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CHAPTER 1

Foundations of

Strategic

Marketing

Management

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1. Define an organizations business,

mission, and goals.

2. Identify and frame organization growth

opportunities.

3. Formulate product-market strategies.

AFTER READING THIS CHAPTER

YOU SHOULD BE ABLE TO:

4. Budget marketing, financial, and

production resources.

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5. Develop reformulation and recovery

strategies.

6. Draft a marketing plan.

7. Emphasize marketing ethics and social

responsibility.

AFTER READING THIS CHAPTER

YOU SHOULD BE ABLE TO:

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INTRODUCTION

CHAPTER 1: FOUNDATIONS OF STRATEGIC

MARKETING MANAGEMENT

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To create long-term and mutually

beneficial exchange relationships

between an entity and the publics

(individuals and organizations)

with which it interacts.

PURPOSE OF MARKETING

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RESPONSIBILITIES OF MARKETING

MANAGERS

Make day-to-day decisions.

Chart the organizations direction.

Create and sustain a competitive advantage and affect the organizations long-term

performance.

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RESULTS OF THE EVOLUTION OF THE

MARKETING MANAGER

Created the Chief Marketing Officer (CMO) position in many organizations.

Increased popularity of strategic marketing management.

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Analyze environmental, competitive, and business situations.

Develop business objectives and goals.

Define customer value propositions and their respective marketing strategies.

RESPONSIBILITIES OF CMOs

Define the business mission.

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Interpret extensive market and operational information.

Sense customer and competitor motivations.

Frame strategic marketing initiatives in light of implementation considerations and

financial targets/results.

SKILL SET OF CMOs

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Define an organizations business, mission, and goals.

Identify and frame organizational growth opportunities.

Formulate product-market strategies.

Budget marketing, financial, and production resources.

Develop reformulation and recovery strategies.

STRATEGIC MARKETING

MANAGEMENT PROCESSES

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DEFINING THE

ORGANIZATIONS

BUSINESS, MISSION,

AND GOALS



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Answers the question, What business are we in?

An organization defines its business by:

The type of customer served and the specific

needs to be satisfied

The means or technology used to satisfy

these customer needs

BUSINESS DEFINITION

What business an organization is in is neither obvious nor easy.

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BUSINESS DEFINITION

Customer groups and needs are more enduring than the offerings and means

or technologies to produce and deliver

them.

What business is the Encyclopedia Britannica in?

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Underscores the scope of an organizations operations apparent in its business definition.

Reflects managements vision of what the organization seeks to do.

Describes an organizations purpose regarding its customers, products/services, markets, philosophy, and

technology.

Crystallizes managements vision of the organizations long-term direction and character.

BUSINESS MISSION

Consists of a written statement that:

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Provides guidance in identifying, pursuing, and evaluating market-product opportunities.

Inspires and challenges employees to do what is valued by the organization and its customers.

Also applies to not-for-profit organizations.

Provides direction for setting goals or objectives.

Consists of a written statement that (continued):

BUSINESS MISSION

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BUSINESS MISSION

Our strategic intent is to help people

find better ways to do great work

by constantly leading in document

technologies, products, and services that

improve our customers work processes

and business results.

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BUSINESS MISSION

To improve the quality of human life;

to enhance self-reliance and concern for

others; and to help people avoid, prepare

for, and cope with emergencies.

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Financial

Convert the organizations mission into tangible actions and results that are to be

achieved within a specified time frame.

Are divided into three major categories:

Marketing

Production

BUSINESS GOALS OR OBJECTIVES

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Return on investment

Return on sales

Shareholder wealth

Profit

Cash flow

Production

Financial

Marketing

Market share

Sales volume

Marketing productivity

Customer satisfaction

Customer value creation

Profit Customer lifetime value


Manufacturing and service capacity

Product and service quality

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A situation analysis is an

appraisal of operations to

determine reasons for the

gap between what was or

is expected and what has

happened or will happen.


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IDENTIFYING AND

FRAMING

ORGANIZATIONAL

GROWTH OPPORTUNITIES



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CONVERTING ENVIRONMENTAL OPPORTUNITIES

INTO ORGANIZATIONAL OPPORTUNITIES

What might we do?

Ask three questions:

What do we do best?

What must we do?

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Unmet or changing consumer needs.

Unsatisfied buyer groups.

New means or technologies for delivering value to prospective buyers.

Sources of environmental opportunities:

WHAT MIGHT WE DO?

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A distinctive competency

describes an organizations

unique strengths or qualities,

including skills, technologies,

or resources that distinguish it

from other organizations.

WHAT DO WE DO BEST?

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Two criteria must be satisfied for a

distinctive competency:

Competitors cannot replicate the skill easily or without a sizeable investment in

time, effort, and money.

It should make a significant contribution to the benefits customers perceive, thereby

providing them with superior value.

WHAT DO WE DO BEST?

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GILLETTE: WHAT ARE ITS

DISTINCTIVE COMPETENCIES?

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Success requirements are basic

tasks that an organization

must perform in a market or

industry to compete

successfully.

WHAT MUST WE DO?

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SWOT analysis is a formal framework

for identifying and framing organizational

growth opportunities.

Strengths Weaknesses Internal

Capabilities

Opportunities External

Environment Threats

Organization Favorable Unfavorable

- Type of Factor -

SWOT ANALYSIS

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Strengths

Weaknesses

Opportunities

Threats

What the organization is good at doing

or some characteristic that gives it an

important capability.

What an organization lacks or does

poorly relative to other organizations.

Developments or conditions in the

environment that have favorable

implications for the organization.

Pose dangers to the welfare of the

organization.

SWOT ANALYSIS

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EXHIBIT 1.1: SAMPLE SWOT ANALYSIS

FRAMEWORK

Strengths

Weaknesses

Internal

Factors

Opportunities

External

Factors Threats

Management

Marketing

Manufacturing

R&D

Finance

Offerings

Economic

Competition

Consumer

Technology

Legal/Regulatory

Industry/Market Structure

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Which strengths represent distinctive competencies? Do they compare favorably with

what are believed to be market or industry

success requirements?

Does a pattern emerge from the SWOT analysis?

Which weaknesses disqualify the organization from pursuing certain opportunities?

Questions to ask after a SWOT analysis:

SWOT ANALYSIS

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FORMULATING

PRODUCT-MARKET

STRATEGIES



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A product-market strategy

involves selecting specific

markets and profitably

reaching them through an

integrated program called a

marketing mix.

PRODUCT-MARKET STRATEGY

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EXHIBIT 1.2: PRODUCT-MARKET

STRATEGIES

Market

Development

New Offering

Development

Market

Penetration

Diversification

New Existing

Existing

New

Markets

Offerings

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A market-penetration strategy dictates

that an organization seeks to gain

greater dominance in a market in

which it already has an offering

(existing offerings existing markets).

PRODUCT-MARKET STRATEGIES

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This strategy involves:

Increasing present buyers usage or consumption rates of the offering.

Attracting buyers of competing offerings.

Stimulating product trial among potential customers.

MARKET-PENETRATION STRATEGY

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Factors to consider when adopting this

strategy:

Examine market growth.

Assess competitive reaction.

Analyze the capacity of the market to increase usage or consumption rates and

the availability of new buyers.

MARKET-PENETRATION STRATEGY

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A market-development strategy

dictates that an organization introduce

its existing offerings to markets other

than those it is currently serving

(existing offerings new markets).


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Adjusting the marketing mix, such as:

Analyzing competitors strengths, weaknesses, and potential for retaliation.

Modifying the basic product offering

Using different distribution outlets

Changing the sales effort or advertising

MARKET-DEVELOPMENT STRATEGY

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This strategy involves (continued):

Identifying the number, motivation, and buying patterns of new buyers.

Determining the organizations ability to adapt to new markets to evaluate success.


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Internationally, this strategy has four forms:

Licensing

Joint Venture/

Strategic Alliance

Exporting

Direct

Investment


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Licensing

Exporting

Direct

Investment

Involves marketing the same offering in another

country through sales offices or intermediaries.

Is a contract where one firm (licensee) is given

the rights to patents, trademarks, etc. by the

owner (licensor) in turn for a royalty or fee.

Involves investment by both a foreign firm and a

local company to create a new entity in the host

country. The two forms share ownership,

control, and profits of the entity.

Involves investing in a manufacturing and/or

assembly facility in a foreign market. Is the most

risky and requires the most commitment.

Joint Venture/

Strategic Alliance


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A product- (new offering-) development

strategy dictates that an organization

create new offerings existing markets.


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Developing totally new offerings.

Adding different features, sizes, etc.

to broaden the existing line.

Enhancing the value to customers

of existing offerings.

PRODUCT-DEVELOPMENT STRATEGY

Product

Augmentation

Product

Innovation

Product

Line Extension


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Factors to consider when adopting this

strategy:

The market size and volume needed for profitability.

The magnitude and timing of competitors responses.

The impact of the new product on the sales of existing offerings (cannibalization).

The capacity of the organization to deliver the offerings to the market(s).

PRODUCT-DEVELOPMENT STRATEGY

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A diversification strategy involves the

development or acquisition of offerings

new to the organization and the introduction

of those offerings to publics not previously

served by the organization

(new offerings new markets).


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Considerations regarding this strategy:

Many firms have adopted this strategy to take advantage of growth opportunities.

Is very risky because both the offerings and pubic/market are new to the organization.

Can be successful if the organization applies its distinctive competencies to

reaching new markets with new offerings.

DIVERSIFICATION STRATEGY

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Product-market strategies are evaluated

based on:

The organizations business definition, mission, and capabilities.

Market capacity and behavior.

Environmental forces.

Competitive activities.

STRATEGY SELECTION

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Product-market strategies are chosen

based on:

Costs and benefits of a strategy.

Analysis of competitive structure, market dynamics, and opportunity costs.

Probabilities of success for a strategy.

The product itself.

STRATEGY SELECTION

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Action Response Outcome

O1

O2

O3

O4

R1

R2

R1

R2

A2

A1

EXHIBIT 1.3: DECISION-TREE FORMAT

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Estimated profit

of $1 million

Estimated profit

of $4 million

Action Response Outcome

Estimated profit

of $2 million

Estimated profit

of $3 million

Market-

development

strategy

Aggressive

competition

Passive

competition

Aggressive

competition

Passive

competition

Market-

penetration

strategy

EXHIBIT 1.4: SAMPLE DECISION-TREE

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Aggressive

competition

Passive

competition

Aggressive

competition

Price

Strategy

Communication

Strategy

Product

Strategy

Channel

Strategy Customer

THE MARKETING MIX

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Estimated profit

of $4 million

Estimated profit

of$3 million

Aggressive

competition

Price

Strategy

Communication

Strategy

Product

Strategy

Channel

Strategy

Kind of product, service, or idea offered.

How the product, service, or idea will be

communicated to buyers. Informs and assures

buyers that the offering will meet their needs.

Method for distributing the product or service to

buyers. Satisfies buyers shopping patterns and

purchase requirements. Provides information

and offering availability.

Amount buyers will pay for the offering.

Represents the value or benefits provided.

THE MARKETING MIX

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Estimated profit

of $4 million

Estimated profit

of$3 million

Aggressive

competition

Delivers customer value in marketspace, the new interactive capabilities of the

Internet.

Depends on the success requirements of the market.

Must be consistent with both the needs of the markets and the organizations

capacity.

Is as much art and science.

FORMULATING THE MARKETING MIX

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BUDGETING MARKETING,

FINANCIAL, AND

PRODUCTION RESOURCES



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A budget is a formal,

quantitative expression of an

organizations planning and

strategy initiatives expressed

in financial terms.

BUDGETING

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A master budget consists of:

Focuses on the income statement.

Also referred to as a pro forma income

statement or profit plan.

Focuses on the effect the operating

budget has on the organizations cash

position.

BUDGETING

Operating

Budget

Financial

Budget

Special

Budgets

Focuses on developing advertising,

sales, and other budgets that support

the master budget.

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DEVELOPING

REFORMULATION AND

RECOVERY STRATEGIES



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A marketing audit is a comprehensive,

systematic, and periodic examination of

a firms or business units marketing

environment, objectives, strategies, and

activities to determine problem areas

and opportunities and recommend a

plan of action to improve the firms

marketing performance.

MARKETING AUDIT

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Addresses the following questions:

Are we doing the right things?

Are we doing things right?

MARKETING AUDIT

Strategic

Operational

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Have the following purposes:

Forces marketing managers to ask What if? questions.

Allows for contingency plans, preplanning of reformulation and recovery strategies

that lead to faster reaction time in

implementing remedial action.

REFORMULATION AND RECOVERY

STRATEGIES

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DRAFTING A

MARKETING PLAN



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A marketing plan is a formal,

written document that describes

the context and scope of an

organizations marketing effort

to achieve defined goals or

objectives within a specific future

time period.

MARKETING PLAN

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Consists of:

Each has these time dimensions:

Focuses on a 1-year period.

Focuses on a 3- to 5-year period.

MARKETING PLAN

Product

Plan

Business

Plan

Marketing

Plan

Short-term

Long-term

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MARKETING ETHICS AND

SOCIAL RESPONSIBILITY



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Most marketing decisions involve some degree of moral judgment.

Marketers should take actions that are legal, ethical, and socially responsible.

ETHICS AND SOCIAL RESPONSIBILITY

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