CHAPTER 2 Developing Marketing Strategies

Marketing and Customer Value
• The Value Delivery Process:

 Three Phases of value creation and delivery sequence:
1. Choosing the value - Segment the market, select the
appropriate target, and develop the
offering’s value positioning.
- The formula “segmentation, targeting,
positioning (STP)” is the essence of
strategic marketing.
2. Providing the value – Marketing must determine specific
product features, prices, and
distribution.
3. Communicating the value - utilizing the sales force,
Internet, advertising, and any
other communication tools to
announce and promote the
product.
• The Value Chain - a tool for identifying ways to create more
customer value. – Michael Porter
 According to this model, every firm is a synthesis of activities performed
to design, produce, market, deliver, and support its product.
 Nine Strategically Relevant Activities – creates value and
cost in a specific business
(1) Inbound logistics, or bringing materials into the business;
5 (2) Operations or converting materials into final products;
primary (3) outbound logistics, or shipping out final products;
activities (4) marketing, which includes sales;
(5) service.
(1) procurement,
4
(2) technology development,
support activities
(handled by Specialized
(3) human resource management,
departments) (4) firm infrastructure. (Infrastructure covers the
costs of general management, planning,
finance, accounting, legal, and government affairs.)
• The Value Chain The firm’s success depends not only on how well
each department performs its work, but also on how well the company
coordinates departmental activities to conduct core business processes.
Core Business Processes:

1. The market-sensing process. All the activities in gathering and acting
upon information about the market.
2. The new-offering realization process. All the activities in researching,
developing, and launching new high-quality
offerings quickly and within budget
3. The customer acquisition process. All the activities in defining target
markets and prospecting for new customers.
4. The customer relationship management process. All the activities in
building deeper understanding,
relationships, and offerings to individual
customers.
5. The fulfillment management process. All the activities in receiving and
approving orders, shipping the goods on
time, and collecting payment.
• Core Competencies :
 Three Characteristics:
(1) It is a source of competitive advantage and makes a significant
contribution to perceived customer benefits.
(2) It has applications in a wide variety of markets.
(3) It is difficult for competitors to imitate.
 Three steps of Business realignment that may be necessary to

maximize core competencies:
(1) (re)defining the business concept or “big idea”,
(2) (re)shaping the business scope, and
(3) (re)positioning the company’s brand identity.
• A Holistic Marketing Orientation and
Customer Value
“integrating the value exploration, value creation, and value delivery activities
with the purpose of building long-term, mutually satisfying relationships and
co-prosperity among key stakeholders.”
 Holistic marketers address three key management questions:

1. Value exploration — How a company identifies new value
opportunities
2. Value creation — How a company efficiently creates more
promising new value offerings
3. Value delivery — How a company uses its capabilities and
infrastructure to deliver the new
value offerings more efficiently
• The Central Role of Strategic Planning:
 Successful marketing thus requires capabilities such as understanding,
creating, delivering, capturing, and sustaining customer value.
They focus on the
customer
They are
organized to
respond effectively
to changing
customer needs
They all have well-

staffed marketing
departments
Their other
departments
accept that the
customer is king
 To ensure they select and execute the right activities, marketers must give
priority to strategic planning in three key areas:
(1) managing a company’s businesses as an investment portfolio,
(2) assessing each business’s strength by considering the market’s
growth rate and the company’s position and fit in that market,
(3) establishing a strategy.
 Most large companies consist of four organizational levels:

(1) Corporate (2) Division (3) Business Unit (4) Product
Responsible for Establishes (product line,

Develops a
designing a a plan covering the brand)
strategic plan to
corporate allocation of funds develops a
carry that business
strategic plan to to each business marketing plan for
unit into a
guide the whole unit within the achieving its
profitable future.
enterprise. division objectives.
 Marketing plan - is the central instrument for directing and coordinating the
marketing effort. It operates at two levels:
strategic and tactical.
 Strategic Marketing Plan - lays out the target markets and the firm’s value
proposition, based on an analysis of the best
market opportunities.
 Tactical Marketing Plan - specifies the marketing tactics, including product
features, promotion, merchandising, pricing, sales
channels, and service.
The Strategic Planning, Implementation, and Control Processes
The complete planning, implementation, and control cycle of strategic

planning.
Corporate and Division Strategic Planning
All corporate headquarters undertake

four planning activities:
1. Defining the corporate mission
2. Establishing strategic business units
3. Assigning resources to each
strategic business unit
4. Assessing growth opportunities
4 PLANNING ACTIVITIES
• 1. Defining the Corporate Mission

 To define its mission, a company should address Peter Drucker’s classic
questions: What is our business? Who is the customer?
What is of value to the customer? What will our business be?
What should our business be?
 Mission statements - provides a shared sense of purpose, direction, and

opportunity.
- they reflect a vision, an almost “impossible dream”
that provides direction for the next 10 to 20 years.
- Developed by organizations to share with
managers, employees, and (in many cases)
customers.
• 1. Defining the Corporate Mission

 Mission statements have five major characteristics:
1. They focus on a limited number of goals.
2. They stress the company’s major policies and values.
3. They define the major competitive spheres within
which the company will operate.( )
4. They take a long-term view.
5. They are as short, memorable, and meaningful as possible.
• 2. Establishing Strategic Business Units

 Target market definition - tends to focus on selling a product or service to a
current market.
 lists companies that have moved from a product to a market definition
of their business.
 A business can define itself in terms of three dimensions:
customer groups, customer needs, and technology
• 2. Establishing Strategic Business Units

 Strategic business units (SBUs). - The purpose of identifying the company’s
strategic business units is to develop separate strategies and assign appropriate
funding.
 An SBU has three characteristics:

1. It is a single business, or a collection of related businesses, that can be
planned separately from the rest of the company.
2. It has its own set of competitors.
3. It has a manager responsible for strategic planning and profit performance,
who controls most of the factors affecting profit.
• 3. Assigning Resources to Each SBU

 Once it has defined SBUs, management must decide how to allocate
corporate resources to each.
 Several portfolio-planning models provide ways to make investment
decisions.
• 4. Assessing Growth Opportunities

 includes planning new businesses, downsizing, and terminating
older businesses.
 If there is a gap between future desired sales and
projected sales, corporate management will need to develop or acquire new
businesses to fill it.
 Figure 2.2 illustrates this strategic-planning gap for a major manufacturer
of blank compact disks called Musicale (name disguised).
Evidently, the company
Strategic Planning Gap

wants to grow much faster
than its current businesses
will permit.
How can it fill the
strategic-planning gap?
Intensive Opportunities
Integrative Opportunities
Diversification
The Strategic Planning Gap Opportunities
Intensive Opportunities  Market-penetration strategy- company first

considers whether it could gain more market
 Identify opportunities for share with its current products in their current
growth within current markets.
businesses  Market-development strategy - considers
 Corporate management’s first whether it can find or develop new markets for
course of action should be a its current products.
review of opportunities for  Product-development strategy - it considers
improving existing businesses. whether it can develop new products of
 One useful framework for potential interest to its current markets.
detecting new intensive  Diversification strategy - firm will also review
growth opportunities is a opportunities to develop new products for new
“product-market expansion markets.
grid.”
Diversification
Integrative Opportunities
Opportunities
 Identify opportunities to build  Identify opportunities to add
or acquire businesses related attractive unrelated businesses
to current businesses. (diversification opportunities).
 Business can increase sales  Makes sense when good
and profits through opportunities exist outside the
backward, forward, or present businesses—the industry is
horizontal integration within highly attractive and the company
its industry. has the right mix of business
strengths to succeed.
• Organization and Organizational Culture
 Strategic planning happens within the context of the organization
 A company’s organization consists of its structures, policies, and corporate culture,
all of which can become dysfunctional in a rapidly changing business environment.
 Corporate Culture - “the shared experiences, stories, beliefs, and norms that
characterize an organization.”
• Marketing Innovation
 Innovation in marketing is critical. Imaginative ideas on strategy exist in many
places within a company.
 Senior management should identify and encourage fresh ideas from
three underrepresented groups:
 employees with youthful or diverse perspectives,
 employees far removed from company headquarters, and
 employees new to the industry
• Creating Innovative Marketing Marketing Insight
 Northwestern’s Mohanbir Sawhney and his colleagues outline 12 dimensions of
business innovation that make up the “innovation radar” (see ) and
suggest that business innovation is about increasing customer value, not just
creating new things; comes in many flavors and can take place on any dimension of
a business system; and is systematic and requires careful consideration of all
aspects of a business.
(Continued)
• Creating Innovative Marketing Marketing Insight
Business Unit Strategic Planning
 The business unit strategic-planning process consists of
the steps shown in
Fig. 2.3 . The Business Unit Strategic- Planning Process
1 3 4 5 6 7
2
B A S I C U N I T S T R AT E G I C - P L A N N I N G P R O C E S S
1. The Business Mission

 Each business unit needs to define its specific mission within the broader
company mission.
2. SWOT Analysis
 The overall evaluation of a company’s strengths, weaknesses, opportunities,
and threats.
 It’s a way of monitoring the external and internal marketing environment.
• EXTERNAL ENVIRONMENT (OPPORTUNITY AND THREAT) ANALYSIS
 A business unit must monitor key macro-environment forces and
significant micro-environment factors that affect its ability to earn profits.
 Marketing opportunity is an area of buyer need and interest that a
company has a high probability of profitably satisfying.
2. SWOT Analysis EXTERNAL ENVIRONMENT

(OPPORTUNITY AND THREAT) ANALYSIS
 There are three main sources of market opportunities:
1st is to offer something that is in short supply. This requires little marketing
talent, as the need is fairly obvious.
2nd is to supply an existing product or service in a new or superior way. How?
 problem detection method asks consumers for their suggestions,
 ideal method has them imagine an ideal version of the product or
service, and
 consumption chain method asks them to chart their steps in acquiring,
using, and disposing of a product.
This last method often leads to a totally new product or service.

 Marketers need to be good at spotting opportunities.
Consider the following:
 A company may benefit from converging industry trends and
introduce hybrid products or services that are new to the
market.
 A company may make a buying process more convenient or efficient.
 A company can meet the need for more information and advice.
 A company can customize a product or service.
 A company can introduce a new capability.
 A company may be able to deliver a product or service faster.
 A company may be able to offer a product at a much lower price.

 To evaluate opportunities, companies can use market opportunity

analysis (MOA) to ask questions like:
1. Can we articulate the benefits convincingly to a defined target
market(s)?
2. Can we locate the target market(s) and reach them with cost-
effective media and trade channels?
3. Does our company possess or have access to the critical capabilities
and resources we need to deliver the customer benefits?
4. Can we deliver the benefits better than any actual or potential
competitors?
5. Will the financial rate of return meet or exceed our required threshold
for investment?

 The best marketing

opportunities facing the TV-
lighting-equipment company
appear in the upper-left cell
(#1).
 The opportunities in the lower-
right cell (#4) are too minor to
consider.
 The opportunities in the upper-
right cell (#2) and the lower-left
cell (#3) are worth monitoring
in the event that any improve
(a) Opportunity and Threat Matrices in attractiveness and potential.

 The threats in the upper-left cell
are major, because they have a
high probability of occurrence
and can seriously hurt the
company.
 To deal with them, the company
needs contingency plans. The
threats in the lower-right cell are
minor and can be ignored.
 The firm will want to carefully
monitor threats in the upper-
right and lower-left cells in the
(b) Opportunity and Threat Matrices event they grow more serious.
 Environmental threat is a challenge posed by an unfavorable trend or development

that, in the absence of defensive marketing action, would lead to lower sales or profit.
Figure 2.4 (b) illustrates the threat matrix facing the TV-lighting-equipment company.
2. SWOT Analysis
• INTERNAL ENVIRONMENT (STRENGTHS AND WEAKNESSES) ANALYSIS
 It’s one thing to find attractive opportunities, and another to be able to
take advantage of them.
 Each business needs to evaluate its internal strengths and weaknesses.
 Businesses can evaluate their own strengths and weaknesses by using a
form like the one shown in “Marketing Memo: Checklist for Performing
Strengths/Weaknesses Analysis.”
3. Goal Formulation
 Goals are objectives that are specific with respect to magnitude and time.
 Most business units pursue a mix of objectives, including profitability, sales
growth, market share improvement, risk containment, innovation, and
reputation.
 The business unit sets these objectives and then
manages by objectives (MBO).
3. Goal Formulation
 For an MBO system to work, the unit’s objectives must meet four criteria:
1. They must be arranged hierarchically, from most to least important.
2. Objectives should be quantitative whenever possible.
3. Goals should be realistic.
4. Objectives must be consistent.
4. Strategic Formulation
 GOALS indicate what a business unit wants to achieve;
STRATEGY is a game plan for getting there.
 Every business must design a strategy for achieving its goals,
• consisting of a marketing strategy and
• a compatible technology strategy and
• sourcing strategy.
• PORTER’S GENERIC STRATEGIES - Michael Porter has proposed
three generic strategies that provide a good starting point for strategic
thinking:
 Overall cost leadership - Firms work to achieve the lowest production
and distribution costs so they can underprice
competitors and win market share.
 Differentiation - The business concentrates on achieving superior
performance in an important customer benefit area
valued by a large part of the market.
 Focus - The business focuses on one or more narrow market segments,
gets to know them intimately, and pursues either cost
leadership or differentiation within the target segment.
• STRATEGIC ALLIANCES- forming alliances with domestic or multinational
companies that complement or leverage their capabilities
and resources.
 Many strategic alliances take the form of marketing alliances. These fall into
four major categories:
1. Product or service alliances—One company licenses another to produce its
product, or two companies jointly market their
complementary products or a new product.
2. Promotional alliances—One company agrees to carry a promotion for another
company’s product or service.
3. Logistics alliances—One company offers logistical services for another
company’s product.
4. Pricing collaborations—One or more companies join in a special pricing
collaboration.
5 & 6. Program Formulation and Implementation

 If the unit has decided to attain technological leadership, it must strengthen its
R&D department, gather technological intelligence, develop leading-edge
products, train its technical sales force, and communicate its technological
leadership.
 Once they have formulated marketing programs, marketers must estimate their
costs.
• COMPANY’S 7 S:
1. Strategy 2. Structure 3. System “hardware”
4. Style - means company employees share a common way of thinking
and behaving
5. Skills - means employees have the skills needed to carry out the
“software” company’s strategy.
6. Staff - means the company has hired able people, trained them well,
and assigned them to the right jobs.
7. Shared Values - means employees share the same guiding values.
7. Feedback and Control

 A company’s strategic fit with the environment will inevitably erode,
because the market environment changes faster than the company’s
seven Ss.
 Peter Drucker pointed out that it is more important to
“do the right thing”—to be effective—than
“to do things right”—to be efficient.
The most successful companies, however, excel at both.
 The key to organizational health is willingness to examine the
changing environment and adopt new goals and behaviors.
The Nature and
Product Planning: Contents of a Marketing Plan
• Marketing plan –
 written document that summarizes what the marketer has learned about the
marketplace and indicates how the firm plans to reach its marketing objectives.
 It contains tactical guidelines for the marketing programs and financial
allocations over the planning period.
 one of the most important outputs of the marketing process.
 It provides direction and focus for a brand, product, or company.
 Marketing plans are becoming more customer- and competitor-oriented,
better reasoned, and more realistic.
 To guide implementation effectively, every part of the plan must be described
in considerable detail.
 Sometimes a company will post its marketing plan on an internal Web site so
everyone can consult specific sections and collaborate on changes.
The Nature and
• Marketing plan –
 A marketing plan usually contains the following sections.
 Executive summary and table of contents. The marketing plan should open
with a table of contents and brief summary for senior management of the
main goals and recommendations.
 Situation analysis. This section presents relevant background data on sales,
costs, the market, competitors, and the various forces in the macro-
environment.
 Marketing strategy. Here the marketing manager defines the mission,
marketing and financial objectives, and needs the market offering is
intended to satisfy as well as its competitive positioning.
 Financial projections. include a sales forecast, an expense forecast, and a
break-even analysis.
 Implementation controls. The last section outlines the controls for
monitoring and adjusting implementation of the plan.
The Nature and
• The Role of Research
 To develop innovative products, successful strategies, and action programs,
marketers need up-to-date information about the environment, the
competition, and the selected market segments.
 As the plan is put into effect, marketers use research to measure progress
toward objectives and identify areas for improvement.
 Finally, marketing research helps marketers learn more about their customers’
requirements, expectations, perceptions,
satisfaction, and loyalty.
 Thus, the marketing plan should outline
what marketing research will be conducted
and when, as well as how the findings will be
applied.
The Nature and
• From Marketing Plan to Marketing Action
 Marketers start planning well in advance of the implementation date to allow
time for marketing research, analysis, management review, and coordination
between departments.
 The marketing plan should define how progress
toward objectives will be measured.
 Managers typically use budgets, schedules,
and marketing metrics for monitoring and
evaluating results.
 Marketing metrics track actual outcomes of
marketing programs to see whether the
company is moving forward toward its objectives.
Pegasus Sports International* Sample Marketing Plan

CHAPTER 2 Developing Marketing Strategies

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CHAPTER 2 Developing Marketing Strategies

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What are the three phases of value creation and delivery sequence according to the value delivery process?

What are the three phases of value creation and delivery sequence according to the value delivery process?

What are the nine strategically relevant activities that create value and cost in a specific business according to Michael Porter's value chain model?

What are the nine strategically relevant activities that create value and cost in a specific business according to Michael Porter's value chain model?

Marketing and Customer Value

• The Value Delivery Process:

Core Business Processes:

 Three steps of Business realignment that may be necessary to

 Holistic marketers address three key management questions:

They all have well-

 Most large companies consist of four organizational levels:

Responsible for Establishes (product line,

• The Central Role of Strategic Planning:

The complete planning, implementation, and control cycle of strategic

All corporate headquarters undertake

• 1. Defining the Corporate Mission

 Mission statements - provides a shared sense of purpose, direction, and

• 1. Defining the Corporate Mission

• 2. Establishing Strategic Business Units

• 2. Establishing Strategic Business Units

 An SBU has three characteristics:

• 3. Assigning Resources to Each SBU

• 4. Assessing Growth Opportunities

Strategic Planning Gap

Intensive Opportunities  Market-penetration strategy- company first

Fig. 2.3 . The Business Unit Strategic- Planning Process

1. The Business Mission

2. SWOT Analysis EXTERNAL ENVIRONMENT

2. SWOT Analysis EXTERNAL ENVIRONMENT

2. SWOT Analysis EXTERNAL ENVIRONMENT

 To evaluate opportunities, companies can use market opportunity

2. SWOT Analysis EXTERNAL ENVIRONMENT

 The best marketing

2. SWOT Analysis EXTERNAL ENVIRONMENT

 Environmental threat is a challenge posed by an unfavorable trend or development

5 & 6. Program Formulation and Implementation

7. Feedback and Control

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