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MARKETING STRATEGY

STRATEGIC PLANNING
the process of developing and maintaining a fit between an organization's goals and the dynamic environment

In doing this, you're trying to adjust the organization's internal controllable factors, the marketing mix, to best fit its internal resources to the external uncontrollable environment. 


MISSION STATEMENT
a statement of the organization's purpose:

  • the type of customer it wishes to serve
  • the specific needs of these customers
  • other constituencies and their needs
  • the means by which it will serve the needs of customers and other constituencies
  • the philosophy of doing business

"Constituencies" or "stockholders" means those who are affected by a business.  Customers are affected by a business, but so are the owners, shareholders, members of the local community, and all of society.  You might be selling hamburgers so that you can afford to put your own kids through college; I might be selling hamburgers on a part-time basis only at special events as a means to raise money for a local charity.  Our reasons for being in business are different, and our mission statements should clearly reflect this difference.

A good mission statement is a crucial first step to planning.  A bad mission statement can only lead to bad strategy.  Common problems include:

  • mis-defined product and goals
  • lack of appropriate focus

Consider this mission statement: "We strive to make the best hamburger in the industry." 

What does "best" mean?  How can we measure the achievement of this goal if we cannot even define it?  Customers who are traveling want a sandwich that is quick and that doesn't slip apart while eating and driving.  Customers with families want to place an order that meets the variety of needs of family members.  Families with children probably need food that is served quickly and need a wholesome and engaging environment for children. Customers who are business colleagues meeting after hours and customers who are on a late night date might want a hamburger that is served in an environment that includes alcohol and loud music and don't want to feel rushed by fast service.  This mission statement doesn't define the product with respect to the needs and wants of any particular target audience and so is unlikely to meet the needs of anyone.  For that matter, this mission statement doesn't even tell us if this is an organization that runs a restaurant or if it is a meat packing plant.

The goal of "making the best hamburger in the industry" doesn't tell us why this organization is in business. . Who are its constituencies?  In addition to customers, is it attempting to serve the needs of the owners, of shareholders, of the local community, or of society?  Is it attempting to gain market share to be the biggest competitor?  Is it instead more interested in maximizing profits for shareholders?  Is it instead less concerned about either of these goals and concerned most with being able to provide jobs for people in the local community?  Perhaps it is in the business of making profits that can be returned to society in the form of supporting hospital burn units for children.  This vague mission statement leaves us clueless as to why this organization wants to make hamburgers.

Although this mission statement is too short, mission statements are just as often too long.  If you cannot state why you are in business and where you are going with that business in a single breath, then you don't know where you are going.  And if you don't know where you are going, you will never get anywhere and any road will get you there. 

Some organizations will outline longer term hopes and dreams in a vision statement.  This more lofty statement is OK if you have a surplus of time and employees to ponder idealistic aspirations, but it is not of much value unless you first have a concise mission statement.


GOALS AND STRATEGY

Some folks differentiate between the terms "goals" and "objectives," but we won't.

organizational goals
specific, measurable objectives that an organization seeks to achieve

marketing strategy
the means by which a marketing goal is to be achieved

marketing tactics
detailed, day-to-day operational decisions essential to the overall success of marketing strategies

Tactics are the implementation of marketing strategy.


SETTING OBJECTIVES AND STRATEGIES

An organization will have some personal objectives, but it will also have some objectives that are set on the basis of assessing external environmental opportunities and threats.  These objectives and strategies could include:

  • market penetration
    increase sales in a market that is growing or not yet saturated
  • market development
    widen market, attract new segments
  • product development
    develop new or modified products to appeal to present markets
  • Diversification
    develop new SBUs or new products aimed at new markets


ENVIRONMENTAL SCANNING
the process of collecting information about the marketing environment

Such knowledge helps marketers to identify market opportunities as well as threats and assists in planning. Opportunities must sometimes be exploited during strategic windows.

Environmental scanning is a necessary prerequisite to an annual marketing plan.


SWOT ANALYSIS

The conclusion that some particular marketing mix would be best suited for an organization's internal resources and the external environment is based on an assessment of analysis of these internal resources and of the external environment. 

In assessing the organization's internal resources, we need to look assess its internal

  • strengths
  • weaknesses

Consider what the firm has in the way of:

  • core competencies
    things that a firm does extremely well; capabilities that customers value

  • distinctive competencies
    things that a firm does better than most competitors, giving it a competitive advantage

  • sustainable competitive advantages
    advantages that are difficult to copy by competitors

We also need to assess external environmental

  • opportunities
  • threats

The external environment is dynamic, or constantly changing; this is why we must constantly be doing an environmental scan.  The external environment provides windows of opportunity, limited periods of time when an opportunity will exist within the panning time horizon.  We are also interested in identifying constraints and vulnerabilities that we might face in the environment.  In devising strategy, we are attempting to navigate the organization toward windows of opportunity and around environmental threats.


COMPONENTS OF A MARKETING PLAN

A marketing plan could be a simple document of a few pages for a small business or could be hundreds of pages for the launch of a single product in a larger business.  As a generalization, a marketing plan has a time horizon of a year; five years is considered to be long term planning and planning even farther into the future is difficult.  the reason for one year as a typical time horizon is that the environment is constantly changing; you have to shoot for something that is likely to still be there when you arrive.  If you cycle planning for more than once each year, you might be spending too much time planning and not enough time doing anything.

Not all plans will match the outline below; this is just a general list of components.  A brief annual plan done by a small business owner might not need sections for budgets or evaluation and control, and it certainly wouldn't require an executive summary.  For a small business, the marketing plan might primarily be just be a simple situation analysis or SWOT analysis with the inclusion of an assessment of internal resources and a conclusion regarding strategy.  Note that a SWOT analysis is NOT a complete marketing plan, but rather might be part of a marketing plan.

The typical components of a marketing play would include

  • mission statement

  • executive summary (only on a longer document)

  • situation/environmental assessment

  • SWOT analysis

  • objectives

  • strategy

  • implementation/action programs

  • budgets

  • evaluation and control

Note: there is no set outline which will work for all situations; the above is a generic sort of outline.


PRODUCT PORTFOLIO MANAGEMENT

Although a business should be able to identify some core business, the core business is often a collection of smaller business units.  Your corner gas station might make some profit from gasoline sales, but the gasoline might really function as a draw to your more profitable repair business.  Additionally, you might also make good profits from convenience items sold in vending machines.  Each of these is really a separate business  Product that is sold in each is received through different channels of distribution.  The way that products are priced and the profits on products in each of these businesses is different.  The customers for each business are different - the locals who trust you and frequent your business for oil changes might consider the prices on your soft drinks to be too high, while the interstate travelers who buy your cold soft drinks on a hot day might consider your soft drink prices to be a bargain. 

These lines of business together make you profitable; together, they make up your product portfolio.  Each individual business should be considered as a separate profit center; we call these strategic business units or SBUs.

Business Portfolio
the collection of businesses and products that make up the company

Portfolio Analysis
a tool by which management identifies and evaluates the various businesses that make up the company

Strategic Business Unit (SBU)
a unit of the company that has a separate mission and objectives and that can be planned independently from other company businesses;

a division, product line, or other profit center within the parent company

Note: an SBU can be a company division, a product line within a division, or perhaps even a single product or brand.


PRODUCT PORTFOLIO ANALYSIS
analyzing a firm's individual products as though they are a collection of separate investments

BCG Growth-Share Matrix
based on the philosophy that a product's growth rate and relative market share are important considerations in strategy

idea: fund the growth of promising new products from profits of established products

assumption: that market share increases result in profit increases

Note: this assumption is an interesting idea and can be useful as a guide to understanding strategy, but many marketing scholars do not accept this assumption.


BCG GROWTH-SHARE MATRIX

some definitions:

market growth rate:
the annual rate of growth of the specific market or industry in which a given SBU is competing

relative market share:
sales of the SBU divided by the sales of the largest firm in the industry

Strategic Business Unit: (SBU)
separate profit centers in an organization, treated as though each is a separate, independent business


BCG Growth-Share Matrix

Stars:
products which have a relatively high market share in a high growth industry.

Assumption: if we still have a relatively high market share when the market is saturated (industry growth stagnates), then we will have relatively high profits in the industry; it will be expensive for competitors to take sales (m.s.) away from us. It is, therefore, worth while to inject funds into building star products.


BCG Growth-Share Matrix

Problem children:
products which show promise due to high industry growth, but which have relatively low market share within that industry.

Assumption: we will have to dig into the profits of other products in the portfolio to build the market share of this product so that it will have relatively high market share by the time industry growth slows. This might be difficult and too costly to be worthwhile.


BCG Growth-Share Matrix

Cash cows:
products which have reached market dominance (high relative market share) in a market in which industry growth is slow or stagnant.

Assumption: relatively high market share correlates with relatively high profits. Since it is more costly for competitors to take m.s. away from us than for us to maintain high m.s., we have higher profits. Cash cows generate high profits which are used to build rising stars or problem children.

Note that the idea behind portfolio analysis from the BCG perspective is to fund the growth of promising new product development and launch from the profits of successful products in the portfolio of products.


BCG Growth-Share Matrix

Dogs:
products with low relative market share in low a growth industry

Assumption: that we are at a competitive disadvantage in that it would be very difficult and costly to gain sales by increasing m.s.


ALTERNATIVE OBJECTIVES

build
increase the SBUs market share through injections of cash - even though this might affect short term profits

hold
maintain the SBUs market share without appreciably altering the cash that it uses

harvest
increase the SBUs short-term cash output, even if this results in a loss of market share

divest
sell the SBU to put its cash, physical, and human resources to use elsewhere in the firm


PORTER'S GENERIC STRATEGY MODEL

  • cost/price leadership strategy
    large, broad target market; economies of scale; low prices

  • differentiation strategy
    products are perceived to be different from competitors

  • focus strategy
    products meet the needs of a narrow market with needs that are unsatisfied by competitors (cf., niche strategy


EXPERIENCE CURVE STRATEGIES

  • skimming strategy
    price high to maximize profits in the short run; use if you have BCG question mark that is not expected to gain or hold market share.

  • penetration strategy
    use tactics such as low prices to gain customers and gain market share in order to gain pioneering advantages in the marekt place.

When "riding the experience curve", you keep your prices close your costs.  As you gain experience in producing and selling the product, your costs should go down (experience curve effects) and prices should be lowered accordingly.  If you keep lowering your prices as your costs decrease, you will under many circumstances gain more new customers, and this higher sales spirals into even lower costs.  The strategy is to gain as many of these customers as possible (penetration) before the next competitor has an opportunity to launch a competing product.  By the time the competitor launches a substitute product, your prices are lower than the competitor's costs (what yours were when you first launched), creating a financial barrier to the competitor's entry.  If you block competitors, you should be able to enjoy higher market share as the industry or product class matures, and this should lead to higher profits.


edited 5 JUN 05