successful organizations have a portfolio or range of offerings (products and services) that possess different growth rates and market shares within the industry in which they operate. The Boston Consulting Group (BCG), an internationally known management consulting firm, has developed business portfolio analysis . It is a technique that managers use to quantify performance measures and growth targets to analyze their firms’ strategic business units (SBUs) as though they were a collection of separate investments.35 The purpose of this tool is to determine which SBU or offering generates cash and which one requires cash to fund the organization’s growth opportunities.
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Filling the Shoes of Apple CEO Tim Cook: Where Will Apple’s Projected Future Growth for Its Major SBUs Come From?
Every CEO of a for-profit organization faces one problem in common: trying to find ways to increase future sales and profits to keep it growing!
Put yourself in Tim Cook’s shoes. One of his jobs is to search for new growth opportunities. Using your knowledge about Apple products, do a quick analysis of its four SBUs shown below to determine where Apple should allocate Its time and resources. Rate these growth opportunities from highest to lowest in terms of percentage growth in unit sales from 2013 to 2016:
We’ll walk you through possible answers. You then can evaluate your performance over the next two pages and decide whether you’re really ready for Mr. Cook’s job!
As described in the Marketing Matters box, let’s assume you are filling the shoes of Apple CEO Tim Cook. Based on your knowledge of Apple products, you are currently conducting a quick analysis of four major Apple SBUs through 2016. Try to rank them from highest to lowest in terms of percentage growth in expected unit sales. We will introduce you to using business portfolio analysis as we look at the possible future of the four Apple SBUs.
The BCG business portfolio analysis requires an organization to locate the position of each of its SBUs on a growth-share matrix (see Figure 2–4). The vertical axis is the market growth rate, which is the annual rate of growth of the SBU’s industry. The horizontal axis is therelative market share, defined as the sales of the SBU divided by the sales of the largest firm in the industry. A relative market share of l0 × (at the left end of the scale) means that the SBU has 10 times the share of its largest competitor, whereas a share of 0.1 × (at the right end of the scale) means it has only 10 percent of the share of its largest competitor.
What can Apple expect in future growth of sales revenues from its Mac Pro/iMac/MacBook products…
The BCG has given specific names and descriptions to the four resulting quadrants in its growth-share matrix based on the amount of cash they generate for or require from the organization:
•Cash cows are SBUs that generate large amounts of cash, far more than they can use. They have dominant shares of slow-growth markets and provide cash to cover the organization’s overhead and to invest in other SBUs.
•Stars are SBUs with a high share of high-growth markets that may need extra cash to finance their own rapid future growth. When their growth slows, they are likely to become cash cows.
•Question marks are SBUs with a low share of high-growth markets. They require large injections of cash just to maintain their market share, much less increase it. The name implies management’s dilemma for these SBUs: choosing the right ones to invest in and phasing out the rest.
•Dogs are SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they may not become real winners for the organization. Dropping SBUs that are dogs may be required if they consume more cash than they generate, except when relationships with other SBUs, competitive considerations, or potential strategic alliances exist.36
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FIGURE 2–4
Boston Consulting Group (BCG) business portfolio analysis for four of Apple’s consumer-related SBUs. Starting in 2013, the lines show where the sales revenues for each SBU are projected to be by 2016.
An organization’s SBUs often start as question marks and go counterclockwise around Figure 2–4 to become stars, then cash cows, and finally dogs. Because an organization has limited influence on the market growth rate, its main objective is to try to change its relative dollar or unit market share. To do this, management decides what strategic role each SBU should have in the future and either injects cash into or removes cash from it.
According to Interbrand, a leading brand management consulting firm, Apple has been consistently cited as one of the top global brands over the past decade in its annual Best Global Brands survey. What has made Apple so iconic is not only its revolutionary products but also its commitment to infusing the “human touch” with its technology such that its customers connect with the brand on both a cognitive and an emotional level. The late Steve Jobs was instrumental in creating Apple’s organizational culture and core values that will continue to guide its future.37
Using the BCG business portfolio analysis framework, Figure 2–4 shows that the Apple picture might look this way from 2013 to 2016 for its four strategic business units:38
…or its iPad/iPad mini tablet devices?
1. Mac Pro/iMac/MacBook (desktop and laptop personal computers or PCs). By mid-2013, Apple offered three lines of desktops (Mac Pro, iMac, and Mac mini) and two lines of laptops (MacBook Pro and MacBook Air). Global PC unit sales have declined during the past few years due to the growth of tablet devices. However, Apple’s Macs have bucked this trend, increasing its global unit market share from 10 to 12 percent. By 2016, global PC unit sales are expected to fall dramatically due to the explosion in tablet device sales. As a result, Apple’s Mac PC SBU appears to be a dog (low market share in a low-growth market).39
2. iPod (MP3 music players). Apple entered the MP3 player market with its iPod device in 2001. Today, Apple sells four iPod product lines (classic, nano, shuffle, and touch). As of mid-2013, Apple had a 70 percent share of this market! However, global MP3 music player unit sales are falling and are expected to decline further by 2016. Why? Smartphones will continue to replace MP3 devices, and the launch of additional wearable digital watches may impact sales. For Apple, its iPod SBU is a cash cow (high market share in a low-growth market) and is likely to remain one for the near future.40
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3. iPhone (smartphones). Apple launched its revolutionary iPhone in 2007, the first smartphone that used a multi-touch user interface. iPhone unit sales skyrocketed but have since leveled off. By 2017, the smartphone market is expected to grow at a compound annual rate of l3 percent due to dropping average smartphone prices. Apple’s iPhone had a 15 percent share of the global smartphone market in mid-2013—second to Samsung, whose share was 41 percent. Apple’s iPhone is on the question mark-star borderline and may remain so for the next few years unless or until it introduces new, compelling models such as the rumored iPhone 5S and iPhone 6.41
4. iPad/iPad mini (tablet devices). In 2010, Steve Jobs once again revolutionized an industry when he launched the iPad. Unit sales reached an astonishing 40 percent market share by mid-2013—leading both Samsung’s Galaxy (18 percent) and Amazon’s Kindle (4 percent). Global tablet unit sales are expected to more than double by 2016 as consumers switch from desktop and laptop PCs to tablet devices, with Apple still the market share leader. As these products mature, Apple’s iPad/iPad mini SBU may move from a star toward a cash cow as its growth begins to subside after 2016.42
So, how did you—as Tim Cook—rank the growth opportunity for each of Apple’s four SBUs for the future? In terms of priority, perhaps Apple will “milk” the cash generated from the Mac Pro/iMac/MacBook PC SBU [1] and iPod MP3 player SBU [2] to fund the investments needed to exploit the growth opportunities projected for the iPhone smartphone SBU [3] and the iPad/iPad mini tablet devices SBU [4]. Is Apple concerned? With its history of pulling exotic new-product “rabbits out of its hat,” let’s wait and see!
The primary strength of business portfolio analysis lies in forcing a firm to place each of its SBUs in the growth-share matrix, which in turn suggests which SBUs will be cash producers and cash users in the future. Weaknesses of this analysis arise from the difficulty in (1) getting the needed information and (2) incorporating competitive data into business portfolio analysis.43
How can Ben & Jerry’s develop new products and social responsibility programs that contribute to its mission? The text describes how the strategic marketing process and its SWOT analysis can help.
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B&J’s Bonna· roo Buzz Ad
Diversification Analysis Diversification analysis is a technique that helps a firm search for growth opportunities from among current and new markets as well as current and new products.44 For any market, there is both a current product (what the firm now sells) and a new product (what the firm might sell in the future). And for any product there is both a current market (the firm’s existing customers) and a new market (the firm’s potential customers). As Ben & Jerry’s seeks to increase sales revenues, it considers all four market-product strategies shown in Figure 2–5:
•Market penetration is a marketing strategy to increase sales of current products in current markets, such as selling more Ben & Jerry’s Bonnaroo Buzz Fair Trade–sourced ice cream to U.S. consumers. There is no change in either the basic product line or the markets served. Increased sales are generated by selling either more ice cream (through better promotion or distribution) or the same amount of ice cream at a higher price to its current customers.
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•Market development is a marketing strategy to sell current products to new markets. For Ben & Jerry’s, Brazil is an attractive new market. There is good news and bad news for this strategy: As household incomes of Brazilians increase, consumers can buy more ice cream; however, the Ben & Jerry’s brand may be unknown to Brazilian consumers.
•Product development is a marketing strategy of selling new products to current markets. Ben & Jerry’s could leverage its brand by selling children’s clothing in the United States. This strategy is risky because Americans may not see the company’s expertise in ice cream as extending to children’s clothing.
•Diversification is a marketing strategy of developing new products and selling them in new markets. This is a potentially high-risk strategy for Ben & Jerry’s if it decides to try to sell Ben & Jerry’s branded clothing in Brazil. Why? Because the firm has neither previous production nor marketing experience from which to draw in marketing clothing to Brazilian consumers.
FIGURE 2–5
Four market-product strategies: alternative ways to expand sales revenues for Ben & Jerry’s using diversification analysis.
learning review
2-5. What is the difference between a marketing dashboard and a marketing metric?
2-6. What is business portfolio analysis?
2-7. Explain the four market-product strategies in diversification analysis.
THE STRATEGIC MARKETING PROCESS
After an organization assesses where it is and where it wants to go, other questions emerge, such as:
1.How do we allocate our resources to get where we want to go?
2.How do we convert our plans into actions?
3.How do our results compare with our plans, and do deviations require new plans?
To answer these questions, an organization uses the strategic marketing process , whereby an organization allocates its marketing mix resources to reach its target markets. This process is divided into three phases: planning, implementation, and evaluation, as shown in Figure 2–6 on the next page.
LO 2-5Explain the three steps of the planning phase of the strategic marketing process.
The Planning Phase of the Strategic Marketing Process
Figure 2–6 shows the three steps in the planning phase of the strategic marketing process: (1) situation (SWOT) analysis, (2) market-product focus and goal setting, and (3) the marketing program.
Step 1: Situation (SWOT) Analysis The essence of situation analysis is taking stock of where the firm or product has been recently, where it is now, and where it is headed in terms of the organization’s marketing plans and the external forces and trends affecting it. An effective summary of a situation analysis is a SWOT analysis , an acronym describing an organization’s appraisal of its internal Strengths and Weaknesses and its external Opportunities and Threats.
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FIGURE 2–6
The strategic marketing process has three vital phases: planning, implementation, and evaluation. The figure also indicates the chapters in which these phases are discussed in the text.
The SWOT analysis is based on an exhaustive study of four areas that form the foundation upon which the firm builds its marketing program:
•Identify trends in the organization’s industry.
•Analyze the organization’s competitors.
•Assess the organization itself.
•Research the organization’s present and prospective customers.
Assume you are responsible for doing the SWOT analysis for Ben & Jerry’s shown in Figure 2–7. Note that the SWOT table has four cells formed by the combination of internal versus external factors (the rows) and favorable versus unfavorable factors (the columns) that identify Ben & Jerry’s strengths, weaknesses, opportunities, and threats.
The task is to translate the results of the SWOT analysis into specific marketing actions that will help the firm grow. The ultimate goal is to identify the critical strategy-related factors that impact the firm and then build on vital strengths, correct glaring weaknesses, exploit significant opportunities, and avoid disaster-laden threats.
The Ben & Jerry’s SWOT analysis in Figure 2–7 can be the basis for these kinds of specific marketing actions. An action in each of the four cells might be:
•Build on a strength. Find specific efficiencies in distribution with parent-company Unilever’s existing ice cream brands.
•Correct a weakness. Recruit experienced managers from other consumer product firms to help stimulate growth.
•Exploit an opportunity. Develop new product lines of low-fat, low-carb frozen Greek-style yogurt flavors to respond to changes in consumer tastes.
•Avoid a disaster-laden threat. Focus on less risky international markets, such as Brazil and Argentina.
Step 2: Market-Product Focus and Goal Setting Determining which products will be directed toward which customers (step 2 of the planning phase in Figure 2–6) is essential for developing an effective marketing program (step 3). This decision is often based on market segmentation, which involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. This enables an organization to focus specific marketing programs on its target market segments.
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FIGURE 2–7
Ben & Jerry’s: A SWOT analysis to keep it growing. The picture painted in this SWOT analysis is the basis for management actions.
In the case of Medtronic, executives researched a potential new market in Asia by talking extensively with doctors in India and China. Medtronic discovered that these doctors wanted an affordable pacemaker that was reliable and easy to implant. So Medtronic developed and marketed a new product, the Champion heart pacemaker, directed at satisfying their needs.
The Champion: Medtronic’s high-quality, long-life, low-cost heart pacemaker for Aslan market segments.
Goal setting involves specifying measurable marketing objectives to be achieved. For example, the goal may be to introduce Medtronic’s Champion pacemaker in emerging markets, starting in Asia. Let’s examine Medtronic’s five-year plan to reach the “affordable and reliable” pacemaker segment that results in its marketing program:45
•Set marketing and product goals. Chances of new-product success are increased by specifying both market and product goals. Based on their market research, Medtronic executives set the following goal: Market the Chinese-produced Champion pacemaker to Asian markets within three years.
•Select target markets. The Champion pacemaker will be targeted at cardiologists and heart surgery clinics in India, China, and other Asian countries.
•Find points of difference. Points of difference are those characteristics of a product that make it superior to competitive substitutes. Just as a competitive advantage is a unique strength of an entire organization compared to its competitors, points of difference are unique characteristics of one of its products that make it superior to competitive products it faces in the marketplace. For the Champion pacemaker, the key points of difference are its high quality, long life, reliability, ease of use, and low cost.
•Position the product. The pacemaker will be “positioned” in cardiologists’ and patients’ minds as a medical device that is high quality and reliable with a long, nine-year life. The name Champion was selected after testing acceptable names among doctors in India, China, Pakistan, Singapore, and Malaysia.
So step 2 in the planning phase of the strategic marketing process—deciding which products will be directed toward which customers—is the foundation for step 3, developing the marketing program.
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FIGURE 2–8
The four Ps elements of the marketing mix must be blended to produce a cohesive marketing program.
Step 3: Marketing Program Activities in step 2 tell the marketing manager which customers to target and which customer needs the firm’s product offerings can satisfy—the who and what aspects of the strategic marketing process. The how aspect—step 3 in the planning phase—involves developing the program’s marketing mix (the four Ps) and its budget. Figure 2–8 shows that each marketing mix element is combined to provide a cohesive marketing program. The five-year marketing plan for Medtronic’s Champion pacemaker includes these marketing mix actions:
•Product strategy. Offer a Champion brand heart pacemaker with only those features needed by Asian patients.
•Price strategy. Manufacture the Champion to control costs so that it can be priced below $1,000 (in U.S. dollars)—an affordable price for Asian markets.
•Promotion strategy. Introduce the Champion at medical conventions across Asia to demonstrate its many beneficial features.
•Place (distribution) strategy. Search out, utilize, and train reputable medical device distributors across Asia to call on cardiologists and medical clinics.
Putting this marketing program into effect requires that the firm commit time and money to it in the form of a sales forecast (see Chapter 8) and budget that must be approved by top management.
learning review
2-8. What are the three steps of the planning phase of the strategic marketing process?
2-9. What are points of difference and why are they important?
LO 2-6Describe the four components of the implementation phase of the strategic marketing process.
The Implementation Phase of the Strategic Marketing Process
As shown in Figure 2–6, the result of the hours spent in the planning phase of the strategic marketing process is the firm’s marketing plan. Implementation, the second phase of the strategic marketing process, involves carrying out the marketing plan that emerges from the planning phase. If the firm cannot execute the marketing plan—in the implementation phase—the planning phase wasted time and resources.
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There are four components of the implementation phase: (1) obtaining resources, (2) designing the marketing organization, (3) defining precise tasks, responsibilities, and deadlines, and (4) actually executing the marketing program designed in the planning phase.
Obtaining Resources A key task in the implementation phase of the strategic marketing process is finding adequate human and financial resources to execute the marketing program successfully. Small business owners often obtain funds from savings, family, friends, and bank loans. Marketing managers in existing organizations obtain these resources by getting top management to divert profits from BCG stars or cash cows.
Designing the Marketing Organization A marketing program needs a marketing organization to implement it. Figure 2–9 shows the organization chart of a typical manufacturing firm, giving some details of the marketing department’s structure. Four managers of marketing activities are shown to report to the vice president of marketing or CMO. Several regional sales managers and an international sales manager may report to the manager of sales. The product or brand managers and their subordinates help plan, implement, and evaluate the marketing plans for their offerings. However, the entire marketing organization is responsible for converting these marketing plans into realistic marketing actions.46
Defining Precise Tasks, Responsibilities, and Deadlines Successful implementation requires that team members know the tasks for which they are responsible and the deadlines for completing them. To implement the thousands of tasks on a new aircraft design, Lockheed Martin typically holds weekly program meetings. The outcome of each of these meetings is an action item list, an aid to implementing a marketing plan consisting of four columns: (1) the task, (2) the person responsible for completing that task, (3) the date to finish the task, and (4) what is to be delivered. Within hours of completing a program meeting, the action item list is circulated to those attending. This then serves as the starting agenda for the next meeting. Meeting minutes are viewed as secondary and backward-looking. Action item lists are forward-looking, clarify the targets, and put strong pressure on people to achieve their designated tasks by the deadline.
FIGURE 2–9
Organization of a typical manufacturing firm, showing a breakdown of the marketing department.
*Called chief marketing officer (CMO) in many organizations.
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Suppose, for example, that you and two friends undertake a term project on the problem, “How can the college increase attendance at its performing arts concerts?” The instructor says the term project must involve a mail survey of a sample of students, and the written report with the survey results must be submitted by the end of the 11-week quarter. To begin, you identify all the project tasks and then estimate the time required to complete each one. To complete it in 11 weeks, your team must plan which activities can be done concurrently (at the same time) to save time.
Scheduling activities can be done efficiently with a Gantt chart, which is a graph of a program schedule. Figure 2–10 shows a Gantt chart—invented by Henry L. Gantt—used to schedule the class project, demonstrating how the concurrent work on several tasks enables the students to finish the project on time. Software programs such as Microsoft Project simplify the task of developing a program schedule or Gantt chart.
The key to all scheduling techniques is to distinguish tasks that must be done sequentially from those that can be done concurrently. For example, Tasks 1 and 2 that are shaded yellow in Figure 2–10 must be done sequentially. This is because in order to type and copy the final questionnaire before mailing (Task 2), the student must have a final draft of the questionnaire (Task 1). In contrast, Tasks 6 and 7 that are shaded blue can be done concurrently. So writing the final report (Task 7) can be started before tabulating the questions (Task 6) is completed. This overlap speeds up project completion.
Executing the Marketing Program Marketing plans are meaningless without effective execution of those plans. This requires attention to detail for both marketing strategies and marketing tactics. A marketing strategy is the means by which a marketing goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it. The term implies both the end sought (target market) and the means or actions to achieve it (marketing program).
To implement a marketing program successfully, hundreds of detailed decisions are often required to develop the actions that comprise a marketing program for an offering. These actions, called marketing tactics , are detailed day-to-day operational marketing actions for each element of the marketing mix that contribute to the overall success of marketing strategies. Writing ads and setting prices for new product lines are examples of marketing tactics.
LO 2-7Discuss how managers identify and act on deviations from plans.
The Evaluation Phase of the Strategic Marketing Process
The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction set for it (see Figure 2–6). Accomplishing this requires the marketing manager to (1) compare the results of the marketing program with the goals in the written plans to identify deviations and (2) act on these deviations—exploiting positive deviations and correcting negative ones.
FIGURE 2–10
This Gantt chart shows how three students (A, B, and C) can schedule tasks to complete a term project on time. Software programs, such as Microsoft Project, simplify the task of developing a program schedule or Gantt chart.
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Comparing Results with Plans to Identify Deviations At the end of its fiscal year, which is September 30, Apple begins the evaluation phase of its strategic marketing process. Suppose you are on an Apple task force in late 2005 that is responsible for making plans through 2012. You observe that extending the 2000–2005 trend of Apple’s recent sales revenues (line AB in Figure 2–11) to 2012 along line BC shows an annual growth in sales revenue unacceptable to Apple’s management.
Looking at potential new products in the Apple pipeline, your task force set an aggressive annual sales growth target of 25 percent per year—the line BD in Figure 2–11. This would give sales revenues of $34 billion in 2009 and $66 billion in 2012.
This reveals a gray wedge-shaped gap DBC in the figure. Planners call this the planning gap, the difference between the projection of the path to reach a new sales revenue goal (line BD) and the projection of the path of a plan already in place (line BC). The ultimate purpose of the firm’s marketing program is to “fill in” this planning gap—in the case of your Apple task force, to move its future sales revenue line from the slow-growth line BC up to the more challenging target of line BD.
This is the essence of evaluation: comparing actual results with goals set. To reach aggressive growth targets in sales revenues, firms like Apple must continuously look for a new BCG SBU or product cash cow or star.
Acting on Deviations When evaluation shows that actual performance differs from expectations, managers need to take immediate marketing actions—exploiting positive deviations and correcting negative ones. Comparing the explosion in Apple’s actual sales revenues from 2006 to 2012 (line BE in Figure 2–11) to its target sales revenues (line BD) shows Apple’s rare, world-class ability to both generate and anticipate consumer demand and commercialize new technologies for its revolutionary offerings. Let’s consider some of its marketing actions:
FIGURE 2–11
The evaluation phase of the strategic marketing process requires that the organization compare actual results with goals to identify and act on deviations to fill in its “planning gap.” The text describes how Apple is working to fill in its planning gap.
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•Exploiting a positive deviation. Favorable customer reactions to Apple’s iPhone (2007) and its iPad (2010) enable it to sell the products globally and to introduce improved versions and models, such as the iPad mini (2012).
•Correcting a negative deviation. As Apple’s desktop PCs became dated, it moved aggressively to replace them with new iMacs (2012) and Mac Pro (2013). Also, Apple refreshed its MacBook Air and MacBook Pro lines of laptops (2013). Moreover, Apple introduced an iPhone mini in 2013 to spur sales in China, a huge market for smartphones.
As we saw earlier in the BCG business portfolio analysis of the four Apple product lines, the firm has several stars and cash cows to fill in its planning gap. We shall explore Apple’s market-product strategies in more detail later in Chapters 9 and 10.
learning review
2-10. What is the implementation phase of the strategic marketing process?
2-11. How do the goals set for a marketing program in the planning phase relate to the evaluation phase of the strategic marketing process?
LEARNING OBJECTIVES REVIEW
LO 2-1 Describe three kinds of organizations and the three levels of strategy in them.
An organization is a legal entity that consists of people who share a common mission. It develops offerings (goods, services, or ideas) that create value for both the organization and its customers by satisfying their needs and wants. Today’s organizations are of three types: for-profit organizations, nonprofit organizations, and government agencies. A for-profit organization serves its customers to earn a profit so that it can survive. Profit is the money left after a for-profit organization subtracts its expenses from its total revenues and is the reward for the risk it undertakes in marketing its offerings. A nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. A government agency is a federal, state, county, or city unit that provides a specific service to its constituents. Most large for-profit and nonprofit organizations are divided into three levels of strategy: (a) the corporate level, where top management directs overall strategy for the entire organization; (b) the strategic business unit level, where managers set a more specific strategic direction for their businesses to exploit value-creating opportunities; and (c) the functional level, where groups of specialists actually create value for the organization.
LO 2-2 Describe core values, mission, organizational culture, business, and goals.
Organizations exist to accomplish something for someone. To give organizations direction and focus, they continuously assess their core values, mission, organizational culture, business, and goals. Today’s organizations specify their foundation, set a direction, and formulate strategies—the “why,” “what,” and “how” factors, respectively. Core values are the organization’s fundamental, passionate, and enduring principles that guide its conduct over time. The organization’s mission is a statement of its function in society, often identifying its customers, markets, products, and technologies. Organizational culture is a set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization. To answer the question, “What business are we in?” an organization defines its “business”—the clear, broad, underlying industry category or market sector of its offering. Finally, the organization’s goals (or objectives) are statements of an accomplishment of a task to be achieved, often by a specific time.
LO 2-3 Explain why managers use marketing dashboards and marketing metrics.
Marketing managers use marketing dashboards to visually display on a single computer screen the essential information required to make a decision to take an action or further analyze a problem. This information consists of key performance measures of a product category, such as sales or market share, and is known as a marketing metric, which is a measure of the quantitative value or trend of a marketing activity or result. Most organizations tie their marketing metrics to the quantitative objectives established in their marketing plan, which is a road map for the marketing activities of an organization for a specified future time period, such as one year or five years.
LO 2-4 Discuss how an organization assesses where it is now and where it seeks to be.
Managers of an organization ask two key questions to set a strategic direction. The first question, “Where are we now?” requires an organization to (a) reevaluate its competencies to ensure that its special capabilities still provide a competitive advantage; (b) assess its present and prospective customers to ensure they have a satisfying customer experience—the central goal of marketing today; and (c) analyze its current and potential competitors from a global perspective to determine whether it needs to redefine its business.
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The second question, “Where do we want to go?,” requires an organization to set a specific direction and allocate resources to move it in that direction. Business portfolio and diversification analyses help an organization do this. Managers use business portfolio analysis to assess the organization’s strategic business units (SBUs), product lines, or individual products as though they were a collection of separate investments (cash cows, stars, question marks, and dogs) to determine the amount of cash each should receive. Diversification analysis is a tool that helps managers use one or a combination of four strategies to increase revenues: market penetration (selling more of an existing product to existing markets); market development (selling an existing product to new markets); product development (selling a new product to existing markets); and diversification (selling new products to new markets).
LO 2-5 Explain the three steps of the planning phase of the strategic marketing process.
An organization uses the strategic marketing process to allocate its marketing mix resources to reach its target markets. This process is divided into three phases: planning, implementation, and evaluation. The planning phase consists of (a) a situation (SWOT) analysis, which involves taking stock of where the firm or product has been recently, where it is now, and where it is headed and focuses on the organization’s internal factors (strengths and weaknesses) and the external forces and trends affecting it (opportunities and threats); (b) a market-product focus through market segmentation (grouping buyers into segments with common needs and similar responses to marketing programs) and goal setting, which in part requires creating points of difference (those characteristics of a product that make it superior to competitive substitutes); and (c) a marketing program that specifies the budget and actions (marketing strategies and tactics) for each marketing mix element.
LO 2-6 Describe the four components of the implementation phase of the strategic marketing process.
The implementation phase of the strategic marketing process carries out the marketing plan that emerges from the planning phase. It has four key components: (a) obtaining resources; (b) designing the marketing organization to perform product management, marketing research, sales, and advertising and promotion activities; (c) developing schedules to identify the tasks that need to be done, the time that is allocated to each one, the people responsible for each task, and the deadlines for each task—often with an action item list and Gantt chart; and (d) executing the marketing strategies, which are the means by which marketing goals are to be achieved, and their associated marketing tactics, which are the detailed day-to-day marketing actions for each element of the marketing mix that contribute to the overall success of a firm’s marketing strategies. These are the marketing program actions a firm takes to achieve the goals set forth in its marketing plan.
LO 2-7 Discuss how managers identify and act on deviations from plans.
The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction that was established in the marketing plan. This requires the marketing manager to compare the results from the marketing program with the marketing plan’s goals to (a) identify deviations or “planning gaps” and (b) take corrective actions to exploit positive deviations or correct negative ones.
FOCUSING ON KEY TERMS
APPLYING MARKETING KNOWLEDGE
1(a) Using Medtronic as an example, explain how a mission statement gives it a strategic direction. (b) Create a mission statement for your own career.
2What competencies best describe (a) your college or university and (b) your favorite restaurant?
3Compare the advantages and disadvantages of Ben & Jerry’s attempting to expand sales revenues by using (a) a product development strategy or (b) a market development strategy.
4Select one strength, one weakness, one opportunity, and one threat from the Ben & Jerry’s SWOT analysis shown in Figure 2–7. Suggest an action that a B&J marketing manager might take to address each factor.
5What is the main result of each of the three phases of the strategic marketing process? (a) planning, (b) implementation, and (c) evaluation.
6Parts of Tasks 5 and 6 in Figure 2–10 are done both concurrently and sequentially. (a) How can this be? (b) How does it help the students meet the term paper deadline? (c) What is the main advantage of scheduling tasks concurrently rather than sequentially?
7The goal-setting step in the planning phase of the strategic marketing process sets quantified objectives for use in the evaluation phase. What does a manager do if measured results fail to meet objectives? Exceed objectives?
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BUILDING YOUR MARKETING PLAN
1Read Appendix A, “Building an Effective Marketing Plan.” Then write a 600-word executive summary for the Paradise Kitchens marketing plan using the numbered headings shown in the plan. When you have completed the draft of your own marketing plan, write a 600-word executive summary to go in the front of your own marketing plan.
2Using Chapter 2 and Appendix A as guides, focus your marketing plan by (a) writing your mission statement in 25 words or less, (b) listing three nonfinancial goals and three financial goals, (c) writing your competitive advantage in 35 words or less, and (d) creating a SWOT analysis table.
3Draw a simple organization chart for your organization.
VIDEO CASE 2
IBM: Using Strategy to Build a “Smarter Planet”
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IBM Video Case
“‘Smarter Planet’ is not an advertising campaign, it’s not even a marketing campaign, it is a business strategy,” explains Ann Rubin, vice president of advertising at IBM.
The “Smarter Planet” strategy is based on the idea that the next major revolution in the global marketplace will be the instrumentation and integration of the world’s processes and infrastructures, generating unprecedented amounts of data. The data captured and analyzed in industries such as banking, energy, health care, and retailing will allow IBM to help businesses be more efficient, productive, and responsive.
THE COMPANY
Founded in 1911, IBM has a history of innovation and focus on customers. The blue covers on its computers, blue letters in the IBM logo, and dark blue suits worn by IBM salespeople led to the now popular company nickname, “Big Blue.” Today, it has over 430,000 employees in more than 170 countries. Forbes magazine ranks IBM as the fourth most valuable brand in the world. The company is a leading developer of new business technologies, receiving more than 5,000 patents each year. Some of its well-known inventions include the automated teller machine (ATM), the hard disk drive, the magnetic stripe card, relational databases, and the Universal Product Code (UPC). In addition, IBM recently gained attention for its artificial intelligence program called Watson, which challenged two Jeopardy! game show champions and won! According to Virginia Rometty, the current CEO of IBM, “IBM is an innovation company.”
VALUES, MISSION, AND STRATEGY
Recently, IBM initiated a project to facilitate online discussions of key business issues among 50,000 employees to identify common themes and perspectives. According to Sam Palmisano, former CEO of IBM, “We needed to affirm IBM’s reason for being, what sets the company apart, and what should drive our actions as individual IBMers.” The results were three underlying values of IBM’s business practices: (1) dedication to every client’s success, (2) innovation that matters—for our company and for the world, and (3) trust and personal responsibility in all relationships. These values now come to life at IBM in its “policies, procedures, and daily operations,” explains Palmisano.
IBM’s core values also help to define its mission, or its general function in society. In clear, concise, inspirational language, IBM’s mission statement is:
•At IBM, we strive to lead in the invention, development and manufacture of the industry’s most advanced information technologies, including computer systems, software, storage systems, and microelectronics.
•We translate these advanced technologies into value for our customers through our professional solutions, services, and consulting businesses worldwide.
The mission, and the values it represents, helps define the organizational culture at IBM. Executives, managers, and all employees create the culture through the strategies they select and the detailed plans for accomplishing them.
IBM’s strategies are based on its assessment of fundamental changes in the business environment. First, IBM sees global changes such as fewer trade barriers, the growth of developing economies, and increasing access to the World Wide Web. These changes necessitate a new type of corporation that IBM calls the “globally integrated enterprise.” Second, IBM foresees a new model of computing that includes computational capability in phones, cameras, cars, and other appliances and allows economic, social, and physical systems to be connected. This connectivity creates a “smarter planet.” Finally, IBM predicts a growing demand for custom-made technological solutions that help organizations measure and achieve specific outcomes.
As a result, IBM began to shift from commodity-based businesses such as PCs and hard disk drives, to “customizable” businesses such as software and services. The change in IBM was so substantial that it has described its plan in a document called the 2015 Road Map.The Map describes four strategic opportunities: (1) growth markets such as China, India, Brazil, and Africa, (2) business analytics and optimization, (3) cloud and smarter computing, and (4) the connected, “smarter” planet. These opportunities suggest a strategy that delivers value through business and IT innovation to selected industries with an integrated enterprise. The overarching strategy that highlights IBM’s capabilities is called “Building a Smarter Planet.”
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BUILDING A SMARTER PLANET
The Smarter Planet initiative is designed for clients who value IBM’s industry and process expertise, systems integration capability, and research capacity. A smarter planet, while global by definition, happens on the industry level. It is driven by forward-thinking organizations that share a common outlook: They see change as an opportunity, and they act on possibilities, not just react to problems.
John Kennedy, vice president of marketing, explains, “‘A Smarter Planet’ actually surfaced from observing what was happening in our clients. They were looking to take the vast amount of data that was being generated inside their companies and looking to better understand it.” To IBM “smart” solutions have three characteristics. They are instrumented, they are intelligent, and they are interconnected. Millions of digital devices, now connected through the Internet, produce data that can be turned into knowledge through advanced computational power. IBM believes that this knowledge can help reduce costs, cut waste, improve efficiency, and increase productivity for companies, industries, and cities.
Since introducing the Smarter Planet strategy, IBM has collaborated with more than 600 organizations around the globe. The success of the strategy is evident in the broad range of industries where “smart” solutions are being implemented. They include banking; communications; electronics, automotive and aerospace; energy and utilities; government; health care; insurance; oil and gas; retailing; and transportation. Each industry has reported a variety of applications.
In a study of 439 cities, for example, smart solutions such as ramp metering, signal coordination, and accident management reduced travel delays by more than 700,000 annually, saving each city $15 million. A study by the U.S. Department of Energy found that consumers with smart electric meters cut their power usage and saved 10 percent on their power bills. Retailers who implemented smart systems to analyze buying behavior, merchandise assortment, and demand were able to cut supply chain costs by 30 percent, reduce inventory levels by 25 percent, and increase sales by 10 percent.
THE BUILDING A SMARTER PLANET MARKETING PLAN
Marketing and communications professionals at IBM have developed the marketing plan for IBM’s “Smarter Planet” strategy. The general goal is to describe the company’s view of the next era of information technology and its impact on business and society. The execution of the plan includes messaging from IBM leaders, an advertising campaign, an Internet presence, and public relations communications. In addition, IBM measures and tracks the performance of the marketing activities.
The importance of the Smarter Planet strategy was first communicated through a message from the top. Palmisano prepared a “Letter from the Chairman” for the annual report. His message was a powerful statement. Smarter Planet, according to Palmisano, “is not a metaphor. It describes the infusion of intelligence into the way the world actually works.”
IBM also used a print and television advertising campaign to add detail to the general message. The ads focused on the ability to improve the world now, with IBM’s help. “I think what’s different about Smarter Planet,” says Ann Rubin, “is that it was not inward facing, it was looking out at what the world needed. We felt like we could go out there and influence the world for the better.”
IBM recently celebrated its 100th anniversary! Its record of success is testimony to the resilience of a business model that encourages long-term strategies that can say “Welcome to a Smarter Planet.”
Questions
1What is IBM’s “Smarter Planet” business strategy? How does this strategy relate to IBM’s mission and values?
2Conduct a SWOT analysis for IBM’s Smarter Planet initiative. What are the relevant trends to consider for the next three to five years?
3How can IBM communicate its strategy to companies, cities, and governments?
4What are the benefits of the Smarter Planet initiative to (a) society and (b) IBM?
5How should IBM measure the results of the Smarter Planet strategy?
