Company and Marketing Strategy: Partnering to Build Customer Relationships

Chapter 2

Learning Goals
1. Explain strategic planning 2. Describe business portfolios and growth strategies 3. Detail marketings role in strategic planning 4. Describe elements of customer-driven marketing strategy 5. List the marketing management functions

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What is Strategic Planning?

Strategic Planning Defined:
The process of developing and maintaining a strategic fit between the organizations goals and capabilities and its changing marketing opportunities

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Goal 1: Explain strategic planning

What is Strategic Planning?

Purpose:
The purpose of Strategic planning involves developing a strategy for long run survival & growth keeping elements like its specific situation, opportunities, objectives and resources Company usually prepare annual, long range & strategic plans. The annual & long range plans deals with the companys current businesses & how to keep them going. Strategic plan involves adapting the firm to take advantage of opportunities in its constantly changing environment.
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Goal 1: Explain strategic planning

Strategic Planning Process

Steps in Strategic planning: 1. Defining the companys mission or purpose 2. This mission is then turned into detailed supporting objectives & goals that guide the whole company 3. Than the company decides what portfolio of businesses and products is best for the company and how much support to give each one. 4. In turn, each business and product develops detailed marketing and other departmental plans that support companywide plan planning marketing and other functional strategies
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Goal 1: Explain strategic planning

Step 1: Defining the companys mission Marketing Management

Mission Statement: A statement of the organizations purpose---What it wants to accomplish in the larger environment

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Goal 1: Explain strategic planning

Market-Oriented Mission Marketing Management

A mission statement asks..
What is our business? Who is the customer? What do consumers value? What should our business be?

A mission statement should be:

Should be market oriented Based on distinctive competencies Should be meaningful and specific yet motivating

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Goal 1: Explain strategic planning

Market-Oriented Mission
Examples
1. Revlon We make cosmetics Product oriented whereas We sell lifestyle and self expression; success and status; memories, hopes & dreams Market oriented Wal-Mart Give ordinary folks the chance to buy the same things as rich people - Motivating Should not be stated as making profits and sales. Employees need to feel that their work is significant & that it contributes to peoples lives - Based on distinctive competencies Example Microsofts aim is to help people to realize their potential. Your potential, our passion, says the company. Target tells customers to Expect more. Pay less.

2. 3.

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Goal 1: Explain strategic planning

Step 2: Setting Company Objectives & Marketing Management Goals

The company needs to turn its mission into detailed supporting objectives for each level of management Each manager should have objectives and be responsible for reaching them Example: Engro Chemical Pakistan Limited operates in the chemical fertilizer business. It defines its mission as helping farmers maximize their farm produce by providing quality plant nutrients and technical services upon which they can depend. This mission leads to a hierarchy of objectives, including business and marketing objectives. Goals Long term aims you want to accomplish Objectives concrete attainments that can be achieved by 2-8 following a certain number of steps
Goal 1: Explain strategic planning

Step 2: Setting Company Objectives & Marketing Management Goals

Example: Business objective Build profitable customer relationships by first understanding their farming challenges and then supplying them with balanced and cost effective nutrients at a price that enables the company to get fair return on its investment. This requires Engro to research the general soil conditions & fertilizer usage practices at the farm level, on the one hand, and to use international research and development facilities to come up with products that better serve the needs of farmers. These objectives than become the current marketing objective for the company. Marketing strategies and programs must be developed to support these marketing objectives 2-9
Goal 1: Explain strategic planning

Step 2: Setting the Company Objectives Marketing Goals & Management

Example: Restaurant
Mission Provide to our valued customers high quality food & service in a friendly & courteous manner Objective Fast service, high quality food & friendly service To accomplish these objectives, team has defined specific actions (strategy): Training sessions for fast service, low cholesterol food for quality food and established awards for friendly service (employee of the month)
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Goal 1: Explain strategic planning

3. Designing a Business Portfolio

A business portfolio is the collection of businesses and products that make up the company Business portfolio planning involves two steps:
1. Analyzing the current business portfolio 2. Shaping the future portfolio by developing strategies
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Goal 2: Describe business portfolios and growth strategies

Analyzing the current business portfolio

Evaluating the products/businesses making up the company Put strong resources into its more profitable businesses & drop down the weaker ones

Managements first step is to identify the key

businesses making up the company called strategic business unit (SBU), which can be a company division, a product line within a division or sometimes a single product or brand. The company next assesses the attractiveness of its various SBUs & decides how much support each 2 - 12 deserves
Goal 2: Describe business portfolios and growth strategies

Analyzing the current business portfolio

Each SBU has a separate mission & objective and can be planned independently from other company businesses Best known portfolio planning method was developed by Boston Consulting Group, a lead management consulting firm. Using this company classifies all its SBUs according to Growth Share Matrix A portfolio planning method that evaluates a companys strategic business units in terms of its market growth and relative market share
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Goal 2: Describe business portfolios and growth strategies

BCG Growth Share Matrix

Star: High Growth/High Share businesses or products. Need heavy investment to finance their rapid growth. Eventually growth slows down & turn into cash cows Cash Cow: Low Growth/High Share businesses or products. Successful SBUs / produce a lot of cash that a company uses to support other SBUs that need investment. Question Marks: Low Share/High Growth markets. Require cash to hold their share. Management has to think hard about which question marks it should build to stars and which should be phased out. Dogs: Low Share/Low Growth Rate. They may generate enough cash to maintain themselves but do not promise to be large sources of cash.
Goal 2: Describe business portfolios and growth strategies

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 Once a company has classified its SBUs, the company must determine which role each will play in the future. One of the four strategies can be pursued for each SBU 1. Build This strategy is used for question marks. Low Share/High Growth markets. The company can invest more in its business unit to build its share 2. Hold Good for cash cows. Low Growth/High Share. The company can invest just enough to hold the SBUs share at the current level
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3. Harvest Good for weak cash cows, question marks and dogs The company can harvest the SBU, milking its short term cash flow 4. Divest Good for dogs and question marks The company can divest the SBU by selling it purchasing it out and using the resources else where
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Problems with the Matrix Approach Difficult, time consuming & costly to implement. Management may find it difficult to define SBUs and measure market share and growth. These approaches focus more on classifying current businesses but provide little advice for future planning Now companies prefer customized approaches according to their situation Now strategic planning has been decentralized. Teams and divisional managers are now responsible who are close to the market

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Goal 2: Describe business portfolios and growth strategies

Example: Walt Disney Company Most people think of Disney as theme parks and wholesome family entertainment In mid 1980s Disney set up a powerful, centralized strategic planning group to guide the companys direction & growth. With the passage of time the company turned into a huge and diverse collection of media & entertainment businesses. (including theme resorts, film studio, media network, consumer products etc, which became difficult for the company to manage. Recently Disney disbanded the centralized strategic planning unit , decentralizing its function to Disney division managers
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Shaping the future portfolio by developing strategies for Growth and Downsizing
One useful device for identifying growth opportunities is the product/market expansion grid Market Penetration Market Development Product Development Diversification

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Goal 2: Describe business portfolios and growth strategies

Product/Market Expansion Grid

1. Market Penetration: Strategy for company growth by increasing sales of current product to current market segments without changing the product Example: Star bucks is adding new stores in the current market area to make it easier for more customers to visit. Improvements in advertising, prices, service, menu selection or store design might encourage customers to stop by more often, stay longer, or to buy more during each visit. To get customers hang around longer, star bucks offers wireless internet access in most of its stores
Goal 2: Describe business portfolios and growth strategies

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Product/Market Expansion Grid

2. Market Development: Strategy for company growth by identifying and developing new market segments for current company products
Example #1: Star bucks is expanding into new U.S. markets, especially smaller cities & its expanding rapidly in new global market. (geographical markets) Managers could also review new (Demographic markets) perhaps new groups such as senior groups. Example #2: Geographical markets National expanded into the Middle East and North America more than 15 years back. In 2000, National entered Australia with Raj, a new brand in which the spices and ingredients were toned down to suit the local taste buds. In 2007, National entered the huge Indian market as well. - 21 2
Goal 2: Describe business portfolios and growth strategies

Product/Market Expansion Grid

3. Product Development: Strategy for company growth by offering modified and new products to current market segments Example: National started as a spice producer but over the years added condiments such as tomato ketchup, various Chinese sauces & a variety of pickles to its product line. A new range of products comprising jams and jellies were introduced next. Finally desserts were introduced

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Goal 2: Describe business portfolios and growth strategies

Product/Market Expansion Grid

4. Diversification: Strategy for company growth through starting up or acquiring businesses outside the companys current product & market Example: McDonald's starting of McCafe. Serving coffee and relaxing environment. This is important to attract new market segments, probably customers that go to caf not to satisfy hunger , but possibly to take a sip of coffee & chat in a relaxing environment. --www.mcafecoffee.com
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Goal 2: Describe business portfolios and growth strategies

Product/Market Expansion Grid

Companies must not only develop strategies for growing their business portfolio, but also strategies for downsizing them. Reducing the business portfolio by eliminating products of business units that are not profitable or no longer fit the companys overall strategy In this case, weak businesses require a disproportionate amount of management attention. Managers should focus on promising growth opportunities, not on unprofitable business
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Goal 2: Describe business portfolios and growth strategies

Marketings Role in Strategic Planning

Marketing provides a guiding philosophy the marketing philosophy - states that the companys strategy should revolve around building profitable relationships with important consumer groups. Provides inputs to strategic planners by helping to identify market opportunities and take advantage of them. Within individual business units, marketing designs strategies for reaching the units objectives. Once the objectives are set, marketings task is to help carry them out profitably
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Goal 3: Detail marketing's role in strategic planning

Partnering with other company departments

Each company department can be thought of as a link in the companys value chain. Series of departments carrying out value-creating activities to design, produce, market, deliver, & support a firms products Firms success depends on how well each department performs its work & also on how well the activities are coordinated
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Goal 3: Detail marketing's role in strategic planning

Example: Wal-Marts goal is to create customer value and satisfaction by providing shoppers with the products they want at the lowest possible prices. Marketers at Wal-Mart play an important role. Through various promotional efforts & other activities they help deliver value to customers. The marketing department needs help from the companys other departments. Wal-Marts ability to offer the right products at low prices depends on the purchasing departments skill in developing the needed suppliers & buying from 2 - 27 them at low cost,

Partnering with other company departments

 Wal-Marts information technology department must provide fast and accurate information about which products are selling in each store. Its operations people must provide effective, low cost merchandise handling.

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Partnering with others in the marketing system

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

The network made up of the company, suppliers, distributors, and ultimately, customers who partner with each other to improve the performance of the entire system
Example: Toyota knows the importance of building close relationships with its suppliers. In fact, it even includes the phrase achieve supplier satisfaction in its mission statement.
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Marketing Strategy
The marketing logic by which company hopes to create customer value & achieve profitable relationship with their customers The company decides which customers it will serve (segmentation & targeting) & how it will serve them (differentiation & positioning) Each company must divide up the total market, choose the best segments, and design strategies for profitably serving chosen segments. This process involves market segmentation, market targeting, differentiation and positioning
Goal 4: Describe elements of customer-driven strategy

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Customer-Driven Marketing Strategy

1. Market Segmentation

Dividing a market into distinct groups of buyers who have distinct needs, characteristics, or behavior & who might require a separate products or marketing programs

Market segment
A group of consumers who respond in a similar way to a given set of marketing efforts
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Goal 4: Describe elements of customer-driven strategy

Example: In car market, consumer who want biggest, most comfortable car regardless of price make up one market segment. Consumers who mainly care about price & operating economy make up another segment It would be difficult to make one car model that was the first choice of consumers in both segments

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Goal 4: Describe elements of customer-driven strategy

2. Market Targeting - The process of evaluating each market segments attractiveness & selecting one or more segments to enter A company should target segments in which it can profitably generate customer value and sustain it over time. A company with limited resources might decide to serve only one or few special segments Most companies enter a new market by serving a single segment, and if this proves successful, they add segments Large companies eventually seek full market coverage. For example. General Motors say it makes car for every person, purse & 2 - 33 personality.
Goal 4: Describe elements of customer-driven strategy

3. Market Differentiation & positioning Once a company has decided which segment to enter, it must decide how it will differentiate its market offering for each targeted segment and what positions it wants to occupy in those segments. Market positioning is arranging for a product to occupy a clear, distinctive & desirable place relative to competing products in the mind of the target consumers BMW makes the ultimate driving machine MasterCard gives you priceless experiences
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Goal 4: Describe elements of customer-driven strategy

3. Market Differentiation & positioning Market differentiation means actually differentiating the market offering to create superior customer value

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Goal 4: Describe elements of customer-driven strategy

Marketing Mix
After deciding overall marketing strategy, the company is ready to plan marketing mix The marketing mix includes controllable and tactical marketing tools knows as the 4Ps The 4Ps include
Product Place Promotion Price

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Goal 4: Describe elements of customer-driven strategy

Marketing Mix
Product Goods & services combination the company offers to the target market Price Amount of money customers have to pay to obtain the product Place Company activities that make the product available to target consumers Promotion Activities that communicate the merits of the product and persuade target customers to buy it
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Goal 4: Describe elements of customer-driven strategy

Managing the marketing process requires the four marketing management functions 1. Market Analysis Involves complete analysis of companys situation, for which SWOT analysis is conducted

Managing the Marketing Effort

An overall evaluation of the companys strengths (S), weaknesses (W), opportunities (O) and threats (T).
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Goal 5: List the marketing management functions

 Strengths include internal capabilities, resources & positive situational factors that may help the company to serve its customers & achieve its objectives Weaknesses include negative situational factors that may interfere with the companys performance Opportunities are the favorable external factors organization may take advantage of Threats are unfavorable external environment that may present challenges 2 - 39
Goal 5: List the marketing management functions

Managing the Marketing Effort

Managing the Marketing Effort

The goal is to match the companys strengths to attractive opportunities in the environment, while eliminating or overcoming the weaknesses & minimizing the threats

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Goal 5: List the marketing management functions

2. Marketing Planning Involves deciding on marketing strategies that will help the company attain its overall strategic objectives A detailed marketing plan is needed for each business, product, or brand

Managing the Marketing Effort

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Goal 5: List the marketing management functions

Managing the Marketing Effort

Marketing plan of a typical product or brand involves: Executive summary Detailed SWOT analysis Objectives & specifics of the marketing strategies for achieving those objectives

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Goal 5: List the marketing management functions

Managing the Marketing Effort

Marketing strategy consist of specific strategies for target markets, positioning, the marketing mix. It outlines how the company intends to create value for target customers in order to capture value in return

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Goal 5: List the marketing management functions

3. Marketing Implementation A good marketing strategy counts a little if the company fails to implement it properly The process that turns marketing strategies and plans into marketing actions in order to accomplish strategic marketing objectives

Managing the Marketing Effort

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Goal 5: List the marketing management functions

Successful marketing implementation depends on how well the company blends its people, organizational structure, decision and reward systems, and company culture into a cohesive action program that supports its strategies, therefore the following factors should be kept under consideration: 1. At all levels, company must be staffed by people who have the needed skills, motivation & personal characteristics
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Managing the Marketing Effort

Goal 5: List the marketing management functions

Managing the Marketing Effort

2. Companys formal structure plays a very important role in implementing marketing strategy 3. Firms marketing strategies must fit with its companys culture

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Goal 5: List the marketing management functions

Marketing Department Organization

The company must design a marketing organization that can carry out marketing strategies & plans The most common form of marketing organization is the functional organization. Under this organization, different marketing activities are headed by a functional specialist a sales manager, advertising managers etc
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Goal 5: List the marketing management functions

Marketing Department Organization

A company that sells across the country or internationally often uses a geographic organization. Allows salespeople to settle into a territory, get to know their customers, and work with a minimum of travel time & cost Companies with many very different products or brands often create a product management organization. Using this approach, a product manager develops & implements a complete strategy & marketing program for a specific product or 2 - 48 brand

Goal 5: List the marketing management functions

Marketing Department Organization

For companies that sell one product line to many different types of markets & customers that have different needs and preferences, a market or customer

management organization might be best

Large companies that produces many different products flowing into many different geographic and customer markets usually employ some combination of the functional, geographic, product, and market organization forms.
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Goal 5: List the marketing management functions

4. Marketing Control The process of maintaining & evaluating the results of marketing strategies and plans and taking corrective action to ensure that objectives are achieved Marketing control involves 4 steps:

Managing the Marketing Effort

1. Management first sets specific marketing goals

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Goal 5: List the marketing management functions

2. Measures its performance in the marketplace & evaluates the causes of any differences between expected & actual performance 3. Management takes corrective action to close the gaps between its goals and its performance

Managing the Marketing Effort

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Goal 5: List the marketing management functions

Measuring & Managing Return on Marketing Investment

Return on marketing investment (ROI) The net return from a marketing investment divided by the costs of the marketing investment
It measures the profits generated by investments in the marketing activities

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Goal 5: List the marketing management functions

Measuring & Managing Return on Marketing Investment

A company can access return on marketing in terms of standard marketing performance measures, such as brand awareness, sales, or market share Beyond standard performance measures, marketers are using customer centered measures of marketing impact, such as customer acquisition, customer retention, and customer lifetime value
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Goal 5: List the marketing management functions

Measuring & Managing Return on Marketing Investment

Marketing investments should be such that it results in improved customer value and satisfaction, which in return increases customer retention and attraction. This increases individual customer lifetime values and the firms overall customer equity. Increased customer equity, in relation to the cost of the marketing investments, determines return on marketing investment.
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Goal 5: List the marketing management functions