Marketing 444: Marketing Strategy Test 1

Value-based Planning

A resource allocation tool that attempts to address such questions by assessing the shareholder value a given strategy is likely to create. It provides a basis for comparing the economic returns to be gained from investing in different businesses pursuing different strategies or from alternative strategies that might be adopted by a given business unit.

2. Understand a firm's mission and its role in defining the firm's scope and the influence marketing plays in defining the mission, including Exhibit 2.2 (pages 24-38)

A well thought out mission statement guides an organization's managers as to which market opportunities to pursue and which fall outside's the firm's strategic domain. What is our business? Who are our customers? What kinds of value can we provide to these customers? What should our business be in the future?

Industry

group of firms that offer a product or class of products that are similar and are close substitutes for one another.

Objectives

specifies the goals to be accomplished in terms of sales volume, market share, and profit.

Goals and Objectives

strategies also should detail desired levels of accomplishments on one or more dimensions of performance—such as volume growth, profit contribution, or ROI—over specified time periods for each of those businesses and product-markets and for the organization as a whole.

o Differentiation

strong core business; actively seeking to expand into related product-markets with differentiated offerings.

o Cost leadership

strong core business; actively seeking to expand into related product-markets with low-cost offerings.

Marketing strategy

summarizes overall strategic approach that will be used to meet the plan's objectives

Current situation and trends

summarizes relevant background info on the market, competition, and the macro environment, and trends therein, including size and growth rates for the overall market and key segments.

Growth-Market Strategy

target one or more fast-growth segments. Favored by smaller companies to avoid direct confrontations with larger firms while building volume and share. Sell more or less identical products wherever they go.

• Focus

the business avoids direct confrontation with its major competitors by concentrating on narrowly defined market niches.

Market Segmentation

the process by which a market is divided into distinct subsets of customers with similar needs and characteristics that lead them to respond in similar ways to a particular product offering and marketing program.

Corporate identity

together with a strong corporate brand that embodies that identity---can help a firm by an organization. It is shaped by the firm's mission and values, its functioning competencies, the quality and design of its good and services, it marketing communications, the actions of its personnel, the image generated by various corporative activities, and other factors.

• Broad- ex

transportation business

Scope, mission, and intent

what businesses should the firm be in? What customer needs, market segments, and/or technologies should be focused on? What is the firm's enduring strategic purpose of intent?

Sources of synergy

what competencies, knowledge, and customer-based intangibles might be developed and shared across the firm's businesses? What operational resources, facilities, or functions might the firm's businesses share to increase their efficiency?

Source of competitive advantage

what human, technical, or other resources or competencies available to the firm provide a basis for s sustainable competitive advantage?

Objectives

what performance dimensions should the firm's business units and employees focus on? What is the target level of performance to be achieved on each dimension? What is the time frame in which each target should be attained?

a. Contribution per unit (Class Slides and Marketing Analysis Toolkit

Breakeven analysis, page 2)

c. Breakeven quantity (Class Slides and Marketing Analysis Toolkit

Breakeven analysis, page 2)

Early Majority

34%. Less leadership than early adopters. Not risky. Want to be sure a product will prove success.

f. New breakeven quantity due to changes in selling price, variable cost, and fixed cost (Marketing Analysis Toolkit

Breakeven analysis, pages 4-6)

Defender

Appropriate for units with a profitable share. Works best in industries where the basic technology is not very complex or where it is well-developed and unlikely to change dramatically over the short-term.

Surveys/Focus Groups

Asked how likely they are to buy a product. Buyers can also be asked about their current buying behavior. What people say is not always what they do. Not very good indicator.

Market Oriented

Characterized by a consistent focus by personnel in all departments and at all levels of customer's needs and competitive circumstances in the market environment. Willing and able to quickly adapt products and functional programs to fit changes in the environment. Pay a great deal to customer research before products are designed and produced. They deal with market segmentation.

e. Step 5

Choose segments to target and allocate resources. Understand the implications for each of the alternative positions in the market attractiveness/competitive position matrix (Exhibit 6.11)

Understand the factors that mediate market orientation

Competitive conditions may enable a company to be successful in the short run without being particularly sensitive to customer desires. Different levels of economic deployment across industries or countries may favor different business philosophies. Firms can suffer from strategic inertia—the automatic continuation of strategies successful in the past, even though current market conditions are changing.

Product Oriented

Competitive conditions some firms face enable them to be successful in the short term without paying much attention to their customers, suppliers, distributors, and other organizations. Businesses facing such market and competitive conditions are often production-oriented. They focus most of their attention and resources on such functions as product and process engineering, production, and finance in order to acquire and manage the resources necessary to keep pace with growing demand.

• SBU

Components of a firm engaged in multiple industries or businesses.

Market

Composed of individuals or organizations that are interested in and willing to buy a good or service to obtain benefits that will satisfy a particular want or need and have the resources to engage in such a transaction.

Dogs

Low-share businesses in low-growth markets. Generate low profits, or losses. Try to maximize short-term cash flow by paring investments and expenditures until the business is gradually phased out.

o Service businesses

Days Inn (minimizing cost) vs. Marriot (differentiate their offerings on a basis of high service quality or unique benefits) different but still service

Observation

Evidence-based—directly observe or gather existing data about what real customers do in the product-market of interest. Attractive because it is based on what people actually do. Faster and cheaper if found in a database. Bad if the product doesn't actually exist yet.

Understand each of the components of a marketing plan

Exhibit 1-10

1. Understand the corporate strategy components and issues

Exhibit 2.1 (page 33)

Understand the cash flows recommended by the BCG matrix

Exhibit 2.7

Question Marks

High growth industries with low relative market shares. Require large amounts of cash for expansion to keep up with the rapidly growing market, but also for marketing activities to build market share and catch the industry leader. "Problem Child."

Cash Cows

High-relative share of low-growth markets. Generators of profits and cash in a corporation. Their markets are stable, and their share leadership position usually means they enjoy economies of sale and relatively high profit margins.

Business-Level Strategy

How a business unit competes within its industry is the critical focus of business-level strategy. A major issue in a business strategy is that of sustainable competitive advantage. What distinctive competencies can give the business unit a competitive advantage? Which of those competencies best match the needs and wants of the customers in the businesses target market?

Increasing Penetration of Current Product-Markets

Increasing its share of existing markets. This typically requires actions such as making product or service improvements, cutting costs and prices, or outspending competitors on advertising or promotions.

Shared Resources

Inherent in sharing operational resources, facilities, and functions across business units.

• Analyzer

Intermediate. Makes fewer and slower product-market changes than prospectors but it is less committed to stability and efficiency than defenders.

Judgment

Intuition. Hard being compared to evidence-based methods.

Diversifying

Involves learning new operations and dealing with unfamiliar customer groups.

Limitations

It is not a substitute for strategic planning; it is only one tool for evaluating strategy alternatives identified and developed through managers' judgments. It does so by relying on forecasts of many kinds to put a financial value on the hopes, fears, and expectations managers associate with each alternative. Inaccurate forecasts can create problems in implementing value-based planning.

• Reactor

Lacks any well-defined competitive strategy. Units with no clearly defined product-market development.

• Defender

Locate and maintain a secure position in relatively stable product or service areas. Relatively limited range of products or services compared with competitors.

Understand how objectives enhance shareholder value and the marketing implications of corporate objectives

Management's primary objective should be to pursue capital investments, acquisitions, and business strategies that will produce sufficient future cash flows to return positive value to shareholders. Two marketing managers being responsible for different products may face very different goals and expectations—requiring different marketing strategies to accomplish—even though they work for the same organization. Firms are focusing on customer-focused objectives—such as satisfaction, retention and loyalty.

Corporate Strategy

Managers must coordinate the activities of multiple business units and, in the case of conglomerates, even separate legal business entities. Decisions about the organization's scope and resource deployments across its divisions or businesses are the primary focus of corporate strategy.

Understand the limitations of the BCG matrix

Market growth rate is an inadequate descriptor of overall industry attractiveness. Market growth is not always directly related to profitability or cash flow. Some things Rapid growth in one year is no guarantee in the following year. Relative market share is inadequate as a description of overall competitive strength. Market share is more properly viewed as an outcome of past efforts to formulate and implement effective business-level and marketing strategies than as an indicator of enduring competitive strength. The external environment can change causing the business's relative market share to shift. The outcomes of a growth-share analysis are highly sensitive to variations in how growth and share are measured. Defining the relevant industry and served market also present problems. Pepsi vs. coke or Pepsi vs. coke, iced tea, bottled water. Etc.While the matrix specifies appropriate investment strategies for each business, it provides little guidance on how best to implement those strategies. While the model suggests that a firm should invest cash in its question mark businesses, for instance, it does not consider whether there are any potential sources of competitive advantage that the business can exploit to successfully increase its share. Having money doesn't guarantee improvement in matrix.The model implicitly assumes that all business units are independent of one another except for the flow of cash. If this assumption is inaccurate, the model can suggest some inappropriate resource allocation decisions. Harvesting might increase costs or reduce effectiveness.

Stars

Market leader in a high-growth industry. Critical to success of the firm. As their industries mature, they move into the bottom-left and become cash cows. Net users rather than suppliers of cash in the short-run. The firm must continue to invest in such businesses to keep up with rapid market growth and to support the R&D and marketing activities necessary to maintain a lead.

Selling Existing Products to New Segments or Countries

May involve the creating of marketing programs aimed at nonuser or occasional-user segments of existing markets. Growth opportunities.

o Global competitors

Must continue to strengthen and defend their competitive position in their home country—and perhaps in other countries where they are well established—while simultaneously pursuing expansion and growth in new international markets.

Experiments/Market Tests

New consumer products. Expensive to conduct. Online experiments.

Analogy

New product forecasting. Compared with similar historical data that's available. Consider related products for comparison. Can be expensive. New product and pricing isn't known.

Identification of a Sustainable competitive advantage

One important part of any strategy is a specification of how the organization will compete in each business and product-market within its domain. How can it position itself to develop and sustain a differential advantage over current and potential competitors? Managers must examine the market opportunities in each business and product-market and the company's distinctive competencies or strengths relative to competitors.

Prospector

Particularly well suited to unstable, rapidly changing environments resulting from new technology, shifting customer needs, or both. Industries tend to be at the early stage of their life cycles and offer many opportunities for new product-market entities.

Define marketing concept and its implication to marketing

Planning and coordinating all company activities around satisfying customer needs. Effective means to attain and sustain a competitive advantage and achieve company objectives. Consistent focus by personnel in all departments and at all levels.

Developing New Products for Current Customers

Product development strategy emphasizing the introduction of product-line extensions or new product or service offerings aimed at existing customers.

d. Step 4

Project future position of each segment

Define strategy and understand the five components of strategy (pages 6-7)

Strategy: a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organization with markets, competitors, and other environmental factors.

Synergy

Synergy exists when the firm's businesses, product-markets, resource deployments, and competencies complement and reinforce one another. Synergy enables the total performance of the related businesses to be greater than it would otherwise be: The whole becomes greater than the sum of its parts.

Scope

The breadth of its strategic domain—the number and types of industries, product lines, and market segments it competes in or plans to enter. Decisions about the scope should reflect management's view of the firm's purpose or mission. This common thread among its various activities and product-markets defines the essential nature of what its business is and what it should be.

Knowledge-based

The performance of one business can be enhanced by the transfer of competencies, knowledge, or customer related intangibles—such as brand-name recognition and reputation—from other units within the firm.

Understand what is marketing's role in formulating and implementing strategies

The primary strategic responsibility of any manager is to look outward continuously to keep the firm or business in step with changes in the environment.

Identify a homogenous segment that differs from other segments

The process should identify one or more relatively homogenous groups of prospective buyers with regard to their wants and need and or their likely responses to differences in the elements of the marketing mix.

Specify criteria that define the segment

The segmentation criteria should measure or describe the segments clearly enough so that members can be readily identified and accessed, in order for the marketer to know whether a given prospective customer with advertising or other marketing communication messages.

Determine segment size and potential

The segmentation process should determine the size and market potential of each segment for use in prioritizing which segment to pursue.

c. Step 3

Understand how to rate segments on each factor and plot on matrix (Exhibit 6.9)

b. Step 2

Understand how to weight each factor

a. Step 1

Understand the factors underlying market attractiveness and competitive position (Exhibit 6.8)

• Prospector

Units primarily concerned with attaining growth though aggressive pursuit of new product-market opportunities.

Statistical Methods

Use past history and various statistical techniques, such as multiple regression time series analysis, to forecast the future based on an extrapolation of the past. Useful in established firms. Statistical methods generally assume that the future will look very much like the past. Not always the case.

Essential questions

What businesses are we in? What businesses should we be in? What portion of our total resources should we devote to each of these businesses to achieve the organizations overall goals and objectives?

Top-down

a central person or persons take the responsibility for forecasting and prepare an overall forecast, perhaps using aggregate economic data, current sales trends, or other methods.

Late Majority

another 34%. Adopt because they are forced to do so because of economic or social reasons. Participate in community activities less. Rarely assume leadership roles.

• Lifestyle

based on consumer activities, interests, and opinions—otherwise what they do or believe, rather than who they are in the demographic sense.

• Differentiation

building customer perceptions of superior product quality, design, or service.

• Competitive Position

can we differentiate? Perform against CSF? Is the timing right? Do we have the resources? Brand image and relative market share? Attractiveness of industry: porter's 5 forces. Industry capacity.

Bottom-up

common in decentralized firms—each part of the firm prepares its own sales forecast, and the parts are aggregated to create the forecast for the firm as a whole.

o Differentiation

concerned with maintain a differentiated position in mature markets

o Cost leadership

concerned with maintain a low-cost position in mature markets.

• Market Attractiveness

customer needs and behavior. Unmet or undeserved needs we can satisfy? Market segment size and growth potential (units, revenue, number of prospective customers. Macro trends favorable?

• Consumer Needs

customer needs are often expressed in benefits sought from a particular product or service.

Niche-Market Strategy

customers seeking somewhat specialized benefits.

Contingency plans

describes actions to be taken if specific threats or opportunities materialize during the planning period.

Mass-Market Strategy

designing a single product-and-marketing program that will appeal to the largest number of consumers in order to capture sufficient volume to gain economies of sale and a cost advantage. Requires substantial resources.

Controls

discusses how the plan's progress will be monitored

Market Segments

distinct subsets of people with similar way to particular product or service offering or to particular strategic marketing program.

Brand Positioning

entails designing product offerings and marketing programs that can establish an enduring competitive advantage in the target market by creating a unique brand image, or position, in the customer's mind.

Resource Deployments

every organization has limited financial and human resources. Formulating a strategy also involves deciding how those resources are to be obtained and allocated across businesses, product-markets, and functional departments and activities within each business or product-market.

Performance review

examines the past performance of the product

Innovators

first 2.5 percent of individuals who ultimately adopt a new product. High incomes and risk takers.

Synergy

focusing on synergy across product-markets and across functional departments within the business.

Action plans

helps to ensure effective implementation and coordination of activities across functional departments. Target market to be pursued, specific actions regarding the four P's, who is responsible for each action, when the action will be engaged, how much will be budgeted.

Development strategy

how can the firm achieve a desired level of growth over time? Can expanding the firm's current businesses attain the desired growth? Will the company have to diversify into new businesses or product-markets to achieve its future growth objectives?

Appropriate Scope

how many and which market segments to compete in and the overall breadth of product offerings and marketing programs to appeal to these segments.

Resource allocation

how should the firm's limited financial resources be allocated across its businesses to produce the highest returns? Of the alternative strategies that each business might pursue, which will produce the greatest returns for the dollars invested?

Analyzer

hybrid. Concerned with defending—via low costs or differentiation in quantity or service—a strong share position in one or more established product markets. Appropriate for well-developed industries that are still experiencing some growth and change as a consequence of evolving customer needs and desires or continuing technological improvements.

Key issues

identifies the main opportunities and threats to the product that plan must deal with in the coming year and the relative strengths and weaknesses of the product and business unit that must be taken into account

• Product Usage and Purchase Influence

in some markets a small proportion of potential customers makes a high percentage of all purchases. For the product category purchase influence is relevant for both consumer and organizational markets.

Globalization

international markets account for a large and growing portion of the sales of many organizations.Increased importance of service; service businesses account for two-thirds of all economic activity in the United States.

Laggards

last 16%. Stubbornly resistant to change. Adoption very late.

Forward Vertical Integration

occurs when a firm moves downstream in terms of the product flow, as when a manufacturer integrates by acquiring or laughing a wholesale distributor or retail outlet.

Backward Vertical Integration

occurs when a firm moves upstream by acquiring a supplier.

Projected profit-and-loss statement

presents the expected financial payoff from the plan

• Broad- ex

railroad business

Early Adopters

represent the next 13-14%. Local scene and are often opinion leaders.

Target Marketing

requires evaluating the relative attractiveness of various segments in terms of market potential, growth rate, competitive intensity, and other factors, along with the firm's mission and capabilities to deliver what each segment wants, in order to choose which segments it will serve.

Executive summary

short overview of the issues, objectives, strategy, and actions incorporated in the plan and their expected outcomes for quick management review.