THE MANAGER’S GUIDE TO

COMPETITIVE
MARKETING
STRATEGIES
3RD EDITION

NORTON PALEY
Blank page
 Third Edition

The Manager’s Guide to

COMPETITIVE MARKETING
STRATEGIES

NORTON PALEY
Published by Thorogood
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 Dedication

To Hubert Paley, who left a legacy of art.

iii
 About the author

Norton Paley has over 25 years of corporate experience in general manage-

ment, marketing management and product development at McGraw-Hill Inc,
John Wiley & Sons and Alexander-Norton Inc. He has authored seven books,
including:
• Manage to Win
• Successful Business Planning
• Marketing for the Non-marketing Executive: An Integrated Manage-
ment Resource Guide
• The Marketing Strategy Desktop Guide
• Pricing Strategies and Practices
• Marketing Principles and Tactics Everyone Must Know
• The Manager’s Guide to Competitive Strategies, 2nd Ed.

In addition to advising management on competitive strategies and strategic

planning, Paley also has extensive global experience lecturing to managers
at such firms as American Express, Cargill (worldwide), Chevron Chemical,
Babcock & Wilcox, Dow Chemical (worldwide), W.R. Grace & Co., Prentice-
Hall, Ralston-Purina, Hoechst, and McDonnell-Douglas. Also, he participated
in lecture tours in the Republic of China and Mexico.

His byline columns have appeared in The Management Review and Sales &
Marketing Management.

iv THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Contents

Introduction 2
Key accomplishments 2
Purpose and use of this book 5

PART ONE
Competitive marketing strategies:
The hallmark of an effective manager 10

ONE
Competitive marketing strategies in action 12
Strategy defined for business 15
Human factors in strategy 17
Physical disruption 18
Psychological disruption 19
Military strategy and marketing strategy:
the indisputable relationship 24
Direct attack 24
Indirect attack 27
Envelopment attack 32
Bypass attack 35
Guerrilla attack 36
Strategy principles 39
Speed 40
Organizing for speed and quick reaction 41
Indirect approach 42
Concentration 44
Alternative objectives 45
Unbalancing competition 46
A focus on business strategy 49
Competitive intelligence 51
Conclusion 53

CONTENTS v
 PART TWO
Develop a competitive analysis 56

TWO
External analysis: Understand the competitive
world surrounding you 58
Customer analysis 59
Market and product segments 63
Categories for segmenting markets 64
Applying field ethnography to segment a market 70
Patterns of customer behaviour 77
Competitor analysis 83
Industry analysis 87
Conducting an industry analysis 91
Environmental analysis 94

THREE
Internal analysis: The central framework for
implementing competitive marketing strategies 100
Performance analysis 104
Strategy analysis 107
Strategic priorities analysis 109
Cost analysis 113
Sales forecasting 119
Sales forecasting techniques 120
Portfolio analysis 126
Financial resource analysis 133
Summary of internal analysis 147

vi THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

PART THREE
Market intelligence and planning 150

FOUR
Developing a marketing intelligence system:
The underpinnings of your marketing strategy 152
Information, intelligence and decision making 156
The World Wide Web 157
Implementing a marketing intelligence system 160
Assembling competitor intelligence 165
Applications of the competitor and marketing intelligence systems 167
Summary 172

FIVE
Marketing research: The primary tool to stay
in touch with customers and markets 174
Market research guidelines 178
Types of data 178
Generating primary data 179
Three approaches 182
Focus group interviews 185
Effective research on the worldwide web 188
Image research 191
The importance of a favourable image 192
Developing an image 193
Changing an image 194
Guidelines to image management 196
Major sources of secondary information 197
Suppliers of commercial marketing data 198
Summary 199

CONTENTS vii
 SIX
Strategic marketing planning: Shaping your
company’s growth and prosperity 202
The strategic plan: looking forward three to five years 207
Strategic direction 208
Objectives and goals 213
Quantitative objectives and goals 214
Growth strategies 216
Business portfolio 219
The total plan 223

SEVEN
Developing the marketing plan: Initiating rock-solid action 226
Sample marketing plan 228
The marketing plan 229
Competitor analysis 240
Sales force effectiveness and market coverage 241
Marketing opportunities 243
Marketing objectives 245
Strategies and action plans 248
Summary statement of final strategy 250
Financial controls and budgets 251
Getting started: Form a strategy team 253

PART FOUR
Specific competitive strategies 256

EIGHT
Market strategies: Applying resources for maximum impact 258
Market dimension 259
Market entry 262
Strategy applications 263
Market commitment 265
Market demand 268
Market diversification 271
Action steps 275

viii THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

NINE
Product/service strategies:
Your lifeline to growth and competitive advantage 278
Positioning 279
Product life cycle 283
Strategies throughout the life cycle 288
Product competition 292
Product mix 295
Product design 298
New products/services 302
Combined approach for new product categories 307
Action steps to implement product/market strategies 312

TEN
Pricing for profits: Strategies to maintain
premium prices and higher margins 316
New products 317
Established products 323
Auction pricing 329
Fees 330
Action steps 331

ELEVEN
Promotional strategies: Plan a total communications mix 334
Advertising 336
How to develop a successful advertising campaign 339
Sales promotion 345
How to use sales promotion to stimulate sales 348
Develop your sales promotion program 351
Direct and interactive marketing 352
The Internet 356
Public relations 357
Personal selling 359
Summary and action steps 361

CONTENTS ix
TWELVE
Supply chain strategies:
A demand-driven lifeline to your customers 364
Supply chain strategies 367
Supply chain control 371
Evaluating distributors 375
Innovations in supply-chain strategies 378

THIRTEEN
Maintaining a global perspective: Thinking like a strategist 384
Defining a global perspective 384
A global perspective on market possibilities 387
Entry strategies for global markets 389
The team approach – thinking like a strategist 391
Identifying opportunities 394
Summary 395

APPENDIX
Checklists for developing competitive strategies 398
Checklists and forms 401

x THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Introduction
Introduction

A new style of manager is in the making.

The paper shuffler, the procrastinator, the narrow-focused manager is giving

way to the strategist, the implementer and the innovator.

The following executives from Business Week’s 2005 list of the world’s best
managers embody the qualities of that new breed.1 They are also the ones
who are redefining the meaning of a market-driven organization and the role
of marketing for the 21st century.

They represent a variety of backgrounds, industries, experiences and levels

of skill. What they have in common is concrete achievement; the ability to
move their respective companies forward during periods of economic
difficulties, intense global competition and a variety of tough pressures
pounding at them from in and out of their organizations. In all, they are the
resolute ones that stayed on course through the maelstrom of market and
technology changes.

Key accomplishments
Jeffrey Immelt, General Electric, repositioned GE’s portfolio with major
acquisitions in health care, entertainment and commercial finance. He created
a more diverse, global and customer-driven culture.

Steven Reinemund, PepsiCo, attained consistent double-digit earnings

growth through product innovation and smart marketing.

Hector Ruiz, Advanced Micro Devices, launched an initiative to sell low-

cost PCs in developing countries in a bid to bridge the widening digital divide.

Robert Nardelli, Home Depot, turned a $46 billion company focused on big-
box stores into a $70 billion chain with urban, suburban and international
outlets.

1 Source: ‘The Best Managers’, cover story in Business Week, January 10, 2005 issue.

2 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Joseph Tucci, EMC, revived growth by pushing sales of new, easier-to-use,
less expensive storage gear.

Henning Kagermann, SAP, tied its software to other companies’ products,

which helped to win a plethora of new customers.

Anne Mulcahy, Xerox, pushed for faster decision-making and instituted lean
Six Sigma to improve efficiency.

Linus Torvalds, Open Source Development Labs, turned Linux into the No.
2 server operating system in the world, after Windows.

Chung Mong Koo, Hyundai, turned the company into a leader in customer-
satisfaction surveys and boosted Hyundai’s presence in Europe, China, India
and the U.S., resulting in record sales and profits.

Their visible accomplishments vary somewhat. Yet they have commonalities

that include: seeking market growth with profitability, focusing on product
innovations to satisfy customers’ needs or solve their special problems, inspiring
a customer-driven organization, developing a solid understanding of the
workings of their respective markets and knowing what makes their
customers tick.

Those achievements also define the current and down-to-earth meaning of

marketing and what marketing strategy seeks to accomplish. Here, then, lies
the purpose of this book.

As will be pointed out in the following chapters, there are finite processes
and techniques associated with marketing and strategy. You need to:
• Estimate market opportunities and competitive threats before
committing resources.
• Evaluate your organization’s capabilities and its corporate culture to
understand which strategies have a likelihood of success.
• Utilize competitive intelligence to achieve a solid competitive position
or to protect an existing one.
• Prepare innovative strategic marketing plans to guide your decisions
when selecting markets to enter or avoid.
• Use the five components of strategy: speed, indirect approach,
concentration, unbalancing competitors and alternate objectives to
respond quickly to competitors’ actions.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 3

 • Develop strategies for the long-term growth of a market, while
maintaining reliable customer relationships.
• Cultivate a corporate culture that uplifts personnel with the will to
win.

The end result: achieve your objectives through the effective application of
competitive marketing strategies. The following case example adds weight
to the above points.

Case example
Procter & Gamble Co. aims to transform all levels of marketing managers
into global strategic thinkers with an aggressive entrepreneurial spirit. The
executive management of P&G pushes managers to take more risks and exploit
opportunities more rapidly.

Why? A tougher competitive environment, shrinking market shares, changing

market behaviour and maturing of key markets are forcing a fresh look at
P&G’s strategies of waging marketing warfare.

Managers are continually asked to generate long lasting, breakthrough

products and ways to exploit new markets with P&G’s technology.

In a departure from its paternalistic history, P&G management is phasing

out mediocre performers from management ranks. Time honoured, cautious
styles are rapidly changing. For example, in the past, P&G would test-market
a new product, such as Bounce fabric softener, for years before finally
introducing it.

In contrast, P&G began selling its Duncan Hines frosting in just 15 months
of testing. One executive reports “a new sense of urgency throughout the
organization.”

One reason for the urgency of paying more attention to expanding product
lines is that a failure to do so would enable even the smallest competitors to

4 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

carve out niches in markets that P&G presently dominates. Now P&G is also
adding a flood of variations to established products.

The results of these activities? As in the above examples, a new type of manager
is emerging at P&G equipped to handle tough competitors and maturing
markets.

The situation at Procter & Gamble shows that middle-level managers are in
a threatened position unless there are changes in job performance. Here are
some factors for you to consider:
• Global perspective: as indicated by P&G, the manager must think
strategically with a total business perspective and not just a
product focus.
• Entrepreneurial thinking: the emerging manager must look for
innovative ways to expand existing markets, identify new markets
and evaluate new product opportunities and innovations.
• Planning capability: an effective manager must have the ability to
develop a well thought-out strategic marketing plan.
• Team approach: the manager must display the leadership to gain
willing participation from R&D, manufacturing, finance, sales and
other functional areas and merge that input into the strategic
marketing plan.
• Implementation: the manager must be able to not only shape the
objectives, but also implement them through competitive
strategies.

In summary, it is vital that the subjects of competitive strategy and marketing

be studied thoroughly. At stake are the livelihoods of employees, the survival
of businesses and the economies of towns and cities. Planning, vision and
the effective application of strategies can make the vital difference in
developing a sustained competitive advantage.

Purpose and use of this book

The aim of this book, therefore, is to awaken managers at all levels to take
responsibility for their respective divisions, departments, product lines,
individual products, or sales territories.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 5

The intent is to stimulate a businesslike spirit of entrepreneurship and
innovation that expresses itself in the form of business-building strategies.

It is also intended for upper-level executives who run global organizations

and for those owners who operate smaller businesses. In all, the purpose is
to keep a proper balance of judgment between a long-term strategic outlook
for the growth of markets and a short-term tactical viewpoint. Also, while
wrestling with day-to-day operational problems, be able to sustain a
competitive advantage against aggressive rivals while solidifying customer
relationships.

This third edition has been updated to deal with the current issues facing
executives. And to make it a practical desktop tool, new company cases have
been added to each chapter to provide realism and authenticity.

The book can be used in several ways:

1. You can read it cover-to-cover and acquire the foundation concepts,
explanations and techniques for analyzing, planning and developing
competitive strategies.
2. You can use its workbook format and numerous checklists to develop
an actionable strategic marketing plan.
3. You can open the book to the numerous case examples of companies
that are operating successfully and find mental nourishment and
stimulation for your own situation.

Chapter 1 describes five key strategies derived from over 2,500 years of
recorded military history and shows how they apply to business situations.
It also presents basic principles of strategy that you can use to draft your
own competitive strategies.

Chapter 2 shows you how to develop a framework for competitive analysis

by ‘looking out the window,’ by using an external viewpoint reached through
careful scrutiny of customers’ behaviours and needs, competitors’ capabilities
and industry trends. In connection with identifying market segments, time-
tested techniques used by cultural anthropologists are applied in this book
on competitive marketing strategies to form a new and organized process
to evaluate a market segment.

Chapter 3 demonstrates how to ‘look in the window’ to examine your

organization’s capabilities for defending or attacking markets and helps you
analyze those strengths and weaknesses with precision.

6 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Chapters 4 and 5 discuss how to develop a working model for market research
and competitor intelligence systems. This involves collecting, compiling,
cataloguing and digesting data to be applied to strategy development.

Chapters 6 and 7 provide a highly successful format for developing a strategic

marketing plan.

Chapters 8 through 13 deal with specific strategies and tactics for target
markets with emphasis on product, pricing, supply chain and promotion
strategies, as well as the use of cross-functional strategy teams for obtaining
optimum results.

The Appendix provides checklists for shaping your competitive marketing

strategies.

The bottom line: you will be able to acquire the skills to create a sustained
competitive advantage by developing competitive strategies with a global
marketing perspective. That perspective means thinking like a strategist and
encompasses the primary themes of this book.

These include seeking new opportunities for targeting unserved, poorly served,
or emerging markets; overcoming obstacles to securing a firm market position
against intense competition and generally reacting quickly and decisively to
stop aggressive competitors.

Good luck!

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 7

Blank page
PART ONE

Competitive marketing strategies:

The hallmark of an effective manager
 PART ONE
Competitive marketing strategies:
The hallmark of an effective manager

‘Marketing strategy is the most significant planning

challenge regardless of industry or size of company. Our
goal will be to re-evaluate and examine constantly our
marketing position. Our emphasis will be on market
strategy, technique and product innovation.’
PRICEWATERHOUSECOOPERS, FROM THEIR SURVEY OF 250 CORPORATE EXECUTIVES

Marketing strategy has been the key planning challenge since the 1980s. From
all indications, it should dominate your thinking and actions for the
foreseeable future. Marketing strategy envelopes numerous and diverse issues,
most of which relate directly to how successfully you can compete in a
combative market place. They include:
• The level of customer relationships that you have cultivated.
• How effectively your new products and services match the needs of
targeted customer groups.
• The commitment to competitive intelligence, which is the underpinning
of competitive strategy.
• The awareness of changing demographic and shifting buying patterns.
• Where your company or product line is on the product life cycle.
• Your responsiveness to emerging, neglected and poorly served
markets; supply chain issues; Internet and technological changes and
the globalization of markets and products.

Your ability to consciously take into account those issues when developing
competitive strategies is, and will remain, the hallmark of a skilled manager.
To acquire that ability, you need to understand what strategy is and how to
incorporate it into your planning. Chapter 1 provides just such a foundation.

10 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

PART ONE CHAPTER ONE

Competitive marketing strategies

in action
 ONE
Competitive marketing
strategies in action

Chapter Objectives
Expand your marketing skills as you:
1. Interpret strategy principles and apply
them to your own business.
2. Identify how time-honoured concepts of
military strategy can strengthen your
marketing campaigns.
3. Apply the basic strategy principles of
speed, indirect approach, concentration,
alternate objectives and unbalancing
competition.
4. Devise competitive marketing strategies
to outperform your competitors.

To view competitive strategies in action, let’s see how one company effectively
positioned its products in a crowded market.

12 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Case example
Liz Claiborne Inc. is an apparel company skilfully balancing 26 brands that
attract consumers spread over the demographic and psychographic (behavioural)
spectrum, from teens to middle-aged women to bargain shoppers.

The company is the master of niche marketing and branding. Obsessively

anchored to research trends and sales data, Claiborne’s business practices
have ingeniously assumed the status of a science in a business traditionally
bent on fashion by inspiration, whim and by attempting to make trends rather
than by following them.

Claiborne relies heavily on initiating numerous consumer studies, hiring colour-

and-trend-consulting firms and even utilizing a small research firm staffed
by psychologists who study women’s shopping behaviour going so far as to
comb through their closets.

Armed with reams of data, Claiborne’s 250 designers methodically interpret

the market trends for their respective clothing labels, which include DKNY,
Lucky Brand Dungarees, Shelli Segal, Kenneth Cole, Dana Buchman, Villager
and Crazy Horse.

Nine additional brands alone play off the Liz Claiborne name. Thus, the profile
and buying behaviour associated with each brand is carefully dedicated to
the market niche in which each designer operates.

Does the system stifle creativity? Apparently not. In a chaotic market where
industry sales plummeted seven per cent, revenues at Claiborne jumped 11
per cent in 2000. And in 2001 sales skyrocketed 66 per cent.

Dedicated market research continues to drive the business and permits

Claiborne to prosper in a market that is as accessible to the giants as it is to
numerous boutique firms.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 13

 Action strategy
What can you learn from the Liz Claiborne case? If you want to position your
products effectively in a crowded market and against market leaders, take
into account the following action strategies:

Develop a strategic marketing plan as a line of communications and

an action-oriented document.

1. Select a competitive advantage that larger competitors cannot

perform efficiently.
Action: Employ market research, formal and informal, to identify
possibilities for differentiation.

2. Commit to quality and service as an organizational priority.

Action: Encourage individuals at all the functions you can influence
to strive for quality. These are not one-time motivational talks, but
continuous training with the goal of sustaining a full commitment.

3. Focus on speciality products that command premium prices; leave

the commodity price segment to others – unless you are the low-cost
producer in your industry.
Action: Practise segmenting your market(s) for specific product and
service applications. Get closer to your customers and their problems.

4. Establish long-term alliances with customers to grow with them and

to build technology and product relationships.
Action: Encourage trust with customers or suppliers so that sensitive
information can be shared for mutual interests.

5. Maintain a market-driven orientation within your immediate group

and throughout your organization (if within your authority) to maintain
a competitive advantage.
Action: Organize a strategy team made up of personnel from various
functions. Then, have the team develop a strategic marketing plan
and use it as a line of communications and an actionable document
to respond rapidly to market opportunities.

14 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 6. Seek global opportunities that complement long-term objectives.
Action: Make active use of the Internet. Explore joint ventures, licensing,
or exporting opportunities to develop a global presence – if consistent
with your company’s mission.

7. Partner sales people with customers to provide product solutions to

customers’ problems.
Action: Go beyond traditional forms of sales training. Instead, teach
salespeople how to think like strategists so they can help their
customers achieve a competitive advantage.

8. Identify market niches that are emerging, neglected, or poorly served.

Action: Reassess how you segment your markets. Search for additional
approaches beyond the usual criteria of customer size, frequency of
purchase and geographic location. Look for potential niches related
to just-in-time delivery, product performance and reliability,
applications, quality, or technical assistance.

Additionally, the Claiborne case points out many applications of competitive

strategy: team planning, competitive advantage, customer relationships, market
intelligence, product positioning, market expansion and penetration,
manoeuvring and product development.

These managed applications are directed on a two-pronged effort: (1) to sustain

an advantage over competitors and (2) to satisfy customers’ needs.

Strategy defined for business

Strategies are actions to achieve objectives.

Keeping in mind Liz Claiborne’s practices, we can arrive at workable

definitions of strategy:
• Strategy is the art of coordinating the means (money, human resources
and materials) to achieve the ends (profit, customer satisfaction and
company growth) as defined by company policy and objectives.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 15

 • Strategy is further defined as actions to achieve long-term objectives,
which exist at three levels:
First, higher-level or corporate strategy. Here, your aim is to
coordinate and deploy company resources toward fulfilling your
company’s vision for the future, along with related long-term
objectives. Specifically, that means implement your company’s
strategies with a view towards understanding changing market
conditions, as you keep in mind the long-range potential for its future
development and profitable growth.

Second, mid-level strategy. This level operates at the division,

business unit, department, or within a product-line. It is more
precise than corporate strategy. It covers a period of three to five years
and focuses on quantitative and non-quantitative objectives.

The intent is to provide for continued growth by (1) penetrating existing

markets with existing products, (2) expanding into new markets with
existing products, (3) developing new products for existing markets
and (4) developing new products for new markets.

Third, lower-level strategy – or tactics. This level requires a shorter

time frame than those at the two higher levels (usually one-year).
Normally, it would correlate with your company’s business plan and
the budgetary process.

In its everyday application, tactics are actions designed to achieve your short-
term objectives, while supporting longer-term objectives and strategies.

Tactics are precise actions that cover such areas as: pricing and discounts,
advertising media and copy themes, the Internet, sales force deployment and
selling aids, distributor selection and training, product packaging and services
and selection of market segments for product launch.

16 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 Corporate
Strategy

Mid-Level
Strategy

Lower-Level
Strategy
(Tactics)

FIGURE 1.1 THE THREE LEVELS OF STRATEGY

Human factors in strategy

With the immense quantities of computerized reports available, particularly
over the Internet, you may rely exclusively on quantified data to develop
marketing plans and strategies. Doing so, however, suggests that you may
think of the market as a set of impersonal factors that can be predicted, analyzed
and managed through a variety of logic-based techniques.

While correct calculations and well-coordinated objectives are indispensable

for devising marketing strategies, they lack the human element when
attempting to handle unpredictable business conditions, such as a sudden
competitive move and erratic buying behaviour.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 17

 Marketing – similar to the military2 – is a battle of mind against mind, manager
against competing manager and marketing strategy against a competitor’s
strategy. Essentially a conflict of human wills, strategies must, therefore, meet
and counter unpredictable human responses.

Basil Liddell Hart, the foremost British military historian of the 20th century,
counsels:
Natural hazards, however formidable, are inherently less dangerous and
less uncertain than fighting human hazards. All conditions are more calculable,
all obstacles more surmountable than those of human resistance. Reason,
calculation and preparation can overcome them almost to a timetable.3

The prime aims of strategies are to lessen resistance and disrupt the
competition.

To understand the role of strategy and the impact of human will, consider
what happens when an existing firm enters a new market. Immediately the
newcomer will encounter resistance from companies already entrenched in
the market. Therefore, a prime purpose of your strategy is to lessen resistance.

A further goal of your strategy is to avoid head-to-head confrontations with

competitors, which invariably drains resources, exhausts budgets and tends
to increase resistance. Then, there is the related aim of strategy, which is to
disrupt your competitor’s plans against you. Disruption takes place at two
levels: physical and psychological.

Physical disruption
At the physical level, disruption entails a series of moves to upset your
competitor’s plans through pinpointed actions against his market position.
For instance, develop plans that would cancel out any advantage a competitor
might have in making on-time deliveries by matching or exceeding the timing,
thereby cancelling out the advantage.

2 See section on, Military strategy and marketing strategy: The indisputable relationship further
on in this chapter.

3 B. H. Liddell Hart, Strategy (New York: Praeger, 1954), p. 163.

18 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Other efforts include setting-up new incentive programs within the supply
chain, launching cost-cutting electronic ordering systems, or establishing
favourable long-term contracts with key accounts. In turn, those actions depend
on your ability to:
• Correctly estimate market conditions.
• Evaluate your competitor’s willingness to interfere with your efforts.
• Determine your customers’ responsiveness to your product claims,
media messages and promotional initiatives.
• Assess the best timing for your product launch, which includes
factoring in any changing demographic or purchasing profiles4.

Psychological disruption
At the psychological level, disruption is the effect any physical move has on
the mind of the competing manager. It relies on surprise to distract his attention
and undermine his confidence into making sudden and faulty decisions.

When the competing manager feels trapped and unable to counter your moves
quickly enough, he or she may form mistakes in judgment and thereby play
the market into your hands. Surprise also depends on estimating5 the conditions
that are likely to affect the will of the competing manager to flee or fight.

Movement and surprise – the physical and psychological elements – must

work together to make your strategy succeed. Combining physical and
psychological techniques distracts the competing manager from your efforts,
disperses his attention among unprofitable approaches and dislocates him
from his grip on the market. Overextended, limited in his options, the opposing
manager will be less likely to interfere with your moves.

Then, if you are able to successfully disrupt your competition, your next move
is to re-deploy your marketing efforts temporarily to make it look as if you
are spread out. Once achieved, follow-up rapidly by concentrating your
resources where it counts most by taking a position in markets that are
emerging, neglected, or poorly served. That is what lessening resistance, speed,
disruption, movement and surprise is all about.

4 See Chapter 2 on how to assemble estimates.

5 See above reference.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 19

 Concentrating resources also relates to the familiar business terms of
segmentation, niche marketing and target marketing. And to further protect
your efforts, the one added dimension you should take into account when
segmenting your market is to deliberately look at preventing your competitor
from interfering with your efforts.

To further assure success, set up a plan with alternative market objectives.

Should the competing manager unravel your strategy, he has a chance at
blunting your efforts. By taking a line that threatens him with alternative
objectives, you distract his attention, divide his efforts and place him on the
‘horns of a dilemma.’

Also, by leaving yourself a number of options, you ensure achieving at least

one objective – perhaps secondary ones, as well. Therefore, your plan must
be hands-on and flexible to respond to changing circumstances.

Look at strategy and manoeuvre as an encounter of manager versus

manager.

In sum, your aim is not to battle competitors directly. Rather, use strategy to
disrupt, unbalance and weaken your competitor, while at the same time
concentrating your company’s strength at market opportunities.

Look at such strategizing and manoeuvring as an encounter of manager versus

manager: your skill, experience and know-how pitted against those of a
competing manager.

The following industry example illustrates the above concept where smallish
banks manoeuvred against market leaders without creating a direct
confrontation.

20 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Case example
The banking industry has been consolidating for well over a decade into
the hands of several megabanks, dominated by the likes of Citigroup, J. P.
Morgan Chase, Bank of America and Wells Fargo. During the high-profile
manoeuvring of the giants, small banks fell by the wayside and remained in
a somewhat dormant state.

Then a fissure slowly appeared among the big banks into which a few surviving
smaller banks forced a cavernous opening. The crack first became visible to
executives at smaller banks as increased numbers of retail customers and
commercial borrowers complained about long waiting periods for loan
approvals, increasing account minimums, rising ATM fees and declining
customer services.

Taking advantage of the opening, small banks charged forward offering

scorned customers the royal treatment with an extensive variety of friendly
efforts, from serving Starbucks coffee, free babysitting, investment advice,
no minimum balances, customized account services to super-fast approval
of loan applications.

In effect the small banks played their winning hand by exposing the
megabanks’ inability to respond appropriately with superior service. They
focused on the competitors’ unwillingness to reach out to underserved niches
within minority communities, by opening branches in areas abandoned by
big banks and cultivating loan terms backed by the personalized attention
of senior level bank executives.

Results: Deposits at small banks increased by five per cent a year since the
mid-1990s, while growth at large banks remained flat. And profits expanded
by 11.8 per cent annually versus 8.5 per cent for the big players.

In general, the major banks did not respond suitably during that period. They
continued to pursue more focused strategies dominated by maximizing profits
through cost-cutting and similar financially oriented measures.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 21

 Action strategy
What can you learn from this bank case? Marketing-savvy managers were
able to develop clever strategies that used manoeuvre to gain an advantage
over larger competitors. Also, they exercised discipline and courage to remain
in the fray and not be intimidated by industry leaders to pull out of the market.

Manoeuvring means taking the most roundabout route to the customer.

Few marketing strategies are more difficult to execute than manoeuvre. First,
it requires defining the most roundabout route to the customer; rather than
suffer the consequences of a direct confrontation against stronger market
leaders. The small banks manoeuvred by filling gaps with services that were
not being supplied to disgruntled customers.

Next, manoeuvre requires that you assess your resources and evaluate market
conditions before moving into a niche. That means weighing both advantages
and dangers of maintaining a market presence for the long haul.

Finally, before you undertake a manoeuvre strategy, be aware of these

guidelines for success:
• Know your market. Pinpoint the likely points that would increase your
chances of success for market entry. Initially look at geographic
location, availability of distributors and other intermediaries along
the supply chain and buying motives of the targeted buyers. What
entry point would give you the best possibility to manoeuvre?
• Assess competitors’ intentions and strategies. Evaluate how energetically
competitors will challenge your intrusion into their market space. Are
they willing to forfeit a piece of the business as long as you don’t become
too aggressive?
• Determine the level of technology required. While cutting-edge
technologies often win many of today’s markets, numerous low-tech
niche opportunities still remain open to smaller companies – as exhibited
by the small banks that found resounding rewards by providing
customer-oriented, feel-good services, such as baby sitting and
coffee. How does your company view the technology issues?

22 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

• Evaluate your internal capabilities and competencies. One of the
cornerstones to manoeuvring in today’s market is the ability to turn
out a quality product and provide services equal to, or better, than
competitors. Again referring to the small bank manoeuvres, they
concentrated resources on geographic locations neglected by the large
banks. What are your company’s outstanding competencies?
• Maintain discipline and vision. Attempting to manoeuvre among market
leaders takes confidence, courage and know-how to develop a
winning strategy. Certainly, management at the smaller banks
displayed such qualities by imbuing a winning spirit among all levels
of workers. How would you assess your company’s willingness to
challenge a market leader?
• Secure financial resources. Upper level management support is
necessary if you are to obtain the finances to sustain an ongoing activity.
If competitors detect any weakness, they can easily play the waiting
game for the financially unsteady organization to cave in. What type
of support can you count on?
• Develop a launch plan to market your product or service. Shape a
marketing mix that incorporates a quality product, an appropriate
supply chain, adequate promotion and market-oriented pricing to
attract buyers. Keeping a service differential was a dominant part of
the banks’ marketing mixes. Which part of the marketing mix would
represent your driving force?
• Maintain a sensitive awareness of how customers will respond to your
product offering. Use market research to gain insight about what
motivates various groups to buy your product or service. For the banks,
it was implementing a plan dedicated at maintaining a commanding
lead in service at locations that would attract a sufficient number of
customers. What immediate action can you undertake to target a niche
and avoid a head-on confrontation with a market leader?

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 23

 Military strategy and marketing strategy:
the indisputable relationship
Since the time the Ancient Greeks coined the word strategia (or strategos),
meaning to lead an army or generalship, a multitude of generals have relied
on the time-tested principles of military strategy to conquer territory and
gain power.

To impose their wills on others, they had to distract and unbalance their
opponents physically and psychologically. Faced with a conflict of wills, the
generals on the battlefield were forced to maximize the effectiveness of their
economic and human resources in order to achieve their goals.

These challenges – outwitting competing wills, gaining territory and power

and conserving resources while expanding influence – are precisely those of
businesses. Thus, the long history of documented military strategies of attack
and defence are, therefore, an excellent resource for operating your business.

Most confrontations – whether military, business, or even athletic -involve

a defence protecting its ground and an offence overtaking that ground. The
key to offensive strategy is the efficient use of resources to undertake the attack
and overtake the territory – or in business jargon, secure a profitable position
in a market segment.

The military perspective provides five basic approaches that are transferable
to competitive marketing strategies: direct attack, indirect attack, envelopment
attack, bypass attack and guerrilla attack.

The long history of military strategies is an excellent resource for your

business.

Direct attack
Figure 1.2 illustrates the direct attack, which is a head-on confrontation by
the attacker against a defender. Note there is no manoeuvre.

History dictates that in such a situation the initial advantage is always with
the entrenched defender, as long as the defence is an active one and not a
passive or unresponsive one.

24 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

In such an approach, losses are enormous for the attacker. In a military sense,
the attacker is ‘bloodied’ in terms of losing human and material resources
and exhausting itself before even reaching the primary target.

Defender

Attack

FIGURE 1.2 DIRECT ATTACK

In a business situation, a direct attack means exhausting budgets – using the

sales force, advertising, distribution, manufacturing and other resources -
without achieving the intended objectives.

Even if a company does achieve some minor objective, such as a minimal

sales increase or a nominal gain in market share, little or no resources remain
to penetrate the market.

In his book Strategy, Liddell Hart documents a massive study covering 12

wars that decisively affected the entire course of European history in ancient
times and through 18 major wars of modem history up to 1914. In all, these
30 conflicts embraced more than 280 major military campaigns and spanned
2,500 years.

The study revealed that in only six of those campaigns did a decisive result
follow a direct frontal approach. And of those six, most began with an indirect
attack but were changed to a direct attack due to a variety of battlefield
conditions.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 25

 Consequently, Liddell Hart states:
History shows that rather than resign himself to a direct approach a Great
Captain will take even the most hazardous indirect approach – if necessary
over mountains, deserts or swamps with only a fraction of his force even
cutting loose from his communications. He prefers to face any unfavourable
condition rather than accept the risk of frustration inherent in a direct
approach.6

Thus, reviewing the overwhelming evidence of history, we can conclude that

no general is justified in launching his troops in a direct attack upon an enemy
that is firmly in position.

Similarly, we can transpose the concept and state: no manager is justified in

launching sales and marketing forces in a direct campaign against a
competitor that is firmly in a market leader position.

Just how much stronger is the defence against a direct attack? Napoleon
estimated a three-to-one advantage to break through a defender’s line in a
direct frontal attack. In Napoleon’s time, a three-to-one advantage meant three
times more infantry, artillery and cavalry; and three times more logistical
support than that of the defender.

Thus, even if a breakthrough did occur by using a massive infusion of resources,

inadequate human and material resources would remain for follow-up and
penetration.

No manager is justified in launching a direct campaign against a

competitor that is firmly in a leadership position.

In business terms, a three-to-one advantage translates to three times more

salespeople, advertising expenditures, research and administrative support
– a huge expenditure of resources for little, or perhaps no return.

A classic business example of a direct attack is General Electric, RCA and

Xerox launching a direct frontal attack without manoeuvre and little or no
areas of differentiation during the 1970s against market leader, IBM, an
entrenched and active defender. RCA alone lost $500 million on the venture.
All three attackers retreated from that market.

6 B. H. Liddell Hart, Strategy (New York: Praeger, 1954).

26 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

To add still another perspective to the negatives of the direct attack: during
World War II, General Douglas MacArthur made the following statement at
a strategy meeting with U.S. President Franklin D. Roosevelt: “The use of a
direct frontal attack is a sign of a mediocre commander and there is no room
in modern warfare for such a commander.”

To paraphrase MacArthur for our topic: The use of a direct frontal attack against
an entrenched competitor is a sign of a mediocre manager and there is no
room in today’s competitive environment for such a manager!

Indirect attack
If the direct attack puts the defender at an advantage, requiring the challenger
to expend an enormous quantity of resources while depriving him of the
strength to follow up and penetrate the market, then an alternative approach
must be used to succeed. The move should put the defender at a disadvantage
by concentrating on his weaknesses.

At the same time, such an alternative approach should focus the challenger’s
resources at maximizing market share rather than exhausting them in the
attack. Figure 1.3 illustrates the foremost method of accomplishing these goals:
the indirect attack.

Defender

Secondary
Effort Direct Primary Effort
Approach Indirect
Approach

FIGURE 1.3 INDIRECT ATTACK

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 27

 As shown in the diagram, the attacker launches a primary attack against one
of the competitor’s weaknesses and uses a secondary direct attack to distract
attention away from the primary effort.

According to Liddell Hart, this form of attack is the most fruitful approach.
It has the greatest chance of success while conserving the greatest amount
of strength.

When an indirect attack is applied as a marketing strategy, the challenger

would concentrate on a defender’s weakness, or else move towards a market
segment that is emerging, neglected, or poorly served by competitors.

This segment is the point of entry. It could be with a product (a new method
of downloading music), in price (downloads as low as 50 cents a song), in
promotion (targeted to students), or in distribution (sharing songs using peer-
to-peer technology).

An indirect attack concentrates on a market segment that is

emerging, neglected, or poorly served.

Here is how the indirect attack works:

While applying its strength in one area, the challenger distracts the defending
company by appearing to launch a direct movement against its strongest
position. This dual action disorients the defender, causing it to waste time,
effort and resources in the wrong direction.

After penetrating an underdeveloped or emerging market segment and

establishing a market presence, the challenger can more easily secure a share
of market previously dominated by competitors. This critical follow-up to entry
is called market expansion.

Examples abound of the advantages of the indirect attack in business. For

instance, when German and Japanese car-makers first entered the North
American market, they came in with small cars, a market virtually neglected
by domestic manufacturers.

Similarly, Miller discovered the light beer segment as an emerging market.

Honeywell initially concentrated its computer sales at the medium- and small-
size cities generally neglected by IBM. Apple became a dominant factor in
schools, specifically serving that segment with computer hardware and
software.

28 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

With the abundance of business examples and time-tested evidence from
military history, there is never any justification for you to undertake a direct
frontal attack in today’s competitive market. Rather, it is your managerial duty
and even obligation to use an indirect approach to:
1. Find an unattended, poorly served, or emerging market segment.
2. Create a competitive advantage by using the marketing mix (product,
price, promotion and distribution) in a configuration that cannot be
easily matched by competitors. Meaning: Direct your strength
against the weaknesses of your opponent.
3. Mobilize all available resources to fulfil the unmet needs and wants
of that market in a strength-conserving manner, thereby solidifying
relationships with your customers.
4. Expand into additional segments of the market.

The following case offers a dramatic example of the damage the indirect
approach can cause a market defender.

Case example
Xerox created the copier market. In the mid-1970s, the company proudly
owned an 88 per cent share of that market, mostly in large- and medium-
size copiers. By the mid-1980s, Xerox forfeited to competitors more than half
of the market for plain copiers, even though it had virtually developed the
plain copier machine with its classic 914 model.

What happened to cause the disastrous plunge?

Japanese companies, hoping to expand in North America during the mid-
1970s, looked at the vast office products field and, in particular, to the still
emerging copier market. Scanning for possibilities, they saw a sizable segment
that was virtually unattended by Xerox: small-size copiers for small-size
companies.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 29

 Research indicated that clerks in millions of companies were making copies
at coin-operated machines in local stationery shops. At that time, the owners
of these companies never thought they could afford to own a copier.

The Japanese companies saw the opportunity for an indirect approach into
that exposed segment of the small business market. Meanwhile, Xerox focused
in one direction by supplying large copiers to medium and large organizations.
Initially, its managers paid little attention to competitors such as Canon, Sharp
and Ricoh coming from behind. Figure 1.4 illustrates their attack.

Defender
XEROX
Large and Medium
Copiers
Small Copier
Market

Attacker
Japanese Companies

FIGURE 1.4 INDIRECT ATTACK ON XEROX

If the Japanese companies had tried to force their way into the market with
large machines, they would have launched a costly direct frontal attack against
Xerox with its dominant market presence.

The challengers would have expended huge amounts of time and money,
exhausted their resources for future progress and might well have failed
completely. Instead, the Japanese companies used an indirect strategy.

30 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

The indirect strategy consisted of the following elements:

PRODUCT

The Japanese competitors introduced a small tabletop copier that used plain
paper, no chemicals and performed only the basic copying function. It could
not copy two sides, staple, punch three holes, or collate. It simply made a
copy. That was exactly what the small business owners wanted at that time.

PRICE

They entered with a low price to penetrate the market and gain market share
rapidly. They reasoned that profits would come later as market share
increased.

PROMOTION

Relevant media targeted the small business audience with copy themes
announcing a new product as convenient and affordable.

DISTRIBUTION

The Japanese manufacturers could not match the huge direct sales force of
Xerox. Instead, they used office supply dealers as middlemen to gain immediate
access to the small business market – the vacant target segment.

That describes the Japanese entry phase to the market. However, to take on
a position as a new comer with a minor foothold in a market is risky. The
next logical move is to go for market expansion. In military terms, the aim is
to get off the beaches and go inland or suffer the consequences of being pushed
back into the sea.

The Japanese companies did the next predictable thing: they expanded their
product line with a full range of mid-size and large models and eventually
pushed Xerox’s share of the market down to 44 per cent before levelling off.

How could Xerox have responded?

If Xerox had immediately applied its resources to develop a small copier, or
private label one from an outside source, the Japanese attack would have
become a direct one, which would have slowed down the penetration and
could possibly have pushed the Japanese manufacturers out of the market.

Xerox had the product name, the reputation and the dominant market presence
to give it a solid hold on the market. Accordingly, the initial strength was

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 31

 with the defender, Xerox. Napoleon’s ratio of three-to-one suggests that the
Japanese manufacturers would have had to expend huge resources to gain
a minimal share of the market in a direct attack.

Xerox did not respond in time. Over the years, however, the company has
made excellent strides in coming back and is now a ‘lean and mean’
organization with a full line of small and large copiers. But the fight back to
regain lost market share is always costlier than retaining market share it already
possessed.

Having lost its market dominance through inadequate defence against an

indirect attack, Xerox used its own form of indirect strategies to recapture
the market.

The fight to regain lost market share is costlier than retaining

market share it possesses.

Xerox executed its counter strategy with the following steps:

1. Utilized cost improvement strategies through quality teams, assembly-
line automation and less labour-intensive product designs.
2. Changed its attitude on profitability – foregoing short-term results
in favour of long-term profitability and market-share expansion.
3. Slashed prices on certain models to recapture market share.
4. Introduced new lines of copiers to envelop Japanese product lines.
5. Increased R&D spending for new product development.
6. Attacked the Japanese home markets through its joint venture with
Fuji Xerox.
7. Competed against the Japanese in every market segment.

Envelopment attack
Envelopment consists of two stages. First, as in the indirect attack, the aggressor
focuses on a specific market segment for a point of entry. Then, by identifying
additional market segments and adding new products, it uses an expansion
strategy to envelop the entire market (Figure 1.5).

32 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 Markets

Defender

Attacker

FIGURE 1.5 ENVELOPMENT ATTACK

In the consumer market, Seiko illustrates the indirect/envelopment combi-

nation. The Japanese company initially entered the North American watch
market in one segment, digital watches and at one point enveloped the market
by offering 400 models of watches to penetrate every major watch segment
and overwhelm the competitors.

In the industrial sector, The Timkin Company offered 26,000 shaped ball-
bearing combinations, a product line unmatched by any competitor, to envelop
that market segment and fulfil virtually all its customers’ needs for those
components.

The following case offers a classic example of the indirect/envelopment strategy.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 33

 Case example
Heublein, the producer of Smirnoff vodka, enjoyed a leading brand with a
dominant share of its market for two decades. Smirnoff was then attacked on
price by another brand, Wolfschmidt, produced by The Seagram Company
Ltd.

Wolfschmidt was priced at $1.00 a bottle less than Smirnoff and claimed the
same quality. Recognizing a real danger of customers switching to Wolfschmidt,
Heublein needed a strategy to protect its market dominance. It had a number
of options:
1. Lower the price of Smirnoff by $1.00 or less to hold on to its market
share.
2. Maintain the price of Smirnoff but increase advertising and promotion.
3. Maintain its price and hope that current advertising and promotion
would preserve the Smirnoff image and market share.

While some options were attractive, they were all obvious direct approaches.
Heublein decided instead on envelopment (Figure 1.6). First, it raised the price
of Smirnoff by $1.00 and preserved the premier image the brand already
enjoyed.

Heublein Smirnoff Seagram

Wolfschmidt
Smironoff + $1

Relska

Popov - $1

FIGURE 1.6. HEUBLEIN’S ENVELOPMENT ATTACK ON SEAGRAM

34 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Next, Heublein introduced a new brand, Relska and positioned it head-to-
head as a fighting brand against Wolfschmidt’s price and market segment.
Using that product entry as a means of diverting the opposing manager from
other actions, Heublein introduced still another brand, Popov, at $1.00 less
than Wolfschmidt.

That action had the decisive effect of enveloping Wolfschmidt. During the
1980s, Smirnoff remained number one in cases of all imported and domestic
vodka shipped in North America, with Popov in the number two position.

The Heublein case clearly demonstrates how strategy lies in the sphere of
human behaviour and how movement and surprise affect it. Movement is
shown by the physical act of repositioning Smirnoff upscale and then
introducing the threatening fighting brand, Relska, directly at Wolfschmidt
as a distraction.

The move also demonstrates a psychological effect on Wolfschmidt managers

who were sidetracked and unbalanced by the threat to their market share.
By dislocating Wolfschmidt in this way, the strategy reduced their capabilities
to resist.

Surprise, resulting from the envelopment created by the introduction of Popov,

caused a psychological paralysis that reduced any further action by
Wolfschmidt.

Bypass attack
The bypass attack allows the attacker to circumvent its chief competitors and
diversify into unrelated products or all-new geographical markets (Figure
1.7).

At times, companies will employ the bypass attack to compensate for missed
opportunities and expand into new uncharted industries.

For example, Eastman Kodak Co. successfully used a bypass approach to

enter such diverse fields as electronics and biotechnology, with products as
diverse as electronic publishing systems, cattle feed nutrients and anticancer
drugs. These relatively sudden bypass moves followed an ultra conservative
period during which the company stalled and competitors grabbed such home-

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 35

 grown markets as instant photography, 35mm cameras and video recorders,
all natural extensions of Kodak’s core business.

The bypass strategy does include a measure of risk because expansion into
a range of unrelated fields can diminish a company’s strength in any single
area.

Diversified Entrenched Competitor

Markets and Products Primary Market

Major Minor Presence in

Presence Bypass Attack Primary Market

FIGURE 1.7 BYPASS ATTACK

Guerrilla attack
Guerrilla attack involves small intermittent forays into different markets. It
is generally useful when a small company competes against a large
corporation, or where a product with a small market share is skirmishing
with a brand leader. It can also be executed by a larger organization against
its competitors.

Guerrilla attacks are characterized by a number of actions: selective price

cuts, supply interference, executive raids, intensive promotional bursts and
assorted legal actions. The aim of movement and surprise is to create confusion
and distraction, causing the opposing manager to make mistakes.

36 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 Even a giant company is not invulnerable to the threats of smaller
competitors.

Case example
IBM illustrates a dramatic example of the guerrilla attack, as well as other
indirect approaches. IBM noted the successful Japanese invasion of U.S.
markets for cars, cameras and consumer electronics. Determined to prevent
its markets from being shattered by those awesome successes, IBM became
an aggressive strategic marketer.

When Japan tried to move into IBM’s markets by attacking its vulnerable
underside, software, IBM dealt a powerful blow in a clear example of a guerrilla
attack.

After winning a lawsuit against Hitachi, Ltd. for allegedly stealing IBM software,
IBM decided to stop disclosing its source codes (which are descriptions of
the operating system of software needed to run all applications programs).

This single strategic move put the Japanese computer manufacturers on the
defensive, forcing them to spend huge amounts of time and money rewriting
old programs and developing software that would not infringe on IBM’s
copyright. According to some experts at the time, this put Japan five to ten
years behind IBM.

While this guerrilla move took place, IBM aggressively moved into the Japanese
home markets. Again, these strategic moves put the Japanese computer
manufacturers on the defensive, protecting their home markets and thereby
temporarily distracting them from invading U.S. and European markets.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 37

 Action strategy
While all the movement, surprise, distraction and dislocation were taking
place through the various guerrilla actions already described, IBM moved
aggressively with the following actions:
1. It invaded several potential growth markets. For example, IBM created
a nationwide video text service through a joint venture with Sears
and CBS.
2. It moved into additional growth markets by introducing 600 new
software products for its personal computers.
3. IBM then moved into large, integrated information-processing
systems that combined computer-aided design, automated manu-
facturing and back-office operations. It began to capture a segment
of the huge global telecommunications market by forming a joint
venture with Aetna Life & Casualty Company and Communications
Satellite Corporation.
4. It moved into broader distribution patterns by utilizing direct
response companies, retailers and value-added resellers who package
the computers with software written for specific industries.
5. IBM continued to improve its strength in after-sales and consultative
services, which it viewed as one of the most important aspects of its
marketing strategy.

IBM’s use of guerrilla warfare in strategic marketing demonstrates that even

a giant company is not invulnerable to the threats of smaller competitors and
must constantly maintain a defensive/offensive posture. In cases of medium-
size or smaller companies the threat from competitors is even greater.

The aim of movement and surprise is to create confusion and

distraction.

38 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Strategy principles
Keeping the discussion of attack techniques in mind, we can now bridge the
vast historical perspective of military strategy with the more recent strategy
applications in business. The military-marketing relationship can be
summarized in the following statements:

The object of war is a better state of peace.

B. H. LIDDELL HART

The object of business is to create a customer.

PETER DRUCKER

Indirect Approach Speed

STRATEGY

Unbalancing Concentration
Competition

Alternative
Objectives

FIGURE 1.8 STRATEGY PRINCIPLES

From the 2,500 years of recorded military history we can isolate five ruling
principles that characterize all strategy, be it military, athletic, political, or
financial. These hands-on principles would apply in your business to develop
profitable competitive strategies.

They include speed, indirect approach, concentration, alternative objectives

and unbalancing competition (Figure 1.8).

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 39

 A thorough understanding of their applications is essential for you to implement
business-building strategies. Below, you will find descriptions of the strategy
principles, examples from actual corporations and step-by-step procedures
for applying them to your firm.

Speed
Speed is as essential to marketing as it is to the military. There are few cases
of overlong, dragged-out campaigns that have been successful. Exhaustion
– the draining of resources – has ruined more companies than almost any
other factor.

Extended deliberation, procrastination, cumbersome committees and long

chains of command from home office to regional sales office are all detriments
to success.

Drawn out efforts divert interest, diminish enthusiasm and depress morale.
Individuals become bored and their skills lose sharpness. The gaps of time
created through lack of action give competitors a greater chance to react and
blunt your efforts.

In today’s competitive business environment, your tasks require you to evaluate,

manoeuvre and concentrate marketing forces quickly to gain the most profit
at least cost in the shortest span of time.

In the cases already cited, IBM acted quickly to invade Japanese markets while
bringing legal action against its Japanese competitor. Heublein worked rapidly
to reposition Smirnoff and introduce two new brands before Seagram could
respond.

The old proverb ‘Opportunities are fleeting’ or, in its current usage, ‘The window
of opportunity is open’ has an intensified truth in today’s markets. Speed is
essential if you are to gain the advantage and exploit the lead.

At Toyota Motor Corp., speed carries through from product inception to

the market place. The combination of speed and flexibility is world class. Toyota
plants worldwide can make as many as eight different models on the same
line. That leads to a monumental increase in productivity and market
responsiveness, which is all part of the company’s obsession with what Toyota’s
president calls “the criticality of speed.”

40 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 There are few cases of overlong, dragged-out campaigns that have
been successful.

Organizing for speed and quick reaction

Two factors make it possible for you to react with speed: first, new
technologies geared to product development, mobile communications and
the wide-ranging use of the Internet should urge you to set up your
organization or business unit to react quickly and decisively, in a ratio of a
short span of time to a large amount of space.

Therefore, the second factor for maximum speed – the essential ingredient
– is an efficient organization that simplifies the system of command and control.
In particular, it shortens the chain of command.

Your own experience may well support the obvious conclusion that an
organization with many levels in its decision making process cannot operate
with speed. This situation exists because each link in a chain of command
carries four drawbacks:
1. Loss of time in getting information back.
2. Loss of time in sending orders forward.
3. Reduction of the top executive’s full knowledge of the situation.
4. Reduction of the top executive’s personal influence on managers.

Therefore, to make your marketing effort effective, reduce the chain of

command. The fewer the intermediate levels, the more dynamic the operations
tend to become. The result is improved effectiveness of the total marketing
effort and increased flexibility.

The fewer the intermediate levels, the more dynamic operations

tend to become.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 41

 A more flexible organization can achieve greater market penetration because
it has the capacity to adjust to varying circumstances, carry alternative
objectives and concentrate at the decisive point.

Organizational flexibility can be enhanced by the use of cross-functional

strategy teams (see Chapter 13 for duties and responsibilities) made up of
junior and middle managers representing different functional areas of the
organization.

To increase the speed of your operations and improve your flexibility, do the
following:
1. Reduce the reporting levels in your company and increase the pace
of communications from the field to the home office.
2. Utilize junior managers for ideas, flexibility and initiatives for
identifying and taking advantage of new opportunities.
3. Use cross-functional strategy teams that tap any cultural diversity
that exists in your firm, thereby benefiting from multiple perspectives.

Indirect approach
As noted in the discussion on the military-marketing relationship, you should
avoid the frontal attack at all costs in favour of an indirect approach, which
can include any of the non-direct forms of attack: indirect, envelopment, bypass,
or guerrilla.

The object of the indirect approach is to circumvent the strong points of

resistance and concentrate on the markets of opportunity with a competitive
advantage built around product, price, promotion and distribution.

The previous cases of Xerox (small copy machines) and the Japanese and
German firms (small automobiles) illustrated the indirect attack centred on
market segmentation and product positioning. Whereas Heublein built an
envelopment attack spearheaded by product and price strategies.

The object of the indirect approach is to circumvent the strong

points of resistance.

42 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Consequently, you can gain substantial benefits by using the indirect approach
to position your product or service. Specifically, positioning consists of a two-
pronged effort: improve customer relationships and enhance your competitive
position:

Improve customer relationships

As basic as it sounds, bonding with customers remains the controlling factor
in positioning. You should infuse everyone in the organization, from
salespeople to packers and shippers, with an attitude that strengthens customer
relationships.

In particular, if in a business-to-business situation where face-to-face contact

often permits interaction with customers, delve into the processes they use
to conduct business.

What are their priority needs? What special problems do they face to remain
competitive? Ultimately, the point is to resolve customers’ problems with
innovative products and services.

To do so, get out in the field and talk directly to customers on a regular basis.
Don’t just limit your visits to marketing and sales personnel, include periodic
contact with senior management and technical people.

For instance, companies such as Deere & Co., routinely send manufacturing
and technical personnel to call on customers to track down information about
product performance and technical problems.

Customers often view such contact by non-marketing individuals whose

interests’ centre on resolving operational problems as helpful, unobtrusive
and non-threatening.

To properly interpret and quantify the intelligence you have gathered from
these face-to-face visits, it is wise to verify the findings through formal market
research. This process benefits you with benchmarks to measure product
performance, customer service, distribution efficiency, pricing strategy and
promotion effectiveness. All of which are the ingredients to improve your
overall market position and profitability.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 43

 Enhance your competitive position
Once you activate the customer bonding and the market intelligence
procedures, use the new benchmarks to determine how your market position
compares with that of competitors. The key issues here are the perceptions
embedded in the customers’ minds about your company and its products
and how they stack up against those of your competitors.

The output of this process drives product development; validates facts, figures
and impressions; produces the calibre of innovations and leads to improved
marketing plans and strategies that strengthen your market position.

Application
Overall, to use an indirect approach, do the following:
1. Search for emerging, neglected, or poorly served market segments
through competitive analysis (see Part Two) and fill product gaps.
2. Identify a competitive advantage centred on price, product, promotion,
or distribution (see Part Four).
3. Use movement, surprise, speed and alternative objectives to disrupt
and disorient your competitor.
4. Move towards market expansion, once you have gained a point of
entry.

Concentration
Concentration has two uses in marketing strategy:
First, it means directing your resources towards a market segment or target
group and filling needs and solving problems. Second, as applied to strategy,
concentration means focusing your strengths against the weaknesses of your
competitor.

How do you determine the weaknesses of the competitor? You use competitive
analysis in your strategy development to detect the strength-weakness
relationship (see Part Two).

Internal analysis allows you to identify your unique competencies or natural

strengths. External analysis allows you to identify your competitor’s
weaknesses.

44 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Alternative objectives
There are four central reasons for developing alternative, or multiple objectives:
First, on a corporate scale, most businesses need a wide range of objectives
with a variety of strategies and time-frames.

Second, as already discussed, the strategic principle of concentration is

implemented successfully only through the application of alternative objectives.

Third, alternative objectives permit enough flexibility to exploit opportunities

as they arise. By designing a number of objectives, any of which can be used
depending on the circumstances, you hold options for achieving one
objective when others fail.

Last and most important, alternative objectives keep your competitors on

the ‘horns of a dilemma’ – unable to detect your real intentions. By displaying
a number of possible threats, you force a competing manager to spread his
resources and attention to match your action.

While you have dispersed intentionally in order to gain control, you cause
him to disperse erratically, inconveniently and without full knowledge of the
situation. Thus, you cause the opposing manager to lose control. You can
then concentrate rapidly on the objective that offers the best potential for
success.

Alternative objectives keep your competitors on the ‘horns of a

dilemma’.

Since the major incalculable is the human will (the mind of one manager against
the mind of a competing manager), the intent of alternative objectives is to
unbalance the opposing manager into making mistakes through inaction,
distraction, false moves, or misinterpretation of your real intentions. You
thereby expose a weakness that you can exploit through concentration of
effort.

This unbalancing or dislocation is achieved through movement and surprise.

Refer again to the Smirnoff example: Heublein used physical movement in
introducing a fighting brand, Relska and repositioned Smirnoff upscale.

Introducing the low-priced Popov created surprise, which had the

psychological effect of paralyzing the Wolfschmidt management in its

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 45

 inability to respond to the multiple actions. In fact, you can implement
concentration successfully only through the application of alternative
objectives.

These aspects of strategy – dislocation, concentration and alternative

objectives – are summarized in the following examples:
Deere & Company created alternative objectives by moving beyond its
basic farm equipment business to entering the consumer lawn-tractor
market, manufacturing engine blocks and diesel engines for General
Motors and making chassis for recreational vehicle manufacturers.

Reynolds Metals Co. selected additional target segments beyond its

stronghold in aluminium cans and building materials. It created
opportunities in consumer plastic packaging and created a thriving
business, including: aluminium foil, wax paper and cooking bags,
resealable food storage bags and wraps.

Maytag Corporation set alternative objectives for defending and

attacking the medium-priced mass market and lower-end homebuilders’
segments. Maytag thereby maintained flexibility about which segment
it would defend and where it would aggressively increase market share.

While these examples may appear as simple moves for expansion, they actually
serve as deliberate strategies to keep competitors guessing as to where the
next concentration will take place.

The alternative objectives and strategies illustrated cut across a wide range
of opportunities that send confusing signals to competitors, thereby
permitting maximum flexibility in selecting areas for concentration.

Another point you can consider is to establish alternative objectives early in

the life cycle so that you can implement them when needed. Doing so eases
the panic that comes from the sudden awareness of a sales and market
meltdown.

Unbalancing competition
Victory in many competitive situations is not necessarily due to the brilliance
of the attacker or defender, but to the mistakes of either manager. If

46 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

brilliance plays a roll at all, it is in the manager’s deliberate efforts to develop
situations that unbalance the competition.

Those efforts, in turn, produce the psychological and physical unbalancing

effects on the opposing manager through speed, indirect approach,
concentration and alternative objectives. Moreover unbalancing fulfils
strategy’s ultimate purpose: the reduction of resistance.

You might try an unbalancing action, for example, by announcing a new

product that could make the competing manager’s product line obsolete. Even
a press release about a yet-to-be released product line can “make ‘em sweat”
and create panic – and mistakes.

This unbalancing is practised continuously in day-to-day activities that range

from the threat of legal action to the effects of mergers and acquisitions.
Another attempt at unbalancing, albeit with an unexpected outcome, is
illustrated in the following case example.

Unbalancing the competition fulfils strategy’s ultimate purpose: the

reduction of resistance.

Case example
Sony, the king of consumer products, revealed with great fanfare in 2004 its
plans to reorganize the company. Its paramount goal: restore and retain market
dominance.

The central themes called for more power to younger workers, the production
of a new generation of networked products and efficiencies that would cut
costs and generate higher profits.

Not only was the highly visible plan meant to impress market analysts and
journalists, it was also intended as a clear signal to unbalance competitors
and scare off any aggressive intrusion into its kingdom.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 47

 However, the unbalancing effect didn’t entirely work as expected, particu-
larly against one of its primary competitors. Three years before Sony’s grand
announcement, Matsushita Electric quietly developed a plan that was remark-
ably close to Sony’s.

The plan attempted to change the former perception held by consumers and
the trade that Matsushita’s Panasonic product line was merely a copy of Sony
products.

The brand has since emerged as a dynamic leader. Matsushita’s 42- and 50-
inch thin plasma displays are marketed at prices and quality levels seldom
matched.

Also, the company pioneered and went on to dominate, DVD recorders with
hard disk drives that score high in the market for video players and simple
DVD players. Moreover, Matsushita is making a strong showing in digital
cameras and other high volume consumer items.

The strategist behind the turnaround – and the one who was not unbalanced
by Sony’s plans – is Matsushita President Kunio Nakamura. On taking over
the company in 2000, the long-time marketing man approached his formidable
responsibilities by maximizing speed within the organization.

He gave each of the company’s top 400 company executives an Internet-

equipped mobile phone with requests that all reports to him would be submitted
by mobile e-mail. They were required to summarize their reports in a few
words or sentences. The result: faster communications and improved
decision-making.

Nakamura spearheaded cultural change within the organization with the

transfer of power to women designers and other employees in their 30s and
40s. He didn’t want older men designing home appliances used by women.
Nakamura also transferred power for much of the product-planning initiatives
from engineers to marketers.

Result: He produced the maximum organizational change by shifting

Matsushita personnel from a former deep-seated mindset of a product-driven
orientation to a 21st century customer-driven direction.

Additional changes resulted in shrinking the organization from as may as

13 layers to three, thereby giving greater authority and responsibility to those
individuals closest to the consumer.

48 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Action strategy
What can you learn from the Sony/Matsushita case? Unbalancing has a vital
psychological effect on the opposing manager.

That is what you should be attempting with an unbalancing strategy. While

not every effort succeeds, as illustrated in the Sony case, nonetheless the attempt
must be made.

Once again: The entire purpose of the move is to lessen resistance against
you, preserve valuable resources and achieve your planned objectives. What
follows are applications.

APPLICATIONS

To unbalance competition, do the following:

1. Identify the areas in which the competition is not able (or willing) to
respond to your actions. (Use the competitor analysis checklists in
Part Two for this purpose.)
2. Make a conscious effort to create an unbalancing effect through
surprise announcements. For example, use enhanced Internet
ordering procedures, improved just-in-time delivery systems, or 24/7
technical assistance. The unbalancing effect will have the greatest
impact to the extent that you are able to maintain secrecy until the
last possible moment.
3. Utilize new technology to unbalance competitors and make them
scramble to catch-up. Investigate the various technologies applied
to marketing, such as customer relationship management (CRM)
programs to maintain links along the supply chain, interactive video
and Internet systems and mobile e-mail to enhance communications
and other marketing efforts (see Matsushita example).

A focus on business strategy

The five strategy principles derived from military history – speed, indirect
approach, concentration, alternative objectives and unbalancing the compe-
tition – apply to most categories of competitive marketing strategies.

This section compresses those strategy principles into three foundation compo-
nents: indirect approach, differentiation and concentration. Understanding

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 49

 how to incorporate them into your marketing plans will help you win major
marketing encounters.

Indirect approach
Avoid a direct approach against an entrenched competitor. The odds are totally
against you. Instead, take some of the following actions:

Distract your competitor. Create confusion about your real intentions.

Search for emerging, neglected, or poorly served market segments and fill
product gaps. Tie up the output of common suppliers. Gain access to the supply
chain through add-on services or special inducements. Use legal actions to
dislodge a competitor, if appropriate.

In all those activities use speed to create surprise, which in turn will cause
confusion in the mind of your competitor; then use alternative objectives to
further reinforce the unbalancing effect about your real intentions.

Differentiation
The most effective means of applying the indirect approach is to seek
differentiation in the areas of the marketing mix (product, price, promotion
and the supply chain.) It is important to remember that although your product
may seem like an indistinguishable commodity, there are always ways to
differentiate it.

“There is no such thing as a commodity,” writes Levitt.7 His astute suggestions

for differentiating products and services are summarized as follows:
Consider differentiation in such areas as customer service, improved
delivery time, extended warranties, sales terms, after-sales support,
packaging, management training (your own staff and that of your distrib-
utors/customers) and knowledgeable sales people.

Also try differentiation with such intangibles as reliability, image, nice-to-do-

business-with reputation, credibility, prestige, convenience, value,
responsiveness to problems and access to key individuals in your firm.

7 Theodore Levitt, The Marketing Imagination (New York: The Free Press, 1983), p. 72.

50 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 Although your product may seem like an indistinguishable
commodity, there are ways to differentiate it.

While the competitive products may be identical, these suggested areas of

differentiation add up to a total customer-based product package that moves
you away from the commodity status and gives you a competitive edge.

Concentration
Your ability to concentrate marketing resources is predicated on the effective
application of the indirect approach. And concentration is successful only
to the extent that you can distract the competitor and move quickly to seize
an unserved, emerging, or neglected segment. Further, it is effective only to
the extent that you can differentiate yourself from the competitor.

This particular component is so vital to successful strategies that Liddell Hart

indicated that if all of strategy could be summed up into one word, it would
be concentration.8

If all of strategy could be summed up into one word, it would be

concentration.

Competitive intelligence
You can apply those three pillars of strategy effectively only if adequate
competitive intelligence is used (see Part Two). For example, identifying
emerging markets is useful if you can pre-empt your competition and then
satisfy the needs and wants of those markets.

Alternatively, applying differentiation is advantageous only if your competitor

cannot, or is not willing to, respond to your actions. In sum, the confidence
level of your strategy is strengthened by your diligent effort in using
competitor intelligence to shape an indirect approach.

8 B. H. Liddell Hart, Strategy, (New York: Praeger, 1954), p. 347.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 51

 Strategy lessons

The tools of marketing are physical acts. However, a mental process

directs them.

From the time-tested principles derived from military history and applied to
competitive marketing strategies, four major lessons stand out:
1. The tools of marketing (advertising, sales promotion, field selling,
marketing research, distribution, pricing) are physical acts. However,
a mental process directs them.
Therefore, spend sufficient time to systematically think out your
strategy. That is, act with the mind of a strategist and keep the principles
of strategy in the forefront of your thinking. Doing so will give you
the upper hand at the least cost in human and material resources.
2. The tougher you make your marketing practices, the more your
competitors will consolidate against you. Result: You will harden the
resistance you are trying to overcome. Even if you succeed in winning
the market, you will have fewer resources with which to profit from
the victory.
3. The more intent you are in securing a market entirely of your own
choosing and terms, the stiffer the obstacles you will raise in your
path and the more cause competitors will have to try to reverse what
you have achieved.
4. When you are trying to dislodge your competitor from a strong market
position, leave that competitor an easy way to exit the market. Do so
by initiating programs and value-added services that would obligate
the competitor to pump in far more resources to sustain his market
position than budgets call for. On the whole, give the impression that
it would be prudent for the competitor to pull out.

In a broad application, these pragmatic lessons are evident in the current

strategies of major world-class companies. Such companies as Cisco,
Matsushita, Wal-Mart, IBM, Aldi, Microsoft and General Electric have
been monumentally successful in focusing human and material resources into
shaping strategies that attack and overwhelm their respective markets.

52 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Conclusion
With the military-marketing perspective and with the five basic strategy
principles, you have the foundations for developing successful competitive
strategies. It should be apparent from the discussion, however, that a good
deal of work must precede the formulation of competitive strategies.

Such work includes conducting an external and internal analysis, developing

a competitive intelligence system, employing marketing research and
organizing all the data you have gathered into a strategic marketing plan.
All of those areas will be covered in the following chapters.

ONE COMPETITIVE MARKETING STRATEGIES IN ACTION 53

Blank page
PART TWO

Develop a competitive analysis

 PART TWO
Develop a competitive analysis

Developing a competitive analysis is your first step in creating competitive

marketing strategies. The analysis helps you to systematically view all those
factors, external (Chapter 2) and internal (Chapter 3) that could influence your
strategy decisions.

By using sound analysis as the basis of strategy development, you will be in

an excellent position to overcome competitors’ pressures when entering a
new market or defending an existing one.

You will be able to develop actions to circumvent aggressive competitors,

identify areas for product differentiation and concentrate marketing and sales
resources in a way that gains your objectives in a strength-conserving manner.

56 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

PART TWO CHAPTER TWO

External analysis: Understand the

competitive world surrounding you
 TWO
External analysis: Understand the
competitive world surrounding you

Chapter Objectives
Expand your managerial skills as you:
1. Identify the key factors related to a
customer analysis by segment, behaviour
and wants and needs.
2. Conduct an all-inclusive competitor
analysis.
3. Design an industry analysis.
4. Develop an environmental analysis.

In this chapter, you will see how to use an external analysis to obtain an
organized look at market conditions. Another purpose for taking the time to
develop an external analysis is to help you uncover opportunities and threats
that will pay off for you in developing alternative strategies and, ultimately,
in achieving a competitive advantage.

Consequently, the external analysis concentrates on four distinct spheres:

customers, competitors, industry and environment. By examining each area,
you will see how it contributes to shaping competitive strategies, which takes
on a critical role within strategic marketing. Figure 2.1 illustrates the two
major components of competitive analysis: external analysis and internal
analysis (see Chapter 3).

58 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 EXTERNAL ANALYSIS INTERNAL ANALYSIS

• Customer Analysis • Performance Analysis

• Competitor Analysis • Strategy Analysis
• Industry Analysis • Strategic Priorities Analysis
• Environmental Analysis • Cost Analysis
• Portfolio Analysis
• Financial Resource Analysis
• Strength/Weakness Analysis

Competitive Strategies

Competitive Advantage

9
FIGURE 2.1 A FRAMEWORK FOR COMPETITIVE ANALYSIS

Customer analysis
Strategic marketing is defined as a total system of interacting business activities
designed to plan, price, promote and distribute want-satisfying products and
services to organizational and household users at a profit.

From this functional definition you can see that the customer is the centre
of marketing’s attention. To produce ‘want-satisfying products and services,’
you must know what your customers want, where they can find what they
want and how to communicate to them that you are able to meet their needs
and solve their problems.

The following case illustrates how customer analysis helped one marketing-
savvy company develop competitive strategies when competition heated up
and targeted its customer base.

9 Similar frameworks for external and internal analyses have been pioneered by David Aaker,
Developing Business Strategies (New York: Wiley, 1984) and Michael E. Porter, Competitive
Strategy (New York: The Free Press, 1980).

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 59

 Case example
Charles Schwab & Co., the first discount stockbroker, followed a marketing
scenario that is now familiar in a variety of industries:

A company originates a decisive breakthrough with a product, service, or

delivery system and enjoys rapid growth in its sector of business. Soon after,
enterprising competitors enter and attempt to grab the lead.

That’s what happened at Schwab. In their case, however, managers realized

that enterprising rivals would quickly present a serious challenge by
duplicating Schwab’s success. Schwab managers possessed enough marketing
know-how to realize the inevitable and set plans to pre-empt the competition
with positive action.

Accordingly, they conducted extensive customer analysis and used the data
to refine their products and services, initiate high-level customer service, apply
new technology to product development and expand into new geographic
and demographic segments.

Schwab’s breakthrough
Schwab made its remarkable breakthrough in 1974, with an audacious attack
at the full-service, high-commission brokers, such as the formidable Merrill
Lynch, Smith Barney and Dean Witter.

From 1991 to 1994, Schwab’s compounded revenues grew more than twice
as fast as the industry average. By 1995-96, its growth was still at a
respectable 30 per cent. However, an unwelcome statistic emerged that
indicated the industry was averaging 28 per cent growth; meaning, the gap
was closing between Schwab and its competitors.

Not blind to the threats of giant competitors, Schwab management assumed

a resolute attitude toward customers and competition that remains the driving
force behind the company’s continuing growth. “Competition is the source
of all innovation,” asserts CEO Charles Schwab, whose mindset is intent on
making things happen.

60 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

And innovate he did. Schwab changed the way mutual funds are sold by
introducing a supermarket that lets investors choose among a wide range
of funds and then consolidate them into one account. Managers and technical
personnel harnessed new technology and developed self-help products to assist
customers in making investment decisions.

For instance, they introduced a broad range of Internet-based transaction

and information services such as Market Buzz. They streamlined customer
service to identify those customers who needed assistance and provided them
with personalized attention. And, catering to the vast numbers of worrisome
first-time investors, they simplified mutual fund selection by offering ‘funds
of funds’.

Action strategy
What can you learn from the Schwab case? Understand your customers – if
you expect to sustain growth and maintain a comfortable lead over hard-
driving competitors. Beyond wishing for a brilliant idea to flash into your
mind, there is a process you can follow to trigger marketing innovation. Use
the following guidelines for your analysis:

Understand customer analysis: market and product segments, customer

behaviour, unfulfilled wants and needs.

• Define your customers by demographic and psychographic (behavioural)

characteristics.
Observe changes in the character of your markets. For instance, look
for any unmet customer needs that would enable you to respond
rapidly in the form of products, services, methods of delivery, credit
terms, or technical assistance. Talk with customers to detect their most
troublesome problems and frustrations. Meet with sales people and
draw them out on ways to innovate.

• Examine customer usage patterns or frequency of purchase.

Watch for alternative and substitute products that could represent
an opportunity to replace competitive products. Also, observe
deviations in regional and seasonal purchase patterns. Check for
changes from past purchasing and usage practices that could translate
into opportunities.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 61

 • Survey selling practices.
Innovations often occur in selling, especially with the pervasive
use of the Internet. Tune-in to current trends in promotional
allowances, selling tactics, trade discounts, rebates, point-of-
purchase opportunities, or seasonal/holiday requirements. Here,
again, stay close to sales people for such information.

• Survey your supply chain.

Examine your channels of distribution and look for opportunities to
customize services consistent with the characteristics of the segment.
Pay attention to warehousing (if applicable) and what could be fertile
possibilities to innovate, such as electronic ordering and computerized
inventory control systems.

• Look at product possibilities.

Search for innovations with product-line extensions to maintain an
ongoing presence in your existing markets, or to gain a foothold in
an emerging segment. As illustrated by Schwab, harnessing new
technology might broaden your customer base and leverage your
company’s expertise.

• Explore opportunities to cut costs for you and your customers.

Investigate such areas as strengthening quality assurance and intro-
ducing new warranties related to product performance and reliability.
Also look for possibilities to replace products or systems, improve
internal and external operating procedures and discover new product
applications.

To fully understand customers, familiarize yourself with the components that

make up the analysis: market and product segments, patterns of customer
behaviour and unfilled wants and needs.

62 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Market and product segments
Segmentation means splitting the overall market into smaller sub-markets
or segments that have more in common with one another than with the total
market.

Subdividing a market helps you to identify and satisfy the specific needs of
individuals within your selected segments and thereby strengthen your market
position. Segmentation also allows you to concentrate your strength against
the weakness of your competitor and improve your competitive ranking.

Choosing market segments

Segmentation is obviously an essential part of customer analysis and
concentration in a segment is the essence of a competitive strategy. Therefore,
in doing your own customer analysis, you have to know which criteria to
use in choosing market segments, what factors to use in identifying a market
segment and how to develop a segmentation analysis.

Use the following criteria to guide you in selecting market segments:

MEASURABLE

Can you quantify the segment? For example, you should be able to assign a
number to how many factories, how many residences, or how many potential
customers are in the market segment.

ACCESSIBLE

Do you have access to the market through a dedicated sales force, distributors,
transportation, or the Internet?

SUBSTANTIAL

Is the segment of sufficient size to warrant attention as a segment? As important,

is the segment declining, maturing, or growing?

PROFITABLE

Does concentrating on the segment provide sufficient profitability to make

it worthwhile? Use your organization’s standard measurements, such as return
on investment, gross margin, or profits.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 63

 COMPATIBLE WITH COMPETITION

To what extent do your major competitors have an interest in the segment?

Is it of active interest or of negligible concern to your competitor?

EFFECTIVENESS

Do your organization’s personnel have sufficient expertise, as well as

material and financial resources, to serve the segment effectively?

DEFENDABLE

Do your personnel have the drive and skill to mount counter strategies to
defend itself against the attack of a major competitor?

Answering those questions will help you select a market segment with good
potential for concentrating your resources and with sufficient information
for customer analysis. These criteria can also be used as tests for the viability
of a market segment once you have chosen it. But how do you select one?

You can identify market segments by dividing a market into groups of

customers with common characteristics. (While new computer software may
speed up the segmentation process, be certain the criteria presented here
are included when you select the program.)

Categories for segmenting markets

Table 2.1 displays the four most common ways to segment a market, based
on demographic, geographic, psychographic/cultural and product attribute
factors.

64 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

DEMOGRAPHIC PSYCHOGRAPHIC AND
SEGMENTATION CULTURAL SEGMENTATION

Sex Lifestyles

Age Psychological variables:

Family life cycle • Personality

• Self-image
Race/ethnic group
Cultural influences:
Education
• Group behavioural
Income patterns

Occupation

Family size

Religion

Home ownership

GEOGRAPHIC PRODUCT ATTRIBUTE

SEGMENTATION SEGMENTATION

Region Usage rate

Urban/suburban/rural Product benefits

Population density

City size

Climate

TABLE 2.1 BASES FOR MARKET SEGMENTATION

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 65

 The following case illustrates one aspect of segmentation.

Case example
Ericsson, the Swedish phone giant, defines its growth markets against a
backdrop of intense competition and swift movements in technology. Within
that twofold framework, managers faced tough decisions at the turn of the
21st century about how to defend their hard-won positions in established
segments.

In particular, they had to determine how to keep ahead of aggressive

competitors, while obtaining a foothold in new segments.

For Ericsson, the nagging problem was that even with a substantial share
of wireless and fixed-line networks, it lagged in a key telecom growth market:
mobile handsets. That void provided hard-driving competitors with an opening
to gain solid positions.

For example, Finland’s Nokia consolidated its hold on the mobile-handset

business with a 23 per cent market share vs. Ericsson’s third place 15 per
cent. And such North American powerhouses as Cisco Systems, Lucent
Technologies and Nortel seized the lead in the Internet telephony field.

The situation: Telephone handsets, once a big earner, were barely profitable
because of pricing pressure, aging products and bulky designs.

Ericsson’s strategy
To fight back, the Stockholm-based company advanced by using the following
steps:
• Recognizing a prime opportunity, Ericsson employed its vast technical
expertise to concentrate heavily on the growing applications for mobile
phones to transmit reams of information. Also, the company expanded
the segment for mobile phones by intensifying its efforts to offer wireless
Internet access.

66 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 • As the wireless networks multiplied, Ericsson managers concentrated
on the astonishing statistic of one billion mobile subscribers
worldwide, along with 30 per cent to 40 per cent using mobile systems
for the Internet.
• With those healthy projections, a massive market for equipment
upgrades looked particularly attractive. And Ericsson positioned itself
to grab a significant piece of that lucrative market segment.

Action strategy
What can you learn from the Ericsson case? To apply market segmentation
to your strategy requires a thorough understanding of the various categories
of segments. Let’s examine the following approaches to segmenting a
market as identified in Table 2.1.

Demographic segmentation
Demographic variables are among the most widely used segmentation
approaches. They owe their popularity to two facts:

First, they are easier to observe and/or measure than most other characteristics.
Second, their breakdowns by sex, age, family life cycle, race/ethnic group,
education, income, occupation, family size, religion and home ownership are
often closely linked to differences in buying behaviour.

In many instances, you can combine demographic variables to produce a more

meaningful breakdown than just relying on a single criterion. For example,
it is common to combine the age of the head of the household with the family
size and the level of household income.

Geographic segmentation
Geographic segmentation is relatively easy to perform because the individual
segments can be clearly defined on a map. It is a sensible strategy to employ
when there are distinct differences in climatic conditions, access to
transportation and proximity to round-the-clock service or repairs. The strategy
also works if you find geographic considerations, such as varying regional
tastes or unique culture-based habits and behaviours.

Geographically, you can segment by region, city size, by population density,

or by geopolitical criteria. However, such segmentation is effective only if it

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 67

 reflects differences in need and buying patterns. Many firms, for example,
adjust their advertising efforts to as small an area as a county.

Graphic techniques for segmenting markets

Figures 2.2 and 2.3 show graphic techniques you can use to define market
segments. Figure 2.2 shows a matrix format for segmenting a service market.
The vertical axis displays market segments that use natural gas and related
services. The horizontal axis shows features that influence customers’ choice
of energy product.

A manager reviewing this matrix can look closely at the boxes and identify
which have the greatest potential for market concentration. For instance, the
industrial boiler markets would probably be concerned with gas availability.
Making gas more readily available for that segment or designing gas
conserving parts for industrial boilers would indicate two ways to concentrate
on that market segment.

A similar matrix, Figure 2.3, is an example of industry segmentation in which

types of design engineers are displayed on the horizontal axis and the industries
in which they work are designated on the vertical axis. Here, a manager has
several choices: focus on the needs of one type of engineer in one type of
business, reach all businesses with one type of engineer, or serve all engineers
in one type of business.

68 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 Gas Equipment
Gas Gas Equipment Gas Equipment
Operational
Availability First Cost Features
Cost
Residential
Space
Heating

Residential
Appliances

Commercial
Space
Conditioning
Commercial
Cooking

Co-Generation

Industrial
Process
Markets
Industrial
Boiler
Markets
Utility
Boiler Markets

FIGURE 2.2 A MATRIX FORMAT OF MARKET SEGMENTS FOR NATURAL GAS SERVICES

Technical or Equipment
Business and Circuit System Design
Engineering Design
Industry Design Engineer Engineer
Management Engineer

Computers, Data
Processing
Equipment
Manufacturing

Test Management
and Instrumentation
Manufacturing

Communications
Systems and
Equipment
Manufacturing

Industrial
Controls and
Equipment
Manufacturing

FIGURE 2.3 A MATRIX FORMAT OF MARKET SEGMENTATION

FOR COMPUTER-AIDED DESIGN SYSTEMS

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 69

 Applying field ethnography to
segment a market

Blending all segmentation methods gives you a more complete picture

of a market segment.

A relatively new-to-marketing segmenting technique is available to you by

adopting the time-tested techniques from cultural anthropology and using
one of its fundamental tools of research: Field ethnography.10

The approach promises to provide a unique and more expansive method to

qualify and quantify a segment for entry and expansion.

Such companies as Intel and Eastman Kodak employ cultural anthropologists

to survey their respective markets to learn the buying behaviour and in-depth
factors related to product usage.

Using field ethnography gives you the distinct advantage of adding insight
and sensitivity to your decision-making process that is not available through
traditional segmentation methods. However, blending all the methods gives
you a more complete picture of a market segment and its behaviour.

Let’s begin with definitions:

Ethnography is the study of people in other cultures and the resultant
written text from that study.11

Culture is the invisible web of behaviours, patterns and rules of a group

of people who have contact with one another and share a common
language.12

10 The author acknowledges with thanks the numerous references and critical analysis provided
by Julia Paley, Professor of Anthropology, University of Michigan.

11 Source: Paul Kutsche, Field Ethnography: A Manual for Doing Cultural Anthropology, Upper
Saddle River, NJ: Prentice-Hall, 1998.

12 Source: Elizabeth Chiseri-Strater and Bonnie Stone Sunstein, Field Working: Reading and
Writing Research, Upper Saddle River, NJ: Prentice-Hall, 1997, pp. 43.

70 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

The following steps for conducting a segmentation study consist of a very
broad interpretation13 based on Paul Kutsche’s ethnographic techniques.

Step 1: Map a segment

PURPOSE

Initially, define the physical dimensions of the market segment that represents
your best opportunity. Approach this activity as you would any other market
investigation:
• Use personal observation, databases, the Internet and printed information
to (1) assess, verify and redefine your existing segment; and (2) identify
emerging, neglected, or poorly served niches that would serve as your
entry points.
• Then describe the segment in non-judgemental terms. Use facts built
around the physical layout of factories, stores, warehouses, roads and
other transportation hubs – as well as consumers’ locations within
specific and well-defined geographic areas.

PROCEDURE

The segment you select could include a geographical region, a large or mid-
size city, or an inner-city residential neighbourhood.

Looking at an industrial sector, draw a map and annotate it with items that
provide a clear picture of the area, such as: architecture, condition of buildings,
proximity of buildings to main roads, traffic flow, accessibility to railroad
sidings, access to suppliers and services, condition of streets and other physical
details that are pertinent to your business.

In the case of a residential neighbourhood, also draw a map of the area and
comment on the physical condition and location of shops for purchasing daily
essentials, availability of banks and similar services, types of residential housing,
condition of schools, adequacy of street lighting, condition of main and
secondary streets and any other relevant physical details that would
contribute to the validity of your segmentation study when presenting it to
management.

13 This interpretation represents my application of the ethnographic principles presented by Paul

Kutsche. My purpose is to add to the extensive body of knowledge that already exists about
market segmentation by tapping the rich sources of knowledge available from cultural
anthropology and the techniques of ethnography.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 71

 PITFALLS TO AVOID

To the extent that you are able, avoid forming personal and premature
impressions at this point in your investigation. Do your best to remain non-
judgemental about what you observe.

That is, avoid adjectives such as attractive/unattractive, older/newer building,

middle-class consumers, pricey, inexpensive, charming, interesting and so
on. Just assemble facts at this stage of the process and use your eye and your
ability to observe with accuracy. Impressions and conclusions come later.

Step 2: Create an exclusive language

PURPOSE

Using your ‘professional’ language can, at times, confine you. Your so-called
objective business and marketing terms used to define the culture of a segment
or the characteristics of a group, may distort a picture of the actual cultural
‘web of behaviours, patterns and rules of a group’.

One remedy is to create your personal descriptive language. Another

approach is to use terms, descriptions, or vocabulary borrowed from a neutral
field or source that doesn’t affect you with emotional or pre-judged
terminology, such as military, architectural, sports, or agricultural terms.

It doesn’t matter what terms you use, since the intent is to free your mind of
biases. Again, you are attempting to capture accurate, unadorned and objective
characteristics of a segment.

PROCEDURE

Blending all segmentation methods gives you a more complete

picture of a market segment.

Your special language can release a fresh viewpoint to see groups and cultures
in a new light.

Write down in narrative form your description of the segment. Include maps
and other appropriate references related to demographics, geographics and
behaviour. Again, avoid the standard business jargon and technical terms
normally used in your industry.

72 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

This process will help you redefine the makeup of an existing segment and
even reveal fresh opportunities you may have missed by using conventional
demographic studies. Or you may discover the segment no longer fits into
your long-term plans.

Once again, use your exclusive language as a device to open your mind and
release your creativity that translates into a product or service and satisfies
the specific needs of a defined group of individuals. (After all, isn’t that result
the meaning of modern marketing and the intention of competitive strategy?)

PITFALLS TO AVOID

The familiar business language, terminology, technical and industry jargon

tend to trigger usual responses and restrict innovation and dynamic thinking.
Therefore, your special language can release in you a fresh viewpoint to see
groups, segments and their respective cultures in a new light – and for a new
opportunity.

Step 3: Observe body language

PURPOSE

The common phrases, “I can read him like a book” or “Clothes maketh the
man,” imply that individuals believe in non verbal forms of body language
that can, if observed carefully, communicate significant amounts of valuable
information.

Observing body language is not new. It is an art form supported by

substantial quantities of literature from many of the behavioural sciences,
including psychology, sociology and anthropology.

The intent, however, is not to make you an expert in this field. Rather, the
object is to equip you with a keen awareness of how to apply body language
as a step in the ethnographic process for defining a segment with greater
accuracy.

Accordingly, learn to interpret meaningful gestures, for example, during

prospecting and while observing the purchasing process. Also, there are the
sophisticated electronic approaches that use hidden cameras aimed at
supermarket aisles to observe non-verbal buying patterns and the application
of scientific instruments to measure the dilation of the pupil in the eye when
viewing a television commercial.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 73

 However, for everyday use you can conduct a more modest approach by
watching body language as part of your overall observation of market and
customer behaviour. Of course, not all gestures are readily interpreted, unless
you have an intimate knowledge of the group.

Until sufficient experience is accumulated, you will have to gain expertise

through continuous observation and by asking knowledgeable individuals
who understand the gestures to decode them for you.

PROCEDURE

Through observation – and outside of hearing range – write down a

communication exchange between two or more people shopping for a product
or evaluating a purchase. Try to interpret the event, including its social, business
and cultural contexts.

For instance, where two or more individuals are involved, how close or distant
did the individuals stand during conversation? Were there cultural implications
connected to the stance or gestures? (For instance, Arabs tend to stand very
close to others in conversation, whereas Northern Europeans and North
Americans tend to stand further apart.)

What other characteristics did you observe that would give you a clue to
behaviour? Were there any unusual body movements that would require
interpretation by hiring experts or ‘insiders’?

Write down your observations. The outcome should result in pinpointing

buying patterns or in determining how deliberate or impulsive the buying
decision is.

In turn, such astute observations can influence how you promote to a customer,
the amount and format of the information you put on a package, the type
and quantity of back up service you provide and the range of languages you
make available to answer a problem.

The central idea is to dispel stereotypical communications that result in

inaccurate and costly assumptions about customer reactions and buying
patterns. Where observation is not possible, as in behind-closed-door
buying situations, you will have to obtain information about the buying process
by interviewing individuals who can answer pointed questions related to
behaviour (see Chapter 5 for marketing research techniques).

74 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

PITFALLS TO AVOID

Observe carefully. Gestures are less specific than words and more easily
misinterpreted. If you are unsure about some form of body language, confirm
the meaning with someone associated with the company or group.

Step 4: Describe the ritual

Rituals apply to business practices that are natural to an individual,

group, or organization.

PURPOSE

This step is likened to the shopping and decision-making ‘ritual’ practised

by a consumer, group, purchasing manager, or senior executive. While much
has been written in marketing and sales literature about the buying process,
we can now add another layer of knowledge from the formidable body of
work accumulated by cultural anthropologists over a period of almost 100
years.

As rituals vary with individuals, groups and societies so, too, do distinctive
practices exist among consumers, companies and various institutions.

What is a ritual? Paul Kutsche points out, “A ritual is almost always a collection
of symbols, which a good analysis separates out and considers one by one.
You may find an event that is entirely ritual, for instance, initiations,
weddings, funerals and other rites of passage…”14 For our marketing purposes,
rituals apply to business events and all those transactional practices that are
intrinsic to an individual, group, or organization.

PROCEDURE

Write a detailed description of the ritual. There are no limitations about which
rituals you observe. For example, they can include the purchase of sophisticated
capital equipment, a computer system for a home, ordinary office supplies,
life insurance, or home furniture.

For greater accuracy in targeting various purchasing rituals, you can

categorize them by demographic, ethnic, geographic, behavioural and all those
segmentation categories previously discussed.

14 Paul Kutsche, Field Ethnography: A Manual for Doing Cultural Anthropology, Upper Saddle
River, NJ: Prentice-Hall, pp. 48.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 75

 In all cases, you want to find out what practices are important to members
of the group. This is a critical point if you are to grasp the viewpoint of the
customer, which is the essence of relationship marketing.

Therefore, stay flexible as you discover the key forms of behaviour associated
with an event. Describe (or flow chart) in detail and in proper order the physical
setting and record the events that make up the ritual, as in purchasing a product.

The amount of detail you record will vary with the product or service; for
instance, hiring a financial consultant, purchasing a computer network, or
simply buying a news magazine.

Finally, shape your observations and interpretations into a meaningful

recommendation to your management that will impact on the market
segment you select, the type of product, service, packaging, pricing and
distribution required. The format in which this information is presented is
usually a strategic marketing plan (see Chapters 6 and 7 for a planning format).

PITFALLS TO AVOID

Rituals include sentiments, emotions and symbolic expressions and are tied
to an event. Therefore, keep in mind that ritual is part of the culture of a group
or market segment.

While trying to stay objective, recognize that you are attempting to grasp
the meaning behind the actions of those individuals you are observing.
Accordingly, avoid giving your personal opinion of some practice as right,
wrong, strange, or familiar.

Finally, the purpose of this four-step process is to add greater precision to

your strategic marketing efforts. With resources often limited, competition
more intense and viable segments harder to locate, you now have an additional
evaluation tool to aid your decision-making.

76 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Patterns of customer behaviour

Understand customer behaviour and translate the findings into

strategies.

As part of market segmentation and, as highlighted in the above ethnographic

guidelines, a central component of customer analysis deals with patterns of
customer behaviour. In turn, to connect behaviour with practical application
raises these questions:

How is a customer likely to think, behave and make decisions regarding your
products and services? How can you use that information to reach and attract
potential customers? What impact does behaviour analysis have on customer
analysis and, therefore, on the selection of strategies?

The following case example involving medical products illustrates the

relevance of these questions to customer analysis and, thus, to the larger issue
of marketing strategy.

Case example
Tecnol Medical Products markets disposable medical products for customers
in hospitals, health care facilities and retail outlets. At the onset of operations,
it needed a point of entry to penetrate the crowded health care market.

Larger competitors not only dominated with sizable market shares, but also
commanded superior resources in R&D, production and marketing to
maintain a continuing presence.

To overcome those formidable barriers, Tecnol managers initially concentrated

on two major factors: customer behaviour and competitor characteristics.
To find a point of entry, managers canvassed the medical products industry
to catalogue the various product lines and the segments each served.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 77

 Tecnol’s strategies
Their search revealed significant changes in surgical procedures driven by
new technology. Along with the changes, they observed a sharp rise in health-
related fears that were unnerving operating room personnel.

For example, they noted the soaring anxiety about AIDS, the concern about
the increasing use of lasers in surgical procedures which produces airborne
particles of bacteria from diseased tissue and the worry about the swelling
number of TB cases in hospitals.

From the investigation, Tecnol managers reasoned that if they entered the
market with a single product line of medical supplies, there could be a
reasonable chance for success.

Their conclusion: enter the surgical mask market. Next, Tecnol managers
evaluated two dominant competitors serving that niche: 3M and Johnson &
Johnson. They judged that those leaders were satisfied with their market
performance and, in Tecnol’s opinion, were taking the surgical mask market
for granted.

Further, they calculated that those companies weren’t keeping up with rapidly
changing surgical technology. Nor were they addressing the physical/emotional
needs of the users – namely surgeons and nurses – by lagging behind in
developing innovative surgical masks.

Using those customer behaviours and competitive characteristics as a

framework for implementing its market entry strategy, Tecnol launched into
‘high tech’ surgical masks.

Most of the specialty masks had patented screens to filter out submicron size
particles of bacteria, smoke and other airborne tissue fragments. They also
developed a fluid-shield mask made of plastic that attaches to a mask to protect
the surgeons’ and nurses’ eyes from blood splattered during surgery.

Imaginative products continued to roll out from Tecnol’s continuing

responsiveness to customers’ behaviour, changing technology, emerging
hospital hazards and awareness that the market leaders would eventually rise
to meet the competitive challenger. Result: Tecnol commands over 50 per cent
of the surgical mask market.

78 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Action strategy
What can you learn from the Tecnol case? First, it takes diligent research to
understand customer behaviour and translate the findings into market entry
and product development strategies.

Tecnol’s track record in both areas is exceptional and offers some of the best
lessons for entering a new market that has high profile competitors. Second,
when launching such a product line, follow these guidelines:
• Locate the optimum product/market entry point through a methodical
probe of customer behaviour and competitors’ dispositions. (Also
review segmentation and ethnographic guidelines presented in this
chapter.)
• Sustain growth with a continuous flow of new products, applications
and services.
• List those existing products that are currently being sold to your
existing markets. Where possible, quantify those products by sales,
profits, market share, position in the market and any other pertinent
criteria that permit you to appraise market performance.
• List new markets (or applications) in which your existing products
can be sold. (As Tecnol did, rank those segments by competitive
performance, rate of segment growth and level of technology
changes.)
• Identify new or value-added products that can be sold to existing
customers. These new products include any new systems you have
licensed, private-labelled items, or modified products with wrap-
around services that customers perceive as new.
• List new products for new markets. While this is the riskiest of the
steps, it allows you to test emerging segments that have opened up
through expanding applications of technology, government
regulations, or unique requirements tied to customers’ behaviour. (This
step was successfully executed by Tecnol’s perceptive actions.)

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 79

 Unfilled wants and needs

The third component of consumer analysis is determining the unfulfilled wants

and needs of various customer segments. The analysis, however, goes beyond
simply identifying these wants.

It specifies ways to fulfil them by examining how consumers adopt a new

product and how you can communicate your offerings to them. The following
case illustrates how one progressive company shaped its strategy.

Case example
Baldor Electric Co. considers relationship marketing and the total orientation
toward satisfying unfilled wants and needs as more than just a management
buzzword. In the mid-1990s, management found its company dwarfed by two
stalwart rivals, Reliance Electric and General Electric, competitors in electric
motors, drives and generators that power pumps, fans, conveyor belts and
the variety of automated components used in modern factories.

“If you have good relationships, you can weather the bad times,” declares
Baldor’s president. Relationships extend beyond customers and include
workers at Baldor, where there has not been a single lay off since 1962.

Even during the recession of 1991, workers were busy increasing inventory
and expanding the product line in readiness for the eventual upswing in
business. Since then, sales have skyrocketed by 46 per cent.

80 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Customer relationships
Focusing on fulfilling customers’ wants and needs at Baldor means providing
customers with the motors they need, on time and according to their
specifications.

The company accomplishes this by building up ready-to-go inventory early

in the production cycle, permitting it to fill an order overnight for the numerous
motors it stocks – ranging in size from 1/50 h.p. to 700 h.p. It assembles all
other sizes on short order from a database that includes over 20,000 different
specifications.

The core ingredients behind Baldor’s ability to sustain sound customer

relationships are:
First, a bulk of its inventory is stored in warehouses strategically located
in close proximity to customers’ locations. Second, each warehousing facility
is owned and operated by an independent Baldor sales representative who
is in continuing contact with other reps around the country. Third, each
facility is linked by computer, so that constant availability is online to respond
to a customer’s urgent request for a motor to prevent a potential
manufacturing interruption.

Result: Unsurpassed customer relationships for reliability, responsiveness

and flexibility where almost any size motor ships on virtually an overnight
schedule – and exceeds the capabilities of most of its formidable competitors.

Action strategy

Make the commitment to customers a company ritual.

What can you learn from the Baldor case? With the customer as the centrepiece
behind Baldor’s success, consider using the following eight steps of a customer
satisfaction program for your own operation:
1. Define customer requirements and expectations.
Begin by establishing continuous dialogue with customers to define
their current and future expectations. The feedback often falls into
such basic areas as orders being shipped complete and on time and
complaints being handled rapidly and to the customer’s satisfaction.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 81

 2. Maintain a system of customer relationship management.
On-going customer contact is a key component of the program. It
means assigning permanent customer contact people, such as
customer service, sales and technical service to selected customers.
Each contact person is then empowered to initiate actions to resolve
customers’ problems.

3. Adhere to customer service standards.

All quality plans, product performance and customer relationships
are driven by customers’ standards. Most often those standards are
measured by the time it takes to handle complaints, the number of
on-time shipments compared to previous time periods and the amount
of invoicing errors, freight claims and product returns.

4. Make the commitment to customers a company ritual.

A commitment means guarantees that include: stock orders shipped
the same day received, technical service teams sent to customers’
locations when needed, specialized training provided to customers’
employees, products that conform to data supplied by customers and
a 24-hour ‘hot line’ for support services.

5. Resolve complaints to achieve quality-improvement results.

Empower customer-contact personnel to resolve customer problems
on the spot. In particular, sales reps should follow up complaints and
make a formal report to a Customer Satisfaction Committee.

6. Determine what constitutes customer satisfaction.

Develop an index to measure customer satisfaction. With customer
feedback as the input, assemble information from various sources,
such as direct customer contact, customer audits and independent
surveys, quality assurance cards with shipments, suggestions,
inquiries and complaints.

7. Customer satisfaction results.

Circulate the results so that functional managers can design customer
satisfaction objectives for the following year.

82 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 8. Compare customer satisfaction levels.
Contrast your results with those of competitors and with industry
standards through formal and informal benchmarking. Then share
the results with distributors to help them improve their customer
satisfaction ratings.

Competitor analysis
While customer analysis lets you examine how to attract and satisfy
customers, competitor analysis gives you a picture of your rivals’ positions
in the market. You can use this information to concentrate on their weak spots
or differentiate your product line, with the overall aim of creating your own
competitive advantage.

Competitor analysis should be viewed from a variety of perspectives:

First, analyze competitors by how customers select a particular product
or choose a company from which they purchase. Second, look at how
competitors segment their market. Third, observe how customers display
their various behavioural purchase patterns. And fourth, find out how
competitors develop their strategies against you.

Of all four components of competitor analysis, you should single out

competitors’ strategies for major emphasis. Other parts of the analysis are
subordinate to the strategies that your competitors will use against you.

Understanding the threats gives you options to develop counter-strategies.

Analyze the total competitor organization and compare it

with your own.

The following case underscores this vital issue of competitor analysis and
how one company fought, and succeeded, in retaining its position as an industry
leader.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 83

 Case example
Cummins Engines Co. dramatizes the excitement and challenges of
competitor strategies in its encounter with aggressive Japanese manufacturers.
Cummins Engines, the heavy diesel engine manufacturer, had been fighting
uphill against those hawkish competitors, particularly Komatsu and Nissan.

The first word of the impending problem came from Cummins’ customers,
Navistar and Freightliner Corp., who reported that they were testing
Japanese medium truck engines.

Knowing the Japanese strategy of using an indirect approach into a market,

Cummins recognized the medium-engine entry into the market as a strategic
move that would lead to the next step of penetrating Cummins’ dominant 58
percent share of the U.S. market for heavy-duty diesel truck engines. It saw
the strategy evolve:
• The Japanese competitors entered the market with prices as much
as 40 per cent below prevailing levels to quickly gain market share.
• They found a poorly served and emerging market segment in
medium-size engines.
• They developed a quality product and were prepared to expand their
product lines.

Faced with the dilemma, Cummins took the following actions:

• They launched into the medium-size truck engine market with four
new engine models. The timing, however, was coincidental because
Cummins had been planning this market entry for five years through
a joint venture with the J. I. Case Company.
• They immediately cut prices of the new engines to the Japanese level.
“If you don’t give the Japanese a major price advantage, they can’t
get in,” observed then Chairman Henry Schacht.
• They cut costs by one third. This action was the toughest job in what
was perceived to be a bare bones, efficient manufacturing operation.
Schacht reduced overheads by using more flexible machinery to cut
down on set up time for different engine models. He eliminated the

84 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 need for excess inventory, which was cut from a 60-day supply to a
four-day supply.
• They gained participation from suppliers on suggestions about cost
cutting. An impressive 18 per cent reduction in material costs
resulted from changing the traditional adversarial attitude toward
suppliers to one of fostering cooperative relationships.

The strategies worked as an effective defence against the competitors’ in-

roads.

Action strategy
What can you learn from the Cummins case? Strategy involves the
mobilization of every human and functional part of a company and focuses
the sum of those resources to achieve corporate, divisional, or product line
objectives. Therefore, to analyze competitors you have to analyze the total
competitor organization and compare it with your own.

However, in realistic terms, the extent of the analysis may focus only within
the responsibility of a division vice-president of marketing, product manager,
marketing manager, or sales manager and only on selected competitors within
a target market. If the competitor’s total organization must be analyzed, what
are the areas for analysis?

Noted authors such as D. Aaker, D. Abell, J. Hammond, P. Kotler, M. E. Porter

and G. Steiner have dealt with the subject of analysis in recent years. The
intent here is to condense the various approaches into formats for everyday
use, so that you as a manager can take charge of implementing successful
strategies for your specific product or market.

All the approaches found in the literature essentially aim to answer similar
questions, such as:
• What are the competitors’ objectives as to size, growth, profitability
and market share?
• What are the competitors’ current strategies?
• How are they performing?
• What are their strengths and weaknesses?
• What actions can be expected from existing and emerging competitors
in the future?

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 85

 Developing a comprehensive checklist is one format for analysis (see
Appendix.) Another approach is to determine how competitors fit into strategic
groups and a third framework creates an operating profile that analyzes
marketing strategies and tactics employed by competitors.

Strategic groups
A highly valuable method for analyzing competitors’ strategies is to categorize
them by strategic groups. This system organizes groups of competitors by
similarities of the strategies they pursue. The strategic groups, which
Porter15 refers to as generic strategies, are identified as follows:
• Companies that pursue a differentiation strategy rely on product line
depth, product quality, service, distribution, or brand identification
to create a competitive advantage.
• Companies that follow a low-cost strategy base their operations on
economies of scale, the experience curve, manufacturing facilities and
equipment and access to raw materials.
• Companies that use a focus strategy go after the boundaries of a
competitor’s product line and served markets.

Use your best judgment to categorize groups. Many organizations tend to

merge one or more broad generic strategies in order to either maintain their
presence in the marketplace or increase their share of market in a cost-efficient
manner.

For example, Deere & Company, the farm and industrial equipment manu-
facturer, has been moving on a solid course of survival and growth for a long
period.

During one period of a treacherous agricultural market, when recession caused

2,000 farmers per week to sell out, one of Deere’s executives pointed out, “We
can’t rely on wage rates going down, we can’t rely on markets going up, we’ve
got to drive costs down.”

15 Michael E. Porter, Competitive Strategy (New York: The Free Press, 1980).

86 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Deere’s successful strategies can be grouped as follows:
• Create a low-cost advantage. For example, costs of a small sprocket
wheel were reduced by 50 per cent. The cost of engines for
construction machinery has been knocked down by 27 per cent. And
on a model-by-model basis, the industrial equipment division claimed
its newest machinery was coming in at 30 per cent lower costs than
previous lines.
• Focus on segments of opportunity. One of these segments was the
lawn tractor business, which had been booming even against
aggressive Japanese competitors such as Honda.
• Differentiate through market and product development. Deere
manufactured engine blocks for General Motors and made axles and
chassis for recreational vehicle manufacturers. The joint relationship
permitted Deere to experiment with materials such as ceramics that
could give it a competitive edge.

Thus, the Deere example shows the use of several generic strategies working
within one organization.

Summary of competitor analysis

Conduct a competitor analysis by examining customer selection (how do
customers choose competitors); competitor segments (how do competitors
divide up the market); behavioural purchase patterns (why do customers buy
from your competitors and not from you); and competitive strategies (how
do competitors’ plans to gain market share work against you).

Industry analysis
The third part of the external analysis is the industry. Think of your industry
as the sum of many parts:
There are sources of supply, existing competitors, emerging competitors,
alternative product and service offerings. Also, consider various levels of
customers such as original equipment manufacturers (OEM), intermediaries
and after-market end users. Operating within these levels are powerful forces
that have varying affects on an industry.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 87

 The following case illustrates how one smallish company used changing
industry conditions to prime its strategy.

Case example
Netframe Systems, a small company in a giant computer market, is a valuable
study in precision marketing and industry analysis. The firm succeeded in
locating a premium-price niche with its clustered network servers for local
and wide area networks.

During a one-year period, the company achieved remarkable performance

by doubling revenues and tripling earnings. Netframe’s marketing strategies
provide clues to a systematic process that you can use to build your
marketing strategy.

Netframe’s actions fall into three major categories: industry transition, product
technology and buyer behaviour. Within those groupings Netframe’s
managers designed their strategies.

• Industry transition. Netframe managers observed the on-going

transition of organizations replacing large computer mainframes with
small, but powerful personal computers. In addition, managers
detected another trend: PCs were no longer stand-alone pieces of
equipment. Instead, they were linked into networks feeding off the
server computers. At this precise juncture, Netframe targeted those
companies making the conversion.
• Product technology. Here’s where product technology and industry
transition converged. Netframe designed a powerful computer
server to run its Netware operating system, providing functions that
exceeded anything available from the clone makers. The unique product
could handle a network of over 100 machines, run a complex
network of 50 engineering workstations working off a single
operating system and access huge databases – and do so in a single
box.

88 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 • Buyer behaviour. Next, Netframe managers singled out a particular
buyer segment that displayed a distinct form of behaviour. During
the industry transition from large to small computers, one influential
group felt threatened: data processing personnel in large organizations.
These individuals had cared for the big mainframe computers, had
managed complex systems through the decades of evolving computer
technologies and had led their organizations into the new systems
revolution. Now, they might be left out of the transition to new PC
technologies.

Netframe’s strategies
Netframe managers understood their anxiety and saw an opportunity to
partner with data processing people. By collaborating with them, Netframe
marketing and sales people reasoned they could help transform the data
processing department’s role into the broader responsibility of information
technology (IT) for mutual benefit.

Jointly they could explore innovative approaches to managing the increasing

number of desktop computers, spearhead new applications of the networking
technology within the organizations, speed-up communications and
disseminate updated competitive information to marketing and sales
personnel.

This form of relationship marketing would benefit Netframe, IT managers

and their respective organizations. Thus, a strategy was shaped that
positioned Netframe to stay ahead of the clones, prevent it being pulled into
the commodity battle and provide a powerful selling proposition for the sales
force.

Action strategy
What can you learn from the Netframe case about analyzing your situation?
If your company is introducing a new product or service into a saturated
market, you can do the following:
1. Customer analysis. Use formal research, informal observation, or one-
on-one conversations with customers to understand the subtleties
of your customers’ needs, and do so, segment-by-segment. By
learning about the fears of data processing personnel, understanding
their buying motives and building a trusting relationship with them,

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 89

 Netframe’s managers isolated and constructed an appropriate sales
strategy for its customers.
2. Competitor analysis. Evaluate your competitors’ products, distribution
strategies, promotion expenditures, pricing levels, financial strength,
managerial and technical capabilities and ability to respond to your
actions. Know what competencies you have for a counterattack and
then time your strategies carefully. Netframe knew that clone-makers
and even the industry giants were only short product cycles behind.
3. Industry analysis. Rate your industry’s readiness to accept new
products, technologies and value-added services. Estimate industry
trends and the stage of your industry in its life cycle. Netframe’s major
success factor was pinpointing the industry trend and latching-on
to the transition from mainframes to networks of PCs.
4. Environmental analysis. Consider the impact of government policies
and regulations as an opportunity or an obstacle. Look, too, at the
behaviour of new customer groups by tuning into fresh segmentation
opportunities that relate to cultural diversity. Netframe’s actions and
sensitivities to the marketplace indicate that it was well positioned
to outrun the commodity trap, where price serves as the primary
buying motive.
5. Global analysis. Use the above guidelines to analyze global opportunities.
However, after identifying those trading blocs you want to enter, then
narrow your analysis and determine if you have sufficient capabilities
to sustain a long-term marketing advantage.

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Conducting an industry analysis
There are interacting forces that you must consider in an industry analysis.
It proceeds from the broad analysis of suppliers, existing competitors, emerging
competitors, alternative product offerings and customers to a finite listing
that can be used as a checklist.

Level 1 analysis – checklist

Analyze emerging competitors with the same detail as you apply to

existing ones.

SUPPLIERS

If a few suppliers in an industry control the flow of materials that result in the
control of prices, then a powerful influence is exerted on all the other forces
within the industry. Therefore, a review of supplier practices at key stages of
the supply chain will provide you with a clue to future patterns of supplier
behaviour. In turn, that will push you to develop alternative strategies.

Such analysis has had the effect of driving user organizations to outsource
jobs to other countries, find other sources of supply, or form joint ventures
to acquire new technologies.

On the other hand, when suppliers see the threat of losing their dominance
in an industry, cooperative relationships can be formed (as shown by the case
example of Cummins Engines working in unison with its suppliers).

EXISTING COMPETITORS

How do you rate the intensity of competitive actions? Examine the pattern
of price wars. Which competitors seem to retaliate first against movements
in prices?

Review the amount of advertising and identify its themes. Is there a tendency
to ‘knock the competition’ or use a more compliant approach? Is there a war-
like environment that is changing the character of the industry?

EMERGING COMPETITORS

The entry of new competitors over the last 25 years in many European and
North American industries – such as steel, automobiles, consumer appliances,

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 91

 textiles, footwear and high technology – have had a jarring effect on the
established companies.

Some companies have succumbed to the ravages of aggressive competitors.

Others have risen to the threat by reinventing their companies through
reengineering, downsizing and imbuing personnel with the spirit to fight back
with new skills and fresh competitive strategies.

In conducting an industry analysis there is a tendency to focus only on existing

players. The wrenching lesson from this experience is that you must identify
and analyze emerging competitors with the same intensity of detail as you
apply to existing ones.

ALTERNATIVE PRODUCT OFFERINGS

It is appropriate in this type of analysis for you to tap the knowledge of R&D
and manufacturing personnel in your organization who are more likely to
know about alternate products. Or, use outside industry specialists from
academia, research organizations and other industry consultants as expert
sources. The auto industry provides a familiar example of how aluminium
replaces steel for many components and how plastics and other space age
materials increasingly provide an alternative to aluminium.

Customers
Customers are classified at all stages of the buying cycle: from end-use
consumers to business-to-business buyers, as well as to intermediaries such
as distributors, wholesalers and retailers. Each stage represents a force within
an industry that warrants investigation.

Level 2 analysis – checklist

Industry analysis continues with Level 2, a more detailed analysis that you
can use as a checklist:
• Current demand for product: Indicate, in quantitative terms, the usage
of your product in sales, units and number of users, share of market,
or whatever measurement provides a reliable indication of demand.
• Future potential for product: Use a timeframe of three to five years
to forecast the potential for your product, using the same unit of
measurement as in determining current demand.

92 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

• Industry life cycle: Identify, even in broad terms, the stage of your
industry in its life cycle – for example, introduction, growth, maturity,
or decline (life cycle is discussed in Chapter 9).
• Emerging technology: Identify technologies that are currently
available and those about to be introduced; determine where the
technology is coming from and who holds patents or copyrights.
• Changing customer profiles: Use segmentation techniques (identified
earlier in this chapter) to track any emerging changes in demographics,
geographics, or psychographics.
• Frequency of new product introductions: Monitor the introduction
of new products to determine any industry patterns that you can
benchmark for your own level of product development.
• Level of government regulation: Determine if government regulation
is increasing or declining and assess the impact on your industry.
• Supply chain: Indicate if there are any innovations in your distributor
channels. For example, is there emphasis on pushing the product
through distributors, or pulling the product through the channel by
influencing the end user, or perhaps eliminating distributors entirely?
• Entry and exit barriers: Assess the ease or difficulty of entering and
exiting an industry. The entry barriers include the amount of capital
investment needed, extent of economies of scale, access to the supply
chain and opportunities for product differentiation.
• Marketing innovation: Determine if there are innovations involving
areas such as automatic reordering systems and use of the Internet,
‘smart’ diagnostic systems, interactive product demonstrations, new
promotional incentives and onsite technical support.
• Cost structures: Evaluate the impact of economies of scale on costs
and profits as they relate to manufacturing, purchasing, R&D and
distribution. Determine what impact they would have on your
marketing efforts.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 93

 Summary of industry analysis

Industry analysis exposes trends so that you can observe opportunities.

Industry analysis helps you define many factors in your industry: Customer
profiles, existing and emerging competitors, products and technology. By
giving you a picture of the overall industry from all these aspects, industry
analysis lets you see trends into the future so you can stake out opportunities
for growth.

Remember, too, that industry analysis consists of two levels:

First, it requires a broad analysis of suppliers, existing competitors, emerging
competitors and alternative product offerings to give you a wide picture of
the entire industry.

Second, it entails a much more detailed analysis of conditions related to product,

customers, technology, cost, distribution and other factors. In your own
analysis, use the checklist provided for Level 2 analysis to consider each of
these factors in your own business situation.

Environmental analysis
The fourth and final part of the external analysis is environmental analysis.
Consider the following company’s problems of reorienting its operations from
a highly regulated environment to a freewheeling competitive operation. It
will provide you with a marketing perspective on environmental considerations
and how they can affect your business.

94 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Case example
Pacific Gas & Electric Co., a large natural gas and electric utility, had enjoyed
the secure and generally non-competitive world of a regulated industry. As
in many other industries and countries, that comfort zone came to an end
with the relentless push toward deregulation.

For PG&E, there were marketing implications: the company had to fight
anybody and everybody that was an electric supplier; from small, independent
generating companies entering its markets with rates as much as 30 per cent
below those of PG&E. Further, PG&E has to confront revenue declines where
some of its large corporate customers, such as Chevron had begun generating
power in-house.

PG&E’s strategies
Managers soon recovered from the jolting realities of those competitive threats
and shifted into a fight-back mode with new strategies.

First, they confronted legislation and policies created over 25 years ago in a
monopoly-oriented environment by redirecting their behaviour to a competitive,
customer-driven culture. Leaning heavily for inspiration on companies in the
private sector, managers began installing a service-oriented, marketing
function.

For instance, PG&E launched a 24-hour, seven day a week, toll-free, customer
service line that parallels those of IBM, General Electric and Dell Computer.

Next, management aggressively moved forward with the following market-

driven strategies:
• PG&E Enterprises was created as the company’s unregulated
subsidiary. Enterprises, in turn, joint-ventured with the engineering
company, Bechtel Group Inc. to construct power plants across the
U.S., with expansion into India, China and South America.
• Managers identified revenue-generating plans that include a portfolio
of products and services, such as selling plant management and energy
conservation advice, installing computerized power-quality systems

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 95

 to industrial clients and providing customized billing services for power
suppliers around the country.

Action strategy
What can you learn from the PG&E case? Whether a large or small
organization, when you need to generate fresh marketing strategies to counter
the effects of unwanted regulations or other environmental conditions, use
a successful system of developing a business-portfolio plan which links you
to a strategic marketing plan. (See details on planning in Chapters 6 and 7.)

While many formats are available, the classic Ansoff model is extremely
practical. It consists of the following steps:
1. Market penetration. List all current products going into your current
markets. The listing should include sales, profits and market share
information to help you measure market penetration. Then consider
how to increase sales by focusing on changes in customer behaviour,
new technology, or improved customer service.
2. Product development. In this section, look for new products to sell
to current customers. These may include either modified products
for special applications or all new products. Both categories could
consist of added features, improved quality, new packaging, extended
warranties and other value-added items – as long as the products
are perceived as new.
3. Market development. Identify how to move current products into new
markets. Explore market development possibilities by identifying
emerging, neglected, or poorly served segments in which to sell existing
products. At this juncture, it is appropriate to involve the sales force,
marketing and product development people.
4. Diversification. Identify new geographic areas, new products and new
markets. For some companies the move is risky, although numerous
opportunities exist for diversification through alliances and joint
ventures. For others, such as PG&E, diversification is not an option,
it’s a necessity.

PG&E devoted much of its attention to sections 2, 3 and 4 of the business

portfolio plan. It is also in your best interest to use the portfolio format in
your strategic marketing plan. Doing so gives you the opportunity to explore
possibilities that are not normally addressed in the conventional marketing
plan.

96 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Summary of environmental analysis

Environmental analysis requires that you look beyond the

immediate scope of your market.

The PG&E case demonstrated how one company reoriented itself to operate
in a deregulated, competitive range of markets. Had the company remained
rooted to its monopoly mentality, unaware of the host of threats from other
energy companies, local competitors and the movement of its large customers
to generate their own energy, PG&E’s prospects would have been dismal.
Instead, it shaped a strategy that responded to environmental factors.

In conducting your environmental analysis, focus on the major environmental

events that might affect your marketing strategy. In your own business, you
will have to go beyond the specific trends noted in this chapter and consider
new and changing environmental factors as they appear.

Sources of information include demographic and economic reports,

government accounts of new and pending legislation, periodicals citing
breakthroughs in technology and cultural trends reported in news weeklies
and evident in daily life.

Further, you may need to focus on the differences in environment in different

areas of the country or world. Whatever your approach, environmental analysis
requires a broad outlook and flexibility beyond the immediate scope of your
market.

Summary of external analysis

This chapter provides guidelines on how to analyze external market
conditions so you can personalize your competitive strategies. Using the
guidelines permits you to examine four key components:
1. customer analysis,
2. competitor analysis,
3. industry analysis and
4. environmental analysis.

TWO EXTERNAL ANALYSIS: UNDERSTAND THE COMPETITIVE WORLD SURROUNDING YOU 97

Blank page
PART TWO CHAPTER THREE

Internal analysis: The central

framework for implementing
competitive marketing strategies
 THREE
Internal analysis: The central
framework for implementing
competitive marketing strategies

Chapter Objectives
Expand your managerial skills as you:
• Conduct an internal analysis along seven dimensions:
performance, strategy, strategic priorities, cost,
portfolio, financial resources and strengths/weaknesses.
• Identify an organizational design with a customer-
oriented focus.
• Discover your corporate culture and determine how
it will impact your ability to implement marketing
strategies.
• Determine the effect of cost behaviour on the selection
of competitive strategies.
• Conduct a strengths/weaknesses analysis to find your
firm’s distinctive competencies.

Figure 3.1 illustrates the two major components of competitive analysis: external
analysis (see Chapter 2) and internal analysis. Internal analysis enables you
to ‘look in the window’ to examine the capabilities of your own organization
or business unit in defending or attacking markets.

As you analyze your strengths and weaknesses in an organized manner, you

can match your strong points against competitors’ weak spots when plan-
ning a competitive attack.

100 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 EXTERNAL ANALYSIS INTERNAL ANALYSIS

• Customer Analysis • Performance Analysis

• Competitor Analysis • Strategy Analysis
• Industry Analysis • Strategic Priorities Analysis
• Environmental Analysis • Cost Analysis
• Portfolio Analysis
• Financial Resource Analysis
• Strength/Weakness Analysis

Competitive Strategies

Competitive Advantage

FIGURE 3.1 A FRAMEWORK FOR COMPETITIVE ANALYSIS

The following case illustrates how one company conducted a self-examination

through internal analysis to help shape its strategies and redirect activities
during an industry turndown.

Case example
Owens Corning Corp. faced tough times as a producer of fibreglass insulation
and fibre glass-reinforced plastic. Its core product line, the famous pink
insulation for the building industry, had been sliding for several years. Also,
its plastics operation suffered with the decline in car and boat sales.

Whether officially labelled a recession or not, the economy in which Owens

Corning operated clearly faced a prolonged downturn. Let’s review some of
its strategies – some of which can apply to your business, large or small.

THREE INTERNAL ANALYSIS 101

 Owens Corning’s strategies
1. In what appears to be an obvious action, the company cut costs. It
was not indiscriminate cutting, however, but strategic cutting, with
a clear view of how the company would chase opportunities after
the recession.
Managers probed for ways to maintain a strengthened position
through more efficient operations, readying it to sprint ahead of
competitors at the proper time. In four years, managers saved multi-
millions in production costs alone.
2. Managers relentlessly searched for new market opportunities. To
reduce exposure to the depressed construction market, they refocused
objectives toward fibreglass industrial plastics with new applications.
3. Product developers created new products from existing materials and
technologies. For example, engineers developed fancy new designs
of fibreglass roof shingles and introduced new extra protection
insulation to help its residential and industrial customers save on
heating costs.
4. Marketing and technical personnel, working with their fibreglass
customers, initiated new uses for the materials. One carmaker, for
example, agreed to use fibre glass-reinforced plastic in the front end
of one of its car models.

Implementing strategies depends on an internal analysis of your

company or business unit.

The lessons behind the strategies

Managing in a competitive or recession environment requires a delicate balance
between internal activities and external market conditions. For example,
consider the following actions: cutting costs and people to maintain
profitability, yet ensuring that personnel preserve product quality; maintaining
customer satisfaction through product performance, while maximizing on-
going technical and customer service.

Then, what about your attitudes during the down period? Outwardly, you
must continue motivating your staff, encouraging them to introduce new
products and find methods of adding value to existing products.

102 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Simultaneously, you must search for techniques to safeguard a viable
competitive position. Finally, you must prepare for the post-recession period
by planning how to go after opportunities shelved during the down period.

Action strategy
What can you learn from the Owens Corning case? The above strategies apply
not only to large organizations, but also to midsize and smaller organizations
that are even more vulnerable to the shock waves of competition and industry
downturns.

Implementing those strategies depend on your leadership and managerial

capabilities. In particular, your ability to initiate an internal analysis of your
company or business unit will provide the systematic and logical framework
to make prudent decisions.

The Owens Corning case exposes many issues related to the internal
capabilities of a company or division – among them, its attitudes, strategic
priorities and the organization design. It is exactly the function of internal
analysis to enable you to determine what condition or state of readiness your
operation is in to win against competition.

To get a complete picture of your organization, you need to evaluate it along

the following lines:

Internal analysis determines what condition your operation is in to win

against competition.

• Performance analysis relates to structure, people, culture, tasks, systems,

resource utilization, innovation and productivity.
• Strategy analysis examines the ability of senior management and other
personnel to react to aggressive competition, to defend existing markets
and to attack new markets.
• Strategic priorities analysis concerns the long-term effects on strategic
direction, commitment to quality, customer orientation and human
resource development.
• Cost analysis relates to achieving competitive advantage.
• Portfolio analysis reviews markets, products and the strengths of
business units in each market.

THREE INTERNAL ANALYSIS 103

 • Financial resource analysis studies the availability of cash within
different competitive scenarios.
• Strengthlweakness analysis surveys areas of distinctive competencies
and types of unique assets.

Performance analysis
Performance analysis begins with a thorough look at your company’s or
business unit’s organizational structure. It is in that unique design that business
life exists and where the relationships with those of the same level, with
superiors, or subordinates interact.

It is in those surroundings that your product, promotion, pricing and supply

chain strategies materialize. Also within this everyday environment is where
managerial leadership emerges to influence the attitudes and collective morale
of individuals within your group.

Ultimately, within that organization, you will succeed (or fail) to carry out
your marketing plans based on the physical and cultural structure that supports
(or frustrates) your efforts.

Whether you operate in a highly structured environment or in a loosely run

hands-off group, be aware that a complex culture exists that embodies a history
of people and corporate events, a set of deep-rooted values and a pattern of
behaviours and mannerisms that surface under a variety of internal and external
conditions.

Lodged in that highly individualized corporate culture is the DNA of the

organization or business unit. It consists of a unique set of characteristics
that will influence how you can react when you reach the following critical
junctures:
• The types of risks that are used to maintain a market position.
• The tolerance for change dictated by an Internet-driven market place.
• The display of calmness or panic when confronted by an aggressive
competitor set on grabbing your market share.
• Your overall ability to respond quickly to create value, differentiate
your product or service, delight customers and grow.

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Consequently, it is in your best interest to uncover the design of your
organization and the inner shape of its culture. Then, you can evaluate with
some degree of accuracy how successful you will be in putting your strategies
into action.

Within the organization, a culture exists with a highly individualized

DNA that will influence your actions.

One characteristic common to most successful organizations and singled out

by senior executives, is the need for speed in decision-making and converting
the resulting decisions into real-time actions. Consequently, the long chain
of command is at a distinct disadvantage.

Instead, fewer layers of management tend to increase the timely and

accurate flow of information up and down the organization. Complementing
the streamlined corporate structure is the abundance of wireless
communication devices.

Additionally, inherent in the trimmed-down organization, speed impacts a

number of competitive issues that should have major concern in handling
your marketing effort, including:
• How your decisions flow downward to their swift implementation
in the field. Also, how smoothly communications move without getting
stuck in a maze of managerial layers, which often results in
unsuspecting distortions and misinterpretations of what was originally
intended.
• How fast you react to an aggressive competitor, where his clear-cut
aim is to feed-off your customers and erode your market position.
• How confident you are in your strategic marketing plan, so that pre-
planned strategies and tactics are set in motion in a timely manner
that produces utmost effect – rather than reacting with hasty, fit-and-
start movements.
• How and when you launch a new product to gain a competitive edge
and secure a favourable share-of-mind position among early adopters.

THREE INTERNAL ANALYSIS 105

 • How rapidly you harness the exceptional advantages of the Internet
and integrate it into your internal operations, so that the technology
impacts favourably on customer solutions.
• How fast you adopt new systems to foster virtual communications
within your organization and along the entire supply chain.

Rapid action improves your market position as opposed to slow and

deliberate delays.

In contrast, tardiness unquestionably affects many internal functions of the

organization and influences your ability to manage employees effectively.
Further, sluggishness, often identified as an ingrained cultural trait of the
organization, could inhibit your ability to lead under real-time market and
competitive conditions.

Just as damaging for you is to get bogged down in dragged-out market

campaigns that drain your company’s resources over long periods. In its worse
case scenario, excessive slowness and lethargy in a fast-moving marketplace
can result in bankruptcy.

Such consequences have tormented managers in many organizations, from

old-line blue chip companies to the shaky start-ups plagued by inadequate
operating capital to sustain themselves over prolonged periods.

Learning to act with rapid action and quick response to an opportunity or

threat, more times than not, improves your market position as opposed to
slow, deliberate and potentially ruinous delays.

Speed offers the indispensable advantage of conserving precious resources

from being dissipated over prolonged and arduous campaigns. Also, you gain
the personal advantage of sustaining your employees’ morale with decisive
action.
The following examples show the wide-ranging applications and advantages
of speed and communications that lead to a competitive advantage:

• Ebay, the global online marketplace, is where people find products

to buy and sell. It is the virtual hub of trade for everything from antiques
to BMWs, to industrial equipment from the U.K. to Germany, South
Korea and Brazil.

106 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 • Amazon.com is the No. 1 e-tailer. Its prowess is best illustrated by
the ability to ship 1.4 million copies of Harry Potter & the Order of
the Phoenix in a single day. And its expansion goes well beyond books
and media to sell other retailers’ products to its 33 million customers
• Intel with its innovative Centrino Wi-Fi chip is establishing a global
standard for wirelessly connecting devices and for tapping the Net.
• Salesforce.com, a smallish start-up, gained market attention by
demonstrating to corporations that buying software delivered as a
near-instant service over the Web is a viable alternative to expensive
software packages that often take months or years to install.

Taking into account the previous discussion, let’s now examine factors that
make it possible for you to react with speed. First and foremost, as discussed
above, e-business has become the pillar of the economy.

Consumers are more eager than ever to go places where only the Web can
take them and the companies making the smartest use of the Internet more
times than not will surpass their competitors when it comes to operating swiftly
and efficiently.

Your challenge: use new technologies to collect market intelligence as you

react quickly and decisively in a ratio of a short span of time to a large amount
of space.

Strategy analysis
The ability to react skilfully and shove aside aggressive competition, protect
market share and utilize the resources of the organization is the mark of an
effective manager. The following case exemplifies such an operation and how
it responded to opportunity.

It’s often cheaper to protect existing market share than to gain new
market share.

THREE INTERNAL ANALYSIS 107

 Case example
Haworth Inc., a manufacturer of office furniture, meandered from its beginning
in 1948 as a single-product company making wood and glass office partitions
and remained small until 1975. Then came the big break when Haworth
management exploited a product opportunity pioneered by market leader,
Herman Miller Inc.

Following a business trend, Herman Miller introduced movable office panels

that permitted dividing open spaces into offices. Haworth took that product
into the next generation by adding factory-installed wiring inside the panels.
For the customer, that innovation eliminated the time and cost of hiring union
electricians to wire a new office. Instead, panels were simply snapped together.

Then the inevitable happened. Competitors entered the market with knock-
off products. Haworth pounced with unrelenting speed to counter the threat.
It took legal action charging those competitors with patent infringement as
its primary weapon to block their entry. Haworth won huge settlements from
Herman Miller and Steelcase.

With the hefty court settlements and the surge in revenues from its highly
successful pre-wired panels, Haworth methodically began an expansion policy
to protect the market share it had won.
• Haworth acquired companies and moved out of the one-product
category to become a full-line office furniture maker.
• The company developed a line of inexpensive office furniture to parallel
the needs of a growing distribution channel through low-end outlets,
such as Office Depot.
• Concurrent with manufacturing an inexpensive line, Haworth
invested in efficient production systems, so that raw materials such
as metal, wood and plastic, move by robot from machine to machine,
where they are formed into desks, chairs and panels.
• New products and product systems continue to flourish as a defence
against competitors’ threats to market share. For example, Haworth
worked on an open system where its products will work with prod-
ucts made by competitors.

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Action strategy
What can you learn from the Haworth case? Overall, it is often cheaper to
protect existing market share in which you already have an investment than
to gain new market share. Specifically, consider using these guidelines:
• Where a competitor attempts to clone your product innovation to
gain market entry or reduce your market penetration, blunt its efforts
by rapidly matching the innovation. In doing so, you deprive the
competitor of promotional impact and any product advantage.
• Believe in the maxim, ‘The best defence is a good offence.’ In the context
of competitive strategy, that means employ continuous innovation
and continuous improvement. Your aim is to protect your market share
by becoming as invincible as possible.
• Search for possibilities within the marketing mix. For example,
Haworth’s active defence included a new low-end product line, cheap
pricing and mass-market distribution through Office Depot. Further,
Haworth continued its active defence by innovating with open
systems.

Altogether, the greatest execution of opportunistic strategy is to create a situation

that discourages a competitor from even entering your territory because of
the formidable barriers you have established. Also, as pointed out above,
successful strategy is greatly influenced by cultural values and beliefs.

Strategic priorities analysis

Your internal analysis continues with an examination of how your organization
and particularly how your group, looks at its long-term strategic priorities.
The level of market orientation is the focal point from which strategic priorities
emerge.

For instance, does a customer-driven mentality exist in your organization or

is it just given lip service? How much commitment is given to product quality
and long-term market development?

Every organization has marketable competencies to help enhance

its competitiveness.

THREE INTERNAL ANALYSIS 109

 The following case illustrates how a small company focuses on its strategic
priorities as it survives in an industry driven by high technology and ruled
by competitive giants.

Case example
Glenayre Technologies, a provider of messaging solutions for wireless and
wireline service, has seen its product line sales remain stagnant in a down
market and watched enviously as competitors’ fortunes recovered with a
market upturn. Yet its managers have shown that they can ride out market
cycles and latch on to changing technologies.

Background: Starting operations in Canada, Glenayre originally made power

supplies for high school science courses. From that base, it entered the growing
market for mobile telephones and then phased into specialized areas such
as data transmission equipment for use in railroads.

In the early 1980s and now located in the U.S., the company entered another
growth cycle for cellular phones. Its managers recognized a fast-growing
opportunity in what subsequently became the flourishing paging industry.

But how does a smallish company – even one with a mounting list of technical
competencies – move into an industry dominated by one of the wireless
electronic giants, Motorola?

Answer: Glenayer looked for an emerging and poorly served niche in the
paging business. It found one and a mighty niche it is. Glenayer shifted
strategies to design and produce the back-office transmitters, related base-
station equipment and software used by paging companies.

When Glenayer initially located the niche, its managers observed that Motorola
was busy making and selling a major portion of what is estimated to be over
100 million paging units in use today. At that time, purposely or not, Motorola
paid little attention to the back-office niche and had gleaned only a relatively
minor share of those sales.

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Also, Glenayer believed that with 20 years of following one technology cycle
after another, it had the technical competencies and internal capabilities to
excel in designing and manufacturing the specialized paging equipment.

What next? Glenayre set its strategic priorities

Follow market trends and keep growing in technical competence. For instance,
managers track all upgrades offered by the messaging companies, such as
next-generation services including voice dialling, voice navigation of voice
and voice-powered access to Internet content.

As a result, Glenayre fastens itself to industry innovations and provides the

advanced equipment to 200 service providers that support 51 million
subscribers in over 60 countries. With this approach and its strategic priorities
firmly in order, Glenayre commands about 55 per cent of that segment – and
the company is still growing.

Action strategy
What can you learn from the Glenayre case? First, you don’t have to fear
moving out of your comfort zone to follow the trends in your industry, even
if giant companies dominate the market. For instance, Motorola’s product
innovations pulled Glenayer along as an industry supplier – as long as Motorola
didn’t perceive a threat from Glenayre.

Second, you need to understand what makes your company tick. Glenayer’s
success didn’t just happen. It evolved over years of absorbing hard-won skills,
nurturing them into competencies to fit the explosive movements in
electronics and shaping those competencies into strategic priorities.

Let’s consider competencies. Every organization has marketable ones to help

enhance its competitiveness. It’s your job to identify and exploit distinctive
competencies that uniquely set your company apart from those of your
competitors.

Begin searching such areas as: product development, production skills, technical
services, marketing capabilities, R&D management, distribution, or complaint
handling.

Don’t overlook the softer areas in your search for competencies. These may
include: customers’ easy access to your senior management, your company

THREE INTERNAL ANALYSIS 111

 helping smaller customers develop financial packages, or the specialized training
you offer customers.

Once you have categorized these unique competencies, integrate them as

strategic priorities into your marketing plans and develop business-building
strategies focused on two goals:
1. Deliver ever-improving value to customers.
To meet this goal, you might develop the competencies needed to
deliver quality products and services that contribute value to
customers and result in customer satisfaction. In particular, quality
includes not only the product and service that meet basic customer
requirements, it also covers those features that differentiate them from
competing offerings.

2. Communicate to customers your company’s readiness to improve its

overall company performance.
This high-minded goal translates into creating a customer orientation
that communicates clear and visible values to your customers.
Several types of improvements can generate positive customer
perceptions. Among them: enhancing value to customers through
new and improved products and services, reducing errors, defects
and waste. It also means improving responsiveness and turn-around
performance, improving productivity and efficiency with the positive
effect of reducing costs. Overall, a customer orientation means
bettering your company’s total performance and market position.

When superior quality and large market share are both present,
profitability is virtually guaranteed.

The entire thrust of your firm is now aimed at discovering and exploiting
market opportunities. This reorientation is accompanied by another
remarkable change: companies are no longer committed only to emerging
technologies and existing products, they are primarily focused on consumers
and their evolving wants and problems.

Therefore, what is basic to developing customer relationships is tuning-in

to customer expectations. In turn, that orients you to the practicalities of aiming
for customer satisfaction. All of which are catalysts to trigger profitable new

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business. Initially, however, your emphasis is on gathering actionable
information, such as positive feedback as well as negative complaints from
customers. To be actionable, the information should meet two conditions:

(1) Responses must tie directly to key business processes, so that opportunities
for improvement are clear; and (2) responses must translate into cost/revenue
implications to support the setting of marketing priorities.

As for customer satisfaction, you can focus on three types of requirements:

1. How you follow up with customers regarding products, services and
recent transactions to determine your company’s ability to resolve
their problems quickly.
2. How you gather information on customer satisfaction, including any
significant differences in approaching customer groups or market
segments. The technique you use provides clues that reflect customers’
initial buying behaviour, repurchase patterns and potential for new
business referral.
3. How you measure customer satisfaction relative to that of competitors.
You might obtain such information from company-sponsored studies
or ones made by independent organizations. The purpose of this
comparison is to develop information that you can apply to improving
your company’s performance relative to that of competitors.

Summarizing: Approaches to building customer relationships vary greatly,

depending on your products/services and types of customers. Thus, tailor
your relationship-building program so that it focuses on the special
characteristics of your customer groups and market segments.16

Cost analysis
The fourth component of internal analysis focuses on costs. Its practical
application is illustrated in the following case where a company must deal
with two conflicting goals of market share and profits.

16 See the section in Chapter 2, Applying Field Ethnography to Select a Market Segment, for
practical techniques to gain additional insights about customer groups and market segments.

THREE INTERNAL ANALYSIS 113

 Case example
United Parcel Service, the well-known package carrier, is learning to manage
two often-conflicting goals: market share and profits. Fortunately for UPS,
it is succeeding at both goals.

Revenues during the mid-1990s rose an average 8 per cent, along with sizable
growth in market share. Such growth is impressive when compared to UPS’
flat performance during the early part of the decade against aggressive rivals
like Airborne Express, Federal Express and other regional carriers that all
achieved double-digit growth.

Turning UPS around, however, didn’t come easily. It required changes in some
sensitive areas, in particular, its haughty corporate culture that generated
responses to customers’ requests with the self-serving comment, “It’s not in
our best interest.”

But that was yesterday. Competition has a compelling way of changing attitudes
from self-serving to customer-serving. Today, a cultural transformation has
remade UPS into an energetic, customer-oriented organization.

For example, one large corporate customer now rates a full-time UPS service
representative on its premises with instructions to manage complaints in a
responsible manner and find pragmatic ways to reduce the customer’s shipping
costs. Result: The satisfied customer increased its shipments with UPS by 15
per cent.

Competition has a compelling way of changing attitudes from

self-serving to customer-serving.

UPS’ strategies
1. Customized service. Rigidity gave way to flexibility. UPS offers its
customers customized shipment plans, which include flexible pick-
up and delivery times. Following solid marketing practice, that service

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 was launched after UPS conducted thousands of face-to-face
interviews with customers.
2. Market-oriented pricing. The former untouchable policy of one-price-
for-all was replaced with flexible rates based on customers’ volume.
3. Computerized tracking system. UPS uses cellular-phone hookups that
connect delivery trucks with a central computer that, in turn, answers
customer inquiries with fast and accurate information. Pivotal to
establishing customer confidence, the tracking system provides a
unique selling benefit to secure new customers and build profitable
market share.
4. Market focus. UPS expanded its marketing staff to reach out to
customers in two ways: first, to handle questions and resolve
complaints rapidly; second, to acquire customer and competitor infor-
mation that would lead to improved products and services (review
section on, “listening and learning strategies.”) One outcome:
customers who want assured delivery but not the fastest service can
have three-day guaranteed delivery, with a corresponding 20 per cent
saving over second day delivery.

For tradition-bound UPS, these changes required senior executives to commit

to a total customer orientation. Concurrent with that switch in orientation,
managers adhered to a scrupulous analysis of costs to maintain profitability,
as they installed expensive programs to build market share.

Also, they conducted formal training for lower-echelon supervisors to think

in terms of customer service and competitiveness. Result: As one transportation
analyst remarked, “It’s awesome, given their size that they grow as fast as
they do.”

Action strategy

It takes less promotional expenditures to maintain market share

compared to the cost of building new market share.

What can you learn from the United Parcel Service case? Regardless of
company size, you don’t have to compromise between market share and
profitability goals, if you conduct a cost analysis to maintain a balance of costs
and expenditures that are synchronized with your marketing objectives.

THREE INTERNAL ANALYSIS 115

 Here are practical guidelines, with implications on how to maintain a balance
among market share growth, costs and profitability:
1. While large expenditures are required to build market share, it takes
less promotional expenditures as a percentage of sales to maintain
market share.
2. Look at the criteria you use to evaluate market share. If you serve a
segment rather than an overall market, there are implications for costs
and profitability. For instance, examine market share based on
customer type, region and the type of support provided through on-
site technical service, overnight delivery, price contracts, or guaranteed
product performance.
3. It is less expensive to defend market share by investing in value-added
services and differentiated products than it is to buy-back market share,
after being pushed out by competitors.
4. Examine the following components that contribute to increases in
market share and ask which strategies would impact your cost structure
and profitability:
• Customer penetration. What actions would increase the total
number of customers who would buy your product, as compared
to the overall market – or its market segments?
• Customer loyalty. Which approaches would increase the purchase
of your product compared to your customers’ total purchases from
competitors offering of the same product?
• Customer usage. How could you raise the quantity of your
customers’ purchases, compared to the average size order from
competitors?
• Price selectivity. What would determine the profitability of your
product at the average price charged, compared to the average
price charged by all companies selling the product?

The UPS case illustrates how costs have broad implications for selecting
competitive strategies. To have a broader decision base from which to select
a strategy, you will need to understand cost from the standpoints of the
experience curve and sales forecasting.

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Experience curve
Understanding the experience curve gives you an added dimension to look
at costs as they relate to strategy options for your own company as well as
of your competitors.

Much of the work on the experience curve began when the Boston Consulting
Group (BCG) and others conducted thousands of cost studies. The results
showed that each time the volume of a product doubled, the total costs –
including administration, sales, marketing and distribution, in addition to
manufacturing – fell by a constant and predictable percentage.

Further, the cost of purchased items usually fell as suppliers reduced prices
as their costs fell, also due to the experience effect. This relationship between
costs and experience is called the experience curve.

Knowing that costs will be reduced by a fixed percentage each time

production doubles is only part of the equation. The other parts are in knowing
which factors contribute to the experience curve and then consciously
incorporating those factors into your marketing plan.

Some of the key factors that would impact your marketing plan include labour
productivity, work methods, production and technology efficiency and
product design and materials.

Specifically related to competitive marketing strategies are the costs related

to maintaining customer relationships. The following list will guide you:
• Basic. This type of customer typically makes a one-time purchase and
does not require personalized service. Alternatively, the profit
margins are so low that extra services would result in losses. In this
situation, using a customer service person to maintain telephone
contact may suffice.
• Reactive. This customer is encouraged to call for assistance only with
a product problem or some other complaint. However, a periodic check
is appropriate to determine if the customer can be upgraded to one
of the following levels.
• Accountable. The sales rep calls the customer a short time after
purchase to check if the product is meeting expectations. This action
begins a proactive approach to relationship marketing.

THREE INTERNAL ANALYSIS 117

 • Proactive. The sales rep meets with the customer periodically and
recommends improved products or suggests applications of
technologies to solve customer problems.
• Partnering: The salesperson and a team of specialists work intensely
to solve customer’s problem. The relationship ranges from regular
contact to the extreme of placing a technical person full-time at the
customer’s location.

Strategy implications

If you accumulate experience faster than competitors, you have

the advantage of price flexibility.

Implied in the experience curve is that it is prudent to accumulate experience

faster than competitors do. One practical approach to accumulating
experience suggests pursuing a first-into-the-market strategy and going for
a large share of the market.

Another is to be a follow-the-leader into a market, assess the mistakes of the

leader and move rapidly to dominate an emerging, neglected, or poorly served
market segment.

The primary point: if you can accumulate experience faster than competitors,
with the corresponding reductions in costs, then you have the advantage of
price flexibility to use as a weapon to attack a competitor’s position.

The negative side of this scenario could result in becoming a slave to the
experience curve by adopting a production-driven mentality rather than a
market-driven orientation. For example, if the production-driven approach
prevents responding to changing consumer patterns, or reacting to
competitors’ innovations, then the cost efficiencies will have a negative effect
in a changing marketplace.

In summary, the marketing strategy implications of the experience curve for

you are:
1. A competitive advantage is possible if you accumulate greater
experience than your competitors. The resulting cost advantage can
be used to plough back investment to achieve additional manufacturing
efficiencies, to improve products, shore-up the marketing effort, or
build market share through lower prices.

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 2. Within the context of competitor analysis, it is important to examine
your competitors’ experience curves. It is not a simple task and certainly
needs the cooperation of your production, purchasing and financial
staff to create examples of different experience curves under a variety
of pricing scenarios.
3. Experience curves can be used to forecast costs, which in turn can
be used to set prices. However, costs and prices are usually calculated
on the basis of a reasonably accurate sales forecast. The major
quantitative contribution you can make to these calculations is to
provide a reliable sales forecast.

Sales forecasting

The purpose of sales forecasting is to anticipate future events and develop

the strategic means for controlling them.

Attempts to foretell the future are as old as mankind. In competitive

marketing, however, such attempts are particularly significant because they
can influence those cost and price decisions resulting from the experience
curve. In turn, they impact the strategies you are likely to pursue.

Company sales normally result when your company’s marketing effort connects
with marketing opportunities. Add to that any challenges imposed by the
competition and the general economic climate.

Taking all these dynamic forces into account, the job of forecasting is to furnish
a set of alternative sales potentials derived from various market scenarios,
along with the probable effect on sales under each condition.

You can use these sales potentials as a frame of reference in assessing your
marketing opportunities and evaluating the pay-offs of your marketing
strategies under a variety of conditions. The outcome of this process is your
sales forecast.

Sales forecasting is an organized effort to predict the future level of sales,

given a specific marketing strategy and particular assumptions about market
conditions. You get under way by looking at past events and developments,

THREE INTERNAL ANALYSIS 119

 as well as by making use of your present knowledge and experience to project
future sales possibilities.

Merely projecting past figures into the future as if they were isolated from
events is not sales forecasting. You need to combine objective, factual inputs
with subjective judgment.

A well-managed forecasting program will make projections in time to allow

corrective measures, not when developments are too far gone. Such a program
can also provide you with frequent comparisons of actual-to-forecast figures
so you can revise your tactics during the forecast period.

It is advisable to use multiple approaches to arrive at estimated sales.

Sales forecasting techniques

Although various computer models are available to do sales forecasts, time
and budget restrictions often bar their use. Rather, marketing executives usually
rely on a set of relatively simple, quick, do-it-yourself techniques that
substantially reduce the time and money required in forecasting. There are
a number of such forecasting techniques that, along with subjective judg-
ment, add precision to sales estimates.

These forecasting techniques can be roughly subdivided into (1) judgmental

methods, involving the opinions of various kinds of experts such as executives,
sales people and informed outsiders and (2) market surveys using buyer surveys
and market tests.

Judgmental methods

JUDGMENT FROM THE EXTREMES

Judgment from the extremes involves asking for an expert’s opinion as to

whether or not future sales are likely to be at an extremely high or extremely
low level. If the expert’s reaction is that neither seems probable, the range
between the extremes is successively reduced until an approximate level of
expected sales is reached. Resulting in a range rather than a single figure

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estimate, this approach is appropriate in situations where experts feel incapable
of giving one-level forecasts.

PERT-DERIVED METHOD

The approach taken by PERT (Program Evaluation and Review Technique)

is to make three estimates: an optimistic estimate (O), a most likely estimate
(M) and a pessimistic estimate (P). Instead of asking for accompanying estimates
of the likelihood of occurrence of each one, a standard equation is applied
in order to arrive at the expected value (EV) or forecast:

O + 4M + P
EV = ________________
6

With this method, a measure of real values against expected ones, the standard
deviation can be developed. Taking, for instance, an optimistic sales estimate
of 250 (figures in thousands), a most likely estimate of 240 and a pessimistic
estimate of 200 (dollars/pounds or units), the expected value can be computed
as follows:

250 + 4(240) + 200

EV = 6

= 235

The standard deviation is then derived by means of the following formula:

O-P
SD = _______

(250 – 200)
= ___________

= 8.33

THREE INTERNAL ANALYSIS 121

 According to probability theory, the true value lies within two standard
deviations plus or minus from the expected value, with about 95 per cent
probability. The true value of sales, therefore, can be expected to lie in a range
from 235 ± 2(8.33), or between 218.34 and 251.66.

GROUP DISCUSSION METHOD

The accuracy of a PERT-derived forecast hinges heavily on the ability of the

expert(s) to produce realistic estimates. As a quick check on figures arrived
at by other methods, the PERT approach can be very useful. But the analyst
frequently feels that a number of specialists should be invited to participate
in forecasting.

Most often, the team meets as a committee and comes up with a group estimate
through consensus. This group discussion method has the advantage of
merging divergent viewpoints and moderating individual biases.

You should, however, guard against the potential disadvantage of one or more
individuals dominating the discussion, or offering superficial responses where
there is a lack of individual responsibility.

POOLED INDIVIDUAL ESTIMATES METHOD

While the pooled individual estimates method avoids the potential pitfalls of
group discussions, it also lacks the benefits of group dynamics. A project leader
simply merges separately supplied estimates into a single estimate, without
any interplay with or between the participants.

DELPHI TECHNIQUE

An increasingly popular method for forecasting is the Delphi technique, which

overcomes the drawbacks of both group discussion and pooled individual
estimates methods. In this approach, group members are asked to submit
individual estimates and assumptions.

These are reviewed by the project leader, revised and fed back to the
participants for a second round. Participants are also informed of the median
forecast level that emerged from the previous round.

Domination, undue conservatism and argument are eliminated because of

the written, rather than oral, procedure and the group members benefit from
one another’s input. After successive rounds of estimating and feedback, the
process ends when a consensus emerges.

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 The Delphi technique overcomes the drawbacks of group discussion
and pooled individual estimates.

JURY OF EXECUTIVE OPINION

As mentioned, the experts consulted in one or more of these methods typically

are recruited from one of three pools: executives, salespeople and informed
outsiders. A jury of executive opinion is often composed of top-level
personnel from various key functions such as sales, production and finance.

The major advantage of this type of source is that forecasts can be arrived
at quickly. This advantage is, however, easily outweighed by the disadvantage
inherent in involving people in the estimating process whom, in spite of their
high rank, are relatively unfamiliar with the forces that shape marketing success.

COMPOSITE OF SALES FORCE OPINION

The composite of sales force opinion approach collects product, customer

and/or territorial estimates from individual salespeople in the field. Since they
are in constant contact with customers, sales people should be in a position
to predict buying plans and needs. They may even be able to take into account
probable competitive activity.

Few companies simply add up their sales force’s estimates to compute the
sales forecast. Since sales quotas are frequently based on these estimates, a
sales person will tend to be conservative or pessimistic in estimating sales.

This tendency can be partially corrected by rewarding accuracy and

distributing records showing the accuracy of past forecasts, or by allocating
promotional support to a territory in line with the sales estimate.

OUTSIDE EXPERTS

When it comes to outside experts, any knowledgeable source could be consulted,

for example, trade associations or economists. Marketing researchers are
another valuable resource, together with dealers and distributors.

However, it is generally difficult to assess the degree of familiarity with industry

conditions and trends of such outsiders. Thus, they should be used with caution
and only in a supplementary capacity.

THREE INTERNAL ANALYSIS 123

 Market survey

CONSUMER SURVEYS

The judgmental methods just described involve estimates by people who are
not the ultimate buyers. Some observers consider this fact a weakness and
suggest getting the word directly from “the horse’s mouth.”

Surveys of consumer buying intentions are particularly appropriate when

past trends (such as energy consumption) are unlikely to continue or
historical data (as for a new product or market) do not exist.

This technique works best for major consumer durables and industrial capital
expenditures, since these types of buying decisions require a considerable
amount of planning and lead time and the respondents are able to predict
their own behaviour with reasonable accuracy.

TEST MARKETING

The problem of accuracy can be remedied by using the test-marketing approach

whereby a new product, or a variation in the marketing mix for an established
one, is introduced in a limited number of test cities. The entire marketing
program that is scheduled on a national basis is put into effect, scaled down
to the local level, but otherwise identical in every detail, including advertising,
pricing, packaging and so forth.

The problem of accuracy can be remedied by using the test-

marketing approach.

The new marketing effort now has to compete in a real sales environment.
Purchases, if any, are actual, not hypothetical. If carefully chosen and
monitored, test markets provide a significant mini-picture of the full-scale
reaction to the planned change. On the basis of actual sales results in the test
markets, sales forecasts are simply scaled up by appropriate factors. Table
3.1 summarizes the methods discussed.

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METHOD NATURE BENEFITS DRAWBACKS

Judgmental

Judgment from Successive Range instead Depends on

the extremes narrowing of of single figure individual
high-low range estimating

Group Group Merges Domination by

discussion consensus divergent view, one individual,
estimate moderate biases superficiality

Pooled and Averaging of Avoids group Lacks group

individual individual discussion dynamics
estimates estimates pitfalls

Delphi Successive Eliminates Lacks group

technique written rounds domination, dynamics
of estimating conservatism,
with feedback superficial
from other response
participants

Jury of Top-level Quick Unfamiliar with

executive committee market
opinion conditions

Composite of Adjusted Front-line Bias due to

sales force estimates from expertise, impact on
opinion individual sales motivational compensation,
people tool unfamiliar with
economic trends

Outside experts Merging of No bias due to Difficult to

outside opinions personal assess degree of
interests expertise

Market Surveys

Consumer Consumer Directly from Hypothetical

surveys interviews ‘the horse’s behaviour
about buying mouth’
intentions

Test marketing Sale in limited Actual sales Costly, time-

number of cities results consuming,
exposed
strategy to
competitors

TABLE 3.1 COMPARISON OF NON-MATHEMATICAL FORECASTING METHODS

THREE INTERNAL ANALYSIS 125

 Portfolio analysis
Portfolio analysis consists of formal models that provide a systematic
approach to assessing a competitive position and determining investment
levels. In practice, portfolio analysis is used for self-contained organizational
units – divisions, departments and product lines – in which you make investment
decisions on a market-by-market or product-by-product basis.

Your job is to seek out the information needed for these portfolio approaches
and determine which approach suits your business. The results can be of
immeasurable help in systematically analyzing your situation and in
developing competitive strategies.

Portfolio analysis consists of models that assess a competitive

position and determine investment levels.

The following case introduces you to the practical application of portfolio

models.

Case example
Hewlett-Packard Co., the highly successful computer and instrument
manufacturer, was reorganizing for continued growth when domestic and
foreign competitors attacked it from all sides. Such firms as IBM, Sun
Microsystems Inc. and Tektronic carved out market niches against many of
Hewlett-Packard’s 9,000 products.

Organizationally, Hewlett-Packard had been a loosely knit collection of 50

autonomous divisions, each responsible for its own production and marketing.
It was best described as an engineering-oriented company, run by engineers
for engineers. But changing patterns in market behaviour began to emerge.

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Large customers insisted that whatever equipment they bought must fit
together into a unified system. Further, the buying influence was no longer
left solely with the engineer.

Consequently, the loosely run engineering-oriented organization resulted in

inefficient selling practices (several sales people from various divisions calling
on one prospect) and delays in developing new product systems (engineering
workstations and high-powered desktop computers).

Opportunities in these growth segments fell to the smaller, faster-reacting

competitors. Recognizing that organizational changes were needed to
change the company into a market-driven company, Hewlett-Packard also
saw an urgent need to analyze its products and markets using the formal
techniques of portfolio analysis. Hewlett-Packard undertook portfolio analysis
for its 50 autonomous divisions and then for its major product lines.

Action strategy
What can you learn from the Hewlett-Packard case? The following section
describes three of the more popular models used in portfolio analysis and
which can apply to your business: BCG Growth-Share Matrix, General Electric
Business Screen and the Arthur D. Little Matrix.

BCG growth-share index

With a technique developed by the Boston Consulting Group, this classic model
has proven highly useful in assessing a portfolio of businesses or products.
BCG Growth Share Matrix (Figure 3.2) graphically shows that some products
may enjoy a strong position relative to those of competitors, while other
products languish in a weaker position.

The BCG Growth-Share Matrix permits you to evaluate where your

products and markets are relative to competitors.

THREE INTERNAL ANALYSIS 127

 Also, each product has its own total strategy depending on its position in
the matrix. The various circles represent a product. From the positioning of
these circles management can determine the following information:
• Dollar/pound sales, represented by the area of the circle.
• Market share, relative to the firm’s largest competitor, as shown by
horizontal position.
• Growth rate, relative to the market in which the product competes,
as shown by vertical position.

Existing Products New Products

20%
STARS

HIGH

QUESTION MARKS
Product Sales
Growth Rate 10%
CASH COWS DOGS

LOW

4.0 2.0 1.0 0.5 0.25

HIGH Relative Market Share LOW

FIGURE 3.2 A BCG GROWTH-SHARE MATRIX

In addition, the quadrants of the matrix categorize products into four groups:
1 Stars: Products that have high market growth and high market share.
These products need constant attention to maintain or increase share
through active promotion, product improvement and careful pricing
strategies.
2. Cash cows: Products that have low market growth and high market
share. Such products usually hold market dominance and generate
strong cash flow. The object: retain a strong market presence without
large expenditures for promotion and with minimal outlay for R&D.

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 The central idea behind the cash cow is that businesses with a large
share of the market are more profitable than their smaller-share
competitors.
3. Question marks (also known as problem children or wildcats):
Products with potential for high growth in a fast-moving market but
with low market share. They absorb large amounts of cash (usually
from the cash cows) and are expected to reach the status of a star.
4. Dogs: Products with low market growth and low market share,
reflecting the worst of all situations. A number of alternatives are
possible, maintain the product in the line to support the image of being
a full-line supplier, eliminate the product from the line, or harvest the
product through a slow phasing out.

As you review the growth-share matrix, note on the vertical axis that product
sales are separated into high and low quadrants. The ten per cent growth
line is simply an arbitrary rate of growth and represents a middle level. For
your particular industry the number could be five per cent, 12 per cent, or
15 per cent.

Similarly, on the horizontal axis there is a dividing line of relative market share
of 1.0 so that positioning your product in the lower left-hand quadrant would
indicate high market leadership and in the lower right-hand quadrant, low
market leadership. The significant interpretations from the matrix are as follows:
• The amount of cash generated increases with relative market share.
(This point was borne out in the section covering the experience curve.)
• The amount of sales growth requires proportional cash input to finance
the added capacity and market development. If market share is
maintained, then cash requirements increase only relative to market
growth rate.
• From a manager’s point of view, cash input is required to keep up
with market growth. Increasing market share usually requires cash
to support advertising and sales promotion expenditures, lower prices
and other share-building tactics. On the other hand, a decrease in
market share may provide cash for use in other product areas.
• In situations where a product moves towards maturity, it is possible
to use enough funds to maintain market position and use surplus funds
to reinvest in other products that are still growing.

THREE INTERNAL ANALYSIS 129

 In summary, the BCG Growth-Share Matrix permits you to evaluate where
your products and markets are relative to competitors and what investments
are needed relative to such basic strategies as building share for your product,
holding share, harvesting and withdrawing from the market.

General Electric business screen

The BCG Growth-Share Matrix focuses on cash flow and uses only two
variables: growth and market share. The General Electric Business Screen
(Figure 3.3) on the other hand, is a more comprehensive, multi-factor analysis
that provides a graphic display of where an existing product fits competitively
in relation to a variety of criteria. It is also an aid in projecting the chances
for a new product’s success.

The GE approach illustrates where an existing product fits

competitively in relation to a variety of measures.

The key points in using the GE Business Screen are:

1. Industry attractiveness is shown on the vertical axis of the matrix. It
is based on rating such factors as market size, market growth rate,
profit margin, competitive intensity, cyclicality, seasonality and scale
of economies. Each factor is given a weight classifying an industry,
market segment, or product as high, medium, or low in overall
attractiveness.
2. Business strength is shown on the horizontal axis. A weighted rating
is made for such factors as relative market share, price competitiveness,
product quality, knowledge of customer and market, sales effectiveness
and geography. The results show the ability to compete and, in turn,
provide insight into developing strategies in relation to competitors.
3. The matrix is divided into three-color sectors: green, yellow and red.
The green sector has three cells at the upper left and indicates those
markets that are favourable in industry attractiveness and business
strength. These markets have a ‘green light’ to move in aggressively.
The yellow sector includes the diagonal cells stretching from the lower
left to upper right. This sector indicates a medium level in overall
attractiveness. The red sector covers the three cells in the lower right.
This sector indicates those markets that are low in overall attractiveness.

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 • Relative market share
• Price competiveness
• Product quality
• Knowledge of customer/market
• Sales effectiveness
• Geography

Business Strength
Strong Average Weak

High
Green Green Yellow
Industry Attractiveness

• Market size
• Market growth rate
• Profit margin
Medium

• Competitive intensity Green Yellow Red

• Cyclicality
• Seasonality
• Scale economics
Low

Yellow Red Red

FIGURE 3.3 GENERAL ELECTRIC BUSINESS SCREEN

Arthur D. Little matrix

Another time-tested portfolio analysis approach is associated with the
consulting organization, Arthur D. Little Inc. In one actual application, a major
manufacturer in the health care industry used this approach to analyze how
its various products stacked up in market share.

In Figure 3.4, some of the company’s products are used to demonstrate the
function of this matrix. First, note the similarities of this format to the other
portfolio analysis approaches already discussed.

The competitive positions of various products are plotted on the vertical axis
according to such factors as leading, strong, favourable, tenable, weak and
non viable. On the horizontal axis, the maturity levels for the products are
designated embryonic, growth, mature and aging.

THREE INTERNAL ANALYSIS 131

 The key interpretations for this matrix are:
1. Non-viable: the lowest possible level of competitive position.
2. Weak: characterized by unsatisfactory financial performance but with
some opportunity for improvement.
3. Tenable: a competitive product position where financial performance
is barely satisfactory. These products have a less than average
opportunity to improve competitive position.
4. Favourable: a competitive position that is better than the survival rate.
These products also have a limited range of opportunities for
improvement.
5. Strong: characterized by an ability to defend market share against
competing moves without the sacrifice of acceptable financial
performance.
6. Leading: incorporates the widest range of strategic options because
of the ‘competitive distance’ between the given products and the
competitors’ products.

An examination of the four products shows how this matrix worked during
a particular period in those products’ life cycle.

Maturity
Embroyonic Growth Mature Aging

Blood
Leading collection or
vacutainer

Single-use Mercury glass

Strong hypodermic hospital
in Brazil thermometer

Automated
Competitive Position

Favorable Radioimmun-
oassay

Tenable

Weak

Nonviable

Green Yellow Red

FIGURE 3.4. ARTHUR D. LITTLE MATRIX APPLIED TO PRODUCTS

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Automated radioimmunoassay (a diagnostic product used in laboratories) was
considered in its embryonic stage with a favourable competitive position at
the time the analysis was prepared. This favourable position offered the
manager a range of strategy options as long as the decisions related to the
overall corporate strategy.

Single-use hypodermic needles and syringes had a strong competitive

position in a growth industry. Here, too, strategy options were fairly flexible
and depended on competitive moves, as well as on how quickly increases in
market share were desired.

Blood collection system, (Vacutainers) had a leading competitive position in

a mature industry. To hold existing market share, the company’s strategy
centred on product differentiation.

Mercury glass hospital thermometers held a strong competitive position in

a declining industry. This product had less price flexibility. However, by using
service, repackaging and distribution innovations, the company attempted
to maintain its strong position before giving in to price reductions.

As in the GE Business Screen, a green-yellow-red system is used to indicate

strategic options: green indicates a wide range of options, yellow indicates
caution for a limited range of options for selected development and red is a
warning of peril with options narrowed to those of withdrawal, divestiture
and liquidation.

Financial resource analysis

Financial analysis is an essential part of an internal analysis. It enables you
to quantify your strategy decisions. This section concentrates on those areas
of financial analysis that a general manager or marketing manager needs to
understand to conduct an internal analysis.

The following company case illustrates an application of financial analysis

for monitoring its selling strategy.

THREE INTERNAL ANALYSIS 133

 Case example
Parametric Technology Corp. (PTC) uses partnering and customer
satisfaction selling strategies to win handsomely against tough competitors.

PTC produces Pro/ENGINEER, a CAD/CAM software product that helps

engineers design anything from a disposable shaver, an automobile
powertrain, to an airplane wing joint in three dimensions.

The software demands a substantial commitment from customers who often

must allocate up-front expenditures and disrupt their production routines
simply to test the software.

The company combines a dogged determination to obtain sizable commitments

from customers. The tough job is to persuade customers that the benefits
outweigh the cost and inconvenience.

As one Parametric executive puts it, “The customer faces a dilemma and says,
‘Now I’ve got to buy some new hardware, install the software, schedule training,
convert all my data and change all my support structure.’”

Specific selling strategies are needed to overcome that challenge. While PTC
maximizes its efforts to offer customers an absolute focus on engineering
and manufacturing excellence, its selling strategies still include a level of
persistence where sales reps have been known to insist that customers make
the necessary commitment to test the software.

If a rep feels the decision process is dragging he or she will go over a prospect’s
head to the next level of authority – and to levels beyond, if necessary.

Preparing sales reps for such tough encounters requires intensive training
aimed at honing their attitudes and skills. In fact, PTC spends 40 per cent of
revenue to field a sales person. And the preparation doesn’t end there; all
sales people are required to dress for success by wearing such expensive
items as Hickey Freeman suits for men and Coach bags for women.

Financial analysis enables you to quantify your strategy decisions.

134 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Action strategy
What can you learn from the Parametric case? An examination of its selling
practices reveals some principles that apply to most companies. First, the
strategy issue is not one of hard sell versus soft sell. That’s a tactical choice,
even though a hard sell approach appeared to be a dominant strategy at
Parametric.

Instead, the strategy issue is that sales management must be tuned to the
characteristics of markets, customers’ buying behaviour, the complexity or
simplicity of the product offerings and the amount of post-sale service required.

Depending on how you define each factor, selling can take one of two paths:
1. A sales-oriented approach is commonly identified with the hard-hitting
selling used with products such as automobiles or appliances.
2. A customer-oriented approach is associated with the selling of
computer systems, machine tools and other products where problem
resolution is vital. For the most part, the trend in selling is toward
building long-term relationships.

Next, regardless of the selling system or strategy you use, evaluating

financial performance is essential to managing for bottom-line results. Use
these common measurements to achieve that goal:
• Current-to-past sales comparisons. To measure the performance of
sales reps and sales territories, a company must generate periodic
reports on the quantities of products sold by product line, the prof-
itability of territories and any quantitative data specific to measuring
the overall selling efficiency of your operation.
• Customer satisfaction evaluation. This measure is vitally important when
long-term relationship marketing is the strategy of choice. Although
a rep’s likeability remains a factor, a more meaningful evaluation should
assess outcomes and interests that are important to the customer.
These may include being attentive to problems, overcoming technical
obstacles and meeting production schedules.
• Qualitative evaluation of sales reps. Use this measure to determine
the reps’ knowledge of your products, customers, competitors and
territory, as well as the economy and any other issues that are important
to making a sale. Individual characteristics, such as dress, speech and
personality, also become part of the measure.

THREE INTERNAL ANALYSIS 135

 What are the responsibilities of sales reps? As the trend accelerates towards
sales people becoming more accountable for the financial health of their
territories, a need exists for them to take responsibility not only for the territory
as a whole, but for the financial condition of each customer, as well.

What follows are the broader measurements of a financial analysis.

Return on investment
There are several approaches to calculating return on investment (ROI)
depending on how ‘investment’ is defined. The most often used is:

RETURN ON INVESTMENT

Net Income
ROI= _______________ x 100%
Investment

RETURN ON SALES

Net Income
ROS = _______________ x 100%
Total Sales

CASH FLOW

CF = (Net Income + Depreciation) – (change in plant and equipment)

– (change in working capital)

In some organizations, the term cash flow is used to identify cash flow from
operations only and does not include cash flow arising from balance sheet
changes, as noted in the equation.

Market share analysis

While not used in traditional financial analysis, market share is useful because
of its financial implications to ROI. Before a calculation can be made, you need
to determine which of the four measures of market share will be used: 17
• Overall market share: The company’s overall market share is its sales
(in units or dollars/pounds) expressed as a percentage of total
industry sales. Industry practice or historical company reporting
patterns will usually dictate the form of measurement. You will also

17 The list is adapted from Philip Kotler, Marketing Management: Analysis, Planning and Control,
11th edition (Upper Saddle River, NJ: Prentice-Hall, 2004, p. 686).

136 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 have to consider how you want to define the market as it relates to
the product lines offered by your company. Consistency and accuracy
of what is being measured are the criteria.
• Served market share: The company’s served market is its sales
expressed as a percentage of the total sales to its served market. The
served market is that segment that can be reached and served by the
company’s marketing effort. It could be a geographic region or a
particular product line.
If you use this category of market share, don’t be lulled into a false
sense of security. You could boast an 85 per cent share of a served
regional market with a limited product line; yet have only 15 per cent
of the total market. Again, good judgment and consistency should
prevail. A served market is particularly useful if it is your strategy to
expand on a segment-by-segment rollout to other geographic
regions or customer categories.

• Relative market share (to multiple competitors): This market share shows
the company’s sales expressed as a percentage of the combined sales
of say the three largest competitors. This measure is especially valid
when three or four companies command the major share of the market
(fuel oil and dry cereals, for example).
• Relative market share (to a leading competitor): In some cases a company
may simply track its sales as a percentage of the leading competitor’s
sales. This measure is effective when the industry is fragmented with
very small competitors and your growth is measured against the
dominant competitor.

Marketing expense-to-sales analysis

One of the key financial ratios to watch is marketing expense-to-sales. When
you are monitoring different strategies in situations such as either defending
market share or aggressively pursuing market share, it becomes a platform
for projecting the financial impact of future strategy approaches.

The components of this ratio comprise salesforce-to-sales, advertising-to-

sales, sales promotion-to-sales, marketing research-to-sales and sales
administration-to-sales. The ratios can be monitored either through a chart,
which graphically shows deviation from budget, or from the more typical
periodic budget variance reports.

THREE INTERNAL ANALYSIS 137

 Strengths/weaknesses analysis
This last component of internal analysis, strengths/weaknesses analysis, is
actually an integration of both internal and external analysis. It provides an
excellent summary for grasping the total value of competitive analysis by
examining the strengths and weaknesses of your own firm compared to those
of your competitors.

The following case illustrates how one company uncovered its strengths and
weaknesses and developed a higher level of competitiveness.

Case example
TRW Inc. operates in the auto-parts, defence and space-electronics business
segments. In the past, it looked for longer-term payout and placed its
investments in technology.

Then, with a slump in those businesses and with pressure to improve the
bottom line, management began planning on an upswing by focusing on its
core competencies to transform its technological edge into stronger earnings
growth.

To do so, the following changes took place: first, at the middle-management

level, cross-functional teams took on the day-to-day responsibilities for
transforming competencies into viable opportunities.

Second, rapid response to market opportunities resulted from organizational

restructuring. For instance, the automotive business was divided into three
groups representing distinct market niches: steering systems, engine
components and occupant safety systems.

All groups report directly to the CEO. This structure permitted greater flexibility
in utilizing capital, deploying people skills, allocating technology/production
and employing other TRW capabilities. One application of rapid response
was the way TRW used its resources to take advantage of the current high
growth in automotive air bags.

138 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Using the team approach managers continually examined their strengths and
weaknesses and searched for ways to apply them to changing market
opportunities. For example:
• Expertise in air bags extended to power steering systems and auto
electronics, which, in turn, capitalized on the industry movement
toward safety and quality.
• Skill in manufacturing huge satellites originally designed to detect
the former Soviet Union’s nuclear missiles was applied to smaller
satellites to track regional troop movements. Also, the electronics skills
associated with satellites became transferable to the emerging
market in on-board navigational systems for automobiles.

Not only do basic competencies shift among industries, but also they cut across
geographic boundaries where TRW’s innovative auto products have cracked
the Japanese auto market.

Action strategies

Competitors often see only the tactics, not the strategies from which
you achieve market success.

What can you learn from the TRW case? It is in your best interest to appraise
your company’s core competencies before entering new markets, dealing with
hard-hitting competitors, or responding correctly to shifting customer-buying
patterns.

Essential, however, to evaluating core competencies is validating the

reliability of your input. This is best done by tapping the knowledge and
experience of cross-functional team members who represent the major
functions of the organization.

The resulting information is then organized into a portfolio of competencies

representing the overall strengths of the organization, the individual skills
of team members and the capabilities of their respective functions. Then, within
this portfolio, you and team members can look for fresh product ideas,
applications of technologies into other industries and feasible markets to enter.

TRW implemented a similar approach as it supplied its products to several

industries. And it did so by feeding off a relatively small number of core
competencies.

THREE INTERNAL ANALYSIS 139

 At first glance, what may appear on the surface as a disorganized portfolio
without a cohesive base is, in reality, a well-ordered group of competencies,
fundamental strengths and tangible products.

One special benefit of building a portfolio of various strengths is that you

can take a fresh look at so-called mature products which is, in effect, admitting
you’ve run out of product ideas, when in fact working with core competencies,
you can use a building-block approach to bring about continuous product
and service improvements.

Another key benefit is that you avoid showing your hand to the competition,
thereby making it difficult for competitors to detect your overall strategy and
frustrating their attempts to duplicate it.

Reason: Competitors only see such surface factors as product/price

performance, how your salesforce is deployed and the types of promotions
used. Thus, competitors see the tactics by which you conduct day-to-day
operations, what they don’t see are the primary strategies from which
overwhelming market successes evolve.

Building a portfolio permits a fresh look at so-called mature products.

The strengths/weaknesses analysis questionnaire presented as Figure 3.5

consists of 100 questions that serve as a marketing audit. They contribute to
the total competitive analysis in two ways:
1. They analyze marketing operations and key environmental factors
affecting your company (external analysis).
2. They assess your company’s competencies and strategic marketing
capabilities and determine what strategies can be used to increase
competitive advantage (internal analysis).

By using this questionnaire, you should be able to identify what makes your
company or division or product outstanding. It helps you compare your overall
distinctive competencies and specific strengths with those of your competitors.

Similarly, it pinpoints the weaknesses that would prevent you from achieving
a competitive advantage. (Chapter 7 provides specific ways of incorporating
these findings into competitive strategies.)

140 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Part 1: Reviewing the Firm’s Marketing Environment

CONSUMERS

1. Who are our ultimate buyers?

2. Who or what influences them in their buying decisions?
3. What are our consumers’ demographic and psychographic
profiles?
4. When, where and how do they shop for and consume our
product?
5. What need(s) does our product satisfy?
6. How well does it satisfy?
7. How can we segment our target market?
8. How do prospective buyers perceive our product in their minds?
9. What are the economic conditions and expectations of our target
market?
10. Are our consumers’ attitudes, values, or habits changing?

CUSTOMERS

11. Who are our customers, that is, intermediate buyers (wholesalers
and/or retailers)?
12. Who or what influences them in their buying decisions?
13. Where are our customers located?
14. What other products do they carry?
15. What is their size and what percentage of our total revenue does
each group represent?
16. How well do they serve our target market?
17. How well do we serve their needs?
18. How much support do they give our product?
19. What made us select them and them select us?
20. How can we motivate them to work harder for us?
21. Do we need them?
22. Do they need us?

THREE INTERNAL ANALYSIS 141

 23. Do we use multiple channels?
24. Would we be better off setting up our own distribution system?
25. Should we go direct? And to what extent is the Internet used?

COMPETITORS

26. Who are our competitors?

27. Where are they located?
28. How big are they overall and, specifically, in this product area?
29. What is their product mix?
30. Is their participation in this field growing or declining?
31. Which competitors may be leaving the field?
32. What new domestic competitors may be on the horizon?
33. What new international competitors may be on the horizon?
34. Which competitive strategies and tactics appear particularly
successful or unsuccessful?
35. What new directions is the competition pursuing?

OTHER RELEVANT ENVIRONMENTAL COMPONENTS

36. What are the legal constraints affecting our marketing effort?
37. To what extent does government regulation restrict our flexibility
in making marketing decisions?
38. What requirements do we have to meet?
39. What political or legal developments are looming that will improve
or worsen our situation?
40. What threats or opportunities does technological progress
hold in store for us?
41. How well do we keep up with technology in product development
and in the plant?
42. What broad cultural shifts are occurring that may affect our
business?
43. What consequences will demographic and geographic shifts have
for our business?

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44. Are any changes in resource availability foreseeable?
45. How do we propose to cope with ecological constraints?

Part ll: Reviewing marketing management procedures

and policies

ANALYSIS

46. Do we have an established marketing research function?

47. Do we conduct regular, systematic market analyses?
48. Do we subscribe to any regular market data service?
49. Do we test and retest carefully before we introduce a new product?
50. Are all our major marketing decisions based on solidly researched
facts?

PLANNING

51. How carefully do we examine and how aggressively do we cope

with problems, difficulties, challenges and threats to our business?
52. How do we identify and capitalize on opportunities in out market
place?
53. What care is given to determining gaps in needs?
54. Do we develop clearly stated and prioritized short-term and long-
term marketing objectives?
55. What are our marketing objectives?
56. Are our marketing objectives achievable and measurable?
57. Do we have a formalized annual marketing planning procedure?
58. Do we manage by objectives and performance?
59. What is our core strategy for achieving our marketing objectives?
60. Are we employing a push-pull strategy in dealing with our
customers and consumers?
61. How aggressively are we considering or employing diversification?
62. How effectively are we segmenting our target market?
63. Are we allocating sufficient or excessive marketing resources
to accomplish our marketing tasks?

THREE INTERNAL ANALYSIS 143

 64. Are out marketing resources optimally allocated to the major
elements of our marketing mix?
65. How well do we tie in our marketing plan with the other functional
plans of our organization?

IMPLEMENTATION AND CONTROL

66. Is our marketing plan truly followed or just filed away?

67. Do we continuously monitor our environment to determine the
adequacy of our plan?
68. Do we use control mechanisms to ensure achievement of our
objectives?
69. Do we compare planned and actual figures periodically and take
appropriate measures if they differ significantly?
70. Do we systematically study the contribution and effectiveness
of various marketing activities?
ORGANIZATION

71. Does our firm have a high-level marketing office to analyze, plan
and oversee the implementation of our marketing effort?
72. How capable and dedicated are our marketing personnel?
73. Is there a need for more training, incentives, supervision, or
evaluation?
74. Are our marketing responsibilities structured to best serve the
needs of different marketing activities, products, target markets
and sales territories?
75. Does our entire organization embrace and practice the marketing
concept?

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Part III: Reviewing strategy aspects of the
marketing mix

PRODUCT POLICY

76. What is the make-up of our product mix and how well are its
components selling?
77. Does it have optimal breadth and depth?
78. Should any of our products be phased out?
79. Do we carefully evaluate any negative ripple effects on the
remaining product mix before we make a decision to phase out
a product?
80. Have we considered modification, repositioning and/or extension
of sagging products?
81. What additions, if any, should be made to our product mix?
82. Which products are we best equipped to make ourselves and
which items should we buy and resell under our own name?
83. Do we routinely check product safety and product liability?
84. Do we have a formalized and tested product recall procedure?
85. Is any recall imminent?

PRICING

86. To what degree are our prices based on cost, demand and/or
competitive considerations?
87. How would our customers react to higher or lower prices?
88. Do we use temporary price promotions and, if so, how effective
are they?
89. Do we suggest resale prices?
90. How do our wholesale or retail margins and discounts compare
with those of the competition?

THREE INTERNAL ANALYSIS 145

 PROMOTION

91. Do we state our advertising objectives clearly?

92. Do we spend enough, too much, or too little on advertising’?
93. Are our advertising themes and copy effective?
94. Is our media mix optimal?
95. Do we make aggressive use of sales promotion techniques?

PERSONAL SELLING AND DISTRIBUTION

96. Is our salesforce large enough to accomplish our marketing

objectives?
97. Is it optimally organized according to geographic, market, or
product criteria?
98. Is it adequately trained and motivated and characterized by high
morale, ability and effectiveness?
99. Have we optimized our supply chain, or are there opportunities
for further streamlining?
100. Is there a customer relationship program? And is our customer
service up to par?

FIGURE 3.5. STRENGTHS/WEAKNESSES ANALYSIS QUESTIONNAIRE

146 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Summary of internal analysis
There are seven basic components of internal analysis that taken together
will give you a reliable picture of your organization:
1. Performance analysis helps you evaluate the organization of your
company or business unit. Whether you organize by function,
geography, product, or market will depend on the size of your firm,
your product mix and the character of the market.
2. Strategy analysis is a way to examine the attitudes and directions your
organization or business unit has chosen. It can answer questions
such as: Is it best to use available resources? How can the business
readjust product lines and marketing efforts to meet market needs?
3. Strategic priorities analysis gives you a more focused look at how well
you are pursuing a customer-oriented strategy that puts the needs
and wants of customers first. It highlights the essential lesson that
you provide products for markets, rather than attempting to create
markets for products as the preferred approach to exploiting new
and profitable market opportunities.
4. Cost analysis has two components. First, the experience curve shows
you that as cumulative production (or experience with a product)
increases, costs decrease. Second, you should engage in sales
forecasting in order to predict and, therefore, control future levels
of sales. Both of these factors give you a way to evaluate and manage
costs.
5. Portfolio analysis takes place in an organizational unit, such as a
division, strategic business unit, or in most small businesses. It helps
you assess your competitive position systematically in order to
determine investment levels. The three popular portfolio models include
the BCG Growth-Share Matrix, the General Electric Business Screen
and the Arthur D. Little Matrix.
6. Financial resource analysis offers a range of quantitative techniques
for identifying the financial implications of strategies. The major
techniques include return on investment, return on sales, cash flow,
market share analysis, marketing expense-to-sales ratio and break-
even analysis.
7. Strengths/weaknesses analysis summarizes both the internal and
external aspects of competitive analysis. It examines your strong and
weak points in comparison with those of your competitors, so that you
can concentrate in areas of the highest potential for market expansion.

THREE INTERNAL ANALYSIS 147

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PART THREE

Market intelligence and planning

 PART THREE
Market intelligence and planning

Part Three presents a framework for a total marketing and competitor

intelligence system (Chapter 4), including guidelines and how-to techniques
on data collection methods (Chapter 5).

The intent is not to turn you into a marketing researcher or a specialist in

constructing market intelligence systems. Rather, the aim is to show you the
systems and inputs that you can coordinate to assist in developing competitive
strategies.

This part, then, answers the question: What do you do with all the competitive
analysis and other marketing data? Chapters 6 and 7 describe a structure
for organizing and sorting the information into a useable format for shaping
your objectives and actions. That structure is the strategic marketing plan.

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PART THREE CHAPTER FOUR

Developing a marketing intelligence

system: The underpinnings of your
marketing strategy
 FOUR
Developing a marketing intelligence
system: The underpinnings of your
marketing strategy

Chapter Objectives
To enable you to:
1. Develop a competitor intelligence system.
2. List the applications of a market
intelligence system as they relate to
developing competitive strategies.

You cannot expect to boost your company’s marketing effort without a

workable marketing intelligence system. Action without information leaves
results to chance, as opposed to planning your course and controlling the
outcome. Strategic marketing planning and the development of tactics require
an effective and efficient information system.

Marketing and sales executives are discovering that market and competitive
intelligence systems represent potent strategic and tactical weapons. By using
information in a variety of new ways, you can better support your core products,
offer new value-added services that distinguish them from competitors and
create new products and businesses that extend your markets.

As management guru Peter Drucker points out, “In the next 10 to 15 years,
collecting outside information is going to be the next frontier.” The following
case illustrates how one organization found new places to grow its business.

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Case example
Honeywell Inc., a diversified manufacturing company that is also known for
inventing the thermostat and related control technologies, has been probing
new areas to grow that segment of its business. During its initial search the
company learned some indispensable lessons:

First, the pathway to growth is to exploit basic competencies. For Honeywell,

those competencies include the ability to design, manufacture and distribute
a superior product line of thermostats.

Second, to strategically expand the business, Honeywell needed to broaden

its product definition of ‘thermostats’ to that of ‘controls,’ which is a more
expansive concept.

Was that just a play on words? How did the notion of being in the controls
business help Honeywell? How did managers translate the concept into a
competitive strategy?

Let’s follow the process:

• Managers began by gathering pertinent data from their records of
sales to residential housing. They noted that on average a home
contains about $350 of Honeywell products. They then asked a
fundamental question: “How do we increase usage and size of order
in a market we already serve?”
Their answer: Tie product development into the new house designs
of architects and builders – as well as to the personal needs of future
house buyers. One outcome: A new product, Total Home, that controls
lights, security, temperature, shuts off the television and closes
windows.

• Searching for growth possibilities, marketing and sales managers then

singled out commercial segments for special applications. For
example, they focused on schools that were under pressure to control
costs. Honeywell sold schools a process guaranteeing savings from
heating and lighting, which also included integrated fire and safety
systems. In one year they doubled sales to that segment. As if to

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 153

 punctuate the concept of building on one’s core competence, one
Honeywell manager stated, “And somebody says there’s no growth
in building. We just have to know where to look.”
• Determined to increase market share in key industries even more,
Honeywell acquired a European company specializing in automating
papermaking companies. While Honeywell was a contender in
process controls for pulp-makers, it lacked paper-quality sensors that
were needed to increase sales to the forest products industry.
Managers internalized the lesson that forming relationships to
strengthen core products and markets permits a disciplined approach
to managing growth.
• Viewing the burgeoning East European markets and observing that
they barely scratched the surface, managers pinpointed their research
and uncovered major growth opportunities. Looking to Russia, for
example, they singled-out the following segments for Honeywell’s
products: energy-conserving control systems for large industrial
complexes, special controls for huge fertilizer plants, boiler controls
for Moscow’s expansive residential district and residential thermostats
for the vast number of individual living units. And with those
opportunities in only one country of the former Soviet Union – and
but one country in Eastern Europe – Honeywell managers saw
immense opportunities. Translating growth to sales, Russia and Eastern
Europe could turn into an immensely lucrative market for Honeywell.

Action strategy

Determining where to sell your products relies on accurate

intelligence to pinpoint opportunities.

What can you learn from the Honeywell case? Honeywell’s growth strategy
of leaning heavily on its core products and broadening its product definition
can apply to your business, as well. Yet, there is still another component to
implementing the strategy: determining where to sell the products, which in
turn, means relying on accurate marketing intelligence to pinpoint opportunities.

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To fill in this missing piece, consider the following framework for acquiring
and organizing marketing information:
• Use information from your internal records (as Honeywell did.) The
most basic information should include reports on sales by segment,
prices, inventory levels and customer activity. By analyzing these data,
you can spot significant opportunities.
• Develop a market intelligence system. While internal records supply
results data, a marketing intelligence system provides in-depth
information to aid decision-making in such areas as setting advertising
budgets, determining market saturation, assessing competitors’
strategies and measuring customer satisfaction.
• Systematize your approach to pursue marketing intelligence along
four pathways:
1. Overall exposure to information from newspapers, trade
publications and your sales force, where there is no special purpose
in mind other than keeping current.
2. Controlled exposure to a clearly identified area of information
by talking informally to customers, suppliers, distributors and other
outsiders.
3. Informal research to obtain information for a specific purpose
by attending trade shows, reading competitors’ published reports,
attending their open trade meetings, talking to their former
employees and collecting competitors’ ads.
4. A planned effort to secure specific information. This form of market
intelligence is gathered through (a) syndicated-service research
firms, such as A.C. Nielsen, that supply periodic trade information;
(b) custom marketing research firms; (c) speciality-line marketing
research firms which sell specialized research service to others;
(d) online services such as America Online and CompuServe that
offer information at a modest cost.

Finding new places to grow surface constantly. Your best approach is to utilize
as many of the above sources as possible and organize an information system
to capture the opportunity.

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 155

 Information, intelligence and decision making
The cost of intelligence is justifiable as long as it improves decision-making.

Today’s market place does not allow for a great deal of management by instinct
and intuition. Still, many managers feel compelled to utilize that approach
because they find management science techniques overwhelming and
intimidating. As is often the case, a compromise between the two extremes
seems to be the answer.

In highly volatile environments, instinct and market intelligence must be

combined for effective business management. While it is not easy to work
through the quantitative language often accompanying sensitive intelligence,
the alternative of ‘flying by the seat of your pants’ is hardly promising.

In a competitive world, scientifically based information is undoubtedly needed

to support and streamline your decision-making. To adequately satisfy this
need, information sources and flows must be managed. Clearly defining your
information requirements will, in turn, govern the acquisition and processing
of information and establish the appropriate controls.

The process of building a complex marketing information system may start

with this simple thought: “If I knew exactly what happened in the past and
some insight into what may happen in the future, I would have a better feel
for what actions are needed.”

This statement reveals the manager’s desire to develop a mechanism to supply

meaningful and up-to-date intelligence that can improve decision-making.
You should be able to refer questions to a current and consolidated reservoir
of information responsive to the “If I knew…” wishes. Such a reservoir forms
your database and the method of inquiry.18

Contrary to a common misconception, intelligence systems are not developed

with the intention of replacing people with machines. Their purpose is to
improve, not replace, decision-making.

For example, the intelligence delivered by an information system will guide

you in allocating scarce resources in a manner that will optimize profits. For
obvious reasons, the cost of intelligence is justifiable only as long as it continues
to improve decision-making.

18 Note the distinction between information and intelligence: Information is simply an

accumulation of random data, while intelligence is refined and synthesized information.

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Such a system can accomplish the following:
• Monitor competitors’ actions to develop counter-strategies.
• Identify neglected or emerging market segments.
• Identify optimum marketing mixes.
• Assist in decisions to add a product, drop a product, or modify a
product.
• Develop more accurate strategic marketing plans.

Considering the wealth of material available on systems planning and

development, this section can only highlight key developmental issues. It is
intended mainly to give you an appreciation of what is involved in setting
up and operating a marketing intelligence system.

The World Wide Web

The most useful contribution to setting up a marketing intelligence system
is the dynamic expansion of the World Wide Web. It provides ready access
to broad, multi-industry coverage of virtually every major sector of the business
world.

You can locate company and industry overviews, management practices,

regulatory decisions and executive changes. You can access information on
industry trends, market share and size, mergers and acquisitions, new products
and technologies, facilities and resources, sales and earnings performance
and R&D activities.

The web affords timely and comprehensive coverage of the world’s leading
trade and business journals, as well as up-to-date directory information on
today’s fastest growing companies. There is an enormous wealth of
competitive intelligence to help identify the key developments and trends that
influence their business or profession.

Important, too, is that the World Wide Web provides you with a barometer
of popular culture. The databases enhance your search for trends in the
following areas:
• Research on ways in which consumer products are marketed to specific
ethnic groups.

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 157

 • Lifestyle trends and changing attitudes among aging baby boomers
to products related to fashion, entertainment, education, cosmetics,
food and nutrition, personal fitness and home computing.
• Demographic information on users of various products and services
associated with travel, toys, religion, personal finance, automobiles
and music.
(See additional information on applications of the World Wide Web
in Chapter 5.)

The following case illustrates the value of market intelligence where a company
moved against a market leader with 80 per cent share of market.

Case example
Invacare Corp., a manufacturer of home health care equipment, has been
winning major market share in the highly competitive wheelchair segment.
To do so, Invacare had to contend with the formidable Everest & Jennings
International that, during one time period, controlled an 80 per cent share
of the wheelchair market.

Background: A group of investors bought out Invacare, once a division of

Johnson & Johnson, in 1979. Its sales then were about $20 million, but under
new management sales figures jumped to over $500 million. In contrast, over
those years Everest & Jennings’ sales and market share plummeted.

Invacare’s strategies
For Invacare to gain any leadership position it had to use market intelligence
to identify weak spots through which to implement strategies of differentiation.
Here is how Invacare proceeded:
1. Despite its inability to meet consumers’ expectations, it had for a long
time enjoyed supremacy in this industry. However, whether real or
imagined, Invacare managers noted that customers were beginning

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 to perceive Everest & Jennings as inaccessible and that its then
unreliable distribution system further compounded the problem.
Invacare managers also discovered these weaknesses through its
market intelligence system. Here, then, was a hot opportunity to fulfil
customers’ needs that their rival could not perform at that time.

2. By strengthening its supply chain, Invacare focused on independent

home health care dealers who wanted to have products delivered faster.
Next, Invacare fortified its hold on distribution through value-added
enhancements. It offered dealers pre-paid freight, 48-hour delivery,
bargain financing, money for cooperative advertising and volume
discounts.
Over the years, each move tightened Invacare’s hold on the supply
chain and solidified customer relationships. Most important, the
competition lacked the ability to duplicate these efforts.

3. Invacare further exploited its heavy dealer orientation by using the

supply chain to introduce new products such as crutches, oxygen
concentrators and a variety of ancillary items. The strategy helped
Invacare launch new products and benefited dealers with volume
discounts on its entire line of products.

Invacare recognized that to sustain the momentum against Everest &

Jennings, it needed a blockbuster product. Invacare scored by launching a
motorized wheelchair with computerized controls that soon became the
industry standard.

Also, to arm itself against the inevitable price wars with look-alike products,
Invacare embraced continuous improvement, quality and cost-cutting
procedures to protect its growing market position.

Action strategy
What can you learn from the Invacare case? Invacare managers shaped their
strategies with the confident attitude that the size of a competitor was not
the issue, nor should the market leader intimidate them.

To support that bold spirit, managers acquired meaningful competitive

intelligence from which they learned that the competitor was vulnerable
because it was not meeting customers’ needs. They concluded that if
challenged with a well-planned set of strategies, the rival could be displaced.

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 159

 As with Invacare, you can meet a similar challenge with a well-defined set
of strategies that combines isolating your competitor’s weaknesses and
applying your core competencies. You can do this by:
• Researching market needs, customer values and technologies that
will support your business immediately and long-term.
• Selecting a favourable position consistent with your firm’s capabilities
and available resources.
• Enhancing products and services to satisfy customers’ needs which
places you in a more favourable competitive position.

Implementing a marketing intelligence system

Give high priority to getting your intelligence system into the mainstream
of your company’s management process.

The importance of any marketing intelligence system does not lie in the elegance
of its logic or the harmony of the hardware in the computer centre. Rather,
its value is measured by its use in decision-making. Therefore, give high priority
to getting your system into the mainstream of your company’s marketing
management process.

Also, the marketing intelligence system is not supposed to inundate you with
reams of computer printouts. Rather, it is to synthesize variable activities to
facilitate managerial decision-making. The delivery mechanisms can be more
or less costly and sophisticated, depending on your management’s priorities.

What you should expect from your system is to be able to run your business
more efficiently on a day-to-day basis. It should also be used to track progress
toward long-term strategic goals and alert you to significant competitive and
market changes.

Table 4.1 summarizes what your system can and cannot do for you. The intent
here is to show that if the task of developing a system is given to an IT manager
or outsourced to a provider, you should have input to its design and usefulness.
Once again, the primary criterion: does the system provide reliable intelligence
that can shape your competitive marketing strategies?

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CAN DO CANNOT DO

1. Track progress toward long-term 1. Replace managerial judgment.

strategic goals.

2. Aid in day-to-day decision-making. 2. Provide all the information

necessary to make an infallible
decision.

3. Establish a common language 3. Work successfully without

between marketing and ‘back management support
office’ operations.

4. Consider the impact of utilizing 4. Work successfully without

similar marketing strategies on confidence.
multiple market segments.

5. Automate many labour-intensive 5. Work successfully without being

processes, thereby effecting huge adequately maintained and
cost savings. responsive to the user community.

6. Serve as an early-warning device

for operations or businesses not
on target.

7. Help determine how to allocate

resources to achieve marketing
goals.

8. Help service customers more

effectively.

9. Enable you to improve overall

performance through better
planning and control.

10. Alert you to unusual competitive

activity that would indicate
developing problems.

11. Improve control over your

marketing and non-marketing
activities.

12. Provide marketing and economic

data on unusual problems to permit
appropriate remedial action.

13. Anticipate competitive moves in

time to deploy your human,
financial and material resources
for maximum impact.

TABLE 4.1 CAPABILITIES AND LIMITATIONS OF A MARKETING INTELLIGENCE SYSTEM

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 161

 The urgency for competitor intelligence earns it a distinct place in the total
framework of market intelligence. According to one reliable source,
approximately 50,000 electronic bugging devices are now hidden in the offices
and meeting rooms of U.S. corporations, with 10,000 more planted every year,
usually by rival corporations. In addition, estimates show that corporate
spending on electronic surveillance is growing by 30 per cent annually.

This single form of intelligence gathering provides just one example of how
ferociously businesses are working to get information on competitors. But
bugging competitors’ meeting rooms is not the only method for obtaining
such intelligence.

The following case example shows how one company used competitor
intelligence as part of an overall marketing intelligence system to gain
competitive advantage.

Case example
Nabisco Corp. is the maker of such favourite cookies as Oreo and Chips Ahoy!
brands. Together with its 65-year-old flagship brand Ritz Crackers, there’s
enough brand equity to make most managers feel comfortable, particularly
with snack-hungry consumers.

But such feelings often breed complacency. That’s what happened to Nabisco
when its chief rival, Procter & Gamble, pulled off a marketing coup. P&G’s
Duncan Hines operation secretly prepared a soft chocolate chip cookie to
attack Oreo and Chips Ahoy!.

The assault caused total shock to Nabisco. Within only a few months P&G
seized a full third of the test market, while Nabisco’s sales nose-dived by 30
per cent.

How did it happen? By Nabisco’s admission, they fell asleep. Their field
intelligence did not detect the goings-on at Duncan Hines.

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That advantage didn’t last long, however. Nabisco’s management awakened
with a vengeance. Within six months the company counter-attacked with a
15 flavour line of soft cookies called Almost Home. By the time P&G was
preparing a national roll-out of its product, Nabisco was also ready to go
national.

Result: P&G’s Duncan Hines brand garnered only a five per cent share of
the national market, while Nabisco’s national cookie share actually jumped
two points to 36 per cent.

The incident left its scars on Nabisco’s managers who vowed never to be
caught napping again. Now, they have one of the strongest new products
marketing teams in the food business.

Whereas, at the time of the P&G attack, Nabisco was introducing about two
or three new products a year. Within a two year time period, it has launched
more than 100 new products and line extensions, including reduced fat versions
of Oreos, Chips Ahoy! and Triscuits.

Action strategy
What can you learn from the Nabisco case? For starters, if attacked by an
aggressive competitor trying to pry away market share from you, develop a
superior market intelligence system – or strengthen your existing one, with
emphasis on your competitors.

Otherwise, your hard-earned share of market is totally vulnerable. With reliable

market intelligence you at least have a fighting chance to respond, particularly
in markets where brand loyalty may be superficial.

Further, you can’t afford to be complacent, even if you enjoy a commanding

share of the market – particularly in a flat market. Some competitor is certain
to yearn for some of that share. (A situation experienced by Nabisco.)
Conversely, if you are up against a market leader, don’t assume the market
is impregnable to your new product entry.

Assembling reliable competitor intelligence helps you in the following ways:

• You can develop defensive strategies to counter competitive moves,
as Nabisco managers did by launching the Almost Home product line
to defuse P&G’s attack.

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 163

 • What’s more, you can design offensive strategies that move you into
new market segments by feeding information to product developers
about customer trends and problems.

One telecommunications company developed a competitive information system

to monitor rivals in its various product categories. The system answers the
following questions, which you may wish to modify for your own use:
1. What are our competition’s current strategies?
2. How are they performing? (By sales, ROI, market share?)
3. What are their strengths and weaknesses relative to your own?
4. What action might they take in the future that would affect the company?

Further, the system then attempts to collect the following information about
all major competitors:
Competitor’s plans Distribution facilities and strategy
Competitor’s organization Pricing strategy
Product strategy Regulatory strategy
Production strategy Major events
New product development Product line strategy
Investment strategy

Answers to the four questions, combined with the information contained in

the above categories, create a profile that will offer insight into likely competitive
actions. For example, take product development: accurate intelligence helps
you determine if any competitive new products are ready for launch. (A situation
that Nabisco failed to detect about Duncan Hines.)

Then consider pricing strategy: competitor intelligence helps you decide to

what extent a competitor can hold out against heavy discounting, or even
all-out price wars. Further, think about distribution: reliable information helps
you estimate if your competitor has the promotional capacity to roll-out its
product on a national launch.

Finally, the primary lesson you can derive from the Nabisco case:
There is no reliable way to develop competitive strategies without accumulating
and accurately interpreting market intelligence.

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Additional lessons
We can review Nabisco’s competitor analysis as a six-step process that led
to its strategies:
1. Competitors’ size – categorized by market share, growth rate and
profitability.
2. Competitors’ objectives – both quantitative (sales, profits, ROI) and
non-quantitative (product innovation, market leadership and
international, national and regional distribution.)
3. Competitors’ strategies – analyzed by internal strategies (speed of
product innovation, manufacturing capabilities, delivery, marketing
expertise) and external strategies (supply chain network, field
support, market coverage and aggressiveness in defending or
building market share).
4. Competitors’ organization – examined by structure, culture, systems
and people.
5. Competitors’ cost structure – examined by how efficiently they can
compete, the ease or difficulty of exiting a market and their attitudes
toward short-term versus long-term profitability.
6. Competitors’ overall strengths and weaknesses – identified by areas
of vulnerability to attack as well as areas of strength to bypass or
neutralize.

Overall, Nabisco’s ability to develop aggressive strategies was based on a

comprehensive marketing intelligence system that served as a window through
which to develop a clear image of the actions needed to sustain a competitive
advantage.

Assembling competitor intelligence

If you are in charge of the marketing function, then responsibility for competitor
intelligence sits squarely on your shoulders. Otherwise, it lies with any executive
in charge of devising competitive strategies.

In order to understand the flow of data, you need to examine the following
parts of the system.

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 165

 Accumulate field data
At the top of the list is the sales force, which represents one of the most valuable
sources of competitor intelligence. When sales people are trained to observe
key events and oriented to believe their input fits into the competitive strategy
process, these men and women are first-line reporters of competitors’ actions.

Communications with sales people can be maintained by periodically

travelling with them, by conducting formal debriefing sessions to gain detailed
insights behind the competitor actions they observed and by creating or
expanding a section of the sales force call reports to record key competitor
information.

The central purpose of competitive intelligence is to provide input

for developing marketing strategies.

Gathering published data

There are numerous sources of published information, from small town
newspapers, in which a competitor’s presence makes front-page headlines,
to large city or national newspapers and magazines that provide financial
and product information about competitors. Monitoring want ads in print
and over the Internet provide clues to the types of personnel and skills being
sought.

Also, speeches by senior executives of competing companies provide

valuable insights into other firms’ future plans, industry trends and strategies
under consideration. At times it is astonishing how much sensitive information
is provided in speeches that are given at trade shows and professional meetings
and that subsequently get into print.

Assembling the data

Additional marketing intelligence sources include clipping services that gather
information about competitors and interviews with individuals who come
in contact with competitors and key events, such as trade shows.

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Organizing the data
The varied sources of data come together at this point in the system. Depending
on the facilities available to you, the data should be organized and maintained
by a marketing analyst, manager of competitive intelligence, IT manager, or
librarian.

Management analysis
The first four procedures are mechanical ways of collecting, compiling and
cataloguing data. The analytical and creative aspects now apply as you begin
to synthesize the data to detect opportunities. It is appropriate to call in key
functional managers from finance, manufacturing and product development
to assist in the analysis.

Transmitting the intelligence

There are various approaches to communicate the synthesized information:
oral reports at weekly staff meetings and the increasingly popular competitor
newsletter.

Formulating strategies
As has been mentioned elsewhere, the whole purpose of internal and external
analysis and the entire competitor intelligence system is to develop competitive
strategies.

Applications of the competitor and marketing

intelligence systems

Become the driving force behind installing a marketing

intelligence system.

The broad purpose of competitor intelligence is to provide accurate

information about your competitors’ strengths and weaknesses so that you
can attack those weaknesses. (See Chapter 1 to re-examine the power behind
the indirect attack.)

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 167

 By focusing on the weaknesses of competitors’ services, product performance,
pricing policy, promotion strategy, supply chain relationships, or ability to
pursue poorly served market segments, you can dislocate and unbalance the
competition. You thereby gain your objectives without costly market
confrontations that may result in using your resources with little or no gain.

The following case shows the application of market intelligence where a

company wishes to expand out of a mature market.

Case example
Fisher-Price Inc., an industry leader in children’s toys, with a stronghold in
the pre-school market, found itself in a precarious position after making a
foray into toys for older children. Even backed with an extraordinary image
for product quality and a loyal customer base honed by years of dedication
to pre-schoolers, the expansion cost Fisher-Price dearly. Share in its core market
nose-dived from 64 per cent to 44 per cent, with a corresponding drop of 17
per cent in revenues.

The painful experience required corrective actions, such as pulling back from
product development projects beyond its traditional pre-school market, closing
three factories and other aggressive cost cutting measures.

Let’s examine the contributing factors to the problem and observe the lessons:

Market expansion
Expanding into additional segments, after reaching an acceptable market share
position in your primary market, is a prudent option. After all, aren’t the strategy
lessons touted by marketing experts for the 21st century geared toward
searching for new market segments?

The common strategy is to penetrate with either line extensions or technology

applications. It is an acceptable and logical move for a market leader, such
as Fisher-Price, particularly in a flat market.

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It’s only advisable though if sufficient resources are available to penetrate
the new segment and, providing sufficient management attention and
resources are available to vigorously protect the primary segment. Otherwise,
it may be necessary to pull back from the expansion because resources are
spread too thin.

If Fisher-Price looked for new segments in a mature market, so, too, did its
competitors: Rubbermaid and Hasbro. When Fisher-Price launched into the
older kids segment, the diversion created a ‘window’ through which the
competitors saw an opportunity to make a massive assault into Fisher-Price’s
core market of pre-schoolers.

These moves were legitimate and almost predictable. One can assume the
competitors had been eyeing expansion into the pre-school segment for a
long time.

Therefore, concurrent with planning a market expansion, create likely

scenarios of competitors’ actions against your expansion moves. Gather the
competitive intelligence needed to predict competitors’ movements and make
this information an essential ingredient in building your strategy. Assuming
competitors would do nothing places your company in jeopardy.

Action strategy
What can you learn from the Fisher-Price case? Above all, when going outside
your prime markets use Competitive Intelligence (CI) to determine your
competitors’ strategies.

Consider the following criteria of CI:

1. CI must be accurate: critical decisions affecting expenditures of money,
human resources and time are at stake.
2. CI must be timely: events have time cycles. Past a certain point, an
opportunity may not occur again – or, competitors may seize the
opportunity.
3. CI must be usable: data without application becomes irrelevant.
4. CI must be understandable: information that cannot be interpreted
with relative ease by the average manager and then applied to
developing strategies and tactics is nearly useless.
5. CI should be meaningful: if it cannot be translated into scenarios of
strategies, it’s just nice-to-know information.

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 169

 While it is in your best interest to become the driving force behind installing
a marketing intelligence system and for gathering competitor intelligence,
your most important role is to know where to apply the information.

For instance, strategic withdrawal or market expansion can be viewed through

(1) market segmentation analysis, (2) product life cycle analysis and (3) new
product development, all of which have a foundation of solid marketing
intelligence and competitor intelligence.

For market segmentation analysis, intelligence systems can be used to:

• Identify segments as demographic, geographic, cultural and
psychographic (lifestyle); and by product attributes and usage rates.
• Determine common buying factors within segments.
• Monitor segments by measurable characteristics – for example,
customer size, growth rate and location.
• Assess potential new segments by common sales and distribution
channels.
• Evaluate segments to protect your position against competitor in-
roads.
• Determine the optimum marketing mix for protecting or attacking
segments.

For product life cycle analysis, marketing systems output can be used at the
introduction stage to:
• Determine if the product is reaching the intended audience segment
and how customers are reacting to the initial offering.
• Analyze the marketing mix and its various components for possible
modifications, for example, product performance, back-up service
and additional warranties.
• Monitor for initial product positioning to prospects – that is, to determine
if customer perceptions match intended product performance.
• Identify possible points of entry by competitors in such areas as
emerging or poorly served segments, product or packaging innovations,
aggressive pricing, concentrated or innovative promotions, distribution
incentives and add-on services.

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 • Evaluate distribution channels for market coverage, shipping
schedules, customer service, effective communications and technical
support.
• Compare initial financial results to your budget.

At the growth stage, system output can be used to:

• Analyze product purchases by market segment.
• Identify emerging market segments and any new product applications.
• Conduct a competitor analysis and determine counter-strategies by
type of competitor.
• Adjust the marketing mix to emphasize specific components, for
example, change product positioning by shifting from a pull-through
advertising strategy directed to end users to a push advertising
program aimed at distributors.
• Decide on use of penetration (low) pricing to protect specific market
segments.
• Provide new incentives for the sales force.
• Monitor financial results against plan.
• Provide feedback on product usage and performance information to
R&D, manufacturing and technical service for use in developing
product life cycle extension strategies.

At the maturity stage, system output can be used to:

• Evaluate differentiation possibilities to avoid facing a commodity type
situation.
• Determine how, when and where to execute product life cycle
extension strategies, for example, finding new applications for the
product to new market segments.
• Expand product usage among existing market segments or find new
users for the product’s basic materials.
• Determine potential for product line extensions.
• Continue to monitor threats on market segments and threats to total
market share on a competitor-by-competitor basis, then use competitor
intelligence to develop strategies to protect market share.
• Evaluate financial performance, particularly profitability. (If all went
well you should be in a cash cow stage of the cycle.)

FOUR DEVELOPING A MARKETING INTELLIGENCE SYSTEM 171

 At the decline stage, output can be used to:
• Evaluate options such as focusing on a specific market niche,
extending the market, forming joint ventures with manufacturers or
distributors and locating export opportunities.
• Determine where to prune the product line to obtain the best
profitability.
• Monitor financial performance as a means of fine-tuning parts of the
marketing mix.
• Identify additional spin-off opportunities through product applications,
service, or distribution networks that could create a new product life
cycle.

For new product development, marketing intelligence systems output can be

used as a preliminary screening device to:
• Identify potential market segments as an idea generator for new
product development.
• Determine the marketability of the product.
• Assess the extent of competitors’ presence by specific market segments.
• Develop a product introduction strategy from test market to roll-out.
• Develop financial performance.

Summary
As indicated at the outset of this chapter, your company’s marketing effort
requires a practical marketing intelligence system. Attempting to fashion a
strategy without reliable information opens you up to excessive risks, as
compared to planning a course of action that permits you to manoeuvre to
areas of greatest opportunity at the least cost of resources.

By using marketing intelligence you are in a better position to provide support

to products and services, identify new or vacant niches and monitor
competitive moves. Further, a quality system can monitor competitors’ actions,
identify optimum marketing mixes, assist in decisions to add a product, drop
a product, or modify a product and develop a more accurate strategic marketing
plan.

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PART THREE CHAPTER FIVE

Marketing research: The primary

tool to stay in touch with customers
and markets
 FIVE
Marketing research: The primary
tool to stay in touch with customers
and markets

Chapter Objectives
To enable you to:
1. Describe the characteristics and
applications of the three basic methods of
primary data collection: experimentation,
observation and interview.
2. Compare the strengths and weaknesses of
the three principal interview research
strategies: in-person, telephone and mail.
3. List the useful applications of focus group
interviews.
4. Identify which marketing mix factors affect
a product’s image and how an image can
be researched.
5. Utilize the variety of sources for secondary
information and the World Wide Web.

When you use market intelligence to plan competitive strategies, marketing

research is the primary input to reduce the risks inherent in making
decisions. Such research is invaluable during every phase of the marketing
process. This is specially so during the onset of a new product or service idea
through the stages of its evolution and market life and, finally, to the decision
to discontinue the product or service.

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As corporations grow more complex and the buying process becomes more
intricate, marketing research acts as the primary tool for bridging the
communications gap that enables managers to stay in touch with their markets.

Better and more successful strategy decisions can be made when based on
facts rather than hunches. These facts are the product of marketing research,
which act as a listening post between your company and the customer.

Marketing research, then, is the mechanism to improve the effectiveness of

your marketing decisions by furnishing accurate information about consumer
needs or problems through which you can base your recommendations.

Superior strategy decisions are made when based on facts rather

than hunches.

Further, marketing research is the systematic gathering, processing and

analyzing of relevant data to solve your firm’s short- and long-term
competitive problems, as well as to clarify potential marketing opportunities.
Ideally, your marketing research efforts should be systematic, comprehensive
and objective.

They should be systematic because an unplanned undertaking cannot be

interpreted quantitatively. They should be comprehensive because having
only some of the truth can be misleading. And they should be objective because
research is worthless if it not reproducible and aimed at discovering the truth.

However, the ideal is often not attained because of budget and time
constraints. Some marketing research projects have to be completed rather
quickly and this haste severely limits their thoroughness. Similarly, insufficient
funds for marketing research may limit the amount and quality of work that
can be completed.

The following case sets the scene for the practical application of marketing
research by showing how a company applied market feedback to reveal new
product and market opportunities.

FIVE MARKETING RESEARCH 175

 Case example
Case Construction Equipment successfully pulled out of a decade old period
of dismal sales, profits and market share performance. In a combative market,
such progress against the likes of Caterpillar and John Deere is in itself a
colossal achievement.

Significant growth towards recovery began when the then CEO Jean-Pierre
Rosso launched a new era for Case. His fundamental assertion when taking
office marked a new humility for the equipment maker and rekindled respect
for its customers: “We need to be asking what the farmer and contractor
really need,” declared Rosso.

Basic as his statement may appear, for several tumultuous years “asking” was
not part of Case’s product development process. Instead, products flowed
off the production line to optimize factory capacity. That resulted in churning
out such products as low horsepower tractors that entered the market place
through low prices and incentives.

Worse yet, when market demand plummeted, dealers found themselves with
a glut of unsold Case equipment. To aggravate the situation further, relation-
ships with dealers deteriorated, characterized by dealers’ suspicion of new
product announcements.

Case’s strategies
In the face of those desperate conditions, Case managers set out to determine
the wants and needs of its customers. One incident showcases the process
managers used to obtain reliable customer feedback:
• A contractor was flown in and put to work for three exhaustive days
testing a piece of Case equipment and comparing performance with
similar Caterpillar and Deere machines. Each day and well into the
night hours, managers and engineers grilled the customer about
features, benefits and operating problems.
• In another approach, Case sent teams of engineers and marketing
personnel to talk to key customers and users of rival equipment.

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 Applying the feedback, engineers developed prototype machines and
shipped them to hundreds of participating users for their evaluation.
Engineers then incorporated information from actual field trials into
final prototypes.
• Beyond market research, Case engineers looked outside the industry
to identify techniques other companies used to make their products
more cost efficient. For instance, they borrowed a time-tested system
from the automotive industry:

To reduce the time and cost of design – and to shrink inventories – Case began
building its new family of backhoes around a common platform. Result: 75
per cent of parts are shared, up from 30 per cent.

Bottom line: All this market-driven “asking” is a far cry from Case’s former
practices.

What can you learn from the Case example? The successful use of customer
feedback can apply to your business, as well. Especially in predicaments where
you have to reverse a sales decline, polish a tarnished product image, or re-
establish customer relationships.

Consider the following benefits of market research. You can:

• Single out market segments for growth and expansion, as well as
protect an existing market position against competitors’ inroads.
• Shift emphasis in your product, price, promotion and supply chain
to target special groups of buyers with greater precision.
• Generate reliable customer feedback so product developers can
coordinate their efforts to improve a product’s usage, performance
and reliability.
• Avoid the threats of your product facing an indistinguishable
commodity situation by accurately defining differentiation strategies.
• Suggest meaningful options for growth as you evaluate market data
and pinpoint viable export markets.
• Target poorly served customer niches as fresh opportunities to accu-
mulate incremental sales.

Customer feedback applies to reverse a sales decline, polish a

tarnished product image, or re-establish customer relationships.

FIVE MARKETING RESEARCH 177

 Market research guidelines
As detailed in the balance of this chapter, reliable market research comes
from two major sources: primary data and secondary data. For you to gain
the optimum use for the feedback, market research must be:
1. Accurate. At stake are critical decisions affecting expenditures of
money, human resources and time.
2. Timely. Events have cycles that, once past, may not occur again or
whose opportunities pass to competitors who have seized the
moment.
3. Usable. Data that cannot be applied is irrelevant. It must fill the gaps
of information in your marketing plan.
4. Understandable. Information is virtually useless if you cannot interpret
it with relative ease and use the output to develop strategies and tactics.
5. Meaningful. If the information lacks importance, if it is not significant
but is merely nice-to-know information, you have missed the vital
contribution of market research to survival and growth.

Finally, marketing research is essential for measuring, evaluating and projecting

various competitive scenarios. A clear understanding of the data plays a key
role in maintaining competitive strength in existing markets and expanding
into new growth areas.

Types of data
You can get the data needed for marketing research either by turning to existing
information (secondary data) or by generating your own (primary data).
Initially, you should avoid a primary research study for reasons of time and
cost.

Instead, many of your marketing questions would probably be answered

satisfactorily by utilizing secondary data. Only if this avenue proves
inadequate should you consider primary research.

The distinction between the two types of data is a matter of purpose and control.
With secondary data you have no control over their gathering, processing
and interpretation. Therefore, check carefully to see how applicable they are
to your situation.

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The unit of investigation may have been different (for example, families instead
of households); the sample size may have been insufficient; the wrong people
may have been queried; the questions may have been leading; the data may
now be obsolete.

Even so, a thorough review of available secondary data is a must before you
undertake a primary research project, because these data may provide all
the answers you need. For instance, if you must find out who are the heavy
users of powdered detergents and where they are located, it would be unwise
to collect your own data at great expense.

Data of this type is readily available from commercial suppliers. Even if you
want to know who your own ultimate buyers are, you don’t necessarily need
to generate your own information. A professional data collection organization
may already have this information in its files.

Generating primary data

Three major methods generate primary data: experimentation,

observation and interviewing.

Of course, if you come up with ‘what if’ questions, secondary data are no
longer useful. They cannot address the issues of new product information,
reactions to advertising, the impact of alternative pricing approaches, or the
effect of a package change, among others.

It then becomes unavoidable to generate your own data for the specific research
purpose at hand. To help you do so, you have three major methods at your
disposal that have been refined to a high degree of sophistication:
experimentation, observation and interviewing.

Experimentation
Experimental research aims to discover the impact of changes of two variables
to help you optimize your marketing mix. It involves creating artificial situations
in which all variables except the one to be tested are kept constant.

FIVE MARKETING RESEARCH 179

 In the experiment, one variable is deliberately manipulated to test its effect
on the outcome, usually measured in terms of sales. For example, a test market
is selected in which different prices are charged for the same product in different
cities to test the direct effect of price on sales.

To be meaningful, experimentation requires controlled situations, either in

the field or in the laboratory. If influences from uncontrollable variables (for
example, dealer display) are found, the data will have to be adjusted
accordingly.

It is always advisable to employ control groups, in which no changes are

introduced, to ensure the reliability of the experimental research. Each
experiment must be designed and tailored to meet the specific needs of your
project.

Observation
Should you want the reactions of consumers to your product, packaging,
advertising, or some other aspect of your marketing mix, observation can
supply you with the input. Researcher and marketing manager could
personally watch a test for a firsthand look at the consumer’s reaction to an
intended change before implementing it on a large scale.

Observation records the behaviour of people or the results of this behaviour.

At times it is done without the knowledge or consent of the subjects, thus
allowing them to behave naturally. Observation can be recorded either by a
person or by an electronic device (review ethnographic guidelines in Chapter
2). For example, you could personally observe the behaviour displayed by
consumers in selecting toys. In contrast, a surveillance camera or a
psychogalvanometer (lie detector) are examples of electronic devices used
to record consumer reactions.

Auditing and visual assessment, often referred to as ‘looking’ research, is

another kind of observation. By generating a count of the merchandise most
recently moved through the nation’s supermarkets, observation research gives
you a capsule overview of the competitive framework for your product at a
particular point in time.

Use observation to find out what people do.

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Observation can be carried out either in the market place (traffic counts) or
in a laboratory setting (pupillometric, or eye movement, studies to measure
the interest or emotions aroused by exposure to a specific ad or picture).
Whatever the circumstances, you use observation to find out what people
do. Its big limitation is, of course, that it cannot tell you why they do what
they do.

Interviewing
Interviewing is asking questions of selected respondents who might possess
valuable insights about the group under investigation. Such survey research
can be conducted formally or informally, structured or unstructured and
disguised.

If it is informal, the results cannot be extended to the underlying population.

If it is structured, a formal questionnaire is used. And if it is disguised, the
true purpose of the research is concealed from the interviewee.

An example of an informal, unstructured questioning technique is the focus

group interview (see the later section in this chapter), while a mail
questionnaire is a formal, structured, disguised technique.

These various characteristics explain why interviewing is by far the most widely
and most frequently used approach in primary data generation. It is not as
cumbersome and expensive as experimentation and it digs beneath the
observed behavioural surface in perception and motivation.

To get at the truth, however, a great deal of skill is required in executing a

survey, because it is subject to even more human bias than either
experimentation or observation. Bias on the part of both the interviewer and
the respondent add to any inherent defects in the wording or sequence of
questions.

Interview research you conduct can be extended over a period of time to

monitor changes in your competitive environment. Or, it can provide a one-
time snapshot of your market highlighting, for instance, the impact of a
particular advertising campaign. As with the other two methods, you can
interview either in the field (in supermarkets, shopping malls, or homes) or
in the laboratory (inviting selected consumers into a research facility).

FIVE MARKETING RESEARCH 181

 Three approaches
Depending on the nature of your research task, the amount of money and
time available and the accessibility of the target group to be surveyed, conclusive
interview research may take one of three forms:
1. In-person interview: Interviewer questions respondent face to face
(a) in the privacy of the interviewee’s home or office, or (b) in a central
location by intercepting the consumer in a shopping mall or on the
street.
2. Telephone interview: Interviewer conducts survey over telephone (a)
in a local market, or (b) nationwide over toll-free lines.
3. Mail interview: Survey questionnaire is mailed to selected respondents
and returned by mail.
When choosing one approach over another, look not only at your budget
and time frame, but also at your likely rate of response and your response
bias. The rate of response is the ratio of those who respond to the total number
of people contacted.

It is subject to possible non-response bias because those who are not

responding may differ substantially from people who do. If this discrepancy
is significant, a question may arise as to whether the results are representative.

Response bias, on the other hand, is the distortion inherent in the answers
given due to misinterpretation of the questions or deliberate misrepresentation.
You will want to keep the rate of return as high and the response bias as low
as the constraints of time and budget will allow.

Table 5.1 compares the three primary interviewing techniques. The various
criteria can assist you in examining their relative merits and choosing the
approach best suited to your research objectives.

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 IN PERSON TELEPHONE MAIL

Flexibility in data Most flexible. Can Fairly flexible. Least flexible. But
collection use videos, depth Although visual pictures and rating
probes and various aids and extensive scales that do not
rating scales, and rating scales require
can even alter cannot be used. investigator
direction of assistance may be
interview while incorporated into a
still in progress. questionnaire. Too
many open-ended
questions reduce
response rate.

Quality of data Fairly extensive. Generally limited Long

obtainable Data may be by short duration questionnaire
obtained, subject of interview. adversely affect
to respondent- response rate and
investigator are not
rapport. recommended.

Speed of data Process of Data available Delays result from

collection personally almost slow and scattered
contacting instantaneously. returns.
respondents is Ideal for ad-recall
time-consuming. and similar
studies.

Expense of data Generally most Less expensive Least expensive,

collection expensive. than in-person depending on
interview. return rate.

Investigator bias Respondent- Investigator bias, No investigator

investigator while present, is bias.
interaction may less serious than
significantly with in-person
modify responses. interview.

Lead time for Need to respond Same problem as Respondents have

respondents quickly to with in-person time to think
questions may interviews. things over and do
result in calculations to
incomplete or provide more
inaccurate data. detailed and
accurate
information.

FIVE MARKETING RESEARCH 183

 Sampling In-person Problems resulting Mailing list is
considerations interviews require from imperfections required. Samples
detailed addresses in telephone generated from
of all respondents. directory may be unreliable lists
Problem may be controlled to some introduce
overcome by using extent by using substantial
area and ‘random digit selection bias.
systematic dialling’ or other
sampling computerized
procedures. procedures.

Refusal rate is Call backs can Non-response bias

Non-response bias generally reduce non- could be very
somewhat higher response bias and serious in cases
than with are fairly where those who
telephone inexpensive. return the
interviews. questionnaire differ
substantially from
those who do not.

Sequence bias No serious Same problem as Respondents can

problem. with in-person see entire
Investigator can interviews. questionnaire and
record any modify their
changes responses to
respondents wish individual
to make to questions.
answers to
previous questions
as interview
progresses.

Anonymity of In-person, eye-to- Obtaining frank Frank responses

responses eye contact may responses is a on sensitive issues
stifle frank problem, although can be obtained by
interchange on less so than in in- guaranteeing
sensitive issues. person interview anonymity.
situations.

Identity of Easily available for Name and May not be

respondents future reference. telephone number available in many
are available for cases. Someone
future reference. other than
intended
respondent may
even have filled out
questionnaire.

Field control Difficult and Centralized control Generally not a

expensive. is no problem. problem.
Results in better
quality data.

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Difficulty of The very rich are Most working men Individuals with a
reaching certain hard to reach and and women are low literacy level
segments of investigators avoid unavailable unless cannot be reached.
population very poor areas. interviews are
Most working men conducted in the
and women cannot evening and at
be reached during weekends.
normal working
hours.

Geographic Generally limited Call centres permit Geographic

coverage by cost wide coverage at coverage is no
considerations. reasonable cost. problem.

Investigator Easily available to Available, although Not available.

assistance explain not to the same Instructions may
instructions; extent as in in- be misinterpreted
provide help with person interviews. and incomplete
unfamiliar terms answers or blanks
and research are fairly common.
procedures.

TABLE 5.1 COMPARISON OF RELATIVE STRENGTHS AND WEAKNESSES

OF THE THREE PRIMARY INTERVIEWING TECHNIQUES

Focus group interviews

Focus groups are a qualitative research technique and cannot

replace quantitative research.

Focus group interviews are a flexible, versatile and powerful tool for the
decision-maker. These interviews can furnish you with valuable information
on a variety of competitive and marketing problems in a short span of time
and at a nominal cost. But you have to keep in mind their limitations.

Focus groups are a qualitative research technique and should not be a device
for head counting. The results of focus group interviews cannot be projected
to your target market at large. They may not even be representative and
certainly cannot replace the quantitative research that will supply you with
the necessary numbers.

FIVE MARKETING RESEARCH 185

 The interviews, however, can improve the quality of your quantitative
research significantly. When there is no time for a well-planned formal project,
you can call upon this technique to supply factual and perceptual input for
making reasoned decisions, which otherwise would have to rely exclusively
on conjecture.

Focus group interviewing involves the simultaneous interviewing of a group

of individuals – physicians, homemakers, police officers, purchasing agents,
or any other group of potential buyers or specifiers representative of your
market. A session is usually conducted as a casual round table discussion
with six to ten participants.

Fewer than six poses the danger of participants feeling inhibited. More than
ten could result in some members not being heard. The idea, of course, is to
get input from everybody.

Although the length of a focus group interview varies, an average session

lasts about two hours. Jetting around the country in a week, you can collect
a good geographic cross-section of opinions. Also, there has been some success
in conducting focus group session though online, interactive sessions. Thus,
focus groups offer a quick and relatively inexpensive research technique.

Use focus group interviews to

• Diagnose your competitor’s strengths and weaknesses.
• Spot the source of marketing problems.
• Spark new product lines.
• Develop questionnaires for quantitative research.
• Find new uses for your products.
• Identify new advertising or packaging themes.
• Test alternative marketing approaches.
• Streamline your product’s positioning.

The key individual in a focus group interview is the moderator who

introduces the subject and keeps the discussion on the predetermined topic.
The moderator could be you or someone employed by an outside marketing
research firm. The job of moderator is not an easy one and much preparation
is necessary, but the information obtained can be substantial and well worth
the effort.

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The focus group interview does not follow a strict question-and-answer format.
Rather, questions presented by the moderator serve essentially as catalysts
for effective group discussions. Typically, answers point out areas that merit
deeper probing by the moderator through spur-of-the-moment questioning.

Questions presented by the moderator serve as catalysts for effective

group discussions.

A successful session leads to thoughts and ideas that were not anticipated.
Consequently, it is vital that the moderator create an atmosphere conducive
to spontaneity and candour. This format allows for flexibility and enables the
moderator to pursue leads suggested by participants. Table 5.2 contains
guidelines that will help avoid crucial mistakes.

DO DON’T

Keep discussion on topic Mention company or brand name

Cover all questions, though Permit excuses or verbal battles

not necessarily in sequence

Involve all participants Let anyone dominate the discussion

Play ‘devil’s advocate’ if Let more than one person talk at

none is present a time

Pursue worthwhile ideas of Let an unclear answer stand

participants

TABLE 5.2 GUIDELINES FOR FOCUS GROUPS

After you have completed all your focus group interviews related to a particular
marketing problem, listen to the tapes several times and excerpt relevant
statements. Frequently, verbatim transcripts are made with the moderator’s
statements capitalized for easier identification. Videotapes offer an additional
benefit over voice tapes, since you can examine gestures and facial expressions
as well as posture (body language).

FIVE MARKETING RESEARCH 187

 Effective research on the worldwide web
Perhaps the biggest breakthrough in conducting marketing research is the
Internet. In the early 1990s, it was a much-used communications tool for
academics and researchers in government-funded institutions.

Then with the coming of the World Wide Web and its easy-to-use browser
interface, the Internet became a viable platform for online research services,
database producers and primary publishers of all types.

Now there is a proliferation of services and databases generating huge amounts

of business information. Corporate directories are used to identify and screen
customers, prospects, competitors and to obtain quick profiles of particular
firms and their lines of business, management structure, staffing levels and
sales.

Detailed financial reports help in assessing the financial health of an

individual company, as well as overall industry trends. Press releases
highlight new product announcements, staffing changes and quarterly
financial results.

Trade journals and general business publications provide a wealth of

information, including company profiles, case studies and analyses, interviews
with executives, industry surveys and overviews on emerging technologies.
There is also background and expert analysis on broad economic and market
place issues.

The pioneers in providing business information on the Internet include such

professional online services as Knight-Ridder/Dialogue, Dow Jones
News/Retrieval, Lexis-Nexis and Information Access/Insight. Table 5.3 shows
a typical example of industry coverage advertised by one online service.

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 Company activities and events Professional business activities

Industry trends and overviews International trade

Economic/demographic Company stock performance

information

Management theory and Editorials

practice

Legislative/regulatory Biographies
information

Product evaluation and reviews Financial exchange information

Executive changes and profiles

TABLE 5.3 EXAMPLE OF ONLINE INFORMATION

The following case illustrates the scope of competitor and market intelligence
needed to drive business development, product innovation – and refine overall
marketing strategies.

Case example
Procter & Gamble has taken the bold move of spinning off a totally inde-
pendent company separated physically, organizationally and culturally from
its vast corporate structure. The innovative start-up is known by an imagi-
native name: reflect.com.

The business concept calls for selling cosmetics and hair products customized
to the looks and preferences of each woman who shops on the Internet. Its
specific goal: introduce make-up and shampoos so personalized that no two
individuals would get the same items.

FIVE MARKETING RESEARCH 189

 Action strategy
Pivotal to making its core strategy come alive, reflect.com managers moved
forward with the following actions:
• Acquired finite information about each woman’s needs through an
interactive question and answer process. To execute the strategy,
reflect.com allied with Ask Jeeves Inc., which specializes in a
technology that enables customers to pose questions on a Web site
through a natural dialogue that easily obtains answers to key
questions.
• Used P&G’s research and development lab to formulate a truly
personalized product and packaging to match each customer’s
specifications. Each product, in turn, would contain the buyer’s name.
reflect.com managers envisioned as many as 50,000 unique hair, skin
and make-up combinations from which to tailor unique products. And
it would market the product at a cost no greater than high-end
merchandise at a department store cosmetic counter.
• Maintained ongoing market analysis to watch over other product
offerings, for instance from such new competitors as Web rival and
gloss.com that sell upscale cosmetics with brands that include Calvin
Klein or Chanel, to make sure that they would not throw up barriers
to impede its progress.

What can you learn from the reflect.com case? The World Wide Web is now
the trigger for the explosive level of activity designed to acquire finite
information not only of groups but also of individual behaviour. The
technology is becoming so pervasive and eye-popping that individuals can
surf the Web and do their shopping through secured transactions. Then, as
customers make enquiries or purchases, hidden files or tags called ‘cookies’
are deposited on their computers. Software programs then use those files to
track and analyze online behaviour. Such data becomes the underpinning to
design a product or service offering built around a one-on-one approach.

Britain’s ICL illustrates the major innovations of the new information

technology. For instance, consumers can order groceries over the Net by
scanning product bar codes on computers built into their refrigerators using
ICL’s technology.

Smart cards allow users to do everything from storing personal information

to earning bonus points at retailers. In turn, such information provides vendors
with valuable data on usage patterns, expenditures, time of purchase and

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numerous other pieces of information that when assembled provide an exacting
customer profile.

The information gathering activity is so mammoth that one Web portal, Yahoo!,
collects some 400 billion bytes of information every day – the equivalent of
a library crammed with 800,000 books – about where visitors click on a site.
Armed with the information, it calculates which ads and products appeal most
to visitors so it can garner more e-commerce sales.

The World Wide Web offers a fresh and unrivalled approach to

marketing research.

Then there are the abundant information sources available with the popularity
of Google, CompuServe, Prodigy and America Online, which give users access
to numerous print publications, all at a modest fee. For example, online
company directories for companies, their divisions and subsidiaries typically
provide the following information: business description, annual revenues,
number of employees, SIC codes, officer names and titles, year founded and
stock-related information.

Altogether, the World Wide Web opens up an unparalleled source for detailed
information on industries, companies, company individuals, competitors and
consumer behaviour that can add greater precision to your research and
consequently to your plans and strategies.

Image research

An image consists of attitudes, beliefs, opinions and experiences.

The consumer and the industrial purchaser buy an image as well as a product
or service. An image is the complex of attitudes, beliefs, opinions and expe-
riences that make up an individual’s total impression of a product, service,
or organization.

An image represents a ‘personality’ with which the prospective buyer either

can or cannot identity. Our purchases involve projections of our images of

FIVE MARKETING RESEARCH 191

 the world and ourselves. We want the products and services we use to reflect
those images.

For example, Gillette Company has long produced quality products for men.
When Gillette introduced a deodorant intended for both men and women,
women were reluctant to consider it for their personal use. Only when the
company stressed a family theme in its advertising for Right Guard did Gillette
attain the top position in this market.

The example can extend to industrial goods, utilities, or foreign markets. But
it becomes clear, even from this brief description that familiarity with one’s
own image is of great importance. To that end, you should conduct image
research.

The importance of a favourable image

Gillette’s masculine image was a definite handicap in trying to introduce a
family deodorant. The company might have met with less resistance by
establishing a separate division or subsidiary under a different name.

In introducing shavers for women, other male-oriented firms, such as Schick

Inc. and Remington Products Inc., have added a feminine touch by labelling
their products lady Schick and Lady Remington. Whether a ‘Mr. Clairol’ label
would be successful in selling male-oriented products, though, is questionable.

Trying to change an existing image is a slow and expensive process that requires
considerable patience, skill and commitment. The best insurance against an
unfavourable image is prior testing of strategic and tactical marketing moves.
As a manager you know that images, as intangible and elusive as they are,
cannot be left to chance. Rather, they need careful and skilful management.

Image research is thus an invaluable input into your managerial decision

making. It is governed by three questions that should concern you when
creating and maintaining a favourable image:
• How does an image develop?
• How is it researched?
• How can it be changed?

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 Images, as intangible and elusive as they are, cannot be left to chance.

Developing an image
An image stems from a multitude of factors. It can be outcomes of a company’s
own efforts as well as those of its competitors. It can result from the choice
of corporate or brand name, the symbolism used, or any other part of the
entire marketing effort, including product design, pricing and distribution.
The symbolism may include logos, slogans, jingles, colours, shapes, or
packaging.

In a classic packaging test, for example, housewives were presented with

identical samples of a new detergent in three different experimental packages.
After using the contents, the housewives reported that the product in the
blue package did not possess enough cleaning power.

They reported that the one in the yellow package damaged the fabric, while
the one in the blue package with yellow sprinkles was just right, having enough
cleaning power but gentle on the clothes. This example shows that a mere
change in packaging colours can substantially influence the image of a product.

Therefore, if you plan to strategically shape your product’s image, Table 5.4
offers some useful insights and guidelines. It presents a dozen image
ingredients that are under your control and briefly highlights their respective
roles in determining your product’s overall image.

FIVE MARKETING RESEARCH 193

 CONTROLLABLE IMAGE WHAT THEY CAN DO
INGREDIENTS

Design Provides aesthetic appeal

Colour Sets a mood

Shape Generates recognizability

Package Connotes value

Name Expresses central idea

Slogan, jingle, logo Creates memorability

Advertising, personal selling Communicates benefits

Sales promotion Stimulates interest

Price Suggests quality

Channels of distribution Determines prestige

Warranty Establishes believability

Service Substantiates product support

TABLE 5.4 MARKETING MIX AND PRODUCT IMAGE

Changing an image
The answer to the question, “How can an image be changed?” can often be
summed up in one word: quality. If you determine that your product’s malady
is an unfavourable image, you can correct this situation by first being concerned
with quality.

In this framework, quality includes product performance, supporting services

and total reliability, which would be backed-up with generous and uncompli-
cated guarantees.

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Quality, in its broadest application, extends into every controllable image
ingredient listed in Table 5.4 and must connote this commitment. The following
case example provides a practical look at the effects of quality.

Case example
Hyundai Motor Co. lived for several years with a dismal image problem that
even became a verbal target for late-night TV hosts with such debasing
comments as: Hyundai is a car that “you have to push to get going; and it
only goes downhill.” That was in 2000.

Five years later, Hyundai moved from talk-show joke to serious contender
with a real shot at successfully challenging specific models from Toyota, Honda
and Ford; and for achieving a ranking among the world’s top carmakers.
The move centred on new products with quality as the spearhead of its image-
remake strategy.

Hyundai’s strategies
The company totally reengineered its mainstay Sonata sedan with bumper-
to-bumper changes, including a more powerful engine, a bigger cabin and
superior suspension. Hyundai hopes the new Sonata, along with a small SUV,
will be the first in a string of winners. Specifically, the South Korean company
implemented the following changes:
• Quality: Engineers focused on fixing even the smallest problems with
the satisfying result that Hyundai appears favourably alongside Toyota
and Honda on customer satisfaction surveys.
• Exports: Exports account for 64 per cent of sales, up from 30 per cent
in 2000. New overseas plants will help double production capacity
to 5 million cars annually by 2010.
• R&D: New design and R&D operations in Europe, Japan and the U.S.
have been expanded and funded to develop new models, engines and
transmissions with Toyota, Honda and Ford as its benchmark for
quality.

FIVE MARKETING RESEARCH 195

 Bottom line: J.D. Power & Associates survey of initial quality, which
measures the number of complaints in the first 90 days of ownership, showed
Hyundai neck-in-neck with its Japanese rivals. The quality improvement is
showing up in Hyundai’s results, as well. In 2004, profits jumped 21 per cent,
with forecasts showing a continuation of double-digit growth.

What can you learn from the Hyundai case? In addition to all the above areas
that represent quality, also examine the quality of your sales force and service
organization to improve the presentation and quality of product performance.
There have been occasional instances when an entire sales force has been
replaced in an attempt to strengthen a company’s image and sales.

All told, the availability of a reliable, competent and friendly service is certainly
a key factor that makes up quality and, in turn, can make or break a sale.

In addition, advertising messages and news releases can obviously go a long

way towards improving an image and restoring public confidence by
communicating improvements that have been made and correcting any false
impressions.

Guidelines to image management

Here are some of the key questions that you may want to ask yourself with
respect to your image management responsibilities and efforts:
• What do we know about the image of our company/product/service
in the eyes of actual or potential buyers?
• Do we have any image at all? Are we well-enough known?
• Is our image positive or negative?
• Is the perceived image accurate or inaccurate? Are we better than
our reputation?
• What does our name suggest? Is it appropriate? Have we outgrown
it?
• How does our image compare with that of our competition?
• What are our perceived strengths and weaknesses?
• How can we improve our image?

196 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Favourable images serve to attract investment, talent and buyers. A
company’s image can make products stand out that are otherwise
indistinguishable. Mostly, however, good images lead to a competitive edge.

Major sources of secondary information

Depending on your location, various national and regional government sources
can provide an abundance of information. The following listings represent
the major sources of information open to you, either through direct access,
service organizations, or over the Internet.

Industry studies
A variety of broad industry studies are conducted by organizations such as
Frost & Sullivan Inc., Arthur D. Little Inc., Stanford Research Institute and
a number of Wall Street securities firms. It should be noted that many of these
studies do attempt to make broad generalizations. You should carefully examine
these reports to be sure of applications for your particular organization.

Trade associations
There are a variety of directories (published by Gale Research Company, for
example) of trade associations covering virtually every product or business
category.

Periodicals and directories

• Business Periodicals Index: lists business articles appearing in a wide
variety of business publications.
• Standard and Poor’s Industry Surveys: updates statistics and analysis
of industries.
• Moody’s Manuals: offers financial data and names of executives in
major companies.
• Journal of Marketing, Journal of Marketing Research and Journal of
Consumer Research.

FIVE MARKETING RESEARCH 197

 • Advertising Age, Chain Store Age, Progressive Grocer, Sales and
Marketing Management, Electronics, Architectural Record, Plastics.
• Business Week, Fortune, Forbes, Harvard Business Review (general
business magazines).

Suppliers of commercial marketing data

A.C. Nielsen Co.: Provides data on products and brands sold through retail
outlets, on television audiences and on magazine circulation.

Market Research Corporation of America: Provides data on weekly family

purchases of consumer products, on home food consumption and on retail
drug and discount retailers in various geographic areas.

Selling Areas Marketing Inc.: Offers reports on warehouse withdrawals to

food stores in selected market areas (SAMI reports).

Simmons Market Research Bureau: Provides annual reports covering television

markets, sporting goods and proprietary drugs with demographic data by
sex, income, age and brand preferences.

Other research sources: Audit Bureau of Circulation; Audits and Surveys; Dun
& Bradstreet; National Family Opinion; Standard Rate and Data Service, Inc.;
and Starch/Inra/Hooper, Inc., Information Access Company (exclusive use
of research on the World Wide Web).

Overall, the central methods for gathering market intelligence include the
following:
• Competitive audits: Measure market share and find out how competitors
‘stack up’ against each other in product quality, performance, delivery,
price and distribution – as well as any other areas of particular
significance to your industry and to prospective customers.
• Customer satisfaction studies: After you have made your initial entry,
track your company’s performance over a period of time and
measure progress (or lack of it) towards becoming a better supplier.
• Perceptive review: Find out through personal observation or formal
research techniques how competing products are perceived. Also
identify if there are any neglected, poorly served, or emerging market
niches that represent additional opportunities.

198 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 • Testing new products at the conceptual stage: Avoid investment in
products with no or very little acceptance in the market place. Prioritize
those that do have a chance.

Look at the Strategic Marketing Plan to identify what voids of

information exist to make intelligent decisions.

Summary
There is an overwhelming amount of information available to input into a
marketing intelligence system. Yet, as a practical matter, there is not enough
time or money to gather all the pertinent information and sort out what is
significant to make meaningful decisions and commit company resources.

The prudent approach to determining what specific research to undertake

is to look at the Strategic Marketing Plan (Chapters 6 and 7) and identify what
voids of information exist and what information is needed for you to make
intelligent decisions.

The bottom line: If you are going to develop strategies and tactics that have
any real chance of success, you must rely on quality intelligence to support
your decisions and subsequent actions.

FIVE MARKETING RESEARCH 199

Blank page
PART THREE CHAPTER SIX

Strategic marketing planning:

Shaping your company’s growth
and prosperity
 SIX
Strategic marketing planning:
Shaping your company’s growth
and prosperity

Chapter Objectives
To enable you to:
1. Identify the steps in the strategic
marketing planning process.
2. Develop a long-term strategic direction
(mission) for a company, business unit,
product line, or single product.
3. Identify objectives and strategies with
long-term implications.
4. Develop a portfolio of products and
markets based on the strategic direction.

Two-thirds of rapid-growth firms have written business plans, according to

PricewaterhouseCoopers Trendsetter Barometer survey. The survey also
reveals that firms with written plans enable CEOs to manage more critical
business functions, grow faster and achieve a higher proportion of revenues
from new products and services than those whose plans are unwritten.

Additionally, growth firms with a written business plan have increased their
revenues 69 per cent faster over the past five years than those without a written
plan.

As further evidence to rank planning as your essential responsibility,

particularly in the current frenzied competitive scene, a Business Week cover
story highlighted the following: ‘Strategic Planning – It’s Back! Re-engineering?
Cost-cutting? Been there, done that. Now, strategy is king for real growth.’

202 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

The story cited these key issues as an outcome of the planning process:
• Strategy is again a major focus for higher revenues and profits – and
to hatch new products, expand existing business and create new
markets.
• Business strategy is the single most important management issue and
will remain so for the next five years.
• Democratize the strategy process by handing it over to teams of line
and staff managers from different disciplines.
• Create networks of relationships with customers, suppliers and rivals
to gain greater competitive advantage.

The following case illustrates how one company used strategic marketing
planning to identify long-term opportunities and manage day-to-day
operations.

Case example
Emerson Electric Co. brings together technology and engineering to provide
solutions in a wide range of industrial, commercial and consumer markets
with such products as process control systems, climate control technologies,
electric motors and a variety of home and workplace products.

What distinguishes this company from the herd is its dazzling record of
uninterrupted years of increased earnings. Throughout two decades,
Emerson staunchly endured the challenges of low cost Brazilian, South Korean
and Japanese competitors.

Several factors contributed to Emerson’s success:

1. Management recognized, early on, that low cost, aggressive
competitors would remain a permanent part of the global scene and
would intensify into the following decades.
2. It exerted the discipline to secure cost-efficient operations at every
level of the organization.

SIX STRATEGIC MARKETING PLANNING 203

 3. Management demonstrated the flexibility to focus on growth markets
and exit those segments with little chance of turning a profit, such
as defence and construction and niche businesses such as gardening
tools.
4. It realized that cost cutting was only one part of the success equation
to sustain growth. The other, that strategic marketing planning
should function as the operating system for managing both long-term
objectives and day-to-day operations.

A single example sums up Emerson’s accomplishments: ten years ago a

Japanese plant could offer temperature sensors for washing machines for
20 per cent below Emerson’s prices. Today, Emerson’s costs are below the
Japanese and the company has regained market share. Rigorous planning,
then, is at the heart of Emerson’s system for managing growth.

To make the planning system work, Emerson:

• Periodically surveys all employees to assure input and participation
from every functional area of the business.
• Identifies customers’ problems early, while they are still manageable,
enabling marketing and sales to take immediate action.
• Keeps vigilant watch on troublesome competitors so that managers
lose no time in redirecting their efforts where needed.
• Tracks sales growth, new product development and market expansion
as benchmarks to monitor the plan.

Action strategy

Strategic marketing planning functions as the operating system to

manage long-term objectives and day-to-day operations.

What can you learn from the Emerson case? Like Emerson, you can utilize
strategic marketing planning to grow present markets, spot growth markets,
recognize new product innovations and stay alert to new opportunities.

The following screening process will help you zero in on likely possibilities
for growth. (Additional details are presented in this chapter.) Once identified
and prioritized, you can convert them into long-and short-term marketing
objectives, strategies and tactics.

204 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

1. PRESENT MARKETS

To identify the best opportunities for expanding your present markets:

Investigate emerging businesses or acquire new users for your product.
Determine how to displace competition – a particularly significant move
in no-growth markets. Increase product usage by your current customers
and redefine market segments where there are changes in customers’
buying patterns.

Also, work jointly with customers on innovative ideas to reformulate or

repackage your product according to their specific needs. Identify new
uses (applications) for your product. Reposition the product to create a
more favourable perception over rival products. Also investigate where
to expand into new or unserved market niches.

2. CUSTOMERS

To identify the best opportunities for expanding your customer base:

Improve or expand distribution channels. Refine your product pricing
policies to match market-share objectives. Enrich your communications,
including advertising, sales promotion and publicity and deploy the sales
force to target new customers with high potential.

Pay close attention to opportunities to enhance customer service,

including technical service and complaint handling; and identify changes
in trade buying practices, where the buying power may have shifted from
manufacturer to distributor or to end-user.

3. GROWTH MARKETS

To identify your major growth markets:

Target key geographic locations, including global markets, specifying which
markets or user groups represent the greatest long-term potential.

4. NEW PRODUCT DEVELOPMENT

To give priority to ‘hot’ candidates for any new product and service
development that will impact on immediate and long-range opportunities:
Focus on new products that you can differentiate and that have the potential
for an extended sales cycle. Search for ways to diversify into new or related
products, product lines and/or new items or features.

Further, examine techniques to modify products by customer groups,

distribution outlets, or individual customer applications. Work on

SIX STRATEGIC MARKETING PLANNING 205

 improving packaging to conform to customers’ specifications and to
distinguish your product from its rivals. Also establish new value-added
services.

5. TARGETS OF OPPORTUNITY

To focus on areas outside your current market segment or product line not
included in the other categories:
Be innovative and entrepreneurial in your thinking. However, refer to your
strategic direction or mission statement as a guideline to how far your company
can realistically diversify from its core business and still retain its vitality.

The strategic marketing plan provides a step-by-step process for

your company, business unit, or product line.

If you were to consider the strategic planning process used by Emerson Electric
as a flow chart, it would appear as in Figure 6.1. Explanations for the top
row of boxes, the strategic portion of the plan covering a period of three to
five years, follow.

The details of the bottom rows of boxes, representing the annual marketing
plan, are covered in Chapter 7. Seen as a whole, the process provides you
with a total strategic marketing plan that can be used for your company,
business unit, product line, or single product.

While the strategic portion of the plan (top row of boxes) and the marketing
plan (bottom row) are explained in separate chapters, it is done for ease of
explanation. In the final version of the plan, however, you would merge the
two levels of rows. Then, your strategic marketing plan should be a cohesive
unit consisting of both rows of boxes.

206 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

The strategic plan: looking forward
three to five years
The top row of four boxes shown in Figure 6.1 represents the strategic plan
section of the strategic marketing plan. It is defined as the managerial process
of developing and maintaining a strategic fit between the organization and
changing market opportunities.

It relies on developing (1) a strategic direction or mission statement, (2)

objectives and goals, (3) a growth strategy and (4) business portfolio plans.
Let’s examine each of the boxes.

STRATEGIC PLAN: 3 TO 5 YEARS

Mission/
Objectives Growth Business
Strategic
and Goals Strategies Portfolio
Direction

MARKETING PLAN: 1 YEAR

Strategies Financial
Situation Market Marketing
and Controls
Analysis Opportunities Objectives
Action Plans and Budgets

Marketing Targets of Primary Functional

Mix Opportunity Objectives Objectives

Market
Background

Competitor
Analysis

FIGURE 6.1 STRATEGIC MARKETING PLAN

SIX STRATEGIC MARKETING PLANNING 207

 Strategic direction
Think of your strategic direction as the mission or vision statement of the
company, business unit, product line, or individual product. It is the long-
range philosophy of a business unit. It reflects a strategic vision of what your
product or business can become within three to five years. As you think about
your strategic direction, consider the following:
• What are your distinctive areas of expertise?
• What business should you be in over the next three to five years?
• What types or categories of customers will you serve?
• What customer functions are you likely to satisfy as you see the market
evolve?
• What technologies will you use to satisfy customer/market needs?
• What changes are taking place in markets, consumer behaviour,
competition, environment, culture and the economy? (See Chapter
2, External analysis for details.)

The point of this exercise is that the responsibility for defining a strategic
direction no longer belongs only to upper management. Managers from various
departments – marketing, product development, manufacturing, finance and
sales – contribute to the overall strategic direction of a business by asking,
“What business should I be in for my individual product?”

The landmark work in this area of strategic thinking is attributed to Theodore

Levitt,19 of the Harvard Business School, in his classic article, Marketing
Myopia. Using the railroads as a prime example, Levitt shows how the railway
system declined in use as technology advanced because managers defined
their product too narrowly. He explains that to continue growing, companies
must determine customers’ needs and wants and not rely simply on the
longevity of their products.

According to Levitt, a myopic view is based on the following four beliefs that
begin in a manager’s mind and permeate an organization:
1. Growth is guaranteed by an expanding and affluent population;
2. there is no competitive substitute for the industry’s major product;

19 T. Levitt, “Marketing Myopia,” Harvard Business Review (Sept. – Oct. 1975), p.28.

208 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 3. excessive belief in mass production and rapidly declining unit costs
as output rises;
4. preoccupation with a product that lends itself to experimentation and
manufacturing cost improvement.

Looking out the window toward inevitable change, not into a mirror that
reflects existing patterns, is the distinguishing characteristic of a market-driven,
rather than a product-driven, organization. Table 6.1 gives practical examples
of how these opposite points of view differ in their expressions of identity,
which is the basis of a company’s strategic direction.

PRODUCT-DRIVEN MARKET-DRIVEN
ORIENTATION ORIENTATION

Railroad company Transportation company

Oil company Energy company

Baby food manufacturer Child care business

Cosmetics company Beauty, fashion, health company

Computer manufacturing Information processing

company company

Electrical wire manufacturer Energy transfer business

Vacuum cleaner manufacturer Cleaner environment business

Valve company Fluid control company

TABLE 6.1 COMPANY IDENTITY AS REFLECTED BY ORIENTATION CONCEPTS

The following actual examples illustrate how a strategic direction or mission

would be written.20

20 These statements were developed in company training sessions. This author has no inside
knowledge if the senior managements of those companies adopted them.

SIX STRATEGIC MARKETING PLANNING 209

 Case example

Dow Chemical Co.

A strategic direction for one of Dow Chemical’s agricultural herbicide
products originally read, “Chemical control of brush on rights-of-way.” This
product-driven orientation was considered too ‘myopic’ and comes across
more as a product definition than a strategic vision.

When revised to reflect a broader market-driven focus that would drive future
product and market development, it read:
‘Provide high quality products and services to meet vegetation management
goals on rights-of-way, industrial, municipality and aquatic/wetland sites at
a profit. Products and services may include chemical, mechanical, application,
distribution, consultation and establishment of desirable vegetation.’

Notice how expansive the statement is and how it defines potential markets
and product/market development. In other words, it summarizes and clarifies
a vision.

Becton Dickinson Co.

In another example, Becton Dickinson, a health care firm, originally described
the strategic direction for its product line of hypodermic needles as, “Our
strategic direction is to be the leading manufacturer of hypodermic products
for the health care field.” Here, too, this narrow focus of good intentions was
broadened to provide a forward-looking orientation.

The revamped statement read:

‘Our strategic direction is to meet the needs of consumers and health care
providers for drug-delivery devices by offering a full line of hypodermic
products and product systems. Our leadership position will be maintained
through acquisition to provide alternative administration and monitoring
systems.’

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Guided by such a statement, managers could expand their vision and direct
their product line into innovative product systems, technologies and ultimately
expand their hold on existing markets and launch into new markets.

Cargill Corp.
A division of Cargill Corp. developed its strategic direction that would take
it from a commodity-type business of egg production to a value-added, broader
definition:
“We will be a leading marketer of quality, value-added egg-based food
products serving primarily the food service industry. We will be a least-
cost producer and a leader in developing and implementing innovative
products and processes to meet the needs of an evolving market place.”

The statement reflects a clear and pragmatic vision which moved the
division away from its myopic orientation of just dealing with fresh egg
production to one of going to the next step of adding value by preparing and
packaging ready-to-use, egg-based products for all types of institutions.

These statements are no mere play on words. Rather they have a practical
application in creating a workable mental orientation, whereby managers
can envisage how a product line or business might expand over the next three
to five years. In turn, the statements help shape objectives, strategies and a
portfolio of products and markets.

A myopic view begins in a manager’s mind and permeates an

organization.

Think about Levitt’s example of the railroad company versus the transportation
company. If you view the basic product as railroad cars travelling on parallel
tracks down a path, the result is a short-sighted business condition that, in
turn, confines product, service and market development on a narrow
dimension.

Redefined as a transportation company, however, the strategic vision

includes transportation of all types – air, water, space and diverse forms of
transportation still unknown. Since railroad companies own land on either
side of the tracks, a transportation viewpoint can conceivably include laying
underground pipe to transport food, fluids, chemicals and power lines.

SIX STRATEGIC MARKETING PLANNING 211

 Even companies with strong positions in the market place and with profitable
businesses are redefining mission statements to embrace the inevitable
movement toward new technologies.

Just how far should your thinking go toward a market-driven orientation?

It is best to initially think as far toward that orientation as possible and then
return to a more comfortable position somewhere between the two extremes
of a product-driven and market-driven orientation. That position is usually
based on the following factors:
• The culture of the organization, with the broad ranges of behaviours
from conservative to aggressive.
• The availability of human, material and financial resources for
maintaining existing business functions and for investing in future
growth.
• The amount of risk that management is willing to assume in going
into debt. (This factor relates to the organization’s culture.)
• The degree of environmental change that is anticipated in market
behaviour.
• The threat of competitive activities and their impact on survival and
growth.

Responsibility for shaping the strategic direction begins with you –

regardless of your level in the organization.

Even surrounded by these factors, think as expansively as possible. On the

other hand, staying rooted to a product-driven orientation can bog you down
in mature and ultimately declining businesses.

If you hold responsibility for your company, business unit, or product line,
then conceptualizing a mission or strategic direction begins with you –
regardless of your level in the organization. As such, you are no longer a
victim of a narrow focus that ends up with mature products, price wars and
other competitive conflicts. The broader market-driven viewpoint permits
you to think more expansively about business, market and customer needs
– not just products.

212 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Objectives and goals
When developing objectives and goals (the second top box in Figure 6.1),
your primary guideline is to continue with a strategic focus. Look at the broad
impact objectives would have on your business, in keeping with the scope
of your strategic direction and within the time frame of three to five years.

This time period is reasonable for most businesses: short enough to be realistic
and achievable in an increasingly volatile marketplace, yet long enough to
be visionary about the impact of new technologies, changing behavioural
patterns, the global market place, emerging competitors and changing
demographics.

Specifically, your objectives and goals can be classified as quantitative and

non-quantitative. For example, in quantitative statements, you include
performance expectations such as sales growth, market share, return on
investment and other quantitative measurements that are usually dictated
by your general management or financial department.

Non-quantitative objectives and goals cover such areas as upgrading the dealer
organization, expanding into secondary markets, improving marketing
intelligence systems, building new speciality product lines, repositioning older
commodity products and reorganizing to become a market-driven business.

Case example
Diverse examples of two actual companies – an auto parts manufacturer and
an electric utility company – illustrate specific ways in which quantitative and
non-quantitative objectives and goals are stated. Because of the confidential
nature of these statements, the names of these two companies are omitted
and the numbers have been altered.

Furthermore, these objectives are only a sampling. The actual number of

objectives ranged from 15 to 25 for each company. Smaller companies could
realistically have as few as five to ten objectives.

SIX STRATEGIC MARKETING PLANNING 213

 Auto parts manufacturer

QUANTITATIVE OBJECTIVES AND GOALS

Attain net sales of $37.0 million by the year 200x within the following categories:

Net sales ($ mil) Mix (%)

Distributor 13.0 35.1

Corporate brand 6.5 17.6

(direct)

Generic 7.0 18.9

National accounts 5.5 14.8

Military 3.0 8.1

Export sales 2.0 5.5

Total 37.0 100.0

• Launch 200 new products on a quarterly basis over the next three
years, including electrical, front end, brake, air conditioning and power
train.
• Maintain 60 or more dedicated distributors strategically located
worldwide to achieve sales objectives.
• Improve customer satisfaction to 94.5 percent, as measured by the
Customer Service Index base period of 2000-01.

Quantitative objectives and goals

• Utilize as a marketing mix element an effective supply chain for the
potential launch of existing products into new market segments.
• Develop a prototype of an automated catalogue information system
for use with distributors by the fourth quarter of 200x.

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Electric Utility Company

QUANTITATIVE OBJECTIVES AND GOALS

Achieve total revenues of 1.242 kWh (kilowatt-hours) in the following end-

use categories by 200x:

Process heat 875 kWh

Space conditioning 185

Lighting 115

Residential water heating 20

Major appliances 15

Commercial food service 32

Total 1.242 kWh (mil)

• Effectively promote process heat in targeted manufacturing markets

by increasing account load of sales force from 90 to 125 over a 36-
month period.
• Re-establish relationships with builders, realtors and appliance
manufacturers to take advantage of the 20 per cent customer turnover
each year, adding 100 kWh of electric process heat equipment.

NON-QUANTITATIVE OBJECTIVES AND GOALS

• Change customer perceptions that electric energy is an expensive

commodity.
• Improve knowledge of the marketplace, customers and competition
through a comprehensive marketing intelligence system.
• Reorganize to become a more customer-oriented, market-driven
company.

While some managers resist the use of non-quantitative objectives, there are
long-term market conditions or internal obstacles that need to be overcome
and numbers cannot always be attached to such objectives. Yet, for measurement
purposes, dates and reporting periods can be used to show progress toward
achieving these objectives. The use of quantitative and non-quantitative
objectives in combination allows for the most accurate and effective planning.

SIX STRATEGIC MARKETING PLANNING 215

 Growth strategies

Objectives indicate what you want to accomplish, growth strategies

deal with how to achieve those objectives.

While objectives and goals indicate what you want to accomplish, growth
strategies deal with how, or what actions you are going to take to achieve
those objectives.

The major guideline is this:

• Each objective must have a corresponding strategy. If you cannot
come up with a strategy for a particular objective, perhaps the so-
called objective is not one at all, but a strategy for some other objective.
• Strategies (third box in Figure 6.1) are divided into two categories:
internal and external. Internal strategies relate to marketing,
manufacturing, R&D, distribution and pricing, as well as to existing
and new products and services, market research, packaging, customer
services, information technology, finance, sales activities, and
organizational changes.
• External strategies refer to such possibilities as joint ventures,
licensing agreements, new supply chain networks, emerging market
segments and any opportunities for diversification, providing
diversification fits the company’s strategic direction.

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Case example

Auto parts manufacturer

INTERNAL STRATEGIES

• Install an internal computerized program that links the top 80

distributors’ inventories with the ordering requirements of
independent repair shops.
• Complete the upgrade of the Manchester depot and launch just-in-
time delivery service to distribute within 125 miles of the facility.
• Execute a new warranty administration program that is equitable to
the company, distributors and end-user customers, with a timing of
15 days for claims disposition, compared with the current 21 days.
• Implement a quality improvement program consisting of continuing
education programs and establish indices of performance levels in
accordance with new corporate objectives.

EXTERNAL STRATEGIES

• Establish quality teams throughout the supply chain to review

causes of errors and recommend corrective action.
• Form joint venture with (name of company) to increase total market
share in selected fuel and cooling systems components, resulting in
sales of $17 million and 22 per cent market share.
• Establish an image for high performance parts in the after-market
by establishing 125 new performance centre dealers in key segments
of the country.
• Establish video conferencing broadcasting sessions to the field to
maintain competitive advantage.

A strategy is a longer-term action to achieve a long-term objective.

A tactic is a shorter-term action to achieve a short-term objective.

SIX STRATEGIC MARKETING PLANNING 217

 Electric Utility Company

INTERNAL STRATEGIES

• Establish a corporate lighting group to plan marketing programs and

serve as technical support for all lighting activities.
• Establish a central promotional group to develop literature and sales
aids, plan and coordinate trade show activities, develop advertising
themes and positioning strategies and coordinate publicity campaigns.
• Operate an ongoing training activity to introduce products and share
information with contractors, dealers, realtors and customers on
equipment features, sales and service. Develop a performance-type
housing construction rating system to certify properly insulated and
weatherized homes.

EXTERNAL STRATEGIES

• Construct and manage a network of insulation, weatherization

materials and electric heating equipment distributors to support builder
design and construction activity.
• Develop and implement an active call program targeted at key builders
in prime market areas identified for long-term urban redevelopment.
• Develop joint working relationships with electric equipment
manufacturers to work on applications involving high temperature
and environmental concerns.

It is also appropriate here to distinguish between a strategy and a tactic. A

strategy is a longer-term action to achieve a long-term objective, with wider
implications for your company than does a tactic. A strategy usually affects
the functional areas of your organization, such as manufacturing, product
development and finance. It concerns the broader aspects of new markets
and the supply chain.

On the other hand, a tactic is a shorter-term action to achieve a short-term

objective. It is sub-set of a strategy and is usually concerned with local issues
of more limited impact, such as a single product being launched in a target
market segment with specific promotional activities. In normal practice, a
single objective could be accomplished through four or six related tactics.

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Business portfolio

Your strategic direction has meaning only if it translates into a

realistic business portfolio of markets and products.

A business portfolio (box 4 of Figure 6.1) contains a listing of all existing markets
and products, as well as all potential new markets and products that are feasible
within the next three to five years and which match your company’s strategic
direction.

The central guideline is that your strategic direction has tangible meaning
only if it translates into viable markets and products. Generally, the broader
the scope of the mission, the broader the range of market and product
possibilities; the narrower the scope, the smaller the portfolio of markets and
products.

The following case illustrates the usefulness of a business portfolio plan to

balance short-term earnings with long-term growth, yet still maintain a
competitive advantage.

Case example
Electronic Sensors and Systems Division of Northrop Grumman Corp.
has successfully transformed its expertise in surveillance equipment from the
defence business to the growing commercial sector.

For Northrop Grumman, surveillance has a broader product application than

just military. Surveillance technology translates into an expansive business
portfolio of products and markets, such as electronic products for tracking
illegal immigration and drug trafficking, home security systems consisting
of alarms and motion detectors and smart police cars with computer links
to the law enforcement agencies that give immediate analysis of fingerprints.
So far, the company’s biggest success is in the home security market.

SIX STRATEGIC MARKETING PLANNING 219

 Along with broadening its product definition, Northrop Grumman also
redefined the division’s strategic direction and reshaped business plans for
the near- and long-term. Its flexible strategic marketing plan maps erratic
shifts in markets, identifies feast-or-famine cycles and spells out strategies
for avoiding competitive opposition.

The plan also identified profit-generating opportunities. It advocated

relaunching existing – and paid for – products while avoiding a costly product
development period. Thus, revenues were stabilized during the market
transition, creating a balance of short-term earnings with long-term growth.

With this flexible plan in hand, Northrop Grumman kept looking for
appropriate market opportunities to expand its business portfolio. For example,
when law enforcement selected its new battle-tested, handheld biosensor for
detecting chemicals and drugs on a person’s skin and clothing, the company
quickly recognized the technology’s potential to enter new customer
segments.

What follows is Northrop Grumman’s adaptation of these security products

and other modified electronic products for wider commercial use.

Implementing the plan

Northrop Grumman’s engineers redesigned the surveillance equipment and
crammed existing radar, sensor and communication hardware into a lower-
cost twin-engine turboprop aircraft, rather than the military version Boeing
767.

The new product was considered viable for numerous market segments, such
as federal agencies monitoring illicit drugs, locating bomb-making chemicals
and tracking illegal immigration; the Forest Service for detecting forest fires;
and a potentially huge foreign market in countries with security needs similar
to those of Northrop Grumman’s domestic markets. A line of security products
ranging in prices as a low-cost biosensor to high-end one for a surveillance
aircraft gives the company enormous growth potential.

220 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Action strategy

The strategic marketing plan is usually developed with a team of

cross-functional personnel.

What can you learn from the Northrop Grumman case? Effective planning
accounts for the division’s smooth transition into the commercial markets.
With a strategic marketing plan patterned after the format in this chapter
and Chapter 7, you can achieve short-term goals while preparing for long-
term growth.

The strategic marketing plan is usually developed with a team of cross-

functional personnel from marketing, sales, production, finance and technical
staffs.

The following four planning steps (the top row of boxes in Figure 6.1 that
represent the long-term strategic section of the plan) provide an organized
process for you to follow:

Step 1, Strategic direction. As previously discussed, define the scope of

your company, business unit, or product line. Establishing a strategic
direction forces you to think of your unit’s competencies, the customers you
want to serve over the next three to five years, the technologies you will need
and the environment and competition you will face. Northrop Grumman’s
division redefined its strategic direction from a dedicated defence contractor
to a more expansive provider of products and services for the total
surveillance business.

Step 2, Objectives and goals. As illustrated in the auto parts and the electric
utility cases, indicate the performance expectations such as sales, profits and
other quantitative objectives. Also list non-quantitative objectives including
upgrading your supply chain, building speciality products for niche markets,
upgrading field services to fortify customer relationships and launching new
or upgrading old products.

Step 3, Growth strategies. Select strategies to reach your objectives. These

relate to product positioning, product quality, distribution, pricing, packaging,
online marketing, value-added services and customer/technical services.

SIX STRATEGIC MARKETING PLANNING 221

 Step 4, Business portfolio. Based on the previous three sections, develop
a product and market portfolio strategy that results in:
• Penetrating existing markets with existing products by identifying
emerging, neglected, or poorly served niches that could increase
market share and obtain any economies of scale that could materialize.
• Introducing existing products into new markets (Northrop Grumman’s
division focused on law enforcement markets).
• Identifying new products for existing markets to prevent having to
defend a mature product line and risk losing market share.
• Investigating new products for new markets (Northrop Grumman’s
long-term new product development efforts for the division were
identified here and, in turn, matched its revamped strategic direction).

To amplify Step 4 still further, look at Figure 6.2 that graphically shows how
to construct an organized business portfolio of markets and products. This
classic product-market grid is part of the strategic marketing planning process
that permits you to categorize markets and products to reflect your strategic
direction.

As you view the business portfolio diagram, note that you can list existing
products into existing markets and the process is identified as (1) market
penetration. You can also view existing products for new markets, which you
can define as (2) market development. Also look at introducing new products
into existing markets, a process known as (3) product development. Finally,
look at new products for new markets, expressed as (4) diversification.

To use the grid, list products and markets in each of the quadrants. The listing
will then serve as a guideline for product-market growth over three- to five-
years.

222 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 Existing Products New Products

1 3
Existing
Markets Market Penetration Product Development

New
Markets
2 Market Development

4 Diversification

FIGURE 6.2 BUSINESS PORTFOLIO PLAN GUIDELINES

The total plan

A review of the strategic portion of the strategic marketing plan makes it
apparent that you can no longer think narrowly about a product. You must
now think about markets and how to incorporate them into an operational
one year marketing plan.

The lower row of boxes in Figure 6.1 makes up the marketing plan, which
has a time frame of 12 months. The detailed plan and actual work forms are
presented in Chapter 7.

The combination of the three to five year strategic and the one-year
marketing plans form a total strategic marketing plan for any managerial level,
from corporate management to product manager. Further, for every major
product and market described in the business portfolio, you should develop
a specific annual tactical marketing plan.

You thereby combine a long-term strategic viewpoint with a one year tactical
framework to create action – something that the strategic plan by itself could
not accomplish and for which the stand-alone marketing plan alone is too
narrow a perspective for today’s competitive environment.

SIX STRATEGIC MARKETING PLANNING 223

Blank page
PART THREE CHAPTER SEVEN

Developing the marketing plan:

Initiating rock-solid action
 SEVEN
Developing the marketing plan:
Initiating rock-solid action

Chapter Objectives
To enable you to:
1. Identify the steps in developing the
tactical one-year marketing plan.
2. Explain the relationship between the
strategic plan and the marketing plan.
3. Develop a marketing plan using the
sample format.
4. Use qualitative and quantitative measures
to evaluate a strategic marketing plan.

The total framework for a strategic marketing plan consists of a three to five
year strategic plan (detailed in Chapter 6) and a one year marketing plan. As
highlighted in Figure 7.1, we now turn to formulating a tactical plan for
dedicated products and markets.

In Chapter 6, an auto parts manufacturing company and an electric utility

company were used to illustrate how two diverse organizations write
objectives and strategies. The sample marketing plan that follows uses only
the electric utility company as an example.

It is an actual case of a company facing extensive competition for the first

time. Deregulation hit the industry and set in motion a whole series of events
that created a monumental competitive predicament and initiated strategic
marketing planning.

226 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Consider the following events that impacted the utility company in a flat-
growth economy:
1. Deregulation brought in more aggressive pricing competition from
natural gas companies;
2. lower-priced energy entered from neighbouring areas;
3. major industrial customers began generating their own energy and
bypassing the utility company; and
4. the company completed a nuclear plant with the capability of doubling
its electric energy output and placing it in an oversupply situation.

Thus, there was an urgent need to develop a workable plan with fresh strategies
to penetrate existing markets. And with the oversupply situation, it needed
to increase usage of electric energy by identifying industrial, commercial and
residential users that could consume more energy through additional
applications.

STRATEGIC PLAN: 3 TO 5 YEARS

Mission/
Objectives Growth Business
Strategic
and Goals Strategies Portfolio
Direction

MARKETING PLAN: 1 YEAR

Strategies Financial
Situation Market Marketing
and Controls
Analysis Opportunities Objectives
Action Plans and Budgets

Marketing Targets of Primary Functional

Mix Opportunity Objectives Objectives

Market
Background

Competitor
Analysis

FIGURE 7.1 STRATEGIC MARKETING PLAN

SEVEN DEVELOPING THE MARKETING PLAN 227

 Sample marketing plan
The product produced by the electric utility is energy expressed in kilowatt-
hours (kWh.) It is used in a variety of end-use applications such as major
appliances, water heating, space conditioning, lighting, commercial cooking,
electric transportation, motor drives and process heating.

The markets for this product are residential, manufacturing, non-manufacturing

and municipalities. But these markets are generally grouped as residential,
industrial and commercial.

The sample plan focuses on only one segment of the total market, lighting.
The plan includes detailed planning guidelines to help you master the principles
and issues, followed by an application on how to fill out each section of the
plan.

This format will help apply the strategic marketing plan to your own
situation, regardless of your product or service. Although the term ‘product’
is used in the guidelines, a service organization can use the same planning
format, whether that service is in the financial, medical, or some other
professional field.

For authenticity in using the electric utility company as an example, only the
numbers from its actual plan have been disguised for confidential purposes.
Also, the information provided does not constitute the utility’s entire plan,
but only enough of a sampling to show you how to write an actual plan.

228 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

The marketing plan

Situational analysis: Planning guidelines

THE MARKETING MIX

In this section, describe in factual and objective terms where your operation
stands in relation to the total marketing mix (product, price, distribution and
promotion). Compile data for a period of at least three years. Then, indicate
what the future trends are for your industry, market segments and product line.

A. Product
Objectively describe the product by:

Provide information related to product position, competitive trends

and changes to improve competitiveness.

1. Sales history.
2. Position in the industry, including market share as well as less tangible
aspects of position in the life cycle curve (introduction, growth, maturity,
decline and phase-out).
3. Future trends in the industry relative to government regulation,
technology, financial, buyer behaviour, that may affect product
position.
4. Intended purposes of the product(s), in terms of market use,
uniqueness, or positioning.
5. Features and benefits of the product(s), in terms of cost, safety, or
convenience, that make for a winning proposition.
6. Other pertinent product information, such as expected product
improvements and additional product characteristics (quality, size,
model, price).

SEVEN DEVELOPING THE MARKETING PLAN 229

 Application
Product: Lighting

1. SALES HISTORY

Year Sales Revenues Number of

(millions kWh) Customers (000)

Current 275 29.5 715

Year 1 265 22.7 608

Year 2 259 18.8 597

Year 3 213 12.1 359

2. POSITION IN INDUSTRY

Based on an analysis of where electric energy fits into the total energy picture
within the company’s trading area, the following key points emerge.
• For our trading area, use of energy is declining. We are not in a growth
cycle.
• Electric energy represents about ten per cent of total energy.
• Commercial and industrial customers (manufacturing and non-
manufacturing) use about 60 per cent of the electric energy produced.
• The lighting market is a major one for the company: almost one half
of total sales over the past three years went into lighting. The following
table shows the approximate percentage of total energy sales for lights
and lighting energy.

Market Percentage Billions kWh

Residential 13.0 1.25

Manufacturing 16.5 2.05

Non-manufacturing 24.0 2.45

Street lighting 1.2 0.75

230 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

3. FUTURE TRENDS

• Trends indicate growth of energy-saving lamps and longer-life

products, with a proliferation of new products from China, Korea,
Hungary, Poland and Canada.
• Trends toward customer reluctance to spend money for the higher-
cost, higher-efficiency lamps and fixtures, such as fluorescent circle
lights. Initial cost is a strong consideration in determining lighting
systems.
• Ninety per cent of assaults and burglaries occur at night.

4. INTENDED PURPOSES OF THE PRODUCT

The intended purpose is to provide a reliable source of energy and related

products and services to safely light homes, businesses, car parks and
roadways. The use of the energy within the lighting segments is categorized
as follows:
• Residential interior lighting represents about 13 per cent of residential
customer electric energy used for lighting.
• Commercial and industrial interior lighting represents 16 per cent of
electric energy used for lighting.
• Street lighting represents 65 per cent of electric energy used for lighting.
It is also estimated that 40 per cent to 55 per cent of service area streets
could use additional lighting for safety, security, crime prevention and
business merchandising.
• Residential and commercial outdoor protective lighting (OPL), represent
six per cent of electric energy for lighting. OPL’s function is to provide
all-night protection to business and residential customers.

5. FEATURES AND BENEFITS OF THE PRODUCT

The reliable source of energy and the effective application of lighting

provide safety, security, comfort and crime prevention and are a benefit to
business merchandising. The benefits and features of lighting are related to
the following statistics:
• Twelve times as many crimes of violence are committed at night.
• Sixty per cent of auto accidents occur at night, even though only 30
percent of all driving is done after dark.
• Four times as many fatal accidents occur at night.

SEVEN DEVELOPING THE MARKETING PLAN 231

 B. Pricing

PLANNING GUIDELINES

1. In this section, evaluate the company’s and competitors’ pricing policies

for each market segment and/or distribution channel and their impact
on market position.
2. Evaluate what the pricing trends will be on the basis of raw material
sourcing, product specification changes, financial factors, customers’
attitudes and possible competitive response.

Application

PRICING

1. The pricing classifications are highly fragmented and are categorized

by residential, commercial, industrial and municipal. Within these
segments prices vary by street lighting, traffic and signal lights and
ornamental lighting.
2. At the present time, the company has 23 rate classifications in the
breakdowns shown above. (Author’s note: Detailed information
typically would be provided in a table of rates by classification or made
part of an appendix).

3. FUTURE PRICING TRENDS

A 12 per cent to 18 per cent per year increase is anticipated for the next three
to five years. This prediction contrasts with the no, or very low, annual increases
forecasted for natural gas.

C. Distribution channels and methods

PLANNING GUIDELINES

1. Conduct a value chain analysis that includes quantities sold directly

and through dealers; and prepare an analysis of physical distribution.
2. Identify effectiveness of coverage through the current supply chain
with the functions each of the links performs. Include and evaluate
key activities that require special attention.

232 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 3. List special functions or unique sales activities performed by the
company’s sales force to specific market segments.
4. Identify future trends in distribution methods and channels. Indicate
expected growth in each major market segment. Describe the impact
of using the Internet as a channel of distribution and technical support.

Application

1. CURRENT CHANNELS OF DISTRIBUTION

Distribution takes place through a multi-level channel system. At one level,

architects, builders and interior designers specify lighting. At another level,
direct distribution takes place through representatives to major retailers,
manufacturers and municipal governments. At still another level of distribution,
there are the manufacturers of lighting fixtures and bulbs, including
company-owned stores.

2. EFFECTIVENESS OF COVERAGE THROUGH CURRENT CHANNELS

• The company sells through its 17 customer offices. The offices stock
61 different lamps. The share of the total area lamp sales was 3.6 per
cent.
• General Electric has about 50 per cent of the incandescent bulb market,
with Sylvania and Westinghouse at about ten per cent each. There
are 28 manufacturers of all types of lamps with about 17 per cent of
the market.
• About 13 per cent of the incandescent lamps and five per cent of the
fluorescent lamp are imported primarily from China, followed by South
Korea, Hungary, Poland, Mexico and Canada.
• Large firms purchase their lamps from distributors of manufacturers’
reps. Contractors provide the lighting systems for new construction.

Overall, there are extremely well developed distribution channels for lamps.

3. SPECIAL FUNCTIONS PERFORMED BY THE COMPANY’S SALES FORCE

• Continuing personal contact is maintained by the company’s sales

force, with frequency of contact based on size of customer and energy
usage. Construction activities and types of users and specifiers also
determine frequency of contact, including builders, contractors,
architects and interior designers.

SEVEN DEVELOPING THE MARKETING PLAN 233

 • When there is direct contact with large users, company sales reps
invite major retail, manufacturing and government customers to
General Electric’s Demonstration Lighting Institute to learn about the
latest, most efficient lighting systems.

4. FUTURE TRENDS IN DISTRIBUTION METHODS AND CHANNELS

• The trend for energy-saving lamps and longer-life products will signal
a need for technically trained lighting experts who function as advisers
at all levels of the supply chain.
• Distribution channel representatives will provide continuing
monitoring of lighting systems in offices and manufacturing
organizations for efficiency and energy savings.
• There will be greater use of demonstration centres through joint
ventures of the company with manufacturers of lighting fixtures and
bulbs at key locations.

D. Advertising and sales promotion

PLANNING GUIDELINES

• Analyze the advertising and sales promotion directed at each

segment of the market by copy theme, expenditure and media.
• Indicate past and current advertising and sales promotion strategies
by product and market segment.
• Describe publicity, educational and other non-advertising influences
that have been used and with what effect.

Application

1. ADVERTISING AND SALES PROMOTION BY COPY

THEME, EXPENDITURE AND MEDIA

• General Electric spends about $20 million for light bulb advertising
and about 85 per cent of that is spent on network TV.
• Within the street lighting segment, there are no advertising or sales
promotion efforts. Promotion is limited to inviting municipal officials
to General Electric’s outdoor lighting demonstrations.
• Within the OPL segment, there is no space advertising and only a
limited amount of sales promotion, such as direct mail to commercial
customers four times per year.

234 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

2. PAST AND CURRENT ADVERTISING AND SALES PROMOTION STRATEGIES

• Most company advertising is confined to corporate advertising directed

at economic development within the company’s trading area. Other
advertising themes focus on serving the energy needs of the public
and showing the company as a responsible corporate citizen.
(Author’s note: Advertising details may be included here or shown
as exhibits in an appendix.)

3. PUBLICITY, EDUCATIONAL AND OTHER NON-ADVERTISING INFLUENCES

• Marketing research indicates that inviting customers and prospects

to the demonstration facilities maintained by General Electric has a
positive impact. Evidence is currently being compiled to show the
direct sales impact on outdoor protective lighting and street lighting
segments. (Author’s note: Display quantitative information in an
appendix, with a summary indicated in this section.)

Market background

PLANNING GUIDELINES

Customer behaviour serves as a foundation for developing

objectives and strategies.

This section extends the basic marketing situation. However, focus is on the
behavioural aspects of customers and prospects in a changing and competitive
environment. The information in this section is important because it serves
as foundation material for developing the objectives and strategies that follow.

It also highlights gaps in knowledge about your markets and suggests the
types of marketing research needed to make effective decisions. Compile the
following information:

A. CUSTOMER PROFILE

What is the profile of potential customers? Classify by:

1. The markets served by distributors, dealers and other intermediaries,
as well as from direct to end-user sales.
2. Overall sales by market segment and channel of sale.
3. Other classifications: describe profile of customers by type of product
they use, level of sophistication, point of purchase and sensitivity.

SEVEN DEVELOPING THE MARKETING PLAN 235

 B. FREQUENCY AND MAGNITUDE OF PRODUCT USAGE

1. How often do they purchase?

2. In what volumes?
3. Is there a seasonal effect?

C. GEOGRAPHIC ASPECTS OF PRODUCT USAGE

• Are most of the buyers in a region of the country? National?

International?

D. CUSTOMER CHARACTERISTICS

1. Age? Level of education?

2. Degree of sophistication? Management practices? Time in the
business?
3. Attitude towards the company, the products, the services, our quality
image?
4. Economic factors?

E. DECISION MAKING

• Who makes the buying decisions? When and where are they made
and by whom?

F. CUSTOMER MOTIVATIONS

1. Why do customers buy? (Quality? Performance? Image? Service?

Convenience? Location? Friendliness?)
2. What motivates them to buy the product, to select one supplier/
provider in preference to another?

G. CUSTOMER AWARENESS

What is the level of customers’ awareness of the company’s product? To what

extent do they
1. Recognize a need?
2. Identify the brand/product/company?
3. Associate the brand/product/company with desirable features?

H. SEGMENT TRENDS

• What are the trends in the size and character of the various sub-markets?
A sub-market or segment should be considered if it is accessible,
measurable, or potentially profitable. Also identify segments that are
emerging, neglected, or poorly served.

236 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Application

A. CUSTOMER PROFILE

1. Markets served by distributors, dealers and other intermediaries

Independent building contractors serve new residential areas and
renovations in established areas and small commercial businesses that
represent 37 percent of lighting energy consumption.

Architects and lighting engineers serve manufacturing organizations as

well as municipalities that represent 17.7 percent of energy consumption.

Interior designers serve all segments of the market.

2. Overall sales by market segment

(Author’s note: It is not appropriate here to indicate names of individuals.
However, in the actual version of this plan, names of builders, contractors,
architects and interior designers were listed by category and by market
segment along with sales, number of customers and amount of energy
consumption.)

B. FREQUENCY AND MAGNITUDE OF PRODUCT USAGE

1. Frequency
A company survey of 375 large manufacturing firms indicates that about
12 per cent of their electric energy use is for lighting; for the 7,000 non-
manufacturing firms surveyed, about 24 per cent of electric energy is used
for lighting.

2. Magnitude
Within the outdoor protective lighting segment, the lighting is controlled
by photocells. There is no reliable information on the extent of use of owner-
installed floodlights for all-night protective purposes.

3. Seasonal effect
In the past three years, approximately 1,750 streetlights were added to
the company’s service area.

SEVEN DEVELOPING THE MARKETING PLAN 237

 C. GEOGRAPHIC ASPECTS OF PRODUCT USAGE

A comparative listing of county saturation by outdoor protective lighting (OPL)

and floodlighting follows.

County OPL (%) Floodlighting (%)

Nassau 2.10 26

Suffolk 0.30 19

Orange 0.54 22

Brock 1.11 24

Metro 2.72 27

Brighton 0.98 19

D. CUSTOMER CHARACTERISTICS

• Within the light bulb segment, demographic studies during the last
12 months indicate there are significant differences among the
customer purchasers of the leading brands. For example, General
Electric bulb buyers are older with high household incomes and college
educated. (Additional market research revealed characteristics of
customers from among business and government purchasers.)

1. ATTITUDES

The behavioural characteristics reveal a strong and growing concern

for security by both businesses and residential customers.

2. ECONOMIC FACTORS

Street lighting represents three per cent to five per cent of communities’
budgets. Nassau County requires street lighting in all new subdivisions,
with the expense passed along through a special assessment tax.

E. DECISION MAKING

• Government officials make buying decisions, with strong influences

from architects and lighting engineers. A decision takes place from
eight to 12 months prior to the beginning of construction or renovation.

238 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

F. CUSTOMER MOTIVATIONS

• The motivational factors are based on national statistics such as 90

per cent of assaults and burglaries occur at night. (See other
motivational factors related to crime and accidents identified in the
‘Features and Benefits’ section of this plan.)

G. CUSTOMER AWARENESS

1. Recognize a need
A sharp rise in lawsuits involving improperly lit streets and walkways is
heightening awareness levels for more street lighting.

2. Identify the brand

There is greater responsiveness for lighting and efficiency in all market
segments. All incandescent systems will be converted to high-pressure
sodium in the next 18 months.

3. Associate the brand with desirable features

While our manufacturing customers associate the features of OPL for
security purposes and relate those positive factors to our company, there
is a negative attitude because of the eight week installation time, owing
to inadequate company procedures in dealing with outside subcontractors.

H. SEGMENT TRENDS

• Within the street lighting segment of the market, the statistics cited
earlier indicate a clear-cut trend towards concern for the use of
additional lighting for safety, security, crime prevention and business
growth.

SEVEN DEVELOPING THE MARKETING PLAN 239

 Competitor analysis (process heating)21

List all major competitors showing their relative position.

Planning guidelines

MARKET SHARE

List all major competitors, in descending-size order, showing relative

position. List enough additional competitors to show a total minimum list of
five.

COMPETITIVE STRENGTHS AND WEAKNESSES

What are the weak and strong points in comparing competitors’ financial
resources, management leadership, human resources and other relevant data?

PRODUCT COMPARISON

How do the company’s products compare with those of the competition with
regard to:
1. Pricing, price lines and discounts.
2. Product features and quality.
3. Advertising volume and effectiveness.
4. Effectiveness of distribution and sales methods.
5. Packaging. Review comparisons with competitive brands on the basis
of tests for performance and preference.
6. Attitudes of various classes of customers by quality, service,
performance, and image.
7. Trends in competitors’ share of market.

21 In this section, another market segment, process heating, is used to better explain competitor
analysis.

240 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Sales force effectiveness and market coverage

Application

A. MARKET SHARE

Total overall market share is about 4.6 per cent of consumption, as indicated
in the following table.

Application Total market size Our market share Our customer

(millions kWh) (%) annual energy use
(millions kWh)

Forging 142 45.0 164

Heat treating 2,685 9.5 260

Moulding plastics 217 100.0 217

Kilns 286 11.5 21

Melting > 1,000 F. 2,101 1.0 12

Melting < 1,000 F. 971 62.0 803

Ovens > 600 F. 9,088 1.0 85

Ovens < 600 F. 1,934 29.0 569

Die casting 161 75.0 46

Salt bath 139 91.0 36

Drying 1,436 1.0 24

Liquid heating 18,450 0.1 25

Plating 206 66.0 236

Total 37,816 2,498

B. COMPETITIVE STRENGTHS AND WEAKNESSES

Gas marketing engineers are generally more knowledgeable about customers’

operations than are the company’s industrial marketing engineers. The
competitors also have greater financial resources to offer as incentives to
customers.

SEVEN DEVELOPING THE MARKETING PLAN 241

 C.PRODUCT COMPARISON

1. Pricing, price lines, discounts

• The installed cost of an electric process heating system is typically
two or three times the price of similar systems using natural gas.
• Electric energy is about two times more expensive than gas at
temperatures below 600 degrees Fahrenheit.
• Electric energy is about equal with gas at processed temperatures
in the 1,800 degree Fahrenheit range and is less expensive at the
higher temperatures.
2. Product features and quality
• Electric heat is much easier to incorporate into automated
applications and assembly line applications. Higher production
and demand for uniform product quality tend to favour electric
heat. It is easily programmed for spot heating and automatic
operation.
3. Advertising volume and effectiveness
• Process heat is a very diverse and not a well-defined end-use
application category. As a result, no advertising has been budgeted
for this market segment. (Author’s note: In other circumstances,
comparative charts of advertising volume, media and effectiveness
would be inserted.)
4. Effectiveness of distribution and sales methods
• The sales forces of most equipment vendors are limited and target
customers are not identified in an organized manner. Many process
heating equipment manufacturers offer comparable electric and
gas equipment.
5. Packaging
• (Author’s note: Not applicable in this example, but this category
would be an important factor in consumer package goods and
some business-to-business products.)
6. Attitudes of various classes of customers
• Customers are particularly sensitive to the company’s charges
and are very concerned about rate increases. As rates escalate,
there will be some shift to off-peak production.

242 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 7. Trends in competitors’ share of market
• Natural gas is expected to maintain its price advantage over
electricity during the next five years. No supply shortages are
forecast and local gas companies will continue to accelerate their
aggressive approach to capture more market share.
8. Sales force effectiveness and market coverage
• (Author’s note: See item 4. In typical industrial or consumer goods
firms, sales managers would provide the appropriate data.)

Marketing opportunities

Consider all possibilities that can expand your coverage of existing

markets.

Planning guidelines
In light of the facts presented in the previous two sections, now examine your
strengths, weaknesses and options. Your opportunities will begin to emerge
from this examination as you consider the variety of alternatives available.

Do not attempt to restrict your thinking at this time. Consider all possibilities
that can expand your coverage of existing markets and lay the groundwork
for entering new markets.

A. PRESENT MARKETS

What are the best opportunities for expanding present markets by cultivating
new users, displacing competitors, increasing usage by present customers;
redefining market segments; reconfiguring the product; finding new uses for
the present product; repositioning the product; and identifying new market
segments?

B. BUYERS

What are the best opportunities in such areas as improving or expanding

channels of distribution, product pricing, product promotion, enhancing
customer service, the Internet and trade buying practices?

SEVEN DEVELOPING THE MARKETING PLAN 243

 C. GROWTH MARKETS

Identify the major product growth markets in key areas (indicate geographic
location, if applicable). Which markets represent the greatest long-term
potential?

D. PRODUCT AND SERVICE DEVELOPMENT AND INNOVATION

What are the immediate and long-range opportunities for product development
and innovation in the following areas: addition of new products to the line;
diversification into new or related products, product lines and/or new items
or features; product modification; and packaging improvements? What new
services should be offered or current services improved?

E. TARGETS OF OPPORTUNITY

List any areas outside of your current market segment or product line (and
not included in your marketing plan) that you would like to explore.

Application (an abbreviated listing follows)

A. PRESENT MARKETS

• Residential security lighting (expansion)

• Non-residential interior lighting (increased usage)
• Induction melting (displace gas competitors)
• Dual fuel (new uses)
• Commercial cooking (reposition product)

B. BUYERS

• Present distribution: Provide special training to electrical contractors,

sellers and installers of all forms of lighting applications and controls.
• Pricing: Provide a builder allowance for add-on outdoor lighting
packages.
• Promotion: Expand current advertising and the Internet to mention
the safety benefits of lighting.

C. GROWTH MARKETS

Process heat: Target specific lighting applications involving high-temperature

and precise-temperature control.

244 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

D. PRODUCT AND SERVICE DEVELOPMENT AND INNOVATION

Evaluate current lighting equipment and change specifications to conform

to new automated factories. Provide engineering assistance to manufacturing
customers and expand specialized lighting operations.

Marketing objectives

For goals to be realistic generate assumptions and projections

about future conditions and trends.

Planning guidelines
Having reported relevant factual data in the Situation Analysis and interpreted
their meaning and consequences to your product line in the Opportunities
section, you now set the goals you want to achieve during the current planning
period.

One part of this section focuses on your primary or quantitative objectives as

they relate to sales, market share, profits and return on investment. Another
part is a statement of your functional objectives, which concern both product-
and non-product-related goals.

For those goals to be realistic and achievable, you must first generate assump-
tions and projections about future conditions and trends.

A. ASSUMPTIONS AND PROJECTIONS

List your major assumptions for the current planning period in relation to:
1. Economic assumptions: Gross national product, industrial production,
plant and equipment expenditures, activities of competitors, costs and
prices, local economics, consumer expenditures, tendencies and
changes in customer needs.
2. Technological assumptions: Intensity of research and development
effort, likelihood of technical breakthroughs, availability of raw
materials and plant capacity.

SEVEN DEVELOPING THE MARKETING PLAN 245

 3. Socio-political assumptions: Prospective legislation, probability of
political tensions, tax picture, population patterns, education,
consumer habits, and changes in customer needs.

B. PRIMARY OBJECTIVES

1. Financial objectives: State current and projected sales, units, profit

margins, market share objectives, as well as any other financial
measurements required by the organization.
2. Entrepreneurial objectives: Relate to non-measurable objectives for
which you will not be accountable, but could be key success factors,
for example, innovations in product, price, promotion and distribution.
(These are optional, unless required by senior management.)

Application

A. FINANCIAL OBJECTIVES

Sales and market share objectives of the product:

Lighting segment Sales ($M) Units of kWh (M) Market share (%)

Residential, 4.0 21 64
outdoor

Outdoor protective 1.7 3 29

lighting

Street lighting 1.4 3 29

Commercial 1.2 3 21

Commercial, 3.8 19 37
outdoor

Total for market 12.1 49

segment

B. FUNCTIONAL OBJECTIVES

Functional objectives normally refer to an expanded list based on the marketing

mix: product, pricing, distribution and promotion.

246 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Planning guidelines

1. PRODUCT OBJECTIVES

• Development
• Modification
• Differentiation
• Diversification
• Deletion
• Segmentation
• Pricing
• Promotion
• Supply chain
• Packaging
• Service
• Other

2. NON-PRODUCT OBJECTIVES

• Manufacturing
• Marketing research/competitor intelligence
• Credit
• Sales activities (educational/informational)
• R&D
• Training
• Human resource development

Application (an abbreviated listing follows)

1. PRODUCT OBJECTIVES

• Development: Launch a new product line of directional outdoor

residential lighting.
• Modification: Reduce installation time of new outdoor protective
lighting products from six weeks to three weeks.
• Supply chain: Set up master contracts with 15 to 20 contractors
covering each target area identified in the business redevelopment
section of the company’s trading area.

SEVEN DEVELOPING THE MARKETING PLAN 247

 2. NON-PRODUCT OBJECTIVES

Human resource development:

• Set up a training program to train lighting specialists and service
planners to design systems in cooperation with customers.
• Train a speaker corps made up of senior- and middle-level managers
to present the benefits of street lighting to business and commercial
groups.

Strategies and action plans

Planning guidelines
Strategy is the art of coordinating the means (money, human resources, materials)
to achieve the end (profits, customer satisfaction, growth) as defined by company
policy and objectives.

In this section, strategies have to be identified and put into action. Responsi-
bilities have to be assigned, schedules set, budgets established and checkpoints
determined. Make sure that the operations groups (sales, service, manufac-
turing and others) actively participate in this planning exercise, since they are
the ones that have to implement it.

A. MARKETING STRATEGIES AND TACTICS

1. Product strategy: What changes are needed in product and packaging?

2. Pricing strategy: What changes are needed in pricing, discounts and
long-term contracts?
3. Advertising strategy: What are the most effective benefits to feature
and how should basic copy ideas and copy themes be presented to
special groups?
4. Media strategy: What suggestions should be made to the advertising
agency?
5. Promotion strategies: What suggestions should be made for private
labelling; what programs should be introduced to dealers and other
levels of distribution and the sales force?
6. Other tactics.

248 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Application (an abbreviated listing follows)

A. MARKETING STRATEGIES AND TACTICS

1. Product strategy
• Institute new installation procedures for outdoor protective
lighting in north side of city where high-crime, high-accident areas
exist (third quarter, Levine).
2. Pricing strategy
• Rebate $500 per customer on conversions of manual lighting to
automatic controls (first quarter, Brooks).
3. Advertising strategy
• Select the most effective benefits to be featured and present basic
copy ideas and copy themes to special groups. (Author’s note:
Advertising agency or department promotion plans would be
attached to the plan.)
4. Promotion strategies
• For OEM (original equipment manufacturer), private label dealer
and/or distributors:
• Display indoor/outdoor lighting at customer energy centre
• Re-deploy sales force to high potential industrial parks now under
construction, install salary/commission package and eliminate
former salary-only compensation plan.
5. Other tactics
• Compile, publish and distribute reports, case studies, magazine
articles and press releases that describe successful installations
(first quarter, Thompson).
• Establish a corporate lighting group to plan marketing programs
and serve as technical support for all lighting activities (second
quarter, Whitman).

SEVEN DEVELOPING THE MARKETING PLAN 249

 Summary statement of final strategy

Planning guidelines
Include the highlights of your basic strategies aimed at achieving your primary
objectives. Show the market segments, characteristics, barriers and strategies.

You may also include alternative and contingency plans if situations occur whereby
objectives cannot be reached. Make sure they relate to the overall marketing plan
(not just product-line plans), as well as the corporate objectives.

Application

SUMMARY OF FINAL STRATEGY FOR LIGHTING PRODUCT

Market Characteristics Barriers Strategies

Residential interior High growth; new Customer Use price

lighting energy-saving resistance to incentives on
products available; spending for high- usage of energy;
represents 14% of efficiency lamps; introduce a new
electric energy resistance to product line of
consumed increased costs of energy-saving
lighting energy fixtures

Commercial/ Represents 15% of Initial cost of new Create a special

industrial interior electric energy; lighting systems sales- force to
lighting energy savings are high; inadequate reach new
big considerations; staff to provide industrial parks;
worker consultation on conduct lighting
productivity is energy savings seminar featuring
related to lighting safety, improved
merchandising
results, aesthetics
and productivity

Street lighting High growth; Difficult for service Help communities

40-55% of service areas to fund develop street
areas have no project; slow lighting master
street lighting; purchase decision, plans; assign
safety, security, average two years lighting specialist
crime are strong to speed-up
motivational purchase; institute
factors new installation
procedures by
priority areas

250 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Residential/ High growth; 90% Long lead time for Conduct technical
commercial of assaults and installation; lack of seminars for
outdoor protective burglaries occur at control over contractors;
lighting night; served by contractors promote the value
industrial of outdoor lighting
contractors; high to business owners
priority for through general
residential and advertising, direct
commercial mail, the Internet
customers and business
meetings

Financial controls and budgets

Having completed the design phase of your marketing plan, you must decide
how you will monitor its execution. Therefore, before implementing it, you
have to develop procedures for both control (comparing actual and planned
figures) and review (indicating corrective measures taken).22

Guidelines for planning

You have just reviewed an abbreviated version of an actual marketing plan
for a utility company. While the terminology may differ from yours, the
conditions are the same as for any other business, product, or service.

Meaning: There are sales goals to reach, a product to deliver, a service to

provide, market segment opportunities to reach, competitor activities to
monitor and environmental factors with which to deal. The plan has a logical
progression: where you have been, where you want to go, how you want to
get there and how you know when you have arrived.

Schedule for marketing planning

The purpose of a planning schedule is to demonstrate that effective planning
is a participative process requiring input from all levels of management. While
Figure 7.2, a calendar-type schedule, displays an optimum situation, the
activities and units of responsibility may vary within each organization.

In practice, many organizations with formalized planning systems will take

a six-month period to develop an operating plan. If a company is working
on a calendar year, the process begins in July and is usually submitted to top

22 These budgeting and controlling aspects generally conform to the procedures established by
the financial department.

SEVEN DEVELOPING THE MARKETING PLAN 251

 management as early as October, with a final version in early December when
expected sales become apparent.

Planning Activity Unit Responsible Week(s) No.

1. Marketing research conducts Marketing

situation analysis and generates research
background data.

2. Marketing research develops Marketing

assumptions about future research
environmental and identifies
current position

3. Top management sets corporate Top management

objectives.

4. Marketing vice-president Vice-president

interprets corporate objectives marketing
and derives marketing objectives
with input of strategy team or
product manager.

5. Sales and expense forecasts Marketing

are established. research controller

6. Product managers develop Product managers,

optimum strategies for their vice-president
assigned lines and review with marketing
marketing vice-president.

7. Product managers design Product managers,

detailed action programs and general sales
review with general sales manager. manager

8. Product managers write up their Product manager

proposals and submit them to
marketing vice-president.

9. Marketing reviews and Vice-president

co-ordinates individual product plans. marketing

10. General sales manager General sales

assigns district volume directives. manager

Planning Activity Unit Responsible Week(s) No.

11. District managers develop District sales

district sales plans in managers
consultation with sales people.

12. General sales manager reviews General sales

and integrates district sales plans. manager

13. Product managers prepare Product managers

financial summaries.

14. Controller prepares operating Controller

budget.

15. Top marketing reviews and Top management

approves marketing plan.

FIGURE 7.3 SCHEDULE OF MARKETING PLANNING

252 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Getting started: Form a strategy team
One of the best approaches for gaining participation in the marketing plan
and in the total strategic marketing plan, is to form a strategy team made up
of individuals from different functions of the organization. As already
discussed in previous chapters, include individuals from finance, product
development, sales, promotion, manufacturing, distribution and research and
development (or the equivalent).

The members of the team are not meant to take passive roles. Rather, they
should participate totally in the development of the plan, from analyzing the
opportunities to creating objectives and strategies. It is through this
participation that new markets and new product opportunities are developed,
which, in turn, help secure the future of the organization. Specific
responsibilities of a planning team are presented in Chapter 13.

Evaluating a strategic marketing plan

You can use the following qualitative guidelines as a dependable checklist to
evaluate the marketing plan – and the total strategic marketing plan, as well.
This checklist is particularly useful in determining whether the plan is providing
you with the action-oriented strategies that will serve you, your products or
services and your organization as a whole.
1. Are there strategies for enlarging current markets?
2. Are there strategies for developing new markets?
3. Are there strategies for defining the product’s position?
4. Are there strategies for protecting existing sales volume?
5. Are there strategies for launching new products?

For quantitative measures of overall planning performance, use the following:

1. Total sales and profits: Compare with preceding years.
2. Market share: Measure performance relative to that of competitors.
3. Sales analysis: Compare sales variations from plans by breakdowns
such as geography, sales people, customers and products.

SEVEN DEVELOPING THE MARKETING PLAN 253

 4. Distribution cost analysis: Determine the relative profitability of
present ways of doing business through various channels, including
the Internet.
5. Measures of customer satisfaction: Use surveys, customer panels and
other market feedback.

Developing your own strategic marketing plan

The planning format presented in this chapter and in Chapter 6 represents
an application of the total strategic marketing planning process. It is practical
and workable and is currently being used by well-known organizations with
domestic and international operations.

With slight modification, you can use it for a specific product, for a service,
for a division, or for your entire company. Tailor it by either increasing the
detail in the sections or decreasing the content to suit the requirements of
your business.

254 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

PART FOUR

Specific competitive strategies

 PART FOUR
Specific competitive strategies

This part will equip you with practical working guidelines to develop specific
competitive strategies. Chapters 8 through 12 focus on the following:
• Strategy applications for market, product, pricing, promotion and
distribution.
• Connection of the marketing mix to competitive analysis.
• Use of the marketing mix to isolate marketing problems and to develop
marketing solutions.
• Business-building strategies along the product life cycle.

Chapter 13 provides duties and responsibilities of strategy teams.

256 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

PART FOUR CHAPTER EIGHT

Market strategies: Applying

resources for maximum impact
 EIGHT
Market strategies: Applying
resources for maximum impact

Chapter Objectives
To enable you to:
1. Employ the five major areas related to
developing a market strategy
2. Initiate the steps that convert market
strategies into action.

Stand back and look at your market in its totality: first, consider the
dimension of the market in which you want to operate, the types of segments
that interest you and what market entry procedures you intend to use23. Also
determine the amount of commitment (resources) you intend to make, the
level of product demand and potential diversification opportunities.

Second, decide if you even want to participate in a particular market. If so,

what share do you want? How much share are you willing to give up against
excessively combative competitors? And how are you going to manage the
market for long-term profitable growth? Let’s consider all of these issues.

23 See Chapter 2 for extensive coverage of markets and methods for segmenting a market

258 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Market dimension

Avoid spreading out your marketing efforts if it makes you

vulnerable to competitors.

Overview: Once you determine the dimension of the market you can handle
efficiently against competition, then concentrate your marketing power in a
form that offers the greatest chance of success. Expressed differently:
Avoid spreading your marketing effort so thin that it may result in becoming
vulnerable to competitors. However, when growth opportunities do become
available, then prepare to branch out to additional markets.

Strategy applications
• Segments (geographic, demographic, lifestyle)
• Single market
• Multimarket
• Total market
• Regional market
• National market

The following case illustrates how a company dealt with signs of erratic
marketing efforts that resulted in a loss of momentum.

Case example
PPG Industries, Inc., a fabricated glass, sealants, protective coatings and
speciality chemicals company, has operated successfully for more than 100
years. During one period, however, tell-tale signs indicated the company was
faltering in some of its product development and marketing efforts. For
example, after several years of intense work, PPG engineers developed a bluish
windshield that would admit filtered sunlight, but block the heat.

EIGHT MARKET STRATEGIES 259

 The market: All automakers. Results: No interest. Automakers didn’t like the
colour or the price. Also, auto sales were relatively flat during that period.

That rejection propelled PPG management into action to treat a potential

problem before it festered. The subsequent strategies included a number of
actions, but the driving one was anchored to market segmentation.

PPG’s strategies
• Managers moved into higher growth segments, such as Transitions
sunglasses by using its unique technology to automatically lighten
or darken lenses in response to light levels.
• They initiated programs to run auto paint operations for such
companies as Chrysler, thereby snaring a larger share of the coatings
and chemicals business.
• Marketing and sales established an insurance claims network to steer
window-replacement business to PPG distributors.
• Working cooperatively, marketing and engineering penetrated new
markets where PPG products could displace other materials. In one
such segment, the company used glass instead of aluminium for
computer hard disks.
• PPG pushed abroad into China and South America by setting up
production facilities and initiating similar segmentation strategies to
those used domestically.

Results: Within a relatively short period, PPG’s earnings reached record levels
and its stock rose 13 per cent. And the biggest tribute of all came from a Wall
Street analyst who characterized PPG as, “one of the best managed companies
in the industry.”

260 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Action strategy

Segmentation strategies are different from those applied to

marketing products as commodities.

What can you learn from the PPG case? As PPG executives began implementing
segmentation strategies for their numerous product lines, they soon found
out that the specialized skills needed were quite different from those honed
after many years of treating their products as commodities.

Many firms, including yours, could easily face a parallel situation in which
market skills need sharpening. Here’s what you can do:

1. DEFINE SEGMENT SIZE AND GROWTH

Determine whether an existing segment is worth occupying. That is, does it

promise enough growth potential to warrant a long-term commitment? (Refer
to Chapter 5 for an extensive review of research sources.)

2. SURVEY MARKET CHARACTERISTICS

Determine market dimension by viewing your position within the network

of suppliers, existing and emerging competitors, product and service
offerings and various customer groups. Next, understand the make up of the
supply chain. Is there room for your product in the existing channel or would
you have to blaze a new trail to your customer?

3. EXAMINE BUYER BEHAVIOUR

Look at the flow of events that could reshape buyer behaviour. They include:
intensifying global competition, increasing demands from customers,
dazzling new technology and emerging organizations committed to product
quality and oriented toward total customer satisfaction. Then ask: Market-
by-market, segment-by-segment and based on changes in buyer behaviour,
what fresh strategies would you initiate?

For starters, analyze your markets according to the following characteristics:

• Responsiveness. Often tied to just-in-time delivery, responsiveness
also relates to the goal of zero inventory for customers or helping
them avoid inventory build-up. Are you prepared to deliver on time
and save the customer inventory costs?

EIGHT MARKET STRATEGIES 261

 • Quality control. You will achieve maximum cost savings if the buyer
receives perfect products without the need for further inspection. Time
is saved, complaints reduced and improved quality helps your
customers achieve a higher level of satisfaction from their customers.
Are there sufficient control systems in place to assure delivery of quality
products?
• Nearness to customer. In situations where frequent service calls are
required, proximity to customers and the need for a speedy response
are factors in segment selection. How close are your service personnel
to key customers?
• Communications. New technology constantly transforms ordering and
fulfilment systems. Where do you rank, relative to your competitors,
in utilizing the new and expanding forms of communications to meet
customers’ requirements?
• Dependable production schedules. As customers begin to make their
sales forecasts and production schedules available, an opportunity
arises to develop a stable production capability to meet customers’
rigid schedules. What commitments are needed from your production
people to satisfy such buyer behaviour?

In addition to the above guidelines, refer again to Chapter 2 for a detailed

review on how to segment a market and how to apply segmentation criteria.

Market entry
Overview: The advantage of a first-in strategy is that it has the potential to
identify you as the market leader. Often, follow-the-leader and last-in
strategies must conform to the market leader.

In the latter situations, there are options to create a competitive advantage

using product differentiation, price incentives, promotion originality, service
add-ons, or distribution innovations to overcome the leader’s advantages.
Also there is the choice to target poorly served or emerging market segments
left vacant by the first-in competitor.

The advantage of a first-in strategy is to identify you as the market leader.

262 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Strategy applications
• First-in strategy
• Follow-the-leader strategy
• Last-in strategy

The following case illustrates how one company handled the market-entry
strategy when it introduced a new product.

Case example
Monsanto Co. is a market leader in agricultural products and solutions. For
years, the chemical company poured millions into the much-touted genetically
engineered seeds.

The promise: Improved farmers’ yields in various crops and in pesticides

that would reduce their costs and enhance crops – particularly for cotton,
soybeans and potatoes. Finally, the time arrived to enter the market with their
new biotech products.

Monsanto faced a number of key issues in this process, ones that you must
consider when introducing a new product or technology. Four of those key
issues include the following:
1. Assess the market potential for the products
Monsanto estimated that the market for biotech seed products was $4
billion a year. Management reasoned that going for a lion’s share of that
market would sustain future growth.

However, tapping that abundant potential and maintaining a leadership

position meant supplying the market with a steady stream of new biotech
products. To secure sources of new products, Monsanto began acquisitions
to supplement its line.

EIGHT MARKET STRATEGIES 263

 2. Monitor competitors’ strategies
Monsanto’s managers evaluated their chief competitor’s strategies and
noted these contrasting approaches: Monsanto was developing products
that would improve farmers’ yields and lower production costs. On the
other hand, DuPont focused on improving the nutritional value of corn
and soybeans.

3. Stay focused on product claims that satisfy customers’ needs and wants
One of Monsanto’s major concerns was how to quell doubts among farmers
about the pay-off promised from biotech products. It made extraordinary
efforts to reaffirm that its products would improve their crop yields in
cotton, tomatoes and potatoes that grow without pesticides, as well as
protect wheat crops from disease.

4. Interpret customer behaviour and the requirements for after-sales service

Monsanto remained sensitive to the difficulty of persuading farmers to
accept new technology claims. It already had the unhappy experience of
previously introducing a product designed to boost milk production that
farmers viewed as too difficult to use and required complicated training.
A key issue, then, was to accurately assess how much training and hand
holding was needed to ensure continuing product usage.

Action strategy

Market entry decisions depend on your resources and ability to

sustain a competitive edge.

What can you learn from the Monsanto case? One of the overriding issues
from the Monsanto case deals with the strategy of first-in, follow-the-leader,
or last-in to the market with a new product or technology.
• First-in strategy: The first-in strategy enjoys the advantage of locking
up key distributors and customers and possibly gaining a reputation
of market leader. To further support that notion, a McKinsey study
showed that being first to introduce a new product, even if it is over
budget, is better than coming in later, but on budget. The downside
is that rushing to the market before the product is thoroughly debugged
can result in a negative image.

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 • Follow-the-leader strategy: Here, a firm might time its entry with the
competitor. Both companies would gain from the promotional
impact of advertising the product category and they would share the
overall promotional costs of the launching.
• Late entry: Delaying a product launch until a competitor has already
entered has some clear-cut advantages: at the outset, the first-entry
company will have borne the cost of educating the market. The late-
entrant also can avoid product flaws and take the time to appraise
the size of the market, profile the buyer and target viable segments
that remain untapped (if any).

Commentary
To a great extent, your market entry strategies are pre-set at the time of product
launch. By grasping the full significance of the first-in, follow-the-leader, or
last-in strategy choice, you will gain additional insight as you make market
decisions and develop and refine your strategic marketing plan.

Ultimately, then, the decision in market entry depends on your resources,

your ability to sustain a competitive edge (particularly if you are first-in) and
your long-term objectives as they relate to the amount of market share and
your position in the market.

Market commitment
Overview: Company priorities and resources determine the degree of
commitment to a market. Consider if a major involvement should spearhead
your growth strategy, or if a limited involvement is the best course of action
to protect your other market commitments.

Strategy applications
• Major commitment
• Average commitment
• Limited commitment

The following case provides a broader prospective for those factors related
to market commitment.

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 Case example
H&R Block Inc., the tax preparation company, produces over $1.7 billion in
annual revenues from its worldwide operation of about 9,000 outlets. Overall
performance is exceptional, with record earnings in all but one of its almost
45 years.

This success has been attributed to H&R Block’s marketing managers’ knack
for doing the right things. For instance, at the grass roots level keen observation
identified market trends, marketing research documented those changes and
management prudently selected specific trends that would shape strategies.

But all that success did not go unblemished. While expansion is a natural
part of the company’s culture, there were several additions to its core business.
For instance, H&R Block acquired Path Management Industries, which offered
one day management seminars, and Hyatt Legal Services that provided legal
assistance from storefront locations. Some failures did result.

On the winning side, H&R Block acquired CompuServe Inc., a computer time-
sharing company with database services and software products. CEO Henry
Block had triggered the acquisitions. His actions were motivated by concern
that the tax preparation business would flatten, which in turn would provoke
industry in-fighting, usually associated with mature markets.

Later, however, instead of targeting diversification as the next move the

company made a fundamental decision to give major commitment to its core
business. The new ingredient for success was the move to electronic tax filing,
known as the Rapid Refund service.

Rapid Refund permits taxpayers to receive a loan equal to the amount of their
refund. The moneys come from participating banks within a few days after
the tax returns are electronically filed.

Money-tight customers are happy with Rapid Refund. The government is

delighted because of reduced handling costs and fewer errors. And H&R Block
is elated with increased revenues, because the customer pays about $25 for
the Rapid Refund service and participating banks pay the company about
$29 to process the early returns.

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Thus, the technology trend increases customer satisfaction and creates a
competitive advantage. And the ‘other customer’, the government, encourages
expanding electronic filing to achieve its efficiency objectives.

To exploit the trend, H&R Block extends electronic handling of tax returns
to an additional market niche made up of delinquent taxpayers who must
respond rapidly to urgent signals from the government. Electronic filings at
H&R Block shot up 14 per cent, pushing earnings up 14 per cent, while locking
in 65 per cent share of that segment.

Action strategy

Competitive strategy requires that you use your strengths against

the weaknesses of the competitor.

What can you learn from the H&R Block case? H&R Block learned how to
merge market trends, customer needs and technology. Then it projected those
forces into a major commitment to its core business.

What possibilities are open to you? What process can you use to link market
commitment with strategies? First, begin by asking some key questions that
are similar to the ones used to develop a strategic direction for your strategic
marketing plan:
1. What customers are to be served over the next three to five years?
2. What customer functions are to be satisfied?
3. What technologies can be used to satisfy future customer or market
needs?
4. What are the trends in market behaviour?

Next, determine how you can integrate meaningful trends to enhance

internal systems or design a new product line that would strengthen your
commitment to your core business. Connecting trends with internal
capabilities includes a variety of possibilities:
• Create supplier-customer alliances by sharing technology to jointly
develop customized products.
• Integrate customers’ sales data with computerized inventory control
systems.

EIGHT MARKET STRATEGIES 267

 • Install logistical systems to improve just-in-time delivery.
• Assemble competitor intelligence and customer behaviour profiles
to strengthen your presence within emerging, neglected, or poorly
served niches of your primary market.
• Weigh the advantages of elevating the quality of customer service
and promoting your image as a responsible supplier.
• Promote an open management system that permits customer access
to your key personnel for advice on technical and competitive
problems.

By tying developing trends into your market strategy, you permit a more
proactive approach to securing future outcomes on your terms.

Commentary
There are two dimensions to market commitment: yours and your competitors.
As discussed in Chapters 2 and 3, competitive strategy requires that you use
your strengths against the weaknesses of the competitor.

Therefore, the commitment is determined through a side-by-side analysis of

how much commitment will be given to key areas such as new product
development, market share desired and willingness to sustain an aggressive
promotional effort against competitors.

You also need to determine your competitors’ patterns of behaviour and how
they are likely to respond to your major or limited commitment. (Checklists
in Chapter 2 are provided for this analysis.)

And, finally, you need to consider what you communicate to the market place
(your customers and competitors) about the amount of commitment you will
make – that is, major, average, or limited.

Market demand
Overview: Managing market demand is a key factor to successful performance.
You need to know at what point to prune markets if demand slackens; when
to concentrate on key markets when demand increases; and how soon to
harvest profits should sales plateau and cash flow is needed.

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Strategy application
• Pruning strategy
• Key-market strategy
• Harvesting strategy

The following case illustrates the application of a market demand strategy

as it relates to reducing the risk of a new product introduction.

Case example
Kimberly-Clark Corp., producer of paper and paper products, is a powerful
force in consumer products with such brands as Kleenex tissues, Kotex feminine
products and Huggies diapers. But such power often encounters opposing
forces.

For Kimberly, opposition came from such formidable competitors as Procter

& Gamble Co. and Scott Paper Co. Then there were repercussions from maturing
domestic markets and price wars that resulted in reduced profitability.
Kimberly soon realized that it had to factor in market demand in its drive for
new products to help increase market share and improve profitability.

Kimberly-Clark’s strategies
First, management decided to pick up the slack in domestic markets by
refocusing attention to expand into key European markets. Although the Dallas-
based company operated in Europe for many years, sales represented only
20 per cent of revenues.

The shift in its market demand strategy seemed prudent. But Kimberly first
had to overcome P&G, Scott Paper and James River Corp. Those competitors
zealously guarded entry into their well-defended bastions in the European
Common Market.

To deal with the entry obstacles, Kimberly reinforced its presence in selected
common market countries by strengthening its sales force, beefing-up

EIGHT MARKET STRATEGIES 269

 manufacturing, developing distribution networks and streamlining information
systems. These actions sent messages to both customers and competitors
that Kimberly-Clark was there to stay.

Second, product launches were backed by targeted promotions to specific

country-markets in which it had product advantages. Results: In Germany
and France, Kimberly’s facial tissue, baby wipes and paper towels have strong
leadership positions.

Third, Kimberly continued to act with speed. Using product development as

the driving force of their strategy, Kimberly rapidly developed next generation
Pull-Ups. The aim: Stay far ahead of the competition. Or, as one Kimberly
executive states, “Pull-ups will be a moving target.”

Speed is a vital element of strategy. But it is not without risk. For example,
Kimberly committed Pull-Ups to full production immediately after favourable
results came from lab tests. Although risky, they also pushed into full
distribution, bypassing time-consuming market tests. Management was
confident the product was excellent and well worth the risk in order to achieve
the strategic value of speed.

Action strategy

Dealing with market demand requires flexibility, good timing and

extensive use of competitive analysis.

What can you learn from the Kimberly-Clark case? The following guidelines
will help you align your product introductions with your market demand
strategy:
1. Selecting markets. Whether domestic or international markets, be
certain the markets you select align with a long-term demand strategy.
Then determine your capabilities to sustain a steady product flow of
new or enhanced products. In addition, determine the commitments
of competitors to match or exceed your product introductions.
2. Entering markets. Study the markets for points of entry. That is,
determine geographic locations of available distribution networks
and their capacity to handle your products. Also evaluate what product
advantages you can tout, such as lower price, more features, or some

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 other value-added benefits that are strong enough to displace
competitors’ products in favour of yours.
3. Building market share. Depending on your resources, explore the
potential of a rolling strategy: (a) producing your product as a private
brand; (b) followed by establishing your own brand name; (c) then
continuing with product improvement, product upgrading and
supporting services.
4. Protecting market share. This strategy assumes the best defence is an
offence. Begin with continuous observation of competitors’ products
and strategies. Then monitor how customers’ judge your products
and observe their changing needs. Lastly, recognize that timing new
product introductions are not isolated activities, but are integral parts
of your total market demand strategy.

Commentary
Managing market demand requires flexibility, good timing and extensive use
of competitive analysis. Also, the applications of market demand strategy
connect directly to the strategies of concentration and segmentation as they
relate to expanding or contracting your presence in a selected market.

Market diversification
Overview: You should be aware of opportunities to add new businesses that
relate to existing production or supply chain capabilities (horizontal diver-
sification). Or, you can add another stage of production or distribution to
existing operations, one that either precedes or follows in the ultimate path
to the consumer (vertical diversification.) You can also diversify into unre-
lated businesses using new technology and marketing strategies (lateral
diversification).

There is still another form of diversification that comes from forming a variety
of alliances, joint ventures and similar cooperative arrangements. Then, there
is the pervasive use of mergers and acquisitions (M&A) over the last several
years to shape diversification strategies.

EIGHT MARKET STRATEGIES 271

 Strategy application
• Horizontal diversification
• Vertical diversification
• Lateral diversification
• Alliances

The following case illustrates how one company used diversification to deal
with its uncomfortable situation of being a lone survivor in an industry under
steady attack by foreign competitors.

Case example
Applied Materials Inc., a worldwide supplier of products and services to
the semiconductor industry, realized that to retain its global position in a hotly
contested market it had to develop a diversification plan that incorporated
three essentials:
• Executive vision. Executives took into account the long-term
development of the core industry it would continue to serve, absorbed
the practices of existing and emerging competitors they would have
to confront and maintained ongoing intelligence about the changing
needs and competitive environment of its customers.
• Managerial skills. They assessed the capabilities of personnel and
evaluated their abilities to implement a successful global diversification
plan. Yet, they were mindful of the critical need to employ a highly
personalized service-oriented attitude toward customers.
• Strategies and tactics. Managers at all levels set in motion a finely-
tuned plan required by a market-by-market entry. Also, they
developed counter-measures that allowed for effectively manoeuvring
against the threats of aggressive competitors.

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Applied Materials’ strategy
Management’s vision for AM was the outcome of a two-directional approach:
First, managers looked backward to learn from the crushing defeats of several
of its customer groups in the machine tools and consumer electronics industries
as Japan emerged a major competitor during the 1970s and 1980s. Then, they
looked forward to discover that in some sectors chip-making equipment was
projected to slide and would negatively affect AM’s market share.

On the basis of that sobering analysis, managers proceeded to apply their

skills by organizing AM’s strategic options. Initially, they ranked AM’s market
position against new global competitors. Then, they defined what position
AM should have in a reshaped chip-making industry. Finally, they prioritized
their opportunities.

Management’s new strategies and tactics aimed at repositioning AM so that

it could diversify into global markets, which was consistent with its long-
term vision for growth. To that end, managers diligently examined those
companies that succeeded and the ones that failed.

From the analysis, AM managers internalized the need to access local supply
chains as the driving force behind their strategy. Next, they recognized the
value of creating intimate, ongoing relationships with customers.

In particular, AM managers saw Japan as a growing but demanding market,

one representing a prime opportunity. Managers looked closely at the
sophisticated patterns of how Japanese producers partnered with their
customers.

Accordingly, AM executives instructed their technical people to work with

Japanese semiconductor makers to find ways to make AM’s machines more
functional. As relationships evolved, AM frequently customized products for
specific customers.

However, the closeness to customers didn’t end there. AM confronted service

with a new vitality. If equipment broke down, a technician arrived at the
customer’s location within hours – not days.

Don’t distance yourself from customers, regardless of the types of

alliances you form.

EIGHT MARKET STRATEGIES 273

 Action strategy
What can you learn from the Applied Materials case? When diversifying
globally, or into another stage of business within regional markets, use the
following guidelines:
1. Don’t distance yourself from customers, regardless of the types of
alliances you form. In global markets, where possible, set up
indigenous operations staffed with the nationals of each country.
2. Don’t permit distributors to shoulder the entire load of contacting
prospects, selling your products and servicing the customer. Take the
time to learn the intricacies of distributing to local markets.
3. Watch the actions of your competitors. Maintain an ongoing
competitor intelligence activity and conduct customer satisfaction
studies to feed your strategies.

Commentary
As illustrated in the Applied Materials case, market diversification presents
many opportunities for you to exercise innovation and entrepreneurial thinking.
Consider additional examples in the three categories of diversification:

Horizontal diversification
Procter & Gamble and Borden are experts in horizontal diversification.
Originally a soap company, Procter & Gamble has long since expanded
horizontally into such diverse products as cake mixes, potato chips, coffee,
paper products, toothpastes, deodorants and detergents. Borden’s product
mix ranges from cheeses and reconstituted lemon juice to glue and adhesive
tape.

What these companies have discovered is that great economies can be derived
from using the same sales force to sell new product categories to the same
retail outlets, simply by applying already developed marketing skills. Because
it involves building on an existing strength, either in technology or in marketing,
horizontal diversification is the most promising and least risky of the market
diversification strategies.

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Vertical diversification
Hart Schaffner & Marx, the manufacturer of such famous clothing brands
as Hickey-Freeman and Christian Dior, acquired a chain of retail stores to
add to its existing stores. Although this type of diversification is common, it
does increase risk because the management of one level of business (retailing)
may not have enough expertise at another level (manufacturing).

Lateral diversification
Lateral diversification is the most extreme form of diversification because it
usually represents a complete departure from current operations by owning
diverse businesses. The only connection is that the same parent owns diverse
businesses. The resulting group is called a conglomerate and was made popular
in the 1960s.

The current trend is more controlled with portfolios of businesses put together
with a more cohesive strategic direction. (The frameworks for strategic
direction and developing a business portfolio are discussed in Chapter 6.)

Action steps

If competitors throw obstacles in your way, assess their weaknesses

and manoeuvre your strengths against them.

Market strategies must eventually be converted into actions. Keep in mind

that you need to concentrate on a market that has long-term growth
potential. If competitors throw obstacles in the way, assess their weaknesses
and focus your strengths against them (review the indirect approach
discussed in Chapter 1). Their vulnerabilities will usually be apparent in areas
such as product, service, pricing, supply chain, sales force and promotion.

To identify strategies and initiate action:

1. List market segments representing your best opportunities.
2. Evaluate the strengths and weaknesses of the segments.
3. Identify the points of entry.
4. Consider the amount of commitment needed.

EIGHT MARKET STRATEGIES 275

 5. Monitor progress in entering and penetrating a market, or in
defending existing market share.
6. List immediate strategies and tactics that can be implemented.
7. Utilize manoeuvre to conserve resources and avoid head-to-head
confrontations with competitors.

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PART FOUR CHAPTER NINE

Product/service strategies: Your

lifeline to growth and competitive
advantage
 NINE
Product/service strategies: Your
lifeline to growth and competitive
advantage

Chapter Objectives
To enable you to:
1. Identify the framework for developing
product strategies.
2. Develop a positioning strategy.
3. Use life cycle extension strategies to
revitalize your own products.
4. Learn to use the product audit to sustain
product profitability.
5. Convert product strategies into action.

Reviewing your products or services present a dual opportunity.24 First, you

become aware of the changing needs and wants of customers by which you
base new product development. Second, you can decide how and when to
remove losing and marginal products.

The seven major areas of product considerations – positioning, product life

cycle, product competition, product mix, product design, new products and
product audit – provide a systematic framework for reviewing your products
and developing competitive strategies.

24 For the purpose of simplicity, the term product is also used to cover services. Today banks,
insurance companies and communications organisations routinely refer to their offerings
as services.

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Positioning

Occupy an open position in the market and in the customer’s mind.

Overview: Al Reis and Jack Trout popularized positioning during the 1980s
as “Not what you do to a product. Positioning is what you do to the mind of
the prospect. That is, you position the product to the mind of the prospect.”

Professor Philip Kotler (Northwestern University) says, “Positioning is the

act of designing the company offer and image so that it occupies a distinct
and valued place in the target customers’ minds.”

What follows, then, is to find out how customers perceive your product by
examining the image it projects and the needs it satisfies. Next, is to monitor
those perceptions through observation and research. If they are undesirable,
change them. Then, locate an open position in the market and in the customers’
mind. Occupy that new position and protect it against competitive inroads.

Strategy application
1. Positioning a single brand
2. Positioning multiple brands
3. Repositioning older products

The following case shows how one company dealt with positioning to revitalize
its product line and prevent it from becoming an also-ran in the industry.

Case example
Timex Corp., the well-known watchmaker, is an inspiring example for those
managers who must position their product lines weakened by aggressive
competition, management mistakes, or changing market behaviour.

NINE PRODUCT/SERVICE STRATEGIES 279

 Let’s look at the conditions that hit Timex and then examine their positioning
strategies. Management’s errors were few but potent. In the early 1980s, a
Swiss company asked Timex to handle worldwide marketing of its new line
of watches. Management refused and Swatches went on to become one of
that decade’s immensely successful products.

When competitors, particularly Japanese makers, latched on to Texas

Instrument’s invention of the digital watch that swept the market during the
1970s and 1980s, Timex elected to stick with conventional, low-priced
analogue watches.

At the same time, consumer behaviour was changing. Timepieces became

fashion accessories, not just functional objects. Statistics revealed the
average consumer owned five watches, compared with one-and-a-half 30
years earlier.

Aggressive competitors such as Seiko and Citizen spotted the trend and rushed
in with a wide variety of styles in a growing price range. Again, Timex remained
conservative, even while its market share nose-dived. So much for the errors.
How did Timex management reposition itself, build its product line and salvage
a valuable brand name?

Timex’s strategies
• Market orientation. Recognizing its errors, management moved
rapidly to obtain first hand market feedback to drive new product
development. Fashion consultants from New York and Paris visited
Timex’s headquarters regularly to display new clothing styles and
suggest trends that could influence watch styles. Another primary
source of customer information was the Timex-owned stores in key
cities, which also served as test markets for products and pricing.
• Product expansion. Timex acquired Guess and Monet Jewellers to
provide access to upscale markets, thereby expanding its product line-
up. A deal with Nautica Apparel introduced the first dress watch for
men. Movie characters were licensed from Disney for a new product
line. And Timex licensed its own name for a line of wall clocks and
clock radios.
• Product development. Timex’s biggest product coup occurred with
the launch of its Indiglo line. Using a patented technology, energy
comes from the watch batteries to excite electrons that light up the

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 watch face. Then, remembering the Swatch incident, Timex developed
a plastic line called Watercolors to go up against their Swiss rival.
Also, noticing the sports craze, Timex moved rapidly with the highly
successful Ironman to capture a big share of that growth segment.
• Organizational restructuring. Management learned the hard way that
becoming aware of market changes and responding quickly with
products at the right time and place are the ingredients for successful
repositioning. Accordingly, the company reorganized along product
lines, creating business units for sport, fashion and its core Timex
watches, giving each line full autonomy over product design and
development.

Results: The product line-up increased to 1500 styles, up from 300, ranging
in price from $25 to $300. In addition, market share increased several points
to around 30 per cent.

Action strategy

Find a technology, product design, distribution system, or service

that differentiates you.

What can you learn from the Timex case? Timex’s strategies are instructive
as you consider the broader considerations of positioning. Use the following
guidelines:
1. Keep focused. Position your products in those niches where there is
an above average chance to rank among the leaders. Where possible,
avoid the commodity segments. Find a technology, product design,
distribution system, or service that differentiates you and leads to a
favourable position compared to that of competitors.
2. Establish flexible work teams. To succeed, however, teams must have
a clear definition of how the company wants to be positioned. To
implement the action, the team must have the authority to make
decisions. And team members should be properly trained in the
techniques of developing strategic marketing plans with accompanying
positioning strategies.

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 3. Solve customers’ problems. The extent to which you are able to solve
customers’ problems and thereby make your customers more
competitive, the greater chance you have for survival and long-term
growth. Look for new product applications, value-added services and
new market segments that were overlooked in the initial stages of
product development.
4. Look globally. Trade barriers continue to crumble. Push your products
and technologies wherever they apply in the world. That is, make sure
you are positioned to offer speciality or customized products that will
satisfy local needs and not use foreign markets as a means to unload
a standardized product.

Commentary
A product’s position in a customer’s mind is the result of three groups of
influences: The company’s total effort, including its marketing mix;
environmental issues, including competitive efforts; and the customer’s own
perceptual processes, including its internal culture.

When moving a product to a new position, explain why your product

is different from the original perception.

Use the following steps to develop a positioning strategy:

Step 1: Identifying your product’s actual position invariably requires
individual consumer interviews, generally in the form of a self-
administered questionnaire.
(See Chapter 5 for marketing research techniques.)
Step 2: The easiest way to select an ideal position is to accept your brand’s
current position, particularly if it commands a strong position in
its field. Or select a position that nobody else wants.
Step 3: In attempting to achieve an ideal product position, your firm has
two principal options: first, move your product to a new position,
with or without a change in the product itself. Second, introduce
a separate, new product with the necessary characteristics for new
positioning and leave the current product untouched or possibly
withdraw it from the market.

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 If you take the option of moving an existing product to a new position,
you face the intense challenge of explaining why your product is
really different from the consumers’ original perception of it. This
formidable task can be achieved by promoting either new
applications of an unchanged product or a modification of some
significant product feature. Also, you may want to consider offering
your product as an alternative to the leading brand in its category.

When formulating positioning strategies, position your

product as an alternative to the leading brand.

Step 4: After developing several alternative strategies for achieving your

ideal product position and determining their likely consequences,
you would select one of them to implement in the market place. In
making your decision, be guided by your company’s overall
objectives, resources and capabilities, as well as by the specific
objectives and conditions that apply to your particular brand.
Step 5: While tracking your competition, you also have to monitor the impact
of your positioning on the customer’s mind, where it counts most.
Follow-up research should examine and compare your product’s
actual position with its desired ideal position.

Product life cycle

Overview: The various strategies that extend the sales life of products are
the pillars for successful growth (Figure 9.1). These life cycle extenders are
the safest and most economical strategies to follow. Identify the best
extension opportunities and then gain the cooperation of product developers,
manufacturing, finance, distribution, marketing and sales.

Life cycle extenders are the safest and most economical strategies
to follow.

NINE PRODUCT/SERVICE STRATEGIES 283

 Strategy application
• Promote more frequent usage
• Find new users
• Find more uses (applications) for the product
• Find new uses for the product’s basic material

Promote more frequent usage among customers

Find new users for product
Find more uses for product
Find new uses for product’s basic materials

Sales
Time

FIGURE 9.1 STRATEGY APPLICATION FOR EXTENDING A PRODUCT’S LIFE CYCLE

The following case illustrates the practical application of the product life cycle
where a company’s primary products and markets mature.

Case example
Motorola Inc., the electronics manufacturer, is one credible role model of
how a beleaguered company fought market downturns and sales declines
of some of its outmoded products.

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Although its existence was in jeopardy as it avoided take-over by a Japanese
competitor, Motorola rose to the challenge. Management’s determination,
dedication to product quality, fast turnaround, innovation and a market
orientation all contributed to eliminating the threat – while propelling the
company to a whole range of notable achievements.

Motorola skilfully focused its imposing technology to the thriving commercial

electronics market. Contributing to Motorola’s successes was attention to
the product life cycle.

Used as a monitoring tool, the product life cycle delineated for managers how
a product moved through various stages of its sales cycle: introduction, growth,
maturity and decline.

In specific applications, Motorola saw the product life cycle as a device to (1)
identify when a product entered the mature (or commodity) stage, (2) signal
when to phase in new product applications, (3) recognize when to extend
the learning curve from previous levels of technology to new stages of product
innovations.

Motorola’s strategies
Let’s examine Motorola’s use of the product life cycle and learning curve
processes from two vantage points: product evolution and market development.
1. Product evolution: Motorola traces its roots as an early maker of (AM)
car radios. The technology evolved to military application with two-
way radios (U.S. Army Handie-Talkies of World War ll), followed by
its commercial application in police cars. That technology became
the springboard to today’s cellular radios, paging devices and to an
innovative new communications system that uses 66 satellites for
worldwide communications.
2. Market development: Motorola management observed that markets
also go through cycles. The moves are often erratic: some segments
mature rapidly, others begin their growth stage driven by customers
developing their own unique applications. In one market, Motorola
found such a growth situation for its pagers in China where
conventional telephone communication is still at a primitive level.
Business owners discovered they could communicate with service
people and customers by using pagers to send coded messages.

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 Life cycle marketing focuses managers’ attention on the evolving
needs of customers.

Thus, viewing a product, technology and a market moving through stages

of a life cycle had these advantages:
First, it helps prioritize which projects would impact a company’s ability to
compete actively, rather than to wait passively and be pushed into obsolescence
by competitors and customers. Second, life cycle marketing focuses managers’
attention on the evolving needs of customers.

Understanding that needs also have cycles, creates urgency for timing a
response before competitors can act. Result: There is a continual rejuvenation
of the market through new applications of products, systems and technologies.
Motorola’s unrelenting pace to extend the life cycles of its products and
technologies is a dominant part of its success formula.

Action strategy
What can you learn from the Motorola case? The product life cycle offers a
reliable perspective for observing a “living” product and market moving
through dynamic stages, influenced by outside economic, social and
environmental forces, as well as by inside policies, priorities and resources.

For many companies, monitoring the life cycle curve often prevents the severe
consequences of allowing a product to reach a commodity status, where price
is often the solitary weapon in the marketing arsenal. Consequently, the classic
product life cycle model remains an effective framework for devising
marketing strategies at various stages of the curve.

For example, the following three categories of strategies apply when a product
reaches the difficult mature stage of the product life cycle, where management
devotes much of its trouble-shooting time – and from which Motorola shaped
its growth strategies:

1. Market modification
• Expand the number of users by converting nonusers to your
product, entering new market niches and converting competitors’
customers to your company.

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 • Increase customers’ usage of your product by showing them ways
to use the product more frequently, in greater quantities and for
more varied applications.
2. Product modification
• Utilize quality improvement to increase the product’s functional
performance, such as through durability, reliability and speed.
• Add feature improvements that expand the product’s versatility,
safety and convenience through size, materials, additives, or
accessories.
• Implement style improvements using shape, packaging, colour
and other aesthetic and functional modifications.
3. Marketing-mix modification.
• Examine the wide range of non-product strategies associated with
price, sales, advertising, service and distribution.

EXAMPLES

Cases abound of organizations successfully extending the sales life of their

products. The business classics include nylon, Jell-O brand gelatine desserts
and Scotch brand tape. All have had average life cycles of more than 60 years
and are still going strong.

DuPont nylon was used initially for parachutes in World War II. Then the
social necessity for women to wear hosiery promoted the use of nylon. It
was also introduced in a variety of textures and colours and its use extended
to rugs, tyres, clothing and a variety of applications in the consumer and
industrial markets.

Jell-O expanded its assortment of flavours, promoted the product for use in
salads as well as desserts and focused on the weight-watching market. Scotch
brand tape introduced tape dispensers to encourage more usage; developed
coloured, patterned, waterproof and write-on tape; and designed new
applications for the basic material with double-coated tapes that competed
with liquid adhesives for industrial applications.

Product life cycles permit you to grasp a complete picture of

competitive strategy.

NINE PRODUCT/SERVICE STRATEGIES 287

 Successful management of your product’s life cycle requires careful planning
and thorough understanding of its characteristics at the various points of
the curve. Only then can you respond quickly and advantageously to new
situations, leaving competitors in your wake.

Strategies throughout the life cycle

Different conditions characterize the stages of the product life cycle. This fact
suggests continuous monitoring and appropriate changes in your strategic
approach, if you are to optimize results. These changes include adjustments
in your marketing mix – that is, the particular combination of marketing tools
that you use at each stage (see Table 9.1).

MARKETING MIX ELEMENTS

Life cycle Product Pricing Distribution Promotion

Stage

Introduction Offer ‘Skim the ‘Fill the Create

technically cream’ of pipeline’ to the primary
mature price consumer; use demand for
product; keep insensitive indirect product
mix small innovators distribution category;
through high through spend
introductory middlemen generously on
price extensive and
intensive
‘flight’
advertising;
incorporate
the Internet
into the
promotion
mix

Growth Improve Adjust price Increase Spend

product; keep as needed to product substantially
mix limited meet presence and on expansion
competition market of sales
penetration volume

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Maturity Distinguish Capitalize on Take over Differentiate
your product price-sensitive wholesaling your product
from demand by function in the minds
competition; further yourself by of prospective
expand your reducing establishing buyers;
product prices distribution emphasize
offering to centres and brand appeal
satisfy having your
different own sales
market force call on
segments retailers

Saturation Proliferate Keep prices Intensify your Maintain the

your mix stable distribution to status quo;
further; increase support your
diversify into availability market
new market and exposure position

Decline Prune your Carefully Consolidate Reduce

mix radically increase your advertising
prices distribution activity to
setup; reminder level
establish
minimum
orders

TABLE 9.1: STRATEGIES THROUGHOUT THE LIFE CYCLE

Introduction
Creating primary demand activates people’s needs and focuses them on your
product.

It is the task of the pioneer to create primary demand for the new product.
Creating primary demand is an educational process that involves activating
people’s needs and focusing them on the product. It also means breaking old
habits and forming new ones. After all, most new products don’t fill a previously
unfilled void, but often displace other products that have served the same or
similar purposes.

Your distribution or supply chain decisions are crucial because they lock
your firm into long-term commitments to a selected group of middlemen that
cannot be changed easily, if at all. The degree to which you know how to
secure maximum availability of your product in the right outlets can make
or break your participation in the ongoing growth of a new market.

NINE PRODUCT/SERVICE STRATEGIES 289

 Also essential is the support given your product in the form of promotion.
Anything less than generous funding and an all-out advertising effort, including
an increasing use of the Internet, will reduce the product’s chances for survival.

Since potential buyers are hardly in a position to develop their own ideas
about price, you are relatively free to decide on your introductory price. You
can set it fairly low – a strategy called penetration pricing – aimed at a mass
market or discouraging competitive imitation through low unit profits and
large investment requirements. Or you may consider a skimming strategy
that starts out with a comparatively high price before competitive pressure
erodes your temporary advantage.

Growth
In the growth stage, you will want to modify your basic product to take care
of any problems discovered through initial consumer reactions. However,
since the product category is selling so well, the product mix can remain small.

As for distribution, your goals will include persuading current channel

members to buy more and to sign up new channel members. This drive is
greatly aided by booming demand, which strains the industry’s supply
capability and has distributors scurrying for merchandise.

Your promotion emphasis is likely to shift somewhat from creating product

awareness to expanding market volume. And price softens as price-cutting
competitors enter the market.

Maturity
Competition now turns into a fight for market share. At this time, it pays to
redesign your product to make it more distinctive and easier to differentiate
from competitive offerings. Thus, it is advisable to adopt a strategy of market
segmentation to satisfy the unique needs of these separate groups.

With regard to distribution strategy, you may find yourself reconsidering

supply chain structure, cost and control. If you employed the services of
middlemen in your introductory thrust, it may now be sensible to eliminate
them in order to push your product harder and cut costs.

Your promotion has to communicate and enhance your drive to differentiate

your product. It should put heavy emphasis on brand appeal to pre-sell the
product, so that the prospect recognizes and prefers your product even in a
competitive environment.

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 Promotion has to communicate your drive to differentiate your
product.

Since actual differences between substitute products are very slight and price
sensitivity is high, price variations between your firm’s products and those
of your competitors gain in importance, opening up the last sectors of market
capacity. Prices will tend to drop further, but stabilize towards the end of the
stage as a result of cost pressures.

Saturation
As your product enters the saturation stage of its life cycle, typically a no-
holds-barred fight develops for market share. Because market volume has
ceased to grow, the growth of individual firms’ sales volume is achieved at
the expense of competitors. In your product strategy, you will find yourself
compelled to differentiate further by offering even more choice.

Your distribution strategy remains unaltered in the saturation phase. You

should attempt to gain even more intensive distribution and, thereby, maxi-
mize availability and exposure. Toward this end, your sales people will have
to make a well-planned, concerted effort to obtain more trade cooperation.

The primary function of promotion at this point is to maintain the status quo.
Little new ground can be broken, so advertising of the reminder or reinforce-
ment type is needed.

Decline
With consumer interest in the product waning, competitors drop out of the
market in droves. You can trim your product line, vigorously weeding out
weak products and concentrating on a few unchanged items.

Similarly, you will reduce distribution cost by consolidating warehouses and

sales offices, as well as establishing minimum orders to discourage small
shipments. Your sales effort will tend to be low-key, with an emphasis on
retaining as much of your market as you can.

Promotion support will diminish to the low budget, infrequent-reminder type.

And your prices will stay right about where they are.

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 Product competition
Overview: To gain a larger share of a total market, consider introducing
additional products as competing lines or as private labels. The additional
products provide a solid front against competitors. Overall, the strategy aims
at generating higher revenue than does the use of only a single product.

Strategy application
• Competing brand
• Private label

Apply a differentiation strategy so you don’t cannibalize sales from

one line to another.

The following case illustrates one application of product competition, where

a company attempted to transform a commodity product into a brand name.

Case example
Thor-Lo Inc., a manufacturer of athletic socks, turned an unglamorous
commodity into a remarkably successful branded item. There’s a good deal
of marketing savvy to be gleaned from this success story:

First, Thor-Lo’s product developers would not consciously acknowledge that

their product was a commodity. Instead, they talked about ‘Preventive Foot
Health’ rather than producing athletic socks. (Here is another practical
application of developing a functional strategic direction, as noted in Chapter
6.) This strategic direction was not a play on words, but a mindset and a
visionary statement that converted into innovations.

Second, managers translated their vision into a tangible product. They observed
that the sport sock market was served by organizations that used either a
low-cost manufacturing strategy or attached a designer label to distinguish

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their socks. For the most part, however, the items were look-alikes – usually
cotton, white and perhaps with a stripe or two.

Capitalizing on ‘preventive foot health’ as the idea-generator for the new

product strategy, Thor-Lo’s designers first developed a speciality sport sock
with a roll-top terry cloth ridge that prevented the sock from drooping. With
that success Thor-Lo developed a sock that could protect the foot against the
pounding of hard athletics.

Designers packed as much terry cloth into the sport sock as they could, without
making it too thick in the arch. That item triggered the major breakthrough
to vault the privately held company over its rivals.

Third, with the exceptional success of the padded sock, managers then shifted
to segmentation as their expansion strategy. Sport-specific socks were soon
developed for tennis, cycling, hiking, aerobics and basketball.

The dense padding was skilfully placed in areas where the foot takes the most
bruising. Beyond sports, Thor-Lo managers further segmented the market
on demographic and life style criteria, providing speciality socks for senior
citizens and those needing preventive health care for their feet.

Fourth, managers launched their differentiated sport socks as a Thor-Lo brand.

The features that made the brand unique also provided the conditions for
premium pricing. Prices were set at about double that of the existing brands.
Retailers, enticed by the generous increase in actual dollars, quickly carried
the line.

Fifth, promotion complemented the overall product strategy. Using the

product’s unique benefits as the dominant theme, promotions capitalized on
endorsements from such prestigious personalities as tennis star Martina
Navratilova and favourable reports published in medical journals. They also
capitalized on the implied endorsement of the U.S. Postal Service, which
approved Thor-Lo as an official sock supplier.

Finally, recognizing the inevitability of competitors introducing low-priced

knockoffs, Thor-Lo invested almost 20 per cent of its revenue in R&D and
new knitting machines.

The two-pronged strategy aimed at (1) extending the product’s life through
new designs to maintain a competitive edge and (2) fending off aggressive
competitors by bolstering its cost-efficient manufacturing operation.

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 Action strategy
What can you learn from the Thor-Lo case? To develop competing products,
be certain you apply a differentiation strategy so that you don’t cannibalize
sales from one line to another. Here are useful guidelines:
• Features and benefits: These are characteristics that complement the
product’s basic function. Start with your basic product. Then visualize
adding unique features and services; ideally, ones based on users’
expectations. (Thor-Lo visualized ‘foot health.’)
• Performance: This factor relates to the level at which the product
operates – including quality. (Thor-Lo achieved high performance by
inserting padding adjusted to the sport.)
• Acceptance: This characteristic measures how close the product comes
to established standards or specifications. (Conforming to endorsers’
standards proved a valuable strategy to Thor-Lo’s market acceptance.)
• Endurance: This factor relates to the product’s expected operating
life. (Consumers perceived that in addition to comfort, thick socks
would outlive ordinary ones and were worth the higher price.)
• Dependability: This attribute measures the probability of the product
breaking or malfunctioning within a specified period. (Dependability
is a criterion most often applicable to engineered products.)
• Appearance: This factor covers numerous considerations ranging from
image, function, look, or feel. Different from performance, appearance
integrates the product with all its differentiating components,
including packaging.
• Design: This factor unites with the above differentiating components.
While design encompasses the product’s appearance, endurance,
dependability, there is particular emphasis placed on ease of use and
appropriateness to the function for which it was designed.

Commentary
Procter & Gamble, with its array of brands of detergents and other product
categories, is the master at executing a product-competition strategy.
Likewise, Becton Dickinson, the large health care firm, produces its famous
brand of Ace bandages as the premium brand. It also makes a competing
brand, the lower-priced line of Bauer & Black bandages.

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You have to be careful with competing brands though, to be sure there is a
minimal amount of cannibalizing sales from one product to another. The intent
is to segment and position your product with as much precision as possible.

Another application of product competition – private labelling – is also

prevalent, as shown by examples such as The Coca-Cola Company supplying
Minute Maid orange juice to A&P supermarkets together with A&P’s private
brand.

Product mix
Overview: Evaluate the profit advantage of a single product concentrated
in a specialized market. And, for growth and protection from competitors,
consider a multiple-product strategy, which could include add-on products
and services.

Strategy application
• Single product
• Multiple products
• Product system

A product is new when the prospect or customer perceives it as new.

The following case illustrates how one company used a product mix strategy
to transform the built-in value of a brand name into new and profitable
products.

NINE PRODUCT/SERVICE STRATEGIES 295

 Case example
Berlitz International products come in all languages. It is a brand name known
in virtually all parts of the world. Sales growth of the firm has soared due to
jolting reactions from political events, as well as from deliberate cultivation
of niche language markets.

For example, with the reunification of Germany, Berlitz anticipated that East
Germany, as well as all of Eastern Europe, would be eager to learn English
– the acknowledged international language of business. Through its German-
based licensee, Berlitz initially sold 45,000 self-teaching English kits.

Aside from those impressive spurts in sales, for the most part the language
training business was considered nearing a commodity status. Berlitz
management recognized the problems of a commodity business, typically
identified by look-alike products, flat sales or modest growth and hefty price
competition.

Its strategy: Go on the offensive and expand operations.

Examining various growth options, management selected one expansion

strategy: capitalize on the high consumer acceptance of the international brand
image of Berlitz. (The name has been synonymous with language instruction
since its founding in 1878 in Providence, Rhode Island by Maximilian Berlitz.)

Berlitz’s strategy
Management decided on two guiding principles: first, it would cling to its
corporate mission of relating all product offerings to languages. Second, it
would build value through the Berlitz name, not only by internally developing
new products and line extensions, but would also license it to selective outside
products.

A stream of new products expanded its product mix:

• Language phrase books that sold in the millions.
• Palm-size electronic devices that translate typed-in words and phrases
into five languages.

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 • A series of travel guides. (Rights acquired from Penguin Books.)
• Corporate translations of sales brochures, contracts and trade
dispute documents. The market value of this segment is growing
worldwide with the increasing globalization of business.
• ‘Berlitz Jr.’ which consists of sending Berlitz instructors into schools.
• Instructional language software for use with personal computers and
compact discs.

For growth and protection from competitors, consider a multiple-

product strategy.

Action strategy
What can you learn from the Berlitz case? Not all companies have world-
renowned names, such as Berlitz. However, your company’s name or
product line may have a reputation for quality, performance, after-sales service,
or unique applications within an industry.

Given similar circumstances of mature markets or near commodity products

faced by Berlitz, what process can you use to exploit your corporate or product
name into developing your product mix?

First, keep in mind the definition of a new product. A product is new when
the prospect or customer perceives it as new. Therefore, new products can
cover a range of innovations – from minor change to new-to-the-world – if
the changes are perceived as new. That means, for example, modifying products
for specialized applications, developing new forms of packaging, or devising
a system for convenience of storage and retrieval.

Further, by adding value through field technical assistance, computer-linked

inventory systems and technical/advisory telephone hook-ups, you can give
the impression of new. The following checklist can help you get started on
developing your product mix by capitalizing on your company’s name:
Step 1: Review your company’s strategic direction or overall product line
objectives. You thereby guard against venturing into line extensions
that do not relate to your core business.

NINE PRODUCT/SERVICE STRATEGIES 297

 Step 2: Define your market by sales and profit volume, customer usage,
purchasing patterns, anticipated market share and investment
required.

Step 3: Determine product development requirements, such as using

existing company technology, obtaining new technology, licensing
finished products, or subcontracting an entire project.

Step 4: Evaluate competitive offerings. Determine how to differentiate your

new product to avoid a direct confrontation with look-alike products.

Step 5: Determine the proposed product’s position. Will it be positioned

to defend a market niche or be placed on the offensive to secure
additional market share? Will it be used as a probe to enter an
emerging market or as a pre-emptive attack on competitors to
discourage their entry?

Commentary
The product mix strategy overlaps with other considerations, such as those
already discussed for market dimension, market entry and market commitment
strategies. As always, orient your competitive thinking to your competitors’
product mix and how you intend to position your product line to them.

Product design
Overview: The demands of the market place, the intensity of competition
and the flexibility of your company will dictate whether a standard,
customized, or modified product is the optimum strategy.
• Standard products
• Customized products
• Standard products, modified

The following case illustrates how one company, from humble beginnings,
applied customer-driven marketing techniques to drive its product design
strategies.

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Case example
Nike Inc. in many ways illustrates all three components of product design
for its athletic footwear: standard, customized and standard/modified.
Beginning in 1964, co-founder Bill Bowerman developed its first sneaker with
a tread inspired by his wife’s waffle iron, a standard product still revered at
Nike. The next great milestone came in 1985 when it introduced Air Jordan
– the best-selling sports shoe of all time.

Nike continued to develop innovative shoes, such as its Nike Free, a shoe
that makes runners feel as if they are barefoot. The barefoot runners of Kenya,
who have proved that shoeless training builds strength and improves
performance, inspired it.

Then there are the athletic shoes modified for special market applications,
such as Nike’s Total 90 III for Europe’s soccer championships, a sleek shoe
that draws inspiration from cars used in the Le Mans 24 hour road race. In
turn, the shoe has become a fashion item off the soccer field.

Product design takes many paths at Nike, from sports-specific shoes to speciality
ones designed for key events such as the Athens 2004 Olympic Games, which
include an array of super fast sneakers for the Games, including the sleek
track spike called Monsterfly for sprinsters and the Air Zoom Miler for distance
runners.

Nike’s product design strategies also include breaking the traditional

boundaries between sport and fashion. Nike has built part of its empire by
transforming the technology and design of its high performance sports gear
into high fashion, vastly expanding its pool of potential customers.

NINE PRODUCT/SERVICE STRATEGIES 299

 Action strategy

Explore customers’ needs and problems in two broad categories:

revenue-expansion and cost-reduction.

What can you learn from the Nike case? First, instil a mindset in yourself
and those with whom you work that keeps your customers’ needs in the
forefront of product design. Sustaining such an attitude is one part of the
success formula. The second and more critical part is to install a systematic
approach that permits you to learn about your customers’ business.

Here’s one system that works:

Explore customers’ needs and problems in two broad categories that would
appeal to their self-interests: revenue-expansion and cost-reduction
opportunities. This approach will chalk up positive results for your customers.
In due course, it should also help you provide applicable products and services.
To conduct the analysis, ask the following questions:

REVENUE EXPANSION OPPORTUNITIES:

• What approaches would reduce customer returns and complaints?

• What processes would speed up production and delivery to benefit
your customer?
• How can you improve a customer’s market position and image?
• How would adding a name brand impact your customers’ revenues?
• What product or service benefits would enhance your customers’
operation?
• How can you create differentiation that gives your customers’ a
competitive advantage?
• How would improving reordering procedures impact revenues?

COST REDUCTION OPPORTUNITIES:

• What procedures would cut customers’ purchase costs?

• What processes would reduce customers’ production costs?
• What systems would limit customers’ production downtime?
• What approaches would slash customers’ delivery costs?

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 • What methods would cut down customers’ administrative overhead?
• What strategies would maximize customers’ working capital?

Several of those areas reach beyond the traditional role of marketing. Therefore,
involve product developers and other non-marketing managers to interpret
findings and translate them into product design solutions.

Also, implementing the process is a sticky problem, particularly when it comes

to involving non-marketing groups into actively thinking about such areas
as customers’ needs, market growth and competitive advantage.

For starters, enlist the assistance of the senior executives in your group or
company. Have them brief those non-marketing personnel on the benefits
of paying attention to market-driven issues for the welfare of the company,
as well as for their personal career growth – and even survival. If that doesn’t
do the trick, try an orientation seminar to help instil the appropriate attitudes
toward innovative thinking.

Commentary
Standard products are most appropriate for the large companies that can
take advantage of the economies of scale. They are also suitable for those
organizations where flexible manufacturing systems have been installed or
in which low-cost labour has been found.

However, standard products, if easily duplicated by low-cost producers, can

quickly fall into an undifferentiated or commodity category. For example, Intel
Corporation, one of the leading microchip producers, once fell victim to low-
cost, offshore competitors that turned its product into a commodity. Intel
switched to a customized product strategy by creating differentiated chip
designs, along with brand identification of ‘Intel inside’ that are more difficult
to clone.

In another instance of product design application, Vista Chemical Company

survived in a basic business of plastics and cleaning agents by moving away
from dependence on high-volume, low-margin standard products to selling
higher-margin customized or speciality products. For example, it shifted
emphasis from polyvinyl chloride (vinyl) to higher-grade production, which
required greater quality in chemical purity and temperature stability, for those
customers willing to pay for such differentiation.

NINE PRODUCT/SERVICE STRATEGIES 301

 New products/services
Overview: Strategies related to product innovation, modification, line
extension and diversification require changing the product either slightly or
extensively.

However, don’t overlook the opportunities for re-merchandising and market

extension, strategies that don’t alter the product but permit a perception of
a ‘new’ product. Also use promotion, image, positioning and market segmen-
tation as strategic tools to forge new impressions – and create differentiation.

Strategy application
• Innovation
• Modification
• Line extension
• Diversification
• Re-merchandising
• Market extension

The following case shows how one company tied its new product development
with a branding strategy to deal with a slow-growth business condition.

Case example
Sherwin-Williams Co. exhibited an uncanny ability to grow when it faced
a period of slow-growth. Where many of its competitors faced a loss in market
share and where the entire industry grew at a paltry 2.5 per cent annual rate,
Sherwin-Williams secured a disproportionately greater share of growth.

Revenues more than doubled and profits increased almost tenfold. In one
segment alone, paints used in homes and offices, sales grew more than three
times the industry rate.

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To achieve those outstanding results, Sherwin-Williams focused on new
product development, brand positioning, distribution, product quality and
pricing as the driving forces behind their performance.

Let’s look at the specifics of Sherwin-Williams’ strategies:

• Brand positioning. With four leading brands, plus numerous private
labels, correct positioning is a major factor in selecting distribution
outlets and market segments. For example, the Sherwin-Williams
brand is sold through 2,030 Sherwin-Williams stores. Dutch Boy sells
exclusively through mass merchants. The Martin-Senour brand
goes through independent paint and hardware stores. And discounters
distribute Kem-Tone.
• Distribution. The key strategy for implementing Sherwin-Williams’
brand positioning strategy is to use multi-level distribution to reach
specific market segments with dedicated brands. It’s done with such
precision that there is minimal crossover among channels and rarely
any conflict among the outlets.
• Price. Sherwin-Williams has a hard and fast rule that it will not buy
market share through aggressive pricing at the expense of profits.
For example, Sherwin-Williams was willing to cede part of Wal-Mart’s
business to Glidden and give up supplying Home Depot to a small
competitor, rather than get into costly price battles. Instead, to replace
the lost business, Sherwin-Williams’ managers pursued new supply-
chain agreements for both Dutch Boy and private labels with various
chains.

Action strategy

A brand is defined by its attributes, benefits, values and culture.

What can you learn from the Sherwin-Williams case? It takes attention to
detail, persistence and innovation to manage a brand’s growth, particularly
in a slow growth industry. Sherwin Williams’ track record is exceptional and
offers valuable lessons. To manage your brand, consider the following
strategies:
1. Protect the brand name. Look at your brand as more than just a
name associated with a product. It consists of a complex set of factors
to satisfy an equally complex set of customer needs.

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 Where product attributes and benefits are often superficial and can
be duplicated by competent competitors, a brand’s deeper essence
is defined by its attributes, benefits, values, culture and personality
that have a longer-lasting effect. Thus, select from those factors one
(or more) that are distinctive, long lasting and not easily duplicated
by a competitor.
2. Build brand equity. Brands vary in the amount of power and value
they have in the market place, which is determined by brand
awareness, brand acceptability and brand preference. The sum of these
factors is called brand equity.
Your actions, then, should focus on specific strategies and tactics to
build customer loyalty, name awareness, perceived quality and strong
brand associations. Also, direct your attention to capitalize on such
assets as patents, trademarks and supply chain relationships. (Building
brand equity and precise brand positioning through selected channels
contributed to Sherwin-Williams’ success.)
3. Strengthen your capabilities to develop brands. As part of your
new product development activity, look to increase your manoeuvring
options to reach additional segments of the market.
For example, concurrent with launching your own brand, you can
market a distributor brand or private-label brand through additional
distribution outlets. (This strategy was also used by Sherwin-Williams.)
4. Develop short- and long-term brand strategies. To strengthen your
brand equity, take the following actions:
• Recommend investing in new brands, features and continuous
quality improvements. Sustain a concentrated promotional
program to maintain high brand awareness.
• Define the correct positioning for each brand in partnership with
distributors. Your major objective is to avoid conflict among
channel outlets – as was practiced by Sherwin-Williams.
• Develop strong customer relationships that result in associating
your brand with quality, performance and total customer
satisfaction.

Finally, as a payoff for strong brand equity, you can expect a number of
competitive advantages: first, reduced marketing costs because of the high
level of consumer brand awareness and loyalty. Second, improved leverage

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in the supply chain. Third, a premium price (or at least a defence against
excessive price reductions from weaker brands) because of perceived value.

Commentary
Since new products and services are the heart of any business that seek to
sustain growth and competitive advantage, extensive coverage of this topic
is required.

New products/services
The pace of new product introduction and obsolescence is so fast and rigorous
that only one out of five innovations survive long enough in the market place
to become a commercial success. When the stakes are so high, it pays to
improve your odds by gaining a better understanding of the new product
process in all its ramifications. Sensitivity and adaptability are prerequisites
for success in a dynamic market place where needs are constantly changing.

Defining a new product

Before defining a new product, you must first understand what a product is.
It may seem perfectly obvious, since you deal with many products every day:
a product is an object, device, or substance.

But that definition hardly suffices in today’s environment. It reduces the concept
of product to a combination of physical and chemical attributes in line with
the old product-oriented concept of marketing.

This emphasis on tangible characteristics neglects the fact that intangibles

– such as quality, colour, prestige and technical/advisory services – make a
significant difference to a prospective buyer.

A consumer perceives a product as a source of potential satisfaction and may

buy your offering to satisfy a particular want or desire rather than for its
functional value. Charles Revson, the late founder of Revlon, in his now classic
statement put it succinctly when he said: “In the factory we make cosmetics;
in the store we sell hope.”

A new product is new from the customer’s point of view.

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 As indicated earlier, a useful definition of a new product is where a customer
perceives the offering as new. A product can be many things to many people.
This definition places the emphasis on perception rather than on objective
facts and leaves much room for interpretation.

There is a reverse side to this emphasis on perception, though. If you have

a product that has never before been offered for sale but is perceived by
customers as more of the same, then you really do not have a ‘new’ product
from a marketing point of view.

If you can make a customer believe that you are offering a new product, it
is new from the customer’s point of view. But you cannot claim newness either
indiscriminately or indefinitely.

In some industries and geographic regions, you may have to prove product
reformulation, since practices or laws could prohibit use of the expression
‘new’ in packaging and promotion for a fixed period of time. Legal and industry
limitations aside, it is really a question of convincing your target market that
you have something different to sell.

Categories of new products

New products come in many different forms. This diversity can be reduced
to varying degrees of technological and marketing newness. In terms of
increasing degrees of technological change, you may want to distinguish
among modification, line extension and diversification.

For increasing degrees of marketing newness, you can differentiate between

re-merchandising and market extension. Table 9.2 presents the differences
among these five categories of new products and points out the benefits of
each.

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Category Definition Nature Benefit

Modification Altering a product Same number of Combining the

feature product lines and new with the
products familiar

Line extension Adding more Same number of Segmenting the

variety product lines, market by offering
higher number of more choice
products

Diversification Entering a new New product line, Spreading risk and

business higher number of capitalizing on
products opportunities

Re-merchandising Marketing change Same products, Generating

to create a new same markets excitement and
impression stimulating sales

Market extension Entering a new Same products, Broadening the

market new markets base

TABLE 9.2 CATEGORIES OF NEW PRODUCTS

Combined approach for new product categories

Rarely will the five categories of new products presented here be used
separately. They lend themselves to combined applications for maximum
impact. Moreover, you will probably want to use a package approach to
maintain steady growth in a rapidly changing environment.

For example, line extension is often used with re-merchandising or market

extension. Diversification is often combined with market extension. The use
of one category does not preclude the application of other approaches at the
same time, possibly within the same market. What remains essential, though,
is that the prospective customer perceives a difference worth considering.

Product audit
Overview: Knowing when to pull a product from the line is as important as
knowing when to introduce a new one. Consider such internal requirements
as profitability, available resources and new growth opportunities. Examine
external factors of salesforce coverage, dealer commitment and customers’
needs to determine if a comprehensive line is required.

NINE PRODUCT/SERVICE STRATEGIES 307

 Strategy application
• Line reduction
• Line elimination

Commentary
Efficient use of the product audit is one of the procedures for sustaining product
profitability. The following examples illustrate the application.

Case example
Kraft, Colgate-Palmolive, General Motors, Nabisco, Procter & Gamble
and other marketing-savvy organizations are pursuing a dominant trend. All
are focusing on fresh approaches to improve the profitability of their product
lines.

While many organizations have pursued product profitability over the past
decade through downsizing, reengineering and similar high profile approaches,
what’s significant this time are the processes that are directly impacting their
marketing efforts.

Increasingly, managers at these firms (and smaller companies) deal with

product profitability by looking to such marketing-related activities as
standardizing product packages, reducing trade promotions, pulling back
on couponing, trimming product lines and trimming the number of new
product launches.

For example, Nabisco cut its product line by 15 per cent and reduced new
product launches by 20 per cent. Kraft initiated moves for the cereal-industry
to stabilize list prices. Clorox simplified its trade promotions and sliced the
number of items it sells. General Motors reduced the number of car models
from 53 to 44.

P&G, in particular, illustrates the significant potential for profitability. It has

reduced its product line-up by one third since 1990. In hair products alone,

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it cut the number of sizes, packages and formulas in half, while watching
with satisfaction market share in hair care jump nearly five points to 36.5 per
cent. In the shampoo line, P&G standardized product formulas and packages
to just two basic packages in the U.S., saving an extraordinary $25 million a
year.

What evidence supports this move toward a simplification of the marketing

effort? First, an analysis of consumer goods sales by one consulting firm
revealed the enlightening statistic that almost 25 per cent of the products in
a typical supermarket sell less than one unit a month. What’s more, just 7.6
per cent of all personal care and household products account for 84.5 per
cent of sales.

These statistics validate the often-quoted ‘80/20 rule’, whereby 80 per cent
of sales (and anything else) come from 20 per cent of customers. But how
does all this affect the ruling guide of market segmentation, whereby
managers are counselled to target emerging, neglected and poorly served
markets and then cater to each segment with customized products and services?

Does the trend now reverse the use of a segmentation strategy? Not at all.
Segmentation, targeting and concentrating on customers are practical,
workable and successful strategies.

Instead, the faults lie, in part, with the lack of attention given to synthesizing
and interpreting the vast amount of data generated by today’s sophisticated
electronic feedback mechanisms.

When accurate market information pinpoints those market segments that

would respond favourably to your marketing efforts, then implementing your
aggressive strategies should improve your chances for increasing product
line profitability.

Action strategy
What can you learn from these companies? One easy-to-install procedure
with direct impact on profitability is the product audit. Just as regular physical
examinations are essential to maintain the body’s good health, likewise,
products require regular examination to determine whether they are healthy,
need re-promotion, or should be allowed to phase out.

Products that are no longer earning their keep should be eliminated.

NINE PRODUCT/SERVICE STRATEGIES 309

 Begin your product audit by setting up a Product Audit Committee, (see details
below). The product audit can assist you in accomplishing the following:
• Determine your product’s long-term market potential.
• Assess the advantages and disadvantages of adding value to the
product.
• Alter your product’s market position compared to that of a competitor’s
comparable product.
• Evaluate the chances of your product being displaced by another
product or technology.
• Calculate the product’s contribution to your company’s financial goals.
• Judge if the product line is filled out sufficiently to prevent your
customers from shopping elsewhere.

In addition to the above criteria, consider such issues as availability of money

and human resources, assessment of new product and market growth
opportunities and even the effective use of other managers’ time. Also, add
such factors as your firm’s willingness to sustain salesforce coverage, dealer
commitment and ongoing eagerness to respond to changing customers’ needs.

Finally, phasing out weak products or exiting a market requires careful

consideration of your company’s obligations. For instance, there may be
significant costs related to labour agreements, maintaining capabilities for
spare parts, contractual relationships with dealers and distributors, financial
institutions and so on.

Establishing a product audit program

The first step in establishing a regular product evaluation program is to create
a Product Audit Committee. This core group, comprised of the senior managers
in the marketing, finance, engineering and other key departments, should control
decision-making authority about the design of the company’s product mix.

Depending upon the dimensions of the product mix and the significance of
the products or developments involved, the committee should meet monthly
and every product should have at least an annual review.

How does such a committee operate? To do justice to each product and to

have an objective basis for product comparisons, a common rating form should
be used. For products that appear dubious and thus demanding careful

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evaluation, you can use a product audit form similar to the one illustrated in
Figure 9.2.

Using a simple one to five scoring system, you can assign values for each of
the eight criteria. Some of these values will necessarily be subjective in nature,
with one representing strong grounds for eliminating the product and a score
of five suggesting retention.

In each case, the score reflects the majority opinion or consensus of the
committee. For greater accuracy, each criterion can be given a degree of
importance or weight. These weights are then multiplied by the appropriate
score and totalled to form the specific product retention index.

Low High

Product/Service Criteria 1 2 3 4 5

1. What is the market potential for the product?

Assign a score based on dollar value, unit
volume, or other quantitative measures.

2. What competitive advantage might be gained

by adding value, modifying the product, or
creating other differentiation features and
benefits?

3. What would be gained by positioning the

product differently to customers and against
competing products?

4. How much resources (materials, equipment,

people and funds) would be available by
eliminating the product?

5. How good are the opportunities to re-deploy

resources to a new product, service,
or business?

6. Based on financial calculation of ROI, profits

and other financial criteria, how much is the
product contributing beyond its direct costs?

NINE PRODUCT/SERVICE STRATEGIES 311

 Low High

Product/Service Criteria 1 2 3 4 5

7. What value does the product have in

supporting the sale of other company products?

8. Is the product useful in defending a point of

entry against competitors?

FIGURE 9.2 PRODUCT RATING FORM

In sum, product audits represent regular, systematic assessments of the

strengths, weaknesses and future prospects of a company’s products, as well
as their profit contributions. You can carry out meaningful audits only on a
product-by-product basis, requiring a team effort where recommendations
are made.

Products that are no longer earning their keep should be eliminated without
delay or sentimentality, provided that such a move has no negative
repercussions for the remaining members of the product family. Such pruning
frees valuable resources that provide the basis for growth through new
products.

Action steps to implement product/

market strategies
Remain alert and anticipate competitors’ moves into your marketplace with
a competing product or service. Recognize early on the potentials of new
technology, particularly in those areas where competitors are not likely to
challenge you.

Whenever possible, pre-empt competitors’ actions with counter strategies

to blunt their efforts to take market share from you.

Initiate action with the following steps:

• Identify the framework for developing product strategies for new and
existing products.

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• Develop a positioning strategy that provides you with a competitive
advantage.
• Use life cycle extension strategies to revitalize your products.
• Learn to use the product audit to sustain product profitability.

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Blank page
PART FOUR CHAPTER TEN

Pricing for profits: Strategies to

maintain premium prices and
higher margins
 TEN
Pricing for profits: Strategies to
maintain premium prices and
higher margins

Chapter Objectives
To enable you to:
1. Relate pricing to the other components of
the marketing mix.
2. Select from the five pricing strategy
options for new products.
3. Select from the six pricing strategy
options for established products.
4. Identify the steps to convert pricing
strategies into action.

The third major component of the marketing mix is pricing. The primary
principle for you to internalize: do not isolate pricing from other components
of the marketing mix.

That is, consider your overall marketing goals, such as penetrating new markets
with new products, or maintaining a higher market share with existing products
compared to your closest competitors. Also, think about the product’s life
cycle stage – new, growing, mature, or ready for phase-out.

Above all, in tough pricing competition, examine all possible alternatives,

such as product improvement, promotion and distribution strategies, before
you get involved in pricing wars. Pricing must work in harmony with all of
these strategies.

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 Pricing must work in harmony with all of the other components of
the marketing mix.

The principle lesson is that pricing strategy has many facets to consider and
you cannot successfully price your products or services in isolation. Pricing
must develop within the framework of the marketing mix; and specifically
through new product development and positioning, target marketing,
effective management of the supply chain and creative promotions.

With the above framework of thinking about how to look at pricing, now
let’s look at pricing strategies for new products and established products.

New products
When launching new products, pricing strategies can range from skimming
a market with high prices, penetrating with low prices, using odd or even
prices, or following the market leader. Then there are other factors, such as
your market share objectives, current competitive position and the image of
your company and product among middlemen and end users.

Still other issues relate to your selection of a pricing strategy. These include:
speed of market entry to gain a dominant position, the amount of time senior
management gives you to recover the investment in product development
and how far behind your competition is with a similar product entry.

Strategy applications
• Skim pricing
• Penetration pricing
• Psychological pricing
• Follow pricing
• Cost-plus pricing

To introduce you to the specifics of pricing strategies, consider the following

case of a company that had to deal with offshore competitors selling into its
market with prices 30 per cent to 40 per cent below overall market prices.

TEN PRICING FOR PROFITS 317

 Case example
Cummins Engines Inc., the heavy-duty diesel engine manufacturer, has been
fighting aggressively against two formidable Japanese competitors: Komatsu
and Nissan. The first word of a problem came from Cummins’ customers:
Navistar and Freightliner. Both companies reported they were testing
Japanese medium-size diesel truck engines.

Knowing the Japanese strategy of using an indirect approach into a market.

Cummins saw the medium engine as a strategic threat. The entry could lead
to the next step of penetrating Cummins’ dominant share of the U. S. market
for heavy-duty diesel truck engines.

Cummins managers saw the Japanese competitors’ strategy evolve:

• They entered the market with prices 40 per cent below prevailing levels
to buy market share fast.
• They found a poorly served and emerging market segment in
medium-size engines in which to enter.
• They developed a quality product – and were prepared to expand their
product lines.

Faced with the problem, Cummins managers took the following actions:
1. Launched into the medium-size truck engine market with four new
engine modes. This timing, however, was coincidental. Cummins had
been planning this market entry for five years through a joint venture
with J.I. Case, a farm machinery producer that used medium-size diesel
engines.
2. Cummins immediately cut prices of the engines to the Japanese level.
As management observed, “If you don’t give the Japanese a major
price advantage, they can’t get in.”
3. Cummins cut costs by one third. This action was the toughest job in
what was perceived as a bare-bones efficient manufacturing operation.
Using more flexible machinery and cutting excess inventory from a
60 day supply to a four day supply reduced overhead.

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 4. Cummins managers gained participation from suppliers on suggestions
about cost cutting. The result: lowering of material costs by 18 per
cent. This impressive reduction was achieved by changing the
traditional adversarial attitude toward suppliers to one of fostering
cooperative relationships.

The strategy worked as an effective defence, particularly as it relates to

Cummins’ concern about its heavy-duty diesel business. After the initial
encounter, Cummins held more than 50 per cent market share in North America
and not a single Japanese engine powered a U.S. built tractor-trailer.

Action strategy
What can you learn from the Cummins case? A number of strategy lessons
come out of the situation: first, there are options open to you against a price
attack. You observed some of those actions above. But the action must begin
with a mental attitude of ‘fighting back’ and not giving up valuable market
share without a battle.

Second, consider innovative strategies in such areas as customer service,

improved delivery time, extended warranties, sales terms, after-sales support,
packaging and management training.

Or consider fresh strategies in such subtle areas as reliability, image, nice-

to-do-business-with reputation, credibility, prestige, convenience, value,
responsiveness to problems and access to key individuals in your firm.

The market position you select has consequences for your product’s
image and its price.

Commentary
As already indicated, the primary lesson of the Cummins example is that pricing
strategy is never derived in isolation of other components of the marketing
mix. Another major consideration is how pricing affects the product’s image
in the customer’s mind. Cummins built and maintained a solid market image
through product quality, innovation and best-in-class service.

TEN PRICING FOR PROFITS 319

 When pricing new products in your line, ask: can low price and high price
be compatible? Do you create a conflict in the customer’s mind? What
perception or image do customers hold in their minds about your product?

In general, it is difficult to regain a premium price position for the same brand
once it has been diluted by low price promotions through mass merchandising
outlets. Therefore, as you shape a strategy for a new product entry, it is wise
to maintain ongoing feedback about the market position you want. In turn,
the market position you select ultimately has consequences for your product’s
image and its price.

Skim pricing
The first of the strategies that deal with new products is skim pricing. It involves
pricing at a high level to hit the ‘cream’ of the buyers who are less sensitive
to price. The conditions for weighing this strategy are as follows:
• Senior management requires that you recover R&D, equipment,
technology and other start-up costs rapidly.
• The product or service is unique. It is new (or improved) and in the
introductory stage of the product life cycle. Or, it serves a relatively
small segment where price is not a major consideration.
• There is little danger of short-term competitive entry because of patent
protection, high R&D entry costs, high promotion costs, or limitations
on availability of raw materials, or because major distribution
channels are filled.
• There is a need to control demand until production is geared up.

The electronics industry usually employs skim pricing at the introductory stage
of the product life cycle to the point that consumers and industrial buyers
expect the high introductory-pricing pattern.

Penetration pricing
Penetration pricing means pricing below the prevailing level to gain market
entry or to increase market share. The conditions for considering this strategy
are as follows:
• There is an opportunity to establish a quick foothold in a specific market.
• Existing competitors are not expected to react to your prices.

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 • The product or service is a ‘me too’ entry and you have achieved a
low-cost producer capability.
• You hold to the theory that high market share equals high return on
investment and management is willing to wait for the rewards.

It is difficult to regain a premium price position for a brand once it

has been diluted by low price promotions.

One of the most striking examples of penetration pricing occurred for computer
printers during its early days of market growth. Japanese makers seized the
initiative and targeted a vacant segment for low-price printers selling for less
than half the going market price.

Such companies as Ricoh, Okidata and Seiki attacked the segment by offering
printers at rock-bottom prices and short delivery times. From virtually no
North American sales, the Japanese shipped 75 per cent of all lower-end units
in just three years.

Psychological pricing
Psychological pricing means pricing at a level that is perceived to be much
lower than it actually is: $99, $19.47 and $1.98. Psychological pricing is a viable
strategy and you should experiment with it to determine its precise application
for your product. The conditions for considering this strategy are as follows:
• A product is singled out for special promotion.
• A product is likely to be advertised, displayed, or quoted in writing.
• The selling price desired is close to a multiple of 10, 100, 1,000 and so
on.

While psychological pricing is most likely to be applied to consumer

products, there is an increasing use of the strategy for business-to-business
products and services, as in the example of a machine priced at $24,837.00.

Psychological pricing is a viable strategy and you should

experiment with it.

TEN PRICING FOR PROFITS 321

 Note in this example that the traditional ‘9’ is not used. Tests by such
organizations as Sears reveal that the ‘9’ doesn’t have the psychological impact
it once had. In various combinations the ‘7’ has come out on top.

Follow pricing
Pricing in relation to industry price leaders is termed follow pricing. The
conditions for considering this strategy are as follows:
• Your organization may be a small or medium-size company in an
industry dominated by one or two price leaders.
• Aggressive pricing fluctuations may result in damaging price wars.
• Most products offered don’t have distinguishing features.

The most visible example of follow pricing is found in the computer market,
where IBM held a strong worldwide position. IBM traditionally set the pricing
standards by which its competitors priced their products. However, this
situation turned out to be a two-edged sword.

The clones of IBM-compatible computers priced at 20 per cent to 40 per cent

below IBM reached such high proportions that IBM was forced to reverse
its role and use follow pricing against aggressive competitors as a means of
protecting its share of the market.

When IBM initially entered China it used follow pricing as part of its broad
strategy to gain a foothold in that developing market. The strategy also included
delivering solution-based services and systems.

Cost-plus pricing
Cost-plus pricing entails basing price on product costs and then adding on
components such as administration and profit. The conditions for using this
strategy are as follows:
• The pricing procedure conforms to government, military, or construction
regulations.
• There are unpredictable total costs owing to ongoing new product
development and testing phases.
• A project (product) moves through a series of start-and-stop sequences.

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Cost-plus pricing, unless mandated by government procedures, is product-
based pricing. Such an approach contrasts with market-based pricing, which
takes into consideration such internal and external factors as the following:
• Corporate or product-line objectives concerning profits, competitive
inroads and market share.
• Target-market objectives dealing with market position, profile of
customer segments, current demand for product and future potential
of the market.
• Marketing mix strategy based on how pricing fits together with
product, promotion and distribution components of the mix.

Established products
You can avoid or postpone price wars by locating untapped market segments
and focusing on product improvements. You can also pre-empt and
discourage new competitors by gradually sliding down prices, thereby making
the market seem unprofitable. And you can always price according to the
flexibility of demand and your production economies.

Strategy applications
• Slide-down pricing
• Segment pricing
• Flexible pricing
• Pre-emptive pricing
• Phase-out pricing
• Loss-leader pricing

The following case illustrates a pricing conflict with established products where
manufacturers threaten to bypass middlemen and sell direct to the end user.

You can avoid or postpone price wars by locating untapped market

segments.

TEN PRICING FOR PROFITS 323

 Case example
Cardinal Health Inc. and other wholesalers in the health care industry faced
an intensifying product and pricing problems in recent years. As CEO Robert
D. Walter puts it, “Every business becomes commoditized over time.”

The once tiny drug wholesaler watched anxiously as 250 companies that served
individual pharmacies, regional chains, nursing homes and hospitals
dwindled to 45 over a 15 year period. Currently, a mere five firms enjoy 75
per cent of the $50 billion market.

To complicate the market situation further, hospitals continue to close while

others merge. And all have to cope with the severe pressures to cut costs
and adapt to a managed care environment. Yet, even with those dynamic
changes, the drug and related health care industry is growing at a robust 20
per cent rate.

And the combative struggle persists as the remaining companies aim for
dominant market positions, headed by such titans as McKesson Corp. and
Bergen Brunswig Corp. Among those vying for a top spot is Cardinal.

Cardinal’s strategies
To expand on CEO Walter’s astute assessment of the market situation: first,
all wholesalers would fall into a “commoditized” state as they offer similar
products at lower prices. Second, the likelihood of reduced profit margins
due to price-cutting would remain a continuing problem. Third, the remaining
wholesalers would continue to manoeuvre for an advantageous competitive
position.

To cope with these problems, Walter initiated the following strategies:

1. Accelerate marketing and sales efforts by chasing lucrative contracts
with the goal of becoming a preferred supplier to large users. For
instance, Cardinal nailed a five year contract to provide drugs for
Kmart Corp.’s 1,500 in-store pharmacies – the largest deal of its kind.
2. Extend into higher-margin services. Cardinal moved into pharmacy
management with the purchase of Houston-based Owen Healthcare

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 Inc., which operates pharmacies in 300 hospitals. With that move,
Cardinal penetrated hospitals by controlling that key on-site function.
3. Expand into ancillary product lines. To that end, Cardinal acquired
Pyxis Corp., which makes hospital drug dispensers that operate much
like automatic teller machines.

The strategies worked. Cardinal is no longer a tiny company. The organization

skyrocketed to become a formidable wholesaler. This growth was spearheaded
by astute management of resources, a strategic focus in acquiring companies
that were leaders in their particular niches and by offering a full range of
value-added services.

Such was the prescription for relieving the effects of a commodity situation,
with its related impact on pricing and profits. The result: “It’s one of the best
management teams that I’ve ever met, not only in the pharmaceutical business,
but in any business,” declared one industry analyst.

Action strategy
What can you learn from the Cardinal case? First, Cardinal illustrates the
changing role of intermediaries in the supply chain. Operating in a channel
between producer and consumer, the sometimes-squeezed wholesaler or
distributor must satisfy two masters.

First, the manufacturer that requires the wholesaler to promote its products,
carry sufficient inventories and fill customers’ orders fast – even though the
manufacturer often complains about the rising costs of the wholesaler’s
services.

Second, the end user who requires closer contact from knowledgeable sales
reps, demands up-to-date market and technical information and wants
wholesalers to carry a full-line of products and deliver related services.

TEN PRICING FOR PROFITS 325

 Commentary
Price wars are always a danger for established products. While there are pricing
strategies for use with such products, it is best to apply marketing creativity
to avoid the possibility of pricing wars. Consider the following possibilities:

Flexible pricing strategy is not a license to indiscriminately reduce prices

to meet competitors’ pricing.

Slide-down pricing
The first in this series is slide-down pricing, which moves prices down to tap
successive layers of demand. The conditions for considering this strategy
are the following:
• The product would appeal to progressively larger groups of users at
lower prices in a price-elastic market.
• The organization has adopted a low-cost producer strategy by
adhering to efficiencies, which impact economies of scale in
manufacturing, distribution, promotion and sales.
• There is a need to discourage competitive entries.

Slide-down pricing is best utilized in a proactive management mode rather

than as a reaction to competitors’ pressures. If you anticipate the price
movements and do sufficient segmentation analysis to identify price-sensitive
groups, you can target those groups with specific promotions to pre-empt
competitors’ actions.

Skim pricing, as previously noted with the electronics industry, begins with
high pricing and then evolves to slide-down pricing. The downward
movement of price usually coincides with such events as new competitors
entering to buy market share through low price and then waiting for economies
of scale to take effect.

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Segment pricing
Segment pricing involves pricing essentially the same products differently
to various groups. The conditions for considering this strategy are as follows:
• The product is appropriate for several market segments.
• The product can be modified or packaged at minimal cost to fit the
varying needs of customer groups.
• The consuming segments are non-competitive and do not violate legal
constraints.

Examples of segment pricing abound. The most visible ones are airlines that
offer essentially one product, an airplane seat between two locations. Yet this
‘same’ product may serve different segments, such as business people, clergy,
students, military, senior citizens, each at different prices. Then, there is further
segmentation according to time of day, day of week, or length of stay at one
destination.

To best take advantage of this pricing strategy, search out poorly served,
unserved, or emerging market segments.

Apply marketing creativity to avoid the possibility of pricing wars.

Flexible pricing
Pricing to meet competitive or market place conditions is known as flexible
pricing. The conditions for considering this strategy are as follows:
• There is a competitive challenge from imports.
• Pricing variations are needed to create tactical surprise and break
predictable patterns.
• There is a need for fast reaction against competitors’ attacking your
market with penetration pricing.

The previously cited case of Cummins Engines illustrates how that company
used flexible pricing as part of its strategy to counterattack the Japanese
manufacturers moving in on its diesel engine market. Cummins’ management
reduced prices rapidly to blunt the attempts at pricing penetration by the
Japanese engine entries.

TEN PRICING FOR PROFITS 327

 As organizations downsize and re-engineer to become more competitive,
typically field managers who are closer to the dynamics of the market place
are now handed greater pricing authority and accountability for their products.
The intent is to allow for a flexible pricing strategy when appropriate.

Pre-emptive pricing
Pre-emptive pricing is used to discourage competitive market entry. The
conditions for considering this strategy are as follows:
• You hold a strong position in a medium to small market.
• You have sufficient coverage of the market and sustained customer
loyalty to cause competitors to view the market as unattractive.

Again referring to Cummins Engines, management used pre-emptive pricing

to protect its dominant position in the diesel engine market as it cut prices
to block competitive entry. Pre-emptive pricing, as with flexible pricing, requires
close contact with the field.

That means, continuing your close attention to customers, competitors, market

and economic conditions and any other factors that would influence pricing
decisions. And customer intelligence and competitor intelligence systems are
always critically important to the correct timing of this strategy.

Phase-out pricing
Phase-out pricing means pricing high to remove a product from the line. The
conditions for considering this strategy are as follows:
• The product has entered the down side of the product life cycle, but
it is still used by a few customers.
• Sudden removal of the product from the line would create severe
problems for your customers and damage relationships.

Phase-out pricing does not mean dumping. Rather, it is intended for use with
a select group of customers who are willing to pay a higher price for the
convenience of a source of supply. For example, Echlin Inc., the producer
of auto and truck parts, stocks nearly 150,000 different parts for every auto
from the Ford Model T to a Rolls Royce. Customers with old or rare auto
models are only too pleased to pay the price for product availability.

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Loss-leader pricing
Pricing a product low to attract buyers for other products is called loss-leader
pricing. The conditions for considering this strategy are as follows:
• Complimentary products are available that can be sold in combination
with the loss leader at normal price levels.
• The product is used to draw attention to a total product line and
increase the customer following. The strategy is particularly useful
in conjunction with impulse buying.
• Loss-leader is one of the most common forms of pricing strategy. It
is prevalent in all ranges of businesses, from department stores to auto
dealers to industrial product lines. You should remember, however,
to consider the profitability of the total product line.

Auction pricing
With the onset of the Internet as a major marketing channel, a dominant pricing
strategy has evolved for new and established products: auction pricing. While
not entirely new to marketing and overall business practice, it has special
application at more than 2,000 electronic market places that sell everything
from services to industrial products, as well as to move surplus inventories
and used merchandise.

Auction pricing is used to market products over the Internet’s

numerous electronic market places.

The three major types of auctions include the following:

Ascending bid auctions. This is a common type of auction with typically one
seller and numerous buyers. The seller offers a product and bidders raise
the price until the maximum is reached. It is used most often for art, antiques,
real estate and some types of agricultural products.

Descending bid auction. In this auction, there is either one seller and many
prospective buyers, or one buyer and many sellers. In contrast with the above
auction approach, descending bids begin with a high price and decrease until
a bidder accepts the price. A variation of this bidding system occurs when

TEN PRICING FOR PROFITS 329

 a buyer announces his intention to buy and then potential sellers compete
by offering the lowest price.

Sealed-bid auction. This is another common approach. Prospective suppliers

submit a single bid and cannot know the price and details of the competing
bids. It is often used in soliciting government contracts and with various
categories of commodity products.

Fees
As companies feel squeezed by intense pricing pressures from low-cost
competitors and the heightening resistance from defiant customers, there is
a rapid movement to skirt raising prices and instead resort to disguising
increases by adding-on a mountain of fees.

Consequently, to beat the brutal price wars, various organizations in retail,

finance, travel, communications and sports have loaded fees on products and
services that were once totally free. And the fees add up to staggering sums.
Some projections indicate that AT&T could bring in as much as $475 million
yearly by charging its long-distance customers its $1.00 monthly ‘regulatory
assessment fee.’ Then, there are fees for services such as housekeeping that
can generate $100 million for hotels.

There is a rapid movement to skirt raising prices by adding-on a

mountain of fees.

“It’s much easier to raise a price through obscure fees and surcharges than
it is to raise a sales price,” says one analyst. But this stealth pricing strategy
is beginning to show a growing backlash from consumers, including the
creation of new vigilante organizations to pressure companies to roll back
fees.

While fees would appear to fit into any of the above categories of pricing
strategies, it is singled out here because of its escalating use. In choosing
this approach, your decision has is to be tempered by possible negative
reactions from customers in the form of direct complaints, legal actions and
the possible shift of customers to ‘friendlier’ competitors.

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Action steps
In summary, before converting your pricing strategies into action, remember:
price wars are like fire. They ultimately consume those who persist at such
actions.

To identify strategies and initiate action:

1. List pricing strategies that represent your best opportunities – and
will avoid price wars.
2. Indicate what action you will take and who is assigned the task.
3. Relate feedback to the product’s competitive market position.
4. Indicate future pricing strategies based on various scenarios that could
impact your profitability and all-around competitiveness.

TEN PRICING FOR PROFITS 331

Blank page
PART FOUR CHAPTER ELEVEN

Promotional strategies: Plan a total

communications mix
 ELEVEN
Promotional strategies: Plan a total
communications mix

Chapter Objectives
To enable you to:
1. Plan an integrated marketing
communications strategy
2. Develop a successful advertising campaign.
3. Use sales promotion, direct response
marketing, public relations and personnel
selling to support and generate sales.
4. Convert promotion strategies into action.

To develop an effective promotion strategy, shape your program to combine

advertising, sales promotion, direct response and interactive marketing, public
relations and personal selling into a totally integrated marketing
communications mix. Otherwise, if you keep these activities separate you
expend valuable resources in a wasteful and disjointed effort.

Table 11.1 shows the full breadth of the possibilities of the communications
mix. Notice, too, the range of possibilities that you have at your disposal to
create strategies to launch a new product or service, protect an existing market
position, or respond to an aggressive competitive situation.

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Advertising Sales Public Personal Direct
promotion relations selling response

Print Free samples Press kits Sales Direct mail

presentations

Broadcast Free trial Event Trade shows Catalogues

sponsorships

Directories Door-to-door Community Telemarketing

couponing relations

Motion Direct-mail Seminars TV shopping

pictures couponing

Billboards Newspaper Speeches Fax

couponing
Internet
Magazine/
supplement shopping
couponing

Money refund

In-or-near
pack
premiums

Self-
liquidating
premiums

Price pack

Contests/
sweepstakes

Trading
stamps/
promotional
games

Point-of-
purchase
displays

TABLE 11.1 COMPONENTS OF THE MARKETING COMMUNICATIONS MIX

Let’s begin with the most common form of communications, advertising and
understand how to develop a successful advertising campaign.

ELEVEN PROMOTIONAL STRATEGIES 335

 Advertising
Advertising is but one part of promotion; promotion is but one part of the
communications mix; the communications mix is one component of the
marketing mix. Thus, advertising – as with all the other components – is never
created in isolation.

Initially, you should know the job you want advertising to accomplish. For
example, it can support personal selling; inform a target audience about the
availability of your product; or persuade prospects to buy. Then, you can choose
media and copy themes to match those objectives. As a result, your
advertising becomes realistic, measurable and results-oriented.

Advertising is never created in isolation.

Strategy applications
• Advertising objectives
• Media selection
• Advertising copy
• Advertising appropriations

The following case shows the realistic application of promotion where a

company introduces a new product into a new market dominated by strong
competitors.

Case example
Microsoft Corp., an immensely successful software company, gained world-
wide notoriety with its windows operating system. At one point in its campaign
to expand market coverage, it targeted large corporations handling multi-
level tasks in accounting, inventory management and transaction processing.

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Microsoft launched into the corporate market with Windows NT. Designed
for client-server networks, the software can handle a multitude of tasks through
networks of desktop computers (clients) that obtain data and programs from
hub machines (servers.)

The marketing problem for Microsoft: aggressive competitors such as IBM,

Hewlett-Packard and Sun Microsystems anticipated the Windows NT launch
and were unwilling to give up a single market share point or a customer to
Microsoft without a fight.

Therefore, overcoming those eager competitors was only one part of

Microsoft’s launch strategy. The second part was convincing dubious corpo-
rate customers that it could handle their huge multi-tasking needs.

Microsoft was faced with additional obstacles as it attempted to wander outside

its traditional niche. Understanding the characteristics of such barriers will
help you to develop a successful product promotion.

For example, while Microsoft was firmly entrenched in one segment,

customers in the corporate market perceived the company as inexperienced
and without a track record. Also, some corporate customers were cautious
about making a wholesale conversion to Microsoft’s new product, mostly due
to the costs associated with switching from one system to another.

Instead they opted for a minimal order, far short of Microsoft’s sales estimates.
Still another group of prospects, unwilling to be first to try a brand new system,
indicated concern about a product that might not be fully debugged.

Finally, competitors were swift to learn of Microsoft’s product launch and

had time to develop a counter strategy. This condition resulted from the wide
publicity and the prolonged waiting period for Microsoft to receive test results
from customers.

The launch strategies

To overcome those obstacles, Microsoft launched its new software using the
following strategies:
1. Microsoft introduced two versions of the program: a desktop edition
and an advanced edition for more complex applications. Each was
sharply discounted during the introductory period. The plan was to
probe two user niches and find the best opportunities and the fewest
obstacles. Also, by launching two editions Microsoft hoped to
recover losses if one edition failed and the other scored.

ELEVEN PROMOTIONAL STRATEGIES 337

 2. Microsoft announced the product with great fanfare to maximize the
effects of publicity and gain extra mileage from its advertising
campaign.
3. It selected a group of customers with high visibility in their respective
industries to test Windows NT. The intent was to obtain operating
results and testimonials that the sales force could use to target
additional prospects on an industry-by-industry roll-out.
4. Microsoft moved rapidly to sign up 65,000 application software
developers, over 200 distributors, plus more than 20 computer
makers. This strategy accelerated the launch into numerous geographic
and industry-specific segments.
5. Microsoft monitored the market place with precision. For example,
surveys of 200 big corporations revealed that 59 per cent said they
would likely buy NT. That compared with such competitors as Unix
scoring 39 per cent and IBM with 36 per cent.

Action strategy

Recognize the place of adopter groups in the buying process.

What can you learn from the Microsoft case? A useful component in promoting
a product launch is to recognize the place of adopter groups in the buying
process. Adoption is the decision-making path individuals and groups go
through after first hearing of a new product or service.

Microsoft saw their relevance with the initial resistance to NT among specific
groups of potential customers.

Adopter groups are characterized as:

• Innovators: Venturesome individuals and leading-edge companies
that are first to try new ideas and are generally insensitive to price.
• Early adopters: Opinion leaders with high visibility who adopt new
products early but only after careful scrutiny, since their reputations
are on the line.
• Early majority: Individuals or companies that buy before the masses.
However, they are rarely industry leaders.

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 • Late majority: Individuals who are sceptics and adopt after a
significant number of people or companies have tried the product.
• Laggards: Tradition-bound groups that are cautious, price sensitive
and last to buy.

By pinpointing the characteristics of these adopter groups, you can launch

an intensive promotional effort targeted at innovators and early adopters,
with emphasis on the latter group. If possible, try offering free trials of your
product or service. You can use the test results to develop sales strategies
for other adopter categories that are waiting and watching the purchasing
patterns of the early adopters.

How to develop a successful

advertising campaign
The Microsoft case illustrates the integration of promotion with company image,
product development, positioning and distribution. Imagine, now, that you
are responsible for developing an overall advertising strategy and implementing
it through an advertising department or an outside advertising agency.

Table 11.2 details the steps involved in developing an advertising campaign.

It shows clearly that continuous marketing research is the foundation of a
sound campaign.

Campaign step Advertising activities Research activities

Pre-campaign phase

1. Market analysis Study competitive

products, positioning,
media, distribution and
usage patterns

2. Product research Identify perceived product

characteristics and
benefits

3. Customer research Conduct demographic

and psychographic
studies of prospective
customers; investigate
media, purchasing and
consumption patterns

ELEVEN PROMOTIONAL STRATEGIES 339

 Strategic decisions

4. Set advertising Determine target markets

objectives Identify user profiles and
set exposure goals

5. Decide on level of Determine total Investigate competitive

appropriation advertising spending spending levels and media
necessary to support cost necessary to reach
objectives objectives

6. Formulate advertising Develop creative approach Examine audience

strategy and prepare ‘shopping profiles, reach, frequency
list’ of appropriate media and costs of alternative
media

7. Integrate advertising Make sure that advertising

strategy with overall supports and is supported
marketing strategy by other elements of the
marketing mix

Tactical execution

8. Develop detailed Break down overall

advertising budget allocations for media
categories and individual
media

9. Choose message Develop alternative Conduct concept and copy

content and mode of creative concepts, copy tests
presentation and layouts

10. Analyze legal Review selected copy with

ramifications legal staff

11. Establish media plan Determine media mix and Conduct media research,
schedule primarily from secondary
sources

12. Review agency Evaluate the entire

presentation promotion campaign with
a strategic perspective for
approval

Campaign implementation

13. Production and traffic Finalize and reproduce

advertisement(s), buy
media time and space and
deliver ads

14. Insert advertisements Actually run ads in Check whether ads

selected media appeared as agreed and
directed

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 Campaign follow-through

15. Impact control Obtain feedback on

consumer and competitive
reactions

16. Review and revision Adjust advertising Check whether changes

execution or spending achieved desired results
levels to unfolding
conditions

TABLE 11.2 DEVELOPING AN ADVERTISING CAMPAIGN

Situation analysis in the pre-campaign phase

Sound planning techniques call for a careful assessment of overall market
conditions before formulating an advertising campaign. In other words, you
should conduct a market analysis that surveys the competitive field as part
of a three-step approach.

1. Your initial analysis should examine the range of competitive offerings

and related market trends, their positioning and media choices and
their distribution and usage patterns. You will want to find out who
competitors’ customers are and when, where and for what purpose
they make purchases. This background information will provide the
necessary perspective for choosing appropriate promotion strategies.
2. Subsequent product research should focus more intensively on your
own product. Its principal purpose is to find out from actual or potential
users of the product which features they consider desirable and what
benefits they associate with its use. Such information will help you
make the right positioning decision and formulate effective appeals.
In this context, study the usage patterns in depth.

Encourage ongoing product innovations that target specific groups

with targeted media.

3. The final step of the pre-campaign research concentrates on the

customer. Here, you attempt to develop demographic and psycho-
graphic profiles of actual or prospective buyers. For instance,
recognize who are the frequent and infrequent users of your
product, how old they are, where they live, how much money they

ELEVEN PROMOTIONAL STRATEGIES 341

 have at their disposal, their educational backgrounds, their occupations,
their marital status and family size and the cultural group they belong
to.
You will also want to know how they think and act. To the extent that
you have sufficient time and funds, you can tap individuals trained in
the social sciences for useful insights. They run the gamut from
behavioural psychologists, sociologists and even cultural anthropologists
who are trained in techniques to provide in-depth profiles about groups
and their habits.
For example, Kodak called in anthropologists and other social
scientists who observed camera users in an effort to learn how taking
and printing pictures fit into their daily lives. They also followed
prospective camera buyers into stores to understand how they chose
certain models from the crowded shelves. The research was part of
Kodak’s effort to reorganize its digital camera product line by
transforming product design, manufacturing and marketing

Advertising objectives
Objectives are guidelines for action that spell out what you want to achieve.
You could say that the basic objective of all advertising is to sell something
– a product, service, idea, or company. To that end, advertising is effective
communication, resulting in positive attitudes and behaviour on the part of
the receivers of the message that results in increased sales.

However, the objective of increasing sales is too broad to be implemented

effectively in an advertising program. Rather, you should formulate more
specific and limited aims that you can nail down with greater precision and
which you can measure with accuracy. For example:
• Support a personal selling program.
• Achieve a specific number of exposures to your target audience.
• Address prospects that are inaccessible to your sales people.
• Create a specified level of awareness, measurable through recall or
recognition tests.
• Improve dealer relations.
• Improve consumer attitudes towards your product or company.

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 • Present a new product and generate demand for it.
• Build familiarity and easy recognition of your company, brand, package
or trademark.

The list is truly endless and as varied as companies and situations. It illustrates
some of the possibilities and pinpoints the need for precision to derive
maximum guidance from objectives. As objectives imply accountability for
results, they often lead to an evaluation of individual or agency performance.

Advertising appropriation
Having determined where you want to go, you must now decide how best
to get there. Marketing executives can choose from a number of alternative
approaches for setting the level of total advertising spending.
• Affordable Method: Ignores your objectives and is simply an expression
of how much you think you can afford to spend. This viewpoint makes
your level of appropriation subject to whim and may grossly over- or
under-estimate the amount in relation to your needs.
• Percentage of sales approach: Probably the most widely used because
of its simplicity. That is, it ties your advertising allowance to a specified
percentage of current or expected future sales. This procedure, with
its built-in fluctuations, not only discourages long-term advertising
planning but also neglects current business needs and opportunity.
• Competitive parity method: Proposes that your company match
competitive spending levels. This simplistic outlook is no more
sophisticated or justifiable than the two preceding approaches.
• Objective and task method: Produces the most meaningful results. You
proceed in three steps: (1) define your advertising objectives as
specifically as possible; (2) identify the tasks that must be performed
to achieve your objectives; and (3) estimate the costs of performing
these tasks. The sum total of these costs represents your level of
appropriation. While this approach does not examine or justify the
objectives themselves, it nevertheless reflects a reliable assessment
of your perceived needs and opportunities, which you can translate
into a workable budget.

ELEVEN PROMOTIONAL STRATEGIES 343

 Making your advertising investment more productive
Consider advertising as a key element in your total communications mix. In
terms of creating widespread awareness and exposure of your product, it
certainly is your best buy.

Remember, however, no matter how competent your agency or advertising

department is, you bear the ultimate responsibility for results. Therefore, it
pays to be sceptical, to be more independent and not to be intimidated by
the creators of your advertising.

Innovate, don’t imitate. Follow emerging trends.

Also, keep in mind that advertising can run into a significant sum of money
in terms of total outlay, so you will want to make sure that your ads are working
hard for you. You can work more intelligently and effectively with your
advertising people and offer more precise guidance as to what they should
stress, if you follow a few fundamental guidelines:
1. Be aware of your product’s positioning in the market place. You may
choose to make your offering an improved alternative to the
competing product in the field, or emphasize a major customer benefit
that is unique, meaningful and competitive and one that you can
convincingly deliver with your product.
2. Maintain a personality for your brand. Use your advertising to make
a positive contribution to the brand image. If you want your ads to
command attention and produce results, try for a uniqueness that
makes them stand out from the flood of competing messages. It is
helpful to use a symbol, logo, or other repetitious element that will
be remembered by customers.
3. Don’t bore your audience and don’t be impersonal. Innovate, don’t
imitate. Follow emerging trends. In some instances, the risks may be
high if the trends are shallow and short lived. But if successful, the
potential rewards are worth the commitment.
4. Be factual. In the business-to-business market, one powerful way to
present factual material is with a problem-solving approach. Choose
a problem that your customer can relate to and show solutions.
However, if judiciously used and creatively presented, emotional
themes can be effective in both consumer and business markets.

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 5. Don’t replace your advertisements before they have a chance to develop
their full potential. The most basic learning theories stress the
importance of repetition in affecting behaviour. Repeat your winners
until their effects start to wear off.

Sales promotion
Integrate sales promotion with your advertising and salesforce objectives
and strategies. Also use sales promotion to encourage more product usage,
induce dealer involvement and stimulate greater salesforce efforts.

Sales promotion is an incentive to buy, whereas advertising offers a

reason to buy.

Strategy applications
• Support sales force
• Support dealers
• Stimulate consumer action

The following case illustrates how sales promotion can help rebuild a brand’s
image and win back customers who were once behind the product.

Case example
MCI Communications Corp., a global provider of business data, Internet
and voice services was clobbered by rival AT&T during one of its growth
periods. It occurred when AT&T blitzed long-distance users with an
advertising campaign showing that MCI’s rates were no bargain. What
followed was a free-fall at MCI: market share dropped, 1,000 employees were
laid-off and operations were consolidated.

ELEVEN PROMOTIONAL STRATEGIES 345

 Recovering from the assault, MCI rebounded smartly with what seemed like
an ordinary sales promotion discount program called ‘Friends & Family’. The
program offered 20 per cent discounts to groups of MCI customers who phone
one another.

The results were nothing short of amazing. In 18 months after launch, MCI
signed its ten millionth ‘Friends & Family’ customer, made up of mostly friends
and relatives of existing customers.

Its market share jumped. In contrast, AT&T’s share slipped. Also, MCI revenues
grew an estimated 11 per cent, twice the industry average.

Lessons from the MCI strategy

LONG-TERM VISION

Underlying the ‘Friends & Family’ promotion was a broader MCI objective
of becoming a master marketer of long distance. Management viewed the
industry as a battlefield being fought in three markets: toll-free telephone
service, data communications and international calling – all expected to show
double-digit growth over the long term.

TECHNOLOGY VS. MARKETING

A reality pervaded MCI’s thinking that said a technology advantage had a

short life cycle and competitors would soon match it. Consequently, MCI saw
its pathway to success as gaining superiority in marketing skills.

ORGANIZATION

MCI defined marketing as achieving customer satisfaction, which it actively

implemented throughout the organization using a variety of approaches. For
example, its management created three national divisions – consumer,
business and national accounts – to increase organizational flexibility and
thereby localize the marketing effort by segments for maximum effect.

STRATEGIES AND TACTICS

One hallmark of a sound marketing strategy is the principle of concentration.

MCI applied concentration by investing both money and manpower resources
in one direction: to attack AT&T’s weakness. For example, the reason AT&T
could not respond easily to the ‘Friends & Family’ promotion is, at the time,
it lacked the sophisticated national billing system needed to link the accounts
of customers from all over the country. MCI had the necessary billing system.

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MAXIMIZING OPPORTUNITIES

MCI recognized it had to maintain the marketing momentum or lose the

advantage. Pressing on, it extended the application of ‘Friends & Family’ from
the consumer sector to ‘Friends of the Firm’ aimed at the business market.

Action strategy
What can you learn from the MCI case? MCI’s brilliant recovery began with
a form of sales promotion, ‘Friends & Family.’ While it may be difficult to
match that performance, you should know how to handle sales promotion
as part of your total communications strategy.

Here are some characteristics of effective sales promotion: use sales

promotion as an incentive to buy, whereas advertising offers a reason to buy.
Also, while sales promotion is part of an overall marketing program, it involves
a variety of company functions to make it work effectively. Sales promotion
permits tremendous flexibility, creativity and application.

Consider the following applications:

• Consumer promotions consist of samples, coupons, cash refunds,
premiums, free trials, warranties and demonstrations.
• Trade promotions include buying allowances, free goods, cooperative
advertising, display allowances, push money (incentives), video
conferencing and dealer sales contests.
• Sales force promotions employ bonuses, contests and sales rallies.

As indicated with advertising (and all other components of the marketing

mix), sales promotion is not a stand-alone activity. Instead, make it a
component of the tactical portion of your strategic marketing plan. Further,
establish your sales promotion objectives to support the broader vision, or
strategic direction – as MCI did.

Select from the following:

• Identify and attract new buyers.
• Encourage more frequent and varied usage of current products.
• Motivate trial and purchase of new products.
• Educate users and non-users about improved product features.
• Suggest purchases of multiple and/or larger units of your product.
• Win over buyers of competitive products.

ELEVEN PROMOTIONAL STRATEGIES 347

 • Reinforce brand loyalty and purchase continuity.
• Create customer enthusiasm and excitement leading to word-of-mouth
recommendations and referrals.
• Diminish wide fluctuations in sales volume by encouraging off-season
usage.
• Counter competitive raiding on your customers.
• Generate more traffic at your dealers’ outlets.

How to use sales promotion to stimulate sales

Sales promotion is a dynamic complement to advertising and

personal selling.

Sales promotion can be an effective component of most any promotion mix,

ranging from consumer goods to business-to-business products and services.
It is a dynamic supplement and complement to the more sophisticated
advertising and personal selling efforts.

What is sales promotion? It consists of all those promotional efforts of a firm

that cannot be grouped under the heading of advertising, personal selling,
publicity, or packaging. More precisely:
Sales promotion refers to activities or objects that attempt to encourage
sales people, re-sellers and ultimate buyers to cooperate with a manufacturer’s
plans by temporarily offering more value for the money or providing some
special incentive related to a specific product or service.

While somewhat lengthy, this definition points up three essential features:

1. Sales promotion includes both activities – such as demonstrations and
contests and objects – such as coupons, premiums and samples.
2. It may be directed at one or any combination of three distinct audiences:
a company’s own sales force; middlemen of all types and levels, such
as wholesalers, retailers and other types of middlemen; and consumers
or business-to-business buyers.

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 3. In contrast with the continuous, long-term nature of the other elements
of the promotion mix (legendary advertising guru, David Ogilvy said
“an advertisement is a long-term investment in the image of a brand”);
whereas sales promotion campaigns are temporary measures that
should be used with discretion.
However, unless used wisely, sales promotion can easily become self-
defeating and counter-productive. While there are no hard and fast rules, a
brand, for example, that is ‘on deal’ one third of the time or more is likely to
suffer image problems.

In fact, if yours is a leading brand in a mature market, you should use sales
promotion most sparingly because it is improbable that you will gain any
lasting advantage from a more generous application.

It is important to remember that sales promotion is costly and should thus

be judged from a cost/benefit point of view. So, don’t overuse it – even if the
temptation is great to yield to internal pressures or external competitive
challenges.

To develop a planned approach to sales promotion over a haphazard one,

you will find it profitable to follow a series of logical steps for maximum impact
and efficiency. First, review the above listing to identify specific sales
promotion objectives, which depend on the type of audience and the nature
of your overall marketing strategies.

Also, once you have decided which market segments you want to address,
you can select specific techniques for motivating the dealer, introducing new
products and promoting existing products. For example:
• Motivating the dealer. With dealers (or any intermediary in the
business-to-business, consumer and service sector), the most powerful
language to speak is still money, that is, profit. Among many available
techniques, sales promotion for motivating dealers can include
buying allowances, cooperative advertising, dealer listings, sales
contests, speciality advertising and exhibits at trade shows.
• Introducing new products. Another meaningful way to break down
the variety of approaches is to group them according to their major
application areas. Sales promotion techniques particularly well
suited to the introduction of new products include free samples or
trial offers, coupons, tie-in promotions with two or more brands or
companies and money refunds.

ELEVEN PROMOTIONAL STRATEGIES 349

 • Promoting existing products. You may want to use one or more different
tools when attempting to promote established brands, such as
premiums, price packs, contests and sweepstakes, trading stamps,
cross-promotions that use one brand to advertise another and
demonstrations. These tools aim to attract competitors’ customers and
build market share, introduce new versions of established brands and
reward buyer loyalty.

Table 11.3 will aid your selection process by presenting the pros and cons of
major sales promotion techniques.

Technique Advantages Disadvantages

Free samples Induce trial Expensive

Attract new customers Lacks precision

Speed up adoption Cumbersome

Free trial Overcomes market Costly to administer

resistance

Door-to-door couponing Very selective Time consuming

High redemption rate Needs careful supervision

Lead time needed

Direct-mail couponing High targetability Needed

At-home coverage Costly

High redemption rate Dependent upon list

quality

Newspaper couponing Quick and convenient Low redemption rate

Geographically targetable Retailers may complain

Low cost Requires careful planning

Magazine/supplement Targeted audience Can become expensive

couponing

Effective coverage Consumers neglect to clip

Increases in readership Slow redemption rate

Money refund Generates new business Results can be slow

Reinforces brand loyalty Modest impact

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In-or-near pack premiums Increases product sales Bonus to loyal buyers

Modest distribution cost Pilferage problem

Self-liquidating premiums Low cost Modest sales impact

Boosts brand image May be too popular

Price pack Moves merchandise Not selective

Keeps up visibility May cheapen brand image

Contests/sweepstakes No purchase required Expensive

Increases brand Modest participation

awareness

Trading stamps and No extra expense for Consumer boredom

promotional games consumer

Creates store preference Expensive

Point-of-purchase displays Effective stimulation Requires dealer

cooperation

Warranties Effective in influencing a Expensive and labour

purchase decision intensive with a product
problem

TABLE 11.3 ADVANTAGES AND DISADVANTAGES

OF VARIOUS SALES PROMOTION TECHNIQUES

Develop your sales promotion program

Having selected the techniques most suitable for accomplishing your
objectives for one or more of your prospective audiences – sales force, dealers
and consumers – you must now work out the operational details of your
campaign. This activity includes determining the budget for your program,
which has to take into account three types of costs:
1. The administrative cost, covering creative aspects, production of the
promotional material, mailing and advertising.
2. The incentive cost, which includes the cost of the premium, coupon,
price pack and sales force or dealer incentive and reflects the likely
rate of redemption – which can vary greatly, depending upon the
method of delivery.

ELEVEN PROMOTIONAL STRATEGIES 351

 3. The marginal product cost, such as the cost of a different package or
imprint, or expenditures due to the temporary increase in output.

Of necessity, the specific budget is tied to the size of the overall annual
appropriation for sales promotion, which is usually a percentage of a
company’s advertising budget and may run anywhere from 20 per cent for
business-to-business firms to 60 per cent for consumer goods.

When deciding on the length of your campaign, you will find yourself at a
critical point. If the promotion is too short, neither you nor your target audience
will derive sufficient benefit from it.

If it is too long, your brand’s image is likely to be cheapened and your

campaign’s ‘act now’ urgency will be diluted. A related issue is frequency –
that is, how often you should promote a given product. Generally, the rules
are not too often, not too short and not too long.

Sales promotion is a short-term tool to support long-term goals.

Sales promotion is a short-term tool that can support long-term goals only
in a supplementary capacity. It cannot build a consumer franchise. To the
contrary, if it is used too often, it can destroy the image of a brand. Thus, it
should be used not as a substitute for advertising, but rather as a complementary
effort.

Direct and interactive marketing

As the term implies, direct marketing operates by circumventing middlemen
and interacting directly with the buyer to sell goods and services. Further,
direct marketing techniques serve other purposes, such as delivering product
or warranty information, announcing forthcoming products and using a variety
of direct approaches to maintain customer contact.

The contact methods include direct mail, catalogues, telemarketing, interactive

TV, kiosks, websites and mobile devices to reach diverse buyer segments.
For instance, you can introduce a larger selection of merchandise with specific
product data, particularly with print and online catalogues.

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Additionally, with the increasing sophistication of mailing lists, buyers can
be defined to the smallest detail by income, location, gender, marital status
and even stages within the life cycle.

With the Internet, in particular, buying behaviour can be recorded, analyzed

and used to suggest related products to the customer with tailored advertising
messages. (Charities and other special interest groups also use these same
methods with great success.)

Direct marketing circumvents middlemen and interacts directly with

the buyer.

The following case example illustrates the magnitude of possibilities for direct
marketing.

Case example
Eddie Bauer Inc., a maker of casual-apparel and furniture, confidently followed
one of the dominant marketing trends by establishing a brand identity over
the Internet. Yet the leadership of this 87 year old company saw the long-
term geographic advantages for maintaining an infrastructure in brick-and-
mortar stores to serve those customers attached to the touch-and-feel of a
traditional retail experience.

At first, managers tried Internet banner ads to drive surfers to its website.
But results indicated such advertising was expensive and conversions to sales
were low. Then, learning that half the consumers who visited the Web site
had never shopped at Eddie Bauer stores before, management had to be certain
that the experience would go well beyond just duplicating a catalogue page
on the screen.

ELEVEN PROMOTIONAL STRATEGIES 353

 Eddie Bauer’s strategies
The solution came through the following creative applications:
• Develop an online virtual dressing room where shoppers can click
on a sports jacket and drag a colourful sweater or striped pants to
view the style effects.
• Offer online customers a reminder service that signals them by e-
mail about forthcoming birthdays, anniversaries and holidays. The
service also permits users to create an electronic shopping list of items
they want relatives to buy for them.
• Identify groups and individuals by buying patterns. Then use tailored
e-mails to communicate special savings on selected merchandise to
match the buyers’ fashion profile. Also, direct follow-up promotions
to specific groups, such as working women or for seasonal events
as back-to-school. The objective is 24/7 shopping, all anchored to brand
name recognition.
• Apply a similar interactive experience for its furniture line. For instance,
online shoppers can plug in the floor plans for their homes and see
how Eddie Bauer furniture designs look room-by-room.

Taking the multi-faceted approach to building its brand and expanding into
new market segments, Eddie Bauer managers integrated all forms of
communications into the mix, such as its website, catalogues, advertising,
sales promotion – as well as the geographic locations of its stores – to build
a total brand strategy.

For instance, the Eddie Bauer catalogue promotes its website with all the
interactive online services. In turn, the online services inform visitors about
returning products to its brick-and-mortar stores, where ample cross-
referencing is also made to the Eddie Bauer web address.

Table 11.4 describes the various forms of direct response marketing available
to you.

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Direct mail Uses targeted mailing lists to send letters,
brochures, audiotapes, videotapes and CDs to
prospects and customers. Permits high levels of
selectivity and personalization.

Catalogue marketing Uses full-line merchandise catalogues, speciality

consumer catalogues and business-to-business
catalogues in various forms, including print,
CDs, videos, or online distribution. (See Eddie
Bauer case.) Needs good controls to monitor
quality of mailing lists, duplicated names and
bad debts. Online catalogues also provide
excellent opportunities to reach global markets.

Telemarketing Uses telephone and call centres to solicit

prospects, sell to existing customers, obtain sales
leads and handle customer problems. New
innovations with videophones will likely increase
telemarketing’s effectiveness.

Kiosk marketing Includes a variety of free-standing structures or

carts where vendors sell a variety of products
and services, from books, watches, jewellery,
insurance and phone services. Computer-linked
vending machines sell airline tickets at airports
and dispense money from ATMs from almost
anywhere.

E-marketing A growing channel to conduct a wide variety of

transactions from ordering industrial supplies,
obtaining services, to buying food. The Internet is
an omnipresent channel as an information source,
a communication tool and transaction channel for
an endless variety of goods and services.

Other media Includes newspapers, magazines, radio and TV

that offer books, clothing, jewellery, appliances,
vacations and numerous services through
toll-free numbers.

TABLE 11.4 DIRECT RESPONSE MARKETING CHANNELS

ELEVEN PROMOTIONAL STRATEGIES 355

 The Internet
With its remarkable versatility and still-evolving applications, the Internet is
worth singling out as it continues to transform the way consumers buy and
the methods by which companies conduct business. Its usage is as far-reaching
as the World Wide Web itself, with applications as sweeping as trading stocks,
obtaining information on autos, subscribing to book and music clubs, getting
price quotes on mortgages and purchasing airline tickets.

The Internet continues to transform the way consumers buy and

companies conduct business.

Transactions can be as diverse as the following: Aucnet attracts wholesalers

to a used-car auction and helps buyers judge the quality of the cars.
Narrowline provides an electronic exchange that brings together media buyers
with websites looking to sell available advertising space. Eworldauction holds
monthly online auctions of old books, maps and medieval manuscripts.

Ford Motor Co. used the Internet to promote its F-150 truck. On the day of
the launch, Ford placed bold banner ads for 24 hours on the three leading
portals – AOL, Yahoo! and MSN. Some 50 million web surfers saw Ford’s
banner. And millions of them clicked on it, pouring onto Ford’s website at a
rate that reached 3,000 per second. The company reported that sales jumped
six per cent over the first three months of the campaign.

The ability to utilize the Internet is not confined to large organizations, small
companies with limited sales resources can establish a home page as a way
to communicate a product message, offer special deals, announce a new service,
or launch into foreign markets.

Once you establish an Internet presence, your next step is to market your online
service and have customers and prospects visit your site. The following
guidelines will assist you in gaining visibility:
• Promote your website in all advertising media, including sales
promotion brochures, technical manuals, letterheads and business
cards.
• Display your web address on packages, in-store displays and counter
tops.

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 • Use your web address on press releases and any articles written about
your firm.
• Develop dedicated promotions that ‘sell’ the recipient on the
advantages of visiting your web site. This goes together with the
guidelines of offering genuine information to the visitor.
• Register with web search engines, the means by which individuals
locate sites that interest them. You can also buy a banner ad in a popular
search engine in a particular section in which your company is classified.
• This exciting promotion channel is still in its infancy. And with the
projected revenue growth into the 21st century projected to skyrocket
into the billions, establishing a solid presence on the Internet will pay
off in sales growth and market expansion.

The bottom line: Make the Internet an integral component of your promotion
plan.

Public relations
Public relations managers have often separated their activities from marketing
managers’ influence, as each tended to avoid coordinating their respective
functions. For the most part that separation is beginning to melt. Now there
is marketing public relations (MPR) to directly support corporate or product
promotion and image making.

Some specific functions of MPR include assisting in product launches,

positioning or repositioning a product that has reached the mature stage in
its life cycle and rebuilding interest in a brand.

Then, there are other specialized activities, such as influencing key target
groups, dealing with products affected by negative image problems and
promoting an overall favourable corporate persona. Table 11. 5 details some
of the major tools used in public relations.

ELEVEN PROMOTIONAL STRATEGIES 357

 Publications Influence target groups with published materials,
such as annual reports, brochures, articles,
company newsletters, magazines and audiovisual
materials.

Special events Use news conferences, seminars, outings, trade

shows, exhibits, contests and anniversaries that
can reach and influence selected groups.

Sponsorships Promote a company or brand by sponsoring

sporting events, association functions, or high
profile public causes.

News stories Develop newsworthy items for key media and

provide favourable information about a
company, product, or key executives.

Speeches Obtain opportunities for company’s senior

executives and other individuals to give talks at
sales meetings, association events and other
functions whereby their appearances will
enhance the company’s image.

Public service Involve company personnel in public-good

activities activities, such as assisting charity fundraisers,
helping disadvantaged students, teaching
specialized subjects at local schools and a variety
of other public service causes.

Lobbying Influence legislators and government officials to

endorse or defeat specific types of legislation.

TABLE 11.5 PUBLIC RELATIONS TOOLS

Public relations directly supports corporate or product promotion and

image-making.

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As with any form of promotion within the communication mix, you must
establish objectives of what you want to accomplish and convey that
information to the individual(s) responsible for public relations. What you
want to avoid is a disjointed effort where little or nothing is accomplished.

Personal selling

Salespeople should be trained in strategic planning and the

techniques of thinking like strategists.

The final component of the promotional mix to support and generate sales
is personal selling. There are far-reaching implications associated with sales
people.

In today’s selling environment, they are expected to go beyond just writing

the order. They should be equipped to gather market intelligence with special
emphasis on interpreting competitors’ activities.

The clear inference is that sales people should be grounded in the techniques
of competitive strategies, as suggested in previous chapters. They should be
able to recommend counter-strategies to senior management, which includes
plans that coordinate other components of the communications mix.

And in a broader aspect, considerations should take into account the full
marketing mix. These include pricing strategies, adding or deleting new or
existing products, altering supply-chain strategies and customizing
communications for market segments.

The rationale for the broader role for sales people is readily understood if
you consider that they are at the forefront of the action. Individually, a sharp
sales person should notice changes in buying behaviour and spot a
competitor’s surge in activity within his or her territory. As important, he
should be able to make sense of local economic conditions and project their
implications for the short- and long-term.

In sum, a sales person should behave as a general manager and act like a
marketing director for a sales territory, with all the budgetary and decision-
making responsibilities associated with those managerial titles.

ELEVEN PROMOTIONAL STRATEGIES 359

 Such was the approach used at a division of Hoechst where sales people
were trained in strategic planning and in the techniques of thinking like
strategists. Raising the skill levels is in-line with the general shrinking of
corporate staffs over the last two decades, as more authority and responsibility
filtered down to field sales and local managers.

A sales person should behave as a general manager for a sales territory.

Territorial structure
Accepting the above framework that sales people should behave as general
managers and think line strategists, it is in your best interest to provide sales
people with an all-inclusive picture of your marketing strategies. Then you
can legitimately ask for their active involvement.

Your objectives: Get the sales force on your side to actively support your
overall marketing strategy. Specifically, encourage their input about tactical
adjustments – as they view the market place from their perspectives. Overall,
you want to motivate them to the vital task of providing ongoing intelligence
about customers and competitors.

Beyond those essentials, try to understand how the sales force is deployed
and the ways in which the territories are structured. Knowing the structure
will help you decide on the types of strategies that will support your strategic
marketing plan – and how you will allocate your marketing efforts. Territories
are generally organized by product, market, or multipart structures.

PRODUCT

The sales force is structured along the lines of a major product or product
line. Generally, the product is expensive, complex and requires sales people
to have a good deal of product knowledge. In other situations, the product
line is broad with many varieties from which to choose. This structure is also
appropriate where consultative selling is required to solve a customer’s
operating problem or provide a technical solution. In many cases, sales people
require additional technical support, as well as sophisticated selling aids.

MARKET

The sales force is organized by industry or customer group. The major

advantage is that the sales force gains intimate knowledge of the industry

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and tunes-in to customer needs as they stay close to emerging or declining
trends. Here, too, consultative selling is a key advantage in supporting your
overall marketing strategy.

MULTIPART

This structure has a number of configurations. Where there are a wide variety
of products dispersed over a wide geographical area which serve various
customer groups, the sales force can be organized in a hybrid formation:
territory/product, territory/market, or product/market.

Get the sales force on your side to actively support your overall
marketing strategy.

In addition, key accounts (also known as national accounts, global accounts,

or major accounts) fit the multipart structure. These include important
customers that warrant exclusive attention by a small group of dedicated sales
people who provide specialized services. The customers may have several
divisions or multiple locations and require the sales reps to virtually ‘live’ with
them and handle all aspects of the relationship.

The key account structure is on the increase as more industries consolidate

through mergers and acquisitions, which results in fewer and larger accounts
that require comprehensive handling.

Summary and action steps

Consider the following points: speed is the essence of promotional success.
There are few cases, if any, of a profitable campaign that was prolonged. A
campaign may lack ingenuity, but it has a chance of success if delivered with
extraordinary speed.

Further, effective use of promotion can force competitors to react to your

moves on your terms. For example, the timing of your promotion can weaken
competitors by making them use additional resources after they have
completed a major sales promotion effort.

ELEVEN PROMOTIONAL STRATEGIES 361

 To identify strategies and initiate action:
1. List the promotions that represent your best opportunities.
2. Indicate what action is to take place and who is assigned the task.
3. Relate feedback to the planned objectives and related strategies.
4. List immediate plans and future courses of action to alter your
communication mix strategies as fresh market opportunities appear.

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PART FOUR CHAPTER TWELVE

Supply chain strategies: A demand-

driven lifeline to your customers
 TWELVE
Supply chain strategies: A demand-
driven lifeline to your customers

Chapter Objectives
To enable you to:
1. Develop the primary strategies for moving a
product to its intended market.
2. Learn the criteria for choosing channels of
distribution.
3. Identify techniques to evaluate distributor
performance.
4. Incorporate demand-driven, supply-chain
strategies into your strategic marketing plan.

One of the hallmarks of competitive advantage and marketing strategy is a

supply-chain network that incorporates speed, reliability and accuracy in the
movement of goods to optimize customer satisfaction. Expressed differently:
Provide the right product, at the right place, at the right time.

At the heart of the network is a demand-driven supply network (DDSN) that

begins with the market place and links back from buyers through retail outlets,
distribution centres, manufacturing plants, to suppliers.

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The essence of the system is to better serve the customer. Two examples give
pragmatic reality to the network:

Case example
Rexam, a London-based global consumer packaging giant, reacts to customer-
demand signals from its supply chain. With customers such as Coca-Cola,
Heineken, L’Oreal, Bacardi and Nestle, the company runs operations in more
than 100 facilities, services five business sectors in more than 20 countries.

“We are developing different supply chain strategies to support different

customer segments to add value to the customer,” says Rexam’s global supply
chain director. To make the system work, Rexam entered into a strategic
partnership with software maker SAP, based in Walldorf, Germany, to use
tools that help the company integrate ongoing information upstream and
downstream, from customers to suppliers.

UPS, foremost among the successful players in supply-chain logistics,

handles vast quantities of shipments daily with incredible speed and accuracy.
A live example of the system in action involves shoes from Birkenstock’s
factories in Germany to U.S. stores. A trip that once could take seven weeks
(through the Panama Canal) now takes three. Here’s how it works:
1. At plants in St. Katherin and Alsa, German Birkenstocks are packed
in crates and bar-coded with their final U.S. destinations.
2. UPS transports the crates to Rotterdam where they go into cargo
containers for the transatlantic voyage.
3. Shoes arrive in Newark, New Jersey. UPS clears them through customs
and moves them to its nearby hub.
4. Minutes after arriving, the containers are opened, shoes sorted and
UPS speeds them to any of 3,000 stores.

TWELVE SUPPLY CHAIN STRATEGIES 365

 5. Along the way, UPS uses bar-code scanning to keep track of every
shipment until the merchant signs off on it.

Supply chains compete, not just companies.

What can you learn from the above case examples? With ongoing industry
consolidations through mergers, you can create an area of differentiation
and very likely a strong market advantage if you broaden your perspective
and consider that supply chains compete, not just companies. That notion
provides you with the added option of using the efficiency of your supply
chain against that of a competing one.

As seen in the above examples, channels of distribution, logistics and the

wider view of demand-driven supply chains focus on the geographic
selection of markets and works backward through the several points to the
sources of supply. That also includes the physical movement of products and
the placement of services over long distances.

As a result, many of the anxieties about conducting transactions and tracking

shipments over extended distances have dissolved with the global use of the
Internet, bar-coding and other information technologies that provide real-time
communications throughout the chain.

Also, managers’ have shifted attention to accurately defining markets, with

special emphasis on closing cultural and behavioural distances. (Topics that
have been covered at length in previous chapters.)

Attention has shifted in distribution to closing cultural and

behavioural distances.

Your efforts, therefore, should focus on specific activities that relate to your
market place, such as:
1. Evaluate strengths and weaknesses within the existing distribution
channels, as well as your overall position on the supply chain.
2. Assess the ease or difficulty of maintaining adequate market coverage.
3. Look for changes in the positioning of competitors, in particular, niches
where they may have penetrated your market.

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 4. Indicate your proximity to customers for providing timely back-up
service.
5. Increase your knowledge of various customer groups, such as clues
to changing buying practices.
6. Identify those few suppliers in your industry that tend to influence
the flow of materials that, in turn, could result in the control of prices.

Further, you should keep an eye on such areas as the volume of orders from
various segments, their frequency, how recent the orders are and seasonal
influences on purchases. Overall, any monitoring you undertake should reflect
your company’s ability to fulfil market demand and satisfy customers’
expectations, as measured by customer satisfaction ratings.

Ultimately, the success of your marketing strategy depends on moving your

product to its intended market. Accordingly, take considerable care in making
distribution decisions as you consider the far-reaching impact of supply chain
strategies.

Such decisions will be based on (1) the long-term commitment to the

distribution channel; (2) the amount of geographic coverage needed to maintain
a competitive advantage; and (3) the possibility of competitive inroads.

Supply chain strategies

There are at least three reasons why the supply chain should rank high in
importance to your firm – and, specifically, to how you develop a strategy:
1. The supply chain involves long-term commitments to other firms.
Once chosen, distribution channels typically develop a great deal of
resistance to change. Your choice of a channel defines your brand in the
consumer’s mind with a certain kind of store or outlet, thus creating an
image that is difficult and costly, to alter.

Signing up individual wholesalers or retailers often involves substantial

up-front expenditures. This money is needed for training sales and service
personnel, installing ordering and inventory-control systems, advertising
and promotional support and fielding enough sales support. These and
many other investments and commitments would be wasted if you decided
to abandon these channel partners.

TWELVE SUPPLY CHAIN STRATEGIES 367

 Remember, too, that it would hardly sit well with the trade if you walked
away from your commitments. Your channel partners would also resent
and resist any infringement on their franchise if you adopted a multiple-
channel strategy for the same brand.

2. The supply chain delineates the portion of the market that you can reach.
Your selection of channel members restricts the kinds and numbers of
ultimate buyers that can be reached through them. In effect, you could
be cut off from that part of the market that does not patronize those outlets.
Of course, your selection of outlets may coincide with your target market,
in which case neglecting the remainder of the market is deliberate.

But what if you can’t attract the kinds of stores or outlets that cater to
the group of consumers you wish to reach? Then you have to settle for
what you can get. To avoid this trap, your product, your price and your
support must satisfy the intermediaries you want to win over.

3. The supply chain affects all other marketing decisions.

The interdependence of marketing mix decisions is most evident when
choosing distribution channels. If you choose a pattern of exclusive
distribution, your product often becomes a luxury item requiring high
prices and high dealer margins. If, on the other hand, you go after intensive
market coverage, you characterize your product as mass merchandise,
which, in turn, most often necessitates a low-price policy.

Choice of advertising approaches, themes, messages and media will vary

with your product’s distribution channels. Also, product and packaging
design must reflect the characteristics of your selected channels. That is,
merchandise suited for self-service outlets have to be presented differently
from goods requiring the advice and explanation of knowledgeable sales
personnel.

Obviously, then, supply chain decisions cannot be made in a vacuum, since

they have repercussions on every other marketing decision you make
and thus affect your entire marketing effort.

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 This discussion comes alive when viewed by the following case in which
one company chose a distribution channel as its competitive weapon and
how the decision influenced its long-term commitments, market reach
and internal operations.

Supply chain decisions cannot be made in a vacuum.

Case example
Dell Computer Corp. is a high-flying company racking up record revenues
and profits by utilizing distribution as a major driving force behind its strategy.
Dell defines its channel as the use of direct response marketing to penetrate
the vast PC market.

The Dell case is instructive, largely because of the dismal but erroneous
predications of industry analysts during the initial stages of Dell’s growth.
Early on, industry experts predicted that once Apple, IBM and others
discovered buyers turning in droves to the toll-free telephone numbers and
the Internet to order hardware, they would pounce on Dell and push it out
of the selling channel. The leaders also thought their vast resources and
powerful brand names would entice customers away from Dell. That never
happened.

By the mid-1990s, Dell’s sales hit over $4 billion. And if you calculate market
share of Dell and the other major direct marketer, Gateway 2000 Inc., the
combined total equals a substantial 47 per cent of the direct response business.

Let’s look at the major factors contributing to Dell’s success:

TARGET MARKETS

Initially, Dell made the strategic choice of focusing primarily on corporate

customers while de-emphasizing consumers, where the industry leaders were
aiming most of their marketing efforts.

TWELVE SUPPLY CHAIN STRATEGIES 369

 TARGET CUSTOMERS

Dell’s typical customer profile revealed its buyers as knowledgeable about

computers, up-to-date on new systems and specific about the products they
wanted. Also those customers did not need or want the hand-holding assistance
provided at retail outlets.

INTERNAL OPERATIONS

To accommodate its customer profile, Dell developed flexible manufacturing

techniques. These techniques enabled the company to build a customer’s
computer virtually to order. Using different components for each order phoned
in, Dell could custom-configure computers as received.

COST CONTROL

Costs are kept in line because Dell carries less inventory – 35 days-worth
compared with 110 days for rivals. Such flexibility allows Dell to use its direct
response expertise to introduce new (and more expensive) models faster than
it could through the longer chain of manufacturer-to-distributor-to-retailer-
to-end user.

Thus, with Dell’s operating costs at 5.4 per cent of revenues vs. 13 per cent
as an industry average and eliminating the middleman mark-up, Dell enjoys
greater opportunities to undercut the major brands after tapping other strategy
options.

SUPPLY CHAIN INNOVATION

Dell marketers recognize that getting comfortable with their current direct
channel approach could limit expansion, especially in global markets that lack
the sophisticated communications and delivery systems of North America.
Still exhibiting entrepreneurial flair, managers moved to interactive kiosks
and marketing via the Internet.

Action strategy
What can you learn from the Dell case? Dell’s success illustrates supply chain
power. Defined as the ability to set channel standards and control performance,
supply chain power can even influence other organizations’ channel decisions.
For Dell, applying the power had the marketing effect of preventing the industry
giants from taking control of the direct channel.

Then, there is the power of the Internet. As a channel of distribution, doing

business via the Internet shows cost savings in the range of five per cent to

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ten per cent of sales (an average based on the experience of a wide variety
of companies). In more dramatic numbers, some companies have reported
huge advantages from online business relationships.

In contrast to the Dell situation, there are a number of compelling reasons

for using middlemen. The majority of manufacturers lack the financial
wherewithal to perform effectively at both levels, production and distribution.
They have to rely on middlemen to provide the financing for an aggressive,
widespread selling effort.

Yet, even companies with adequate financial means might find investment
in vertically integrated channels unattractive because of a relatively low return
on investment. Thus, they might pursue higher yielding opportunities at the
production end, leaving the distribution function to specialists.

Finally, producers going into the distribution business themselves often find
that they must carry complementary products of other manufacturers to help
defray the high cost of distribution and get maximum yield from their effort.

Supply chain control

Supply chain control considers four sets of circumstances that dictate the
search for new distributors:
1. New marketing efforts, such as introducing a new product or
entering a new market.
2. Desire to intensify market coverage.
3. Need to replace existing distributors.
4. Industry changes, which impacts on distribution strategies.

Strategy applications
• Identify prospective outlets
• Evaluate distributors
• Select the best distributors

The following case illustrates an innovative approach to channel control.

TWELVE SUPPLY CHAIN STRATEGIES 371

 Case example
Wrangler jeans, faced the uncomfortable situation as it watched garment
imports double and data showed competitors grabbing as much as 80 per
cent of its market. To counter the threat, Wrangler executives forged a
cooperative distribution relationship with Wal-Mart Stores, Inc.

For example, Wal-Mart used a computer hook-up through which it could

get orders filled in one day, instead of the five weeks it previously took before
computerization. Wrangler developed similar plans for its suppliers.
According to both companies, those link-ups resulted in more efficient control
of the distribution channel with huge cost savings.

Within the overall textile industry, other companies along the supply chain
demonstrated that better control between makers of apparel and distributors
or retailers are cutting lead time for new products to an average of 17 weeks
from the normal time of over six months. By developing such cooperative
relationships within the supply chain, some companies are developing a
competitive advantage over imports.

Action strategy
What can you learn from the Wrangler case? Within the supply chain, the
distributor can be one of the key success factors in a strategy. After you’ve
developed a strategy that involves distributors, you need to know how to
select and evaluate them. Use the following guidelines:

Selecting distributors

Add more distributors in a territory based on population, sales, or

buying potential.

Given the high degree of specialization found among distributors, you must
decide how selective or comprehensive you want market coverage. Only with
the appropriate distribution mix can you satisfactorily achieve your marketing
goals.

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Your middlemen will perform as you expect only if you carefully manage and
constantly update your relationship with them. Therefore, develop and
consistently apply well-thought-out criteria (Table 12.1) for selecting the right
distribution partner in a given area.

As you introduce new products, you may find that your current distributors
are ill- equipped to sell and service them, or that they already handle competitive
products. Or you may be addressing a new kind of clientele not serviced by
your supply chain. If you enter into new geographic markets, the need for
appropriate representation may become self-evident.

To help determine how many and what kinds of distributors you need for a
particular territory and to facilitate the selection process, you will want to
conduct a market analysis to estimate its sales potential. Fortunately,
however, you rarely have to choose a completely new set of distributors. Your
own firm’s present distributors can adequately handle most new product
innovations.

As you review your share of the business in a given segment, you may conclude
that your firm is under-represented. Or you may determine that your
present outlets are not going after the business aggressively enough to satisfy
you. As a result, you need to add more distributors in the territory, based on
population, sales, buying potential, or other relevant considerations.

By far the most frequent reason for appointing new distributors is the turnover
of existing outlets. These changes may be due to natural attrition, the death
or retirement of principals, or the sale or collapse of a distributor. The recent
trend towards more specialization or limited-line selling has also led many
distributors to drop a certain manufacturer’s line.

More often than through attrition, changes in your distributor mix come about
by inadequate distributor performance that leaves the manufacturer, or even
both sides, dissatisfied. Yet, such a move can prove painful and disruptive
and should be undertaken only in extreme cases.

In some instances, you may try to rekindle an existing relationship, as long

as there is a willingness to recognize the dynamic changes of the market place
and consequently the changes required in strategy.

Table 12.1 highlights the selection criteria most often mentioned by some 200
leading manufacturers in a study on this subject. Notice how the criteria are
classified and summarized into a limited number of categories that can apply
to any distributor selection task, in any geographic location.

TWELVE SUPPLY CHAIN STRATEGIES 373

 CRITERIA IMPACT

Financial aspects Only a distributor with solid

financial strength and controls can
assure you of adequate, continuous
representation

Sales organization and The sales strength and record of

performance performance are essential to your
long-term relationship

Number of sales people (in the field The general rule: the more sales
and on the inside) people, the more sales and the
more effective the market coverage

Sales and technical competence Sales people with inadequate

technical and sales skills are a
liability

Product lines carried Pick your relationships carefully

Competitive products Generally avoided; sometimes okay

Compatible products Tend to be beneficial

Quality level The higher, the better

Number of lines Will your line get enough

attention?

Reputation You are judged by the company

you keep and the image you want
to spread

Market coverage Exposure means sales

Geographic coverage Avoid overlap and conflicts

Industry coverage Major user groups must be

covered

Intensity of coverage Infrequent calls mean lost business

Inventory and warehousing Ability to deliver products and

services accurately and on-time are
often decisive

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Kind and size of inventory You want the right mix and a
willingness to maintain adequate
stock

Warehousing facilities Storage and order handling must

be suitable to customers’
requirements

Management Effective leadership spells success

Ability You want competent management

Continuity Succession should be assured

Attitudes Look for enthusiasm and a total

customer orientation

TABLE 12.1 CRITERIA FOR SELECTING DISTRIBUTORS

Evaluating distributors
Once you have secured the services of a suitable candidate, you must then
ensure that your association brings maximum benefit to both parties. You
need to perform periodic evaluations designed to keep you continually informed
about the relative performance of your various distributors.

Evaluations may be in the nature of current operating appraisals or may take

on the form of overall performance reviews. If they are simple and limited
in scope, you could conduct them monthly. Thorough analyses, however, should
be undertaken only at infrequent intervals: annually or biannually.

Perform periodic evaluations to keep informed about the

performance of your distributors.

The following case summarizes how one company integrates its supply-chain
strategies into a competitive advantage.

TWELVE SUPPLY CHAIN STRATEGIES 375

 Case example
Owens & Minor Inc., a distributor of hospital supplies, typifies the role of
the 21st Century middleman in the supply chain. Combining technology and
customer service as the centrepiece of its strategy, the distributor has taken
control of its channel. (Maintaining a control position in that industry
traditionally belonged to manufacturers.)

Owens & Minor’s strategies breakdown into four categories:

INVENTORY

Owens & Minor’s employees take a daily inventory at its customers’ hospitals
using hand-held electronic devices linked to the hospitals’ computers. The
computers then transmit orders directly to Owens & Minor’s regional
distribution centres where daily deliveries are scheduled.

In one hospital, where this managed inventory system was installed,

inventory that included everything from catheters to garbage bags, once valued
at $250,000 was reduced to around $50,000. With cash-strapped hospitals
seeking relief, the managed-inventory system satisfies the customer,
strengthens the distributor-buyer relationship and gives Owens & Minor’s
marketing and sales strategy a commanding edge.

MANAGEMENT EFFICIENCY

With inventory control and just-in-time delivery, hospitals benefit further by

less paperwork, fewer employees, less stockroom maintenance and reduced
spoilage from such basic products as baby formulas. One medical centre
estimated it saved $9 million in three years using the system.

CONSULTATION

Besides reducing inventories, Owens & Minor advises its customers on ways
to reduce waste. In one instance, its personnel observed that a hospital was
spending $600 on products for each open-heart operation, compared with
$420 spent by other customers for the same procedure. Altering the contents
of one sterilized package saved that hospital the difference.

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GROWTH

With an efficient distribution system in place, Owens & Minor managers

capitalize on their dominance by adding products to their line. This generates
more profitable sales volume with only incremental costs, while satisfying
customers with one-stop-shopping.

Action strategy
What can you learn from the Owens & Minor case – whether you are a
distributor or manufacturer?

If you are a distributor: Take control of the distribution channel by becoming

more than just a conduit for supplying products from manufacturer to customer.
Utilize technology to manage customers’ inventories, improve delivery
times, solve customers’ problems related to waste and reduce costs in order
processing and shipping.

If you are a manufacturer: Recognize that if you decide to bypass the middleman,
you will have to deliver the above services. With distributors taking the initiative,
it may be a prudent alternative to select a distributor and provide maximum
support, even to the extent of supplying capital to purchase or update the
distributor’s technology. Such an alliance accepts the middlemen not as a
weak link in the supply chain, but as a powerful coupling to activate a marketing
strategy.

Regardless of your position on the supply chain, there are key functions you
have to deal with in shaping your overall strategy:
• Information: Collect, analyze and disseminate market intelligence about
potential and current customers, competitors and other forces
affecting the market.
• Communication: Combine various forms of communication including
Internet, literature, videos and workshops to attract and retain
customers.
• Negotiation: Seek agreement on price, terms of delivery and other
value-added services as they relate to a preferred-customer status
and long-term relationships.
• Ordering: Set-up systems for the efficient transmission of ordering
information, e.g. using the Internet.
• Financing: Develop the means to fund a managed inventory system,
similar to that of Owens & Minor.

TWELVE SUPPLY CHAIN STRATEGIES 377

 • Risk taking: Assume the responsibility for risks associated with the
expanded role and activities of a middleman.
• Physical possession: Develop a suitable capability to warehouse
additional varieties of products for customers and manage increases
in inventory turnover.
• Payment: Design an effective procedure for payment, including the
selective financing of inventories for the buyer.
• Title: Develop a system to pinpoint the transfer of ownership from
seller to buyer. In some situations, inventory is held at the buyer’s
location and title changes only when usage occurs.

With the backward and forward flow of activities throughout the supply chain,
different participants in the channel assume distinct functions. Therefore, when
forming a relationship, whether manufacturer or distributor, clearly define
the role of each channel member.

Innovations in supply-chain strategies

As you look at your overall marketing strategies, with application to supply-
chain strategies, your aim is to circumvent strong points of competitive
resistance and concentrate in those markets that represent advantages built
around long-term customer relationships.

The following cases describe innovations using inline systems and online
technologies as part of their supply chain strategies.

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Case examples
United Technologies Corp. is a diversified manufacturer of such well-known
name products as Otis Elevator, Sikorsky helicopters, Carrier Air conditioners
and Pratt & Whitney engines.

The company has more than quadrupled earnings in a decade and

outperformed even the celebrated General Electric Co. in returns to investors.
Also, operating margins have expanded from six per cent to an impressive
14 per cent.

The results are even more striking if you consider that UTC management has
essentially taken commodity products such as elevators and air conditioners
and, thanks to constant innovation and superior technology, turned them
into high-profit businesses.

Much of the exceptional profit growth has come from internal systems, such
as product quality, production improvements and systems modernization.

In particular, it is in the streamlining if the supply chain in virtually every

area of the business, from critical machine parts to office supplies and travel
that have contributed to market place pricing advantages and profitability.

“We can come to market three times faster, with one third the inventory and
at least 20 per cent less cost”, reports a UTC supply management vice-president.

McAfee Associates, a software maker, sets a brilliant example of how to employ

an online distribution strategy to reach its customers, while successfully
preventing competitive encroachment. The company operates in an aggressive,
fast-moving industry where new products flow daily from both established
organizations and enterprising start-ups.

Here’s how managers executed their strategy. Note, too, the multi-faceted
approach to its implementation.

TWELVE SUPPLY CHAIN STRATEGIES 379

 McAfee’s strategy
• McAfee licensed its computer network security and management
software for two years at a time. In contrast, most competitors followed
the traditional industry approach of selling their software. Result:
McAfee reduced its customers’ upfront distribution costs and
positioned itself advantageously for the long-term.
• The industry’s product cycle averaged about 18 months and upgrades
were typically sold to customers. Instead, McAfee issued upgrades
as needed and gave them to customers free of charge. These frequent
upgrades positioned the company with a favourable image among
its customers. Result: Customer loyalty translated to a remarkable
renewal rate of over 85 per cent.
• McAfee used technology advances to speedily send product upgrades
to customers over the Internet. Results: McAfee benefited from low-
cost distribution and applied the cost saving to under-price competitors
by as much as 50 per cent, thereby gaining market share.
• As McAfee increased market share, however, its managers soon
recognized that the company’s limited product line of anti-viral
programs was a distinct weakness and made it vulnerable to
competitive inroads. To strengthen its hard-won market advantage,
McAfee responded by launching product acquisitions of network
security and management programs that created barriers of entry
against competitors.

Results: In the reporting year after implementing the strategies, even with
sizable expenditures in product line expansion, McAfee generated a striking
gross margin of 95 per cent.

Nestlé’s CEO Peter Brabeck-Letmathe perceived an opportunity to use the

Internet to create an online virtual supermarket. It was in early 1992, well
before the onset of the e-revolution, that he envisioned his food company
could create interactive communications with customers.

He ordered a market test in a regional area within Nestlé’s home country of

Switzerland. It was there that Brabeck-Letmathe and other executives
learned a great deal that would lead to geographically wider marketing
successes.

First, within the test area, shopping for the most part was difficult. Many
shops closed at 6 p.m., making it unreasonably difficult for working couples

380 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

to go shopping. Second, many of the younger people preferred to go skiing
rather than travelling to a supermarket.

Nestlé executives also observed that the question of logistics was conveniently
answered by the Swiss Post Office that served as a highly reliable distribution
network. Further, the post office functioned as a bank for collecting payments.

Nestlé executives were quick to observe that e-tailing would not displace the
conventional brick-and-mortar supermarkets. It did, however, add another
channel of distribution and permitted the use of market segmentation
techniques to target specific groups based on demographic and behavioural
factors.

The electronic interaction with customers would also provide Nestlé with an
added opportunity and potentially a competitive edge, to tailor product and
service offerings to emerging, neglected, or poorly served market niches.
All this opportunistic thinking and innovative activity took place well in advance
of counter actions by Nestlé’s competitors.

Action steps
Before converting your supply-chain strategies into action, remember that
excessive distance and time between your product and its availability to
customers adds a burden to an operation. Therefore, shorten the supply chain
and reduce communication time between the customer and the home office
to assure profitable market conditions.

To identify strategies and initiate action:

1. List those strategies that represent the best opportunities to enter a
market, establish a viable position, maintain solid relationships with
customers and prevent aggressive competitors from dislodging you
from the market.
2. Indicate what action is to take place and who is assigned the task.
Your strategic marketing plan is the best vehicle to incorporate this
information.
3. Relate market feedback to determine if the objectives have been
achieved, or if innovative strategies are needed. (See above cases.)
4. Develop future courses of action to deal with changes in customers’
needs, competitive activities and market conditions that would affect
your supply chain.

TWELVE SUPPLY CHAIN STRATEGIES 381

Blank page
PART FOUR CHAPTER THIRTEEN

Maintaining a global perspective:

Thinking like a strategist
 THIRTEEN
Maintaining a global perspective:
Thinking like a strategist

Chapter Objectives
To enable you to:
1. Identify five entry strategies for
expanding into global markets.
2. Coordinate individual talents into a
cohesive team that can develop
competitive strategies.
3. Define the duties and responsibilities of a
strategy team.
4. Identify the six guidelines for creating
marketing opportunities.

Defining a global perspective

A global marketing perspective means reaching beyond geographic
boundaries to find new frontiers for growth. It also mandates that you acquire
the mind of a strategist, which is the foundation theme of this book.

That means you first look opportunistically for markets that are emerging
and in a growth stage; and you treat each as a unique entity with tailored
strategies developed according to customers’ expressed needs and distinctive
cultures.

Second, you take into account your competitive situation, recognizing that
rivals are not just the traditional companies in your industry; increasingly

384 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

they surface as a new breed of gutsy, highly-imaginative upstarts that are
ready to take on the world leaders in their own home territories. And they
are equally fearless to move beyond their local borders into developed markets.

Consequently, global thinking takes a two-pronged approach, which is

expressed in targeting markets, developing tailored products, devising
culturally-sensitive product-launch strategies and establishing a firm foothold
in the market, all the while keeping an active and determined check on
competitors.

Treat each market with tailored strategies to customers’ needs and

distinctive cultures.

The following examples provide an overview of what global marketing means

for the 21st century executive.

Led by such developing nations as China, India, Russia and Brazil, emerging
markets are exploding in growth. What makes those markets so appealing,
particularly in China and India, is not just the vast numbers of poor living in
remote areas that are becoming consumers, it is the bursting segments of
middle class consumers.

In the latter group, as of 2005, there were 60 million in China and 200 million
in India and their numbers are growing at double-digit levels. These newly
rich consumers are savouring the same well-known brands available to those
in Great Britain, U.S. and Japan.

Reaching those tantalizing new markets is far from a simple marketing effort.
A process is already in place built around a structure of product design,
innovation, pricing, business development and competition.

Product design
In developing countries, products for the most part have to be uncomplicated
and sturdy. For instance, an Indian computer printer maker is marketing
devices for India’s 1.2 million small shops. The product is an all-in-one computer,
cash register and inventory-management system. With many of the clerks
illiterate, the units are designed to be operated with icons.

THIRTEEN MAINTAINING A GLOBAL PERSPECTIVE 385

 Innovation
Companies marketing in developing countries have to innovate to match the
distinguishable characteristics of those markets. For example, in areas where
electricity is unpredictable or non-existent, Hewlett-Packard designed a small
solar panel to charge digital printers for itinerant photographers in India.
In South Africa, HP is working with a solar fabric that is cheaper and less
fragile as a power source for such equipment.

Beyond product considerations, there is the necessity to understand the

behaviours of individuals in their local surroundings. Intel, for instance, used
a team of ten anthropologists travelling the world to find out how to redesign
existing products or come up with new ones that fit different cultures or
demographic groups.

Pricing
With increasing pressure on pricing, instead of selling the products outright,
HP is renting the equipment or experimenting with similar pay-as-you-go
plans. Thus, product design, pricing and product availability are considered
in the marketing mix.

Business development
With standard ‘Western’ business models outmoded in many emerging
markets, companies entering those markets are developing fresh approaches.
IBM supplies technology to local Chinese companies that, in turn, create
inexpensive and simple-to-use products for the country’s hard-to-reach rural
populations.

Competition
Increasingly, bold new challengers are rising up against the leaders arriving
from the developed world, such as Cisco, Dell and Microsoft. Employing
ingenuity, low costs and intimate knowledge of their markets, the local
companies are troubling many of those leaders. In some instances, enlivened
with success, upstarts leave their shores and make inroads in the developed
countries.

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A global perspective on market possibilities

Global markets open through the increasing use of the Internet and
with improved supply chains.

There is no denying that global markets, in particular emerging ones, offer

attractive potential. For many organizations it is the only approach for growth
as existing markets mature with few chances for profitable opportunities.

As global markets open through the increasing use of the Internet and with
improved supply chains, it is likely that there are many untapped segments
around the world that would open to your company, regardless of the industry.

More and more, the world is becoming an available global market place. To
stop marketing activities at your borders is not only arbitrary, but also short-
sighted.

In developed countries it is somewhat easier to enter because they usually

have fully developed communications, distribution and transportation
systems, to name but a few facilitating factors.

In contrast, developing countries, as pointed our in the above examples, require

a more flexible approach, since they tend to be more jealous of their national
prerogatives and less advanced in their infrastructure. But their sales
potential is, nevertheless, quite substantial. It can be tapped successfully, if
you are willing to adapt.

Evolution of global business

The following examples illustrate how international businesses have evolved

by stages. In the first stage, companies operate in one country and sell into
others. In the second stage, multinationals set up foreign subsidiaries to handle
one country’s sales. The third stage involves operating an entire line of business
in another country. The fourth and current stage, goes much further with a
new breed of companies known as transnationals that appear stateless and
aim to transcend nationality altogether.

Transnationals operate as an integrated global network of operations. To

deal with the gaps between time zones and cultures, these far-flung
companies operate like virtual computer networks. Thanks to the Internet,

THIRTEEN MAINTAINING A GLOBAL PERSPECTIVE 387

 they can communicate in real time via e-mail, instant messenger, or web
video conferencing.

For example, a group of tech industry companies are taking transnational

to extremes – spreading key headquarters functions around the world – in
an effort to be more competitive. The following is a sampling:
• Trend Micro. With its computer virus response centre in low-cost
Manila and six smaller virus response labs scattered around the globe,
the Taiwanese/American/Japanese company can guarantee delivery
of inoculations against major viruses in less than two hours. No rival
virus company has such international reach.
• Logitech International. With dual headquarters in Switzerland and
Silicon Valley, Logitech holds its own against mighty Microsoft in
computer peripherals. One key advantage: the top manufacturing
executive is located in low-cost Taiwan. That helps Logitech make
quick decisions about whether to manufacture products at its
Chinese factories or farm them out.
• Wipro. One company’s executive is situated in the U.S. so he can
consult with clients in the largest market for its technology services.
But most of its engineers and consultants are in India, where annual
cost per employee is less than one fifth that of Silicon Valley.
• Cognos. The Canadian/American company’s international orientation
has changed the way it makes software. In the past, it released different
versions for each country. It now ships business software designed
for multinational customers, which includes all of the major languages,
plus data on local currencies and tax regulations.

The current stage of global marketing transcends nationality

through a new breed of company: transnationals.

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Action strategy
What can you learn from these examples? Regardless of your stage of entry,
there are several universals that apply to most global businesses. These include:
1. Products have to be tailored for local markets. Setting up such a strategy
requires coordination at many levels. Sometimes termed ‘mass
customization,’ local marketing involves full cooperation from
product developers, producers and local users in finding applications
and solutions to customers’ problems. (See earlier examples.)
2. Employ country nationals in key positions. Cultural differences,
language and local market barriers are more likely to be overcome
by the sensitive responses of management familiar with the nuances
of the market.
3. Participate with well-positioned distributors that have the know-how
to create effective linkages with specific customer groups.
4. Monitor the image your company and product line project. Once done,
the next step is to determine what changes are needed in product
quality, performance, or service to improve the image.

The entry strategies that follow show the choices available to your firm. While
representing alternative possibilities, look to them as an orderly process for
increasing market penetration.

Entry strategies for global markets

Strategies for entering foreign markets are conveniently classified into five
basic categories: exporting, licensing, joint venture, wholly owned subsidiaries
and management contract.

Table 13.1 presents these approaches in a systematic form for comparison.

These alternatives differ from one another in intensity of commitment, amount
of investment, extent of control and degree of profitability. Making a choice
is often dictated by circumstances such as insufficient funds, inadequate
knowledge of a foreign environment and host country restrictions on
ownership.

THIRTEEN MAINTAINING A GLOBAL PERSPECTIVE 389

 The following is an overview of the benefits and drawbacks of each category.
Then, you can make more intelligent and informed decisions when considering
the possibilities open to you on the global scene.

Strategy Definition Intensity of Amount of Extent of Degree of

commitment investment control profitability

Exporting Marketing in Typically very Possible Rather limited, Moderate,

one country limited investment in except in the due to
goods inventory case of transportation
produced in exclusive cost, import
another distribution duties,
middlemen
costs

Licensing Licensor Own Virtually none Very Fixed royalties

grants marketing restricted; dependent on
licensee right effort spelled out in licensee effort
to use patent, precluded until license
know-how, expiration of agreement
etc. license

Joint venture Sharing Generally Dependent on Dependent on Varies

ownership and provide know- equity share ownership according to
control of how and ratio and circumstances
foreign equity capital power play
operation with portion
at least one
partner

Wholly owned Firm abroad Strong Substantial Complete Can be highly

subsidiary 100% owned commitment to investment in control over all profitable
by company all kinds of plant and phases of
resources systems operation

Management Managing a Only human Facility not Restricted by Moderate, due

contract foreign facility resources owned by contract; to its fee
under contract managing firm typically quite character
limited

TABLE 13.1 COMPARISON OF ENTRY STRATEGIES FOR GLOBAL MARKETS

You can feel out a chosen market through exporting. If you are successful,
the need may arise for local production. If you are not ready for direct
investment, licensing provides a reasonable substitute.

In order not to have to go it alone from the financial and marketing angles,
you may instead choose a joint venture arrangement. Where permitted, wholly
owned subsidiaries put you fully in charge.

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On the other hand, management contracts offer a solution when a host country
seeks your company’s expertise, without allowing it to acquire ownership of
the managed properties.

Whichever entry strategy your firm chooses to penetrate a foreign market,

going global will increase your potential for growth and profit.

The team approach – thinking like a strategist

This section relates to the mind of the manager as a strategist and the interaction
of people in a common cause. These human factors intensify whenever there
is a conflict of human wills, whenever there is an effort to grow, expand, or
achieve an objective.

The purpose of this section, therefore, is to show how the diverse talents of
individuals can be coordinated into a cohesive force for developing competitive
strategies. The focus will be on (1) the role of strategy teams in developing
competitive strategies; (2) broadening the perspective of teams to look at new
developments that can be incorporated into competitive strategies and (3)
guidelines to thinking like strategists.

The roles and responsibilities of strategy teams

The strategy team is one of the most successful formats for

delivering innovative and entrepreneurial thinking.

As indicated in Chapter 1, the mind of the manager, the human factors, the
people interactions are all key ingredients in utilizing market and competitive
analyses to organize a strategic marketing plan.

Joined to that idea is the marketing concept, defined as a total system of

interacting business activities designed to plan, price, promote and distribute
want-satisfying products and services to household and organizational users
at a profit in a competitive environment.

Thus, you can effectively blend all the human factors with the marketing concept
through strategy teams consisting of individuals representing all the key

THIRTEEN MAINTAINING A GLOBAL PERSPECTIVE 391

 functional areas of the organization: manufacturing, product development,
R&D, finance, distribution and sales/marketing.

These functions may vary in some organizations. But the key idea is that
representation from the major interacting activities must be present for a
strategy team to fulfil the broader aims of the business and the day-to-day
marketing objectives within a competitive environment.

One of the most notable users of strategy teams is Dow Chemical Co. It has
employed an organizational structure for over 25 years that permits strategy
teams to operate for individual products, markets and industries throughout
its worldwide operations. At any given time there may be as many as 40 strategy
teams at work within Dow.

These teams have the various designations, such as Product Management

Team (PMT), operating at a product manager level for a product line; Business
Management Team (BMT) at the next higher level, dealing with a business
unit or major market; and Industry Management Team (IMT), operating on
a still broader dimension.

Using the PMT as an example, the team is usually chaired by a

product/marketing manager and staffed by individuals representing such
functional activities as manufacturing, finance, technical management and
marketing/sales.

This arrangement not only allows for the dynamics of team members working
together, it also tends to defuse traditional adversarial relationships, for
example, between marketing and manufacturing.

Team members may change from time to time and the frequency of meetings
may vary with teams, but the key element is that the permanency of the team
as part of the organizational structure exists and can be called into action at
any time.

The strategy team, business management team, or product management team,

whichever designation you select, is one of the most successful organizational
formats for conceiving and delivering innovative and entrepreneurial
thinking to the organization.

Such a team should be initiated at every operational level by adopting role

and responsibility guidelines. For our purposes, let’s designate the team as
a Business Management Team.

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Roles
The Business Management Team serves as a significant functional contributor
to the strategic marketing planning process with leadership roles in:
• Defining the business or product strategic direction.
• Analyzing the environmental, industry, customer and competitor
situations.
• Developing long- and short-term objectives and strategies.
• Defining product, market, supply chain and quality plans to implement
competitive strategies.

Responsibilities include:
• Creating and recommending new or additional products.
• Approving all alterations or modifications of a major nature.
• Acting as a formal communications channel for field product needs.
• Planning and implementing strategies throughout the product life cycle.
• Developing programs to improve market position and profitability.
• Identifying market or product opportunities in light of changing
consumer demands.
• Coordinating efforts with various functions to achieve short- and long-
term objectives.
• Coordinating efforts for the interdivisional exchanges of new market
or product opportunities.
• Developing a strategic marketing plan.

Empower team members with duties and responsibilities that culminate

in a strategic marketing plan.

If you decide to establish a cross-functional strategy team or attempt to increase

the output of an ongoing one, empower the team members with specific duties
and responsibilities that culminate in a strategic marketing plan.

THIRTEEN MAINTAINING A GLOBAL PERSPECTIVE 393

 Identifying opportunities
A team can be created rapidly and provided with clear-cut mandates to create
marketing opportunities and tackle competitive threats. More specifically, the
team should actively look for opportunities to create action. The following
opportunities are presented as examples.

Opportunity 1
Search for opportunities in unserved, poorly served, or emerging market
segments.

ACTIONS

a) penetrate and expand niches;

b) improve products and services;
c) stretch product lines;
d) position products to the needs of customers and against competitors.

Opportunity 2
Identify ways to create new opportunities.

ACTIONS

a) seek new product or market niches;

b) participate in new technology, innovations and manufacturing;
c) pioneer something new or unique.

Opportunity 3
Look for opportunities through marketing creativity.

ACTIONS

a) promote the company or product image through quality, performance

and training; and
b) promote creativity in sales promotion, advertising, personal selling
and the Internet.

394 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Opportunity 4
Monitor changing behavioural patterns and preferences.

ACTIONS

a) practice segmenting markets according to cultural and behavioural

patterns;
b) identify clusters of customers who might buy or utilize different services
for different reasons.

Opportunity 5
Learn from competitors and adapt strategies from other industries.

ACTION: UNDERSTAND COMPETITORS:

• How they conduct business.

• What products they sell.
• What strategies they pursue.
• How they manufacture, distribute, promote and price.
• What are their weaknesses, limitations and possible vulnerabilities?

Summary
There doesn’t appear to be limitations to developing opportunities. What’s
needed is a keen ability to diagnose a customer’s problem and show that you
grasp his business and competitive problems.

Then, you prescribe a workable solution and prove that the value-added
products and services warrant the price. The customer should perceive the
offering not so much as a cost as an investment.

You can help your organization develop opportunities by following these

guidelines:
1. Show customers revenue expansion opportunities:
• Reduce returns and complaints from the end user.
• Speed-up production and delivery.
• Improve the customer’s market position and image.

THIRTEEN MAINTAINING A GLOBAL PERSPECTIVE 395

 • Add brand-name value for the customer (where appropriate).
• Add customer benefits through additional services.
• Create areas of differentiation that gives a customer a competitive
advantage.
• Improve a customer’s reordering procedures.

2. Show cost-reduction opportunities:

• Cut the customer’s purchase costs.
• Reduce the customer’s production costs.
• Absorb all or part of a customer’s product development function.
• Reduce the customer’s delivery costs.
• Lessen the customer’s administrative overhead.
• Maximize the customer’s working capital.

Regardless of the terms you use, you are in ‘virtual’ territory when your actions
converge on the customer and form a strong and bonding relationship.

Internalize these guidelines and you will master the essence of competitive
marketing strategies.

396 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

APPENDIX

Checklists for developing

competitive strategies
 APPENDIX
Checklists for developing
competitive strategies

The potential for you to strategize, innovate and act with entrepreneurial skill
is truly in your hands, regardless of your position in the organization. To round
out your exposure to the principles for developing competitive strategies,
here is a final example of those principles at work.

Case examples
Microsoft, Intel, IBM, Eastman Kodak, as well as smaller companies that
rely on new products and technologies to stay ahead of competition face the
problems of rapid price deterioration and shorter product life cycles.

Marketing wisdom developed during the harsh competitive years of the 2000-
02 counselled that to avoid the intense price competition from low-cost
competitors, develop new and differentiated products and add value to existing
ones. For the most part that strategy worked, particularly among high-tech
firms.

Here’s the paradox: new products often mean extensive R&D, retooling of
equipment and processes, commitment to high quality and long-term capital
investment before payout. Yet, as the pace of technology increases and
production costs decrease, competitors respond rapidly with cloned products
causing product life cycles to shorten and prices to tumble. The pattern then
repeats itself for another round.

398 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Faced with the dilemma, companies anchored to new product development
continued to respond with creative strategies to replace some of the
traditional, ironclad marketing techniques. For example:
Computer Associates Inc. gave away a large quantity of a new software
program as part of one of its product introductions. Whereas, conventional
pricing practices to launch a new product generally followed one of two
strategies: skim (high) price or penetration (low) price.

Teleport Communications Inc. offered to upgrade their customers’ systems

with enhanced fibre optics technology at no cost. However, for the most part,
the traditional approach called for selling the new technology at a premium
price, particularly if first-in to the market.

What’s the thinking behind such non-traditional actions? First, some

managers believe the value of favourable word-of-mouth publicity outweighs
the cost of the initial give-aways and results in faster acceptance of product
innovations to potentially large numbers of new customers.

Second, other managers reason that locking-in a customer with new

technology secures the customer for successive cycles of new technology and
keeps out competitors. They also figure on making money by selling
additional services and peripherals.

By accepting that principle in an era of unprecedented innovations, as the

power of technology goes up and prices go down with increasing frequency,
the marginal cost of upgrading is offset by the benefits of long-term
customer-supplier relationships.

Third, still other managers find that the traditional pattern of paced pricing
for each stage of the product life cycle is becoming outdated. Reason: mass
markets with standardized products are giving way to mass customization
where specialized products are sold to solve specific customer problems. Thus,
pricing strategy is aimed at redefining value and tying into the long-term
relationships with customers, as illustrated above by the give-aways and free
upgrades.

Mass markets with standardized products are giving way to mass

customization.

APPENDIX CHECKLISTS FOR DEVELOPING COMPETITIVE STRATEGIES 399

 Action strategy
What can you learn from these examples? In practice, new strategies are still
evolving to fit the myriad of products and industries, from tools, to services,
to autos. Here are some factors to consider as the new paradigms unfold:
1. Retain the strategies that still work for you. However, that doesn’t mean
sticking to the old saw, “If it isn’t broke, don’t fix it.” Instead, recognize
that strategies have life cycles. As with products, in time they will mature
and decline. Therefore, watch the evolving patterns of other industries
(as illustrated above) and look for creative adaptations to your own
use.
You may want to experiment with give-aways with some products,
or free services with other offerings if, of course, you can clearly
recognize a future payout. And don’t overlook revisiting the classic
strategies, such as Gillette’s timeless give-way-the-razor-and-sell-the-
blades approach.
2. The conventional wisdom about preventing products from reaching
a mature or commodity stage in the life cycle bears rethinking. Take
a fresh look at that notion too. Evidence suggests that room exists
in the market for standard, reliable, no-frills products. However, you
may want to tweak the strategy by enhancing your products with a
competitive advantage, such as technical back-up, rapid delivery, or
extra guarantees.
The effort may reward you with an optimum position, somewhere
between an enhanced commodity and a differentiated product. Above
all, however, the big prize goes to managers who discover new
applications for their products.
3. Finally, there is one organizational concept that began in the 1980s
and is being embraced by an increasing number of firms, large and
small: the cross-functional team, which was discussed in Chapter 13.
Where utilized for product development, marketing planning and
strategy implementation, teamwork mobilizes internal thinking and
generally produces exceptional results.

And where a team actively incorporates the thinking of customers, the

collaboration has proven enormously effective in solving competitive problems.

400 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

 The big prize goes to managers who discover new applications for
their products

Checklists and forms

You, too, can gain competitive advantage by developing your own competitive
strategies. Use the forms that follow, along with what you’ve learned from
the various chapters, to become a successful strategist. To benefit most from
the checklists, you may wish to customize them to include the specialized
vocabulary of your company and industry.

Also, if you have a cross-functional team, have each member of the team fill
out the forms privately. Then reconvene the team and discuss each person’s
rating. To obtain a maximum effect, continue with this approach until you
have a consensus.

Part 1: Competitive advantage analysis

(by market or product 1-10, 10 = best)

PRODUCT

Product: Your firm/ Competitor A Competitor B Competitor C List advantage

product and define
strategy

Quality

Features

Options

Style

Brand name

Packaging

Sizes

Services

Warranties

APPENDIX CHECKLISTS FOR DEVELOPING COMPETITIVE STRATEGIES 401

 Product: Your firm/ Competitor A Competitor B Competitor C List advantage
product and define
strategy

Returns

Versatility

Uniqueness

Utility

Reliability

Durability

Patent
protection

Guarantees

PRICE AND SUPPLY CHAIN

Price: Your firm/ Competitor A Competitor B Competitor C List advantage

product and define
strategy

List price

Discounts

Allowances

Payment
period

Credit terms

Supply chain:

Direct sales
force

Distributors

Dealers

Market
coverage

Warehouse
locations

Inventory
control systems

Physical
transport

402 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

PROMOTION

Promotion: Your firm/ Competitor A Competitor B Competitor C List advantage

product and define
strategy

Advertising:

Customer

Trade

Personal
selling:

Incentives

Sales aids

Samples

Training

Sales
promotion:

Demon-
strations

Contests

Premiums

Coupons

Manuals

Tele-marketing

Internet

Publicity

APPENDIX CHECKLISTS FOR DEVELOPING COMPETITIVE STRATEGIES 403

 Part 2: Competitors’ strategies analysis
(by market, 1-10 rating. 10 = best)

MARKET SEGMENTS BY SIZE, LOCATION, OR PRODUCT APPLICATIONS

1. Market Competitor A Competitor B Competitor C Total current Total potential

dimension: revenue revenue

(List segments)

Total

B. Market
entry:

How do
competitors
usually enter a
market? Is
there a market
leader among
the
competitors?
Who are the
followers?
Identify by:

First-in Price
strategy
Product

Promotion

Distribution

404 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

B. Market Competitor A Competitor B Competitor C Total current Total potential
entry: revenue revenue

Follow-the-
leader
strategy Price

Product

Promotion

Distribution

Last-in
strategy Price

Product

Promotion

Distribution

C. Market
commitment:

How much
commitment
do competitors
give to a
specific
market in
terms of
people, funds,
research,
depth of
product line?

D. Market
demand:

How flexible
are competitors
in changing
strategies for
different
market
situations?

APPENDIX CHECKLISTS FOR DEVELOPING COMPETITIVE STRATEGIES 405

 D. Market Competitor A Competitor B Competitor C Total current Total potential
demand: revenue revenue

Prune markets
when demand
slackens

Concentrate on
key markets
when demand
increases

Harvest profit
when sales
plateau

E. Market
diversification:

How have
competitors
responded to
diversification
opportunities?

Applied
specialized
resources by
segment

Added another
stage of
distribution

F. Product
positioning:

How efficient
are competitors
in monitoring
customer
perceptions and
identifying
customer niches
as related to:

Positioning a
single brand

Positioning a
multiple brand

Repositioning
and older
product

406 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

G. Product life- Competitor A Competitor B Competitor C Total current Total potential
cycle: revenue revenue

How efficient
are competitors
in extending the
life cycle of
their products
as related to:

Promoting
more frequent
usage

Finding new
users

Finding more
uses for
products

H. Product
competition:

To what extent
do competitors
attempt to gain
a larger share
of a market by
introducing:

Packaging

Competing
brand

Private label

Generic
product

I. Product mix:

Where do
competitors
stand as
related to
width and
depth of
product lines?

Single product

Multiple
product

Product
system

APPENDIX CHECKLISTS FOR DEVELOPING COMPETITIVE STRATEGIES 407

 J. Product Competitor A Competitor B Competitor C Total current Total potential
application: revenue revenue

How much
manufacturing
and application
flexibility do
competitors
display as
related to:

Standard
products

Private label
products

Standard
product,
modified

K. New
products:

What has been

the pattern of
competitors
related to the
following areas
of new product
development?

Innovation

Modification

Line extension

Diversification

Re-
merchandising
or
reformulating
existing
products

Market
extending
(existing
products)

408 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

L. Product Competitor A Competitor B Competitor C Total current Total potential
audit: revenue revenue

How flexible
have
competitors
been in
managing their
product lines
as displayed
by:

Line reduction

Line elimination

PRICE

A. New Competitor A Competitor B Competitor C Total current Total potential

Products: revenue revenue

What has been

the pattern of
competitors in
pricing new
products? Do
they tend to
use:

Skim (high)
pricing

Penetration
(low) pricing

Follow-the
leader pricing

Cost-plus
pricing

APPENDIX CHECKLISTS FOR DEVELOPING COMPETITIVE STRATEGIES 409

 B. Established Competitor A Competitor B Competitor C Total current Total potential
Products: revenue revenue

What has been

the pattern of
competitors in
pricing
established
products? Do
they tend to
use:

Slide-down
(gradual
reduction)
pricing

Segment
pricing

Flexible pricing

Pre-emptive
(reacting to
competitors’)
pricing

Loss-leader
pricing

PROMOTION

A. Advertising:

To what extent
do competitors
use advertising
to do the
following:

Support
personal
selling

Inform target
audience
about
availability of
product

Persuade
prospects to
buy directly
from
advertising

410 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

B. Sales force: Competitor A Competitor B Competitor C Total current Total potential
revenue revenue

What is the
profile of
competitors’
sales forces
related to:

Sales force
size

Sales force
territorial
design

Compensation
systems

Training

Technical or
service back-
up

C. Sales
Promotion:

How well do
competitors
integrate sales
promotion with
their
advertising and
sales force
strategies? Is
sales
promotion
used to:

Encourage
more product
usage

Induce
distributor and
dealer
involvement

Stimulate
greater sales
force efforts

APPENDIX CHECKLISTS FOR DEVELOPING COMPETITIVE STRATEGIES 411

 SUPPLY CHAIN

A. Channel Competitor A Competitor B Competitor C Total current Total potential

structure: revenue revenue

What has been

the
competitors’

strategy for
reaching
customer
markets?

Direct
distribution to
the end user

Indirect
distribution
through
intermediaries
(distributors,
dealers)

Direct sale to
end user

B. Channel
dimension:

Are
competitors
displaying any
strategies that
could alter
their
distribution
methods? Are
they looking at:

Exclusive
(restricted)
distribution

Intensive
(wide-spread)
distribution

412 THE MANAGER’S GUIDE TO COMPETITIVE MARKETING STRATEGIES

Other titles from Thorogood

SUCCESSFUL BUSINESS PLANNING

Norton Paley
£14.99 paperback, ISBN 1 85418 277 3
£29.99 hardback, ISBN 1 85418 289 7
Published June 2004

“Growth firms with a written business plan have

increased their revenues 69 per cent faster over the past
five years than those without a written plan.”
From a survey by PricewaterhouseCoopers

We know the value of planning – in theory. But either we fail to spend the
time required to go through the thinking process properly, or we fail to use
the plan effectively. Paley uses examples from real companies to turn theory
into practice.

MARKETING STRATEGY DESKTOP GUIDE

Norton Paley
£16.99 paperback, ISBN 1 85418 139 4
Published 2000

A practical source of reference, guidance, techniques

and best practice, with an abundance of summaries,
checklists, charts and special tips. Contents include:
market segmentation; marketing strategy; competitive
position; market research; customer behaviour; products and services;
pricing; promotion mix; sales force; marketing plan; financial tools of
marketing.

“A remarkable resource…indispensable for the Marketing Professional”

David Levine, V-P Strategic Sourcing, NABS Inc, USA
 THE A-Z OF EMPLOYMENT PRACTICE

David Martin
£19.99 paperback, ISBN 1 85418 380 X
£42.00 hardback, ISBN 1 85418 300 1
Published November 2004

This book provides comprehensive, practical guidance

on personnel law and practice at a time when employers
are faced with a maze of legislation, obligations and
potential penalties. It provides detailed and practical
advice on what to do and how to do it.

The A to Z format ensures that sections appear under individual headings

for instant ease of reference. The emphasis is not so much on the law as on
its implications; the advice is expert, clear and practical, with a minimum of
legal references. Checklists, procedures and examples are all given as well
as warnings on specific pitfalls.

THE A-Z OF MANAGEMENT CONCEPTS

AND MODELS

B. Karlöf and F. Lövingsson

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£35.00 hardback, ISBN 1 85418 385 0
Published May 2005

An A to Z of all the essential concepts and models

applied in business and management, from Balanced
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generic strategies, Relative cost position, Sustainable development to Yield
management and Zero-based planning.