CHAPTER 2 Developing Marketing Strategies and Plans
MKT702 Marketing Management
CHAPTER 2 Developing Marketing Strategies and Plans MARKETING AND CUSTOMER VALUE The Value-Delivery Process Smart competitor must design and deliver offerings for well-defined target markets at the beginning of planning process Value creation and delivery can be divided into three phases i. Choosing the value – segment the market, select appropriate market target, and develop the offering’s value positioning ii. Providing the value – determine specific product features, prices, and distribution iii. Communicating the value – utilizing the sales force, sales promotion, advertising, and other promotional tools to inform and promote the product The Value Chain Value chain: tool for identifying ways to create more customer value Nine strategically relevant activities that create value and cost in a specific business o Primary activities 1. Inbound logistics, or bringing materials into the business 2. Operations, or converting materials into final products 3. Outbound logistics, or shipping out final products 4. Marketing, which includes sales 5. Service o Specialized departments handle support activities 1. Procurement 2. Technology development 3. Human resource management 4. Firm infrastructure (e.g. cost of general management, planning, finance, accounting, legal, and government affairs) Task is to examine costs and performance in each value-creating activity by using competitors as benchmarks Success depends on how well various departmental activities are coordinated to conduct core business processes o Marketing-sensing process – all activities involved in gathering market intelligence, disseminating it within the organization, and acting on the information o New offering-realization process – all activities involved in researching, developing, and launching new high-quality offerings quickly and within budget o Customer-acquisition process – all activities involved in defining target markets and prospecting for new customers o Customer relationship management process – all activities involved in building deeper understanding with, relationships with, and offerings to individual customers o Fulfillment management process – all activities involved in receiving and approving orders, shipping goods on time, and collecting payments Value-delivery network (supply chain): company’s supply chain and how it partners with specific suppliers and distributors to make products and bring them to markets Core Competencies Core competency has three characteristics: i. Source of competitive advantage in that it makes a significant contribution to perceived customer benefits ii. Applications in a wide variety of markets iii. Difficult for competitors to imitate Competitive advantage derives from how well company has fitted its core competencies and distinctive capabilities into tightly interlocking “activity system” Business realignment may be necessary to maximize core competencies i. (Re)defining business concept or “big idea” ii. (Re)shaping the business scope iii. (Re)positioning the company’s brand identity A Holistic Marketing Orientation and Customer Value Holistic marketing succeed by managing superior value chain that delivers high level of product quality, service, and speed o Profitable growth by expanding customer share, building customer loyalty, and capturing customer life-time value
MKT702 Marketing Management Three key management questions i. Value exploration – how can a company identify new value opportunities? ii. Value creation – how can a company efficiently create more promising new value offerings? iii. Value delivery – how can a company use its capabilities and infrastructure to deliver new value offerings more efficiently?
The Central Role of Strategic Planning Strategic planning calls for action in three key areas i. Managing a company’s businesses as an investment portfolio ii. Assessing each business’s strength by considering the market’s growth rate and the company’s position and fit in that market iii. Establishing a strategy Strategic planning at different organizational levels o Corporate level responsible for designing corporate strategic plan to guide the whole enterprise Makes decisions on amount of resources to allocate to each division and which business to start or eliminate o Division level establishes plan covering allocation of funds to each business unit within the division o Business unit level develops strategic plan to carry business unit into profitable future o Product level within each business unit develops marketing plan for achieving its objectives in its product market Marketing plan: directing and coordinating in its product market o Strategic marketing planning: lays out target markets and value proposition that will be offered, based on analysis of best market opportunities o Tactical marketing plan: specifies marketing tactics, including product features, promotion, merchandising, pricing, sales channels, and services CORPORATE AND DIVISION STRATEGIC PLANNING Defining the Corporate Mission Mission statement: provides employees with a shared sense of purpose, direction, and opportunity Five characteristics of mission statement i. Focus on a limited number of goals ii. Stress the company’s major policies and values iii. Define major competitive spheres within which the company will operate iv. Take a long-term view v. They are short, memorable, and meaningful as possible Establishing Strategic Business Units Market definition describes the business as customer-satisfying process, not a goods-producing process Target market definition tends to focus on selling product or service to current market Strategic market definition focuses on potential market Business can be defined in terms of three dimensions: customer groups, customer needs, and technology Strategic business unit (SBUs): single business or collection of related businesses that can be planned separately from the rest of the company, with its own set of competitors and a manager who is responsible for strategic planning and profit performance Assigning Resources to Each SBU Newer methods rely on shareholder value analysis, and on whether market value of a company is greater with an SBU or without it o These values calculate potential of business based on growth opportunities from global expansion, repositioning or retargeting, and strategic outsourcing Assessing Growth Opportunities Intensive growth opportunities identifies opportunities to achieve further growth within current business o Useful framework is “product-market expansion grid” which considers strategic growth opportunities for firm in terms of current and new products and markets Market penetration strategy – considers whether it can gain more market share with current products in current market
MKT702 Marketing Management Market-development strategy – considers whether it can find or develop new markets for its current product Product-development strategy – considers whether it can develop new products of potential interest to current market Diversification strategy – review opportunities to develop new products for new market Integrative growth opportunities identifies opportunities to build or acquire businesses that are related to current business o Sales and profits may increase through backward, forward, or horizontal integration within its industry Diversification growth opportunities identifies opportunities to add attractive businesses that are unrelated to current business
Organizational and Organizational Culture Organization: consists of structure, policies, and corporate culture, all of which can become dysfunctional in a rapidly changing business environment Corporate culture: shared experiences, stories, beliefs, and norms that characterize an organization Marketing Innovation Encourage fresh ideas from three groups: employees with youthful perspectives; employees who are far removed from company headquarters; and employees who are new to the industry 12 dimensions of business innovation i. Offerings (WHAT) – develop innovative new products or services ii. Platform – use common components or building blocks to create derivative offerings iii. Solutions – create integrated and customized offerings that solve end-to-end customer problems iv. Customers (WHO) – discover unmet customer needs or identify under-severed customer segmentation v. Customer experience – redesign customer interactions across all touch points and all moments of contact vi. Value capture – redefine how company gets paid or create innovative new revenue streams vii. Processes (HOW) – redesign core operating processes to improve efficiency and effectiveness viii. Organization – change form, function, or activity scope of the firm ix. Supply chain – think differently about sourcing and fulfillment x. Presence (WHERE) – create new distribution channels or innovative points of presence, including places where offerings can be bought or used by customers xi. Networking – create network-centric intelligent and integrated offerings xii. Brand – leverage a brand into new domains Scenario analysis: develops plausible representations of firm’s possible future using assumptions about forces driving market and different uncertainties BUSINESS UNIT STRATEGIC PLANNING SWOT Analysis External environment (opportunity and threat) analysis o Monitor key macroenvironment forces (demographic-economic, natural, technological, political-legal, socialcultural) and microenvironmental forces (customers, competitors, suppliers, distributors, dealers) o Marketing opportunity: area of buyer need and interest in which there is high probability that company can profitably satisfy that need Three sources of market opportunities: 1. Supply something in short supply 2. Supply existing product or service in new or superior way Problem-detection method – asking customers for suggestions Ideal method – asking customers to imagine idea version of product or service Consumption-chain method – asking customers to chart their steps in acquiring, using, and disposing of a product 3. New product or service Market Opportunity Analysis (MOA): system used to determine attractiveness and probability of success o Environmental threat: unfavourable trend or development that would lead, in the absence of defensive marketing action Classified according to seriousness and probability of occurrence Internal environment (strengths/weaknesses) analysis
MKT702 Marketing Management Goal Formulation Goal formulation: develop specific goals for the planning period o Business units pursue mix of objectives, including profitability, sales growth, market share improvement, risk containment, innovation, and reputation For MBO system to work, business unit’s objectives must meet four criteria: i. Must be arranged hierarchically, from most to least important ii. Objectives should be stated quantitatively whenever possible iii. Goals should be realistic iv. Objectives must be consistent Strategy Formulation Strategy: company’s game plan for achieving its goals Porter’s generic strategies for strategic thinking: i. Overall-cost leadership – firms must be good at engineering, purchasing, manufacturing, and physical distribution ii. Differentiation – business concentrates on achieving superior performance in an important customerbenefit area iii. Focus – business focuses on one or more narrow market segments
Strategic alliances take the form of marketing alliances that fall into four categories: 1. Product or service alliance – one company licenses another to produce its product, or two companies jointly market their complementary products or a new product 2. Promotional alliance – one company agrees to carry promotion for another company’s product or service 3. Logistics alliances – one company offers logistical services for another company’s product 4. Pricing collaborations – one or more companies join in a special pricing collaboration Partner relationship management (PRM): organizational structure to support companies and to form and manage partnerships as core skills
Program Formulation and Implementation Activity-based cost (ABC) accounting should be applied to each marketing program to determine whether it is likely to produce results sufficient to justify cost Unless businesses nurture other stakeholders – customers, employees, suppliers, distributors – business may never earn sufficient profits for shareholders Seven Ss are strategy, structure, system, style, skills, staffing, and shared values Feedback and Control Must remain efficient while loses effectiveness because market environment changes faster than company’s seven Ss Key to organizational health is willingness to examine changing environment and to adopt new goals and behaviours PRODUCT PLANNING: THE NATURE AND CONTENTS OF A MARKETING PLAN Marketing plan: written document that summarizes what marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives o Contains tactical guidelines for marketing programs and financial allocations over planning period Shortcomings of marketing plans are lack of realism, insufficient competitive analysis, and short-run focus Marketing plan usually contains the following sections: o Executive summary and table of contents o Situation analysis – presents relevant background data on sales, costs, the market, competitors, and macro environmental forces o Marketing strategy – defines mission and marketing and financial objectives o Financial projections – sales forecast, expense forecast, and break-even analysis Break-even analysis: shows how many units must be sold monthly to offset monthly fixed costs and average per-unit variable costs Risk analysis – obtaining three estimates (optimistic, pessimistic, and most likely) for each uncertain variable affecting profitability under assumed marketing environment o Implementation controls – controls for monitoring and adjusting implementation of plan
CHAPTER 2 Developing Marketing Strategies and Plans MARKETING AND CUSTOMER VALUE The Value-Delivery Process Smart competitor must design and deliver offerings for well-defined target markets at the beginning of planning process Value creation and delivery can be divided into three phases i. Choosing the value – segment the market, select appropriate market target, and develop the offering’s value positioning ii. Providing the value – determine specific product features, prices, and distribution iii. Communicating the value – utilizing the sales force, sales promotion, advertising, and other promotional tools to inform and promote the product The Value Chain Value chain: tool for identifying ways to create more customer value Nine strategically relevant activities that create value and cost in a specific business o Primary activities 1. Inbound logistics, or bringing materials into the business 2. Operations, or converting materials into final products 3. Outbound logistics, or shipping out final products 4. Marketing, which includes sales 5. Service o Specialized departments handle support activities 1. Procurement 2. Technology development 3. Human resource management 4. Firm infrastructure (e.g. cost of general management, planning, finance, accounting, legal, and government affairs) Task is to examine costs and performance in each value-creating activity by using competitors as benchmarks Success depends on how well various departmental activities are coordinated to conduct core business processes o Marketing-sensing process – all activities involved in gathering market intelligence, disseminating it within the organization, and acting on the information o New offering-realization process – all activities involved in researching, developing, and launching new high-quality offerings quickly and within budget o Customer-acquisition process – all activities involved in defining target markets and prospecting for new customers o Customer relationship management process – all activities involved in building deeper understanding with, relationships with, and offerings to individual customers o Fulfillment management process – all activities involved in receiving and approving orders, shipping goods on time, and collecting payments Value-delivery network (supply chain): company’s supply chain and how it partners with specific suppliers and distributors to make products and bring them to markets Core Competencies Core competency has three characteristics: i. Source of competitive advantage in that it makes a significant contribution to perceived customer benefits ii. Applications in a wide variety of markets iii. Difficult for competitors to imitate Competitive advantage derives from how well company has fitted its core competencies and distinctive capabilities into tightly interlocking “activity system” Business realignment may be necessary to maximize core competencies i. (Re)defining business concept or “big idea” ii. (Re)shaping the business scope iii. (Re)positioning the company’s brand identity A Holistic Marketing Orientation and Customer Value Holistic marketing succeed by managing superior value chain that delivers high level of product quality, service, and speed o Profitable growth by expanding customer share, building customer loyalty, and capturing customer life-time value
MKT702 Marketing Management Three key management questions i. Value exploration – how can a company identify new value opportunities? ii. Value creation – how can a company efficiently create more promising new value offerings? iii. Value delivery – how can a company use its capabilities and infrastructure to deliver new value offerings more efficiently?
The Central Role of Strategic Planning Strategic planning calls for action in three key areas i. Managing a company’s businesses as an investment portfolio ii. Assessing each business’s strength by considering the market’s growth rate and the company’s position and fit in that market iii. Establishing a strategy Strategic planning at different organizational levels o Corporate level responsible for designing corporate strategic plan to guide the whole enterprise Makes decisions on amount of resources to allocate to each division and which business to start or eliminate o Division level establishes plan covering allocation of funds to each business unit within the division o Business unit level develops strategic plan to carry business unit into profitable future o Product level within each business unit develops marketing plan for achieving its objectives in its product market Marketing plan: directing and coordinating in its product market o Strategic marketing planning: lays out target markets and value proposition that will be offered, based on analysis of best market opportunities o Tactical marketing plan: specifies marketing tactics, including product features, promotion, merchandising, pricing, sales channels, and services CORPORATE AND DIVISION STRATEGIC PLANNING Defining the Corporate Mission Mission statement: provides employees with a shared sense of purpose, direction, and opportunity Five characteristics of mission statement i. Focus on a limited number of goals ii. Stress the company’s major policies and values iii. Define major competitive spheres within which the company will operate iv. Take a long-term view v. They are short, memorable, and meaningful as possible Establishing Strategic Business Units Market definition describes the business as customer-satisfying process, not a goods-producing process Target market definition tends to focus on selling product or service to current market Strategic market definition focuses on potential market Business can be defined in terms of three dimensions: customer groups, customer needs, and technology Strategic business unit (SBUs): single business or collection of related businesses that can be planned separately from the rest of the company, with its own set of competitors and a manager who is responsible for strategic planning and profit performance Assigning Resources to Each SBU Newer methods rely on shareholder value analysis, and on whether market value of a company is greater with an SBU or without it o These values calculate potential of business based on growth opportunities from global expansion, repositioning or retargeting, and strategic outsourcing Assessing Growth Opportunities Intensive growth opportunities identifies opportunities to achieve further growth within current business o Useful framework is “product-market expansion grid” which considers strategic growth opportunities for firm in terms of current and new products and markets Market penetration strategy – considers whether it can gain more market share with current products in current market
MKT702 Marketing Management Market-development strategy – considers whether it can find or develop new markets for its current product Product-development strategy – considers whether it can develop new products of potential interest to current market Diversification strategy – review opportunities to develop new products for new market Integrative growth opportunities identifies opportunities to build or acquire businesses that are related to current business o Sales and profits may increase through backward, forward, or horizontal integration within its industry Diversification growth opportunities identifies opportunities to add attractive businesses that are unrelated to current business
Organizational and Organizational Culture Organization: consists of structure, policies, and corporate culture, all of which can become dysfunctional in a rapidly changing business environment Corporate culture: shared experiences, stories, beliefs, and norms that characterize an organization Marketing Innovation Encourage fresh ideas from three groups: employees with youthful perspectives; employees who are far removed from company headquarters; and employees who are new to the industry 12 dimensions of business innovation i. Offerings (WHAT) – develop innovative new products or services ii. Platform – use common components or building blocks to create derivative offerings iii. Solutions – create integrated and customized offerings that solve end-to-end customer problems iv. Customers (WHO) – discover unmet customer needs or identify under-severed customer segmentation v. Customer experience – redesign customer interactions across all touch points and all moments of contact vi. Value capture – redefine how company gets paid or create innovative new revenue streams vii. Processes (HOW) – redesign core operating processes to improve efficiency and effectiveness viii. Organization – change form, function, or activity scope of the firm ix. Supply chain – think differently about sourcing and fulfillment x. Presence (WHERE) – create new distribution channels or innovative points of presence, including places where offerings can be bought or used by customers xi. Networking – create network-centric intelligent and integrated offerings xii. Brand – leverage a brand into new domains Scenario analysis: develops plausible representations of firm’s possible future using assumptions about forces driving market and different uncertainties BUSINESS UNIT STRATEGIC PLANNING SWOT Analysis External environment (opportunity and threat) analysis o Monitor key macroenvironment forces (demographic-economic, natural, technological, political-legal, socialcultural) and microenvironmental forces (customers, competitors, suppliers, distributors, dealers) o Marketing opportunity: area of buyer need and interest in which there is high probability that company can profitably satisfy that need Three sources of market opportunities: 1. Supply something in short supply 2. Supply existing product or service in new or superior way Problem-detection method – asking customers for suggestions Ideal method – asking customers to imagine idea version of product or service Consumption-chain method – asking customers to chart their steps in acquiring, using, and disposing of a product 3. New product or service Market Opportunity Analysis (MOA): system used to determine attractiveness and probability of success o Environmental threat: unfavourable trend or development that would lead, in the absence of defensive marketing action Classified according to seriousness and probability of occurrence Internal environment (strengths/weaknesses) analysis
MKT702 Marketing Management Goal Formulation Goal formulation: develop specific goals for the planning period o Business units pursue mix of objectives, including profitability, sales growth, market share improvement, risk containment, innovation, and reputation For MBO system to work, business unit’s objectives must meet four criteria: i. Must be arranged hierarchically, from most to least important ii. Objectives should be stated quantitatively whenever possible iii. Goals should be realistic iv. Objectives must be consistent Strategy Formulation Strategy: company’s game plan for achieving its goals Porter’s generic strategies for strategic thinking: i. Overall-cost leadership – firms must be good at engineering, purchasing, manufacturing, and physical distribution ii. Differentiation – business concentrates on achieving superior performance in an important customerbenefit area iii. Focus – business focuses on one or more narrow market segments
Strategic alliances take the form of marketing alliances that fall into four categories: 1. Product or service alliance – one company licenses another to produce its product, or two companies jointly market their complementary products or a new product 2. Promotional alliance – one company agrees to carry promotion for another company’s product or service 3. Logistics alliances – one company offers logistical services for another company’s product 4. Pricing collaborations – one or more companies join in a special pricing collaboration Partner relationship management (PRM): organizational structure to support companies and to form and manage partnerships as core skills
Program Formulation and Implementation Activity-based cost (ABC) accounting should be applied to each marketing program to determine whether it is likely to produce results sufficient to justify cost Unless businesses nurture other stakeholders – customers, employees, suppliers, distributors – business may never earn sufficient profits for shareholders Seven Ss are strategy, structure, system, style, skills, staffing, and shared values Feedback and Control Must remain efficient while loses effectiveness because market environment changes faster than company’s seven Ss Key to organizational health is willingness to examine changing environment and to adopt new goals and behaviours PRODUCT PLANNING: THE NATURE AND CONTENTS OF A MARKETING PLAN Marketing plan: written document that summarizes what marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives o Contains tactical guidelines for marketing programs and financial allocations over planning period Shortcomings of marketing plans are lack of realism, insufficient competitive analysis, and short-run focus Marketing plan usually contains the following sections: o Executive summary and table of contents o Situation analysis – presents relevant background data on sales, costs, the market, competitors, and macro environmental forces o Marketing strategy – defines mission and marketing and financial objectives o Financial projections – sales forecast, expense forecast, and break-even analysis Break-even analysis: shows how many units must be sold monthly to offset monthly fixed costs and average per-unit variable costs Risk analysis – obtaining three estimates (optimistic, pessimistic, and most likely) for each uncertain variable affecting profitability under assumed marketing environment o Implementation controls – controls for monitoring and adjusting implementation of plan
