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Primary purpose of marketing is to create long-term and mutually beneficial exchange relationships. Marketing managers function solely to direct day-to-day operations. Strategic marketing management consists of five complex and interrelated analytical processes.
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0% found this document useful (0 votes)
1K viewsChapter 1 Foundations of Strategic Marketing
Primary purpose of marketing is to create long-term and mutually beneficial exchange relationships. Marketing managers function solely to direct day-to-day operations. Strategic marketing management consists of five complex and interrelated analytical processes.
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lolzasdCopyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF or read online on Scribd
/ 15
CHAPTER 1
Le
Foundations of Strategic
Marketing Management
‘The primary purpose of marketing is to create longterm and mutually
beneficial exchange relationships between an entity and the publics (indi
viduals and organizations) with which it interacts. Though this fundamen-
tal purpose of marketing is timeless, the manner in which organizations
undertake it continues to evolve. No longer do marketing managers function solely to
direct day-to-day operations; they must make strategic decisions as well. This elevation
of marketing perspectives to a strategic position in organizations has resulted in
expanded responsibilities for marketing managers. Increasingly, they find themselves
involved in charting the direction of the organization and contributing to decisions
that will create and sustain a competitive advantage and affect long-term organiza-
tional performance. According to senior strategic-planning manager at General
Hlectri
[T]he marketing manager is the most significant functional contributor tothe strategic
planning process, with leadership roles in defining the business mission;analysis of the
‘environmental, competitive, and business situations; developing objectives, goals, and
steategies,and defining product, market distribution, and quality plans to implement the
business's strategies. This involvement extends to the development of programs and
‘operational plans that are fully inked with the strategic plan.!
‘The transition of the marketing manager from being only an implementer to being,
‘a maker of organization strategy has prompted the emergence of strategic marketing
management as a course of study and practice. Strategic marketing management
consists of five complex and interrelated analytical processes.
1. Defining the organization's business, mission, and goals
2. Identifying and framing organizational growth opportunities
3. Formulating productmarket strategies
4, Budgeting marketing, financial, and production resources
5. Developing reformulation and recovery strategies
The remainder of this chapter discusses each of these processes and their relation-
ships to one another. 2 (CHAPTER 1 FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT
@ DEFINING THE ORGANIZATION’S BUSINESS, MISSION, AND GOALS
‘The practice of strategic marketing management begins with a clearly stated business
definition, mission, and set of goals or objectives. A business definition outlines the
scope of a particular organization’s operations. Its mission is a written statement of
organizational purpose. Goals or objectives specify what an organization intends to
achieve. Each plays an important role in describing the character of an organization
and what it secks to accomplish.
Business Definition
Determining what business an organization is in is neither obvious nor easy. In many
instances, a single organization may operate several businesses, as is the case with
large Fortune 500 companies. Defining each of these businesses is a necessary first
step in strategic marketing management.
Contemporary strategic marketing perspectives indicate that an organization
should define a business by the type of customers it wishes to serve, the particular
needs of those customer groups it wishes to satisfy, and the means or technology by
which the organization will satisfy these customer needs.? By defining a business
from a customer or market perspective, an organization is appropriately viewed as a
customer satisfying endeavor, not a product producing or service-delivery enterprise
Products and services are transient, as is often the technology or means used to pro-
duce or deliver them. Basic customer needs and customer groups are more enduring.
For example, the means for delivering prerecorded music has undergone significant
change over the past 25 years. During this period, the dominant prerecorded music
technologies and products evolved from plastic records, to eight-track tapes, to cas-
settes, and most recently, to compact discs. By comparison, the principal consumer
buying segment(s) and needs satisfied have varied little.
Much of the recent corporate restructuring and refocusing has resulted from
senior company executives asking the question,"What business are we in?" The expe-
rience of Encyclopaedia Britannica is a case in point? The venerable publishing
company is best known for its comprehensive and authoritative 32-volume, leather:
bound book reference series first printed in 1768. In the late 1990s, however, the com-
pany found itself in a precarious competitive environment. CD-ROMs and the Internet
had become the study tools of choice for students, and Microsoft's Encarta CD-ROM
and IBM's CD-ROM joint venture with World Book were attracting Britannica's core
‘customers. The result? Book sales fell 83 percent between 1990 and 1997. Britannica's
senior management was confident that the need for dependable and trustworthy infor-
‘mation among curious and intelligent customers remained. However, the technology
for satisfying these needs had changed. This realization prompted Britannica to rede-
fine its business. According to a company official: “We're reinventing our business
We're not in the book business. We're in the information business." By early 2003, the
‘company was on its way to becoming the premier information site on the Internet.
Britannica's subscription service (www.eb.com) markets archival information to
schools and public and business libraries. Its consumer Web site (www.britanica.com)
is a source of information and search engine leading to some 150,000 Web sites
selected by Britannica staffers for information quality and accuracy.
Business Mission
An organization's business mission complements its business definition. As a written
rement, a mission underscores the scope of an organization's operations apparent
in its business definition and reflects management's vision of what the organization
seeks to do. Although there is no overall definition for all mission statements, most
statements describe an organization's purpose with reference to its customers, prod- DEFINING THE ORGANIZATION’S BUSINESS, MISSION, AND GOALS 3
ucts or services, markets, philosophy, and technology.‘ Some mission statements are
generally stated, such as that for Saturn Corporation, a division of General Motors,
Saturn’s mission is to:
Market vehicles developed and manufactured in the United States that are world lead-
ers in quality, cost, and customer satisfuction through the integration of people, tech-
nology, and business systems and to transfer knowledge, technology, and experience
throughout General Motors.
Others are more specifically written, like that for Hendison Electronics Corporation.
Hendison Electronics Corporation aspires
to serve the discriminating purchasers of home entertainment products who
approach their purchase in a deliberate manner with heavy consideration of long-
term benefits. We will emphasize home entertainment products with superior per
formance, style, reliability, and value that require representative display, professional
selling, truined service, and brand acceptance—retailed through reputable electronic
specialists to those consumers whom the company can most effectively service.
Mission statements also apply to notforprofit organizations. For instance, the
mission of the American Red Cross is
to improve the quality of human life;to enhance selfreliance and concern for others;
and to help people avoid, prepare for, and cope with emergencies.
A carefully crafted mission statement that succinctly conveys organizational pur
pose can provide numerous benefits to an organization, including focus to its market-
ing effort. It can (1) crystallize management's vision of the organization's longterm
direction and character; (2) provide guidance in identifying, pursuing, and cvaluating
market and product opportunities; and (3) inspire and challenge employces to do
those things that are valued by the organization and its customers. It also provides
direction for setting business goals or objectives.
Business Goals
Goals or objectives convert the organization's mission into tangible actions and results
that are to be achieved, often within a specific time frame. For example, the 3M
Company emphasizes research and development and innovation in its business mis-
sion. This view is made tangible in one of the company’s goals: 30 percent of 3M's
annual revenues must come from company products that are less than four years old.>
Goals or objectives divide into three major categories: production, financial, and
marketing. Production goals or objectives apply to the use of manufacturing and ser-
vice capacity and to product and service quality. Financial goals or objectives focus
on return on investment, return on sales, profit, cash flow, and shareholder wealth.
Marketing goals or objectives emphasize market share, marketing productivity, sales
volume, profit, customer satisfaction, and customer value creation. When production,
financial, and marketing goals or objectives are combined, they represent a compos-
ite picture of organizational purpose within a specific time frame; accordingly, they
must complement one another.
Goal or objective setting should be problem-centered and future-oriented. Because
goals or objectives represent statements of what the organization wishes to achieve in
a specific time frame, they implicitly arise from an understanding of the current situa-
tion. Therefore, managers need an appraisal of operations or a situation analysis to
determine reasons for the gap between what was or is expected and what has hap-
pened or will happen. If performance has met expectations, the question arises as to
future directions. If performance has not met expectations, managers must diagnose
the reasons for this difference and enact a remedial program. Chapter 3 provides an
expanded discussion on performing a situation analysis. IDENTIFYING AND FRAMING ORGANIZATIONAL GROWTH OPPORTUNITIES 5
A clearly defined statement of success requirements serves as a device for matching
an environmental opportunity with an organization's distinctive competencies. If
what must be done is inconsistent with what can be done to capitalize on an envi-
ronmental opportunity, an organizational growth opportunity will fail to materialize.
‘Too often, organizations ignore this linkage and pursue seemingly lucrative environ-
‘mental opportunities that are doomed from the start, Exxon Mobil Corporation
earned this lesson painfully after investing $500 million in the office products mar-
ket over a 10-year period only to see the venture fail. After the company abandoned
this venture, a former Exxon Mobil executive summed up what had been learned:
“Don't get involved where you don’t have the skills. I's hard enough to make money
at what you're good at” By clearly establishing the linkages necessary for success
before taking any action, an organization can minimize its risk of failure. An execu-
tive for Leggs hosiery illustrates this point when specifying his new-venture criteria:
[PJroducts that can be sold through food and drugstore outlets, are purchased by
‘women, ... can be easily and distinctly packaged, and comprise at least a $500 mil.
lion retail market not already dominated by one or two major producers.”
‘When one considers Leggs past successes, it is apparent that whatever environ-
mental opportunities are pursued will be consistent with what Leggs docs best, as
illustrated by past achievements in markets whose success requirements are similar.
‘An expanded discussion of these points is found in Chapter 4.
SWOT Analysis
SWOT analysis is a formal framework for identifying and framing organizational
growth opportunities. SWOT is an acronym for an onganization’s Strengths and
Weaknesses and external Opportunities and Threats. It is an easy-touse framework
for focusing attention on the fact that an organizational growth opportunity results
from a good fit between an organization's internal capabilities (apparent in its
strengths and weaknesses) and its external environment reflected in the presence of,
environmental opportunities and threats. Many organizations also perform a SWOT
analysis as part of their goal- or objective-setting process.
Exhibit 1.1 on page 6 displays a SWOT analysis framework depicting representative
entries for internal strengths and weaknesses and external opportunities and threats. A
strength is something that an organization is good at doing or some characteristic that
gives the organization an important capability. Something an organization lacks or does
poorly relative to other organizations is a weakness. Opportunities represent external
developments or conditions in the environment that have favorable implications for the
“organization. Threats, on the other hand, pose dangers to the welfare of the organization.
‘A properly conducted SWOT analysis goes beyond the simple preparation of lists.
Attention needs to be placed on evaluating strengths, weaknesses, opportunities, and
threats and drawing conclusions about how each might affect the organization. The
following questions might be asked once strengths, weaknesses, opportunities, and
threats have been identified:
1. Which internal strengths represent distinctive competencies? Do these strengths
compare favorably with what are believed to be market or industry success
requirements? Looking at Exhibit 1.1, for example, does “proven innovation
skill” strength represent a distinctive competency and a market success require-
ment?
2. Which internal weaknesses disqualify the organization from pursuing certain
‘opportunities? Look again at Exhibit 1.1, and note that the organization acknowt
‘edges that it has a*weak distribution network and a subpar saleforce" How might 6 (CHAPTER 1 FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT
EXHIBIT 1
Sample SWOT Analysis Framework and Representative Examples
Selected Representative ‘Selected ‘Representative
Internal External
Factors ‘Strengths Weaknesses Factors Opportunities Threats
Experienced Lack of Uptum inthe Adverse shifts
Management management =—=—-management Economic business cycle; in foreign
talent depth evidence of exchange
growing per- rates:
sonal dispos-
able income
‘Well thought Weak distribu.
Marketing ofby buyers; tion network; Competition Complacency Entry of,
‘effective ad- subpar sales among domestic lowercost
vertising force competitors. foreign
program competitors
‘Available man- Higher overall Consumer Unfulfilled Growing
‘Manuficturing —_ufcturing production costs | trends customer preference for
capacity relative to key needs on high private-label
competitors andlowend products
of product
category sug:
gesting a prod-
uct line
expansion,
possibility
Proven inno. Poor wack Patent protec. Newer
RSD vation skills record in ‘Technology _ tion of com- substicute
bringing inno- plementary technologies
vvations to the technology imminent
marketplace ending
litle debt ‘Weak cash, Legal Falling wade ‘Increased US.
Finance relative 0 flow position regulatory barriers in regulation of
industry attractive productiesting
average foreign markets procedures
and labeling
Unique, high ‘Too narrow a New distribu. Low-entry
Offerings ‘quality prod- product line Industey/ tion channels barriers for
ucts market evolving that new compet-
structure reach abroader tors
‘customer pop-
tution
this onganizational weakness affect the opportunity described as “new distribu.
tion channels evolving that reach a broader customer population”?
3, Does a pattern emerge from the listing of strengths, weaknesses, opportuni
ties, and threats? Inspection of Exhibit 1.1 reveals that low-entry barriers into
the market/industry may contribute to the entry of lower-cost foreign com:
petitors. This does not bode well for domestic competitors labeled as “com-
placent” and the organization's acknowledged high production costs, FORMULATING PRODUCT MARKET STRATEGIES 7
@_FORMULATING PRODUCT-MARKET STRATEGIES
In practice, organizational opportunities frequently emerge from an organization's
existing markets or from newly identified markets. Opportunities also arise for exist
ing, improved, or new products and services. Matching products and markets to form
product-market strategies is the subject of the next set of decision processes.
Productmarket strategies consist of plans for matching an organization's existing
or potential offerings with the needs of markets, informing markets that the offerings
exist, having offerings available at the right time and place to facilitate exchange, and
assigning prices to offerings. In short, a productmarket strategy involves selecting spe-
cific markets and profitably reaching them through an integrated program called a
marketing mix.
Exhibit 1.2 classifies product-market strategies according to the match between
offerings and markets.!9 The operational implications and requirements of each strat-
‘egy are briefly described in the following subsections.
Market-Penetration Strategy
‘A market-penetration strategy dictates that an organization seek to gain greater
dominance in a market in which it already has an offering, This strategy involves
attempts 10 increase present buyers’ usage or consumption rates of the offering,
attract buyers of competing offerings, or stimulate product trial among potential cus-
tomers. The mix of marketing activities might include lower prices for the offerings,
expanded distribution to provide wider coverage of an existing market, and heavier
promotional efforts extolling the “unique” advantages of an organization's offering
‘over competing offerings. For example, following the acquisition of Gatorade from
Quaker Oats, PepsiCo has announced that it expects to increase Gatorade’s 85 per-
cent share of the sports drink market through broader distribution and more aggres-
sive advertising,"!
Several organizations have attempted to gain dominance by promoting more fre
quent and varied usage of their offering. For example, the Florida Orange Growers
‘Association advocates drinking orange juice throughout the day rather than for break-
fast only, Airlines stimulate usage through a variety of reduced-fare programs and vari-
‘ous family-travel packages designed to reach the primary traveler's spouse and children.
Marketing managers should consider a number of factors before adopting a pen-
tration strategy, First, they must examine market growth. A penetration strategy is
usually more effective in a growth market. Attempts to increase market share when.
volume is stable often result in aggressive retaliatory actions by competitors. Second,
they must consider competitive reaction, Procter & Gamble implemented a penetration,
EXHIBIT 1.2
A
ProductMarket Strategies
Markets
Existing New
Market Market
Exist
ad penetration development
Offerings f
° New offering
New development Diversification (CHAPTER 1 FOUNDATIONS OF STRATEGIC MARKETING MANAGEMENT
strategy for its Folgers coffee in selected East Coast cities, only to run head-on into an
equally aggressive reaction from Kraft Foods’ Maxwell House Division. According to one
observer of the competitive situation:
When Folger’s mailed millions of coupons offering consumers 45 cents off on a one:
pound can of coffee, Maxwell House countered with newspaper coupons of its own.
‘When Folger’s gave retailers 15 percent discounts from the list price .. ., Maxwell
House met them head-on. (Maxwell House] let Folger’s lead off with a TV blitz,
‘Then [Maxwell House] saturated the airwaves."
‘The result of this struggle was no change in market share for either firm. Third,
‘marketing managers must consider the capacity of the market to increase usage or
consumption rates and the availability of new buyers. Both are particularly relevant
‘when viewed from the perspective of the conversion costs involved in capturing buy-
rs from competitors, stimulating usage, and attracting new users.
Market-Development Strategy
‘A market development strategy dictates that an organization introduce its existing
offerings to markets other than those it is currently serving. Examples include intro-
ducing existing products to different geographical areas (including international
expansion) or different buying publics. For example, Harley-Davidson engaged in a
marketclevelopment strategy when it entered Japan, Germany, Italy, and France
Lowe's the home improvement chain, employed this strategy when it focused atten-
tion on attracting women shoppers to its stores."
“The mix of marketing activities used must often be varied to reach different mar-
kets with differing buying patterns and requirements, Reaching new markets often
requires modification of the basic offering, different distribution outlets, or a change in
sales effort and advertising.
Tike the market-penetration strategy, market development involves a careful con-
sideration of competitor strengths and weaknesses and competitor retaliation poten-
tial. Moreover, because the firm seeks new buyers, it must understand their number,
motivation, and buying patterns in order to develop marketing activities successfully.
Finally, the firm must consider its strengths, in terms of adaptability to new markets,
in order to evaluate the potential success of the venture.
Market development in the international arena has grown in importance and ust
ally takes one of four forms: (1) exporting, (2) licensing, (3) joint venture, or (4) direct
investment.“ Each option has advantages and disadvantages. Exporting involves mar-
keting the same offering in another country either directly (through sales offices) or
through intermediaries in a foreign country. Because this approach typically requires
‘minimal capital investment and is easy to initiate, itis a popular option for developing
foreign markets. Procter & Gamble, for instance, exports its deodorants, soaps, fe
grances, shampoos, and other health and beauty products to Eastern Europe and
Russia, Licensing is a contractual arrangement whereby one firm (licensee) is given
the rights to patents, trademarks, know-how, and other intangible assets by its owner
Gicensor) in return fora royalty Cusually 5 percent of gross sales) ora fee, For example,
Cadbury Schweppes PLC, a London-based multinational firm, has licensed Hershey
Foods to sell ts candies in the United States fora fee of $300 million. Licensing provides
a low-risk, quick, and capitalfree entry into a foreign market. However, the licensor
"usually has no control over production and marketing by the licensee. A joint venture,
often called a strategic alliance, involves investment by both a foreign firm and a local
‘company to create a new entity in the host country. The two companies share owner-
ship, control, and profits of the entity. Joint ventures are popular because one com
pany may not have the necessary Financial, technical, or managerial resources to entet
‘a market alone. This approach also often ensures against trade barriers being imposed FORMULATING PRODUCEMARKET STRATEGIES 9
on the foreign firm by the government of the host company. Japanese companies fre-
quently engage in joint ventures with American and European firms to gain access to
foreign markets. A problem frequently arising from joint ventures is that the partners
do not always agree on how the new entity should be run. Direct investment in a man-
‘uftcturing and/or assembly facility in a foreign market is the most risky option and
requires the greatest commitment. However, it brings the firm closer to its customers
and may be the most profitable approach for developing foreign markets. For these
reasons, direct investment must be evaluated closely in terms of benefits and costs.
Direct investment often follows one of the three other approaches to foreign-market
entry. For example, Mars, Inc. originally exported its M&Ms, Snickers, and Mars bars to
Russia but recently opened a $200 million candy factory outside Moscow.
Product-Development Strategy
A productdevelopment strategy dictates that the organization create new offerings for
‘existing markets, The approach taken may be to develop totally new offerings (product
innovation) to enhance the value to customers of existing offerings (product augmenta-
tion), or to broaden the existing line of offerings by adding different sizes, forms, flavors,
and so forth (product line extension). Personal digital assistants, such as Palm Pilot, are
an example of product innovation. Product augmentation can be achieved in numerous
‘ways. One is to bundle complementary items or services with an existing offering. For
‘example, programming services, application aids, and training programs for buyers
‘enhance the value of personal computers. Another way is to improve the functional per.
formance of the offering. Producers of facsimile machines have done this by improving
print quality, Many types of productline extensions are possible, Personal-carc compa-
nies market deodorants in powder, spray, and liquid forms; Gatorade is sold in 18 flavors,
and Frito-Lay offers its Lay's potato chips in a number of package sizes.
Companies successful at developing and commercializing new offerings lead their
industries in sales growth and profitability. The likelihood of success is increased if the
development effort results in offerings that satisfy a clearly understood buyer need. In
the toy industry, for instance, these needs translate into products with three qualities
2) lasting play value, (2) the ability to be shared with other children, and (3) the abi
ity to stimulate a child's imagination. 5 Successful commercialization occurs when the
offering can be communicated and delivered to a welldlefined buyer group at a price
it is willing and able to pay.
Important considerations in planning a product
