Text Notes: Marketing, 6^th Edition by Lamb, Hair, and McDaniel, Southwest

Chapter 1: An Overview of Marketing

What Is Marketing?

What does the term marketing mean to you? Many people think it means the same as personal selling. Others think marketing is the same as personal selling and advertising. Still others believe marketing has something to so with making products available in stores, arranging displays, and maintaining inventories of products for future sales. Actually, marketing includes all of these activities and more.

Marketing has two facets. First, it is a philosophy, an attitude, a perspective, or a management orientation that stresses customers’ satisfaction. Second marking is a set of activities used to implement this philosophy.

Marketing

The American Marketing Association’s definition encompasses both perspectives: “Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals.”

The Concept of Exchange

Exchange

Exchange is the key term in the definition of marketing. The concept of exchange is quite simple. It means that people give up something to receive something they would rather have. Normally we think of money as the medium of exchange. We “give up” money to “get” the goods and services we want. Exchange does not require money, however. Two persons may barter or trade such items as baseball cards or oil paintings.

Five conditions must be satisfied for any kind of exchange to take place:

·        There must be a least two parties.

·        Each party must have something the other party values.

·        Each party must be able to communicate with the other party and deliver the goods or services sought by the other trading party.

·        Each party must be free to accept or reject the other’s offer.

·        Each party must want to deal with the other party.

Exchange will not necessarily take place even if all these conditions exist. They are, however, necessary for exchange to be possible. For example, you may place an advertisement in your local newspaper stating that your used automobile is for sale. Several people may call you to ask about the car, some may test-drive it, and one or more may even make you an offer. All five conditions are necessary for an exchange to exist. But unless you reach an agreement with a buyer and actually sell the car, and exchange will not take place. Notice that marketing can occur even if an exchange does not occur. In the example just discussed, you would have engaged in marketing even if no one bought your used automobile.

Marketing Management Philosophies

Four competing philosophies strongly influence an organization’s marketing activities. These philosophies are commonly referred to as production, sales, market, and social marketing.

Production Orientation

Production Orientation

A production orientation is a philosophy that focuses on the internal capabilities of the firm rather than on the desires and needs of the marketplace. A production orientation means that management accesses its resources and asks these questions: “What can we do best?” “What can our engineers design?” “What is easy to produce, given our equipment?” In the case of a service orientation, managers ask, “What services are most convenient for the firm to offer?” and “Where do our talents lie?” Some have referred to this orientation as a Field of Dreams orientation, referring to the movie line, “If we build it, they will come.” The 178 billion furniture industry is infamous for its disregard of customers and for its slow cycle times. This has always been a production-oriented industry….

Sales Orientation

Sales Orientation

A sales orientation is based on the ideas that people will buy more goods and services if aggressive sales techniques are used and that high sales result in high profits. Not only are sales to the final buyer emphasized byt intermediaries are also encouraged to push manufacturers’ products more aggressively. To sales-oriented firms, marketing means selling things and collecting money.

The fundamental problem with a sales orientation, as with a production orientation, is a lack of understanding of the needs and wants of the marketplace. Sales-oriented companies often find that, despite the quality of their sales force, they cannot convince people to buy goods or services that are neither wanted nor needed….

Market Orientation

Marketing Concept

The marketing concept is a simple and intuitively appealing philosophy. It states that the social and economic justification for an organization’s existence is the satisfaction of the customer wants and needs while meeting organizational objectives. It is based on an understanding that a sale does not depend on an aggressive sales force, but rather on a customer’s decision to purchase a product. What a business thinks is produces is not of primary importance to its success. Instead, what customers think they are buying—the perceived value—defines a business. The marketing concept includes the following:

          -Focusing on customer wants and needs so the organization can

distinguish its product(s) from competitors’ offerings.

          -Integrating all the organization’s activities, including production, to

satisfy these wants.

          -Achieving long-term goals for the organization by satisfying

customer wants and needs legally and responsibly.

The marketing concept recognizes that there is no reason why customers should buy one organization’s offerings unless it is in some way better at serving the customers’ wants and needs than those offered by competing organizations….

Market Orientation

Firms that adopt and implement the marketing concept are said to be market oriented. Market orientation requires top-management leadership, a customer focus, competitor intelligence, and interfunctional coordination to meet customer wants and needs and deliver superior value. It also entails establishing and maintaining mutually rewarding relationships with customers….

Market-oriented companies are successful in getting all business functions working together to deliver customer value. Rubbermaid has developed “cross-functional entrepreneurial teams” to overcome the difficulty of getting people from different functional areas to work together in developing new house ware products. These teams are empowered to make decisions and are responsible for results. DaimlerChrysler creates so-called outposts of small cross-functional teams to scout around for new trends and products. A Silicone Valley outpost is doing consumer research on electric cars and is helping designers in the early stages of Net-equipped automobiles.

Social Marketing Orientation

One reason a market-oriented organization may choose not to deliver the benefits sought by customers  is that these benefits may not be good for individuals or society.

Social Marketing Orientations

This philosophy, called a social marketing orientation, states that an organization exists not only to satisfy customer wants and needs and to meet organizational objectives but also to preserve or enhance individuals’ and society’s long-term best interests. Marketing products and containers that are less toxic than normal, are more durable, contain reusable materials, or are made of recyclable materials is consistent with a social marketing orientation….

Differences Between Sales and Market Orientations

The difference between sales and market orientations are substantial.

Exhibit 1.1: Differences Between Sales and Market Orientations

Exhibit 1.1 compares the two orientations in terms of five characteristics: the organization’s focus, the firm’s business, those to whom the product is directed, the firm’s primary goal, and the tools used to achieve those goals.

The Organization’s Focus

Personnel in sales-oriented firms tent to be “inward looking,” focusing on selling what the organization makes rather than making what the market wants. Many of the historic sources of competitive advantage—technology, innovation, economies of scale—allowed companies to focus their efforts internally and prosper. Today, many successful firms derive their competitive advantage from an external, market-oriented focus. A market orientation has helped companies such as Boeing, Dell Computer, Hewlett-Packard, and Southwest Airlines outperform their competitors. Today key issues in developing competitive advantage include creating customer value, maintaining customer satisfaction, and building long-term relationships.

Customer Value

Customer Value

Customer value is the ratio of benefits to the sacrifice necessary to obtain those benefits. The automobile industry illustrates the importance of creating customer value. To penetrate the fiercely competitive automobile market, Lexus stresses product quality with a standard of zero defects in manufacturing. The service quality goal is to treat each customer as one would treat a guest in one’s home, to pursue the perfect person-to-person relationship, and to strive to improve continually. This pursuit has enabled Lexus to establish a clear quality image and capture a significant share of the luxury car market….

[consideration vs. donation: the argument for the creation of ultimate customer value via the benefits of a nonprofit organization.]

Marketers interested in customer value

          -Offer products that perform: This is the bare minimum

requirement. Consumers have lost patience with shoddy merchandise.

          -Give consumers more than they expect: Dell Computer’s mission

is “to be the most successful computer company in the world at delivering the best customer experience in markets we serve.” What is customer experience? According to Richard Owen, vice president of Dell Online worldwide, “It is the sum total of the interactions that a customer has with a company’s products, people, and processes. In other words, Dell gives customers more than they expect.

          -Avoid unrealistic pricing: E-marketers are leveraging Internet

technology to redefine how prices are set and negotiated. With lower costs, e-marketers can often offer lower prices than their brick-and-mortar counterparts. The enormous popularity of auction sites such as eBay and Amazon.com and the customer-bit model used by Priceline illustrate that online customers are interested in bargain prices. Many are not willing to pay a premium for the convenience of examining the merchandise and taking it home with them.

          -Give the buyer facts: Today’s sophisticated consumer wants

informative advertising and knowledgeable salespeople. A study by Anderson Consulting revealed that Web sites that don’t provide enough information are among the top ten things that “irk” Internet shoppers the most.

          -Offer organization-wide commitment in service and after-sales

support: People fly Southwest Airlines because the airline offers superior value. Although passengers do not get assigned seats or meals (just peanuts and crackers) when they use the airline, its service is reliable and friendly and costs less than most major airlines. All Southwest employees are involved in the effort to satisfy customers. Pilots tend to the boarding gate when their help is needed and ticket agents help move luggage. One reservation agent flew from Dallas to Tulsa with a frail, elderly woman whose son was afraid she couldn’t handle the change of planes by herself on her way to St. Louis.

Customer Satisfaction

Customer Satisfaction

Customer satisfaction is the feeling that a product has met or exceeded the customer’s expectations. Keeping current customers satisfied is just as important as attracting new ones and a lot less expensive. Firms that have a reputation for delivering high levels of customer satisfaction do things differently from their competitors. Top management is obsessed with customer satisfaction and employees throughout the organization understand the link between their job and satisfied customers. The culture of the organization is to focus on delighting customers rather than on selling products….

Building Relationships

Attracting new customers to a business is only the beginning. The best companies view new customer attraction as the launching point for developing and enhancing a long-term relationship. Companies can expand market share in three ways: attracting new customers, increasing business with existing customers, and retaining current customers. Building relationships with existing customers directly addresses two of the three possibilities and indirectly addresses the other.

Relationship Marketing

Relationship marketing is the name of a strategy that entails forging long-term partnerships with customers [In phase 1 of the INGO, these relationships might forged with each individual school district or the individual school counselors, superintendents, or school board. (include them as part of the chain of distribution.)] Companies build relationships with customers by offering value and providing customer satisfaction. They are rewarded with repeat sales and referrals that lead to increases in sales, market share, and profits. Costs also fall because serving existing customers is less expensive than attracting new ones. AMR research reports that it can be ten times more expensive to acquire a new customer than to keep a current one….

Most successful relationship marketing strategies depend on customer-oriented personnel, effective training programs, employees with authority to make decisions and solve problems, and teamwork.

Customer-Oriented Personnel

For an organization to be focused on building relationships with customers, employees’ attitudes and actions must be customer oriented. An employee may be the only contact a particular customer has with the firm. In that customer’s eyes, the employee is the firm. Any person, department, or division that is not customer oriented weakens the positive image of the entire organization. For example, a potential customer who is greeted discourteously may well assume that the employee’s attitude represents the whole firm.

The Role of Training

Leading marketers recognize the role of employee training in customer service and relationship building. Of Fortune’s 100 best companies to work for, fifty-three offer on-site university courses and ninety-one have tuition reimbursement programs. It is no coincidence that the public companies on this list such as Southwest Airlines and Cisco Systems perform much better than other firms in their respective industries….

Empowerment

In addition to training, may marketing-oriented firms are giving employees more authority to solve customer problems on the spot.

Empowerment

The term used to describe this delegation of authority is empowerment. Employees develop ownership attitudes when they are treated like part-owners of the business and are expected to act the part. These employees manage themselves, are more likely to work hard, account for their own performance and the company’s, and take prudent risks to build a stronger business and sustain the company’s success….

Empowerment gives customers the feeling that their concerns are being addressed and gives employees the feeling that their expertise matters. The result is greater satisfaction for both customers and employees.

Teamwork

Many organizations, such as Southwest Airlines and Walt Disney World, that are frequently noted for delivering superior customer value and providing high levels of customer satisfaction assign employees to teams to teach them team-building skills.

Teamwork

Teamwork entails collaborative efforts of people to accomplish common objectives. Job performance, company performance, product value, and customer satisfaction all improve when people in the same department or work group begin supporting and assisting each other and emphasize cooperation instead of competition. Performance is also enhanced when people in different areas of responsibility such as production and sales or sales and service practice teamwork, with the ultimate goal of delivering superior customer value and satisfaction.

The Firm’s Business

As Exhibit 1.1 illustrates, a sales-oriented firm defines its business (or mission) in terms of goods and services. A market-oriented firm defines its business in terms of the benefits its customers seek. People who spend their money, time, and energy expect to receive benefits, not just goods and services. This distinction has enormous implications.

Because of the limited way if defines its business, a sales-oriented firm often misses opportunities to serve customers whose wants can be met through only a wide range of product offerings instead of specific products….

Answering the question “What is the firm’s business?” in terms of the benefits customers seek, instead of goods and services, has at least three important advantages:

          -It ensures that the firm keeps focusing on customers and avoids

becoming preoccupied with goods, services, or the organization’s internal needs.

          -It encourages innovation and creativity by reminding people that

there are many ways to satisfy customer wants.

          -It stimulates an awareness of changes in customer desires and

preferences so that product offerings are more likely to remain

relevant.

Market orientation and the idea of focusing on customer wants do not mean that customers will always receive everything they want. It is not possible, for example, to profitably manufacture and market automobile tires that will last 100,000 miles for $25. Furthermore, customer’s preferences must be mediated by sound professional judgment as to how to deliver the benefits they seek. As one adage suggests, “People don’t know what they want—they only want what they know.” Consumers have a limited set of experiences. The are unlikely to request anything beyond those experiences because they are not aware of benefits they may gain from other potential offerings. For example, before the Internet, many people thought that shopping for some products was boring and time consuming, but could not express their need for electronic shopping.

Those to Whom the Product is Directed

A sales-oriented organization targets its products at “everybody” or “the average customer.” A market-oriented organization aims at specific groups of people (see again Exhibit 1.1). The fallacy of developing products directed at the average user is that relatively few average users actually exist. Typically, populations are characterized by diversity. An average is simply a midpoint in some set of characteristics. Because most potential customers are not “average,” they are not likely to be attracted to an average product marketed to the average customer. Consider the market for shampoo as one simple example. There are shampoos for oily hair, dry hair, and dandruff. Some shampoos remove the gray or color hair. Special shampoos are marketed for infants and elderly people. There is even shampoo for people with average or normal hair (what ever that is), but this is a fairly small portion of the total market for shampoo.

A market-oriented organization recognizes that different customer groups and their wants vary. It may therefore need to develop different goods, services, and promotional appeals. A market-oriented organization carefully analyzes the market and divides it into groups of people who are fairly similar in terms of selected characteristics. Then the organization develops marketing programs that will bring about mutually satisfying exhanges with one or more of those groups.

The Firm’s Primary Goal

As Exhibit 1.1 illustrates, a sales-oriented organization seeks to achieve profitability through sales volume and tries to convince potential customers to buy, even if the seller knows that the customer and product are mismatched. Sales-oriented organizations place a higher premium on making a sale than on developing a long-term relationship with a customer. In contrast, the ultimate goal of most market-oriented organizations is to make a profit by creating customer value, providing customer satisfaction, and building long-term relationships with customers. The exception is the so-called “nonprofit organizations” that exist to achieve goals other than profits. Nonprofit organizations can and should adopt a market orientation. Nonprofit organization marketing is explained further in Chapter 11.

Tools the Organization Uses to Achieve Its Goals

Sales-oriented organizations seek to generate sales volume through intensive promotional activities, mainly personal selling and advertising. In contrast, market-oriented organizations recognize that promotion decisions are only one of four basic marketing mix decisions that have to be made: product decisions, place (or distribution) decisions, promotion decisions, and pricing decisions. A market-oriented organization recognizes each of these four components as important. Furthermore, market-oriented organizations recognize that marketing is not just a responsibility of the marketing department. Interfunctional coordination means that skills and resources throughout the organization are needed to deliver superior customer service and value.

A Word of Caution

This comparison of sales and market orientations is not meant to belittle the role of promotion, especially personal selling, in the marketing mix. Promotion is the means by which organizations communicate with present and prospective customers about the merits and characteristics of their organization and products. Effective promotion is an essential part of effective marketing. Salespeople who work for market-oriented organizations are generally perceived by their customers to be problem solvers and important links to supply sources and new products. Chapter 16 examines the nature of personal selling in more detail.

The Marketing Process

Marketing managers are responsible for a variety of activities that together represent the marketing process. These include the following:

          -Understanding the organization’s mission and the role marketing

plays in fulfilling that mission.

          -Setting the marketing objectives.

          -Gathering, analyzing, and interpreting information about the

organization’s situation, including its strengths and weaknesses as well as opportunities and threats in the environment.

          -Developing a marketing strategy by deciding exactly which wants

and whose wants the organization will try to satisfy (target market strategy) and by developing appropriate marketing activities (the marketing mix) to satisfy the desires of selected target markets. The marketing mix combines product, distribution, promotion, and pricing strategies in a way that creates exchanges that satisfy individual and organizational goals. The marketing mix is addressed in the “Global Perspectives” box that follows, on page 18, and is examined in detail in Chapter 2.

          -Implementing the marketing strategy.

          -Designing performance measures.

          -Periodically evaluating marketing efforts, and making changes if

needed.

Why Study Marketing?

Now that you understand the meaning of the term marketing, why is it important adopt a marketing orientation, and how organizations implement this philosophy, you may be asking, “What’s in it for me?” or “Why should I study marketing?”

These are important questions, whether you are majoring in a business field other than marketing (such as accounting, finance, or management information systems) or a nonbusiness field (such as journalism, economics, or agriculture). There are several important reasons to study marketing: Marketing plays an important role in society, marketing is important to businesses , marketing offers outstanding careers opportunities, and marketing affects your life every day.

Marketing Plays an Important Role in Society

The total population of the United States exceeds 268 million people. Think about how many transactions are needed each day to feed, clothe, and shelter a population of this size. The number is huge. And yet it all works quite well, partly because the well-developed U.S. economic system efficiently distributes the output of farms and factories. A typical U.S. family, for example, consumes 2.5 tons of food a year. Marketing makes food available when we want it, in desired quantities, at accessible locations, and in sanitary and convenient packages and forms (such as instant and frozen foods).

Marketing Is Important to Business

The fundamental objectives of most businesses are survival, profits, and growth. Marketing contributes directly to achieving these objectives. Marketing includes the following activities, which are vital to business organizations: assessing the wants and satisfactions of present and potential customers, designing and managing product offerings, determining prices and pricing policies, developing distribution strategies, and communicating with present and potential customers.

All businesspeople, regardless of the specialization or area of responsibility, need to be familiar with the terminology and fundamentals of accounting, finance, management, and marketing. People in all business areas need to be able to communicate with specialists in other areas. Furthermore, marketing is not just a job done by people in a marketing department. Marketing is a part of the job of everyone in the organization. As David Packard of Hewlett-Packard put it: “Marketing is too important to be left to the marketing department.” Therefore, a basic understanding of marketing is important to all businesspeople.

Marketing Offers Outstanding Career Opportunities

Between a fourth and a third of the entire civilian workforce in the United States performs marketing activities. Marketing offers great career opportunities in such areas as personal selling, marketing research, advertising, retail buying, distribution management, product management, product development, and wholesaling. Marketing career opportunities also exist in a variety of nonbusiness organizations, including hospitals, museums, universities, the armed forces, and various governmental and social service agencies. (See Chapter 11.)

As the global marketplace becomes more challenging, companies all over the world and of all sizes are going to have to become better marketers. For a comprehensive look at career opportunities in marketing and a variety of other useful information about careers, please visit our Web site at http://lamb.swcollege.com.

Marketing Affects Your Life Every Day

Marketing plays a major role in your everyday life. You participate in the marketing process as a consumer of goods and services. About half of every dollar you spend pays for marketing costs, such as marketing research, product development, packaging, transportation, storage, advertising, and sales expenses. By developing a better understanding of marketing, you will become a better-informed consumer. You will better understand the buying process and be able to negotiate more effectively with sellers. Moreover, you will better prepared to demand satisfaction when the goods and services you buy do not meet the standards promised by the manufacturer or the marketer.

Summary

1.       Define the term marketing. The ultimate goal of all marketing

activity is to facilitate mutually satisfying exchanges between parties.

The activities of marketing include the conception, pricing,

promotion, and distribution of ideas, goods, and services.

2.       Describe four marketing management philosophies. The role of

marketing and the character of marketing activities within an organization are strongly influenced by its philosophy and orientation. A production-oriented organization focuses on the internal capabilities of the firm rather than on the desires and needs of the marketplace. A sales orientation is based on the beliefs that people will buy more products if aggressive sales techniques are used and that high sales volumes produce high profits. A market oriented organization focuses on satisfying customers wants and needs while meeting organizational objectives. A social marketing orientation goes beyond a market orientation to include the preservation or enhancement of individuals’ and society’s long-term best interests.

3.       Discuss the differences between sales and market orientations.

First, sales-oriented firms focus on their own needs; market-oriented firms focus on customers’ needs and preferences. Second, sales-oriented companies consider themselves to be deliverers of goods and services, whereas market-oriented companies view themselves as satisfiers of customers. Third, sales-oriented firms direct their products to everyone; market-oriented firms aim at specific segments of the population. Fourth, although the primary goal of types of firms is profit, sales-oriented businesses pursue maximum sales volume through intensive promotion, whereas market-oriented businesses pursue customer satisfaction through coordinated activities.

4.       Describe the marketing process. The marketing process includes

understanding the organization’s mission and the role marketing plays in fulfilling that mission, setting marketing objectives, scanning the environment, developing a marketing strategy by selecting a target market strategy, developing and implementing a marketing mix, implementing the strategy, designing performance measures, and evaluating marketing efforts and making changes if needed. The marketing mix combines product, distribution (place), promotion, and pricing strategies in a way that creates exchanges satisfying to individual and organizational objectives.

5.       Describe several reasons for studying marketing. First, marketing

affects the allocation of goods and services that influence a nation’s economy and standard of living. Second, an understanding of marketing is crucial to understanding most businesses. Third, career opportunities in marketing are diverse, profitable, and expected to increase significantly during the coming decade. Fourth, understanding marketing makes consumers more informed.

Chapter 2:  Strategic Planning For Competitive Advantage

Strategic Planning

Strategic planning is the managerial process of creating and maintaining a fit between the organization’s objectives and resources and the evolving market opportunities. The goal of strategic planning is long-run profitability and growth. Thus strategic decisions require long-term commitments of resources.

A strategic error can threaten the firm’s survival. On the other hand, a good strategic plan can help protect a firm’s resources against competitive onslaughts. For instance, if the March of Dimes had decided to focus on fighting polio, the organization would no longer exist. Most of us view polio as a conquered disease. The March of Dimes survived by making the strategic decision to switch to fighting birth defects.

Strategic marketing management addresses two questions: What is the organization’s main activity at a particular time? How will it reach its goals? Here are some examples of strategic decisions:

          -The decision of R.J. Reynolds to sell of its Nabisco Group holdings,

including popular Oreos, Lifesavers, and Ritz Cracker brands.

          -The decision of Globalstar and Iridium to declare bankruptcy of their

companies’ worldwide satellite telephone systems.

          -ConAgra’s purchase of Chef Boyardee pasta, Gulden’s mustard, and

PAM cooking spray.

          -Smucker’s introduction of Uncrustables, a new line of frozen

crustless peanut butter and jelly sandwiches, to compete with Kraft Foods’ Oscar Mayer Lunchables.

All of these decisions have affected or will affect each organization’s long-run course, its allocation of resources, and ultimately its financial success. In contrast, an operating decision, such as changing the package design for Post’s cornflakes or altering the sweetness of a Kraft salad dressing, probably won’t have a big impact on the long-run profitability of the company.

How do companies go about strategic marketing planning? How do employees know how to implement the long-term goals of the firm? The answer is in the marketing plan.

What is a Marketing Plan?

Planning

Planning is the process of anticipating future events and determining strategies to achieve organizational objectives in the future.

Marketing Planning

Marketing planning involves designing activities relating to marketing objectives and the changing marketing environment. Marketing planning is the basis for all marketing strategies and decisions.

Marketing Plan

Issues such as product lines, distribution channels, marketing communications, and pricing are all delineated in the marketing plan.

The marketing plan is a written document that acts as a guidebook of marketing activities for the marketing manager. In this chapter, you will learn the importance of writing a marketing plan and the types of information contained in a marketing plan.

Why Write a Marketing Plan?

By specifying objectives and defining the actions required to attain them, a marketing plan provides the basis by which actual and expected performance can be compared. Marketing can be one of the most expensive and complicated business components but is one of the most important business activities. The written marketing plan provides clearly stated activities that help employees understand and work toward common goals.

Writing a marketing plan allows you to examine the marketing environment in conjunction with the inner workings of the business. Once the marketing plan is written, it serves as a reference point for the success of future activities. Finally, the marketing plan allows the marketing manager to enter the marketplace with an awareness of possibilities and problems.

Marketing Plan Elements

Marketing plans can be presented in many different ways. Most businesses need a written marketing plan because the scope of a marketing plan is large and can be complex. Details about tasks and activity assignments may be lost if communicated orally. Regardless of the way a marketing plan is presented, there are elements common to all marketing plans. These include defining the target market, and establishing components of the marketing mix. Exhibit 2.1 shows these elements, which are also described further below.

Exhibit 2.1: The Marketing Process

Other elements that may be included in a plan are budgets, implementation timetables, required marketing research efforts, or elements of advanced strategic planning. An example of a thumbnail marketing plan sketch is contained in Exhibit 2.2. 

Writing the Marketing Plan

The creation and implementation of a complete marketing plan will allow the organization to achieve marketing objectives and succeed. However, the marketing plan is only as good as the information it contains and the effort, creativity, and thought that went into its creation. The importance of having a good marketing information system and a wealth of competitive intelligence (covered in Chapter 8) is critical to a thorough and accurate situation analysis. The role of managerial intuition is also important in the creation and selection of marketing strategies. Managers must weigh any information against its accuracy and their own judgment when making a marketing decision.

Note that the overall structure of the marketing plan (Exhibit 2.1) should not be viewed as a series of sequential planning steps. Many of the marketing plan elements are decided on simultaneously and in conjunction with one another. Similarly, the summary sample marketing plan (Exhibit 2.2) does not begin to cover the intricacies and detail of a full marketing plan. Further, the content of every marketing plan is different, depending on the organization, its mission, objectives, targets, and marketing mix components. Visualize how the marketing plan in Exhibit 2.2 would differ if only wireless communications connectivity services (not the physical products) were being offered. How would the plan differ if the target market consisted of Fortune 500 firms with large sales forces instead of executives?

The marketing plan outline in Exhibit 2.8 (below) is an expanded set of questions that can guide the formulation of a marketing plan. However, this outline should not be regarded as the only correct format for a marketing plan. Many organizations have their own distinctive format or terminology used for creating a marketing plan. Every marketing plan should be unique to the firm for which it was created. Remember that although the format and order of presentation should be flexible, the same types of questions and topic areas should be covered in any marketing plan.

Exhibit 2.8: Marketing Plan Outline

As you can see by the extent of the marketing plan outline in Exhibit 2.8, above, creating a complete marketing plan is not a simple or a quick effort. However, it can be instructive to create summary marketing plans such as the sample summary plan shown in Exhibit 2.2 to get a quick idea of what a firm’s marketing strategy is all about.

Defining the Business Mission

The foundation of any marketing plan is first answering the question, “What business are we in and where are we going?”

Mission Statement

The answer is the firm’s mission statement. Business mission definition profoundly affects long-run resource allocation, profitability, and survival. The mission statement is based on a careful analysis of benefits sought by present and potential customers and analysis of existing and anticipated environmental conditions. The firm’s long-term vision, embodied in the mission statement, establishes boundaries for all subsequent decisions, objectives, and strategies. The American Marketing Association’s mission statement is shown in Exhibit 2.3.

Exhibit 2.3

A mission statement should focus on the market or markets the organization is attempting to serve rather than on the good or service offered. Otherwise, a new technology may quickly make the good or service obsolete and the mission statement irrelevant to company functions.

Marketing Myopia

Business mission statements that are started too narrowly suffer from marketing myopia—defining a business in terms of goods and services rather than in terms of the benefits that customers seek. In this context, myopia means narrow, short-term thinking. For example, Frito-Lay defines its mission as being in the snack food business rather than in the corn chip business. The mission of sports teams is not just to play games but to serve the interests of the fans. AT&T does not sell telephones or long-distance services; it markets communications technology.

Alternatively, business missions may be stated broadly. “To provide products of superior quality and value that improve the lives of the world’s consumers” is probably too broad a mission statement for any firm except Proctor and Gamble. Care must be taken when stating what business the firm is in. The mission of Saturn Corporation, a subsidiary of General Motors, is “to design, manufacture, and market vehicles to compete on a global scale, as well as reestablish American technology as the standard for automotive quality.” By correctly stating the business mission in terms of the benefits that customers seek, the foundation for the marketing plan is set. Many companies are focusing on designing more appropriate mission statements because these statements are frequently displayed on the World Wide Web.

Strategic Business Unit (SBU)

The organization may need to define a mission statement and objectives for a strategic business unit (SBU), which is a subgroup of a single business or collection of related businesses within the larger corporation. A properly defined SBU should have a distinct mission and specific target market, control over its resources, its own competitors, and plans independent of the other SBUs in the organization. [Either modify this concept, or structure the main organization accordingly. Would it be problematic to share the same mission statement, or a part of it, within all 3 SBUs? Do they even have to be called SBUs? I called PrepTech a profit center….] Thus, a large firm such as Kraft General Foods may have marketing plans for each of their SBUs, which would include breakfast foods, desserts, pet foods, and beverages.

Setting Marketing Plan Objectives

Before the details of a marketing plan can be developed, goals and objectives for the plan must be stated. Without objectives, there is no basis for measuring the success of the marketing plan activities. For example, Exxon’s return to shareholders over the last five years has been 135 percent. Sounds great, doesn’t it? However, without previously stated objectives, there is no way to know. Actually, Exxon had a goal to be on par with British Petroleum, which returned over 330 percent to shareholders in the same period, so objectives were not met.

Marketing Objective

A marketing objective is a statement of what is to be accomplished through marketing activities. To be useful, stated objectives should meet several criteria. First, objectives should be realistic, measurable, and time specific. It is tempting to state that the objective is “to be the best marketer of ferret food.” However, what is “best” for one firm might be sales of one million pounds of ferret food per year, and to another firm, “best” might mean dominant market share. It may also be unrealistic for a startup firms or new products to command dominant market share. [I’m not so sure that I want to position myself in the marketplace as a main player. I would just to meet the forecasts from year to year (recall, “slow and steady growth”). I don’t even want to think of any sizable market share until the growth phase. ] Finally, by what time should the goal be met? A more realistic objective would be “To achieve 10 percent dollar market share in the specialty pet food market within twelve months of product introduction.

Second, objectives must also be consistent and indicate the priorities of the organization. Specifically, objectives flow from the business mission statement to the rest of the marketing plan. Exhibit 2.4 shows some well-stated and poorly stated objectives. Notice how well they do or do not meet the above criteria.

Exhibit 2.4: Examples of Marketing Objectives

Carefully specified objectives serve several functions. First, they communicate marketing management philosophies and provide direction for lower-level marketing managers so that marketing efforts are integrated and pointed in a consistent direction. Objectives also serve as motivators by creating something for employees to strive for. When objectives are attainable and challenging, they motivate those charged with achieving the objectives. Additionally, the process of writing specific objectives forces executives forces executives to clarify their thinking. Finally, objectives form a basis for control; the effectiveness of a plan can be gauged in light of stated goals.

Conducting a Situation Analysis

Before specific marketing activities can be defined, marketers must understand the current and potential environment that the product or service will be marketed in.

Situation Analysis or SWOT Analysis

A situation analysis is sometimes referred to as a SWOT analysis; that is, the firm should identify its internal strengths (S) and weaknesses (W) and also examine external opportunities (O) and threats (T).

When examining internal strengths and weaknesses, the marketing manager should focus on organizational resources such as production costs, marketing skills, financial resources, company or brand image, employee capabilities, and available technology. For example, a potential weakness for Air Trans Airlines (formerly Valujet) is the age of its airplane fleet, which could indicate an image of danger or low quality. Other weaknesses include high labor turnover rates and limited flights. A potential strength is the low operating costs of the airline, which translate into lower prices for consumers. Another issue to consider in this section of the marketing plan is the historical background of the firm—its sales and profit history.

When examining external opportunities and threats, marketing managers must analyze aspects of the marketing environment.

Environmental Scanning

This process is called environmental scanning—the collection and interpretation of information about forces, events, and relationships in the external environment that may affect the future of the organization or the implementation of the marketing plan. Environmental scanning helps identify market opportunities and threats and provides guidelines for the design of marketing strategy. The six most often studied macroenvironmental forces are social, demographic, economic, technological, political and legal, and competitive. The forces are outlined in detail in Chapter 3. For example, H&R Block, a tax preparation service, benefits from complex changes in tax codes that motivate citizens to have taxes prepared by a professional. Alternatively, tax-simplification or flat-tax plans would allow people to easily prepare their own returns.

Competitive Advantage

Competitive Advantage

Performing a SWOT analysis allows firms to identify their competitive advantage. A competitive advantage is a set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. There are three types of competitive advantages: cost, product/service differentiation, and niche strategies.

Cost Competitive Advantage

Cost leadership can result from obtaining inexpensive raw materials, creating an efficient scale of plant operations, designing products for ease of manufacture, controlling overhead costs, and avoiding marginal customers.

[By definition, life is a terminal disease. If it weren’t for “a reason to live,” we would become chronic, and rational suicides. I can’t believe that we continue our lives for the sake of “stuff.” There’s got to be a better reason; there has got to be an innate formula, spark, gene, that keeps them going. We have this desire to live. Seldom do we hear of the desire to die. We desire to endure the trauma of life and not to simply perish.]

Dupont, for example, has an exception cost completive advantage in the reproduction of titanium dioxide. Technicians created a production process using low-cost feedstock, giving DuPont a 20 percent cost advantage over its competitors. The cheaper feedstock technology is complex and can only be accomplished by investing about $100 million and several years of testing time.

Cost Competitive Advantage

Having a cost competitive advantage means being the low-cost competitor in an industry while maintaining satisfactory profit margins. A cost competitive advantage enables a firm to deliver superior customer value. Chaparral Steel, for example, is the leading low-cost U.S. steel producer because it uses only scrap iron and steel and a very efficient continuous-casting process to make new steel. In fact, Chaparral is so efficient that it is the only U.S. steel producer that ships to Japan.

Sources of Cost Competitive Advantages

Costs can be reduced in a variety of ways.

          Experience Curves

          - Experience curves: Experience curves tell us that costs decline at a

predictable rate as experience with a product increases. The experience curve effect encompasses a broad range of manufacturing, marketing, and administrative costs. Experience curves reflect learning by doing, technological advances, and economies of scale. Firms like Boeing and Texas Instruments use historical experience curves as a basis for predicting and setting prices based on anticipated costs as opposed to current costs.

          - Efficient labor: Labor costs can be an important component of total

costs in low-skill, labor-intensive industries such as product assembly and apparel manufacturing. Many U.S. manufacturers such as Nike, Levi Straus, and Liz Claiborne have gone offshore to achieve cheaper manufacturing costs. Many American companies are also outsourcing activities such as data entry and other labor intensive jobs.

          - No-frills goods and services: Marketers can lower costs by

removing frills and options from a product or service. Southwest Airlines, for example, offers low fares but no seat assignments or meals. Low prices give Southwest a higher load factor and greater economies of scale, which, in turn, means even lower prices such as Southwest’s “Friends Fly Free” promotions.

          - Government subsidies: Governments may provide assistance to

target industries with grants and interest-free loans. Government assistance enabled Japanese semiconductor manufacturers to become global leaders.

          - Product design: Cutting-edge design technology can help offset

labor costs. BMW is the world leader in designing cars for ease of manufacture and assembly. Reverse engineering—the process of disassembling a product piece by piece to learn its components and clues as to the manufacturing process—can also save research and design costs. Japanese engineers have reversed many products such as computer chips, coming out of Silicon Valley.

          - Reengineering: Reengineering to make firms more efficient often

leads to downsizing or layoffs of employees. Reengineering can also mean pruning product lines, closing obsolete factories, and renegotiating contracts with suppliers. General Motors, for example, demanded a 15 percent average price reduction from suppliers during its reengineering.

          - Production innovations: Production innovations such as new

technology and simplified production techniques help lower the average cost of production. Technologies such as computer-aided design and computer-aided manufacturing (CAD/CAM) and increasingly sophisticated robots help companies like Boeing, Ford, and General Electric reduce their manufacturing costs.

          - New methods of service delivery: Medical expenses have been

substantially lowered by the use of outpatient surgery and walk-in clinics. Airlines, such as American, are lowering reservation and ticketing costs by encouraging passengers to use the Internet to book flights and by promoting “ticketless travel.”

Differentiation Competitive Advantages

Because cost competitive advantages are subject to continual erosion, differential competitive advantages tend to be longer lasting than cost competitive advantages. The durability of a differential competitive advantage tends to make this strategy more attractive to many top managers.

Differential Competitive Advantage

A product/service differential competitive advantage exists when a firm provides something unique that is valuable to buyers beyond simply offering a lower price. Common differential advantages are brand names (Lexus), a strong dealer network (Caterpillar Tractor for construction work), product reliability (Maytag appliances), Neiman Marcus in retailing), or service (FedEx).

Differential competitive advantage can come from two sources.

          Value Impressions

          Value impressions: A differential advantage can also be created

through value impressions. These are features of a product or service that signal value to the customer. A foil package, for example, is often a cue that connotes luxury. The shape of the Joy perfume bottles says “quality” and “exclusivity.” Dom Perignon champagne comes in its own special box. Even Wal-Mart’s slogan “Everyday Low Prices” leaves an impression of value. [I wonder if the value impression can be furthered to include a “feel good” impression or a feeling of social responsibility?]

          Augmented Products

          Augmented products: An augmented product represents another tool

for differentiation. When a company adds features to a good or service not expected by the customer, that good or service is referred to as an augmented product. When Oscar Mayer took the commodity items of lunch meat, cheese, and crackers and packaged them as “Lunchables,” they created an augmented product. Sony’s efforts to make minicams smaller and more portable result in augmented products. Also, products that offer “less of something” such as calories, fat, sugar, or alcohol content can be augmented products.

Niche Competitive Advantage

A niche competitive advantage seeks to target and effectively serve a single segment of the market (see Chapter 7). For small companies with limited resources who potentially face giant competitors, niching may be the only viable option. A market segment that has good growth potential but is not crucial to the success of major competitors is a good candidate for delivering a niche strategy.

Many companies using a niche strategy serve only a limited geographic market. Buddy Freddy’s is a very successful restaurant chain but is found only in Florida. Migros is the dominant grocery chain in Switzerland. It has no stores outside that small country.

Block Drug Company uses niching by focusing its product line to tooth products. It markets Polident to clean false teeth, Poligrip to hold false teeth, and Sensodyne toothpaste for persons with sensitive teeth. The Orvis Company manufactures and sells everything that a fly fisherman might ever need. Orvis is a very successful nicher.

Building Tomorrow’s Competitive Advantage

Sustainable Competitive Advantage

The key to having a differential advantage is the ability to sustain that advantage. A sustainable competitive advantage is one that cannot be copied by the competition. Top-Flite recently introduced the Strata golf ball. At $3 each, these balls cost three times as much as regular golf balls, but they are flying off the shelf. The strata has a patented, three-layer construction that improves handling and increases distance. The patent offers a sustainable competitive advantage over Titleist, the number one competitor. Datril was introduced into the pain-reliever market and was touted as being exactly like Tylenol, only cheaper. Tylenol responded by lowering their price, thus destroying Datril’s differential advantage and ability to remain on the market. In this case, low price was not a sustainable competitive advantage. [Where a sustainable competitive advantage is concerned, one could be vulnerable to the competition lowering their prices, becoming a nonprofit organization, or even touting themselves as philanthropic. Or, they may attack by using some fundamental ideology that goes against you.]

Without a differential advantage, target customers don’t perceive any reason to patronize an organization instead of its competitors.

The notion of competitive advantage means that a successful firm will stake out a position unique in some manner from its rivals. [Cheaper, seasoned professional instructors, tax deductible.] Imitation of competitors indicates a lack of competitive advantage and almost insures mediocre performance. Moreover, competitors rarely stand still, so it is not surprising that imitation causes managers to trapped in a seemingly endless game of catch-up. They are regularly surprised by the new accomplishments of their rivals.

Companies need to build their own competitive advantages rather than copy a competitor. The source of tomorrow’s competitive advantages are the skills and assets of the organization. Assets include patents, copyrights, locations, and equipment and technology that are superior to those of the competition. Skills are functions such as customer service and promotion that the firm performs better than its competitors. Travelocity, for example, is known for its ease of online travel reservations. Marketing managers should continually focus the firm’s skills and assets on sustaining and creating competitive advantages.

Remember, a sustainable competitive advantage is a function of the speed with which competitors can imitate a leading company’s strategy and plans. Imitation requires a competitor to identify the leader’s competitive advantage, determine how it is achieved, and then learn how to duplicate it.

Strategic Directions

The end result of SWOT analysis and identification of a competitive advantage is to evaluate the strategic direction of the firm. Seeking a strategic window and selecting a strategic alternative are the next steps in marketing planning.

Strategic Windows

One technique for identifying opportunities is to seek a strategic window—the limited period during which the fit between the key requirements of a market and the particular competencies of a firm are at an optimum. For example, when Celera Genomics Group announced that it had finished sequencing the complete human DNA (over 60,000 genes), biotechnology and drug companies around the world began the race to be the first to find and patent the key disease-related genes. Turning the raw genetic information into practical knowledge for drug discovery and development is challenging, but Exelixis, Inc., and Pharmacia Corporation expect to find genes useful for treating diabetes, Alzheimer’s, and cancer within a few years. In France, researchers have developed innovative textiles that allow companies to seize the opportunity to offer specialty clothing. This global strategic window is discussed further in the accompanying Global Perspectives box, page 40.

Strategic Alternatives

To discover a marketing opportunity or strategic window, management must know how to identify the alternatives. One method for developing alternatives is the strategic opportunity matrix, Exhibit 2.5, which matches products with markets. Firms can explore these four options.

Exhibit 2.5: Strategic Opportunity Matrix

          - Market penetration: A firm using the market penetration alternative

would try to increase market share among existing customers. If Kraft General Foods started a major campaign for Maxwell House coffee, with aggressive advertising and cents-off coupons to existing customers, it would be following a penetration strategy. McDonald’s sold the most Happy Meals in history with a promotion that included Ty’s Teeny Beanie Babies. Customer databases, discussed in Chapter 8, help managers implement this strategy.

          - Market development: Market development means attracting new

customers to existing products. Ideally, new uses for old products stimulate additional sales among existing customers while also bringing new buyers. McDonald’s, for example, has opened restaurants in Russia, China, and Italy and is eagerly expanding into Eastern European countries. Coca-Cola and Pepsi have faster growth in their new foreign markets than at home. In the nonprofit area, the growing emphasis on continuing education and executive development by colleges and universities is a market development strategy.

          - Product development: A Product development strategy entails the

creation of new products for present markets. The beer industry, for example, is creating “craft brews,” which seem like specialty beers brewed in microbreweries. Often, however, such is not the case. Maui Beer Company’s Aloha Lager sells its Hawaiian image with a picture of a hula dancer on the label. It is, however, brewed in Portland, Oregon, by giant G. Heileman Brewing Company. Faux-antique labels of Pete’s Wicked Ale, one of the nation’s hottest craft beers, brag the beer is brewed “one batch at a time. Carefully.” That may be, but the batches are four hundred barrels each, and the brewing is done by giant Stroh Brewery Company, maker of Old Milwaukee beer. Icehouse and Red Dog labels identify the maker as Plank Road Brewery. The real brewer: No. 2 beer heavyweight Miller, a unit of Philip Morris Companies, which is using the Plank Road name to get a piece of the craft-brew market.

Managers following this strategy can rely on their extensive knowledge of the target audience. They usually have a good feel for what customers like and dislike about current products and what existing needs are not being met. In addition, managers can rely on established distribution channels.

          - Diversification: Diversification is a strategy of increasing sales by

introducing new products into new markets. For example, LTV Corporation, a steel producer, diversified into the monorail business. Sony practiced a diversification strategy when it acquired Columbia Pictures; although motion pictures are not a new product in the marketplace, it was a new product for Sony. Coca-Cola manufactures and markets water-treatment and water conditioning equipment, which has been a very challenging task for the traditional soft-drink company. A diversification strategy can be risky when a firm is entering unfamiliar markets. On the other hand, it can be very profitable when a firm is entering markets with little or no competition.

Selecting a Strategic Alternative

Selecting which alternative to pursue depends on the overall company philosophy and culture. The choice also depends on the tool used to make the decision. Companies generally have one of two philosophies about when they expect profits. They either pursue profits right away or first seek to increase market share and then pursue profits. In the long-run, market share and profitability are compatible goals. Many companies have long followed this credo: Build market share, and profits will surely follow. Michelin, the tire producer, consistently sacrifices short-term profits to achieve market share. But attitudes may be changing. Lou Gerstner, CEO of IBM, has stressed profitability and stock valuation over market share, quality, and customer service since taking over the company. As you can see, the same strategic alternative may be viewed entirely differently by different firms.

A number of tools exist to help managers select a strategic alternative. The most common of these tools are in matrix form. Two of these matrices—portfolio and market attractiveness/company strength—are described in more detail.

Portfolio Matrix

Recall that large organizations engaged in strategic planning may create strategic business units. Each SBU has its own rate of return on investment, growth potential, and associated risk. Management must find a balance among the SBUs that yields the overall organization’s desired growth and profits with an acceptable level of risk. Some SBUs generate large amounts of cash, and others need cash to foster growth. The challenge is to balance the organization’s “portfolio” of SBUs for the best long-term performance.

To determine the future cash contributions and cash requirements expected for each SBU. Managers can use the Boston Consulting Group’s portfolio matrix.

Portfolio Matrix

The portfolio matrix classifies each SBU by its present or forecasted growth and market share. The underlying assumption is that market share and profitability are strongly linked. The measure of market share used in the portfolio approach is relative market share, the ratio between the company’s share and the share of the largest competitor. For example, if firm A has a 50 percent share and the competitor has 5 percent, the ratio is 10 to 1. If firm A has a 10 percent market share and the largest competitor has 20 percent, the ratio is 0.5 to 1.

Exhibit 2.6, page 43, is a hypothetical portfolio matrix for a large computer manufacturer. The size of the circle in each cell of the matrix represents dollar sales of the SBU relative to dollar sales of the company’s other SBUs. The following categories are used in the matrix:

          - Stars: A star is a market leader and growing fast. For example,

computer manufacturers have identified the notebook model as a star. Star SBUs usually have large profits but need a lot of cash to finance growth. The best marketing tactic is to protect existing market share by reinvesting earnings in product improvement, better distribution, more promotion, and production efficiency. Management must strive to capture most of the new users as they enter the market.

          - Cash cows: A cash cow is an SBU that usually generates more cash

than it needs to maintain its market share. It is in a low-growth market, but the product has a dominant market share. Personal computers are categorized as cash cows in Exhibit 2.6, page 43. The basic strategy for a cash cow is to maintain market dominance by being the price leader and making technological improvements in the product. Managers should resist pressure to extend the basic line unless they can dramatically increase demand. Instead, they should allocate excess cash to the product categories where growth prospects are greatest. For instance, Clorox Corporation owns Kingsford Charcoal, Match Charcoal Lighter, and Prime Choice steak sauce. Its cash cow is Clorox bleach, with a 60 percent market share in a low-growth market. Clorox Corporation was highly successful in stretching the Clorox line to include a liquid formula in addition to the original dry bleech. Another example is Heinz, which has two cash cows: ketchup and Weight Watchers frozen dinners.

          - Problem children: A problem child, also called a question mark,

shows rapid growth but poor profit margins. It has a low market share in a high-growth industry. Problem children need a great deal of cash. Without cash support, they eventually becomes dogs. The strategy options are to invest heavily to gain better market share, acquire competitors to get the necessary market share, or drop the SBU. Sometimes a firm can reposition the products of the SBU to move them into the star category.

          - Dogs: A dog has low growth potential and a small market share.

Most dogs eventually leave the marketplace. In the computer manufacturer example, the mainframe computer has become a dog. Other examples include Jack-in-the-Box shrimp dinners, Warner-Lambert’s Reef mouthwash, and Campbell’s Red Kettle Soups. Frito Lay has produced several dogs, including Stuffers cheese-filled snacks, Rumbles granola nuggets, and Toppels cheese-topped crackers—a trio irreverently known as Stumbles, Tumbles, and Twofers. The strategy options for dogs are to harvest or divest.

After classifying the company’s SBUs in the matrix, the next step is to allocate future resources for each. The four basic strategies are to

          - Build: If an organization has an SBU that it believes has the

potential to be a star (probably a problem child at present), building would be an appropriate goal. The organization may decide to give up short-term profits and use its financial resources to achieve this goal. Proctor & Gamble built Pringles from a money loser to a record profit maker in the 1990s.

          - Hold: If an SBU is a very successful cash cow, a key goal would

surely be to hold or preserve market share so the organization can take advantage of the very positive cash flow. Bisquick has been a prosperous cash cow for General Mills for over two decades.

          - Harvest: This strategy is appropriate for all SBUs except those

classified as stars. The basic goal is to increase the short-term cash return without too much concern for the long-run impact. It is especially worthwhile when more cash is needed from a cash cow with long-run prospects that are unfavorable because of a low market growth rate. For instance, Lever Brothers has been harvesting Lifebuoy soap for a number of years with little promotional backing.

          - Divest: Getting rid of SBUs with low shares of low-growth markets

is often appropriate. Problem children and dogs are most suitable for this strategy. Proctor & Gamble dropped Cincaprin, a coated aspirin, because of its low growth potential.

Market Attractiveness/Company Strength Matrix

A second model for selecting strategic alternatives, originally developed by General Electric, is known as the market attractiveness/company strength matrix. The dimensions used in this matrix—market attractiveness and company strength—are richer and more complete than those used in the portfolio matrix but are much harder to quantify.

Exhibit 2.7, page 45, presents a market attractiveness/company strength matrix. The horizontal axis, business position, refers to how well positioned the organization is to take advantage of marketing opportunities. Does the firm have the technology it needs to effectively penetrate the market? Are its financial resources adequate? Can manufacturing costs be held below those of the competition? Will the firm have bargaining power over suppliers? Can the firm cope with change? The vertical axis measures the attractiveness of the market, which is expressed both quantitatively and qualitatively. Some attributes of an attractive market are high profitability, rapid growth, a lack of government regulation, consumer insensitivity to a price increase, a lack of competition, and availability of technology. The grid is divided into three overall attractiveness zones for each dimension: high, medium, and low.

Those SBUs (or markets) that have a low overall attractiveness should be avoided if the organization is not already serving them. If the firm is in these markets, it should either harvest or divest the SBUs. The organization should selectively maintain markets with medium attractiveness. If attractiveness begins to slip, then the organization should withdraw from the market.

Conditions that are highly attractive—an attractive market plus a strong business position—are the best candidates for investment. For instance, Black & Decker used marketing research to uncover a market for the serious do-it-yourselfer. These people were willing to pay a premium price for quality home tools. For example, research found that this group of consumers wanted a cordless drill that didn’t run out of power before the job was complete. Black & Decker responded with a new line called Quantum.

Describing the Marketing Strategy

Marketing Strategy

A market segment is a group of individuals or organizations that share one or more characteristics. They therefore may have relatively similar product needs. For example, parents of newborn babies need products such as formula, diapers, and special foods. The target market strategy identifies the market segment or segments on which to focus.

Market Opportunity Analysis (MOA)

This process begins with a marketing opportunity analysis (MOA)—the description and estimation of the size and sales potential of market segments that are of interest to the firm and the assessment of key competitors in these market segments. After the firm describes the market segments, it may target one or more of them. There are three general strategies for selecting target markets. Target market(s) can be selected by appealing to the entire market with one marketing mix, concentrating on one segment, or appealing to multiple market segments using multiple marketing mixes. The characteristics, advantages, and disadvantages of each strategic option are examined in Chapter 7. [High school students and/or parents with high school students.] Target markets could be smokers who are concerned about white teeth (the target market of Topol toothpaste), people concerned about sugar and calories in their soft drinks (Diet Pepsi), or college students needing inexpensive about town transportation (Yamaha Razz scooter).

Any market segment that is targeted must be fully described. Demographics, psychographics, and buyer behavior should be assessed. Buyer behavior is covered in Chapter 5 and 6. If segments are differentiated by ethnicity, multicultural aspects of the marketing mix should be examined. If the target market is international, it is especially important to describe the differences in culture, economic and technological development, and political structure that may impact the marketing plan. Global marketing is covered in more detail in Chapter 4.

[Maybe I should take this approach anyway. It seems there are a lot of bureaucracies out there and they all have their own cultures.]

The Marketing Mix

The term marketing mix refers to a unique blend of product, distribution, promotion, and pricing strategies designed to produce mutually satisfying exchanges with a target market. Distribution is sometimes referred to as place, thus giving us the four Ps of the marketing mix: product, place, promotion, and price. The marketing manager can control each component of the marketing mix, but the strategies for all four components must be blended to achieve optimal results. Any marketing mix is only as good as its as its weakest component. For example, the first pump toothpastes were distributed over cosmetics counters and failed. Not until pump toothpastes were distributed the same way as tube toothpastes did the products succeed. The best promotion and the lowest price cannot save a poor product. Similarly, excellent products with poor distribution, pricing, or promotion will likely fail.

Successful marketing mixes have been carefully designed to satisfy target markets. At first glance, McDonald’s and Wendy’s may appear to have roughly identical marketing mixes because they are both in the fast-food business. However, McDonald’s has been most successful with targeting parents with young children [This marketing mix has something in common with my own. I should investigate this further.] for lunchtime meals, whereas Wendy’s targets the adult crowd for lunches and dinner. McDonald’s has playgrounds, Ronald McDonald the clown, and children’s Happy Meals. Wendy’s has salad bars, carpeted restaurants, and not playgrounds. [These two places might be good places to do poll research.]

Variations in marketing strategy do not happen by chance. Astute marketing managers devise marketing strategies to gain advantages over competitors and best serve the needs and wants of a particular target market segment. By manipulating elements of the marketing mix, marketing managers can fine-tune the customer offering and achieve competitive success. [Your target market, to begin with, may very well be the Inver Hills Community College. They might not buy into all of this. You had said earlier, “each phase hinges upon the success of the other,” after all. ]

Product Strategies

Typically, the marketing mix starts with the product “P.” The heart of the marketing mix, the starting point, is the product offering and product strategy. It is hard to design a distribution strategy, decide a promotion campaign, or set a price without knowing the product to be marketed.

The product includes not only the physical unit but also its package, warranty, after-sale service, brand name, company image, value, and many other factors. A Godiva chocolate has many product elements: the chocolate itself, a fancy gold wrapper, a customer satisfaction guarantee, and the prestige of the Godiva brand name. We buy things not only for what they do (benefits) but also for what they mean to us (status, quality, or reputation).

Products can be tangible goods such as computers, ideas like those offered by a consultant, or services such as medical care. Products should also offer customer value. Product decisions are covered in Chapters 9 and 10, and services marketing is detailed in Chapter 11.

Distribution (Place) Strategies

Distribution strategies are concerned with making products available when and where customers want them. Would you rather buy a kiwi fruit at the 24 hour grocery store within walking distance or fly to Australia to pick your own? A part of this place “P” is physical distribution, which involves all the business activities concerned with storing and transporting raw materials or finished products. The goal of distribution is to make sure the products arrive in usable condition at designated places when needed. Distribution strategies are covered in Chapters 12 and 13.

Promotion Strategies

Promotion includes personal selling, advertising, sales promotion, and public relations. Promotion’s role in the marketing mix is to bring about mutually satisfying exchanges with target markets by informing, educating, persuading, and reminding them of the benefits of an organization or a product. A good promotion strategy, like using the Dilbert character in a national promotion strategy for Office Depot, can dramatically increase sales. However, good promotion strategies do not guarantee success. Despite a massive promotional campaign, the movie Godzilla had disappointing box-office returns. Each element of the promotion “P” is coordinated and managed with the others to create a promotional blend or mix. These integrated marketing communications activities are described in Chapters 14, 15, and 16. Technology-driven aspects of promotional marketing are covered in Chapters 19 and 20.

Pricing Strategies

Price is what a buyer must give up to obtain a product. It is often the most flexible of the four marketing mix elements—the quickest element to change. Marketers can raise or lower prices more frequently and easily than they can change other marketing mix variables. Price is an important competitive weapon and very important to the organization because price multiplied by the number of units sold equals the total revenue for the firm. Pricing decisions are covered in Chapters 17 and 18.

Following Up The Marketing Plan

Implementation

Implementation is the process that turns marketing plans into action assignments and ensures that these assignments are executed in a way that accomplishes the plans’ objectives. Implementation activities may involve detailed job assignments, activity descriptions, timelines, budgets, and lots of communication. Although implementation is essentially “doing what you said you were going to do,” many organizations repeatedly experience failures in strategy implementation. Brilliant marketing plans are doomed to fail if they are not properly implemented. These detailed communications may or may not be part of the written marketing plan. If they are not part of the plan, they should be specified elsewhere as soon as the plan has been communicated.

Evaluation and Control

Evaluation

After a marketing plan is implemented, it should be evaluated. Evaluation entails gauging the extent to which marketing objectives have been achieved during the specified time period. Four common reasons for failing to achieve a marketing objective are unrealistic marketing objectives, inappropriate marketing strategies in the plan, poor implementation, and changes in the environment after the objective was specified and the strategy was implemented.

Control

Once a plan is chosen and implemented, its effectiveness must monitored. Control provides the mechanisms for evaluating marketing results in light of the plan’s goals and for correcting actions that do not help the organization reach those goals within budget guidelines. Firms need to establish formal and informal control programs to make the entire operation more efficient.

Marketing Audit

Perhaps the broadest control device available to marketing managers is the marketing audit—a thorough, systematic, periodic evaluation of the goals, strategies, structure, and performance of the marketing organization. A marketing audit helps management allocate marketing resources efficiently. It has four characteristics:

          - Comprehensive: The marketing audit covers all the major marketing

issues facing an organization and not just trouble spots.

          - Systematic: The marketing audit takes place in an orderly sequence

and covers the organization’s marketing environment, internal marketing system, and specific marketing activities. The diagnosis is followed by an action plan with both short-run and long-run proposals for improving overall marketing objectives.

          - Independent: The marketing audit is normally conducted by an

inside or outside party that is independent enough to have top management’s confidence and to be objective.

          - Periodic: The marketing audit should be carried out on a regular

schedule instead of only in a crisis. Whether it seems successful or is in deep trouble, any organization can benefit greatly from such an audit.

Although the main purpose of the marketing audit is to develop a full profile of the organization’s marketing effort and to provide a basis for developing and revising the marketing plan, it is also an excellent way to improve communication and raise the level of marketing consciousness within the organization. It is a useful vehicle for selling the philosophy and techniques of strategic marketing to other members of the organization.

Effective Strategic Planning

Effective strategic planning requires continual attention, creativity, and management commitment:

          - Strategic planning is not an annual exercise, in which managers go

through the motions and forget about strategic planning until the next year. It should be an ongoing process because the environment is continually evolving.

          - Sound strategic planning is based on creativity. Managers should

challenge assumptions about the firm and the environment and establish new strategies. For example, major oil companies developed the concept of the gasoline service station in an age when cars needed frequent and rather elaborate servicing. They held on to the full-service approach, but independents were quick to respond to new realities and moved to lower-cost self-service and convenience-store operations. The majors took several decades to catch up.

          - Perhaps the most critical element in successful strategic planning is

top management’s support and participation. For example, Michael Anthony, CEO of Brookstone, Inc., racks up hundreds of thousands of frequent flier miles searching the world for manufacturers and inventors of unique products that can be carried by Brookstone in both retail outlets and catalogs. Anthony has codeveloped some of these products and has also been active in the remodeling efforts of Brookstone’s two hundred permanent and seasonal stores. Anthony’s participation is paying off with higher revenues and earnings per share.

Summary

1.       Understand the importance of strategic marketing and know the

basic outline for a marketing plan.

Strategic marketing is the basis for all marketing strategies and decisions. The marketing plan is a written document that acts as a guidebook of marketing activities for the marketing manager. By specifying objectives and defining the actions required to attain them, a marketing plan provides the basis on which actual and expected performance can be compared.

Although there is no set formula for a marketing plan or a single correct outline, basic factors that should be covered include stating the business mission, setting objectives, performing a situation analysis of internal and external environmental forces, selecting target market(s), delineating a market mix (product, place, promotion, and price), and establishing ways to implement, evaluate, and control the plan.

2.       Develop an appropriate business mission statement.

The mission statement is based on a careful analysis of benefits sought by present and potential customers and analysis of existing and anticipated environmental conditions. The firm’s long-term vision, embodied in the mission statement, establishes boundaries for all subsequent decisions, objectives, and strategies. A mission statement should focus on the market or markets the organization is attempting to serve rather than on the good or service offered.

3.       Describe the criteria for stating good marketing objectives.

Objectives should be realistic, measurable, and time specific. Objectives must also be consistent and indicate the priorities of the organization.

4.       Explain the components of a situation analysis.

In the situation (or SWOT) analysis, the firm should identify its internal strengths (S) and weaknesses (W) and also examine external opportunities (O) and threats (T). When examining external opportunities and threats, marketing managers must analyze aspects of the marketing environment in a process called environmental scanning. The six most often studied macroenvironmental forces are social, demographic, economic, technological, political and legal, and competitive. During the situation analysis, the marketer should try to identify a differential advantage and establish that it is a sustainable competitive advantage.

5.       Identify sources of competitive advantage.

A competitive advantage is a set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. There are three types of competitive advantages: cost, product/service differentiation, and niche strategies. Sources of cost differential advantages include experience curves, efficient labor, no-frills goods and services, government subsidies, product design, reengineering, product innovations, and new methods of service delivery. Differentiation competitive advantages can come from value impressions and augmented products. Niche competitive advantages come from targeting unique segments with specific needs and wants. The goal of all these sources of competitive advantage is to be sustainable.

6.       Identify strategic alternatives and describe tools used to help

select alternatives.

The strategic opportunity matrix can be used to help management develop strategic alternatives. The four options are market penetration, product development, market development, and diversification. The portfolio matrix is a firm’s SBUs by classifying them as stars, cash cows, problem children, or dogs and then determining appropriate resource allocations for each. A more detailed alternative to the portfolio matrix is the market attractiveness/company strength matrix, which measures company and market viability.

7.       Discuss target market strategies.

The target market strategy identifies which market segment or segments to focus on. This process begins with a market opportunity analysis (MOA), which describes and estimates the size and sales potential of the market segments that are of interest to the firm. In addition, an assessment of key competitors in this market segment is performed. After the market strategies for selecting target markets are described, one or more may be targeted by the firm. The three strategies for selecting target markets are appealing to the entire market with one marketing mix, concentrating on one segment, or appealing to multiple market segments using multiple marketing mixes.

8.       Describe elements of the marketing mix.

The marketing mix (or four Ps) is a blend of product, distribution (place), promotion, and pricing strategies designed to produce mutually satisfying exchanges with a target market. The starting point of the marketing mix is the product offering. Products can be tangible goods, ideas, or services. Distribution strategies are concerned with making products available when and where the customers want them. Promotion includes personal selling, advertising, sales promotion, and public relations. Price is what a buyer must give up to obtain a product and is often the easiest to change of the four marketing mix elements.

9.       Explain why implementation, evaluation, and control of the

marketing plan are necessary.

Before a marketing plan can work, it must be implemented; that is, people must perform the actions of the plan. The plan should also be evaluated to see if it has achieved its objectives. Poor implementation can be a major factor in the plan’s failure. Control provides the mechanisms for evaluating marketing results in light of the plan’s goals and for correcting actions that do not help the organization reach those goals within the budget guidelines.

10.     Identify several techniques that help make strategic planning

effective.

First, management must realize that strategic planning is an ongoing process and not a once-a-year exercise. Second, good strategic planning involves a high level of creativity. The last requirement is top management’s support and cooperation.