MARKETING

CHAPTER NO. 2

COMPANY & MARKETING STRATEGY

Partnering to Build Customer Relationship

PREPARED BY

UMAIR

LEARNING OBJECTIVES Understand company-wide strategic

planning and its four steps. Learn how to design business portfolios

and develop strategies for growth and downsizing.

Understand marketing’s role in strategic planning and how marketers partner with others.

Cont’d Be able to describe the marketing process and the

forces that influence it. Learn the marketing management functions,

including the elements of the marketing plan & discuss the importance of measuring & managing return on marketing.

STRATEGIC PLANNING STRATEGY: The alignment of your

processes, resources, and organizational structure to maximize benefits

PLANNING:Planning stage includes setting goals & designing ways to achieve these goals.

DEFINITION

“The process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities.”

It involves defining a clear company mission, setting supporting objectives, designing a sound business portfolio, & coordinating functional strategies.

Cont’d Planning which focuses on longer range

objectives and goals. It is essentially direction-setting and focuses on new products and new markets.

STRATEGIC PLANNING Strategic Planning include:

1. Defining the company mission

2. Setting company objectives and goals

3. Deciding what portfolio of businesses and products is best for the company

4. Developing detailed marketing plans for each product.

STEPS IN STRATEGIC PLANNING

1. DEFINING A MARKET-ORIENTED MISSION

MISSION STATEMENT:

“A Mission Statement of the organization’s purpose—what it wants to accomplish on the largest environment”

OR

“A statement of purpose

an organization is to carry out”

Cont’d

E.g. Walt Disney Company “making people happy”; Microsoft “information at your fingertips”

MARKET-ORIENTED Vs PRODUCT-ORIENTED MISSION STATEMENT

“ A market-oriented mission statement defines the business in terms of satisfying customer needs”

“Mission statements defined in terms of product or technology”

Company Product-Oriented Market-OrientedDisney We run theme

parksWe create fantasies—a place where America still works the way it’s supposed to.

Revlon We make cosmetics

We sell life-style & self-expression; success & status; memories, hopes & dreams.

Encyclopedia Britannica

We sell encyclopedias

We distribute information.

Amazon.com

We sell books, videos, CDs, toys, consumer electronics, hardware, housewares and other products.

We make the internet buying experience fast, easy and enjoyable—we are the place where you can find and discover anything you want to buy online.

America online We provide online services.

We create consumer connectivity anytime, anywhere.

eBay We hold online auctions

We connect individuals buyers & sellers in the world’s online marketplace, a unique web community in which they can shop around, have fun, and get to know each other

Home Depot We sell tools & home repair & improvement items.

We provide advice & solutions that transform ham-handed home owners into Mr. & Mrs. Fixits.

Wal-Mart We run discount stores.

We deliver low prices everyday.

Ritz-Carlton Hotels We rent rooms. We create the Ritz-Carlton experience—one that enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.

Nike We sell shoes. We help people experience the emotion of competition, winning, and crushing competitors.

Xerox We make copying equipment.

We help improve office productivity.

Columbia pictures We make movies. We market entertainment

Kodak We make cameras & films.

We help preserve beautiful memories.

Levi-Strauss We make blue jeans.

We offer comfort, fashion & durability in wearing apparel.

Hewlett-Packard We make computer printers.

We improve the effectiveness of individuals & organizations by helping customers acquire, display, analyze, communicate, store & manage information.

Caterpillar We make construction machinery.

We help build the world’s infrastructure.

Strategic Planning Mission statements should . . .

serve as a guide for what the organization wants to accomplish.

be “market-oriented” rather than “product-oriented”.

be neither too narrow, nor too broad. fit with the market environment. be motivating.

2-SETTING COMPANY’S OBJECTIVES & GOALS Mission statements guide the development

of objectives and goals. Objectives are developed at each level in the

organization hierarchy. Strategies are developed to accomplish these

objectives.

Cont’d E.g. increasing sales or reducing cost to increase

profit; sales can be increased by improving the company’s share in the home country or entering a new foreign market; market share can be increased by increasing productivity, promotion or cutting prices.

The objectives should be specific. E.g. “increasing the market share to 15 percent by the end of the second year.”

ONCLUSION

“It is more important to do what is strategically right than what is immediately profitable”

Developing strategies for growth and downsizing:

One useful device for identifying growth opportunities is the product/market expansion grid.

Product/market expansion grid:Product/market expansion grid:A portfolio-planning tool for identifying company growth opportunities through market penetration, market development.product development, or diversification.

Market Penetrations:A strategy for company growth by increasing sales of current products to current market segments without changing the product.

Market Development:Market Development:A strategy for company growth by identifying and developing new market segments for current company products.

Product Development:

A strategy for company growth by offering modified or new products to current market segments.

Diversification:Diversification:A strategy for company growth through starting up or acquiring businesses in new products and new markets.

.

Product/Market Expansion Grid:Product/Market Expansion Grid:

Existing New

products products

Existing 1. Market 3. Product

markets penetration development

New 2. Market 4. Diversification

markets development

.

Product/Market expansion grid is used to identify growth opportunities for the company.

.

Product/Market Expansion Grid:Product/Market Expansion Grid:

Existing New

products products

Existing 1. Market 3. Product

markets penetration development

New 2. Market 4. Diversification

markets development

.

Product/Market expansion grid is used to identify growth opportunities for the company.

Downsizing:Reducing the business portfolio by eliminating products or business units that are not profitable or that no longer fit the company’s overall strategy.

Planning Marketing:Partnering To Build Customer Relationships Partnering With Others In The Company

Partnering With Others In The Marketing System

Partner Relationship Management:

Working closely with partners in other company departments and outside the company to jointly bring greater value to customers.

Major Functional Departments:Marketing Finance Accounting Purchasing Operations Information systems Human resource

Partnering With Others In The Company:

Each company department can be thought of as a link in the company’s value chain.

Value Chain:Value Chain:The series of departments that carry out value-creating activities to design, produce, market, deliver and support a firm’s products.

Example:

WAL MART is an example of showing value chain because their success depends upon their all departments. As if

Purchasing can’t wring the lowest prices from suppliers.

Operations can’t distribute merchandise at the lowest costs.

Marketing can’t deliver on its promise of lowest prices.

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.

Value-delivery network: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 No : 1

MC DONALD’S is an example which is partnering with other members of the supply chain to improve the performance of the customer value-delivering network. As it successfully partners with itsFranchiseesSuppliers& others

who jointly deliver exceptionally high customer value.

Example No : 2HONDA has designed a program for working closely with its suppliers to help them reduce their costs and improve quality. Thus, Honda’s performance against Toyota depends on the quality of Honda’s overall value-delivery network versus Toyota’s.

Conclusion:Customer value and satisfaction are important ingredients in the marketer’s formula for success. Marketers alone cannot produce superior value for customers. Although it plays a leading role, marketing can be only a partner in attracting, keeping and growing customers. In addition to customer relationship management, marketers must also practice partner relationship management.

3. Designing the Business Portfolio Management must plan its business portfolio - the

collection of businesses and products that make up the company.

The best business portfolio is the one that best fits the company’s strengths and weaknesses and to the opportunities in the environment.

The company must (1) analyze its current business portfolio

and decide which businesses should receive more, less, no investment, and (2)it must shape the future portfolio by developing strategies for growth and downsizing.

1. Step: Analyzing the Current Business Portfolio The major activity in strategic planning is business

portfolio analysis, where management evaluates the businesses making up the company.

The reason for this analysis is that to put strong resources into the company’s more profitable businesses and phase down or drop its weaker ones.

Strategic Business Unit (SBU):

The first step in the business portfolio analysis is to identify the key businesses making up the company. The company’s key businesses (a company division, a product line, or a single product or brand) are called strategic business units (SBU).

The next step in business portfolio analysis is to evaluate each strategic business unit, in order to understand how much support they need.

In portfolio analysis, SBUs are evaluated from two ways; (a) The attractiveness of the SBU’s market (market

growth) and (b) the strength of the SBU’s position in that market (market share).

Star Question

Market High Mark growthshare

Low

cash cow Dog

High Low

The BCG growth-share matrix Relative market share

The Boston Consulting Group Approach (BCG)

In BCG approach, the company classifies all its SBUs according to the growth-share matrix which can distinguish four types of SBUs.

Stars; are high-growth, high-share businesses

or products. They often need heavy investment to finance their rapid growth. Eventually, their growth will slow, and they will turn into cash cows.

Cash cows; are low-growth, high-share businesses or products. These established and successful SBUs need less investment to keep their market share. They produce a lot of cash to the company.

Question marks; are low-share business units in high-growth markets. They need a lot of cash to keep and increase their share. Management must decide which question mark it should build into stars and which should be phased out.

Dogs; are low-growth, low-share businesses and products. They can only generate enough cash for themselves.

Once the company classifies its SBUs, it must determine what to do with them. There are four strategies. The company can;1. invest more in the business unit in order to

build (increase) its share.2. invest just enough to hold (keep) the SBU’s

share at the current level.3. it can harvest the SBU, milking its short-term

cash flow regardless of the long-term effect .4. divest (kill) the SBU by selling it or phasing it

out and using the resources elsewhere.

4. The Marketing Process Marketing process is the process of ;

1. analyzing marketing opportunities

2. selecting target markets

3. developing the marketing mix

4. managing the marketing effort (marketing mix).

Target consumers stand in the center of this process. The company; identifies the total market divides it into smaller segments selects the most promising segments focuses on serving and satisfying these

segments by designing marketing mix factors under the control of the company - product, price, place, and promotion

analyzes, plans, implements, and controls to put the marketing mix into action which are required to adapt to the marketing environment

Target Consumers In order to be successful, the companies must

understand the needs and wants of the consumers to satisfy them. But it is impossible to satisfy all consumers in a given market. Because, there are too many different types of consumers with too many different types of needs. That is why, companies must; (1) divide up the total market, (2) choose the best segments, and (3) design strategies to attract and keep these segments better than the competitors. This process involves three steps: market segmentation, market targeting, and market positioning.

Market Segmentation: Dividing a market into distinct groups of

buyers with different needs, characteristics, or behavior (e.g. sex, age, income level…) who might require separate products or marketing mixes is called market segmentation.

After segmenting the market, the company must determine which segments offer the best opportunity for achieving company objectives (making profit).

Market Targeting: Evaluating each market segment’s attractiveness

and then selecting one or more segments to enter is called market targeting.

A company should target segments in which it can generate the greatest customer value and keep it in the long-run.

There are three alternatives in market targeting. A company may decide to serve only one segment (because of its limited resources), several related segments or all market segments.

Market Positioning: After a company has decided which market

segments to enter, it must decide what positions it wants to occupy in those segments. A product’s position is the place that the product occupies in consumer’s minds relative to competitors.

If a product is seen exactly the same as other products on the market, consumers have no reason to buy it. That is way, companies differentiate their products through positioning to offer more value to the consumers. E.g. Mercedes “engineered like no other car in the world”

Developing The Marketing Mix Once the company has decided on its

overall marketing strategy, it should plan its activities by using the controllable marketing tools, in other words, the marketing mix.

Marketing Mix Marketing mix is the controllable

marketing tools (known as the 4Ps) - product, price, place, and promotion - that the company use to achieve its objectives.

Marketing Mix

Product; means the “goods-and-service” combination the company offers to the target market.

Price; is the amount of money that consumers have to pay to obtain the product.

Place; includes company activities with the intermediaries that make the product available to target consumers. The intermediaries keep an inventory of the products, shows them to potential buyers, negotiate prices, close sales and give service after sales.

Promotion; means activities that communicate the product and persuade target customers to buy it.

Managing the Marketing Effort In order to put the marketing mix into

action, four marketing management functions are used: Analysis Planning Implementation Control

The company, first, makes the necessary analysis (analysis) to develop its strategic and marketing plans (planning), then put them into action (implementation) and last measure and evaluate results and if necessary take corrective action (controlling).

All these functions are done under the “marketing planning”.

Marketing Planning After the company decides what to do with each

business unit (SBU) in its strategic plan, it must decide what actions (activities) to take to achieve the company objectives.

The company’s marketing plan involves the following sections; (1) executive summary, (2) Current marketing situation, (3) business situation analysis (SWOT), (4) objectives and issues, (5) marketing strategies, (6) action programs, (7) budgets, (8) control.

Executive Summary; presents a brief overview of the plan for quick management review. A table of contents should follow the executive summary.

Current marketing situation describes the target market and company’ s position in it, including information about the market, product, competition and distribution. This section includes: A market description that defines the market and

major segments, then review customer need and factors in the marketing environment that might affect customer purchasing.

A product review, that shows sales, prices and gross margins of the major products in the product line.

A review of competition, which identifies major competitors and assesses their market position and strategies for product quality, pricing, distribution and promotion

A review of distribution, which evaluates recent sales trends and other developments in major distribution channels.

Business Situation Analysis (SWOT); Under the SWOT analysis, the major Strengths, Weaknesses, Opportunities, and Threats facing the company must be identified.

Threats and Opportunities; identifies the major threats (negative impacts from the external environment that could decrease the company’s sales and profits) and opportunities (positive impacts from the external environment that a company could use to increase its sales and profits). The company should try to eliminate the negative impacts of the threats and use the opportunities in the best way. But the development of opportunities involve risk, that is why, managers must decide whether the expected returns justify the risks or not.

Strengths and Weaknesses; is the analysis of the company’s internal environment which identifies the strengths (strong areas of the company relative to its competitors) and weaknesses (weak areas of the company relative to its competitors).

The company should try to emphasize its strengths and correct weaknesses to use the opportunities.

Objectives; After the business unit has defined its mission and examined its strengths/weaknesses/opportunities/threats (called SWOT analysis), it can proceed to develop specific objectives for the planning period.

Objectives should be stated quantitatively. For example, increasing the return on investment to 15% within 2 years. Objectives should be specific with respect to amount and time. Quantitatively measurable objectives facilitates planning, implementation and control.

Marketing Strategies; Objectives indicate what a business unit wants to achieve, on the other hand, strategy answers what to do to achieve those objectives (e.g. what should be done to increase the return on investment to 15% within 2 years). It consists of specific strategies for target markets (which segments the company will target), positioning and the marketing mix (specific strategies for each P).

Action Programs; turns the marketing strategies into specific action programs that answer how to do. The action program also identifies when to do and who will be responsible.

Budgets; projects the profit-and-loss statement. It shows both the forecasted revenues (number units to be sold average net price) and expenses (cost of production, distribution, etc.). The difference between revenues and expenses gives the projected profit. The budget is the basis for materials buying, personnel planning etc.

Controls; outlines the controls that will be used to monitor progress. The management review the results each period and compare them with the goals and budgets. If the businesses or products do not meet with the goals, corrective actions must be taken.

MARKETING IMPLEMENTATION

MARKETING DEPARTMENT ORGANIZATION

MARKETING CONTROL

MARKETING IMPLEMENTATION

The process that turns marketing strategies and plans into marketing actions in order to accomplish strategic marketing objectives.

Many managers think

that “ doing things right” (implementation) is as important as, or even more important than, “ doing the right things ” (strategy).

Successful marketing implementation

depends on how well the company blends its people, organizational structure, decision, reward systems and company culture into a cohesive action program that supports its strategies.

Finally, to be successfully implemented,

the firm’s marketing strategies must fit with its company culture, the system of values and beliefs shared by people in the organization.

MARKETING DEPARTMENT ORGANIZATION

The company must design a marketing organization that can carry out marketing strategies and plans.

If the company is very small, one person might do all of the research, selling, advertising, customer service and other marketing work.

FORMS OF MARKETING ORGANIZATION

FUNCTIONAL ORGANIZATION:Under this organization different marketing activities are headed by a functional specialist.

EXAMPLE:

a sales manager, advertising manager, marketing research manager, customer service manager or new-product manager.

GEOGRAPHIC ORGANIZATION A company that sells across the country or

internationally often uses a geographic organization.

Geographic organizations allows sales people to settle into a territory, get to know their customers with a minimum of travel time and cost.

PRODUCT MANAGEMENT ORGANIZATION

Companies with many different products or brands often create a product management organization.

EXAMPLES:Procter & gambleNestle

MARKET OR CUSTOMER MANAGEMENTORGANIZATION

For the companies that sell one product line to many different types of markets and customers that have different needs and preferences, a market or customer management organization might be the best.

Cont’d Large companies that produce many

different products flowing into many different geographic and customer markets usually employ some combination of the functional, geographic, product and market organization forms.

MARKETING CONTROL The process of

measuring and evaluating the results of marketing strategies and plans and taking corrective actions to ensure that objectives are achieved.

STEPS INVOLVED IN MARKETING CONTROL

Management first sets specific marketing goals.

It then measures its performance in the market place and evaluates the causes of any differences between expected and actual performance.

Cont’d Finally ,management takes corrective

actions to close the gaps between its goals and its performance.

TYPES OF MARKETING CONTROL

OPERATING CONTROL:

Operating control involves checking on going performance against the annual plan and taking corrective action when necessary.

TYPES OF MARKETING CONTROL

STRATEGIC CONTROL:

Strategic control involves looking at whether the company’s basic strategies are well matched to its opportunities.

MARKETING AUDIT

A comprehensive, systematic, independent and periodic examination of a company’s environment, objectives, strategies and activities to determine problem areas and opportunities and to recommend a plan of action to improve the company’s marketing performance.

The audit is normally

conducted by an objective and experienced outside party.

The findings may come as a surprise and sometimes as a shock to management.

The Marketing Environment “Surroundings or the place where all

organizations operate.” It is very important for an organization to

analyze the environment in which it is doing business.

Company operates in a complex marketing environment, consisting of uncontrollable forces to which company must adapt.

Environment produces both threats and opportunities – An organization should analyze its environment in order to avoid threats and take advantages of the opportunities.

Marketer should aware of all the forces like demographic, economic, political, legal, technological, ecological, social and cultural forces that affects its ability to serve its various stakeholders.

Measuring & Managing Return on Marketing Marketers must ensure that their marketing

dollars are being well spent. In the past, they spent freely on advertisements

without thinking about the financial returns on their spending.

According to them, it is difficult to measure financial returns which results from marketing because marketing produces intangible outcomes.

Current Scenario: Because of today’s tighter economy and

shrinking budgets, marketing managers are forced to think upon the financial returns of marketing.

Companies now consider“Marketing as an investment rather than an expense.”

Return on marketing (or Marketing ROI)

Defined as:“Return on marketing (or Marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment.”

Tool for measuring return on marketing. Measures the profit generated by investments

in marketing.

Marketing returns are difficult to measure. 68% of marketing executives have difficulty in

measuring ROI of their marketing programs. “In marketing, benefits like advertising impact

aren’t easily put into dollar returns. It takes a leap of faith to come up with a number.”

Assessment of Return on Marketing

Returns on marketing can be assessed in terms of: Brand-awareness Sales Market Share

Use of customer – centered measures of marketing impact like: Customer acquisition Customer retention Customer life-time value

This concept is here to stay regardless of the fact that how it’s measured or defined.

70% marketing professionals believed that marketing ROI represents long-term change in how they do business.

“Projections are made, marketing is delivered, results are measured and the knowledge is applied to guide future marketing…the return on marketing is integral to strategic decisions at all levels of the business.”

Chapter SummaryIn this chapter, we have learned about: Strategic Planning & Marketing Process Defining Company’s Mission Designing the Business Portfolio Strategic Business Unit (SBU) Evaluation of SBUs through BCG Matrix Development of Growth Strategies Marketing Process Target Consumers

Market Segmentation Market Targeting Market Positioning Developing Marketing Mix Managing Marketing Effort Marketing Planning Marketing Development Organization Marketing Environment Measuring & Managing Return on Marketing Return on marketing (or Marketing ROI) Assessment of Return on Marketing

market consists of many types of customers, products, and needs. The marketer mustdetermine which segments offer the best opportunities. Consumers can be grouped andserved in various ways based on geographic, demographic, psychographic,

a few special segments or market niches e.g Ferrari Most companies enter a new market by serving a single segment e.g nike introduce different type of shoes + sports equipmentPositioning is arranging for a product to occupy a clear, distinctive, and desirableplace relative to competing products in the minds of target consumers. Marketers plan positionsthat distinguish their products from competing brands and give them the greatestadvantage in their target markets.DifferentiationActually differentiating the market offering to create superior customer value.Strengths include internal capabilities, resources, and positive situational factors that may help the company serve its customers and achieve its objectives.Weaknesses include internal limitations and negative situational factors that may interfere with the company’s performance.Opportunities are favorable factors or trends in the external environment

StrengthsInternal capabilities that may help the companyreach its objectives Weaknesses Internal limitations that mayinterfere with the company’s ability to achieve its objectivesOpportunitiesExternal factors that the company may be able to exploit to its advantageThreatsCurrent and emergingexternal factors that may challenge the company’s performanceMarketing planning involves choosing marketing strategies that will help the companyattain its overall strategic objectivesMarketing implementationis the process that turns marketing plans into marketing actions to accomplish strategic marketing objectivesThe 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, an advertising manager, a marketing research manager, a customer service manager, or a new product manager. A company that sells across the country or internationally often uses a geographic organization.best. Amarket management organization is similar to the product managementorganization. Market managers are responsible for developing marketing strategies andplans for their specific markets or customers. This system’s main advantage is that the companyis organized around the needs of specific customer segments. Many companies developspecial organizations to manage their relationships with large customers. For example, companiessuch as P&G and Stanley Black & Decker have created large teams, or even whole divisions,to serve large customers, such as Walmart, Target, Safeway, or Home Depot

Operating control involves checking ongoing performance against the annual plan and taking corrective action when necessary. Its purpose is to ensure that the company achieves the sales, profits, and other goals set out in its annual plan. It also involves determining the profitability of different products, territories, markets, and channels. Strategic control involveslooking at whether the company’s basic strategies are well matched to its opportunities.marketing expenditures as investments that produce returns in the form of more profitable customer relationships.Marketing investments result in improved customer value and satisfaction, which in turn increases customer attraction and retention. This increases individual customer lifetime values and the firm’s overall customer equity. Increased customer equity, in relation to the cost of the marketing investments, determines return on marketing investment.